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including his/ her work span, projected income and expenses, as well as needs for
savings and investment, health, retirement and insurance may also be enquiredabout.The Agents recommendations including the reasons for such recommendation may
also be part of the proposal form. In compliance to the IRDAI regulations mentioned
above, the Agent would make a declaration that the recommended policy’s details
have been fully explained to the proposer and the latter has acknowledged thesame.Proposal forms are printed by insurers usually with the insurance company’s name,
logo, address and the class/ type of insurance/ product that it is used for. It is
customary for insurance companies to add a printed note in the proposal form,
though there is no standard format or practice in this regard.**b)** **Declaration in the Proposal Form**Insurance companies usually add a declaration at the end of the proposal form to
be signed by the proposer. This ensures that the insured takes the pain to fill up the
form accurately and has understood the facts given therein, so that at the time of
a claim there is no scope for disagreements on account of misrepresentation of
facts. Such declaration converts the common law principle of utmost good faith to
a contractual duty of utmost good faith.**Example**Examples of such declarations are:‘I/ We hereby declare and warrant that the above statements are true and complete
in all respects and that there is no other information which is relevant to the
application for insurance that has not been disclosed to you.’‘I/ We agree that this proposal and the declarations shall be the basis of the contract
between me/ us and (insurer’s name).’67**Test Yourself 2**Which of the following is not relevant in respect of a Proposal form?I. Utmost Good-faith
II. Amount expected to be claimed
III. Duty to Disclose material facts
IV. Confidentiality of details given**Some examples of such notes are:**‘Non-disclosure of facts material to the assessment of the risk, providing misleading
information, fraud or non-co-operation by the insured will nullify the cover under
the policy issued’.‘The company will not be on risk until the proposal has been accepted by the
Company and full premium paid’.**C.** **Know Your Customer (KYC) Norms****Anti-Money Laundering and KYC Norms**Money Laundering is the process by which criminals transfer funds to conceal the
true origin and ownership of the proceeds of criminal activities. Money laundering
processes are used by criminals to make funds obtained through illegal activities
appear legal money. In the process, they try to cover up the criminal origin of the
money and make it appear valid.Criminals attempt to use financial services, including banks and insurance, to
launder their money. They make transactions using false identities, for example, by
purchasing some form of insurance and then managing to withdraw that money and
then disappearing once their purpose is served. Governments across the world,
including India constantly try to prevent such money laundering attempts.**Definition**Money laundering is the process of bringing illegal money into an economy by hiding
its illegal origin so that it appears to be legally acquired. The Government of India
launched the PMLA, 2002 to rein in money-laundering activities.The Prevention of Money Laundering Act (PMLA), 2002 came into effect from 2005
to control money laundering activities and to provide for confiscation of property
derived from money-laundering.The Anti-Money Laundering guidelines issued by IRDAI soon after have indicated
suitable measures to determine the true identity of customers requesting for
insurance services, reporting of suspicious transactions and proper record keeping
of cases involving or suspected of involving money laundering. It is necessary to be68vigilant and ensure, right at the beginning of the contract that it is not intended to
be a tool for money laundering of any sort.The Prevention of Money Laundering Act, 2002 (PMLA) was been brought into force
by the Government of India with effect from 1st July 2005. As per the Act, every
banking company, financial institution (which includes Insurance companies) and
intermediary shall have to maintain a record of all the transactions prescribed under
the PMLA. Accordingly, IRDAI issued the Guidelines on Anti-Money laundering/
Counter Financing of Terrorism (AML/ CFT) 31st March 2006.Know your customer is the process used by a business to verify the identity of their
clients. Banks and insurers are increasingly demanding their customers provide
detailed information to prevent identity theft, financial fraud and money
laundering. The objective of KYC guidelines is to prevent financial institutions from
being used by criminal elements for money laundering activities.Insurers, hence, need to determine the true identity of their customers. Agents | Final IC-38 - Corporate Agent _Common _ English.md | e68 | Declaration in the Proposal Form | Final IC-38 - Corporate Agent _Common _ English_035 | {
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of cases involving or suspected of involving money laundering. It is necessary to be68vigilant and ensure, right at the beginning of the contract that it is not intended to
be a tool for money laundering of any sort.The Prevention of Money Laundering Act, 2002 (PMLA) was been brought into force
by the Government of India with effect from 1st July 2005. As per the Act, every
banking company, financial institution (which includes Insurance companies) and
intermediary shall have to maintain a record of all the transactions prescribed under
the PMLA. Accordingly, IRDAI issued the Guidelines on Anti-Money laundering/
Counter Financing of Terrorism (AML/ CFT) 31st March 2006.Know your customer is the process used by a business to verify the identity of their
clients. Banks and insurers are increasingly demanding their customers provide
detailed information to prevent identity theft, financial fraud and money
laundering. The objective of KYC guidelines is to prevent financial institutions from
being used by criminal elements for money laundering activities.Insurers, hence, need to determine the true identity of their customers. Agents
should ensure that proposers submit the proposal form along with the following as
part of the KYC procedure:i. Proof of identity – driving license, passport, voter ID card, PAN card,Photographs etc.ii. Proof of address – driving license, passport, telephone bill, electricity bill,bank passbook etc. Different documentation are prescribed for individuals,
corporates, partnership firms, trusts and foundationsiii. Income proof documents and financial status, esp. in case of high-valuetransactionsiv. Purpose of insurance contract**a)** **Age Proof – for Personal Lines**While dealing with person related insurances like Life, Health, Personal Accident,
etc. Insurance companies use age as an important factor to determine the risk
profile of the insured. In life business, as age assumes great importance, life insurers
used to follow more detailed norms of age related documentation. [However, the
Government, the Reserve Bank of India and the IRDAI are becoming stricter on
following KYC norms.]An important part of the underwriting process is admission of
age, after verifying the proof of age.**i.** **Standard Age Proofs**There are two types of age proofs that insurers come across as evidence of
age. Valid age proofs may be standard or non-standard. Standard **age proofs** are normally issued by a public authority, like birthcertificate issued by a municipality or other government body, school
leaving certificate, passport etc.69 Non-standard, when a standard age proof is not available (not to beaccepted readily)Some documents considered as standard age proofs are:i. School or college certificateii. Birth certificate extracted from municipal recordsiii. Passportiv. PAN cardv. Service registervi. Identity card in case of defence personnelvii. Marriage certificate issued by appropriate authority**ii.** **Non-standard age proofs**When standard age proofs like the above are not available, the life insurer
may allow submission of a non-standard age proof. Some documents
considered as non-standard age proofs are:i. Horoscopeii. Ration cardiii. An affidavit by way of self-declarationiv. Certificate from village panchayat**Test Yourself 3**Which of the following is not acceptable as valid Age Proof?I. Birth certificate extracted from municipal recordsII. Birth Certificate issued by Member of Legislative AssemblyIII. PassportIV. PAN Card**Answers to Test Yourself****Answer 1** -The correct option is I.
**Answer 2** - The correct option is II.
**Answer 3** – The correct option is II.**Summary**Prospectus is a formal legal document used by insurance companies that
provides details about the product.The application document used for making the proposal is commonly known as
the ‘proposal form’.70Some documents considered as standard age proofs include school or college
certificate, birth certificate extracted from municipal records etc.Insurers need to determine the true identity of their customers. KYC documents
like address proof, PAN card and photographs etc. need to be collected as a part
of the KYC procedure.**Key Terms**1. Prospectus
2. Proposal form
3. Moral hazard
4. Know your Customer (KYC)
5. Age Proof
6. Standard and non-standard age proofs
7. Free-look period71## CHAPTER C-08## CUSTOMER SERVICE**Chapter Introduction**In this chapter you will learn the importance of customer service. You will learn the | Final IC-38 - Corporate Agent _Common _ English.md | e68 | Age Proof – for Personal Lines | Final IC-38 - Corporate Agent _Common _ English_036 | {
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**Answer 2** - The correct option is II.
**Answer 3** – The correct option is II.**Summary**Prospectus is a formal legal document used by insurance companies that
provides details about the product.The application document used for making the proposal is commonly known as
the ‘proposal form’.70Some documents considered as standard age proofs include school or college
certificate, birth certificate extracted from municipal records etc.Insurers need to determine the true identity of their customers. KYC documents
like address proof, PAN card and photographs etc. need to be collected as a part
of the KYC procedure.**Key Terms**1. Prospectus
2. Proposal form
3. Moral hazard
4. Know your Customer (KYC)
5. Age Proof
6. Standard and non-standard age proofs
7. Free-look period71## CHAPTER C-08## CUSTOMER SERVICE**Chapter Introduction**In this chapter you will learn the importance of customer service. You will learn the
role of agents in providing service to customers. You will also learn how tocommunicate and relate with customers.After studying this chapter, you should be able to:Understand the importance of customer service1. Describe quality of service2. Examine the importance of service in the insurance industry3. Discuss the role of an insurance agent in providing good service4. Explain the process of communication5. Demonstrate the importance of non-verbal communication6. Recommend ethical behaviour72**A.** **Customer Service – General concepts****1.** **Why Customer Service?**Customers are the most important part of any industry and no enterprise can afford
to treat them indifferently. The role of customer service and relationships is
important in the service sector and more so for insurance.Every enterprise has a goal to delight its customers. This can be explained by
examining how buying insurance differs from buying a car.A car can be seen, touched, test driven and experienced, whereas the Insurance of
the car is just a promise to pay if there is loss or damage to the car due to an
accident. This promise is intangible – it cannot be seen, touched or experienced.While the customer of the car will be able to understand and experience the car
easily, the customer of insurance can evaluate and experience the insurance
protection that he buys only when a loss happens and the insurance company settles
the claim. All customers do not get the chance to experience this. In insurance,
when such a situation arises, if the service exceeds expectations, the customer
would be delighted.**2.** **Quality of service**It is necessary for insurance companies and their personnel, which includes their
agents, to render high quality service and delight the customer.**But what is high quality service? What are its attributes?**The well-known SERVQUAL approach to service quality of Zeithaml, Parasuraman
and Berry highlights 5 major indicators of service quality:**a)** **Reliability** : The ability to perform the promised service dependably andaccurately is considered the most important indicator of good service. It isthe foundation on which trust is built.**b)** **Responsiveness** : Refers to the willingness and ability of service personnel tohelp customers and provide prompt response to the customer’s needs. It may
be measured by indicators like speed, accuracy, and attitude while givingthe service.**c)** **Assurance** : Refers to the knowledge, competence and courtesy displayed byan employee or agent in understanding and meeting the needs of a customer,
thus conveying trust and confidence.**d)** **Empathy** : Empathy is described as the human touch. It is reflected in thecaring attitude and individualised attention provided to customers.**e)** **Tangibles** : Represent physical environmental factors like location, layoutand cleanliness as also the sense of professionalism that a customer feels
when contacting a service provider. First impressions last long.73**3.** **Customer service and insurance**Leading sales producers in the insurance industry state that the secret of reaching
the top and staying there is in getting the patronage and support of a large number
of existing clients with whose help the business gets built. These clients are a source
of commissions from renewal of existing contracts. These can be a valuable source
for acquiring new customers.One great mantra of success in insurance selling is to be able to convert one’s
customers into one’s clients. Customers are those who buy a product. Clients, on
the other hand are people with whom an agent relates for life, who continue to buy
from him/ her as also help and possibly, support him/ her in reaching out to and
selling to other customers.Clients are built by working with deep commitment to serving one’s customers. To
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when contacting a service provider. First impressions last long.73**3.** **Customer service and insurance**Leading sales producers in the insurance industry state that the secret of reaching
the top and staying there is in getting the patronage and support of a large number
of existing clients with whose help the business gets built. These clients are a source
of commissions from renewal of existing contracts. These can be a valuable source
for acquiring new customers.One great mantra of success in insurance selling is to be able to convert one’s
customers into one’s clients. Customers are those who buy a product. Clients, on
the other hand are people with whom an agent relates for life, who continue to buy
from him/ her as also help and possibly, support him/ her in reaching out to and
selling to other customers.Clients are built by working with deep commitment to serving one’s customers. To
understand how keeping a customer happy benefits the agent and the company, one
should understand the concept of Customer’s Lifetime Value.**Customer Lifetime Value** may be defined as the sum of economic benefits that can
be derived from building a sound relationship with a customer over a long period oftime.**Diagram 1:** **Customer Lifetime Value**An agent who renders service and builds close relationships with her customers,
builds goodwill and brand value, which helps in expanding the business.**Test Yourself 1**What is meant by customer lifetime value?I. Sum of costs incurred while servicing the customer over his lifetime
II. Rank given to customer based on business generated
III. Sum of economic benefits that can be achieved by building a long termrelationship with the customerIV. Maximum insurance that can be attributed to the customer74**4.** **Customer Relationships and Service**While customer service is a key element in creating satisfied and loyal customers,
it is also necessary to build a strong relationship with them. A Customer’s views
about an insurer depends on the service and relationships experience the insureroffers.What goes to make a healthy relationship? At its heart, of course, there is trust. At
the same time, there are other elements, which reinforce and promote that trust.Let us illustrate some of the elements.**Diagram 2:** **Elements for Trust**i. Every relationship begins with **attraction** : Attraction means being liked and beingable to build a rapport with the customer, starting with creating a great first
impression. Attraction is regarded the key to unlocking every heart. Without it a
relationship is hardly possible. A sales person cannot make much headway if he/
she is not liked by the customer.ii. The second element of a relationship is one’s presence, being there when needediii. **Communication:** Even if one is not fully present and unable to do full justice toall the expectations of one’s customers, one can still **maintain a strong**
**relationship by communicating in a manner that is assuring, full of empathy**
**and conveying a sense of responsibility.**The above dimensions of communication call for discipline and skills. They
ultimately reflect how one thinks and sees.Companies emphasise on customer relationship management, as the cost of
retaining a customer is far lower than acquiring a new customer. A customer relation
opportunity arises at various touch points e.g. while understanding customers
insurance needs, explaining coverage’s, handing over forms etc.**B.** **Insurance agent’s role in providing customer service.**Let us now consider how an agent can render great service to the customer. It is
important to realise that from the moment a customer gets contacted by a sales
person to the final point of settlement of a claim, the customer goes on a journey
of experience that we shall call the ‘ **Customer Journey’** . The agent needs to
partner with the customer through the entire duration of the contract, hand holding75him/ her in each step of the journey to create memorable experiences at everystep.Let us look at some milestones in the journey and the role played at each step.**1.** **The Sale**It is said that selling is both an art and a science. It is a science because it calls for
a set process which, if consistently and properly followed, is likely to lead to
success. It is also an art in the sense that each sales person brings his or her
distinctive beliefs, style and personality into the process and the results depend on
what each person puts into the process.- **Prospecting:** The Sales Process begins with **Prospecting**, which literally means
‘searching’ for a prospective customer. Searching is important as ‘ _**One cannot**_
_**find till one searches’,**_ it is the most important step in the process. An agent
typically begins with his or her natural market, made up of known and easily
approachable people. The challenge lies in getting across to more networks of | Final IC-38 - Corporate Agent _Common _ English.md | r74 | Customer service and insurance | Final IC-38 - Corporate Agent _Common _ English_038 | {
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of experience that we shall call the ‘ **Customer Journey’** . The agent needs to
partner with the customer through the entire duration of the contract, hand holding75him/ her in each step of the journey to create memorable experiences at everystep.Let us look at some milestones in the journey and the role played at each step.**1.** **The Sale**It is said that selling is both an art and a science. It is a science because it calls for
a set process which, if consistently and properly followed, is likely to lead to
success. It is also an art in the sense that each sales person brings his or her
distinctive beliefs, style and personality into the process and the results depend on
what each person puts into the process.- **Prospecting:** The Sales Process begins with **Prospecting**, which literally means
‘searching’ for a prospective customer. Searching is important as ‘ _**One cannot**_
_**find till one searches’,**_ it is the most important step in the process. An agent
typically begins with his or her natural market, made up of known and easily
approachable people. The challenge lies in getting across to more networks of
people who are outside one’s immediate circle – getting to know them and be
known by them.All the people one knows and approaches may not be proper candidates for
insurance or they may not be interested in buying. It is thus necessary to **qualify**
them so that one targets only those who are likely to buy insurance. The
prospecting process becomes successful only when an agent is able to build
strong relationships with the prospect. The first task of any sales person is thus
to **sell trust and build confidence.**_**Invite for an Interview:**_ While personal relationships are the foundation on
which insurance business is built, it is necessary to convert the goodwill one
earns into a sale. This begins when the sales person sets up a formal appointment
for a detailed sales interview. This step is critical for establishing one’s
professional credentials and also to separate business from casual discussions.- _**Determining the needs and recommending the Solution:**_ The heart of the Sales
Interview is the steps wherein the sales agent determines and makes the
prospective customer aware about the exact needs for which insurance is a
solution. A master sales person is distinguished by his/ her skill in guiding a
prospect, through asking gentle questions, to understand the gaps in protection
that give rise to the needs for insurance.The Agent has the responsibility to provide _Best Advice_ to the Prospect about the
right kind of insurance solutions to meet his/ her needs. Firstly one must determine
and make the prospective customer aware about the exact needs for which
insurance is a solution. This also includes giving proper advice on the amount of
insurance to be purchased. For example the amount of life insurance to be76purchased by an individual needs to be linked to his/ her income and paying
capacity.It is also important to keep a basic percept in mind, especially when buying non-life
insurance: Do not recommend insuring where the risk can be managed otherwise.Whether insurance is needed or not, depends on the circumstances. If the premium
payments are high compared to the loss involved, it may be advisable to just bear
the risk. On the other hand, if the loss consequences of a risk are likely to be severe,
it is wise to insure against it.**Example**To a homeowner living in a flood prone area, purchasing an add-on cover against
floods would prove to be helpful. On the other hand, if the home owner owns a
home at a place where the risk of floods is negligible it may not be necessary toobtain such cover.Many customers may not be much concerned about getting maximum insurance per
rupee spent, but would be interested in **reducing the cost of handling risk** . The
concern would be thus on identifying those risks which a customer cannot retainand hence must be insured.The agent becomes successful when he/ she renders best advice. The agent needs
to constantly ask himself/ herself about his/ her role vis-à-vis the customer. He/
she should go to the customer not just to get a sale but to relate to the customer
as a coach and partner who can help him/ her to manage his/ her risks more
effectively?_**Handling Objections and Closing the Sale:**_ It may not be enough to give best
advice and recommendations to a customer about the right products to buy. One
also needs to persuade him/ her to take the decision to buy. Quite often the
customer may have a number of questions and may raise objections that need
to be addressed before he/ she decides to commit to the purchase. Whilst
handling these objections, it is vitally important to understand that the | Final IC-38 - Corporate Agent _Common _ English.md | g75 | Customer Journey’ | Final IC-38 - Corporate Agent _Common _ English_039 | {
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home at a place where the risk of floods is negligible it may not be necessary toobtain such cover.Many customers may not be much concerned about getting maximum insurance per
rupee spent, but would be interested in **reducing the cost of handling risk** . The
concern would be thus on identifying those risks which a customer cannot retainand hence must be insured.The agent becomes successful when he/ she renders best advice. The agent needs
to constantly ask himself/ herself about his/ her role vis-à-vis the customer. He/
she should go to the customer not just to get a sale but to relate to the customer
as a coach and partner who can help him/ her to manage his/ her risks more
effectively?_**Handling Objections and Closing the Sale:**_ It may not be enough to give best
advice and recommendations to a customer about the right products to buy. One
also needs to persuade him/ her to take the decision to buy. Quite often the
customer may have a number of questions and may raise objections that need
to be addressed before he/ she decides to commit to the purchase. Whilst
handling these objections, it is vitally important to understand that the
objections being voiced may reflect underlying concerns that need to beidentified and resolved.In sum, the role of an insurance agent is more than that of a mere sales person. He/
she also **needs to be a risk assessor, underwriter, risk management counsellor,**
**designer of customised solutions and a relationship builder** (who thrives on
building trust and long-term relationships), all rolled into one.**2.** **The Proposal stage**The agent has to support the customer in filling out the proposal for insurance. The
insured is required to take responsibility for the statements made therein. The
salient aspects of a proposal form have been discussed in a later chapter.77The agent should explain and clarify to the proposer the details to be filled as
answers to each of the questions in the proposal form. A failure to give proper and
complete information can jeopardise the customer’s claim.Sometimes, if additional information is required to complete the policy, the
company may inform the customer directly or through the agent/ advisor. The agent
should help the customer in completing such formalities, explaining why they arenecessary.IRDAI (Issuance of e-Insurance Policies) Regulations, 2016, provide for e – Proposal
forms that are similar to the physical proposal form and having a provision to the
Prospect to give his consent to the proposal, which can be validated by one time
password (mobile phone OTP).**3.** **Acceptance stage****a)** **Cover notes/ Certificates of Insurance**After underwriting is completed it may take some time before the policy is issued.
Pending the preparation of the policy or when the negotiations for insurance are
in progress and it is necessary to provide cover on a provisional basis or when the
premises are being inspected for determining the actual rate applicable, a cover
note is issued to confirm protection under the policy.As Cover notes and Certificates of Insurance are used predominantly in marine
and motor classes of business, cover note is discussed in detail under the GeneralInsurance Section.It is the agent’s responsibility to ensure that the cover note is issued by the
company, where applicable, to the insured. Promptness in this regardcommunicates to the client that his/ her interests are safe in the hands of theagent and the company.**b)** **Policy Document**The policy is a formal document which provides an evidence of the contract of
insurance. This document has to be stamped in accordance with the provisions
of the Indian Stamp Act, 1899. The insurer is duty bound to give the policydocument to the insured.**4.** **Premium Payment****Premium** is the consideration or amount paid by the insured to the insurer for
insuring the subject matter of insurance, under a contract of insurance.A good agent takes active interest in ensuring that the insured pays the premium
for taking or continuing or renewing his policy and the customer is made aware
of various options available for payment of premium.78**5.** **Method of payment of premium**The premium to be paid by any person proposing to take an insurance policy or by | Final IC-38 - Corporate Agent _Common _ English.md | null | Handling Objections and Closing the Sale: | Final IC-38 - Corporate Agent _Common _ English_040 | {
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and motor classes of business, cover note is discussed in detail under the GeneralInsurance Section.It is the agent’s responsibility to ensure that the cover note is issued by the
company, where applicable, to the insured. Promptness in this regardcommunicates to the client that his/ her interests are safe in the hands of theagent and the company.**b)** **Policy Document**The policy is a formal document which provides an evidence of the contract of
insurance. This document has to be stamped in accordance with the provisions
of the Indian Stamp Act, 1899. The insurer is duty bound to give the policydocument to the insured.**4.** **Premium Payment****Premium** is the consideration or amount paid by the insured to the insurer for
insuring the subject matter of insurance, under a contract of insurance.A good agent takes active interest in ensuring that the insured pays the premium
for taking or continuing or renewing his policy and the customer is made aware
of various options available for payment of premium.78**5.** **Method of payment of premium**The premium to be paid by any person proposing to take an insurance policy or by
the policyholder to an insurer may be made in any one or more of the followingmethods:a) Cashb) Any recognised banking negotiable instrument such as cheques, demanddrafts, pay order, banker’s cheques drawn on any schedule bank in India;c) Postal money order;d) Credit or debit cards;e) Bank guarantee or cash deposit;f) Internet;g) E-transferh) Direct credits via standing instruction of proposer or the policyholder or thelife insured through bank transfers;i) Any other method or payment as may be approved by the Authority fromtime to time;As per IRDA Regulations, in case the proposer/ policyholder opts for premium
payment through net banking or credit/ debit card, the payment must be made
only through net banking account or credit/ debit card issued on the name of
such proposer/ policyholder.**6.** **Service after issuance of Policy Document and Receipt for Premium**Once the premium is paid by the customer, the insurer is bound to issue a
receipt. A receipt is also to be issued even in case the premium is paid inadvance.The agent may approach the insured and enquire whether the Policy Document
has been received from the insurance company. It presents a great opportunity
for the agent to connect with the customer. The agent will be able to clear any
doubts and also explain the various policy provisions and policy holders’ rights
and privileges. This demonstrates commitment to the customer and provides an
opportunity to pledge continued support and service. One should also inform the
customer about the free-look period provision, during which period, the policy
can be returned and refund of premium obtained.If the policy being purchased is an Electronic insurance policy, the agent can
help the Customer to open an e-Insurance Account (e-I-A), through the
Registered Insurance Repository.79This also paves the way for the next step which is to ask the customer for the
names and particulars of other individuals he/ she knows, who can possibly
benefit from the agent’s services. It would be even better if the client itself
contacted these people and introduced the agent to them.**7.** **Policy Renewal**Most general Insurance policies have to be renewed each year. For general
insurance policies, at the time of each renewal, the customer has a choice to
continue insuring with the same company or switch to another company. In case
of Life Insurance, a policy would continue to be in force when the customer pays
the premium at regular intervals based on premium payment term. This does
not apply to one-time payments.General Insurers usually send a Renewal Notice, well in advance of the date of
expiry of the premium paying period, inviting renewal of the policy.The customer’s choice to renew or continue with the policy may often depend
on the trust and goodwill created by the agent and company and the agent needs
to be in touch to remind the customer about the renewal or continuity of policywell before the due date.High producer agents constantly keep in touch with their clients, and win their
trust and loyalty through various acts of service and relationships – like greeting
their clients on various occasions like festivals or family events and being with
them to share their joys and sorrows.**8.** **The claim stage**The crucial test comes at the time of claim settlement. The agent must ensure
that the incident giving rise to the claim is immediately informed to the insurer
and that the customer carefully follows all the formalities. The agent may also
assist in all the investigations that may need to be done to assess the loss. A
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the premium at regular intervals based on premium payment term. This does
not apply to one-time payments.General Insurers usually send a Renewal Notice, well in advance of the date of
expiry of the premium paying period, inviting renewal of the policy.The customer’s choice to renew or continue with the policy may often depend
on the trust and goodwill created by the agent and company and the agent needs
to be in touch to remind the customer about the renewal or continuity of policywell before the due date.High producer agents constantly keep in touch with their clients, and win their
trust and loyalty through various acts of service and relationships – like greeting
their clients on various occasions like festivals or family events and being with
them to share their joys and sorrows.**8.** **The claim stage**The crucial test comes at the time of claim settlement. The agent must ensure
that the incident giving rise to the claim is immediately informed to the insurer
and that the customer carefully follows all the formalities. The agent may also
assist in all the investigations that may need to be done to assess the loss. A
good agent assists the customers or his representatives in fulfilling the claim
lodgement formalities quickly, correctly and completely.**Test Yourself 2**Identify the scenario where a debate on the need for insurance is not required.I. Property insurance
II. Business liability insurance
III. Motor insurance for third party liabilityIV. Fire insurance80**C.** **Communication skills in customer service**An agent needs to possess soft skills for effective performance in the work place.S **oft skills relate to one’s ability to interact effectively with others, both at work**
**and outside. Communication skills are the most important of these soft skills.****1.** **Process of communication**What is communication?All communications require a sender, who sends a message, and a person who
received that message. The process is complete once the receiver has understood
the message of the sender.**Diagram 3:** **Forms of communication**Communication may be face to face, over the phone, or by mail or internet. It may
be formal or informal. Whatever the content or form of the message or the media
used, the effectiveness of communication depends on whether or not the recipient
has understood what was sought to be communicated.Since an insurance policy is essentially a promise, it is important that what is
promised by the insurer is clearly understood by the insured. The agent as an
intermediary has to not only provide complete, accurate and unambiguous account
of the terms of the insurance to the customer, but also seek and clarify doubts or
queries that a customer may have.**2.** **Barriers to effective communication**Different kinds of barriers to effective communication can arise at each step in the
above process, due to which communication can get distorted. The challenge is to
visualize, understand and remove the barriers.**Test Yourself 3**What does not go on to make a healthy relationship?I. AttractionII. TrustIII. CommunicationIV. Dislike81**D.** **Non-verbal Communication**Let us now look at some concepts that the agent needs to understand.**Important****1.** **Making a great first impression**The prospect judges an agent based on his appearance, body language, mannerisms,
dress and speech. As attraction is the first pillar of a relationship and first
impressions last long, some tips for making a good first impression are given below:**i.** **Be on time always** . Plan to arrive a few minutes early, allowing flexibilityfor all kinds of possible delays.**ii.** **Present yourself appropriately** . The appearance should to create the right first impression
The dress must be appropriate for the meeting or occasion
The look must be clean and tidy – with good haircut and shave, clean andtidy clothes, neat and tidy make up**iii.** **A warm, confident and winning smile** puts a person and his/ her audienceimmediately at ease with one another.**iv.** **Being open, confident and positive** body language must project confidence and self-assurance stand tall, smile, make eye contact, greet with a firm handshake remain positive even in the face of some criticism or when the meeting isnot going as well as expected**v.** **Interest in the other person** - The most important thing is about beinggenuinely interested in the other person. Take some time to find out about the customer as a person Be caring and attentive to what he or she says Be totally present and available to your customer Not engaging in one’s mobile phone during the interview?**2.** **Body language**Body language refers to movements, gestures, facial expressions. The way we talk, | Final IC-38 - Corporate Agent _Common _ English.md | e80 | The claim stage | Final IC-38 - Corporate Agent _Common _ English_042 | {
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The dress must be appropriate for the meeting or occasion
The look must be clean and tidy – with good haircut and shave, clean andtidy clothes, neat and tidy make up**iii.** **A warm, confident and winning smile** puts a person and his/ her audienceimmediately at ease with one another.**iv.** **Being open, confident and positive** body language must project confidence and self-assurance stand tall, smile, make eye contact, greet with a firm handshake remain positive even in the face of some criticism or when the meeting isnot going as well as expected**v.** **Interest in the other person** - The most important thing is about beinggenuinely interested in the other person. Take some time to find out about the customer as a person Be caring and attentive to what he or she says Be totally present and available to your customer Not engaging in one’s mobile phone during the interview?**2.** **Body language**Body language refers to movements, gestures, facial expressions. The way we talk,
walk, sit and stand, all says something about us, and what is happening inside us.It is often said that people listen to only a small percentage of what is actually said.
What we don’t say may speak a lot more about us in a louder way. Obviously, one
needs to be very careful about one’s body language.82**a)** **Confidence**Here are a few tips about how to appear confident and self-assured, giving the
impression of someone to be seriously listened to: Posture – standing tall with shoulders held back. Solid eye contact - with a "smiling" face Purposeful and deliberate gestures**b)** **Trust** Quite often, a sales person’s words fall on deaf ears because the audiencedoes not trust him/ her – his/ her body language does not give the assurance
that he/ she is sincere about what he/ she says**3.** **Listening skills**The third set of communication skills that one needs to be aware about and cultivateare listening skills. These follow from a well-known principle of personal
effectiveness – ‘first try to understand before being understood’.Active listening calls for: Allowing the speaker to finish each point before asking questions Not interrupting the speaker with any counter arguments This may require that we reflect on the message and ask questions to clarifywhat was said Another way to provide feedback is to summarize the speaker’s words andrepeat it back to him or her periodically or at the end of the conversation.**Let us look at the skills required for active listening:****a)** **Demonstrating that one is listening:** For instance one may: Give an occasional nod and smile Adopt a posture that is open and draws out the other to speak freely Have small verbal comments like "I understand", "I see", "yes" and "uh".**b)** **Paying attention**One needs to give the speaker one’s undivided attention, and acknowledge him.
Some aspects of paying attention are as follows:Look at the speaker directly Put aside distracting thoughts Don't mentally prepare a rebuttal83 Avoid all external distractions [for instance, keep your mobile on silentmode] "Listen" to the speaker's body language**c)** **Removing filters:**A lot of what we hear may get distorted by one’s personal filters, like the
assumptions, judgments, and beliefs one carries.**Not being judgemental: If the listener is judgemental,** even if he hears what
the speaker is saying, he will understand only according to his biased
interpretation.**d)** **Empathetic listening:****Empathy implies hearing and listening patiently, and with full attention, to**
**what the other person has to say, even when one does not agree with it. It**
**is important to show the speaker acceptance, not necessarily agreement.****e)** **Responding appropriately:**Active listening implies much more than just hearing what a speaker says. The
communication can be completed only when the listener responds in some way,
through word or action. Certain rules need to be followed for ensuring that the
speaker is not put down but treated with respect.These include: Being candid, open, and honest in your response Asserting one’s opinions respectfully Treating another person in a way, one would like oneself to be treated**Example****Asking for clarity** – “I realize that we have not been able to clear about the benefits | Final IC-38 - Corporate Agent _Common _ English.md | l83 | A warm, confident and winning smile | Final IC-38 - Corporate Agent _Common _ English_043 | {
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assumptions, judgments, and beliefs one carries.**Not being judgemental: If the listener is judgemental,** even if he hears what
the speaker is saying, he will understand only according to his biased
interpretation.**d)** **Empathetic listening:****Empathy implies hearing and listening patiently, and with full attention, to**
**what the other person has to say, even when one does not agree with it. It**
**is important to show the speaker acceptance, not necessarily agreement.****e)** **Responding appropriately:**Active listening implies much more than just hearing what a speaker says. The
communication can be completed only when the listener responds in some way,
through word or action. Certain rules need to be followed for ensuring that the
speaker is not put down but treated with respect.These include: Being candid, open, and honest in your response Asserting one’s opinions respectfully Treating another person in a way, one would like oneself to be treated**Example****Asking for clarity** – “I realize that we have not been able to clear about the benefits
of some of our health plans. Could you help us by asking us your doubts?”**Paraphrasing the speaker’s exact words** – “So, you are saying that ‘our health plans
are not attractive enough’ – Have I understood you correctly?”**Test Yourself 4**Which among the following is not an element of active listening?I. Paying good attention
II. Being extremely judgemental
III. Empathetic listening
IV. Responding appropriately84**E.** **Ethical Behavior**In recent years, there are many reports of improper conduct, and serious concerns
have been raised about ethical behaviour in business causing betrayal of trust.This has led to discussions about concepts like accountability, corporate
governance, and treating customers fairly in insurance, which form part of “Ethics”in business.It is not wrong to look after one’s interests. But it is wrong to do so at the cost ofthe interests of others. Unethical behaviour arises when there is no concern forothers and there is high concern for oneself.**Insurance is a business of trust** . Breach of trust amounts to cheating. When wrong
information is given to prospects tempting them to buy insurance, or if the insurance
given does not cater to the specific needs of the prospect, things go wrong.The Code of Ethics spelt out by the IRDAI in various regulations are directed towards
ethical behaviour. It is not enough just to know the code. What is more important
for the insurers and their representatives is to always keep the interests of the
prospect/ policy holder as primary.**Characteristics:** Some characteristics of ethical behaviour are:a) Placing the best interests of the client above one’s own direct or indirectbenefitsb) Holding in strictest confidence and considering as privileged, all business andpersonal information pertaining to client’s affairsc) Making full and adequate disclosure of all facts to enable clients make informeddecisionsThere could be a likelihood of ethics being compromised in the following situations:a) Having to choose between two plans, one giving much less premium orcommission than the otherb) Temptation to recommend discontinuance of an existing policy and taking out anew onec) Being aware of circumstances that, if known to the insurer, could adverselyaffect the interests of the client or the beneficiaries of the claim.**Test Yourself 5**Which among the following is not a characteristic of ethical behaviour?
I. Making adequate disclosures to enable the clients to make an informed decision
II. Maintaining confidentiality of client’s business and personal information
III. Placing self-interest ahead of client’s interests
IV. Placing client’s interest ahead of self interest85**Summary**a) The role of customer service and relationships is far more critical in the case ofinsurance than in other products.b) Five major indicators of service quality include reliability, responsiveness,assurance, empathy and tangibles.c) Customer lifetime value may be defined as the sum of economic benefits thatcan be derived from building a sound relationship with a customer over a long
period of time.d) The role of an insurance agent in the area of customer service is absolutelycritical.e) Active listening involves paying attention, providing feedback and respondingappropriately.f) Ethical behaviour involves placing the customer’s interest before one’s own.**Key terms**a) Quality of serviceb) Empathyc) Body languaged) Active listeninge) Ethical behavior**Answers to Test Yourself****Answer 1** -The correct option is III.
**Answer 2** - The correct option is III.
**Answer 3** - The correct option is IV.
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II. Maintaining confidentiality of client’s business and personal information
III. Placing self-interest ahead of client’s interests
IV. Placing client’s interest ahead of self interest85**Summary**a) The role of customer service and relationships is far more critical in the case ofinsurance than in other products.b) Five major indicators of service quality include reliability, responsiveness,assurance, empathy and tangibles.c) Customer lifetime value may be defined as the sum of economic benefits thatcan be derived from building a sound relationship with a customer over a long
period of time.d) The role of an insurance agent in the area of customer service is absolutelycritical.e) Active listening involves paying attention, providing feedback and respondingappropriately.f) Ethical behaviour involves placing the customer’s interest before one’s own.**Key terms**a) Quality of serviceb) Empathyc) Body languaged) Active listeninge) Ethical behavior**Answers to Test Yourself****Answer 1** -The correct option is III.
**Answer 2** - The correct option is III.
**Answer 3** - The correct option is IV.
**Answer 4** - The correct option is II.
**Answer 5** - The correct option is III.86## CHAPTER C-09## GRIEVANCE REDRESSAL MECHANISM**Chapter Introduction**Insurance industry is essentially a service industry where customer expectations are
constantly rising. There is dissatisfaction with the standard of services. Despite
continuous product innovation and significant improvement in the level of customer
service, aided by use of modern technology, the industry suffers badly in terms of
customer dissatisfaction and poor image. The Government and the regulator have
taken a number of initiatives to improve the situation.IRDAI Regulations on Protection of Policyholders’ Interests 2017 mandate that every
Insurer shall have their own board approved policy for protection of policyholders’
interests which shall includei. Service parameters including turnaround times for various services rendered.
ii. Procedure for speedy resolution of complaints.**Learning Outcomes**87**A.** **Grievance Redressal**The time for high priority action is when the customer has a complaint. Remember
that in the case of a complaint, the customer is angry due to a failure of service.
This is only a part of the story.Many times, Customers get upset because they understand the situation wrongly.
All service failures causes two types of feelings:1. A feeling that the insurer was unfair (a feeling of being cheated)2. A feeling of hurt ego (being made to look and feel small)The customers want to feel valued and human touch is critical in this situation. Asa professional insurance advisor first of all, the agent would not allow such a
complaint situation to happen. He would take up the matter with the appropriate
officer of the company.A complaint is a crucial “ **moment of truth** ” in the customer relationship. If the
agent/ company can use the situation to clarify the position, the situation can
actually improve customer loyalty.**Remember, no one else in the company has ownership of the client’s problems**
**as much as an agent does** .Complaints/ grievances give us the chance to show how much we care for the
customer’s interests. They are in fact the pillars on which an insurance agent builds
goodwill and business. **Word of mouth publicity (Good/ Bad) plays a significant**
**role in selling and servicing** .The procedure for grievance redressal is detailed at the end of every policy
document. This should be bought to the notice of customers. As per the regulations,
any grievance of a policy holder should be first referred to the Insurer’s Grievance
Cell. If it is not satisfactorily resolved, the complainant may approach the Regulator
through the Integrated Grievance Management System.**B.** **Integrated Grievance Management System (IGMS)**Each Insurer has its own grievance redressal mechanism. All operating/ controlling/
corporate offices of Insurance companies have Grievance Redressal Officers. A
policyholder can approach them directly for any grievance.IRDAI has launched an Integrated Grievance Management System (IGMS) which acts
as an online consumer complaints registration system. Insurers have to register all
grievances that they receive in the system which is integrated with IGMS of IRDAI.
IGMS helps IRDAI in monitoring grievance redress in the industry and also acts as a
central repository of insurance grievance data.Policyholders can approach the respective insurer first for any grievance. If he does
not receive any response from the insurer or if the response/ resolution received is88not to his satisfaction, he can approach the Regulator under the IGMS. The
complaint registration process involves two steps – (i) Registering oneself by | Final IC-38 - Corporate Agent _Common _ English.md | t85 | Summary | Final IC-38 - Corporate Agent _Common _ English_045 | {
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Cell. If it is not satisfactorily resolved, the complainant may approach the Regulator
through the Integrated Grievance Management System.**B.** **Integrated Grievance Management System (IGMS)**Each Insurer has its own grievance redressal mechanism. All operating/ controlling/
corporate offices of Insurance companies have Grievance Redressal Officers. A
policyholder can approach them directly for any grievance.IRDAI has launched an Integrated Grievance Management System (IGMS) which acts
as an online consumer complaints registration system. Insurers have to register all
grievances that they receive in the system which is integrated with IGMS of IRDAI.
IGMS helps IRDAI in monitoring grievance redress in the industry and also acts as a
central repository of insurance grievance data.Policyholders can approach the respective insurer first for any grievance. If he does
not receive any response from the insurer or if the response/ resolution received is88not to his satisfaction, he can approach the Regulator under the IGMS. The
complaint registration process involves two steps – (i) Registering oneself by
entering one’s policy details and (ii) Registering one’s complaints and viewing the
status of the complaints. Complaints are then forwarded to the respective insurance
companies and IRDAI facilitates disposal of Grievances.IGMS tracks complaints and the time taken for their redressal. The complaints can
be registered at the following URL: http://www.policyholder.gov.in/Integrated_
Grievance_Management.aspx**C.** **Consumer Protection****The Consumer Protection Act, 2019:** This original Act of 1986 was passed _“to_
_provide for better protection of the interest of consumers and to make provision_
_for the establishment of consumer councils and other authorities for the_
_settlement of consumer’s disputes”_ . The Act was amended by the Consumer
Protection (Amendment) Act, 2002 and later on 2019.Some definitions provided in
the Act are as follows:“ **Service** ” means service of any description which is made available to potential
users and includes the provision of facilities in connection with banking, financing,
**insurance**, transport, processing, supply of electrical or other energy, board or
lodging or both, housing construction, entertainment, etc. **Insurance is included as**
**a service.** However, “Service” does not include the rendering of any service free of
charge or under a contract of personal service.“ **Consumer** ” means any person who Buys goods for a consideration. It includes any user of such goods. (It does notinclude a person who obtains such goods for resale or for any commercial
purpose) or
Hires or avails of any services for a consideration. It includes the beneficiary ofsuch services. (It does not include any person who avails of such service for any
commercial purpose.)“ **Defect** ” means any fault, imperfection, shortcoming, inadequacy in the quality,
nature and manner of performance which is required to be maintained by or under
any law or has been undertaken to be performed by a person in pursuance of a
contract or otherwise in relation to any service.**“Complaint”** means any allegation in writing made by a complainant that: an unfair trade practice or restrictive trade practice has been adopted
the goods bought by him suffer from one or more defects
the services hired or availed of by him suffer from deficiency in any respect
price charged is in excess of that fixed by law or displayed on package
goods which will be hazardous to life and safety when used are being offeredfor sale to the public in contravention of the provisions of any law requiring
trader to display information in regard to the contents, manner and effect of
use of such goods.“ **Consumer dispute** ” means a dispute where the person against whom a complaint
has been made, denies and disputes the allegations contained in the complaint.89**D.** **Consumer** **disputes redressal agencies**Consumer disputes redressal agencies are established at district, state and national
levels.**i.** **District Consumer Disputes Redressal Commission** The District Consumer Disputes Redressal Commission (District Commission),has jurisdiction to entertain complaints, where value of the goods or services
does not exceed Rs. 1 crore. The District Commission has the powers of a civil
court.**ii.** **State Consumer Disputes Redressal Commission** The State Consumer Disputes Redressal Commission (State Commission) hasoriginal jurisdiction to entertain complaints where the value of goods/ service | Final IC-38 - Corporate Agent _Common _ English.md | s88 | B. | Final IC-38 - Corporate Agent _Common _ English_046 | {
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price charged is in excess of that fixed by law or displayed on package
goods which will be hazardous to life and safety when used are being offeredfor sale to the public in contravention of the provisions of any law requiring
trader to display information in regard to the contents, manner and effect of
use of such goods.“ **Consumer dispute** ” means a dispute where the person against whom a complaint
has been made, denies and disputes the allegations contained in the complaint.89**D.** **Consumer** **disputes redressal agencies**Consumer disputes redressal agencies are established at district, state and national
levels.**i.** **District Consumer Disputes Redressal Commission** The District Consumer Disputes Redressal Commission (District Commission),has jurisdiction to entertain complaints, where value of the goods or services
does not exceed Rs. 1 crore. The District Commission has the powers of a civil
court.**ii.** **State Consumer Disputes Redressal Commission** The State Consumer Disputes Redressal Commission (State Commission) hasoriginal jurisdiction to entertain complaints where the value of goods/ service
and compensation, if any claimed exceeds Rs. 1 crore but does not exceed
Rs.10 crores.
It also has appellate and supervisory jurisdiction to entertain appeals fromthe District Commission.
Other powers and authority are similar to those of the District Commission.**iii.** **National Consumer Disputes Redressal Commission** The National Consumer Disputes Redressal Commission (National Commission)is the final authority established under the Act.
It has original jurisdiction to entertain disputes, where goods/ services andthe compensation claimed exceeds Rs.10 crores.
It has appellate as well as supervisory jurisdiction to hear the appeals fromthe orders passed by the State Commission.
Every order made by a District Commission, State Commission or the National
Commission shall be enforced by it in the same manner as if it were a decree
made by a Court in a suit before it. Appeals against the orders of the National
Commission have to be made only at the Supreme Court.90**Channels for Consumer Disputes Redressal**|Judicial Channels|Col2|
|---|---|
|<br> <br> <br> <br> <br>**National Consumer**<br>**Disputes Redressal**<br>**Commission** <br> <br>**State Consumer**<br>**Disputes Redressal**<br>**Commission** <br> <br>**District Consumer**<br>**Disputes Redressal**<br>**Commission** <br> <br> <br> <br> <br> <br>**Established by the**<br>**Central Government**<br> <br>**Established by the State**<br>**Government**<br> <br>**Established by the**<br>**State Government**|<br> <br> <br> <br> <br>**National Consumer**<br>**Disputes Redressal**<br>**Commission** <br> <br>**State Consumer**<br>**Disputes Redressal**<br>**Commission** <br> <br>**District Consumer**<br>**Disputes Redressal**<br>**Commission** <br> <br> <br> <br> <br> <br>**Established by the**<br>**Central Government**<br> <br>**Established by the State**<br>**Government**<br> <br>**Established by the**<br>**State Government**|
|**Established by the**<br>**Central Government**|**Established by the**<br>**State Government**|**a)** **Procedure for filing a complaint**The procedure for filing a complaint is very simple in all the above three
agencies. There is no fee for filing a complaint or filing an appeal whether before
the State Commission or National Commission. The complaint can be filed by
the complainant himself or by his authorised agent. It can be filed personally or
can even be sent by post. It may be noted that no advocate is necessary for the
purpose of filing a complaint.**b)** **Consumer Commission Orders**If the Commission is satisfied (a) that the goods in question have the defects
specified in the complaint or (b) that the allegations about the services are
proven; the Commission can issue orders directing the opposite party to do any
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|**Established by the**<br>**Central Government**|**Established by the**<br>**State Government**|**a)** **Procedure for filing a complaint**The procedure for filing a complaint is very simple in all the above three
agencies. There is no fee for filing a complaint or filing an appeal whether before
the State Commission or National Commission. The complaint can be filed by
the complainant himself or by his authorised agent. It can be filed personally or
can even be sent by post. It may be noted that no advocate is necessary for the
purpose of filing a complaint.**b)** **Consumer Commission Orders**If the Commission is satisfied (a) that the goods in question have the defects
specified in the complaint or (b) that the allegations about the services are
proven; the Commission can issue orders directing the opposite party to do any
of the following:
i. To **return** to the complainant the **price** (or premium in case of insurance)and/ or charges paid by the complainant
ii. To award such amount as **compensation** to the consumers for any loss orinjury suffered by the consumer due to negligence of the opposite party
iii. To remove the defects or **deficiencies** in the services in question.
iv. To **discontinue the unfair trade practice** or the restrictive trade practiceor not to repeat them
v. To provide for **adequate costs** to the complainants.**c)** **Nature of complaints**The **majority of consumer disputes** with the three Commissions relating to
insurance business fall in the following main categories:91i. Delay in settlement of claims
ii. Non-settlement of claims
iii. Repudiation of claims
iv. Amount or Quantum of loss
v. Policy terms, conditions etc.**E.** **The Insurance Ombudsman**The Central Government under the powers of the Insurance Regulatory &
Development Authority Act, 1999 made **Insurance Ombudsman Rules 2017** by a
notification published in the official gazette on 25 [th] April 2017.Rules regarding Insurance Ombudsmen apply to all insurers and their agents and
intermediaries in respect of complaints on all personal lines of insurance, group
insurance policies, policies issued to sole proprietorship and micro enterprises.[‘Personal lines’ here means insurances taken in an individual capacity, in contrast
to insurances sold to corporate entities.] Complaints relating to (a) delay in
settlement of claims beyond the time specified by IRDAI, (b) partial or total
repudiation of claims by the insurer, (c) disputes about premium paid or payable in
terms of insurance policy, (d) misrepresentation of policy terms and conditions at
any time in the policy document or policy contract, (e) legal construction of
insurance policies that affect the claim; and (f) policy servicing and related
grievances against insurers and their agents and intermediaries.a) Issuance of life insurance policy, general insurance policy including healthinsurance policy which is not in conformity with the proposal form submitted
by the proposer.
b) Non issuance of insurance policy after receipt of premium in life insurance andgeneral insurance including health insurance and
c) Any other matter resulting from the violation of provisions of the InsuranceAct, 1938 or the regulations, circulars, guidelines or instructions issued by the
IRDAI from time to time or the terms and conditions of the policy contract, in
so far as they relate to issues mentioned at clauses (a) to (f)
The objective of these rules is to resolve all types of complaints mentioned above,
in a cost effective, and impartial manner.**The Ombudsman, by mutual agreement of the insured and the insurer can act as**
**a mediator and counsellor within the terms of reference.****The decision of the Ombudsman, whether to accept or reject the complaint, is**
**final.****a)** **Complaint to the Ombudsman**Any complaint made to the Ombudsman should be in writing, and must be signed
by the insured or his legal heirs, nominee or assignee, and addressed to an
Ombudsman within whose jurisdiction, the insurer has a branch/ office. It should
contain the facts giving rise to the complaint, supported by documents, the
nature and extent of the loss caused to the complainant and the relief sought.92**Complaints can be made to the Ombudsman if:**i. The complainant had made a previous written representation to theinsurance company and:
the insurance company had rejected the complaint or
the complainant had not received any reply within one month afterreceipt of the complaint by the insurer. | Final IC-38 - Corporate Agent _Common _ English.md | null | Established by the | Final IC-38 - Corporate Agent _Common _ English_048 | {
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The objective of these rules is to resolve all types of complaints mentioned above,
in a cost effective, and impartial manner.**The Ombudsman, by mutual agreement of the insured and the insurer can act as**
**a mediator and counsellor within the terms of reference.****The decision of the Ombudsman, whether to accept or reject the complaint, is**
**final.****a)** **Complaint to the Ombudsman**Any complaint made to the Ombudsman should be in writing, and must be signed
by the insured or his legal heirs, nominee or assignee, and addressed to an
Ombudsman within whose jurisdiction, the insurer has a branch/ office. It should
contain the facts giving rise to the complaint, supported by documents, the
nature and extent of the loss caused to the complainant and the relief sought.92**Complaints can be made to the Ombudsman if:**i. The complainant had made a previous written representation to theinsurance company and:
the insurance company had rejected the complaint or
the complainant had not received any reply within one month afterreceipt of the complaint by the insurer.
ii. The complainant is not satisfied with the reply given by the insurer
iii. The complaint is made within one year from the date of rejection by theinsurance company
iv. The complaint is not pending in any court or consumer Commission or inarbitration
v. The value of the claim including expenses claimed is not above Rs 30 lakhs.**b)** **Recommendations by the Ombudsman**The Ombudsman will send copies of complaints to both the complainant and the
insurance company. The Ombudsman will make his recommendations within one
month of the receipt of the complaint.**c)** **Award**The dispute can be settled by intermediation. If this is not possible, the
Ombudsman will pass an award to the insured which he thinks is fair within a
period of 3 months from the date of receipt of all requirements from the
complainant and sending a copy of the award to the complainant and the
insurer.The insurer shall comply with the award within 30 days of the receipt of the
award and intimate compliance of the same to the Ombudsman. The award of
the Ombudsman shall be binding on the insurer.**F.** **Right to Information**In addition to the rules and regulations that are specific for grievance redressal in
insurance, there are certain general laws common to everyone in the country. The
Right to Information (RTI) Act, 2005 enacted by the Govt. of India is an important
law that gives citizens of India access to the information available with public
authorities which promotes transparency and accountability in these organisations.
The Act provides for appointment of a Chief Public Information Officer (CPIO) to
deal with requests for information. IRDAI is obliged to provide information to
members of public in accordance with the provisions of the said Act. Agents should
be aware that as per the RTI Act, IRDAI and Insurance Companies may have to reveal
certain information to customers and others; as also allow them to inspect the work,
document, records, extracts or certified copies of documents/ records and also
information stored in electronic form. However, there are certain categories of
information that are exempt from disclosure.93**Test Yourself 1**The ______________ has jurisdiction to entertain complaints, where value of the
goods or services and the compensation claimed is up to Rs.20 lakhs.I. District CommissionII. State CommissionIII. Zilla ParishadIV. National Commission**Summary**IRDAI has launched an Integrated Grievance Management System (IGMS) which
acts as a central repository of insurance grievance data and as a tool for
monitoring grievance redress in the industry.Consumer disputes redressal agencies are established in each district and state
and at national level.As far as insurance business is concerned, the majority of consumer disputes fall
in categories such as delay in settlement of claims, non-settlement of claims,
repudiation of claims, quantum of loss and policy terms, conditions etc.The Ombudsman, by mutual agreement of the insured and the insurer can act
as a mediator and counsellor within the terms of reference.- If the dispute is not settled by intermediation, the Ombudsman will pass award
to the insured which he thinks is fair, and is not more than what is necessary
to cover the loss of the insured.**Key Terms**1. Integrated Grievance Management System (IGMS)
2. The Consumer Protection Act, 2019 | Final IC-38 - Corporate Agent _Common _ English.md | null | The Ombudsman, by mutual agreement of the insured and the insurer can act as | Final IC-38 - Corporate Agent _Common _ English_049 | {
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goods or services and the compensation claimed is up to Rs.20 lakhs.I. District CommissionII. State CommissionIII. Zilla ParishadIV. National Commission**Summary**IRDAI has launched an Integrated Grievance Management System (IGMS) which
acts as a central repository of insurance grievance data and as a tool for
monitoring grievance redress in the industry.Consumer disputes redressal agencies are established in each district and state
and at national level.As far as insurance business is concerned, the majority of consumer disputes fall
in categories such as delay in settlement of claims, non-settlement of claims,
repudiation of claims, quantum of loss and policy terms, conditions etc.The Ombudsman, by mutual agreement of the insured and the insurer can act
as a mediator and counsellor within the terms of reference.- If the dispute is not settled by intermediation, the Ombudsman will pass award
to the insured which he thinks is fair, and is not more than what is necessary
to cover the loss of the insured.**Key Terms**1. Integrated Grievance Management System (IGMS)
2. The Consumer Protection Act, 2019
3. District Commission4. State Commission5. National Commission6. Insurance Ombudsman**Answers to Test Yourself****Answer 1** -The correct answer is I.94## CHAPTER C-10## REGULATORY ASPECTS FOR CORPORATE AGENTS**Chapter Introduction**In this chapter, we discuss Regulatory aspects of corporate agents.**Learning Outcomes**Regulations of Corporate AgentsThe IRDAI (Registration of Corporate Agent ) regulations,2015 has come into effect
from 1st April, 2016.
Before this the IRDAI (Licensing of Corporate Agents) regulations,2002 was dealing
with Corporate Agency licencing, etc.,95**Corporate Agents**The IRDAI (Registration of Corporate Agent) regulations, 2015. These regulations
deal with matters relating to who can Corporate Agent, Scope and applicability of
the regulations, Registration, Arrangement with Insurers for distributions products,
remuneration, code of conduct, etc..The following definitions are relevant.**1.** **Definitions:**(a) "Act" means the Insurance Act, 1938 (4 of 1938), as amended from time to time(b) "Applicant" means(i) A company formed under the Companies Act, 2013 (18 of 2013) or any
enactment thereof or under any previous company law which was in force;or
(ii) A limited liability partnership formed and registered under the Limited
Liability Partnership Act, 2008; or
(iii) A Co-operative Society registered under Co-operative Societies Act, l9l2 orunder any law for registration of co-operative societies, or
(iv) a banking company as defined in clause (4A) of section 2 of the Act; or
(v) a corresponding new bank as defined under clause (da) of sub-section (1)
of section 5 of the Banking Companies Act, 1949 (10 of 1949); or
(vi) a regional rural bank established under section 3 of the Regional RuralBanks Act, 1976 (21 of 1976): or
(vii) a Non-Governmental organisation or a micro lending finance organizationcovered under the Co-operative Societies Act, 1912 or a Non-Banking
Financial Company registered with the Reserve Bank of India; or
(viii) Any other person as may be recognized by the Authority to act as acorporate agent.
(c) “Approved Institution" means any institution engaged in education and/ortraining particularly in the area of insurance sales, service and marketing,
approved and notified by the Authority from time to time, and includes
Insurance Institute of India, Mumbai.
(d) "Authorized Verifier" means a person employed by a Telemarketer for thepurpose of solicitation or sale over telephonic mode and shall fulfill the
requirements as specified under regulation 7(3) of these regulations for a
specified person;
(e) "Authority" means the Insurance Regulatory and Development Authority of Indiaestablished under the provisions of Section 3 of the Insurance Regulatory and
Development Authority Act, 1999 (41 of 1999).
(f) "Corporate Agent" means any applicant specified in clause (b) above holds a validcertificate of registration issued by the Authority under these regulations for
solicitation and servicing of insurance business for any of the specified category
of life, general and health.96(g) “Corporate Agent (Life)" means a corporate agent who holds a valid certificateof registration to act as such, for solicitation and servicing of insurance business
for life insurers as specified in these regulations; | Final IC-38 - Corporate Agent _Common _ English.md | n4 | Summary | Final IC-38 - Corporate Agent _Common _ English_050 | {
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(c) “Approved Institution" means any institution engaged in education and/ortraining particularly in the area of insurance sales, service and marketing,
approved and notified by the Authority from time to time, and includes
Insurance Institute of India, Mumbai.
(d) "Authorized Verifier" means a person employed by a Telemarketer for thepurpose of solicitation or sale over telephonic mode and shall fulfill the
requirements as specified under regulation 7(3) of these regulations for a
specified person;
(e) "Authority" means the Insurance Regulatory and Development Authority of Indiaestablished under the provisions of Section 3 of the Insurance Regulatory and
Development Authority Act, 1999 (41 of 1999).
(f) "Corporate Agent" means any applicant specified in clause (b) above holds a validcertificate of registration issued by the Authority under these regulations for
solicitation and servicing of insurance business for any of the specified category
of life, general and health.96(g) “Corporate Agent (Life)" means a corporate agent who holds a valid certificateof registration to act as such, for solicitation and servicing of insurance business
for life insurers as specified in these regulations;
(h) "Corporate Agent (General)" means a corporate agent who holds a validcertificate of registration to act as such, for solicitation and servicing of
insurance business for general insurers as specified in these regulations;
(i) "Corporate Agent (Health)" means a corporate agent who holds a valid certificateof registration to act as such, for solicitation and servicing of insurance business
for health insurers as specified in these regulations;
(j) "Corporate Agent (Composite)" means a corporate agent who holds a validcertificate of registration to act as such, for solicitation and procurement of
insurance business for life insurers, general insurers and health insurers or
combination of any two or all three as specified in clauses (f) above:
(k) “Examination Body” for the purpose of these Regulations is Insurance Instituteof India, Mumbai or any other body approved and notified by the Authority for
conducting certification examination for principal officer and specified persons
of the corporate agents.
(l) Fit and Proper" is the criteria for determining the suitability for registering anApplicant including his principal officer, directors or partners or any other
employees to act as Corporate Agent.
(m)“Principal Officer" of a Corporate Agent means a director or a partner or anyofficer or employee so designated by it, and approved by the Authority,
exclusively appointed to supervise the activities of Corporate Agent and who
possesses the requisite qualifications and practical training and has passed
examination as required under these Regulations.
(n) "Registration" means a certificate of registration to act as a corporate agentissued under these regulations.
(o) "Regulations" means Insurance Regulatory and Development Authority of India(Registration of Corporate Agent) Regulations, 2015.
(p) "Specified Person" means an employee of a Corporate Agent who is responsiblefor soliciting and procuring insurance business on behalf of a corporate agent
and shall have fulfilled the requirements of qualification, training and passing
of examination as specified in these regulations;
(q) "Telemarketer' means an entity registered with Telecom Regulatory Authority ofIndia under Chapter III of the Telecom Commercial Communications Customer
Preference Regulations, 2010 to conduct the business of sending commercial
communications and holding a certificate issued by the Authority;
(r) Words and expressions used and not defined in these Regulations but defined inthe Act, as amended from time to time, the Insurance Regulatory and
Development Authority Act, 1999 or in any of the Regulations / Guidelines made
there under shall have the meanings respectively assigned to them in those Acts
/ Regulations / Guidelines.**2.** **Scope and applicability of these Regulations:**(1) These regulations shall cover Registration of Corporate Agents for the purposeof soliciting, procuring and servicing of Insurance business of life insurers,
general insurers and health insurers during the validity of certificate of
registration as follows.97(a) A Corporate Agent (Life), may have arrangements with a maximum ofthree life insurers to solicit, procure and service their insurance
Products.
(b) A Corporate Agent (General), may have arrangements with a maximumof three general insurers to solicit, procure and service their insurance
products. Further, the Corporate Agent (General) shall solicit, procure
and service retail lines of general insurance products and commercial
lines of such insurers having a total sum insured not exceeding rupees
five crores per risk for all insurances combined.
(c) A Corporate Agent (Health), may have arrangements with a maximum ofthree health insurers to solicit, procure and service their insurance
products.
(d) In the case of Corporate Agent (Composite), the conditions as specifiedin clauses (a) to (c) shall apply. | Final IC-38 - Corporate Agent _Common _ English.md | null | Scope and applicability of these Regulations: | Final IC-38 - Corporate Agent _Common _ English_051 | {
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there under shall have the meanings respectively assigned to them in those Acts
/ Regulations / Guidelines.**2.** **Scope and applicability of these Regulations:**(1) These regulations shall cover Registration of Corporate Agents for the purposeof soliciting, procuring and servicing of Insurance business of life insurers,
general insurers and health insurers during the validity of certificate of
registration as follows.97(a) A Corporate Agent (Life), may have arrangements with a maximum ofthree life insurers to solicit, procure and service their insurance
Products.
(b) A Corporate Agent (General), may have arrangements with a maximumof three general insurers to solicit, procure and service their insurance
products. Further, the Corporate Agent (General) shall solicit, procure
and service retail lines of general insurance products and commercial
lines of such insurers having a total sum insured not exceeding rupees
five crores per risk for all insurances combined.
(c) A Corporate Agent (Health), may have arrangements with a maximum ofthree health insurers to solicit, procure and service their insurance
products.
(d) In the case of Corporate Agent (Composite), the conditions as specifiedin clauses (a) to (c) shall apply.
(e) any change in the arrangement with the insurance companies shall bedone only with the prior approval of the Authority and with suitable
arrangements for servicing existing policyholders.**3. Consideration of application** –(1) The Authority while considering an application for grant of registration shall takeinto account, all matters relevant for carrying out the activities of a corporate
agent.(2) Without prejudice to the above, the Authority in particular, shall take intoaccount the following, namely:(a) whether the applicant is not suffering from any of the disqualificationsspecified under sub-section (5) of section 42 D of the Act;
(b) whether the applicant has the necessary infrastructure, such as, adequateoffice space, equipment and trained manpower on their rolls to effectively
discharge its activities;
(c) whether any person, directly or indirectly connected with the applicant, hasbeen refused in the past the grant of license/registration by the Authority.(d) Whether the principal officer of the applicant is a graduate and has receivedat least fifty hours of theoretical and practical training from an approved
institution according to a syllabus approved by the Authority, and has passed
an examination, at the end of the period of training mentioned above,
conducted by the examination body.
In case where the principal officer of the applicant is an Associate/ Fellowof the Insurance Institute of India, Mumbai; or Associate/Fellow of the CII,
London; or Associate/Fellow of the institute of Actuaries of India; or holds
any post graduate qualification of the Institute of Insurance and Risk
Management, Hyderabad, the theoretical and practical training shall be
twenty five hours.
(e) whether the principal officer' directors and other employees of the applicanthave not violated the code of conduct as specified in Schedule III to these
regulations during the last three years;98(f) Whether the applicant, in case the principal business of the applicant isother than insurance' maintain an arms-length relationship in financial
matters between its activities as Corporate Agent and other activities.
(g) Whether the Principal Officer/Director(s)/Partner(s)/Specified Personsis/are Fit and Proper based on the statement in Annexure I of these
regulation; and
(h) the Authority is of the opinion that the grant of registration will be in theinterest of policyholders.(3) The specified persons of the applicant shall fulfill the following requirements –a. Having passed minimum of l2th Class or equivalent examination from arecognized Board/Institution:b. (i) The specified person shall have undergone at least fifty hours of training' forthe specified category of life, general, health for' which registration is sought
for, from an approved institution and shall have passed the examination
conducted by the examination body;
(ii) The specified person of corporate agent (composite) shall have undergone
at seventy five hours of training from an approved institute and shall have pass
the examination conducted by the examination body;c. the specified persons engaged by the corporate agent to solicit and procureinsurance business shall have valid certificate issued by the Authority as,
specified in these Regulations.
The certificate shall be valid for a period of three years from the date of issuedsubject to the valid registration of the corporate agent;
The specified person shall apply through the principal officer of the corporate
agent to the Authority in the format specified in Annexure 3 of these regulations
for issuance of certificate.d. A specified person of a corporate agent wishes to switch over to any other
corporate agent, shall do so by applying to the Authority through the new
corporate agent along with a no objection certificate issued by the present
corporate agent. In case, the present corporate agent does not issue a no | Final IC-38 - Corporate Agent _Common _ English.md | l2 | Scope and applicability of these Regulations: | Final IC-38 - Corporate Agent _Common _ English_052 | {
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for, from an approved institution and shall have passed the examination
conducted by the examination body;
(ii) The specified person of corporate agent (composite) shall have undergone
at seventy five hours of training from an approved institute and shall have pass
the examination conducted by the examination body;c. the specified persons engaged by the corporate agent to solicit and procureinsurance business shall have valid certificate issued by the Authority as,
specified in these Regulations.
The certificate shall be valid for a period of three years from the date of issuedsubject to the valid registration of the corporate agent;
The specified person shall apply through the principal officer of the corporate
agent to the Authority in the format specified in Annexure 3 of these regulations
for issuance of certificate.d. A specified person of a corporate agent wishes to switch over to any other
corporate agent, shall do so by applying to the Authority through the new
corporate agent along with a no objection certificate issued by the present
corporate agent. In case, the present corporate agent does not issue a no
objection certificate within 30 days, it shall be deemed that the said corporate
agent has no objection to his switching over. The Authority after receipt of
request from the corporate agent, issue a revised certificate changing the name
of the corporate agent indicating the switching over.4. **Renewal of registration** –(1) As per this regulation a corporate agent may, within thirty days before the
expiry of the registration, make an application in Form A along with requisite
fee to the Authority for renewal of registration.Provided however that if the application reaches the Authority later than that
period but before the actual expiry of the current registration, an additional fee
of rupees one hundred, plus applicable taxes, shall be payable to the Authority.99Provided further that the Authority may for sufficient reasons offered in writing
by the applicant for a delay not covered by the previous proviso, accept an
application for renewal after the date of the expiry of the registration on
payment of an additional fee of seven hundred and fifty rupees, plus applicable
taxes, by the applicant._Note: A corporate agent is permitted to submit the application for renewal of_
_registration ninety days prior to the expiry of the registration._(2) Principal Officer and specified persons before seeking a renewal of
registration shall have completed, at least twenty five hours of therefore local
and practical raining, imparted by an approved institution.(3) The Authority, on being satisfied that the applicant fulfills all the conditions
specified for a renewal of the registration, shall renew the registration in Form
C for a period of three years and send intimation to the applicant.**5. Procedure where a registration is not granted -**(1) Where an application for grant of a registration under regulation 4 or renewal
thereof under regulation 11, does not satisfy the conditions set out in regulation
7, the Authority may refuse to grant or renew the Certificate of Registration.Before the application is rejected the applicant has to be given a reasonable
opportunity of being heard.(2) The refusal to grant or renew a Certificate of Registration shall be
communicated by the Authority within thirty days of such refusal to the
applicant stating therein the grounds on which the application has been
rejected.(3) Any applicant aggrieved by the decision of the Authority may make an appeal
to Securities Appellate Tribunal, within a period of forty-five days from the date
on which a copy of the order made by the Authority under sub-regulation (2)
above is received by it.6. **Effect of refusal to grant registration-** An applicant, whose application for grantof registration under regulation 4 or of a renewal thereof under regulation 11
has been refused or rejected by the Authority, shall, on and from the date of
the receipt of the communication under regulation 12(2) cease to act as a
corporate agent.
He, however, shall continue to be liable to provide services in respect ofcontracts already entered into through him.
Such a service shall continue upto the period of expiry of those existingcontracts, which have already been closed, or for a period of six months,
whichever is earlier within which time they shall make suitable arrangements
with the concerned insurer.1007. **Conditions of grant of registration to Corporate Agent:**The registration granted under regulation 9 or the renewal granted under
regulation 11 shall be subject to the following conditions:(i) The corporate agent registered under these regulations shall be permitted
to solicit and service insurance business as specified in regulation (3) above
only;
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Regulatory and Development Authority Act, 1999 and the Regulations,
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has been refused or rejected by the Authority, shall, on and from the date of
the receipt of the communication under regulation 12(2) cease to act as a
corporate agent.
He, however, shall continue to be liable to provide services in respect ofcontracts already entered into through him.
Such a service shall continue upto the period of expiry of those existingcontracts, which have already been closed, or for a period of six months,
whichever is earlier within which time they shall make suitable arrangements
with the concerned insurer.1007. **Conditions of grant of registration to Corporate Agent:**The registration granted under regulation 9 or the renewal granted under
regulation 11 shall be subject to the following conditions:(i) The corporate agent registered under these regulations shall be permitted
to solicit and service insurance business as specified in regulation (3) above
only;
(ii) The corporate agent shall comply with the provisions of the Act, Insurance
Regulatory and Development Authority Act, 1999 and the Regulations,
Circulars, Guidelines and any other instructions issued there under from
time to time by the Authority;
(iii) The corporate agent shall take adequate steps for redressal of grievancesof its clients within 14 days of receipt of such complaint and keep the
Authority informed about the number, nature and other particulars of the
complaints received from such clients in format and manner as may be
specified by the Authority;
(iv) The corporate agent shall solicit and procure reasonable number ofinsurance policies commensurate with their resources and the number of
specified persons they employ.
(v) The corporate agent shall maintain records in the format specified by the
Authority which shall capture policy-wise and specified person-wise details
wherein each policy solicited by the corporate agent is tagged to the
specified person, except for those products which are simple, sold over
the counter and specifically approved by the Authority. The corporate
agent shall put in place systems which allow regular access to such records
and details by the Authority.
(vi) The corporate agent under no circumstance shall undertake multi-levelmarketing for solicitation of insurance products;
(vii) The Corporate Agent shall ensure compliance of Code of Conductapplicable to its directors, principal officer and specified persons;
(viii) The corporate agent shall maintain separate books of accounts for theircorporate agency business as specified in regulation 31;**8. Payment of fees and the consequences of failure to pay fees –**(1) Every corporate agent shall at the time of application of registration and
renewal thereof pay non refundable application fee of Rs.10,000/-, plus
applicable taxes. No application shall be processed without the application fee.(2) Upon receipt of communication for grant of registration from the Authority,
the applicant shall pay a fee of Rs.25,000/-, plus applicable taxes, within 15
days of receipt of such communication. On receipt of the fee and on satisfactory
compliance of terms and conditions for grant of registration, the Authority shall
grant the registration to act as a corporate agent under the category for which
an application is made.101(3) A corporate agent desirous of applying for renewal shall make an application
for renewal in the prescribed format along with a fee of Rs.25, 000/-, plus
applicable taxes.9. **Remuneration-**The payment of remuneration to or receipt of remuneration by a corporate
agent shall be governed by the regulations notified in this behalf by the
Authority from time to time.**10. Conflict of interest –**While soliciting and procuring the insurance business, the corporate agent shallcomply with the following:(i) The corporate agent having tie-ups with more than one insurer in a particular
line of business, disclose to the prospective customer the list of insurers, with
whom they have arrangements to distribute the products and provide them with
the details such products. Further, disclose the scale of commission in respect
of the insurance product offered, if asked by the prospect;(ii) Where the insurance is sold as an ancillary product along with a principal
business product, the corporate agent or its shareholder or its associates shall
not compel the buyer of the principal business product to necessarily buy the
insurance product through it.
The Principal Officer and CFO (or its equivalent) of the corporate agent shall file
with the Authority a certificate in the format given in the Schedule VIII on halfyearly basis, certifying that there is no forced selling of an insurance product to
any prospect.**11. Disclosures to the Authority-**(1) An applicant desires to become a corporate agent shall disclose to theAuthority at the time of filing application all material facts relevant for
consideration of application, on its own. In case of any change in the
information provided for consideration of their application, subsequent to
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line of business, disclose to the prospective customer the list of insurers, with
whom they have arrangements to distribute the products and provide them with
the details such products. Further, disclose the scale of commission in respect
of the insurance product offered, if asked by the prospect;(ii) Where the insurance is sold as an ancillary product along with a principal
business product, the corporate agent or its shareholder or its associates shall
not compel the buyer of the principal business product to necessarily buy the
insurance product through it.
The Principal Officer and CFO (or its equivalent) of the corporate agent shall file
with the Authority a certificate in the format given in the Schedule VIII on halfyearly basis, certifying that there is no forced selling of an insurance product to
any prospect.**11. Disclosures to the Authority-**(1) An applicant desires to become a corporate agent shall disclose to theAuthority at the time of filing application all material facts relevant for
consideration of application, on its own. In case of any change in the
information provided for consideration of their application, subsequent to
filing of application or during the processing of application, such change shall
be disclosed to the Authority, voluntary by the applicant, for consideration
of the Authority.(2) Similarly, a corporate agent disclose, to the Authority voluntarily, anychange in material facts, based on which a registration was made to them,
within a reasonable time but not later than 30 days from the happening of
such change.
(3) A corporate shall disclose to the Authority proceedings initiated against themby other regulatory or Government bodies within a reasonable time but not
later than 30 days from the initiation of such proceedings. Any action or
direction issued by such other bodies shall also be disclosed to the Authority
within the time limits prescribed above102(4) The corporate agent shall disclose to the Authority the details of its officesin which they propose to distribute insurance products and details of
Specified Persons along with their certificate number issued by the
Authority. Further, any opening or closure of an office by a corporate agent
shall be informed to the Authority.
(5) Failure to adhere to the conditions set out above shall attract regulatoryactions such as suspension or cancelation of registration, imposition of
monetary penalty or any other action.**12. Arrangements with insurers for distribution of products**a) Corporate agents registered under these regulations shall have to enter intoarrangements with insurers for distribution of products. These arrangements
shall have to be disclosed to the Authority within 30 days of entering into
such arrangements. The minimum period of such arrangement shall be forone year;
(b) while entering into such arrangements, no corporate agent shall promise norshall any insurer compel the corporate agent to distribute the products of a
Particular insurer;
(c) Arrangements shall have provisions to include duties and responsibilities ofcorporate agents towards the policyholders, duties and responsibilities of
insurers and corporate agents, terms and conditions for termination of
arrangements;
(d) No arrangements shall be made against the interests of Policyholders;
(e) In case a corporate agent wishes to terminate arrangement with any insurer,they may do so after informing the insurer and the Authority, the reasons or
termination of arrangement. In such cases, they shall ensure that the policies
solicited and placed with the insurer are serviced till the expiry of policies,
or for a Period of six months, whichever is earlier with in which time they
shall make suitable arrangements with the concerned insurer;
(f) In case an insurer wishes to terminate the arrangement with any corporateagent, they may do so after informing the corporate agent and the Authority,
the reasons for termination of arrangement.
In such cases, the concerned insurer shall take the responsibility of servicing
the policies Procured by the corporate agent. In all such cases, the insurer
shall inform the policyholder concerned of the changes made in servicing
arrangements;
(g) No insurer shall directly pay incentives (cash or non-cash) to the principalofficer, specified persons and other employees of the corporate agents;**13.** **Servicing of policyholders-**(1) A corporate agent registered under these regulations shall have the duty toservice its policyholders during the entire period of contract. Servicing
includes assisting in payment of premium required under section 64VB of the
Act, providing necessary assistance and guidance in the event of a claim.103**14. Sale of Insurance by tele-marketing mode and distance marketing activities****of a corporate agent –**(1) A corporate agent who intends to engage the services of a telemarketer or
engage in distance marketing activities for the purpose of distribution of
insurance products shall follow the instructions as laid down in Schedule VII.(2) A corporate agent shall have to comply with the following additional | Final IC-38 - Corporate Agent _Common _ English.md | e102 | Servicing of policyholders- | Final IC-38 - Corporate Agent _Common _ English_055 | {
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the reasons for termination of arrangement.
In such cases, the concerned insurer shall take the responsibility of servicing
the policies Procured by the corporate agent. In all such cases, the insurer
shall inform the policyholder concerned of the changes made in servicing
arrangements;
(g) No insurer shall directly pay incentives (cash or non-cash) to the principalofficer, specified persons and other employees of the corporate agents;**13.** **Servicing of policyholders-**(1) A corporate agent registered under these regulations shall have the duty toservice its policyholders during the entire period of contract. Servicing
includes assisting in payment of premium required under section 64VB of the
Act, providing necessary assistance and guidance in the event of a claim.103**14. Sale of Insurance by tele-marketing mode and distance marketing activities****of a corporate agent –**(1) A corporate agent who intends to engage the services of a telemarketer or
engage in distance marketing activities for the purpose of distribution of
insurance products shall follow the instructions as laid down in Schedule VII.(2) A corporate agent shall have to comply with the following additional
conditions for engaging the services of a telemarketer:a. The telemarketer engaged by the corporate agent shall comply with variouscirculars and/or guidelines or any other direction issued by Telecom
Regulatory Authority of India in the matter;b. A corporate agent intends to undertake telemarketing activities forinsurance intermediation shall seek prior approval of the Authority in the
form specified by the Authority at Annexure 4 of these regulations. The
Authority on verification of the same issue a certificate to the telemarketer;
c. Further, the corporate agent shall file with the Authority the names ofAuthorised verifiers engaged/proposed to be engaged by the telemarketer
in the form specified at Annexure 5 of these regulations,.
d. The Authority on verification of the same issue a certificate to theAuthorised verifier.e. In case an Authorised Verifier intends to switch to another telemarketer whois also dealing with insurance intermediation, they shall obtain a No
Objection Certificate from the erstwhile telemarketer and submit the same
to the Authority for issuing a fresh certificate. In case, the present
telemarketer does not issue a no objection certificate within 30 days from
the date of application for the same, it shall be deemed that the
telemarketer has no objection to his switching over;
f. Application for removal or addition of Authorised Verifiers shall be made bythe Corporate Agent concerned through the Principal Officer;
g. In case the corporate agent registers as telemarketer with TRAI, thecorporate agent shall act as telemarketer for only those insurers with whom
he has arrangements;
h. No corporate agent or its telemarketer shall make outbound calls to anyperson unless he or she has shown interest in buying an insurance policy by
making enquiries to that effect. They shall maintain the database of such
persons and the enquiry made for verification and checking by the Authority
or any person authorized by it.
i. The telemarketer shall disclose to the prospective customer the followinginformation
(a) The name of the corporate agent they represent;
(b) The registration number of the corporate agent;
(c) Contact number of the telemarketer and-/or corporate agent in case the
customer desires to call back or verify the telesales information;104(d) Name and identification number of the person (Authorised Verifier)
making the tele-call.
j. A corporate agent engaging a telemarketer shall enter into an agreementwith the telemarketer and the agreement shall provide the details such as
source of the database, duties and responsibilities, payment details, period
of agreement, actions to be taken in case of violation of Act, regulations,
guidelines, circulars, directions issued by the Authority, Code of Conduct of
Authorised Verifiers. The agreements shall be made available to the
Authority or any person authorized by the Authority for verification as and
when required;
k. Every telemarketer and the authorized Verifier shall abide by the Code ofConduct applicable to corporate agents as specified in Schedule III of these
regulations.
l. The Authority shall have the power to inspect the premises of thetelemarketer or any other premises, which the Authority feels necessary for
the verification of records / documents, and seek any document/record,
record statements of any employee of the telemarketer or make copies of
any documents/records at its discretion:
m. The telemarketer shall have to comply with any other terms and conditionsas may be prescribed by the Authority from time to time in the matter.(3) A telemarketer shall not be engaged with more than three insurers or | Final IC-38 - Corporate Agent _Common _ English.md | null | Servicing of policyholders- | Final IC-38 - Corporate Agent _Common _ English_056 | {
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source of the database, duties and responsibilities, payment details, period
of agreement, actions to be taken in case of violation of Act, regulations,
guidelines, circulars, directions issued by the Authority, Code of Conduct of
Authorised Verifiers. The agreements shall be made available to the
Authority or any person authorized by the Authority for verification as and
when required;
k. Every telemarketer and the authorized Verifier shall abide by the Code ofConduct applicable to corporate agents as specified in Schedule III of these
regulations.
l. The Authority shall have the power to inspect the premises of thetelemarketer or any other premises, which the Authority feels necessary for
the verification of records / documents, and seek any document/record,
record statements of any employee of the telemarketer or make copies of
any documents/records at its discretion:
m. The telemarketer shall have to comply with any other terms and conditionsas may be prescribed by the Authority from time to time in the matter.(3) A telemarketer shall not be engaged with more than three insurers or
insurance related entities**15. Code of conduct for Corporate Agents-**(1) Every Corporate Agent shall abide by the Code of Conduct as specified in
Schedule III of these regulations,(2) The corporate agent shall be responsible for all (the acts and omissions of its
principal officer, specified persons and other employees including violation of
code of conduct specified under these regulations and liable to a penalty which
may extend to one crore rupees under the provisions of Sec.102 of the Act.**16. Maintenance of Records**A Corporate Agent shall maintain the following records including in electronic
form and shall be made available as and when required by the Aurhority –(i) Know Your Client (KYC) records of the client, as required under therelevant Authority’s guidelines and provisions of Prevention of Money
Laundering Act;
(ii) Copy of the proposal form duly signed by the client and submitted to theinsurer with ACR signed by the specified person of corporate agent;
(iii)A register containing list of clients, details of policy such as type of policy,premium amount, date of issue of the policy, charges or fees received;105(iv) A register containing details of complaints received which include name ofthe complainant, nature of complaint, details of policy issued/solicited
and action taken thereon;
(v) A register which shall contain the name, address, telephone no,photograph, date of commencement of employment, date of leaving the
service, if any, monthly remuneration paid to the specified person;
(vi) Copies of the correspondence exchanged with the Authority;
(vii) Any other record as may be specified by the Authority from time to time.**17. Maintenance of books of account, records, etc. –**(1) A corporate agent, which is incorporated exclusively for the purposes of
insurance intermediation, shall prepare the following books of accounts for
every financial year(i) a balance sheet or a statement of affairs as at the end of each accountingperiod;
(ii) a profit and loss account for that period;
(iii) a statement of cash/fund flow:
(iv) Additional statements as may be required by the Authority from time to
rime.**Note.1** : For purposes of this regulation, the financial year shall be a period of 12
months (or less where a business is started after 1 [st] April) commencing on the first
day of the April of an year and ending on the 31 [st] day of March of the year following
and the accounts shall be maintained on accrual basis._Note.2: There shall be a schedule to their financial statements or providing the_
_details of all the incomes received from insurers and insurer's group companies,_
_insurer-wise, by the corporate agent, and also the details of payments received by_
_the group companies and/or associates of the corporate agent from any insurer and_
_the details thereof._(a) A copy of the audited financial statements as stated in sub-regulation (1) alongwith the auditor's report thereon shall be submitted to the Authority before
30 [th] September every year along with the remarks or observations of the
auditors, if any, on the conduct of the business, state of accounts, etc., and a
suitable explanation on such observations shall be appended to such accounts
filed with the Authority.(b) Within ninety days from the date of the Auditor's report necessary steps torectify any deficiencies, made out in the auditor's report, be made and
informed to the Authority.(c) All the books of account, statements, document, etc., shall be maintained atthe head office of the corporate agent or such other branch office as may be | Final IC-38 - Corporate Agent _Common _ English.md | null | Note.1 | Final IC-38 - Corporate Agent _Common _ English_057 | {
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and the accounts shall be maintained on accrual basis._Note.2: There shall be a schedule to their financial statements or providing the_
_details of all the incomes received from insurers and insurer's group companies,_
_insurer-wise, by the corporate agent, and also the details of payments received by_
_the group companies and/or associates of the corporate agent from any insurer and_
_the details thereof._(a) A copy of the audited financial statements as stated in sub-regulation (1) alongwith the auditor's report thereon shall be submitted to the Authority before
30 [th] September every year along with the remarks or observations of the
auditors, if any, on the conduct of the business, state of accounts, etc., and a
suitable explanation on such observations shall be appended to such accounts
filed with the Authority.(b) Within ninety days from the date of the Auditor's report necessary steps torectify any deficiencies, made out in the auditor's report, be made and
informed to the Authority.(c) All the books of account, statements, document, etc., shall be maintained atthe head office of the corporate agent or such other branch office as may be
designated and notified to the Authority, and shall be available on all working
days to such officers of the Authority, and authorised in this behalf for
inspection.106(d) All the books, documents, statements, contract notes etc., referred to in thisregulation and maintained by the corporate agent shall be retained for a
minimum period of ten years from the end of the year to which they relate.
However, the documents pertaining to the cases where claims are reported and
the settlement is pending for a decision from courts, the documents are
required to be maintained till the disposal of the cases by the court.(2) In the case of corporate agents whose principal business is other than insuranceintermediation, they shall maintain segment wise reporting capturing the
revenues received for insurance intermediation and other income frominsurers.(3) Every insurer who is engaging the services of a corporate agent shall file withthe Authority a certificate, separately for all such corporate agents, in the
format given in the Schedule VIA to be signed by the CEO and CFO. A similar
certificate from the Principal Officer and CFO (or its equivalent) of the
corporate agent specifying the commission/ remuneration received from the
insurer shall be filed with the Authority as given in Schedule VlB.107**Code of Conduct****I.** **General Code of Conduct****1.** Every corporate agent shall follow recognised standards of professional conductand discharge their duties in the interest of the policyholders. While doing soa) conduct its dealings with clients with utmost good faith and integrity at alltimes;
b) act with care and diligence;
c) ensure that the client understands his relationship with the corporate agentand on whose behalf the corporate agent is acting;
d) treat all information supplied by the prospective clients as completelyconfidential to themselves and to the insurer(s) to which the business is
being offered;
e) take appropriate steps to maintain the security of confidential documents intheir possession;
f) No director of a company or a partner of a firm or the chief executive or aprincipal officer or a specified person shall hold similar position with another
corporate agent;**2.** **Every Corporate Agent shall**a) be responsible for all acts of omission and commission of its principal officerand every specified person;
b) ensure that the principal officer and all specified persons are properlytrained, skilled and knowledgeable in the insurance products they market;
c) ensure that the principal officer and the specified person do not make to theprospect any misrepresentation on policy benefits and returns available
under policy;
d) ensure that no prospect is forced to buy an insurance product;
e) give adequate pre-sale and post-sale advice to the insured in respect of theinsurance product;
f) Extend all possible help and cooperation to an insured in completion of allformalities and documentation in the event of a claim;
g) give due publicity to the fact that the corporate agent does not underwritethe risk or act as an insurer;
h) enter into agreements with the insurers in which the duties andresponsibilities of both are defined**II.** **Pre-sale Code of Conduct****3.** Every corporate agent or principal officer or a specified person shall also followthe code of conduct specified below:i) Every corporate agent/principal officer/ specified person shall,a) identify himself and disclose his registration/ certificate to the prospect ondemand;
b) disseminate the requisite information in respect of insurance productsoffered for sale by the insurers with whom they have arrangement and take108into account the needs of the prospects while recommending a specific
insurance plan;
c) disclose the scales of commission in respect of the insurance product offeredfor sale, if asked by the prospect; | Final IC-38 - Corporate Agent _Common _ English.md | e108 | Code of Conduct | Final IC-38 - Corporate Agent _Common _ English_058 | {
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under policy;
d) ensure that no prospect is forced to buy an insurance product;
e) give adequate pre-sale and post-sale advice to the insured in respect of theinsurance product;
f) Extend all possible help and cooperation to an insured in completion of allformalities and documentation in the event of a claim;
g) give due publicity to the fact that the corporate agent does not underwritethe risk or act as an insurer;
h) enter into agreements with the insurers in which the duties andresponsibilities of both are defined**II.** **Pre-sale Code of Conduct****3.** Every corporate agent or principal officer or a specified person shall also followthe code of conduct specified below:i) Every corporate agent/principal officer/ specified person shall,a) identify himself and disclose his registration/ certificate to the prospect ondemand;
b) disseminate the requisite information in respect of insurance productsoffered for sale by the insurers with whom they have arrangement and take108into account the needs of the prospects while recommending a specific
insurance plan;
c) disclose the scales of commission in respect of the insurance product offeredfor sale, if asked by the prospect;
d) indicate the premium to be charged by the insurer for the insurance productoffered for sale;
e) explain to the prospect the nature of information required in the proposalform by the insurer, and also the importance of disclosure of material
information in the purchase of an insurance contract;
f) bring to the notice of the insurer any adverse habits or income inconsistencyof the prospect, in the form of a Confidential Report along with every
proposal submitted to the insurer, and any material fact that may adversely
affect the underwriting decision of the insurer as regards acceptance of the
proposal, by making all reasonable enquiries about the prospect;
g) inform promptly the prospect about the acceptance or rejection of theproposal by the insurer;
h) obtain the requisite documents at the time of filing the proposal form withthe insurer, and other documents subsequently asked for by the insurer for
completion of the proposal;ii) No corporate agent/ principal officer/ specified person shall,----a) solicit or procure insurance business without holding a valid
registration/certificate;
b) induce the prospect to omit any material information in the proposal form;
c) induce the prospect to submit wrong information in the proposal form ordocuments submitted to the insurer for acceptance of the proposal;
d) behave in a discourteous manner with the prospect;
e) interfere with any proposal introduced by any other specified person or anyinsurance intermediary;
f) offer different rates, advantages, terms and conditions other than thoseoffered by the insurer;
g) force a policyholder to terminate the existing policy and to effect a newproposal from him within three years from the date of such termination;
h) No corporate agent shall have a portfolio of insurance business from oneperson or one organization or one group of organizations under which the
premium is in excess of fifty percent of total premium procured in any year;
i) become or remain a director of any insurance company, except with theprior approval of the Authority,
j) indulge in any sort of money laundering activities;
k) indulge in sourcing of business by themselves or through call centers byway of misleading calls or spurious calls;
l) undertake multi-level marketing for soliciting and procuring of insuranceproducts;
m) engage untrained and unauthorised persons to bring in business;
n) provide insurance consultancy or claims consultancy or any other insurancerelated services except soliciting and servicing of insurance products as per
the certificate of registration.109o) Engage, encourage, enter into a contract with or have any sort ofarrangement with any person other than
a specified person, to refer, solicit, generate lead, advise, introduce, find
or provide contact details of prospective policyholders in furtherance of the
distribution of the insurance product;
p) Pay or allow the payment of any fee, commission, incentive by any othername whatsoever for the purpose of sale, introduction, lead generation,
referring or finding to any person or entity**III. Post-Sale Code of Conduct**4. Every Corporate Agent shall
a) advise every individual policyholder to effect nomination or assignment orchange of address or exercise of options, as the case may be, and offer
necessary assistance in this behalf, wherever necessary;
b) with a view to conserve the insurance business already procured throughhim, make every attempt to ensure remittance of the premiums by the
policyholders within the stipulated time, by giving notice to the policyholder
orally and in writing.
c) ensure that its client is aware of the expiry date of the insurance even if itchooses not to offer further cover to the client:
d) ensure that renewal notices contain a warning about the duty of disclosureincluding the necessity to advise changes affecting the policy, which have | Final IC-38 - Corporate Agent _Common _ English.md | e108 | II. | Final IC-38 - Corporate Agent _Common _ English_059 | {
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a specified person, to refer, solicit, generate lead, advise, introduce, find
or provide contact details of prospective policyholders in furtherance of the
distribution of the insurance product;
p) Pay or allow the payment of any fee, commission, incentive by any othername whatsoever for the purpose of sale, introduction, lead generation,
referring or finding to any person or entity**III. Post-Sale Code of Conduct**4. Every Corporate Agent shall
a) advise every individual policyholder to effect nomination or assignment orchange of address or exercise of options, as the case may be, and offer
necessary assistance in this behalf, wherever necessary;
b) with a view to conserve the insurance business already procured throughhim, make every attempt to ensure remittance of the premiums by the
policyholders within the stipulated time, by giving notice to the policyholder
orally and in writing.
c) ensure that its client is aware of the expiry date of the insurance even if itchooses not to offer further cover to the client:
d) ensure that renewal notices contain a warning about the duty of disclosureincluding the necessity to advise changes affecting the policy, which have
occurred since the policy inception or the last renewal date;
e) ensure that renewal notices contain a requirement for keeping a record(including copies of letters) of all information supplied to the insurer for the
purpose of renewal of the contract;
f) ensure that the client receives the insurer’s renewal invitation well in timebefore the expiry date.
g) render necessary assistance to the policyholders or claimants orbeneficiaries in complying with the requirements for settlement of claims by
the insurer;
h) explain to its clients their obligation to notify claims promptly and to discloseall material facts and advise subsequent developments as soon as possible;
i) advise the client to make true, fair and complete disclosure where it believesthat the client has not done so. lf further disclosure is nor forthcoming it
shall consider declining to act further for the client;
j) give prompt advice to the client of any requirements concerning the claim;
k) forward any information received from the client regarding a claim or anincident that may give rise to a claim without delay, and in any event within
three working days;
l) advise the client without delay of the insurer's decision or otherwise of aclaim; and give all reasonable assistance to the client in pursuing his claim.
m) shall not demand or receive a share of proceeds from the beneficiary underan insurance contract;
n) ensure that letters of instructor, policies and renewal documents containdetails of complaints handling procedures:
o) accept complaints either by phone or in writing:110p) acknowledge a complaint within fourteen days from the receipt ofcorrespondence, advise the member of staff who will be dealing with the
complaint and the timetable for dealing with it;
q) ensure that response letters are sent and inform the complainant of what hemay do if he is unhappy with the response;
r) ensure that complaints are dealt with at a suitably senior level;
s) Have in place a system for recording and monitoring complaints.111 | Final IC-38 - Corporate Agent _Common _ English.md | null | III. Post-Sale Code of Conduct | Final IC-38 - Corporate Agent _Common _ English_060 | {
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## IC - 38 **CORPORATE AGENTS** **COMPOSITE****ACKNOWLEDGEMENT****This course is based on revised syllabus prescribed by Insurance Regulatory and**
**Development Authority of India (IRDAI) and prepared by Insurance Institute of**
**India, Mumbai.****AUTHORS/ REVIEWERS (in Alphabetical order)**Dr. R. K. Duggal
Dr. Shashidharan K. Kutty
CA P. Koteswara Rao
Dr. Pradip Sarkar
Prof. Madhuri Sharma
Dr. George E. Thomas
Prof. Archana VazeG – Block, Plot No. C-46, Bandra Kurla Complex, Bandra (E), Mumbai – 400 051.i## CORPORATE AGENTS **COMPOSITE** **IC - 38****Year of Edition: 2023****ALL RIGHTS RESERVED**This course material is the copyright of Insurance Institute of India (III). This course
is designed for providing academic inputs for students appearing for the
examinations of Insurance Institute of India. This course material may not be
reproduced for commercial purpose, in part or whole, without prior express written
permission of the Institute.The contents are based on prevailing best practices and not intended to give
interpretations or solutions in case of disputes, legal or otherwise.This is only an indicative study material. Please note that the questions in the
examination shall not be confined to this study material only.Published by: Secretary General, Insurance Institute of India, G- Block, Plot C-46,
Bandra Kurla Complex, Bandra (E) Mumbai – 400 051 and Printed atAny communication regarding this study material may be addressed to ctd@iii.org.in
mentioning the subject title and unique publication number mentioned on the coverpageii## PREFACEInsurance Institute of India, (the Institute) has developed this course material for
Corporate Agents based on the syllabus prescribed by Insurance Regulatory and
Development Authority of India (IRDAI). Industry experts were involved in preparingthe course material.The course provides basic knowledge of Life, General and Health insurance to
enable agents in the respective line of business to understand and appreciate their
professional career in the right perspective.The course is structured as four sections. (1) Overview - a Common section that
covers Insurance Principles, Legal Principles and Regulatory matters that Insurance
agents need to know. Separate sections are provided for those aspiring to become
(2) Life Insurance Agents, (3) General Insurance Agents and (4) Health Insurance
Agents.A set of model questions are included in the course to give students an idea of the
examination format and the types of objective questions that may be asked. The
model questions will also help them in revising what they have learnt.Insurance operates in a dynamic environment. Agents need to be up to date about
changes in the market. They should actively pursue knowledge through personal
study and participation in the in-house training programmes arranged by the
respective insurers.The Institute thanks IRDAI for entrusting this work to the Institute. The Institute
wishes all interested in studying the material a successful career in insurance
marketing.iii## CONTENTS|Chapter no.|Title|Page no.|
|---|---|---|
|**SECTION **|**COMMON CHAPTERS **|**COMMON CHAPTERS **|
|C-01|Introduction to Insurance|2|
|C-02|Core Elements of Insurance|18|
|C-03|Principles of Insurance|27|
|C-04|Features of Insurance Contracts|40|
|C-05|Underwriting and Rating|48|
|C-06|Claims Processing|56|
|C-07|Documentation|63|
|C-08|Customer Service|72|
|C-09|Grievance Redressal Mechanism|87|
|C-10|Regulatory Aspects for Corporate Agents|95|
|**SECTION **|**LIFE INSURANCE **|**LIFE INSURANCE **|
|L-01|What Life Insurance Involves|113|
|L-02|Financial Planning|119|
|L-03|Life Insurance Products: Traditional|132|
|L-04|Life insurance products: Non-Traditional|142|
|L-05|Applications of Life Insurance|148|
|L-06|Pricing and Valuation in Life Insurance|153|
|L-07|Life Insurance Documentation|162|
|L-08|Life Insurance Underwriting|175|
|L-09|Life Insurance Claims|188|
|**SECTION**|**HEALTH INSURANCE **|**HEALTH INSURANCE **|
|H-01|Introduction to Health Insurance|196|
|H-02|Health Insurance Documentation|203| | Final IC-38 - Corporate Agent _Composite _ English.md | C-46 | CORPORATE AGENTS | Final IC-38 - Corporate Agent _Composite _ English_000 | {
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|C-07|Documentation|63|
|C-08|Customer Service|72|
|C-09|Grievance Redressal Mechanism|87|
|C-10|Regulatory Aspects for Corporate Agents|95|
|**SECTION **|**LIFE INSURANCE **|**LIFE INSURANCE **|
|L-01|What Life Insurance Involves|113|
|L-02|Financial Planning|119|
|L-03|Life Insurance Products: Traditional|132|
|L-04|Life insurance products: Non-Traditional|142|
|L-05|Applications of Life Insurance|148|
|L-06|Pricing and Valuation in Life Insurance|153|
|L-07|Life Insurance Documentation|162|
|L-08|Life Insurance Underwriting|175|
|L-09|Life Insurance Claims|188|
|**SECTION**|**HEALTH INSURANCE **|**HEALTH INSURANCE **|
|H-01|Introduction to Health Insurance|196|
|H-02|Health Insurance Documentation|203|
|H-03|Health Insurance Products|210|
|H-04|Health Insurance Underwriting|236|
|H-05|Health Insurance Claims|251|
|**SECTION **|**GENERAL INSURANCE **|**GENERAL INSURANCE **|
|G-01|General Insurance Documentation|267|
|G-02|Underwriting and Rate Making|282|
|G-03|Personal and Retail Insurance|291|
|G-04|Commercial Insurance|301|
|G-05|General Insurance Claims|324|
|**SECTION **|**ANNEXURES **<br>|**ANNEXURES **<br>|
|A-1|~~Annexures – Specimen Proposal forms and Claims Forms~~<br>for filling up<br>|333|iv## SECTION **AN OVERVIEW**1## CHAPTER C-01## INTRODUCTION TO INSURANCE**Chapter Introduction**This chapter aims to introduce the basics of insurance, trace its evolution and how
it works. It intends to teach how insurance provides protection against economic
losses arising as a result of unforeseen events and serves as an instrument of risktransfer.2**A.** **Insurance – History and Evolution**We live in a world of uncertainty. We hear about: Trains colliding Floods destroying entire communities Earthquakes destroying buildings Young people dying unexpectedly**Diagram 1:** **Events happening around us**Why do these events make people anxious and afraid?The reason is simple.**i.** Firstly these **events are unpredictable.** If one can anticipate and predict anevent, one can prepare for it.**ii.** Secondly, such unpredictable and untoward events are often a **cause of****economic loss and grief** .The people around can come to the aid of individuals who are affected by such
events, by having a system of sharing and mutual support. The idea of insurance is
thousands of years old. Yet, the present form of insurance, is only two or threecenturies old.**1.** **History of insurance**Insurance has existed in some form or other since 3000 BC. Many civilisations, have
practiced the concept of pooling and sharing among themselves, all the losses
suffered by some members of the community. Let us take a look at some of the
ways in which this concept was applied.3**2.** **Insurance through the ages – Some instances**|Bottomry Loans|Traders of Babylon paid extra money to their lenders to write off<br>their loans if shipment was lost or stolen.<br>Traders of Bharuch and Surat also had similar practices.|
|---|---|
|**Benevolent**<br>**Societies/**<br>**Friendly**<br>**Societies**|Greeks of 7th Cy. AD, used to pay in advance to take care of the<br>family of members who died and also the funeral expenses of the<br>member.<br>Similar practices were followed in England as well.|
|**Rhodes**|Traders of Rhodes who were sending goods by sea, were sharing<br>losses if any of them lost their goods due to jettison1.|
|**Chinese Traders**|**Chinese traders**in ancient days used to send their goods in<br>different ships, so that even if some boats sank, their loss would be<br>partial.|**3.** **Modern concepts of insurance**In India the principle of life insurance was reflected in the joint-family system.
Losses arising from the demise of a member were shared by various family | Final IC-38 - Corporate Agent _Composite _ English.md | C-07 | SECTION | Final IC-38 - Corporate Agent _Composite _ English_001 | {
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|**Benevolent**<br>**Societies/**<br>**Friendly**<br>**Societies**|Greeks of 7th Cy. AD, used to pay in advance to take care of the<br>family of members who died and also the funeral expenses of the<br>member.<br>Similar practices were followed in England as well.|
|**Rhodes**|Traders of Rhodes who were sending goods by sea, were sharing<br>losses if any of them lost their goods due to jettison1.|
|**Chinese Traders**|**Chinese traders**in ancient days used to send their goods in<br>different ships, so that even if some boats sank, their loss would be<br>partial.|**3.** **Modern concepts of insurance**In India the principle of life insurance was reflected in the joint-family system.
Losses arising from the demise of a member were shared by various family
members so that each member of the family continued to feel secure.The break-up of the joint family system and emergence of the nuclear family in
the modern era, coupled with the stress of daily life has made it necessary to
evolve alternative systems for security. This highlights the importance of lifeinsurance to an individual.**i.** **Lloyds** : The origins of modern commercial insurance started at Lloyd’sCoffee House in London, where traders agreed to share losses they suffered
due to various perils at sea.**ii.** **Amicable Society for a Perpetual Assurance** founded in 1706 in London isconsidered to be the first life insurance company in the world.**4.** **History of insurance in India****a)** **India** : Modern insurance in India began in early 1800 or thereabouts, with
agencies of foreign insurers starting marine insurance business.|The Oriental Life<br>Insurance Co. Ltd|The first life insurance company to be set up in India<br>was an English company|
|---|---|
|**Triton Insurance Co. Ltd.**|The first non-life insurer to be established in India|
|**Bombay Mutual**<br>**Assurance Society Ltd.**|The first Indian insurance company. It was formed<br>in 1870 in Mumbai|1 Jettison/ Jettisoning’ refers to throwing away some of the cargo to reduce the weight of the ship while at sea.4Many other Indian companies were set up subsequently as a result of the Swadeshi
movement at the turn of the century.**Important**a) The **Insurance Act 1938** was the first legislation to regulate the conduct ofinsurance companies in India. This Act, as amended from time to time continuesto be in force.b) Life insurance business was nationalised on 1st September 1956 and the **Life****Insurance Corporation of India (LIC)** was formed. From 1956 to 1999, the LIC
held exclusive rights to do life insurance business in India.c) In 1972, the non-life insurance business was also nationalised and the **General****Insurance Corporation of India (GIC) and its four subsidiaries** were set up.d) **The Malhotra Committee, in its report submitted in 1994, recommended**opening of the market for competitione) The Insurance market was liberalised in 2000, with the passing of the InsuranceRegulatory & Development Act, 1999 (IRDAI), which also established the
Insurance Regulatory and Development Authority of India (IRDAI) in April 2000 as
a statutory regulatory body for the insurance industry.f) An amendment of the Insurance Act in 2021, has allowed Foreign investors, tohold up to 74% of the paid up equity capital in an Indian Insurance company.
Foreign insurers can now establish branches in India to do reinsurance.**a.** **Insurance industry today (As on 30** **[th]** **September 2021)**a) There are 24 Life insurance companies operating in India. Of these, LifeInsurance Corporation (LIC) of India is a public sector company (PSU) and the
remaining 23 life insurance companies are in the private sector.b) There are 34 General Insurance companies of which 4 - National InsuranceCo. Ltd, The New India Assurance Co. Ltd., The Oriental Insurance Co. Ltd
and United India Insurance Co. Ltd. are PSU Companies dealing with all lines
of general insurance. 26 Private Companies also deal with all lines of general
insurance. 6General Insurers deal only in Health insurance. 2 are specialised
insurers - Agricultural Insurance Company [AIC] and Export Credit and | Final IC-38 - Corporate Agent _Composite _ English.md | n1 | Benevolent | Final IC-38 - Corporate Agent _Composite _ English_002 | {
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Insurance Regulatory and Development Authority of India (IRDAI) in April 2000 as
a statutory regulatory body for the insurance industry.f) An amendment of the Insurance Act in 2021, has allowed Foreign investors, tohold up to 74% of the paid up equity capital in an Indian Insurance company.
Foreign insurers can now establish branches in India to do reinsurance.**a.** **Insurance industry today (As on 30** **[th]** **September 2021)**a) There are 24 Life insurance companies operating in India. Of these, LifeInsurance Corporation (LIC) of India is a public sector company (PSU) and the
remaining 23 life insurance companies are in the private sector.b) There are 34 General Insurance companies of which 4 - National InsuranceCo. Ltd, The New India Assurance Co. Ltd., The Oriental Insurance Co. Ltd
and United India Insurance Co. Ltd. are PSU Companies dealing with all lines
of general insurance. 26 Private Companies also deal with all lines of general
insurance. 6General Insurers deal only in Health insurance. 2 are specialised
insurers - Agricultural Insurance Company [AIC] and Export Credit and
Guarantees Corporation [ECGC], both set up as Public sector entities.c) There is one Reinsurance Company – The General Insurance Corporation ofIndia [GIC Re] and 11 foreign Reinsurers that operate through branch offices.5d) The Department of Posts (called as India Post) of the Government of India,also transacts life insurance known as Postal Life Insurance. India post is
exempt from the purview of the Insurance Regulator.**Test Yourself 1**Which among the following is the regulatory body for the insurance industry in India?I. Insurance Authority of IndiaII. Insurance Regulatory and Development Authority of IndiaIII. Life Insurance Corporation of IndiaIV. General Insurance Corporation of India**How insurance works**Modern commerce was founded on the principle of ownership of property. When an
asset loses value (by loss or destruction), the owner of the asset suffers an economic
loss. This loss can be compensated from a common fund made up of small
contributions from many similar asset owners. This process of transferring the
chance and consequence of a loss making event is insurance.This mechanism of pooling risks works differently in the case of death and disabilityas there is no loss/ destruction of a commercial asset.**Definition**Insurance may thus be considered as a process by which the losses of a few are
shared amongst many of those exposed to similar uncertain events/ situations.**Diagram 2:** **How insurance works**There are however some questions that need to be answered.i. Would people agree to part with their hard earned money, to create such acommon fund?ii. How could they trust that their contributions are actually being used for thedesired purpose?6iii. How would they know if they are paying too much or too little?iv. Who would take the responsibility of managing these funds and paying thosewho suffer the loss?The need for an Insurer comes as an answer to all these questions. The Insurer
assesses the risk, decides and collects the individual contributions (called premium),
pools the risks and premiums, and arranges to pay to those who suffer the loss. The
insurer must also win the trust of the individuals and the community.**1.** **Insurance is about value**a) Firstly, there must be an asset which has an economic value. The **Asset** may be:i. P **hysical** (like a car or a building) orii. N **on-physical** (like reputation, goodwill, liability to pay to someone) oriii. P **ersonal** (like one’s eyes, limbs, body and physical capabilities).b) The asset may lose its value if a certain event happens. This chance of loss iscalled as **risk** . The cause of the risk event is known as **peril** .c) There is a principle known as **pooling** . This consists of collecting numerousindividual contributions (known as premiums) from various persons. These
persons have similar assets which are exposed to similar risks. Their assets are
also referred to as ‘risks’ in many contexts.d) This pool of funds is used to compensate the few who might suffer the lossescaused by a **peril** .e) This process of pooling funds and compensating the unfortunate few is carriedout through an institution known as the **insurer** (Insurance Company).f) The insurer enters into an insurance **contract** with each person who seeks toparticipate in this mechanism of pooling. The persons who participate are known
as **insured.****2.** **Insurance reduces Risk Burden**The burden of risk refers to the costs, losses and disabilities one has to bear as a | Final IC-38 - Corporate Agent _Composite _ English.md | null | Insurance industry today (As on 30 | Final IC-38 - Corporate Agent _Composite _ English_003 | {
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persons have similar assets which are exposed to similar risks. Their assets are
also referred to as ‘risks’ in many contexts.d) This pool of funds is used to compensate the few who might suffer the lossescaused by a **peril** .e) This process of pooling funds and compensating the unfortunate few is carriedout through an institution known as the **insurer** (Insurance Company).f) The insurer enters into an insurance **contract** with each person who seeks toparticipate in this mechanism of pooling. The persons who participate are known
as **insured.****2.** **Insurance reduces Risk Burden**The burden of risk refers to the costs, losses and disabilities one has to bear as a
result of being exposed to a given loss situation/ event.**Diagram 3:** **Risk burdens that one carries**There are two types of risk burdens that one carries – **primary and secondary** .7**a)** **Primary burden of risk**The **primary burden of risk** consists of losses that are actually suffered by
households (and business units), as a result of pure risk events. These losses are
often direct and measurable; and can be easily compensated for by insurance.**Example**When a factory gets destroyed by fire, the actual value of goods damaged or
destroyed can be estimated and the compensation can be paid to the owner of
the factory who has suffered the loss.Similarly, if an individual undergoes a heart surgery, the medical cost of the
same is known and compensated. In addition there may be some indirect losses.**Example**A fire may interrupt business operations and lead to loss of profits which also
can be estimated and the compensation can be paid to the one who suffers sucha loss.Someone whose scooter hits a pedestrian is liable to pay the victim the
compensation that the Court decides.**b)** **Secondary burden of risk**Even when no such event occurs and there is no loss, the people who are exposed
to the peril carry some burden. That is, apart from the primary burden, one also
carries a secondary burden of risk.The **secondary burden of risk** consists of costs and strains that one has to bear,
even if the said event does not occur, from the mere fact that one is exposedto a loss situation.Let us understand some of these burdens:i. Firstly there is **physical and mental strain caused by fear and anxiety** . This
can cause stress and affect a person’s wellbeing.ii. Secondly when one is **uncertain about whether a loss would occur or not**,it would be prudent to keep a reserve fund to meet such an eventuality.
Such funds may be held in liquid form and yield low returns.By transferring the risk to an insurer, it becomes possible to enjoy peace of mind
and also invest one’s funds more effectively. It is precisely for these reasons thatinsurance is needed.In India, one must purchase third party insurance if he/ she owns a vehicle because
it is mandatory if one wants to drive on a public road. At the same time it would be
prudent to cover the possibility of loss of own damage to the car though it is not8mandatory. It is also compulsory to have a Personal Accident cover for the Owner
Driver.**Test Yourself 2**Which among the following is a secondary burden of risk?
I. Business interruption cost
II. Goods damaged cost
III. Setting aside reserves as a provision for meeting potential losses in the future
IV. Hospitalisation costs as a result of heart attack**B.** **The Principle of Risk Pooling**Insurance companies enter into contracts with different entities – policyholders,
who can be individuals or corporates. The benefits they pay to policyholders are
contractual obligations. Insurance contracts are meaningful only if the Insurers are
financially capable of taking over the risks and compensating for the losses, if and
when they occur. The structure arises from application of the mutuality or the
pooling principle.**Mutuality** and Diversification are two important ways to reduce risk in financial
markets. They are fundamentally different.|Diversification|Mutuality|
|---|---|
|Here the funds are spread out among<br>various assets (eggs are placed in different<br>baskets).|Under mutuality or pooling, the funds of<br>various individuals are combined (all eggs<br>are placed in one basket).|
|Funds flow from one source to many<br>destinations.|Funds flow from many sources to one.|**Diagram 4:** **Mutuality -** Mutuality (Funds flow from many sources to one)The Principle of Mutuality is what gives insurance contracts their power and
uniqueness. By paying a small contribution (the premium), an insured immediately
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contractual obligations. Insurance contracts are meaningful only if the Insurers are
financially capable of taking over the risks and compensating for the losses, if and
when they occur. The structure arises from application of the mutuality or the
pooling principle.**Mutuality** and Diversification are two important ways to reduce risk in financial
markets. They are fundamentally different.|Diversification|Mutuality|
|---|---|
|Here the funds are spread out among<br>various assets (eggs are placed in different<br>baskets).|Under mutuality or pooling, the funds of<br>various individuals are combined (all eggs<br>are placed in one basket).|
|Funds flow from one source to many<br>destinations.|Funds flow from many sources to one.|**Diagram 4:** **Mutuality -** Mutuality (Funds flow from many sources to one)The Principle of Mutuality is what gives insurance contracts their power and
uniqueness. By paying a small contribution (the premium), an insured immediately
creates a large quantity of funds ( corpus)that is available to him/ her in the event
of a loss arising due to the insured risk. This potential corpus of money is what
makes insurance unique and without any substitutes among all financial products.9**C.** **Risk Management Techniques**One may also ask whether insurance is the right solution to all kinds of risksituations. The answer is ‘No’.Insurance is only one of the methods by which individuals may seek to manage their
risks. Here they transfer the risks they face to an insurance company. However there
are other methods of dealing with risks, which are explained below:**1.** **Risk avoidance**Reducing risk by avoiding a loss situation is known as risk avoidance. Thus one may
try to avoid activities or situations, or avoid dealing with property or persons due
to which there can be an exposure.**Example**i. One may avoid certain manufacturing risks by contracting out the manufacturingto someone else.ii. One may not venture outside the house for fear of meeting with an accident ormay not travel at all for fear of falling ill when abroad.Risk avoidance is considered a negative way to handle risk. Individuals and societies
need to take some risks for doing activities for their progress. Avoiding such risk
taking activities would lead to losing the benefits from such activity.**2.** **Risk retention**One tries to manage the impact of risk and decides to bear the risk and its effects
by oneself. This is known as self-insurance.**Example**A business house may decide, based on experience about its capacity to bear small
losses upto a certain limit, to retain the risk with itself.**3.** **Risk reduction and control**This is a more practical and relevant approach than risk avoidance. It means taking
steps to lower the chance of occurrence of a loss and/ or to reduce severity of its
impact if such loss should occur.**Important**Measures to reduce the chance of occurrence of loss causing events are known as
‘ **Loss Prevention** ’. The measures to reduce the degree of loss, in case a loss
happens, are called ‘ **Loss Reduction** ’/ Loss Minimisation.Risk reduction involves reducing the frequency and/ or sizes of losses through:10**a)** **Education and training of various types of employees in proper risk****practices – e.g.** (i) participating in ‘fire drills’; (ii)wearing of seatbeltshelmets on cars.**b)** **Making Environmental changes –** like improving physical conditions - e.g. (i)installing fire alarms; (ii) spraying chemicals to kill mosquitoes to reduce
spread of Malaria.**c)** **Changes made in dangerous or hazardous operations,** while usingmachinery and equipment or in the performance of other task - e.g. (i)
wearing helmets inside construction sites; (ii) wearing gloves and face shields
while handling chemicals.**d)** **Leading a healthy lifestyle** - helps in reduce the incidence of falling ill - e.g.(i) undergoing regular medical check-ups; (ii) practicing yoga regularly.**e)** **Separation**, or spreading out various items of property into varied locationsrather than concentrating them, to reduce impact of mishap in any one
location - e.g. (i) storing large quantities of flammable substances at separate
locations; (ii) fixing fire proof doors in hazardous areas of factories.**4.** **Risk financing**This refers to the provision of funds to meet losses that may occur.**a)** **Risk retention through self-financing** involves bearing losses oneself as theyoccur. The firm assumes and finances its own risk, either through its own or | Final IC-38 - Corporate Agent _Composite _ English.md | null | Mutuality | Final IC-38 - Corporate Agent _Composite _ English_005 | {
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spread of Malaria.**c)** **Changes made in dangerous or hazardous operations,** while usingmachinery and equipment or in the performance of other task - e.g. (i)
wearing helmets inside construction sites; (ii) wearing gloves and face shields
while handling chemicals.**d)** **Leading a healthy lifestyle** - helps in reduce the incidence of falling ill - e.g.(i) undergoing regular medical check-ups; (ii) practicing yoga regularly.**e)** **Separation**, or spreading out various items of property into varied locationsrather than concentrating them, to reduce impact of mishap in any one
location - e.g. (i) storing large quantities of flammable substances at separate
locations; (ii) fixing fire proof doors in hazardous areas of factories.**4.** **Risk financing**This refers to the provision of funds to meet losses that may occur.**a)** **Risk retention through self-financing** involves bearing losses oneself as theyoccur. The firm assumes and finances its own risk, either through its own or
borrowed funds, this is known as **self-insurance** .**b)** **Risk retention within a bigger group:** If the risk is part of a bigger group,like a parent company, the risk can be retained within the larger group which
would finance the losses. This can be a group formed by mutual consent aswell.**c)** **Risk transfer** is an alternative to risk retention. It involves transferring theresponsibility for losses to another party.**Insurance is one of the major forms of risk transfer. Instead of facing the**
**uncertainty of many of the other forms, people prefer Insurance as it**
**provides certainty and peace of mind.****5.** **Insurance vs Assurance**Insurance is used for most General insurance contracts which provide protection
against an event that may or may not happen, and where the loss amount can
be assessed only after the event.Assurance refers to financial coverage for extended periods or until death. In
the case of life, the happening of death (the loss making event), is certain. Only
the timing is uncertain. Further, it is not possible to estimate the amount of
economic loss suffered when a person dies. The loss amount that is to be paid,11must be fixed in advance. This is why people use the term ‘Assurance’ in caseof Life insurance.**Though there are such subtle technical differences, the terms ‘Insurance’**
**and ‘Assurance’ are used interchangeably in most markets, including India.**_[One of the biggest general insurers in India carries the name – New India_
_**Assurance**_ _Company Ltd. and no life company in India is using the word_
_**‘Assurance’**_ _in its name!]_**Diagram 5:** **How insurance indemnifies the insured****Test Yourself 3**Which among the following is a method of risk transfer?
I. Bank Fixed DepositII. InsuranceIII. Equity sharesIV. Real Estate**D.** **Insurance as a tool for managing risk**The term ‘Risk’ refers not to a loss that has actually been suffered but a loss that is
likely to occur. It is thus an expected loss. The cost of this expected loss is the
product of two factors:i. The **probability** that the peril being insured against may happen, leading tothe lossii. The **severity (impact)** or the amount of loss that may be suffered as a result.12The cost of risk would increase in direct proportion with both the **probability** and
the **severity** (amount of loss). This works in different ways – (a) If the amount of
loss is very high, and the probability of its occurrence is small, the cost of the risk
would be low as such instances may be very few. (b) Even if the amount of loss is
small, if the probability of its occurrence is very high, the cost of the risk would be
high, as there would be many such occurrences. Insurance can be seen as a powerful
tool for managing one’s risk. It protects one from the financial impact of losingone’s assets/ wealth due to an insured loss.**Diagram 6:** **Considerations before opting for insurance****E.** **Considerations before opting for Insurance**When deciding whether to insure or not, one needs to evaluate the cost of
transferring the risk [the insurance premium] against the cost of bearing it oneself.
Insurance would be most required where the loss impact could be very high, but the
probability (and hence the premium), is very low. E.g. (i) the chance of an | Final IC-38 - Corporate Agent _Composite _ English.md | null | Changes made in dangerous or hazardous operations, | Final IC-38 - Corporate Agent _Composite _ English_006 | {
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the **severity** (amount of loss). This works in different ways – (a) If the amount of
loss is very high, and the probability of its occurrence is small, the cost of the risk
would be low as such instances may be very few. (b) Even if the amount of loss is
small, if the probability of its occurrence is very high, the cost of the risk would be
high, as there would be many such occurrences. Insurance can be seen as a powerful
tool for managing one’s risk. It protects one from the financial impact of losingone’s assets/ wealth due to an insured loss.**Diagram 6:** **Considerations before opting for insurance****E.** **Considerations before opting for Insurance**When deciding whether to insure or not, one needs to evaluate the cost of
transferring the risk [the insurance premium] against the cost of bearing it oneself.
Insurance would be most required where the loss impact could be very high, but the
probability (and hence the premium), is very low. E.g. (i) the chance of an
earthquake; (ii) the chance of a ship sinking.**a)** **Do not risk a lot for a little** : A reasonable relationship must be there betweenthe cost of transferring the risk and the value derived.Would it make sense to insure an ordinary ball pen?**b)** **Do not risk more than one can afford to lose:** If the loss that can arise as aresult of an event is large enough to cause bankruptcy, retention of the risk
would not be appropriate.If a large oil refinery gets destroyed, the owners cannot afford to bear the loss.**c)** **Consider the likely outcomes of the risk carefully:** It is best to insure thoseassets for which the probability of occurrence (frequency) of a loss is low but
the possible impact (severity), is high.The loss of a space satellite can be so costly that it has to be insured.13**Test Yourself 4**Which among the following scenarios needs insurance?I. The sole bread winner of a family might die untimely
II. A person may lose his wallet
III. Stock prices may fall drastically
IV. A house may lose value due to natural wear and tear**F.** **Insurance Market Players**The Insurance Companies (Insurers) are the major players in the insurance industry.
In addition to insurers, there are multiple parties who are part of the Insurance
value chain. There is the Insurance Regulator, which regulates the entire market.Intermediaries like Agents, Brokers, Banks (through Bancassurance) Insurance
Marketing Firms and Point of Sales Persons are in the field of interacting with the
prospects/ insured finding out their needs, giving them information about the
policies available for covering their needs.Surveyors and Loss Assessors/ Adjusters go into assessing claims and ancillary work.
Third Party Administrators deal with Health and Travel Insurance Claims.
Regulations provides that all intermediaries have a responsibility towards thecustomer.Agents, being intermediaries between the insurance company and the insured have
the responsibility to ensure all material information about the risk is provided bythe insured to insurer.**Important****Duty of an Insurance Agent/ Intermediary towards the Prospect (Customer)**IRDAI regulations provides that intermediaries have certain responsibilities towards
the prospect. The intermediary has a responsibility towards the insurer as well.The regulation states that where the prospect depends upon the advice of the
insurer or his agent or an insurance intermediary, such a person must advise the
prospect in a fair manner. It also says that “An insurer or its agent or other
intermediary shall provide all material information in respect of a proposed cover
to the prospect to enable the prospect to decide on the best cover that would be inhis or her interest”.If the proposal and other connected papers are not filled by the customer, a
certificate may be incorporated at the end of proposal form from the customer that
the contents of the form and documents have been fully explained to him and that
he has fully understood the importance of the proposed contract.When the customer pays the insurer towards premium, the insurer is bound to issue
a receipt. That is, even if the premium is paid in advance.14**G.** **Role of Insurance in the Society**Insurance companies play an important role in a country’s economic development.
They ensure that the wealth of the country is protected and preserved. Some of
their contributions are given below.a) Insurance is founded on the principle of Mutuality, in which the collectivepower of the community is brought together to support its unfortunate fewmembers who suffer an economic loss. There are no substitutes forinsurance.b) Insurance companies collect small amounts of premium and pool themtogether as huge funds. These funds are held and invested for the interests
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to the prospect to enable the prospect to decide on the best cover that would be inhis or her interest”.If the proposal and other connected papers are not filled by the customer, a
certificate may be incorporated at the end of proposal form from the customer that
the contents of the form and documents have been fully explained to him and that
he has fully understood the importance of the proposed contract.When the customer pays the insurer towards premium, the insurer is bound to issue
a receipt. That is, even if the premium is paid in advance.14**G.** **Role of Insurance in the Society**Insurance companies play an important role in a country’s economic development.
They ensure that the wealth of the country is protected and preserved. Some of
their contributions are given below.a) Insurance is founded on the principle of Mutuality, in which the collectivepower of the community is brought together to support its unfortunate fewmembers who suffer an economic loss. There are no substitutes forinsurance.b) Insurance companies collect small amounts of premium and pool themtogether as huge funds. These funds are held and invested for the interests
of policyholders and the benefit of the community. They are not unduly
invested in speculative ventures.c) Insurance provides the benefit of protection to numerous insured - bothindividuals and enterprises –against losses caused by accidents or fortuitous
events. It preserves capital and releases it for development of business and
industry, which helps the country’s growth.d) Insurance enables investment of capital leading to commercial and industrialdevelopment. It also helps in removing the fear, worry and anxiety
associated with entrepreneurship.e) Many Banks and Financial institutions do not advance loans on propertyunless it is insured against loss or damage. Many of them insist on assigning
the policy as collateral security.f) Before accepting large complicated risks, general insurers arrange forinspection of the property by qualified engineers/ other experts. They assess
the risk and suggest risk management measures to reduce the risk and help
in rating.g) Insurance earns foreign exchange for the country like trade, shipping andbanking services.h) Insurers are associated with institutions engaged in fire loss prevention,cargo loss prevention, industrial safety and road safety.i) Entrepreneurs get the confidence to invest in new or relatively unknownfields with the protection offered by Insurance.**Information****Insurance and Social Security**a) Social security is an obligation of the State. Social security schemes of theState involve the use of compulsory or voluntary insurance, as a tool of social
security. The Employees State Insurance Act, 1948 provides for **Employees**
**State Insurance Corporation** to pay for the expenses of sickness,15disablement, maternity and death for industrial employees and their families,who are covered.b) Insurers play an important role in social security schemes sponsored by theGovernment such as1. PMJJBY –Pradhan Mantri Jeevan Jyoti Bima Yojana
2. PMSBY – Pradhan Mantri Suraksha Bima Yojana
3. PMFBY- Pradhan Mantri Fasal Bima Yojana
4. PMJAY – Pradhan Mantri Jan Arogya Yojana (Ayushmaan Bharat)
5. PMVVY - Pradhan Mantri Vaya Vandana Yojana – a Pension plan
6. APY - Atal Pension YojanaThese, and other Government schemes have been benefiting the Indian
society/ community.c) In addition to supporting Government schemes, the insurance industry offersinsurance covers on a commercial basis which have the ultimate objective of
providing social security. The **rural insurance schemes**, operated on a
commercial basis, are designed to provide social security to the rural families.**Test Yourself 5**Which of the following insurance schemes are sponsored by the Government of
India?I. PM Jan Arogya Yojana - Ayushmaan Bharat
II. PM Fasal Bima Yojana
III. PM Suraksha Bima Yojana
IV. All of the above**Summary**Insurance is risk transfer through risk pooling.Commercial insurance business as practiced today started at the Lloyd’s CoffeeHouse in London.An insurance arrangement involves the following: Asset,
Risk,
Peril,
Contract,
Insurer and
InsuredWhen persons having similar assets, exposed to similar risks, contribute into a
common pool of funds it is known as pooling.Apart from insurance, other risk management techniques include: Risk avoidance,16 Risk control,
Risk retention,
Risk financing and
Risk transfer- The thumb rules of insurance are: Do not risk more than one can afford to lose,
Consider the likely outcomes of the risk carefully and | Final IC-38 - Corporate Agent _Composite _ English.md | s1 | G. | Final IC-38 - Corporate Agent _Composite _ English_008 | {
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India?I. PM Jan Arogya Yojana - Ayushmaan Bharat
II. PM Fasal Bima Yojana
III. PM Suraksha Bima Yojana
IV. All of the above**Summary**Insurance is risk transfer through risk pooling.Commercial insurance business as practiced today started at the Lloyd’s CoffeeHouse in London.An insurance arrangement involves the following: Asset,
Risk,
Peril,
Contract,
Insurer and
InsuredWhen persons having similar assets, exposed to similar risks, contribute into a
common pool of funds it is known as pooling.Apart from insurance, other risk management techniques include: Risk avoidance,16 Risk control,
Risk retention,
Risk financing and
Risk transfer- The thumb rules of insurance are: Do not risk more than one can afford to lose,
Consider the likely outcomes of the risk carefully and
Do not risk a lot for a little**Key Terms**1. Risk2. Pooling3. Asset4. Burden of risk5. Risk avoidance6. Risk control7. Risk retention8. Risk financing9. Risk transfer**Answers to Test Yourself****Answer 1** - The correct option is II.
**Answer 2** - The correct option is III.
**Answer 3** - The correct option is II.
**Answer 4** - The correct option is I.
**Answer 5** - The correct option is IV.17## CHAPTER C-02## CORE ELEMENTS OF INSURANCE**Chapter Introduction**In this chapter, we shall learn about the various key elements and principles of
insurance that govern the working of insurance.**Learning Outcomes**After studying this chapter, one should be able to:1. Understand Assets are2. Understand Risk, Hazards and Perils3. Appreciate Risk Management4. Understand Risk Pooling in insurance18**A.** **Elements of insurance**We have seen that the process of insurance has four elements Asset Risk Risk poolingLet us now look at the various elements of the insurance process in some detail.**1.** **Asset****Definition**An asset may be defined as ‘anything that confers some benefits and has aneconomic value to its owner’.An asset must have the following features: **Economic value:** An asset must have economic value. Value can arise in twoways.**a)** **Income generation** : Asset may be productive and generate income.**Example**A machine used to manufacture biscuits, or a cow that yields milk, both generate
income for their owner. A healthy worker is an asset to an organization.**b)** **Serving needs** : An asset could also add value by satisfying one or a group ofneeds.**Example**A refrigerator cools and preserves food while a car provides comfort and
convenience in transportation, similarly a body free of illness adds value to oneself
and family also. **Scarcity and Ownership**What about air and sunlight? Are they not assets? - **The answer is ‘No’.**Few things are as valuable as air and sunlight. We cannot live without them. Yet
they are not considered as assets in the economic sense of the term.There are two reasons for this: Their supply is abundant and not scarce.
They are not owned by any one individual but are freely available to all.This implies that an asset must satisfy two more conditions to qualify as such - its
scarcity and its ownership or possession by someone.19 **Insurance of assets**Insurance provides protection only against financial losses arising from unexpected
events and not natural wear and tear, of assets due to usage over time.We must note that **insurance cannot protect an asset from loss or damage** . An
earthquake will destroy a house whether it is insured or not. The insurer can only
pay a sum of money, which would reduce the economic impact of the loss.Losses can arise in the event of breach of an agreement.**Example**An exporter would lose a great deal if the importer on the other side refused to
accept the goods or defaulted on payments. **Life insurance**What about our lives? There is indeed nothing as valuable to us as our own lives and
those of our loved ones. Our lives can be seriously affected when subjected to anaccident or an illness.This can impact in two ways: Firstly there are costs of treatment of a particular disease.
Secondly there may be loss of economic earnings, both due to death or disability.These kinds of losses are covered by insurances of the person or personal lines of | Final IC-38 - Corporate Agent _Composite _ English.md | k2 | Summary | Final IC-38 - Corporate Agent _Composite _ English_009 | {
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scarcity and its ownership or possession by someone.19 **Insurance of assets**Insurance provides protection only against financial losses arising from unexpected
events and not natural wear and tear, of assets due to usage over time.We must note that **insurance cannot protect an asset from loss or damage** . An
earthquake will destroy a house whether it is insured or not. The insurer can only
pay a sum of money, which would reduce the economic impact of the loss.Losses can arise in the event of breach of an agreement.**Example**An exporter would lose a great deal if the importer on the other side refused to
accept the goods or defaulted on payments. **Life insurance**What about our lives? There is indeed nothing as valuable to us as our own lives and
those of our loved ones. Our lives can be seriously affected when subjected to anaccident or an illness.This can impact in two ways: Firstly there are costs of treatment of a particular disease.
Secondly there may be loss of economic earnings, both due to death or disability.These kinds of losses are covered by insurances of the person or personal lines of
insurance. Insurance is possible for anyone who has assets that have value [i.e.
which generate income or meet some needs]; the loss of which [due to fortuitous
or accidental events] cause financial loss that can be [measured in terms of money].Thus these assets are commonly referred to as subject matter of insurance in
insurance parlance.**2.** **Risk**The second element in the process of insurance is the concept of risk. Risk can be
defined as the **chance of a loss** . Risk thus refers to the likely loss or damage that
can arise on account of happening of an event. [Risk is sometimes used to refer the
subject matter of insurance, as well.] One do not usually expect one’s house to burn
or one’s car to have an accident. Yet it can happen.Examples of risks are the possibility of economic loss arising from the burning of a
house or a burglary or an accident which results in the loss of a limb.This has two implications.**i.** **Firstly,** it means that that the loss may or may not happen.**ii.** **Secondly,** the event, the occurrence of which actually leads to the loss, isknown as a **peril** . It is the cause of the loss.20**Example**Examples of perils are fire, earthquakes, floods, lightning, burglary, heart attacketc.**Natural wear and tear**It is true that nothing lasts forever. Every asset has a finite lifetime during which it
is functional and yields benefits. This is a natural process and one discards or
changes one’s mobiles, washing machines and clothes when they are worn out.
Therefore losses arising out of normal wear and tear are not covered in insurance.**Exposure to risk** : Occurrence of a peril need not necessarily lead to a loss. A person
staying in Mumbai does not suffer any loss due to a flood in coastal Andhra. For loss
to happen the asset must be exposed to the peril. Exposure to risk alone is not
enough ground for insurance compensation.ExampleA fire may break out in factory premises without causing actual damage. Insurance
comes into play only if there is an actual economic (financial) loss as a result of a
peril.**Degree of Risk Exposure:**Two assets may be exposed to the same peril but the likelihood of loss or the amount
of loss may vary greatly. A vehicle carrying explosives can yield far greater loss from
fire than tanker carrying water.**3.** **Risk Management** **Extent of damage likely to be suffered**This is given by the degree of loss and its impact on an individual or business.
On this basis one may identify three types of risk events or situations: **Critical**Where losses are of such a magnitude; that may result in total loss or
bankruptcy. Losses can be critical when the accident results in significant and
severe impact, disability, damage to equipment and the environment, which
may be reversible to some extent. Critical losses would include those resulting
in serious financial losses, compelling a firm to borrow to continue operations.**Example: Critical** A fire in the plant of a large multinational company at Gurgaon destroysinventory worth Rs 1 crore. The loss is heavy but not so high as to lead to
bankruptcy.21 A torpedo from a pirate ship sinks an entire passenger ship but most passengersare saved. A major accident resulting in a kidney damage necessitating a kidney transplantoperation entailing prohibitive costs. **Catastrophic**Catastrophic losses signify death or total disability for a large number of people, | Final IC-38 - Corporate Agent _Composite _ English.md | null | Insurance of assets | Final IC-38 - Corporate Agent _Composite _ English_010 | {
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fire than tanker carrying water.**3.** **Risk Management** **Extent of damage likely to be suffered**This is given by the degree of loss and its impact on an individual or business.
On this basis one may identify three types of risk events or situations: **Critical**Where losses are of such a magnitude; that may result in total loss or
bankruptcy. Losses can be critical when the accident results in significant and
severe impact, disability, damage to equipment and the environment, which
may be reversible to some extent. Critical losses would include those resulting
in serious financial losses, compelling a firm to borrow to continue operations.**Example: Critical** A fire in the plant of a large multinational company at Gurgaon destroysinventory worth Rs 1 crore. The loss is heavy but not so high as to lead to
bankruptcy.21 A torpedo from a pirate ship sinks an entire passenger ship but most passengersare saved. A major accident resulting in a kidney damage necessitating a kidney transplantoperation entailing prohibitive costs. **Catastrophic**Catastrophic losses signify death or total disability for a large number of people,
widespread loss of assets, having significant environmental impact which are
practically irreversible. Catastrophic losses usually signify disasters that are
sudden, widespread and unstoppable.**Example: Catastrophic** An earthquake or flood that completely destroys a few villages
A major fire that completely destroys a multi crore installation over a largeterritory
The terrorist attack of 9/ 11 on World Trade Centre which caused injuries to alarge number of people
A pandemic like Covid – 19 causing disease to people across the globe. **Marginal/ Insignificant**Where the possible losses are insignificant and can be easily met from an
individual or a firm’s existing assets or current income without imposing anyundue financial strain.**Example** A minor car accident results in the side being slightly grazed due to which someof the paint is damaged and a fender is slightly bent.
An individual suffering from common cold and cough..**4.** **Hazards and Perils**The condition or conditions which increase the probability of a loss or its severity,
and thus impact(s) the risk is known as hazard. When insurers make an assessment
of the risk, it is generally with reference to the hazards to which the asset is subject.The term hazard in insurance language refers to those conditions or features or
characteristics which create or increase the chance of loss arising from a given peril.
A thorough knowledge of various hazards to which a risk is exposed to is most
essential for underwriting. Examples of the link between assets, peril and hazards
are given below.22|Asset|Peril|Hazard|
|---|---|---|
|**Life**|Cancer|Excessive Smoking|
|**Factory**|Fire|Explosive material left Unattended|
|**Car**|Car Accident|Careless driving by driver|
|**Cargo**|Storm|Water seeping in cargo and spoiling; Cargo not packaged in<br>waterproof containers|**Important** **Types of hazards****a)** **Physical hazard** is a physical condition that increases the chance of loss.**Example**i. Defective wiring in a building
ii. Indulging in water sports
iii. Leading a sedentary lifestyle**b)** **Moral hazard** refers to dishonesty or character defects in an individual thatinfluence the frequency or severity of the loss. A dishonest individual may
attempt to commit fraud and make money by misusing the facility of insurance.**Example**If one deliberately sets a fire to one’s property and collects claims against losses
under the policy, such claims are clearly fraudulent and could be justifiably rejectedA classic instance of moral hazard is purchasing insurance for a factory and then
burning it down to collect the insurance amount or buying health insurance after
onset of a major ailment.**c)** **Legal hazard** is more prevalent in cases involving a liability to pay for damages.It arises when certain features of the legal system or regulatory environment
can increase the incidence or severity of losses.**Example**The enactment of law governing workmen’s compensation in the case of accidents
can raise the amount of liability payable considerably.A major concern in insurance is the relationship between risks and associated
hazards. Assets are classified into various risk categories on this basis and the price[premiums] charged for insurance coverage would increase if the susceptibility to
loss, arising as a result of the presence of associated hazards, is high.23**5.** **Mathematical Principle of Insurance (Risk pooling)**The third element in insurance is a mathematical principle that makes insurance | Final IC-38 - Corporate Agent _Composite _ English.md | null | Risk Management | Final IC-38 - Corporate Agent _Composite _ English_011 | {
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attempt to commit fraud and make money by misusing the facility of insurance.**Example**If one deliberately sets a fire to one’s property and collects claims against losses
under the policy, such claims are clearly fraudulent and could be justifiably rejectedA classic instance of moral hazard is purchasing insurance for a factory and then
burning it down to collect the insurance amount or buying health insurance after
onset of a major ailment.**c)** **Legal hazard** is more prevalent in cases involving a liability to pay for damages.It arises when certain features of the legal system or regulatory environment
can increase the incidence or severity of losses.**Example**The enactment of law governing workmen’s compensation in the case of accidents
can raise the amount of liability payable considerably.A major concern in insurance is the relationship between risks and associated
hazards. Assets are classified into various risk categories on this basis and the price[premiums] charged for insurance coverage would increase if the susceptibility to
loss, arising as a result of the presence of associated hazards, is high.23**5.** **Mathematical Principle of Insurance (Risk pooling)**The third element in insurance is a mathematical principle that makes insurance
possible. It is known as the principle of risk pooling.**Example**Suppose there are 100000 RCC houses exposed to the risk of fire that can cause an
average loss of Rs. 50000. If the chance of a house catching fire is 2 in 1000 [or 2/
1000 = 0.002] it would mean that the total amount of loss suffered would be Rs
10000000 [= 50000x 0.002 x 100000].If an insurer were to get the owners of each of the 100000 houses to contribute Rs
100 and if these contributions (100000 x 100 = Rs.10000000) were to be pooled into
a single fund, it would be enough to pay for the loss of the unfortunate few whosuffered from the fire.To ensure that there is equity [fairness] among all those being insured, it is
necessary that the houses should all be similarly exposed to the risk. In the above
example risk exposure to mud houses will be different.**a)** **How exactly does the principle work in insurance?**It is by pooling number of risks of all the insured similarly placed and exposed
to possibility of loss due to a peril that the insurer is able to assume that risk
and its financial impact.|Large<br>number<br>of people|Paying<br>Premium|Premium|Paying Claims to a<br>few who suffered<br>loss|
|---|---|---|---|
|**Many**<br>**people**<br>**pay**|**Small**<br>**amounts of**<br>**money as**<br>**Premiums**|**These small amounts are pooled**<br>**together as a Common Pool, big**<br>**enough to pay a statistically**<br>**estimated number of claims**|**Big amounts are**<br>**paid to those who**<br>**suffer a loss**|**b)** **Risk pooling and the law of large numbers**The probability of damage [derived as 2 out of 1000 or 0.002 in the example
above] forms the basis on which the premium is determined. The insurer would
face no risk of loss if the actual experience was as expected. In such a situation
the premiums of the numerous insured would be sufficient to completely
compensate for the losses of those who have been affected by the peril. The
insurer would however face a risk if the actual experience was more adverse
than expected and the premiums collected were not sufficient to pay the claims.How can the insurer be sure about its predictions? This becomes possible because
of a principle known as the “Law of large numbers”. It states that the larger the
size of the pool of risks, the actual average of losses would be closer to the
estimated or expected average loss.24**c)** **Insurance Companies to remain Solvent:**If the pools of risks and the premium pools created are not sufficient to meet
the liabilities towards paying claims (in case they occur), the system of risk
pooling and insurance may fail. Insurers need to have sufficient money with
them to honour their promises to all the members of the pool. If they have the
sufficient money, they are considered solvent and if they do not have money to
meet their obligations, they become insolvent.In other words, Insurers need to keep with them some surplus money (or solvency
margin) to meet unforeseen deviations between expected and actual claims
situations. Solvency Ratio assesses the extent to which assets are available to
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insurer would however face a risk if the actual experience was more adverse
than expected and the premiums collected were not sufficient to pay the claims.How can the insurer be sure about its predictions? This becomes possible because
of a principle known as the “Law of large numbers”. It states that the larger the
size of the pool of risks, the actual average of losses would be closer to the
estimated or expected average loss.24**c)** **Insurance Companies to remain Solvent:**If the pools of risks and the premium pools created are not sufficient to meet
the liabilities towards paying claims (in case they occur), the system of risk
pooling and insurance may fail. Insurers need to have sufficient money with
them to honour their promises to all the members of the pool. If they have the
sufficient money, they are considered solvent and if they do not have money to
meet their obligations, they become insolvent.In other words, Insurers need to keep with them some surplus money (or solvency
margin) to meet unforeseen deviations between expected and actual claims
situations. Solvency Ratio assesses the extent to which assets are available to
cover the insurers’ commitments towards future payments. Different countries
use different measures to assess Solvency Ratio. In India, IRDAI has mandated
that insurers are required to maintain a minimum solvency ratio of 1.5.**Example**To give a simple illustration, the probability of getting heads on a toss of the coin
is 1 out of 2. But one cannot be sure to actually get 2 heads if a coin is tossed fourtimes.Only when the number of tosses gets very large and closer to infinity, the chance of
getting heads once for every two tosses will become closer to one.It follows that insurers can be sure of their ground only when they have been able
to insure a large number of insured. An insurer who has insured only a few hundred
houses, likely would be worse affected than one who has insured several thousandhouses.**Important****Conditions for insuring a risk**When does it make sense to insure a risk from the insurer’s point of view?Six broad requirements for a risk to be considered insurable are given below.**i.** **A sufficiently large number of homogenously [similar] exposed units** to makethe losses reasonably predictable. This follows from the **law of large numbers** .
Without this it would be difficult to make predictions.**ii.** **Loss produced by the risk must be definite and measurable** . It is difficult todecide the compensation if one cannot say for sure that a loss has occurred andhow much it is.**iii.** **Loss must be fortuitous or accidental** . It must be the result of an event thatmay or may not happen. The event must be beyond the control of insured. No
insurer would cover a loss that is intentionally caused by the insured.25**iv.** **Sharing of losses of the few by many** can work only if a small percentage of theinsured group suffers loss at any given period of time.**v.** **Economic feasibility:** The cost of insurance must not be high in relation to thepossible loss; otherwise the insurance would be economically unviable.**vi.** **Public policy:** Finally the contract should not be contrary to public policy andmorality.**Test Yourself 1**Which one of the following does not represent an insurable risk?I. FireII. Stolen goods
III. Burglary
IV. Loss of goods due to ship capsizing**Summary**a) The process of insurance has four elements (asset, risk, risk pooling and aninsurance contract).b) An asset may be anything that confers some benefit and is of economic value toits owner.c) A chance of loss represents risk.d) Condition or conditions that increase the probability or severity of the loss arereferred to as hazards.e) The mathematical principle, that makes insurance possible is known as principleof risk pooling.**Key terms**a) Asset
b) Risk
c) Hazard
d) Risk pooling
e) Offer and acceptance
f) Lawful consideration**Answers to Test Yourself****Answer 1** - The correct option is II.26## CHAPTER C-03## PRINCIPLES OF INSURANCE**Chapter Introduction**In this chapter, we discuss the principles, based on which the mechanism ofinsurance works.a) Utmost Good Faith or "Uberrima fides" is defined as involving “a positive duty
to voluntarily disclose, accurately and fully, all facts material to the risk being
proposed, whether requested or not". All insurance contracts are based on the
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b) Risk
c) Hazard
d) Risk pooling
e) Offer and acceptance
f) Lawful consideration**Answers to Test Yourself****Answer 1** - The correct option is II.26## CHAPTER C-03## PRINCIPLES OF INSURANCE**Chapter Introduction**In this chapter, we discuss the principles, based on which the mechanism ofinsurance works.a) Utmost Good Faith or "Uberrima fides" is defined as involving “a positive duty
to voluntarily disclose, accurately and fully, all facts material to the risk being
proposed, whether requested or not". All insurance contracts are based on the
principle of Uberrima Fidesb) The existence of ‘Insurable Interest’ is an essential ingredient of every
insurance contract and is considered as the legal pre-requisite for insurance.c) Indemnity ensures that the insured is compensated to the extent of his loss on
the occurrence of the contingent event.d) Subrogation means the transfer of all rights and remedies, with respect to the
subject matter of insurance, from the insured to the insurer.e) The principle of contribution implies that if the same property is insured with
more than one insurance company, the compensation paid by all the insurers
together cannot exceed the actual loss suffered.f) Proximate cause is a key principle of insurance and is concerned with how the
loss or damage actually occurred and whether it is indeed as a result of an
insured peril.27**A.** **Uberrima Fides**Insurance contracts have various special features that are discussed below:**1.** **Utmost Good Faith or** _**‘Uberrima Fides’**_Utmost Good Faith or "Uberrima fides", one of the fundamental principles of an
insurance contract, is defined as “a positive duty to voluntarily disclose, accurately
and fully, all facts material to the risk being proposed, whether requested or not".All commercial contracts are based on Good Faith in so much as there shall be nofraud or deceit when giving information or doing the transaction. The rule observed
here is that of **“Caveat Emptor”** which means **Buyer Beware** . The parties to the
contract are expected to examine the subject matter of the contract and so long as
one party does not mislead the other and the answers are given truthfully, there is
no question of the other party avoiding the contract.Insurance contracts stand on a different footing as the subject matter of the
contract is intangible and cannot be easily known to the insurer. Again, there are
many facts, which may be known only to the proposer. The insurer has to rely
entirely on the proposer for information. Hence the proposer has a legal duty to
disclose all material information about the subject matter of insurance to the
insurers. That is, the insured should not make any misrepresentation regarding any
fact that is material for the insurance contract. This higher obligation of full
representation and full disclosure in respect of Insurance contracts makes themcontracts of Utmost Good Faith.**If Utmost Good Faith is not observed by either party, the contract may be**
**avoided by the other.** This follows from the logic that no one should be allowed to
take advantage of his own wrong especially while entering into a contract ofinsurance.**a)** **Material fact** has been defined as a fact that would affect the judgment of aninsurance underwriter in deciding whether to accept the risk and if so, the rate
of premium and the terms and conditions. The insured has an obligation to fully
and accurately disclose all facts that are material to an insurance contract.Whether an undisclosed fact was material or not would depend on the
circumstances of the individual case and could be decided ultimately only in a
court of law. The insured **has to disclose** facts that affect the risk.Material facts denote the information which enables the insurers to decide: Whether they will accept the risk? If so, at what rate of premium and subject to what terms and conditions?This legal duty of utmost good faith arises under common law. The duty applies
not only to material facts which the proposer knows, but also extends to material28facts which he ought to know. There is a corresponding duty of the insurer not to
withhold any information about the policy to the insured.**Example**The following are some examples of material information that the proposer should
disclose while making a proposal:**i.** **Life Insurance:** One’s own medical history, family history of hereditaryillnesses, habits like smoking and drinking, absence from work, age, hobbies,
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of premium and the terms and conditions. The insured has an obligation to fully
and accurately disclose all facts that are material to an insurance contract.Whether an undisclosed fact was material or not would depend on the
circumstances of the individual case and could be decided ultimately only in a
court of law. The insured **has to disclose** facts that affect the risk.Material facts denote the information which enables the insurers to decide: Whether they will accept the risk? If so, at what rate of premium and subject to what terms and conditions?This legal duty of utmost good faith arises under common law. The duty applies
not only to material facts which the proposer knows, but also extends to material28facts which he ought to know. There is a corresponding duty of the insurer not to
withhold any information about the policy to the insured.**Example**The following are some examples of material information that the proposer should
disclose while making a proposal:**i.** **Life Insurance:** One’s own medical history, family history of hereditaryillnesses, habits like smoking and drinking, absence from work, age, hobbies,
financial information like income details of proposer, pre-existing life
insurance policies, occupation etc.**ii.** **Fire Insurance:** Construction, location/ situation of risk and usage ofbuilding, age of the building, nature of goods in premises etc.**iii.** **Marine Insurance:** Description of goods, method of packing and mode oftransit etc.**iv.** **Motor Insurance:** Description of vehicle, date of purchase and RegionalRegistration authority etc.**v.** **Health Insurance:** Pre-existing disease, age etc.**b)** **When a Fact becomes ‘Material’: Some types of material facts that one** needsto disclose are those indicating that the particular risk represents a greater
exposure than can be normally expected.**Example**Hazardous nature of cargo being sent by a ship, past history of illness, past history
burglary of a house.i. Existence of policies taken from all insurers and their present statusii. All questions in the proposal form or application for insurance are consideredto be material, as these relate to various aspects of the subject matter of
insurance and its exposure to risk. They need to be answered truthfully and
be full in all respects.The following are some scenarios wherein material facts need not be disclosed.**Information**a. **Material Facts that need not be disclosed:** Unless there is a specific enquiry byunderwriters, the proposer has no obligation to disclose facts like:**i.** **Measures implemented to reduce the risk. E.g.:** The presence of a fireextinguisher**ii.** **Facts which the insured does not know or is unaware of. E.g.:** Anindividual, who had high blood pressure but was not aware about the same29at the time of taking the policy, cannot be charged with non-disclosure ofthis fact.**iii.** **Which could be discovered, by reasonable diligence.** It is not necessary todisclose every minute material fact. The underwriters must be conscious
enough to ask for the same if they require further information. E.g.: When
insuring a textile shop one does not need to specifically say that some of the
synthetic clothes in the shop are highly combustible.**iv.** **Matters of law** : Everybody is supposed to know the law of the land. **E.g.:**Municipal laws about storing of explosives**v.** **About which insurer appears to be indifferent (or has waived the need****for further information)**In such cases, the insurer cannot later disclaim responsibility on grounds that the
answers were incomplete.**b.** **Duty to Disclose:** In the case of insurance contracts, the duty to disclose ispresent throughout the entire period of negotiation until the proposal is accepted
and a Life Insurance policy is issued.Once the Life Insurance policy is accepted, there is no further need to disclose any
material facts that may come up during the term of the policy.**Example**Mr. Rajan has taken a Life insurance policy for a term of fifteen years. Six years
after taking the policy, Mr. Rajan has some heart problems and has to undergo some
surgery. Mr. Rajan does not need to disclose this fact to the insurer._[However, if the policy is in a lapsed condition because of failure to pay the_
_premiums when due and the policy holder seeks to revive the policy contract and_
_bring it back in force, he may, at the time of such revival, have the duty to disclose_ | Final IC-38 - Corporate Agent _Composite _ English.md | l28 | Example | Final IC-38 - Corporate Agent _Composite _ English_015 | {
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answers were incomplete.**b.** **Duty to Disclose:** In the case of insurance contracts, the duty to disclose ispresent throughout the entire period of negotiation until the proposal is accepted
and a Life Insurance policy is issued.Once the Life Insurance policy is accepted, there is no further need to disclose any
material facts that may come up during the term of the policy.**Example**Mr. Rajan has taken a Life insurance policy for a term of fifteen years. Six years
after taking the policy, Mr. Rajan has some heart problems and has to undergo some
surgery. Mr. Rajan does not need to disclose this fact to the insurer._[However, if the policy is in a lapsed condition because of failure to pay the_
_premiums when due and the policy holder seeks to revive the policy contract and_
_bring it back in force, he may, at the time of such revival, have the duty to disclose_
_all facts that are material and relevant, as though it is a new policy.]_In the case he has Health Insurance, at the time of renewing the policy, Mr. Rajanhas to inform the insurer about this health issue.Similarly, in the case of General Insurance, at the time of renewing the Fire policy
for an enterprise/ factory, the insured has to inform the insurer if a change was
made in the occupancy of the building.At the time of renewing the Hull policy for a ship, the insured has to inform the
insurer if the ship was modified to carry a different type cargo; say, hazardous
chemicals instead of pulses.c. **Situations of Non-Disclosure** may arise when the insured is silent about materialfacts because the insurer has not raised any specific enquiry. Such situations may
also arise through evasive answers to queries raised by the insurer.30Often non-disclosure may be inadvertent (meaning that it may be made without
one’s knowledge or intention) or because the proposer thought that a fact wasnot material. In such a case it is innocent.When a fact is intentionally suppressed it is treated as concealment. Here, thereis the intent to deceive.d. **Misrepresentation:** Any statement made during negotiation of a contract ofinsurance is called representation. A representation may be a definite statement
of fact or a statement of belief, intention or expectation. It is expected that the
statement must be substantially correct. Representations that concern matters
of belief or expectation must be made in good faith. Misrepresentation is of twokinds:**i.** **Innocent Misrepresentation** relates to inaccurate statements, which aremade without any fraudulent intention.**ii.** **Fraudulent Misrepresentation** on the other hand refers to false statementsthat are made with deliberate intent to deceive the insurer or are maderecklessly without due regard for truth.An insurance contract generally becomes void when there is a clear case of
concealment with intent to deceive, or when there is fraudulent
misrepresentation.Amendments (March, 2015) to Insurance Act, 1938 have provided certain
guidelines about the conditions under which a policy can be called into question
for fraud. The new provisions are as followse. **Fraud:** The term “Fraud” has been specified under **Section 45 (2) of the****Insurance Act (amended in 2015).** Accordingly, a Life Insurance policy can be
called in question on the ground of Fraud by the insurer only within a time period
and not later. However, Insurers can do so only within three years from (a) the
date of issuance of the policy (b) the date of commencement of risk, (c) the date
of revival of the policy or (d) the date of the rider to the policy, whichever islater.The insurer needs to communicate the reasons on which the policy is questioned
in writing to the insured or his/ her legal representatives, nominees or assignees.The expression "fraud" means any act committed by the insured, with the intent
to deceive the insurer or to induce the insurer to issue an insurance policy. It is
also provided that in case the policyholder is not alive, the onus of disproving
fraud, lies upon the beneficiaries.**B.** **Insurable interest**The existence of ‘insurable interest’ is an essential ingredient of every insurance
contract and is considered as the legal pre-requisite for insurance.31**Three essential elements of insurable interest:**i. There must be property, right, interest, life or potential liability capable ofbeing insured.ii. Such property, right, interest, life or potential liability must be the subjectmatter of insurance.iii. The insured must bear a legal relationship to the subject matter such that hestands to benefit by the safety of the property, right, interest, life or freedom | Final IC-38 - Corporate Agent _Composite _ English.md | null | Duty to Disclose: | Final IC-38 - Corporate Agent _Composite _ English_016 | {
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of revival of the policy or (d) the date of the rider to the policy, whichever islater.The insurer needs to communicate the reasons on which the policy is questioned
in writing to the insured or his/ her legal representatives, nominees or assignees.The expression "fraud" means any act committed by the insured, with the intent
to deceive the insurer or to induce the insurer to issue an insurance policy. It is
also provided that in case the policyholder is not alive, the onus of disproving
fraud, lies upon the beneficiaries.**B.** **Insurable interest**The existence of ‘insurable interest’ is an essential ingredient of every insurance
contract and is considered as the legal pre-requisite for insurance.31**Three essential elements of insurable interest:**i. There must be property, right, interest, life or potential liability capable ofbeing insured.ii. Such property, right, interest, life or potential liability must be the subjectmatter of insurance.iii. The insured must bear a legal relationship to the subject matter such that hestands to benefit by the safety of the property, right, interest, life or freedom
of liability. By the same token, he must stand to lose financially by any loss,
damage, injury or creation of liability.Let us see how insurance differs from a gambling or wager agreement.**a)** **Gambling and insurance:** Unlike a card game, where one could win or lose, afire can have only one consequence – loss to the owner of the house.The owner takes insurance to ensure that the loss suffered is compensated for
in some way.In other words, Insurable Interest is the interest the insured has in the subjectmatter of insurance. Insurable interest makes an insurance contract valid andenforceable under the law.**Example**If Mr. Patel has brought a house with a mortgage loan of Rs 15 lakhs from a bank
and he has repaid 12 lakhs of this amount, the bank’s interest would be only to the
tune of the balance three lakhs which is outstanding.Thus the bank also has an insurable interest financially in the house for the balance
amount of loan that is unpaid and would ensure that it is made a co insured in the
policyMr. Patel owns a house for which he has taken a mortgage loan of Rs. 15 lakhs from
a bank. Ponder over the questions below: Does he have an insurable interest in the house? Does the bank have an insurable interest in the house? What about his neighbour?Mr. Dass has a family consisting of spouse, two kids and old parents. Ponder over
the below questions: Does he have an insurable interest in their well-being? Does he stand to financially lose if any of them are hospitalised? What about his neighbour’s kids? Would he have an insurable interest in them?32It would be relevant here to make a distinction between the subject matter of
insurance and the subject matter of an insurance contract.**The subject matter of insurance** relates to property being insured against, whichhas an intrinsic value of its own.**The subject matter of an insurance contract** on the other hand is the insured’s
financial interest in that property. It is only when the insured has such an interest
in the property that he/ she has the legal right to insure. The insurance policy in
the strictest sense covers not the property per se, but the insured’s financial
interest in the property.**Diagram 1:** **Insurable interest according to common law****b)** **Time when insurable interest should be present:** In life insurance, insurableinterest should be present at the time of taking the policy. In general insurance,
insurable interest should be present both at the time of taking the policy and at
the time of claim with some exceptions like marine policies in which case itmust exist at the time of claim.In case of fire and accident insurance, insurable interest should be present both
at the time of taking the policy and at the time of loss.In case of health and personal accident insurance apart from self, family can
also be insured by the proposer since he/ she stands to incur financial losses if
the family meets with an accident or undergoes hospitalisation. However, in
marine cargo insurance, insurable interest is required only at the time of loss as
the ownership of the goods would change hands when the cost is paid, which
can happen during the period of transit.**C.** **Proximate Cause**Proximate cause is a key principle of insurance and is concerned with how the loss
or damage actually occurred and whether it is as a result of an insured peril. If the
loss has been caused by the insured peril, the insurer is liable. If the immediate | Final IC-38 - Corporate Agent _Composite _ English.md | null | B. | Final IC-38 - Corporate Agent _Composite _ English_017 | {
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insurable interest should be present both at the time of taking the policy and at
the time of claim with some exceptions like marine policies in which case itmust exist at the time of claim.In case of fire and accident insurance, insurable interest should be present both
at the time of taking the policy and at the time of loss.In case of health and personal accident insurance apart from self, family can
also be insured by the proposer since he/ she stands to incur financial losses if
the family meets with an accident or undergoes hospitalisation. However, in
marine cargo insurance, insurable interest is required only at the time of loss as
the ownership of the goods would change hands when the cost is paid, which
can happen during the period of transit.**C.** **Proximate Cause**Proximate cause is a key principle of insurance and is concerned with how the loss
or damage actually occurred and whether it is as a result of an insured peril. If the
loss has been caused by the insured peril, the insurer is liable. If the immediate
cause is an insured peril, the insurer is bound to make good the loss, otherwise he
is not. This application of principle is practically more in respect of non-lifeinsurance claims.33When a loss occurs, there can often be a series of events leading up to the incident
and so it is sometimes difficult to determine the nearest or proximate cause. Under
this rule, the insurer looks for the predominant cause which sets into motion the
chain of events producing the loss. This may not necessarily be the last event that
immediately preceded the loss i.e. it is not necessarily an event which is closest to,
or immediately responsible for causing the loss. For example, a fire might cause a
water pipe to burst. Despite the resultant loss being water damage, the fire would
still be considered the proximate cause of the incident. Other causes may be
classified as remote causes, which are separate from proximate causes. Remote
causes may be present but are not effectual in causing an event.**Definition**Proximate cause is defined as the active and efficient cause that sets in motion achain of events which brings about a result, without the intervention of any force
started and working actively from a new and independent source.How does the principle of proximate cause apply to insurance contracts? Since
insurance provides for payment of a death benefit, regardless of the cause of death,
the principle of proximate cause would not usually apply. However many insurance
contracts may also have an accident benefit add-on wherein an additional sum
assured is payable in the event of accidental death. In such a situation, it becomes
necessary to ascertain the cause - whether the death occurred as a result of an
accident. The principle of proximate cause would become applicable in suchinstances.To understand the principle of proximate cause, consider the following situation:**Example****Scenario 1:** Mr. Ajay had parked his car in the garage and gone on a long vacation.
Six months later, when he came back and started the car, he noticed that the airconditioning of the car was not working. Mr. Ajay filed a claim with the insurance
company for the cost of repairing the air-conditioning and the insurance company
rejected the claim. The reason given by the insurance company was that the damage
was due to the ‘normal wear and tear’ of the car and the air-conditioning system,
which was an excluded peril in the insurance policy. Mr Ajay approached the Court
and after examining the survey report which said that the car was 12 years old and
neither the car nor the air-conditioning had been serviced/ repaired during the
previous 6 years, the damage was due to the ‘normal wear and tear’ and the
insurance company was not liable to pay the claim.**Scenario 2:** Mr. Pinto, while riding a horse, fell on the ground and had his leg
broken, he was lying on the wet ground for a long time before he was taken to
hospital. Because of lying on the wet ground, he had fever that developed into
pneumonia, finally dying of this cause. Though pneumonia might seem to be the34immediate cause, in fact it was the accidental fall that emerged as the proximate
cause and the claim was paid under personal accident insurance.There are certain losses which are suffered by the insured as a result of fire but
which cannot be said to be proximately caused by fire. In practice, some of these | Final IC-38 - Corporate Agent _Composite _ English.md | e34 | C. | Final IC-38 - Corporate Agent _Composite _ English_018 | {
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was due to the ‘normal wear and tear’ of the car and the air-conditioning system,
which was an excluded peril in the insurance policy. Mr Ajay approached the Court
and after examining the survey report which said that the car was 12 years old and
neither the car nor the air-conditioning had been serviced/ repaired during the
previous 6 years, the damage was due to the ‘normal wear and tear’ and the
insurance company was not liable to pay the claim.**Scenario 2:** Mr. Pinto, while riding a horse, fell on the ground and had his leg
broken, he was lying on the wet ground for a long time before he was taken to
hospital. Because of lying on the wet ground, he had fever that developed into
pneumonia, finally dying of this cause. Though pneumonia might seem to be the34immediate cause, in fact it was the accidental fall that emerged as the proximate
cause and the claim was paid under personal accident insurance.There are certain losses which are suffered by the insured as a result of fire but
which cannot be said to be proximately caused by fire. In practice, some of these
losses are customarily paid by business under fire insurance policies.Example of such losses can be – Damage to property caused by water used to extinguish fire Damage to property caused by fire brigade in execution of their duty Damage to property during its removal from a burning building to a safe place**Test Yourself 1**Mr. Pinto contracted pneumonia as a result of lying on wet ground after a horse
riding accident. The pneumonia resulted in death of Mr. Pinto. What is the
proximate cause of the death?I. PneumoniaII. HorseIII. Horse riding accidentIV. Bad luck**D.** **Indemnity**The Principle of Indemnity is applicable to Non-life insurance policies. **It means that**
**the policyholder, who suffers a loss, is compensated so as to put him or her in**
**the same financial position as he or she was before the occurrence of the loss**
**event** . The insurance contract guarantees that the insured would be indemnified or
compensated up to the amount of loss and no more.The philosophy is that one should not make a profit through insuring one’s assets
and recovering more than the loss. The insurer would assess the economic value of
the loss suffered and compensate accordingly.**Example**Ram has insured his house, worth Rs. 10 lakhs, for the full amount. He suffers loss
on account of fire estimated at Rs. 70,000. The insurance company would pay him
an amount of Rs. 70,000. The insured can claim no further amount.The indemnity to be paid would depend on the type of insurance one
takes.Indemnity might take one or more of the following modes of settlement: Cash payment
Repair of a damaged item
Replacement of the lost or damaged item
Reinstatement (Restoration). E.g. Rebuilding a house destroyed by fire35**Diagram 2:** **Indemnity****a)** **Agreed Value:** However, there is some subject matter whose value cannot beeasily estimated or ascertained at the time of loss. For instance, it may be
difficult to put a price in the case of family heirlooms or rare artefacts. Similarly
in marine insurance policies it may be difficult to estimate the extent of loss
suffered in a ship accident half way around the world.In such instances, a principle known as the ‘Agreed Value’ is adopted. The
insurer and insured agree on the value of the property to be insured, at the
beginning of the insurance contract. In the event of total loss, the insurer agrees
to pay the agreed amount of the policy. This type of policy is known as “ **Agreed**
**Value Policy** ”.**b)** **Underinsurance:** Consider a situation now where the property has not been
insured for its full value. One would then be entitled to indemnity for loss only
in the same proportion as one’s insurance.Suppose the house, worth Rs. 10 lakhs has only been insured for a sum of Rs. 5
lakhs. If the loss on account of fire is Rs. 60,000, one cannot claim this entire
amount. It is deemed that the house owner has insured only to the tune of half
its value and he is thus entitled to claim just 50% [Rs. 30,000] of the amount ofloss. This is known as underinsurance.In most types of non-life insurance policies, which deal with insurance of
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insurer and insured agree on the value of the property to be insured, at the
beginning of the insurance contract. In the event of total loss, the insurer agrees
to pay the agreed amount of the policy. This type of policy is known as “ **Agreed**
**Value Policy** ”.**b)** **Underinsurance:** Consider a situation now where the property has not been
insured for its full value. One would then be entitled to indemnity for loss only
in the same proportion as one’s insurance.Suppose the house, worth Rs. 10 lakhs has only been insured for a sum of Rs. 5
lakhs. If the loss on account of fire is Rs. 60,000, one cannot claim this entire
amount. It is deemed that the house owner has insured only to the tune of half
its value and he is thus entitled to claim just 50% [Rs. 30,000] of the amount ofloss. This is known as underinsurance.In most types of non-life insurance policies, which deal with insurance of
property and liability, the insured is compensated to the extent of actual
amount of loss i.e. the amount of money needed to replace lost or damaged
property at current market prices less depreciation.**E.** **Subrogation**Subrogation means the transfer of all rights and remedies with respect to the
subject matter of insurance, from the insured to the insurer. Subrogation follows
from the principle of Indemnity. Hence, it is often called a ‘corollary’ of Indemnity.In other words, if an insured suffers a loss and the loss has been indemnified by the
insurer, the insured’s right to get compensated by any third party for that loss,36would get shifted to the insurer. Note that the amount of damage that can be
collected by the insurance company is only to the extent of the amount paid by the
insurance company.**Important****Subrogation:** It is the process an insurance company uses to recover claim amounts
paid to a policy holder from a negligent third party.Subrogation can also be defined as surrender of rights by the insured to an insurance
company that has paid a claim against the third party.**Example**Mr. Kishore’s household goods were being carried in Sylvain Transport service. They
got damaged due to driver’s negligence, to the extent of Rs. 45,000 and the insurer
paid an amount of Rs. 30,000 to Mr. Kishore. The insurer stands subrogated to the
extent of only Rs. 30,000 and collect that amount from Sylvain Transports.In case the matter went into litigation and the Court directed Sylvain Transports to
pay Rs.35,000 as compensation to Mr. Kishore, he is liable to pay the insurer the
claim amount of Rs 30,000 under the subrogation clause, and to keep the balance
amount of Rs 5,000 with himself.The Subrogation Clause prevents the insured from collecting more than the loss from the insurance company and from any third party. Subrogation arises only in
case of contracts of indemnity and not against benefit policies like Life Insurance
Policy or Personal Accident Policy.**Example**Mr. Suresh dies in an air crash. His family is entitled to collect the full Sum Assured
of Rs 50 lakhs from the insurer who has issued a Personal Accident Policy plus the
compensation paid by the airline, say, Rs 15 lakhs.**F.** **Contribution:**Like Subrogation, ‘Contribution’ also follows from the Principle of Indemnity.
Hence, it is also called a ‘corollary’ of Indemnity. Contribution is a principle that
arises in general insurance contracts. It tells us how the liability is to be met when
the insured has taken insurance from more than one insurer. Contribution implies
that if the same property is insured with more than one insurance company, the
compensation paid by all the insurers together cannot exceed the actual loss
suffered. The policy holder can claim from each of the insurers only a portion of the
loss in proportion to the amount insured with each.Example: If Mr Srinivas has taken a fire policy on his house with two insurance
companies, with both of whom, he insured for the full value of Rs.12 lakhs. Suppose37a fire breaks out and he suffers a loss of Rs 3 lakhs as a result, he can claim anamount of Rs 1.5 lakhs from each of the insurers.The Principle of Contribution applies only to indemnity policies. It does not arise in | Final IC-38 - Corporate Agent _Composite _ English.md | e37 | Agreed | Final IC-38 - Corporate Agent _Composite _ English_020 | {
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Hence, it is also called a ‘corollary’ of Indemnity. Contribution is a principle that
arises in general insurance contracts. It tells us how the liability is to be met when
the insured has taken insurance from more than one insurer. Contribution implies
that if the same property is insured with more than one insurance company, the
compensation paid by all the insurers together cannot exceed the actual loss
suffered. The policy holder can claim from each of the insurers only a portion of the
loss in proportion to the amount insured with each.Example: If Mr Srinivas has taken a fire policy on his house with two insurance
companies, with both of whom, he insured for the full value of Rs.12 lakhs. Suppose37a fire breaks out and he suffers a loss of Rs 3 lakhs as a result, he can claim anamount of Rs 1.5 lakhs from each of the insurers.The Principle of Contribution applies only to indemnity policies. It does not arise in
the case of Life Insurance, because there is no upper limit that can be placed onthe losses suffered when there is a loss of life.**Test Yourself 2**Which among the following is an example of coercion?I. Ramesh signs a contract without having knowledge of the fine print
II. Ramesh threatens to kill Mahesh if he does not sign the contract
III. Ramesh uses his professional standing to get Mahesh to sign a contract
IV. Ramesh provides false information to get Mahesh to sign a contract**Test Yourself 3**Which among the following options cannot be insured by Ramesh?I. Ramesh’s houseII. Ramesh’s spouseIII. Ramesh’s friendIV. Ramesh’s parents**Test Yourself 4**What is the significance of the principle of contribution?I. It ensures that the insured also contributes a certain portion of the claim alongwith the insurerII. It ensures that all the insured who are a part of the pool, contribute to the claimmade by a participant of the pool, in the proportion of the premium paid bythemIII. It ensures that multiple insurers covering the same subject matter; cometogether and contribute the claim amount in proportion to their exposure to the
subject matter
IV. It ensures that the premium is contributed by the insured in equal instalmentsover the year.**Summary**The special features of insurance policies include:i. Uberrima fides,
ii. Insurable interest,
iii. Proximate cause,
iv. Indemnity
v. Subrogation38vi. Contribution**Key Terms**1. Non-Disclosure2. Misrepresentation3. Material facts4. Agreed Value5. Under Insurance**Answers to Test Yourself****Answer 1** - The correct option is III
**Answer 2** - The correct option is II
**Answer 3** - The correct option is III
**Answer 4** - The correct option is III39## CHAPTER C-04 **FEATURES OF INSURANCE CONTRACTS****Chapter Introduction**In this chapter, we discuss the elements that govern the working and specialfeatures of an insurance contract.40**A.** **Insurance contracts – Legal aspects and special features.**The chapter also deals with the legal aspects and special features of an insurancecontract.**1.** **The Insurance Contract**Insurance involves a contractual agreement in which the insurer agrees to
provide financial protection against certain specified risks for a price or
consideration known as the premium. The contractual agreement takes the form
of an insurance policy.**2.** **Legal aspects of an insurance contract**This section looks at some features of an insurance contract and considers thelegal principles that govern insurance contracts in general.**Important**A contract is an agreement between parties, enforceable at law. The provisions of
the Indian Contract Act, 1872 govern all contracts in India, including insurancecontracts.An insurance policy is a contract entered into between two parties, viz., the
company, called the **insurer**, and the policy holder, called the **insured** and fulfils
the requirements enshrined in the Indian Contract Act, 1872.**Diagram 1:** **Insurance contract**41**B.** **Elements of a valid contract****Diagram 2:** **Elements of a valid contract**The elements of a valid contract are:**1.** **Offer and acceptance**When one person signifies to another his willingness to do or to abstain from doing
anything with a view to obtaining the assent of the other to such act, he is said to
make an offer or proposal. Usually, the offer is made by the proposer, and
acceptance made by the insurer.When a person to whom the offer is made signifies his assent thereto, this is deemed | Final IC-38 - Corporate Agent _Composite _ English.md | e37 | Test Yourself 2 | Final IC-38 - Corporate Agent _Composite _ English_021 | {
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the Indian Contract Act, 1872 govern all contracts in India, including insurancecontracts.An insurance policy is a contract entered into between two parties, viz., the
company, called the **insurer**, and the policy holder, called the **insured** and fulfils
the requirements enshrined in the Indian Contract Act, 1872.**Diagram 1:** **Insurance contract**41**B.** **Elements of a valid contract****Diagram 2:** **Elements of a valid contract**The elements of a valid contract are:**1.** **Offer and acceptance**When one person signifies to another his willingness to do or to abstain from doing
anything with a view to obtaining the assent of the other to such act, he is said to
make an offer or proposal. Usually, the offer is made by the proposer, and
acceptance made by the insurer.When a person to whom the offer is made signifies his assent thereto, this is deemed
to be an acceptance. Hence, when a proposal is accepted, it becomes a promise.
The acceptance needs to be communicated to the proposer which results in theformation of a contract.When a proposer accepts the terms of the insurance plan and signifies his/ her
assent by paying the deposit amount, which, on acceptance of the proposal, gets
converted to the first premium, the proposal becomes a policy. If any condition is
put, it becomes a counter offer. The policy bond becomes the evidence of thecontract.**2.** **Consideration**This means that the contract must contain some mutual benefit for the parties. The
premium is the consideration from the insured, and the promise to indemnify, is theconsideration from the insurers.**3.** **Agreement between the parties (Consensus Ad-Idem)**Both the parties, the insurer and the policyholder, should agree to the same thing
in the same sense. In other words, there should be “ **consensus ad-idem** ” between
both parties.42**4.** **Free consent**There should be free consent while entering into a contract. Consent is said to
be free when it is not caused by Coercion/ By Force
Undue influence Fraud Misrepresentation
MistakeWhen consent to an agreement is caused by coercion, fraud or
misrepresentation, the agreement is voidable.**5.** **Capacity of the parties**Both the parties to the contract must be legally competent to enter into the
contract. The policyholder must be legally an adult at the time of signing the
proposal and should be of sound mind and not disqualified under law. For
example, minors cannot enter into insurance contracts.**6.** **Legality**The object of the contract must be legal, for example, no insurance can be had
for illegal acts. Every agreement of which the object or consideration is unlawful
is void. The object of an insurance contract is a lawful object.Also one’s entering into an insurance contract should be done out of one’s free
will, without any kind of force, fear or mistake.**C.** **Paying Premium in Advance**As per Indian laws, Insurers are not allowed to assume risk unless they receive the
premium in advance. In other words, insurance protection cannot be sold on creditbasis in India.Section 64 VB of the Insurance Act 1938 states, “No risk to be assumed unless
premium is received in advance”. No insurer shall assume any risk unless and until
the premium is received in advance or is guaranteed to be paid or a deposit is made
in advance in the prescribed manner. This is an important feature of the insurance
industry in India.The Insurance Rules, 1939, provide certain exceptions to this condition of advance
payment of premium, in respect of particular categories of insurances. Section 59
of the Insurance Rules allows accepting premiums in instalments in respect of
Sickness Insurance, Group Personal Accident Insurance Medical Benefits Insurance
and Hospitalisation Insurance Schemes, subject to certain conditions. Section 59 of
the Insurance Rules allows relaxations for policies issued to Government and semiGovernment bodies, Fidelity Guarantee Insurance policies covering Government and43semi-Government employees, Workmen's Compensation policies, Cash in Transit
policies, and some other categories of insurances subject to certain conditions.**Solicitation**Insurance has always been regarded as something to be purchased after a proper
understanding the product and not just bought/ sold. Hence, insurance is to be
‘solicited’ or asked for by the customer. Traditionally, insurers declare that
“Insurance is the subject matter of solicitation”. To elucidate, insurance is not
a ready-made product like a packet of biscuits or a bar of chocolate to be
bought/ sold outright. Customers have to discuss their insurance needs with a | Final IC-38 - Corporate Agent _Composite _ English.md | d43 | Diagram 1: | Final IC-38 - Corporate Agent _Composite _ English_022 | {
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in advance in the prescribed manner. This is an important feature of the insurance
industry in India.The Insurance Rules, 1939, provide certain exceptions to this condition of advance
payment of premium, in respect of particular categories of insurances. Section 59
of the Insurance Rules allows accepting premiums in instalments in respect of
Sickness Insurance, Group Personal Accident Insurance Medical Benefits Insurance
and Hospitalisation Insurance Schemes, subject to certain conditions. Section 59 of
the Insurance Rules allows relaxations for policies issued to Government and semiGovernment bodies, Fidelity Guarantee Insurance policies covering Government and43semi-Government employees, Workmen's Compensation policies, Cash in Transit
policies, and some other categories of insurances subject to certain conditions.**Solicitation**Insurance has always been regarded as something to be purchased after a proper
understanding the product and not just bought/ sold. Hence, insurance is to be
‘solicited’ or asked for by the customer. Traditionally, insurers declare that
“Insurance is the subject matter of solicitation”. To elucidate, insurance is not
a ready-made product like a packet of biscuits or a bar of chocolate to be
bought/ sold outright. Customers have to discuss their insurance needs with a
person qualified for the same and based on professional advice, the right
insurance product is to be purchased. The Insurance product has to be
understood and the offering most suited to the specific needs and requirements
of the customer in terms of the policy coverage, exclusions, terms and
conditions, is to be considered.‘Solicitation’ is usually initiated when an insurer or an authorised intermediary
approaches a prospect with a view to understand his/ her insurance needs and
provides professional advice in selecting appropriate insurance products. The
prospect solicits the proper solution and provides all requisite details to the
advisor. As per regulations of IRDAI, **Insurance Agents** are appointed by an
insurer for the purpose of engaging in the solicitation process and procuring
insurance business, including business relating to the continuance, renewal or
revival of policies of insurance. Only authorised employees of insurance
companies, and specified persons of licensed intermediaries, who are trained
and authorised for the purpose can be part of the process of solicitation andsales of insurance.**D.** **Enabling Provisions****1.** **Grace Period**Grace period is the specified period of time immediately following the premium
due date during which a payment can be made to renew or continue a policy in
force without loss of continuity benefits such as waiting periods and coverage of
pre-existing diseases. Coverage is not available for the period for which no
premium is received. The days of grace are computed from the next day after the
due date fixed for payment of the premium.For **Life insurance**, if there is no grace period, a single delay in payment can
lead to a policy lapse. This would be detrimental for the policyholder, the
insurer and the insurance industry in general. IRDAI Regulations allow a grace
period of 15 days is applicable in case of Monthly mode of Premium collection and
30 days in other modes.44In respect of **Health insurance** also, certain number of days as grace period is
allowed for renewal of individual health policies. This period depends on the policy
of the company and the product offered. All continuity benefits are maintained if
the policy is renewed within the grace period. However Claims, if any, during the
break period will not be considered. As per IRDAI Regulations, the grace period is
15 days in case of Monthly mode of Premium collection and 30 days in other modes.**Motor Policies** are usually valid for a period of one year and have to be renewed
before the due date. Grace period for paying the premium do not apply. In case
a comprehensive policy lapses for more than 90 days, the accrued No Claim
Bonus (NCB) benefit would also be lost.In the interest of smooth operation of affairs during the Covid-19 pandemic,
IRDAI permitted the following relaxations:i. In case of Life insurance policies, Insurers were asked to enhance thegrace period by additional 30 days if desired by the policyholders.ii. In case of Health insurance policies, Insurers were told to condone delaysin renewal up to 30 days without deeming such condonation as a break in
policy. Insurers were requested to contact the policyholders well in
advance to avoid discontinuance in coverage.iii. As regards Motor Vehicle Third Party Insurance policies that fell due forrenewal and premiums could not be paid due to the Covid-19 situation,
IRDAI allowed a grace period till 15th May, 2020.**2.** **Free-Look Period introduced by “IRDAI”**Insurance contracts are drafted by the insurer, and the other party has to adhere to | Final IC-38 - Corporate Agent _Composite _ English.md | d43 | Solicitation | Final IC-38 - Corporate Agent _Composite _ English_023 | {
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before the due date. Grace period for paying the premium do not apply. In case
a comprehensive policy lapses for more than 90 days, the accrued No Claim
Bonus (NCB) benefit would also be lost.In the interest of smooth operation of affairs during the Covid-19 pandemic,
IRDAI permitted the following relaxations:i. In case of Life insurance policies, Insurers were asked to enhance thegrace period by additional 30 days if desired by the policyholders.ii. In case of Health insurance policies, Insurers were told to condone delaysin renewal up to 30 days without deeming such condonation as a break in
policy. Insurers were requested to contact the policyholders well in
advance to avoid discontinuance in coverage.iii. As regards Motor Vehicle Third Party Insurance policies that fell due forrenewal and premiums could not be paid due to the Covid-19 situation,
IRDAI allowed a grace period till 15th May, 2020.**2.** **Free-Look Period introduced by “IRDAI”**Insurance contracts are drafted by the insurer, and the other party has to adhere to
it if he/ she wants the insurance. Such contracts where someone has to accept the
contract as it is and cannot make any change to it are legally called Contracts of
Adhesion. Because of this one-sided situation, the Courts always make insurers
liable for any ambiguity or confusion that may arise in interpreting these terms andconditions.To reduce this one-sidedness and make insurance transactions more customerfriendly, IRDAI has built into its regulations a consumer-friendly provision called
‘Free-Look Period’ whereby, if the customer is not satisfied with any term and
conditions of the policy, he/ she can return it and get a refund. This provision
whereby policyholders are given the option of cancelling the policy within 15 days
(30 days, in case of electronic policies and policies sourced through distance mode)
after receiving the policy document, in case they are not satisfied with the policy,
has been introduced for Life Insurance and Health Insurance policies (having a
tenure of at least one year). The company has to be intimated in writing and the
premium is refunded less, proportionate risk premium for the period of cover,
expenses and charges.45**Cancellation of Policies:** When policies are cancelled by the insurer, the proportion
of the premium corresponding to the expired period of insurance is charged/
retained by the insurer and the proportion corresponding to the unexpired period
of insurance is returned to the insured, provided no claim has been paid under the
policy. Such proportionate calculation of premium is called Pro-rata premium.When annual policies are cancelled by the insured, insurers usually charge/ retain
premiums at a higher rate and refund premiums at higher rates, instead of
calculating pro-rata premiums. This would prevent anti-selection against the
insurers and take care of the initial expenses of the insurer. Such rates are disclosed
as part of the terms and conditions of the insurance contract and referred to as
Short period scales.**Important****i.** **Coercion** - Involves pressure applied through criminal means.**ii.** **Undue influence** – using one’s position to dominate the will of another person,to obtain an undue advantage over that person.**iii.** **Fraud** – inducing another to act on a false belief that is caused by arepresentation one does not believe to be true. It can arise either from
deliberate concealment of facts or through misrepresenting them.**iv.** **Mistake** - Error in one’s knowledge or belief or interpretation of a thing or event.This can lead to an error in understanding and agreement about the subjectmatter of the contract.**Test Yourself 1**Which among the following cannot be an element in a valid insurance contract?I. Offer and AcceptanceII. CoercionIII. ConsiderationIV. Legality**Summary**i. Insurance involves a contractual agreement in which the insurer agrees toprovide financial protection against specified risks for a price or consideration
known as the premium.
ii. A contract is an agreement between parties, enforceable at law.iii. The elements of a valid contract include:Offer and acceptanceConsideration,Consensus ad-idem,- Free consentCapacity of the parties and46Legality of the object**Key Terms**1. Offer and Acceptance2. Lawful consideration3. Consensus ad idem**Test Yourself 2**During the Free-look period, if the policyholder, who has bought a policy through
an Agent, disagrees to any of its terms and conditions, he/ she can return it and get
a refund subject to the following conditions:I. He/ she can exercise this option within 15 days of receiving the policy document
II. He/ she has to communicate to the company in writing | Final IC-38 - Corporate Agent _Composite _ English.md | d-19 | Free-Look Period introduced by “IRDAI” | Final IC-38 - Corporate Agent _Composite _ English_024 | {
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known as the premium.
ii. A contract is an agreement between parties, enforceable at law.iii. The elements of a valid contract include:Offer and acceptanceConsideration,Consensus ad-idem,- Free consentCapacity of the parties and46Legality of the object**Key Terms**1. Offer and Acceptance2. Lawful consideration3. Consensus ad idem**Test Yourself 2**During the Free-look period, if the policyholder, who has bought a policy through
an Agent, disagrees to any of its terms and conditions, he/ she can return it and get
a refund subject to the following conditions:I. He/ she can exercise this option within 15 days of receiving the policy document
II. He/ she has to communicate to the company in writing
III. The premium refund will be adjusted for proportionate risk premium for theperiod on cover, expenses incurred by the insurer on medical examination and
stamp duty chargesIV. All the above**Test Yourself 3**If the policyholder has bought a policy and does not want it, he/ she can return it
during the _________ period, and get a refund.I. Free evaluationII. Free-lookIII. CancellationIV. Free trial**Answers to Test Yourself****Answer 1** - The correct option is II.
**Answer 2** - The correct option is IV.
**Answer 3** - The correct option is II.47## CHAPTER C-05## UNDERWRITING AND RATING**Chapter Introduction**In this chapter you will learn the basics of underwriting and rating. You will learn
about the different methods of dealing with hazards in the process of rating of risks.
You will be able to appreciate the common aspects of underwriting, product
approval and rating.**Learning Outcomes**After studying this chapter, you should be able to:1. Define the basics of underwriting2. Understand the basics of product approvals in India3. Appreciate rating factors and the importance of ratemaking48**A.** **Basics of Underwriting**In the previous chapters, we have seen that the concept of insurance involves
managing risk through pooling. Insurers create a pool consisting of premiums that
are made by several individuals/ commercial/ industrial firms/ organizations.This process of understanding risks, classifying risks, identifying which category they
fall into, **deciding whether to accept the risk or not** and if so, how much premium
the insurer would require to accept the risk and whether any extra conditions are
to be imposed on the risk - all these are part of **underwriting** .It is also important to know what rate is to be charged and how the rates are made.**Definition**Underwriting is the process of determining whether a risk offered for insurance is
acceptable, and if so, at what rates, terms and conditions.Underwriting comprises the following steps:i. Assessment and evaluation of hazard and risk in terms of frequency andseverity of lossii. Formulation of policy coverage and terms and conditionsiii. Fixing of rates of premiumThe underwriter decides on whether or not to accept the riskThe next step would be to decide the **rates, terms and conditions** under which the
risk is to be accepted.Underwriting skills are acquired through a continuous learning process involving
adequate training, field exposure and deep insights. To be a fire insurance
underwriter one needs to have a good knowledge of the likely causes of fire, impact
of fire on various physical goods and property, the process involved in an industry,
geography, climatic conditions etc.Similarly a marine insurance underwriter must be aware about port/ road
conditions, problems encountered by cargo/ goods in transit or storage, ships andtheir seaworthiness and so on.A health underwriter needs to understand the risk profile of the insured, age,
medical aspects, fitness levels and family history and measure the effect of each
factor affecting the risk.**Sources of information for underwriting**The first stage in any numerical (or statistical) analysis is the collection of data.
When pricing a risk, an underwriter should gather as much information as possibleto aid accurate assessment.49**Sources of information are:**i. **Proposal form or underwriting presentation**ii. **Risk surveys**iii. **Historic claims experience data:** For some classes of business, such aspersonal and motor lines, underwriters often utilise historic claims
experience data to provide an indication of the likely future claims
experience, and to arrive at a suitable premium **.****Underwriting, equity and business sustainability**The need for careful underwriting and risk classification in insurance arises from the
simple fact that **all risks are not equal** . Each risk thus needs to be appropriately
assessed and priced in accordance with the likelihood of loss occurrence and
severity.Since all risks are not equal, it would not be proper to ask all those who are to be | Final IC-38 - Corporate Agent _Composite _ English.md | d46 | Key Terms | Final IC-38 - Corporate Agent _Composite _ English_025 | {
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medical aspects, fitness levels and family history and measure the effect of each
factor affecting the risk.**Sources of information for underwriting**The first stage in any numerical (or statistical) analysis is the collection of data.
When pricing a risk, an underwriter should gather as much information as possibleto aid accurate assessment.49**Sources of information are:**i. **Proposal form or underwriting presentation**ii. **Risk surveys**iii. **Historic claims experience data:** For some classes of business, such aspersonal and motor lines, underwriters often utilise historic claims
experience data to provide an indication of the likely future claims
experience, and to arrive at a suitable premium **.****Underwriting, equity and business sustainability**The need for careful underwriting and risk classification in insurance arises from the
simple fact that **all risks are not equal** . Each risk thus needs to be appropriately
assessed and priced in accordance with the likelihood of loss occurrence and
severity.Since all risks are not equal, it would not be proper to ask all those who are to be
insured, to pay equal premium. **The purpose of underwriting is to classify risks so**
**that, depending on their characteristics and degree of risk posed, an appropriate**
**rate of premium may be charged.** It is important for the underwriter to ensure
that the risk evaluation is done properly and the premium charged is neither too
low to cover the risk nor too high to make it non-competitive.The main features of underwriting are as followsi. To **identify risk** based upon the characteristicsii. To **determine the level** of risk presented by the proposerThe objectives of underwriting are achieved, in short, by deciding the level of
acceptability, adequacy of premium and other terms.**B.** **Product Filing with IRDAI**Every Insurance product needs to be filed with IRDAI for approval before it is offered
for sale. IRDAI allots a Unique Identification number (UIN) for every insurance
product. Once products are introduced in the market, there are guidelines to be
followed for withdrawing the product as well.**1.** The Regulator asks for a clear commitment by the Board of the insurer that it iswilling to accept the risks in the policy and agrees to pay the claims. It also asks
the insurer to commit that the policy wordings are fair to the customer and that
the prices are decided on a scientific basis.**2.** The insurer should plan for the possibility of withdrawal of the products in thefuture and the options that would be available to the policyholder on such
withdrawal of the product.**3.** The withdrawn product shall not be offered to the prospective customers.50**C.** **Basics of Ratemaking**Insurance is based on transfer of risk to the insurer. By purchasing an insurance
policy, the insured is able to reduce the impact of financial losses arising from the
peril against which the property is insured. The Insurer needs to adopt a process of
calculating a price to cover the future cost of insurance claims and expenses,
including a margin for profit. This is known as **ratemaking.****A rate is the price of a given unit of insurance.** For example, a rate may be
expressed as Rs.1.00 per mile (per thousand) sum assured for earthquake coverage.
Each rate is established after looking at past trends and changes in the current
environment that may affect potential losses in the future.**Note that rates are not the same as premiums.****Premium = (Sum Insured) x (rate)****Example**Taking an example of health insurance, numerical or percentage assessments are
made on each component of the risk. Factors like age, race, occupation, habits etc.
are examined and scored numerically based on predetermined criteria.The amount of premium to be paid by each depends on a rate, which is determined
by two factors; The probability of loss due to a loss event (caused by an insured peril) and The estimated amount of loss that may arise due to the loss event**Example**Assume the average amount of a house being destroyed by fire is Rs 1,00,000.The probability of the loss of a house being destroyed by fire 1 out of 100 [or 0.01].
That is, the experience is that out of a 100 insured houses, one house gets destroyed
by fire.The expected average loss would be Rs.1,00,000 x 0.01 = Rs. 1000.So, Insurers would need to charge a minimum of Rs.1000 to insure a house of
Rs.1,00,000 value.How can the insurer ensure that the pool is sufficient to compensate for the losses
that are actually incurred?As seen earlier, the whole mechanism of insurance involves pooling of many similar | Final IC-38 - Corporate Agent _Composite _ English.md | null | Sources of information for underwriting | Final IC-38 - Corporate Agent _Composite _ English_026 | {
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made on each component of the risk. Factors like age, race, occupation, habits etc.
are examined and scored numerically based on predetermined criteria.The amount of premium to be paid by each depends on a rate, which is determined
by two factors; The probability of loss due to a loss event (caused by an insured peril) and The estimated amount of loss that may arise due to the loss event**Example**Assume the average amount of a house being destroyed by fire is Rs 1,00,000.The probability of the loss of a house being destroyed by fire 1 out of 100 [or 0.01].
That is, the experience is that out of a 100 insured houses, one house gets destroyed
by fire.The expected average loss would be Rs.1,00,000 x 0.01 = Rs. 1000.So, Insurers would need to charge a minimum of Rs.1000 to insure a house of
Rs.1,00,000 value.How can the insurer ensure that the pool is sufficient to compensate for the losses
that are actually incurred?As seen earlier, the whole mechanism of insurance involves pooling of many similar
risks so that the probability of the number of losses (frequency) as well as the extent
of loss (severity) becomes predictable. This principle, referred to as ‘the law of
large numbers’ states that as the sample size grows, the results come closer to the
expected value. Insurance companies need to sell more policies to more and more
people to make their expectations/ predictions work.51An example is that if a coin is tossed, the chances of getting ‘heads’ or ‘tails’ is
50:50. However, if the coin is tossed only once, the result can be 100% heads and
0% ‘tails’ or 0% ‘heads’ and or 100% tails. However, if one tosses a coin many times,
the chance of the average count of ‘heads’ and ‘tails’ being 100% and 0% reduces
and will get closer to 50:50.**Example**In the field of property insurance, the chances of a wooden structure catching fire
are more than stone structures; hence, a higher premium is required to insure thewooden structure.The same concept applies to Life and Health Insurance also. An individual suffering
from high blood pressure or diabetes has higher chances of suffering a heart attack.**Test Yourself 1**Identify the two factors that affect insurance ratemaking.I. Probability and severity of riskII. Source and nature of riskIII. Source and timing of risk
IV. Nature and impact of risk**1.** **Determining the rate of premium**The pure rate of premium is arrived at on the basis of past loss experience.
Therefore, statistical data regarding past losses is most essential for purposes of
calculating rates. To fix the rates, it is necessary to give a ‘mathematical value’ tothe risks.**Example**If loss experience of a large number of motor cycles is collected for a period of say
10 years, we will get the sum total of the losses resulting from damage to the
vehicles. By expressing this amount of loss as percentage of the total value of motor
cycles we can fix the ‘mathematical value’ of the risk. This may be expressed in the
formula given below:Let us suppose that: The Value of a motor cycle: Rs. 50,000/ Loss experience: Out of 1000 motor cycles, 50 motor cycles get stolen over10 years
On an average, 5 motor cycles become total losses due to theft every yearApplying the formula, the result will be:52Losses per year (Rs. 50,000 X 5) = Rs. 2,50,000**Total Values of 1000 motor vehicles (Rs.** 50,000 X 1000) **= Rs. 5,00,00,000**This means that average loss percentage per vehicle (L/ V) x 100= [2,50,000/
5,00,00,000] x 100 = 0.5%Therefore the rate of premium that a motor cycle owner pays is half a percent of
Rs. 50,000/ - i.e. Rs. 250/ - per year. This is called the **‘Pure’ premium,** also known
as ‘Burning Cost’.At the rate of Rs. 250 per motor cycle, Rs. 2.5 lakhs is collected which is paid outin claims on total losses of 5 vehicles.If the pure premium, which is arrived above, is collected it would constitute a fund
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5,00,00,000] x 100 = 0.5%Therefore the rate of premium that a motor cycle owner pays is half a percent of
Rs. 50,000/ - i.e. Rs. 250/ - per year. This is called the **‘Pure’ premium,** also known
as ‘Burning Cost’.At the rate of Rs. 250 per motor cycle, Rs. 2.5 lakhs is collected which is paid outin claims on total losses of 5 vehicles.If the pure premium, which is arrived above, is collected it would constitute a fund
which will be sufficient only to pay for losses.In the example above we can see that there is no surplus. But insurance operations
also involve costs of administration (expenses of management) and costs of
procurement of business (agency commission). It is also necessary to provide a
margin for unexpected heavy losses.Finally, since insurance is transacted on a commercial basis, like any other business,
it is necessary to provide for a margin of profit which is a return on the capitalinvested in the business.**Therefore, the ‘pure premium’ is suitably loaded or increased by adding**
**percentages to provide for expenses, reserves and profits.****The final rate of premium will consist of the following components:** Loss payments
Loss expenses (e.g. survey fees)
Agency commission
Expenses of management
Margin for reserves for unexpected heavy losses e.g. 7 total losses against 5expected
Margin for profitsBy taking all the relevant rating factors into consideration, one can ensure the rates
are adequate, excessive or unfairly discriminatory as between risks of similar type
and quality.**Test Yourself 2**What is pure premium?I. Premium sufficiently big enough to pay for losses only
II. Premium applicable to marginal members of the society
III. Premium after loading for administrative costs
IV. Premium derived from the most recent loss experience period53**2.** **Deductible**‘Deductible’ or ‘excess’ is a cost-sharing provision between an insurer and insured.
Deductibles provide that only the claims in excess of a particular threshold are
payable by the insurer. In other words, the insurer will not be liable for claims below
a specified level. The level or the threshold would be set as a fixed amount, or a
percentage or even as a specified period of time (when it is called time-excess.) In
case of health policies, there could be a condition that claims would be payable
only if the hospitalization is beyond a specified number of days/ hours. Deductibles
are not used in life policies.In products such as property, motor and home insurances, deductibles are
predetermined amounts that the insured must bear towards an indemnity claim.
Deductibles can be compulsory for some policies or voluntary. Insurers generally
charge lower premiums when the insured voluntarily opt for higher deductibles. An
agent must examine how specific deductibles work and inform the insured whether
the deductible is applicable on a ‘per year’ or ‘per event’ basis.There are various reasons for having deductibles. Corporate customers covering
factories, multiple cargo consignments, large groups of employee, public liability
exposures etc. and having huge amounts of Sum Insured, may prefer to bear small
claims themselves and avoid the documentation to prove claims. For example, a
large factory owner paying lakhs or rupees as premium may not be bothered about
a minor repair cost of a machine amounting to around Rs.2,000.Some type of policies may need the insured also to bear some part of the loss to
ensure that he/ she takes due care. For instance, health insurers may insist on a
deductible so that insured would not overspend on costly hospital rooms just
because insurance is there. Some Insurers also may not prefer spending time on
processing small claims. Also, in certain situations, insurers may not want to get
exposed to the financial stress caused by accumulation of a large number of small
losses at one location. For example, a small flood in an industrial estate area can
cause many low value claims from all the warehouses in the area.**Franchise:** Franchise refers to a threshold set, usually as a percentage of the sum
insured, below which no claim is admissible, as in the case of deductibles. However,
when the claim amount is beyond the franchise limit, the entire claim is admissible
by the insurer. In other words, franchise determines the minimum threshold of the
insurance companies' financial responsibility. Franchise will apply to the policy in
the same way and for the same reasons as a deductible in case of claims below the
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ensure that he/ she takes due care. For instance, health insurers may insist on a
deductible so that insured would not overspend on costly hospital rooms just
because insurance is there. Some Insurers also may not prefer spending time on
processing small claims. Also, in certain situations, insurers may not want to get
exposed to the financial stress caused by accumulation of a large number of small
losses at one location. For example, a small flood in an industrial estate area can
cause many low value claims from all the warehouses in the area.**Franchise:** Franchise refers to a threshold set, usually as a percentage of the sum
insured, below which no claim is admissible, as in the case of deductibles. However,
when the claim amount is beyond the franchise limit, the entire claim is admissible
by the insurer. In other words, franchise determines the minimum threshold of the
insurance companies' financial responsibility. Franchise will apply to the policy in
the same way and for the same reasons as a deductible in case of claims below the
threshold, but in the event of a claim exceeding the franchise, the full amount of
the loss will be paid.54**D.** **Rating factors**The relevant elements that are used to add up the rates and make the rating plan
are referred to as **rating factors** . Insurers use ‘rating factors’ to determine the risk
and to decide the price they will charge. The Insurer uses his assessments to establish a base rate. The Insurer then adjusts this rate with discounts applied for positive featuressuch as superior fire protection on property risk and loadings applied for
adverse features such as presence of inflammable materials in the premises. In Life Insurance the usual practice is to apply loading for adverse health,habits, heredity or occupational factors.**Key Terms**- Deductibles- Franchise**Answers to Test Yourself****Answer 1** - The correct option is I.**Answer 2** - The correct option is I.55## CHAPTER C-06## CLAIMS PROCESSING**Chapter Introduction**The insured get to taste the benefit of insurance only when they are affected by
losses. The entire insurance industry is sensitive to the losses faced by insured and
try to settle the claims that arise as amicably as possible and as fast as possible.After studying this chapter, you should be able to understand:1. Claims settlement2. Importance of claim procedures56**A.** **Loss Assessment and Claim settlement**Claims Assessment (Loss Assessment) is the process of determining whether the loss
suffered by the insured is covered by the insurance policy, i.e. the loss does not fall
under any exclusion and there is no breach of warranty.Settlement of claims has to be based on considerations of fairness. For an Insurancecompany, expeditious settlement of claim is the benchmark of efficiency for its
services. Each company has internal guidelines about time taken in claims
processing, which its employees follow.This is generally known by the term “Turnaround time” (TAT). Some insurers have
also put in place, facility for the insured to check claim status online from time to
time. Some insurance companies have also set up claims hub for speedy processingof claims.**Important aspects in an insurance claim**Although most companies are bound by their TAT it is important for an agent to
know the aspects that are looked into for settling a claim. Six of the most important
aspects for Non-life claims are given below.i. Whether the loss causing event is within the scope of the policyii. Whether the insured has complied with his part of the policy conditionsiii. Compliance with warranties. The survey report would indicate whether or notwarranties have been complied with.iv. Observance of utmost good faith by the proposer, during the currency of thepolicy.v. On the occurrence of a loss, the insured is expected to act as if he is uninsured.In other words, he has a duty to take measures to minimise the loss.vi. Determination of the amount payable. The amount of loss payable is subject tothe sum insured. However, the amount payable will also depend upon the
following: The extent of the insured’s insurable interest in the property affected
The value of salvage
Application of underinsurance
Application of contribution and subrogation conditionsIn the matter of claims relating to life insurance, the insurer checks whether1) Conditions of policy have not been breached
2) Utmost good faith has been followed and
3) No material facts have been concealed fraudulently.57**B.** **Categories of claim**Insurance Claims fall into the following categories:**i.** **Standard claims**These are claims which are clearly within the terms and conditions of the policy.
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following: The extent of the insured’s insurable interest in the property affected
The value of salvage
Application of underinsurance
Application of contribution and subrogation conditionsIn the matter of claims relating to life insurance, the insurer checks whether1) Conditions of policy have not been breached
2) Utmost good faith has been followed and
3) No material facts have been concealed fraudulently.57**B.** **Categories of claim**Insurance Claims fall into the following categories:**i.** **Standard claims**These are claims which are clearly within the terms and conditions of the policy.
The assessment of claim is done keeping in view scope and the sum insured opted
for and other methods of indemnity laid down for various classes of insurance.**ii.** **Condition of average or average clause**This is a condition in some policies which penalises the insured for insuring his
property at a sum insured less than its actual value known as underinsurance. In the
event of a claim the insured gets an amount that is proportionately reduced fromhis actual loss in accordance to the amount underinsured. Such situations occurmore in the case of non-life insurance.**iii.** **Act of God perils - Catastrophic losses**Natural perils like storm, cyclone, flood, inundation, and earthquake are termed as
“Act of God” perils. These perils may result in losses to many policies of insurer in
the affected region. Surveyors are appointed for assessment of certain categoriesof non-life insurance claims.In such major and catastrophic losses, the surveyor is asked to proceed to the loss
site immediately for an early assessment and loss minimisation efforts.
Simultaneously, insurers’ officials also visit the scene of loss particularly when the
amount involved is large. The purpose of the visit is to obtain an immediate, on the
spot idea of the nature and extent of loss.Preliminary reports are also submitted if the surveyors face some problems in
regards to the assessment and may desire guidance and instructions from insurers
who are thus given an opportunity to discuss the issues with the insured, ifnecessary.**iv.** **On account payment**In Non-life insurance claims, apart from preliminary reports, interim reports may be
submitted from time to time where repairs and/ or replacements are made over a
long period. Interim reports also give the insurer an idea of the development of
assessment of loss. It also helps in recommendation of "On account payment" of the
claim if desired by the insured. This usually happens if the loss is large and the
completion of assessment may take some time.If the claim is found to be in order, payment is made to the claimant and entries
made in the company records. Appropriate recoveries are made from the co-insurers
and reinsurers, if any. In some cases, the insured may not be the person to whom
the money is to be paid.58**v.** **Discharge vouchers**Settlement of the claim is made only after obtaining a discharge under the policy.
A sample of discharge receipt for claims (under personal accident insurance) for
injuries is worded along the following lines: (may vary from company to company)Name of the InsuredClaim No. Policy No.Received from the Company Ltd.The sum of Rs. ___________ in full and final settlement of compensation due
to me/ us on account of injuries sustained by me/ us due to accident which
occurred on or about the___________ I/ we give this discharge receipt to the
Company in full and final settlement of all my/ our claim present or future
arising directly or indirectly in respect of the said claim.Date (Signature)vi. **Post settlement action**The action taken after settlement of the non-life claim in relation to underwritingvaries from one class of business to another.**Example**Sum insured under a fire policy stands reduced to the extent of the amount of
claim paid. However, it can be reinstated on payment of pro-rata premium, which
is deducted from the amount of claim paid.On payment of the capital sum insured under a personal accident policy, the policy
stands cancelled.Similarly, payment of a claim under individual fidelity guarantee policy
automatically terminates the policy.**vii.** **Salvage**Salvage generally refers to damaged property. On payment of loss, the salvage
belongs to insurers.**Example**When motor claims are settled on total loss basis, the damaged vehicle is taken over
by insurers. Salvage can also arise in other non-life insurances like fire claims,
marine cargo claims etc.Salvage is disposed of according to the procedure laid down by the companies for
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arising directly or indirectly in respect of the said claim.Date (Signature)vi. **Post settlement action**The action taken after settlement of the non-life claim in relation to underwritingvaries from one class of business to another.**Example**Sum insured under a fire policy stands reduced to the extent of the amount of
claim paid. However, it can be reinstated on payment of pro-rata premium, which
is deducted from the amount of claim paid.On payment of the capital sum insured under a personal accident policy, the policy
stands cancelled.Similarly, payment of a claim under individual fidelity guarantee policy
automatically terminates the policy.**vii.** **Salvage**Salvage generally refers to damaged property. On payment of loss, the salvage
belongs to insurers.**Example**When motor claims are settled on total loss basis, the damaged vehicle is taken over
by insurers. Salvage can also arise in other non-life insurances like fire claims,
marine cargo claims etc.Salvage is disposed of according to the procedure laid down by the companies for
the purpose. Surveyors, who have assessed the loss, will also recommend methods
of disposal.**viii.** **Recoveries**After settlement of claims, the insurers under subrogation rights applicable to
insurance contracts, are entitled to the rights and remedies of the insured and to59recover the loss paid from a third party who may be responsible for the loss under
respective laws applicable. Thus, insurers can recover the loss from shipping
companies, railways, road carriers, airlines, port trust authorities etc.**Example**In the case of non-delivery of consignment, the carriers are responsible for the loss.
Similarly, the port trust is liable for goods which are safely landed but subsequently
missing. For this purpose, a letter of subrogation duly stamped is obtained from theinsured before the settlement of the claim.**ix.** **Disputes related to claims**Despite best efforts, there could be delay in payment, non-payment (repudiation)
of the claim, or the claim being admitted for a lesser amount, which might lead to
dissatisfaction and dispute between Insurer and the insured.Apart from these, the most common reasons, to name a few are: Non-disclosure of material facts Lack of coverage Loss caused by excluded perils Lack of adequate sum insured Breach of warranty Issues regarding quantum due to underinsurance, depreciation, etc.All this could cause considerable grief to the insured at a time when he is already
suffering from financial constraints arising due to losses. In order to reduce his
sufferings, grievance redressal and dispute handling procedures are well laid out in
the policy itself. Policies of fire or property have the condition of “Arbitration” in
the policy itself.**C.** **Arbitration**Arbitration is a method of settling disputes arising out of contracts. Arbitration is
done in accordance with the provisions of the Arbitration and Conciliation Act, 1996.
The normal method of enforcing a contract or settling a dispute there under would
be to go to a court of law. Such litigation, however, involves considerable delay and
expense. The Arbitration Act allows the parties to submit disputes under a contract
to the more informal, less costly and private process of arbitration.Arbitration may be done by a single arbitrator or by more than one, chosen by the
parties to the dispute themselves. In the event of a single arbitrator, the parties
have to agree about that person. Many commercial insurance policies contain an
**arbitration clause** stating that disputes will be subject to arbitration. Fire and most
miscellaneous policies also contain an arbitration clause which provides that if the
liability under the policy is admitted by the company, and there is a difference
concerning the quantum to be paid, such a difference must be referred to60arbitration. Normally the arbitrator’s decision is considered final and binding on
both the parties.The wording of the condition varies from policy to policy. Generally, it provides asfollows:i. The dispute is submitted to the decision of a single arbitrator to be appointedby the parties, or in the event of any disagreement between them upon
appointment of a single arbitrator, to the decision of two arbitrators each
appointed by the parties.ii. These two arbitrators shall appoint an Umpire, who presides at the meetings.The procedure during these meetings resembles that of a court of law. Each | Final IC-38 - Corporate Agent _Composite _ English.md | o59 | Post settlement action | Final IC-38 - Corporate Agent _Composite _ English_031 | {
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parties to the dispute themselves. In the event of a single arbitrator, the parties
have to agree about that person. Many commercial insurance policies contain an
**arbitration clause** stating that disputes will be subject to arbitration. Fire and most
miscellaneous policies also contain an arbitration clause which provides that if the
liability under the policy is admitted by the company, and there is a difference
concerning the quantum to be paid, such a difference must be referred to60arbitration. Normally the arbitrator’s decision is considered final and binding on
both the parties.The wording of the condition varies from policy to policy. Generally, it provides asfollows:i. The dispute is submitted to the decision of a single arbitrator to be appointedby the parties, or in the event of any disagreement between them upon
appointment of a single arbitrator, to the decision of two arbitrators each
appointed by the parties.ii. These two arbitrators shall appoint an Umpire, who presides at the meetings.The procedure during these meetings resembles that of a court of law. Each
party states his case, if necessary, with the help of a counsel and witnesses areexamined.iii. If the two arbitrators do not agree on a decision, the matter is submitted beforethe Umpire, who makes his award.iv. Costs are awarded at the discretion of the arbitrator/ arbitrators or Umpiremaking the award.Disputes relating to question of liability are to be settled through litigation.**Example**If the insurers contend that the loss is not payable because it is not covered under
the policy, the matter has to be decided by a Court of Law. Again, if the insurers
refuse to pay the claim on the ground that the policy is void because it was obtained
through fraudulent non-disclosure of material facts (breach of the legal duty of
‘utmost good faith’), the issue has to be resolved through litigation.**D.** **Other dispute resolution mechanisms**As per IRDAI regulations, all policies have to mention about the grievance redressalmechanism available to the insured in the event the insured is dissatisfied with theservice of the insurer for any reason.In case of claims under personal lines of business, a dissatisfied insured can
approach Insurance Ombudsman. The procedure is discussed in detail in Chapter 9.
The Office details of Insurance Ombudsman are given in the policy. Decision of
Ombudsman is binding on Insurer but not on insured.Matters like the financial authority and the limitations of Ombudsmen are also
discussed in detail in Chapter 9.61**Test Yourself 1**Which of the following activities would not be categorised under professionalsettlement of claims?I. Seeking information relating to the cause of the loss
II. Approaching the claim with a prejudice
III. Ascertaining whether the loss was a result of an insured peril
IV. Quantifying the amount payable under the claim**Answers to Test Yourself****Answer 1** - The correct option is II.**Key Terms**Turn Around TimeSalvageRecoveriesClaims Assessment62## CHAPTER C-07## DOCUMENTATION**Chapter Introduction**In the insurance industry we deal with a large number of forms and documents.
These are required for the purpose of bringing clarity in the relationship between
the insured and the insurer. In this chapter, we shall deal with the various
documents that are involved at the proposal stage and their significance.**After learning this Chapter you will be able to:**Understand proposal stage documentation and its importanceFamiliarize with the purposes of the ProspectusUnderstand the importance of the Proposal formAppreciate Anti-Money Laundering (AML), Know Your Customer (KYC) norms
and the important documents, commonly applicable for practically all
policiesImportance of Age Proof and acceptable documents.63**A.** **Prospectus**Prospectus is a proposal stage document. The prospectus is a formal legal document
used by insurance companies that provides details about the product. It can mean
a document issued by the insurer in physical, electronic or any other format to sell
or promote insurance products. For this purpose, Insurance products would also
include the add-on covers/ riders offered, if any. The prospectus is like an
introductory document which helps the prospective policyholder to get familiar with
the company’s products.As per IRDAI’s (Protection of Policyholders’ Interests) Regulations, 2017 the
prospectus should contain all facts that are necessary for a prospective policyholder
to make an informed decision regarding purchase of a policy. It should contain the
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and the important documents, commonly applicable for practically all
policiesImportance of Age Proof and acceptable documents.63**A.** **Prospectus**Prospectus is a proposal stage document. The prospectus is a formal legal document
used by insurance companies that provides details about the product. It can mean
a document issued by the insurer in physical, electronic or any other format to sell
or promote insurance products. For this purpose, Insurance products would also
include the add-on covers/ riders offered, if any. The prospectus is like an
introductory document which helps the prospective policyholder to get familiar with
the company’s products.As per IRDAI’s (Protection of Policyholders’ Interests) Regulations, 2017 the
prospectus should contain all facts that are necessary for a prospective policyholder
to make an informed decision regarding purchase of a policy. It should contain the
following for each plan of insurance:The Unique Identification Number (UIN) allotted by the Authority for the
concerned insurance product- The extent of insurance coverThe Scope of benefits/ entitlements – guaranteed and non-guaranteedWarranties, exclusions/ exceptions of the insurance cover with explanations- The terms and conditions of the insurance coverDescription of the contingency or contingencies to be covered by insuranceThe class or classes of lives or property eligible for insurance under the terms
of such prospectusWhether the plan is participative or non-participativeThe allowable Add-on covers (also called Riders in Life insurance) on the productand their benefits are also stated.Other important information which a Prospectus includes:1. Any differences in covers and premium. E.g. for different age groups or fordifferent entry ages
2. Renewal terms of the policy
3. Terms of cancellation of policy under certain circumstances
4. The details of any discounts or loading applicable under differentcircumstances5. The possibility of any revision or modification of the terms of the policyincluding the premium
6. Any incentives to reward policyholders for early entry, continued renewals,favourable claims experience etc. with the same insurer.
7. Prospectus shall necessarily contain the product UIN allotted by IRDAI648. IRDAI Regulations mandate that Prospectus shall contain a copy of Section 41.This section prohibits any direct or indirect inducement to any person for
buying a new insurance, continuing or renewing any kind of insurance relating
to lives or property in India, including any rebate of the whole or part of the
commission payable on the policy.In particular the prospectus informs the proposer about the availability of facilityfor nomination.**Test Yourself 1**Which of the following it not usually part of the insurance prospectus?I. Name of OmbudsmanII. Date of Scope of benefitsIII. The EntitlementsIV. The Exceptions**B.** **Proposal Form**The insurance policy is a legal contract between the insurer and the policyholder.
As required for any contract, it has a proposal and its acceptance.The “Proposal form” is the application document that is used for making a proposal.
It is a form to be filled in by the proposer in written or electronic or any other
format approved by the Authority. It contains all information required by the insurer
to decide whether to accept or reject to cover the risk. In case the risk is accepted,
the insurer can on the basis of this information, decide the rates, terms and
conditions of the cover to be granted.The Principle of Utmost Good Faith and the Duty of Disclosure of material
information begin with the Proposal Form for insurance. The proposer must provide
all information correctly and completely as this document becomes the basis of
granting insurance and any wrong or concealed information could result in denial ofclaim.This duty to disclose continues beyond the proposal stage even after finalizing the
insurance contract. That is, any material change that happens anytime during the
period of insurance needs to be disclosed in non-life policies.Information collected from the Proposal Form during the course of solicitation of an
insurance policy or issuance of an insurance policy are confidential and should not
be shared with any third party. Where a proposal deposit is refundable to a prospect
for any reason, the same shall be refunded within 15 days from the date of
underwriting decision on the proposal.65As per IRDAI guidelines, it is the duty of the insurer to furnish to the insured, free
of charge, within 30 days of the acceptance of a proposal, a copy of the proposal
submitted by the Insured. The agent is expected to keep track of these timelines,
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conditions of the cover to be granted.The Principle of Utmost Good Faith and the Duty of Disclosure of material
information begin with the Proposal Form for insurance. The proposer must provide
all information correctly and completely as this document becomes the basis of
granting insurance and any wrong or concealed information could result in denial ofclaim.This duty to disclose continues beyond the proposal stage even after finalizing the
insurance contract. That is, any material change that happens anytime during the
period of insurance needs to be disclosed in non-life policies.Information collected from the Proposal Form during the course of solicitation of an
insurance policy or issuance of an insurance policy are confidential and should not
be shared with any third party. Where a proposal deposit is refundable to a prospect
for any reason, the same shall be refunded within 15 days from the date of
underwriting decision on the proposal.65As per IRDAI guidelines, it is the duty of the insurer to furnish to the insured, free
of charge, within 30 days of the acceptance of a proposal, a copy of the proposal
submitted by the Insured. The agent is expected to keep track of these timelines,
follow up internally and communicate with the prospect/ insured as and when
required by way of customer service.**a)** **Proposal Form - Details**The proposal form is first stage of documentation through which the insured informsthe insurer: Who he/ she is What kind of insurance he/ she needs Details of what he/ she wants to insure and For what period of time Details of the risk (E.g., for Life and Health insurances – details of health orany ailments suffered are to be given) Details would include the monetary value proposed on the subject matter ofinsurance and all **material facts** connected with the proposed insurance.In other words, the Proposal form collects details on the proposer’s identity such as
name, father’s name, address and other identifying inputs. To determine the true
identity of their customers, documents like address proof, PAN card, photographs
etc. are collected with the proposal.In respect of Life and Health insurances, details of the proposers’ family members
(including parents) indicating their longevity, status of health and ailments suffered
by any of them are collected. Depending on the product, the medical details of the
life proposed for insurance, personal characteristics and his/ her personal history
of disease may also be asked for.Details of the monetary value proposed on the subject matter of insurance and the
material facts connected with the proposed insurance would be collected for manylines of insurance.The insurance advisor’s recommendations including the reasons for such
recommendation may also be part of the proposal form. There would be a
declaration that the recommended policy’s details have been fully explained to the
proposer and the latter has acknowledged the same.A Proposal form may have the following Sections starting with details of the Insurer,
the Agent, the details of the product, the Sum Assured, the mode of payment of
premiums etc. The form would also contain the signature of the proposer, as proof
of the fact that he/ she has filled up the form and has submitted the proposal.66Other details asked for are the Proposer’s name, date of birth, contact details,
marital status, nationality, names of parents and spouse, educational qualifications,
habits and ID Proof, family particulars, employment details, bank details, name of
nominee/ appointee; details of existing insurance and reasons for opting for the
policy.Depending on the Product, medical details of the life proposed for insurance,
personal characteristics and his/ her personal history of disease may be asked for.Aspects related to the personal financial planning of the life being proposed
including his/ her work span, projected income and expenses, as well as needs for
savings and investment, health, retirement and insurance may also be enquiredabout.The Agents recommendations including the reasons for such recommendation may
also be part of the proposal form. In compliance to the IRDAI regulations mentioned
above, the Agent would make a declaration that the recommended policy’s details
have been fully explained to the proposer and the latter has acknowledged thesame.Proposal forms are printed by insurers usually with the insurance company’s name,
logo, address and the class/ type of insurance/ product that it is used for. It is
customary for insurance companies to add a printed note in the proposal form,
though there is no standard format or practice in this regard.**b)** **Declaration in the Proposal Form**Insurance companies usually add a declaration at the end of the proposal form to
be signed by the proposer. This ensures that the insured takes the pain to fill up the
form accurately and has understood the facts given therein, so that at the time of
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including his/ her work span, projected income and expenses, as well as needs for
savings and investment, health, retirement and insurance may also be enquiredabout.The Agents recommendations including the reasons for such recommendation may
also be part of the proposal form. In compliance to the IRDAI regulations mentioned
above, the Agent would make a declaration that the recommended policy’s details
have been fully explained to the proposer and the latter has acknowledged thesame.Proposal forms are printed by insurers usually with the insurance company’s name,
logo, address and the class/ type of insurance/ product that it is used for. It is
customary for insurance companies to add a printed note in the proposal form,
though there is no standard format or practice in this regard.**b)** **Declaration in the Proposal Form**Insurance companies usually add a declaration at the end of the proposal form to
be signed by the proposer. This ensures that the insured takes the pain to fill up the
form accurately and has understood the facts given therein, so that at the time of
a claim there is no scope for disagreements on account of misrepresentation of
facts. Such declaration converts the common law principle of utmost good faith to
a contractual duty of utmost good faith.**Example**Examples of such declarations are:‘I/ We hereby declare and warrant that the above statements are true and complete
in all respects and that there is no other information which is relevant to the
application for insurance that has not been disclosed to you.’‘I/ We agree that this proposal and the declarations shall be the basis of the contract
between me/ us and (insurer’s name).’67**Test Yourself 2**Which of the following is not relevant in respect of a Proposal form?I. Utmost Good-faith
II. Amount expected to be claimed
III. Duty to Disclose material facts
IV. Confidentiality of details given**Some examples of such notes are:**‘Non-disclosure of facts material to the assessment of the risk, providing misleading
information, fraud or non-co-operation by the insured will nullify the cover under
the policy issued’.‘The company will not be on risk until the proposal has been accepted by the
Company and full premium paid’.**C.** **Know Your Customer (KYC) Norms****Anti-Money Laundering and KYC Norms**Money Laundering is the process by which criminals transfer funds to conceal the
true origin and ownership of the proceeds of criminal activities. Money laundering
processes are used by criminals to make funds obtained through illegal activities
appear legal money. In the process, they try to cover up the criminal origin of the
money and make it appear valid.Criminals attempt to use financial services, including banks and insurance, to
launder their money. They make transactions using false identities, for example, by
purchasing some form of insurance and then managing to withdraw that money and
then disappearing once their purpose is served. Governments across the world,
including India constantly try to prevent such money laundering attempts.**Definition**Money laundering is the process of bringing illegal money into an economy by hiding
its illegal origin so that it appears to be legally acquired. The Government of India
launched the PMLA, 2002 to rein in money-laundering activities.The Prevention of Money Laundering Act (PMLA), 2002 came into effect from 2005
to control money laundering activities and to provide for confiscation of property
derived from money-laundering.The Anti-Money Laundering guidelines issued by IRDAI soon after have indicated
suitable measures to determine the true identity of customers requesting for
insurance services, reporting of suspicious transactions and proper record keeping
of cases involving or suspected of involving money laundering. It is necessary to be68vigilant and ensure, right at the beginning of the contract that it is not intended to
be a tool for money laundering of any sort.The Prevention of Money Laundering Act, 2002 (PMLA) was been brought into force
by the Government of India with effect from 1st July 2005. As per the Act, every
banking company, financial institution (which includes Insurance companies) and
intermediary shall have to maintain a record of all the transactions prescribed under
the PMLA. Accordingly, IRDAI issued the Guidelines on Anti-Money laundering/
Counter Financing of Terrorism (AML/ CFT) 31st March 2006.Know your customer is the process used by a business to verify the identity of their
clients. Banks and insurers are increasingly demanding their customers provide
detailed information to prevent identity theft, financial fraud and money
laundering. The objective of KYC guidelines is to prevent financial institutions from
being used by criminal elements for money laundering activities.Insurers, hence, need to determine the true identity of their customers. Agents | Final IC-38 - Corporate Agent _Composite _ English.md | e68 | Declaration in the Proposal Form | Final IC-38 - Corporate Agent _Composite _ English_035 | {
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of cases involving or suspected of involving money laundering. It is necessary to be68vigilant and ensure, right at the beginning of the contract that it is not intended to
be a tool for money laundering of any sort.The Prevention of Money Laundering Act, 2002 (PMLA) was been brought into force
by the Government of India with effect from 1st July 2005. As per the Act, every
banking company, financial institution (which includes Insurance companies) and
intermediary shall have to maintain a record of all the transactions prescribed under
the PMLA. Accordingly, IRDAI issued the Guidelines on Anti-Money laundering/
Counter Financing of Terrorism (AML/ CFT) 31st March 2006.Know your customer is the process used by a business to verify the identity of their
clients. Banks and insurers are increasingly demanding their customers provide
detailed information to prevent identity theft, financial fraud and money
laundering. The objective of KYC guidelines is to prevent financial institutions from
being used by criminal elements for money laundering activities.Insurers, hence, need to determine the true identity of their customers. Agents
should ensure that proposers submit the proposal form along with the following as
part of the KYC procedure:i. Proof of identity – driving license, passport, voter ID card, PAN card,Photographs etc.ii. Proof of address – driving license, passport, telephone bill, electricity bill,bank passbook etc. Different documentation are prescribed for individuals,
corporates, partnership firms, trusts and foundationsiii. Income proof documents and financial status, esp. in case of high-valuetransactionsiv. Purpose of insurance contract**a)** **Age Proof – for Personal Lines**While dealing with person related insurances like Life, Health, Personal Accident,
etc. Insurance companies use age as an important factor to determine the risk
profile of the insured. In life business, as age assumes great importance, life insurers
used to follow more detailed norms of age related documentation. [However, the
Government, the Reserve Bank of India and the IRDAI are becoming stricter on
following KYC norms.]An important part of the underwriting process is admission of
age, after verifying the proof of age.**i.** **Standard Age Proofs**There are two types of age proofs that insurers come across as evidence of
age. Valid age proofs may be standard or non-standard. Standard **age proofs** are normally issued by a public authority, like birthcertificate issued by a municipality or other government body, school
leaving certificate, passport etc.69 Non-standard, when a standard age proof is not available (not to beaccepted readily)Some documents considered as standard age proofs are:i. School or college certificateii. Birth certificate extracted from municipal recordsiii. Passportiv. PAN cardv. Service registervi. Identity card in case of defence personnelvii. Marriage certificate issued by appropriate authority**ii.** **Non-standard age proofs**When standard age proofs like the above are not available, the life insurer
may allow submission of a non-standard age proof. Some documents
considered as non-standard age proofs are:i. Horoscopeii. Ration cardiii. An affidavit by way of self-declarationiv. Certificate from village panchayat**Test Yourself 3**Which of the following is not acceptable as valid Age Proof?I. Birth certificate extracted from municipal recordsII. Birth Certificate issued by Member of Legislative AssemblyIII. PassportIV. PAN Card**Answers to Test Yourself****Answer 1** -The correct option is I.
**Answer 2** - The correct option is II.
**Answer 3** – The correct option is II.**Summary**Prospectus is a formal legal document used by insurance companies that
provides details about the product.The application document used for making the proposal is commonly known as
the ‘proposal form’.70Some documents considered as standard age proofs include school or college
certificate, birth certificate extracted from municipal records etc.Insurers need to determine the true identity of their customers. KYC documents
like address proof, PAN card and photographs etc. need to be collected as a part
of the KYC procedure.**Key Terms**1. Prospectus
2. Proposal form
3. Moral hazard
4. Know your Customer (KYC)
5. Age Proof
6. Standard and non-standard age proofs
7. Free-look period71## CHAPTER C-08## CUSTOMER SERVICE**Chapter Introduction**In this chapter you will learn the importance of customer service. You will learn the | Final IC-38 - Corporate Agent _Composite _ English.md | e68 | Age Proof – for Personal Lines | Final IC-38 - Corporate Agent _Composite _ English_036 | {
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**Answer 2** - The correct option is II.
**Answer 3** – The correct option is II.**Summary**Prospectus is a formal legal document used by insurance companies that
provides details about the product.The application document used for making the proposal is commonly known as
the ‘proposal form’.70Some documents considered as standard age proofs include school or college
certificate, birth certificate extracted from municipal records etc.Insurers need to determine the true identity of their customers. KYC documents
like address proof, PAN card and photographs etc. need to be collected as a part
of the KYC procedure.**Key Terms**1. Prospectus
2. Proposal form
3. Moral hazard
4. Know your Customer (KYC)
5. Age Proof
6. Standard and non-standard age proofs
7. Free-look period71## CHAPTER C-08## CUSTOMER SERVICE**Chapter Introduction**In this chapter you will learn the importance of customer service. You will learn the
role of agents in providing service to customers. You will also learn how tocommunicate and relate with customers.After studying this chapter, you should be able to:Understand the importance of customer service1. Describe quality of service2. Examine the importance of service in the insurance industry3. Discuss the role of an insurance agent in providing good service4. Explain the process of communication5. Demonstrate the importance of non-verbal communication6. Recommend ethical behaviour72**A.** **Customer Service – General concepts****1.** **Why Customer Service?**Customers are the most important part of any industry and no enterprise can afford
to treat them indifferently. The role of customer service and relationships is
important in the service sector and more so for insurance.Every enterprise has a goal to delight its customers. This can be explained by
examining how buying insurance differs from buying a car.A car can be seen, touched, test driven and experienced, whereas the Insurance of
the car is just a promise to pay if there is loss or damage to the car due to an
accident. This promise is intangible – it cannot be seen, touched or experienced.While the customer of the car will be able to understand and experience the car
easily, the customer of insurance can evaluate and experience the insurance
protection that he buys only when a loss happens and the insurance company settles
the claim. All customers do not get the chance to experience this. In insurance,
when such a situation arises, if the service exceeds expectations, the customer
would be delighted.**2.** **Quality of service**It is necessary for insurance companies and their personnel, which includes their
agents, to render high quality service and delight the customer.**But what is high quality service? What are its attributes?**The well-known SERVQUAL approach to service quality of Zeithaml, Parasuraman
and Berry highlights 5 major indicators of service quality:**a)** **Reliability** : The ability to perform the promised service dependably andaccurately is considered the most important indicator of good service. It isthe foundation on which trust is built.**b)** **Responsiveness** : Refers to the willingness and ability of service personnel tohelp customers and provide prompt response to the customer’s needs. It may
be measured by indicators like speed, accuracy, and attitude while givingthe service.**c)** **Assurance** : Refers to the knowledge, competence and courtesy displayed byan employee or agent in understanding and meeting the needs of a customer,
thus conveying trust and confidence.**d)** **Empathy** : Empathy is described as the human touch. It is reflected in thecaring attitude and individualised attention provided to customers.**e)** **Tangibles** : Represent physical environmental factors like location, layoutand cleanliness as also the sense of professionalism that a customer feels
when contacting a service provider. First impressions last long.73**3.** **Customer service and insurance**Leading sales producers in the insurance industry state that the secret of reaching
the top and staying there is in getting the patronage and support of a large number
of existing clients with whose help the business gets built. These clients are a source
of commissions from renewal of existing contracts. These can be a valuable source
for acquiring new customers.One great mantra of success in insurance selling is to be able to convert one’s
customers into one’s clients. Customers are those who buy a product. Clients, on
the other hand are people with whom an agent relates for life, who continue to buy
from him/ her as also help and possibly, support him/ her in reaching out to and
selling to other customers.Clients are built by working with deep commitment to serving one’s customers. To
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when contacting a service provider. First impressions last long.73**3.** **Customer service and insurance**Leading sales producers in the insurance industry state that the secret of reaching
the top and staying there is in getting the patronage and support of a large number
of existing clients with whose help the business gets built. These clients are a source
of commissions from renewal of existing contracts. These can be a valuable source
for acquiring new customers.One great mantra of success in insurance selling is to be able to convert one’s
customers into one’s clients. Customers are those who buy a product. Clients, on
the other hand are people with whom an agent relates for life, who continue to buy
from him/ her as also help and possibly, support him/ her in reaching out to and
selling to other customers.Clients are built by working with deep commitment to serving one’s customers. To
understand how keeping a customer happy benefits the agent and the company, one
should understand the concept of Customer’s Lifetime Value.**Customer Lifetime Value** may be defined as the sum of economic benefits that can
be derived from building a sound relationship with a customer over a long period oftime.**Diagram 1:** **Customer Lifetime Value**An agent who renders service and builds close relationships with her customers,
builds goodwill and brand value, which helps in expanding the business.**Test Yourself 1**What is meant by customer lifetime value?I. Sum of costs incurred while servicing the customer over his lifetime
II. Rank given to customer based on business generated
III. Sum of economic benefits that can be achieved by building a long termrelationship with the customerIV. Maximum insurance that can be attributed to the customer74**4.** **Customer Relationships and Service**While customer service is a key element in creating satisfied and loyal customers,
it is also necessary to build a strong relationship with them. A Customer’s views
about an insurer depends on the service and relationships experience the insureroffers.What goes to make a healthy relationship? At its heart, of course, there is trust. At
the same time, there are other elements, which reinforce and promote that trust.Let us illustrate some of the elements.**Diagram 2:** **Elements for Trust**i. Every relationship begins with **attraction** : Attraction means being liked and beingable to build a rapport with the customer, starting with creating a great first
impression. Attraction is regarded the key to unlocking every heart. Without it a
relationship is hardly possible. A sales person cannot make much headway if he/
she is not liked by the customer.ii. The second element of a relationship is one’s presence, being there when needediii. **Communication:** Even if one is not fully present and unable to do full justice toall the expectations of one’s customers, one can still **maintain a strong**
**relationship by communicating in a manner that is assuring, full of empathy**
**and conveying a sense of responsibility.**The above dimensions of communication call for discipline and skills. They
ultimately reflect how one thinks and sees.Companies emphasise on customer relationship management, as the cost of
retaining a customer is far lower than acquiring a new customer. A customer relation
opportunity arises at various touch points e.g. while understanding customers
insurance needs, explaining coverage’s, handing over forms etc.**B.** **Insurance agent’s role in providing customer service.**Let us now consider how an agent can render great service to the customer. It is
important to realise that from the moment a customer gets contacted by a sales
person to the final point of settlement of a claim, the customer goes on a journey
of experience that we shall call the ‘ **Customer Journey’** . The agent needs to
partner with the customer through the entire duration of the contract, hand holding75him/ her in each step of the journey to create memorable experiences at everystep.Let us look at some milestones in the journey and the role played at each step.**1.** **The Sale**It is said that selling is both an art and a science. It is a science because it calls for
a set process which, if consistently and properly followed, is likely to lead to
success. It is also an art in the sense that each sales person brings his or her
distinctive beliefs, style and personality into the process and the results depend on
what each person puts into the process.- **Prospecting:** The Sales Process begins with **Prospecting**, which literally means
‘searching’ for a prospective customer. Searching is important as ‘ _**One cannot**_
_**find till one searches’,**_ it is the most important step in the process. An agent
typically begins with his or her natural market, made up of known and easily
approachable people. The challenge lies in getting across to more networks of | Final IC-38 - Corporate Agent _Composite _ English.md | r74 | Customer service and insurance | Final IC-38 - Corporate Agent _Composite _ English_038 | {
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of experience that we shall call the ‘ **Customer Journey’** . The agent needs to
partner with the customer through the entire duration of the contract, hand holding75him/ her in each step of the journey to create memorable experiences at everystep.Let us look at some milestones in the journey and the role played at each step.**1.** **The Sale**It is said that selling is both an art and a science. It is a science because it calls for
a set process which, if consistently and properly followed, is likely to lead to
success. It is also an art in the sense that each sales person brings his or her
distinctive beliefs, style and personality into the process and the results depend on
what each person puts into the process.- **Prospecting:** The Sales Process begins with **Prospecting**, which literally means
‘searching’ for a prospective customer. Searching is important as ‘ _**One cannot**_
_**find till one searches’,**_ it is the most important step in the process. An agent
typically begins with his or her natural market, made up of known and easily
approachable people. The challenge lies in getting across to more networks of
people who are outside one’s immediate circle – getting to know them and be
known by them.All the people one knows and approaches may not be proper candidates for
insurance or they may not be interested in buying. It is thus necessary to **qualify**
them so that one targets only those who are likely to buy insurance. The
prospecting process becomes successful only when an agent is able to build
strong relationships with the prospect. The first task of any sales person is thus
to **sell trust and build confidence.**_**Invite for an Interview:**_ While personal relationships are the foundation on
which insurance business is built, it is necessary to convert the goodwill one
earns into a sale. This begins when the sales person sets up a formal appointment
for a detailed sales interview. This step is critical for establishing one’s
professional credentials and also to separate business from casual discussions.- _**Determining the needs and recommending the Solution:**_ The heart of the Sales
Interview is the steps wherein the sales agent determines and makes the
prospective customer aware about the exact needs for which insurance is a
solution. A master sales person is distinguished by his/ her skill in guiding a
prospect, through asking gentle questions, to understand the gaps in protection
that give rise to the needs for insurance.The Agent has the responsibility to provide _Best Advice_ to the Prospect about the
right kind of insurance solutions to meet his/ her needs. Firstly one must determine
and make the prospective customer aware about the exact needs for which
insurance is a solution. This also includes giving proper advice on the amount of
insurance to be purchased. For example the amount of life insurance to be76purchased by an individual needs to be linked to his/ her income and paying
capacity.It is also important to keep a basic percept in mind, especially when buying non-life
insurance: Do not recommend insuring where the risk can be managed otherwise.Whether insurance is needed or not, depends on the circumstances. If the premium
payments are high compared to the loss involved, it may be advisable to just bear
the risk. On the other hand, if the loss consequences of a risk are likely to be severe,
it is wise to insure against it.**Example**To a homeowner living in a flood prone area, purchasing an add-on cover against
floods would prove to be helpful. On the other hand, if the home owner owns a
home at a place where the risk of floods is negligible it may not be necessary toobtain such cover.Many customers may not be much concerned about getting maximum insurance per
rupee spent, but would be interested in **reducing the cost of handling risk** . The
concern would be thus on identifying those risks which a customer cannot retainand hence must be insured.The agent becomes successful when he/ she renders best advice. The agent needs
to constantly ask himself/ herself about his/ her role vis-à-vis the customer. He/
she should go to the customer not just to get a sale but to relate to the customer
as a coach and partner who can help him/ her to manage his/ her risks more
effectively?_**Handling Objections and Closing the Sale:**_ It may not be enough to give best
advice and recommendations to a customer about the right products to buy. One
also needs to persuade him/ her to take the decision to buy. Quite often the
customer may have a number of questions and may raise objections that need
to be addressed before he/ she decides to commit to the purchase. Whilst
handling these objections, it is vitally important to understand that the | Final IC-38 - Corporate Agent _Composite _ English.md | g75 | Customer Journey’ | Final IC-38 - Corporate Agent _Composite _ English_039 | {
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home at a place where the risk of floods is negligible it may not be necessary toobtain such cover.Many customers may not be much concerned about getting maximum insurance per
rupee spent, but would be interested in **reducing the cost of handling risk** . The
concern would be thus on identifying those risks which a customer cannot retainand hence must be insured.The agent becomes successful when he/ she renders best advice. The agent needs
to constantly ask himself/ herself about his/ her role vis-à-vis the customer. He/
she should go to the customer not just to get a sale but to relate to the customer
as a coach and partner who can help him/ her to manage his/ her risks more
effectively?_**Handling Objections and Closing the Sale:**_ It may not be enough to give best
advice and recommendations to a customer about the right products to buy. One
also needs to persuade him/ her to take the decision to buy. Quite often the
customer may have a number of questions and may raise objections that need
to be addressed before he/ she decides to commit to the purchase. Whilst
handling these objections, it is vitally important to understand that the
objections being voiced may reflect underlying concerns that need to beidentified and resolved.In sum, the role of an insurance agent is more than that of a mere sales person. He/
she also **needs to be a risk assessor, underwriter, risk management counsellor,**
**designer of customised solutions and a relationship builder** (who thrives on
building trust and long-term relationships), all rolled into one.**2.** **The Proposal stage**The agent has to support the customer in filling out the proposal for insurance. The
insured is required to take responsibility for the statements made therein. The
salient aspects of a proposal form have been discussed in a later chapter.77The agent should explain and clarify to the proposer the details to be filled as
answers to each of the questions in the proposal form. A failure to give proper and
complete information can jeopardise the customer’s claim.Sometimes, if additional information is required to complete the policy, the
company may inform the customer directly or through the agent/ advisor. The agent
should help the customer in completing such formalities, explaining why they arenecessary.IRDAI (Issuance of e-Insurance Policies) Regulations, 2016, provide for e – Proposal
forms that are similar to the physical proposal form and having a provision to the
Prospect to give his consent to the proposal, which can be validated by one time
password (mobile phone OTP).**3.** **Acceptance stage****a)** **Cover notes/ Certificates of Insurance**After underwriting is completed it may take some time before the policy is issued.
Pending the preparation of the policy or when the negotiations for insurance are
in progress and it is necessary to provide cover on a provisional basis or when the
premises are being inspected for determining the actual rate applicable, a cover
note is issued to confirm protection under the policy.As Cover notes and Certificates of Insurance are used predominantly in marine
and motor classes of business, cover note is discussed in detail under the GeneralInsurance Section.It is the agent’s responsibility to ensure that the cover note is issued by the
company, where applicable, to the insured. Promptness in this regardcommunicates to the client that his/ her interests are safe in the hands of theagent and the company.**b)** **Policy Document**The policy is a formal document which provides an evidence of the contract of
insurance. This document has to be stamped in accordance with the provisions
of the Indian Stamp Act, 1899. The insurer is duty bound to give the policydocument to the insured.**4.** **Premium Payment****Premium** is the consideration or amount paid by the insured to the insurer for
insuring the subject matter of insurance, under a contract of insurance.A good agent takes active interest in ensuring that the insured pays the premium
for taking or continuing or renewing his policy and the customer is made aware
of various options available for payment of premium.78**5.** **Method of payment of premium**The premium to be paid by any person proposing to take an insurance policy or by | Final IC-38 - Corporate Agent _Composite _ English.md | null | Handling Objections and Closing the Sale: | Final IC-38 - Corporate Agent _Composite _ English_040 | {
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and motor classes of business, cover note is discussed in detail under the GeneralInsurance Section.It is the agent’s responsibility to ensure that the cover note is issued by the
company, where applicable, to the insured. Promptness in this regardcommunicates to the client that his/ her interests are safe in the hands of theagent and the company.**b)** **Policy Document**The policy is a formal document which provides an evidence of the contract of
insurance. This document has to be stamped in accordance with the provisions
of the Indian Stamp Act, 1899. The insurer is duty bound to give the policydocument to the insured.**4.** **Premium Payment****Premium** is the consideration or amount paid by the insured to the insurer for
insuring the subject matter of insurance, under a contract of insurance.A good agent takes active interest in ensuring that the insured pays the premium
for taking or continuing or renewing his policy and the customer is made aware
of various options available for payment of premium.78**5.** **Method of payment of premium**The premium to be paid by any person proposing to take an insurance policy or by
the policyholder to an insurer may be made in any one or more of the followingmethods:a) Cashb) Any recognised banking negotiable instrument such as cheques, demanddrafts, pay order, banker’s cheques drawn on any schedule bank in India;c) Postal money order;d) Credit or debit cards;e) Bank guarantee or cash deposit;f) Internet;g) E-transferh) Direct credits via standing instruction of proposer or the policyholder or thelife insured through bank transfers;i) Any other method or payment as may be approved by the Authority fromtime to time;As per IRDA Regulations, in case the proposer/ policyholder opts for premium
payment through net banking or credit/ debit card, the payment must be made
only through net banking account or credit/ debit card issued on the name of
such proposer/ policyholder.**6.** **Service after issuance of Policy Document and Receipt for Premium**Once the premium is paid by the customer, the insurer is bound to issue a
receipt. A receipt is also to be issued even in case the premium is paid inadvance.The agent may approach the insured and enquire whether the Policy Document
has been received from the insurance company. It presents a great opportunity
for the agent to connect with the customer. The agent will be able to clear any
doubts and also explain the various policy provisions and policy holders’ rights
and privileges. This demonstrates commitment to the customer and provides an
opportunity to pledge continued support and service. One should also inform the
customer about the free-look period provision, during which period, the policy
can be returned and refund of premium obtained.If the policy being purchased is an Electronic insurance policy, the agent can
help the Customer to open an e-Insurance Account (e-I-A), through the
Registered Insurance Repository.79This also paves the way for the next step which is to ask the customer for the
names and particulars of other individuals he/ she knows, who can possibly
benefit from the agent’s services. It would be even better if the client itself
contacted these people and introduced the agent to them.**7.** **Policy Renewal**Most general Insurance policies have to be renewed each year. For general
insurance policies, at the time of each renewal, the customer has a choice to
continue insuring with the same company or switch to another company. In case
of Life Insurance, a policy would continue to be in force when the customer pays
the premium at regular intervals based on premium payment term. This does
not apply to one-time payments.General Insurers usually send a Renewal Notice, well in advance of the date of
expiry of the premium paying period, inviting renewal of the policy.The customer’s choice to renew or continue with the policy may often depend
on the trust and goodwill created by the agent and company and the agent needs
to be in touch to remind the customer about the renewal or continuity of policywell before the due date.High producer agents constantly keep in touch with their clients, and win their
trust and loyalty through various acts of service and relationships – like greeting
their clients on various occasions like festivals or family events and being with
them to share their joys and sorrows.**8.** **The claim stage**The crucial test comes at the time of claim settlement. The agent must ensure
that the incident giving rise to the claim is immediately informed to the insurer
and that the customer carefully follows all the formalities. The agent may also
assist in all the investigations that may need to be done to assess the loss. A
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the premium at regular intervals based on premium payment term. This does
not apply to one-time payments.General Insurers usually send a Renewal Notice, well in advance of the date of
expiry of the premium paying period, inviting renewal of the policy.The customer’s choice to renew or continue with the policy may often depend
on the trust and goodwill created by the agent and company and the agent needs
to be in touch to remind the customer about the renewal or continuity of policywell before the due date.High producer agents constantly keep in touch with their clients, and win their
trust and loyalty through various acts of service and relationships – like greeting
their clients on various occasions like festivals or family events and being with
them to share their joys and sorrows.**8.** **The claim stage**The crucial test comes at the time of claim settlement. The agent must ensure
that the incident giving rise to the claim is immediately informed to the insurer
and that the customer carefully follows all the formalities. The agent may also
assist in all the investigations that may need to be done to assess the loss. A
good agent assists the customers or his representatives in fulfilling the claim
lodgement formalities quickly, correctly and completely.**Test Yourself 2**Identify the scenario where a debate on the need for insurance is not required.I. Property insurance
II. Business liability insurance
III. Motor insurance for third party liabilityIV. Fire insurance80**C.** **Communication skills in customer service**An agent needs to possess soft skills for effective performance in the work place.S **oft skills relate to one’s ability to interact effectively with others, both at work**
**and outside. Communication skills are the most important of these soft skills.****1.** **Process of communication**What is communication?All communications require a sender, who sends a message, and a person who
received that message. The process is complete once the receiver has understood
the message of the sender.**Diagram 3:** **Forms of communication**Communication may be face to face, over the phone, or by mail or internet. It may
be formal or informal. Whatever the content or form of the message or the media
used, the effectiveness of communication depends on whether or not the recipient
has understood what was sought to be communicated.Since an insurance policy is essentially a promise, it is important that what is
promised by the insurer is clearly understood by the insured. The agent as an
intermediary has to not only provide complete, accurate and unambiguous account
of the terms of the insurance to the customer, but also seek and clarify doubts or
queries that a customer may have.**2.** **Barriers to effective communication**Different kinds of barriers to effective communication can arise at each step in the
above process, due to which communication can get distorted. The challenge is to
visualize, understand and remove the barriers.**Test Yourself 3**What does not go on to make a healthy relationship?I. AttractionII. TrustIII. CommunicationIV. Dislike81**D.** **Non-verbal Communication**Let us now look at some concepts that the agent needs to understand.**Important****1.** **Making a great first impression**The prospect judges an agent based on his appearance, body language, mannerisms,
dress and speech. As attraction is the first pillar of a relationship and first
impressions last long, some tips for making a good first impression are given below:**i.** **Be on time always** . Plan to arrive a few minutes early, allowing flexibilityfor all kinds of possible delays.**ii.** **Present yourself appropriately** . The appearance should to create the right first impression
The dress must be appropriate for the meeting or occasion
The look must be clean and tidy – with good haircut and shave, clean andtidy clothes, neat and tidy make up**iii.** **A warm, confident and winning smile** puts a person and his/ her audienceimmediately at ease with one another.**iv.** **Being open, confident and positive** body language must project confidence and self-assurance stand tall, smile, make eye contact, greet with a firm handshake remain positive even in the face of some criticism or when the meeting isnot going as well as expected**v.** **Interest in the other person** - The most important thing is about beinggenuinely interested in the other person. Take some time to find out about the customer as a person Be caring and attentive to what he or she says Be totally present and available to your customer Not engaging in one’s mobile phone during the interview?**2.** **Body language**Body language refers to movements, gestures, facial expressions. The way we talk, | Final IC-38 - Corporate Agent _Composite _ English.md | e80 | The claim stage | Final IC-38 - Corporate Agent _Composite _ English_042 | {
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The dress must be appropriate for the meeting or occasion
The look must be clean and tidy – with good haircut and shave, clean andtidy clothes, neat and tidy make up**iii.** **A warm, confident and winning smile** puts a person and his/ her audienceimmediately at ease with one another.**iv.** **Being open, confident and positive** body language must project confidence and self-assurance stand tall, smile, make eye contact, greet with a firm handshake remain positive even in the face of some criticism or when the meeting isnot going as well as expected**v.** **Interest in the other person** - The most important thing is about beinggenuinely interested in the other person. Take some time to find out about the customer as a person Be caring and attentive to what he or she says Be totally present and available to your customer Not engaging in one’s mobile phone during the interview?**2.** **Body language**Body language refers to movements, gestures, facial expressions. The way we talk,
walk, sit and stand, all says something about us, and what is happening inside us.It is often said that people listen to only a small percentage of what is actually said.
What we don’t say may speak a lot more about us in a louder way. Obviously, one
needs to be very careful about one’s body language.82**a)** **Confidence**Here are a few tips about how to appear confident and self-assured, giving the
impression of someone to be seriously listened to: Posture – standing tall with shoulders held back. Solid eye contact - with a "smiling" face Purposeful and deliberate gestures**b)** **Trust** Quite often, a sales person’s words fall on deaf ears because the audiencedoes not trust him/ her – his/ her body language does not give the assurance
that he/ she is sincere about what he/ she says**3.** **Listening skills**The third set of communication skills that one needs to be aware about and cultivateare listening skills. These follow from a well-known principle of personal
effectiveness – ‘first try to understand before being understood’.Active listening calls for: Allowing the speaker to finish each point before asking questions Not interrupting the speaker with any counter arguments This may require that we reflect on the message and ask questions to clarifywhat was said Another way to provide feedback is to summarize the speaker’s words andrepeat it back to him or her periodically or at the end of the conversation.**Let us look at the skills required for active listening:****a)** **Demonstrating that one is listening:** For instance one may: Give an occasional nod and smile Adopt a posture that is open and draws out the other to speak freely Have small verbal comments like "I understand", "I see", "yes" and "uh".**b)** **Paying attention**One needs to give the speaker one’s undivided attention, and acknowledge him.
Some aspects of paying attention are as follows:Look at the speaker directly Put aside distracting thoughts Don't mentally prepare a rebuttal83 Avoid all external distractions [for instance, keep your mobile on silentmode] "Listen" to the speaker's body language**c)** **Removing filters:**A lot of what we hear may get distorted by one’s personal filters, like the
assumptions, judgments, and beliefs one carries.**Not being judgemental: If the listener is judgemental,** even if he hears what
the speaker is saying, he will understand only according to his biased
interpretation.**d)** **Empathetic listening:****Empathy implies hearing and listening patiently, and with full attention, to**
**what the other person has to say, even when one does not agree with it. It**
**is important to show the speaker acceptance, not necessarily agreement.****e)** **Responding appropriately:**Active listening implies much more than just hearing what a speaker says. The
communication can be completed only when the listener responds in some way,
through word or action. Certain rules need to be followed for ensuring that the
speaker is not put down but treated with respect.These include: Being candid, open, and honest in your response Asserting one’s opinions respectfully Treating another person in a way, one would like oneself to be treated**Example****Asking for clarity** – “I realize that we have not been able to clear about the benefits | Final IC-38 - Corporate Agent _Composite _ English.md | l83 | A warm, confident and winning smile | Final IC-38 - Corporate Agent _Composite _ English_043 | {
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assumptions, judgments, and beliefs one carries.**Not being judgemental: If the listener is judgemental,** even if he hears what
the speaker is saying, he will understand only according to his biased
interpretation.**d)** **Empathetic listening:****Empathy implies hearing and listening patiently, and with full attention, to**
**what the other person has to say, even when one does not agree with it. It**
**is important to show the speaker acceptance, not necessarily agreement.****e)** **Responding appropriately:**Active listening implies much more than just hearing what a speaker says. The
communication can be completed only when the listener responds in some way,
through word or action. Certain rules need to be followed for ensuring that the
speaker is not put down but treated with respect.These include: Being candid, open, and honest in your response Asserting one’s opinions respectfully Treating another person in a way, one would like oneself to be treated**Example****Asking for clarity** – “I realize that we have not been able to clear about the benefits
of some of our health plans. Could you help us by asking us your doubts?”**Paraphrasing the speaker’s exact words** – “So, you are saying that ‘our health plans
are not attractive enough’ – Have I understood you correctly?”**Test Yourself 4**Which among the following is not an element of active listening?I. Paying good attention
II. Being extremely judgemental
III. Empathetic listening
IV. Responding appropriately84**E.** **Ethical Behavior**In recent years, there are many reports of improper conduct, and serious concerns
have been raised about ethical behaviour in business causing betrayal of trust.This has led to discussions about concepts like accountability, corporate
governance, and treating customers fairly in insurance, which form part of “Ethics”in business.It is not wrong to look after one’s interests. But it is wrong to do so at the cost ofthe interests of others. Unethical behaviour arises when there is no concern forothers and there is high concern for oneself.**Insurance is a business of trust** . Breach of trust amounts to cheating. When wrong
information is given to prospects tempting them to buy insurance, or if the insurance
given does not cater to the specific needs of the prospect, things go wrong.The Code of Ethics spelt out by the IRDAI in various regulations are directed towards
ethical behaviour. It is not enough just to know the code. What is more important
for the insurers and their representatives is to always keep the interests of the
prospect/ policy holder as primary.**Characteristics:** Some characteristics of ethical behaviour are:a) Placing the best interests of the client above one’s own direct or indirectbenefitsb) Holding in strictest confidence and considering as privileged, all business andpersonal information pertaining to client’s affairsc) Making full and adequate disclosure of all facts to enable clients make informeddecisionsThere could be a likelihood of ethics being compromised in the following situations:a) Having to choose between two plans, one giving much less premium orcommission than the otherb) Temptation to recommend discontinuance of an existing policy and taking out anew onec) Being aware of circumstances that, if known to the insurer, could adverselyaffect the interests of the client or the beneficiaries of the claim.**Test Yourself 5**Which among the following is not a characteristic of ethical behaviour?
I. Making adequate disclosures to enable the clients to make an informed decision
II. Maintaining confidentiality of client’s business and personal information
III. Placing self-interest ahead of client’s interests
IV. Placing client’s interest ahead of self interest85**Summary**a) The role of customer service and relationships is far more critical in the case ofinsurance than in other products.b) Five major indicators of service quality include reliability, responsiveness,assurance, empathy and tangibles.c) Customer lifetime value may be defined as the sum of economic benefits thatcan be derived from building a sound relationship with a customer over a long
period of time.d) The role of an insurance agent in the area of customer service is absolutelycritical.e) Active listening involves paying attention, providing feedback and respondingappropriately.f) Ethical behaviour involves placing the customer’s interest before one’s own.**Key terms**a) Quality of serviceb) Empathyc) Body languaged) Active listeninge) Ethical behavior**Answers to Test Yourself****Answer 1** -The correct option is III.
**Answer 2** - The correct option is III.
**Answer 3** - The correct option is IV.
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II. Maintaining confidentiality of client’s business and personal information
III. Placing self-interest ahead of client’s interests
IV. Placing client’s interest ahead of self interest85**Summary**a) The role of customer service and relationships is far more critical in the case ofinsurance than in other products.b) Five major indicators of service quality include reliability, responsiveness,assurance, empathy and tangibles.c) Customer lifetime value may be defined as the sum of economic benefits thatcan be derived from building a sound relationship with a customer over a long
period of time.d) The role of an insurance agent in the area of customer service is absolutelycritical.e) Active listening involves paying attention, providing feedback and respondingappropriately.f) Ethical behaviour involves placing the customer’s interest before one’s own.**Key terms**a) Quality of serviceb) Empathyc) Body languaged) Active listeninge) Ethical behavior**Answers to Test Yourself****Answer 1** -The correct option is III.
**Answer 2** - The correct option is III.
**Answer 3** - The correct option is IV.
**Answer 4** - The correct option is II.
**Answer 5** - The correct option is III.86## CHAPTER C-09## GRIEVANCE REDRESSAL MECHANISM**Chapter Introduction**Insurance industry is essentially a service industry where customer expectations are
constantly rising. There is dissatisfaction with the standard of services. Despite
continuous product innovation and significant improvement in the level of customer
service, aided by use of modern technology, the industry suffers badly in terms of
customer dissatisfaction and poor image. The Government and the regulator have
taken a number of initiatives to improve the situation.IRDAI Regulations on Protection of Policyholders’ Interests 2017 mandate that every
Insurer shall have their own board approved policy for protection of policyholders’
interests which shall includei. Service parameters including turnaround times for various services rendered.
ii. Procedure for speedy resolution of complaints.**Learning Outcomes**87**A.** **Grievance Redressal**The time for high priority action is when the customer has a complaint. Remember
that in the case of a complaint, the customer is angry due to a failure of service.
This is only a part of the story.Many times, Customers get upset because they understand the situation wrongly.
All service failures causes two types of feelings:1. A feeling that the insurer was unfair (a feeling of being cheated)2. A feeling of hurt ego (being made to look and feel small)The customers want to feel valued and human touch is critical in this situation. Asa professional insurance advisor first of all, the agent would not allow such a
complaint situation to happen. He would take up the matter with the appropriate
officer of the company.A complaint is a crucial “ **moment of truth** ” in the customer relationship. If the
agent/ company can use the situation to clarify the position, the situation can
actually improve customer loyalty.**Remember, no one else in the company has ownership of the client’s problems**
**as much as an agent does** .Complaints/ grievances give us the chance to show how much we care for the
customer’s interests. They are in fact the pillars on which an insurance agent builds
goodwill and business. **Word of mouth publicity (Good/ Bad) plays a significant**
**role in selling and servicing** .The procedure for grievance redressal is detailed at the end of every policy
document. This should be bought to the notice of customers. As per the regulations,
any grievance of a policy holder should be first referred to the Insurer’s Grievance
Cell. If it is not satisfactorily resolved, the complainant may approach the Regulator
through the Integrated Grievance Management System.**B.** **Integrated Grievance Management System (IGMS)**Each Insurer has its own grievance redressal mechanism. All operating/ controlling/
corporate offices of Insurance companies have Grievance Redressal Officers. A
policyholder can approach them directly for any grievance.IRDAI has launched an Integrated Grievance Management System (IGMS) which acts
as an online consumer complaints registration system. Insurers have to register all
grievances that they receive in the system which is integrated with IGMS of IRDAI.
IGMS helps IRDAI in monitoring grievance redress in the industry and also acts as a
central repository of insurance grievance data.Policyholders can approach the respective insurer first for any grievance. If he does
not receive any response from the insurer or if the response/ resolution received is88not to his satisfaction, he can approach the Regulator under the IGMS. The
complaint registration process involves two steps – (i) Registering oneself by | Final IC-38 - Corporate Agent _Composite _ English.md | t85 | Summary | Final IC-38 - Corporate Agent _Composite _ English_045 | {
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Cell. If it is not satisfactorily resolved, the complainant may approach the Regulator
through the Integrated Grievance Management System.**B.** **Integrated Grievance Management System (IGMS)**Each Insurer has its own grievance redressal mechanism. All operating/ controlling/
corporate offices of Insurance companies have Grievance Redressal Officers. A
policyholder can approach them directly for any grievance.IRDAI has launched an Integrated Grievance Management System (IGMS) which acts
as an online consumer complaints registration system. Insurers have to register all
grievances that they receive in the system which is integrated with IGMS of IRDAI.
IGMS helps IRDAI in monitoring grievance redress in the industry and also acts as a
central repository of insurance grievance data.Policyholders can approach the respective insurer first for any grievance. If he does
not receive any response from the insurer or if the response/ resolution received is88not to his satisfaction, he can approach the Regulator under the IGMS. The
complaint registration process involves two steps – (i) Registering oneself by
entering one’s policy details and (ii) Registering one’s complaints and viewing the
status of the complaints. Complaints are then forwarded to the respective insurance
companies and IRDAI facilitates disposal of Grievances.IGMS tracks complaints and the time taken for their redressal. The complaints can
be registered at the following URL: http://www.policyholder.gov.in/Integrated_
Grievance_Management.aspx**C.** **Consumer Protection****The Consumer Protection Act, 2019:** This original Act of 1986 was passed _“to_
_provide for better protection of the interest of consumers and to make provision_
_for the establishment of consumer councils and other authorities for the_
_settlement of consumer’s disputes”_ . The Act was amended by the Consumer
Protection (Amendment) Act, 2002 and later on 2019.Some definitions provided in
the Act are as follows:“ **Service** ” means service of any description which is made available to potential
users and includes the provision of facilities in connection with banking, financing,
**insurance**, transport, processing, supply of electrical or other energy, board or
lodging or both, housing construction, entertainment, etc. **Insurance is included as**
**a service.** However, “Service” does not include the rendering of any service free of
charge or under a contract of personal service.“ **Consumer** ” means any person who Buys goods for a consideration. It includes any user of such goods. (It does notinclude a person who obtains such goods for resale or for any commercial
purpose) or
Hires or avails of any services for a consideration. It includes the beneficiary ofsuch services. (It does not include any person who avails of such service for any
commercial purpose.)“ **Defect** ” means any fault, imperfection, shortcoming, inadequacy in the quality,
nature and manner of performance which is required to be maintained by or under
any law or has been undertaken to be performed by a person in pursuance of a
contract or otherwise in relation to any service.**“Complaint”** means any allegation in writing made by a complainant that: an unfair trade practice or restrictive trade practice has been adopted
the goods bought by him suffer from one or more defects
the services hired or availed of by him suffer from deficiency in any respect
price charged is in excess of that fixed by law or displayed on package
goods which will be hazardous to life and safety when used are being offeredfor sale to the public in contravention of the provisions of any law requiring
trader to display information in regard to the contents, manner and effect of
use of such goods.“ **Consumer dispute** ” means a dispute where the person against whom a complaint
has been made, denies and disputes the allegations contained in the complaint.89**D.** **Consumer** **disputes redressal agencies**Consumer disputes redressal agencies are established at district, state and national
levels.**i.** **District Consumer Disputes Redressal Commission** The District Consumer Disputes Redressal Commission (District Commission),has jurisdiction to entertain complaints, where value of the goods or services
does not exceed Rs. 1 crore. The District Commission has the powers of a civil
court.**ii.** **State Consumer Disputes Redressal Commission** The State Consumer Disputes Redressal Commission (State Commission) hasoriginal jurisdiction to entertain complaints where the value of goods/ service | Final IC-38 - Corporate Agent _Composite _ English.md | s88 | B. | Final IC-38 - Corporate Agent _Composite _ English_046 | {
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price charged is in excess of that fixed by law or displayed on package
goods which will be hazardous to life and safety when used are being offeredfor sale to the public in contravention of the provisions of any law requiring
trader to display information in regard to the contents, manner and effect of
use of such goods.“ **Consumer dispute** ” means a dispute where the person against whom a complaint
has been made, denies and disputes the allegations contained in the complaint.89**D.** **Consumer** **disputes redressal agencies**Consumer disputes redressal agencies are established at district, state and national
levels.**i.** **District Consumer Disputes Redressal Commission** The District Consumer Disputes Redressal Commission (District Commission),has jurisdiction to entertain complaints, where value of the goods or services
does not exceed Rs. 1 crore. The District Commission has the powers of a civil
court.**ii.** **State Consumer Disputes Redressal Commission** The State Consumer Disputes Redressal Commission (State Commission) hasoriginal jurisdiction to entertain complaints where the value of goods/ service
and compensation, if any claimed exceeds Rs. 1 crore but does not exceed
Rs.10 crores.
It also has appellate and supervisory jurisdiction to entertain appeals fromthe District Commission.
Other powers and authority are similar to those of the District Commission.**iii.** **National Consumer Disputes Redressal Commission** The National Consumer Disputes Redressal Commission (National Commission)is the final authority established under the Act.
It has original jurisdiction to entertain disputes, where goods/ services andthe compensation claimed exceeds Rs.10 crores.
It has appellate as well as supervisory jurisdiction to hear the appeals fromthe orders passed by the State Commission.
Every order made by a District Commission, State Commission or the National
Commission shall be enforced by it in the same manner as if it were a decree
made by a Court in a suit before it. Appeals against the orders of the National
Commission have to be made only at the Supreme Court.90**Channels for Consumer Disputes Redressal**|Judicial Channels|Col2|
|---|---|
|<br> <br> <br> <br> <br>**National Consumer**<br>**Disputes Redressal**<br>**Commission** <br> <br>**State Consumer**<br>**Disputes Redressal**<br>**Commission** <br> <br>**District Consumer**<br>**Disputes Redressal**<br>**Commission** <br> <br> <br> <br> <br> <br>**Established by the**<br>**Central Government**<br> <br>**Established by the State**<br>**Government**<br> <br>**Established by the**<br>**State Government**|<br> <br> <br> <br> <br>**National Consumer**<br>**Disputes Redressal**<br>**Commission** <br> <br>**State Consumer**<br>**Disputes Redressal**<br>**Commission** <br> <br>**District Consumer**<br>**Disputes Redressal**<br>**Commission** <br> <br> <br> <br> <br> <br>**Established by the**<br>**Central Government**<br> <br>**Established by the State**<br>**Government**<br> <br>**Established by the**<br>**State Government**|
|**Established by the**<br>**Central Government**|**Established by the**<br>**State Government**|**a)** **Procedure for filing a complaint**The procedure for filing a complaint is very simple in all the above three
agencies. There is no fee for filing a complaint or filing an appeal whether before
the State Commission or National Commission. The complaint can be filed by
the complainant himself or by his authorised agent. It can be filed personally or
can even be sent by post. It may be noted that no advocate is necessary for the
purpose of filing a complaint.**b)** **Consumer Commission Orders**If the Commission is satisfied (a) that the goods in question have the defects
specified in the complaint or (b) that the allegations about the services are
proven; the Commission can issue orders directing the opposite party to do any
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|**Established by the**<br>**Central Government**|**Established by the**<br>**State Government**|**a)** **Procedure for filing a complaint**The procedure for filing a complaint is very simple in all the above three
agencies. There is no fee for filing a complaint or filing an appeal whether before
the State Commission or National Commission. The complaint can be filed by
the complainant himself or by his authorised agent. It can be filed personally or
can even be sent by post. It may be noted that no advocate is necessary for the
purpose of filing a complaint.**b)** **Consumer Commission Orders**If the Commission is satisfied (a) that the goods in question have the defects
specified in the complaint or (b) that the allegations about the services are
proven; the Commission can issue orders directing the opposite party to do any
of the following:
i. To **return** to the complainant the **price** (or premium in case of insurance)and/ or charges paid by the complainant
ii. To award such amount as **compensation** to the consumers for any loss orinjury suffered by the consumer due to negligence of the opposite party
iii. To remove the defects or **deficiencies** in the services in question.
iv. To **discontinue the unfair trade practice** or the restrictive trade practiceor not to repeat them
v. To provide for **adequate costs** to the complainants.**c)** **Nature of complaints**The **majority of consumer disputes** with the three Commissions relating to
insurance business fall in the following main categories:91i. Delay in settlement of claims
ii. Non-settlement of claims
iii. Repudiation of claims
iv. Amount or Quantum of loss
v. Policy terms, conditions etc.**E.** **The Insurance Ombudsman**The Central Government under the powers of the Insurance Regulatory &
Development Authority Act, 1999 made **Insurance Ombudsman Rules 2017** by a
notification published in the official gazette on 25 [th] April 2017.Rules regarding Insurance Ombudsmen apply to all insurers and their agents and
intermediaries in respect of complaints on all personal lines of insurance, group
insurance policies, policies issued to sole proprietorship and micro enterprises.[‘Personal lines’ here means insurances taken in an individual capacity, in contrast
to insurances sold to corporate entities.] Complaints relating to (a) delay in
settlement of claims beyond the time specified by IRDAI, (b) partial or total
repudiation of claims by the insurer, (c) disputes about premium paid or payable in
terms of insurance policy, (d) misrepresentation of policy terms and conditions at
any time in the policy document or policy contract, (e) legal construction of
insurance policies that affect the claim; and (f) policy servicing and related
grievances against insurers and their agents and intermediaries.a) Issuance of life insurance policy, general insurance policy including healthinsurance policy which is not in conformity with the proposal form submitted
by the proposer.
b) Non issuance of insurance policy after receipt of premium in life insurance andgeneral insurance including health insurance and
c) Any other matter resulting from the violation of provisions of the InsuranceAct, 1938 or the regulations, circulars, guidelines or instructions issued by the
IRDAI from time to time or the terms and conditions of the policy contract, in
so far as they relate to issues mentioned at clauses (a) to (f)
The objective of these rules is to resolve all types of complaints mentioned above,
in a cost effective, and impartial manner.**The Ombudsman, by mutual agreement of the insured and the insurer can act as**
**a mediator and counsellor within the terms of reference.****The decision of the Ombudsman, whether to accept or reject the complaint, is**
**final.****a)** **Complaint to the Ombudsman**Any complaint made to the Ombudsman should be in writing, and must be signed
by the insured or his legal heirs, nominee or assignee, and addressed to an
Ombudsman within whose jurisdiction, the insurer has a branch/ office. It should
contain the facts giving rise to the complaint, supported by documents, the
nature and extent of the loss caused to the complainant and the relief sought.92**Complaints can be made to the Ombudsman if:**i. The complainant had made a previous written representation to theinsurance company and:
the insurance company had rejected the complaint or
the complainant had not received any reply within one month afterreceipt of the complaint by the insurer. | Final IC-38 - Corporate Agent _Composite _ English.md | null | Established by the | Final IC-38 - Corporate Agent _Composite _ English_048 | {
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The objective of these rules is to resolve all types of complaints mentioned above,
in a cost effective, and impartial manner.**The Ombudsman, by mutual agreement of the insured and the insurer can act as**
**a mediator and counsellor within the terms of reference.****The decision of the Ombudsman, whether to accept or reject the complaint, is**
**final.****a)** **Complaint to the Ombudsman**Any complaint made to the Ombudsman should be in writing, and must be signed
by the insured or his legal heirs, nominee or assignee, and addressed to an
Ombudsman within whose jurisdiction, the insurer has a branch/ office. It should
contain the facts giving rise to the complaint, supported by documents, the
nature and extent of the loss caused to the complainant and the relief sought.92**Complaints can be made to the Ombudsman if:**i. The complainant had made a previous written representation to theinsurance company and:
the insurance company had rejected the complaint or
the complainant had not received any reply within one month afterreceipt of the complaint by the insurer.
ii. The complainant is not satisfied with the reply given by the insurer
iii. The complaint is made within one year from the date of rejection by theinsurance company
iv. The complaint is not pending in any court or consumer Commission or inarbitration
v. The value of the claim including expenses claimed is not above Rs 30 lakhs.**b)** **Recommendations by the Ombudsman**The Ombudsman will send copies of complaints to both the complainant and the
insurance company. The Ombudsman will make his recommendations within one
month of the receipt of the complaint.**c)** **Award**The dispute can be settled by intermediation. If this is not possible, the
Ombudsman will pass an award to the insured which he thinks is fair within a
period of 3 months from the date of receipt of all requirements from the
complainant and sending a copy of the award to the complainant and the
insurer.The insurer shall comply with the award within 30 days of the receipt of the
award and intimate compliance of the same to the Ombudsman. The award of
the Ombudsman shall be binding on the insurer.**F.** **Right to Information**In addition to the rules and regulations that are specific for grievance redressal in
insurance, there are certain general laws common to everyone in the country. The
Right to Information (RTI) Act, 2005 enacted by the Govt. of India is an important
law that gives citizens of India access to the information available with public
authorities which promotes transparency and accountability in these organisations.
The Act provides for appointment of a Chief Public Information Officer (CPIO) to
deal with requests for information. IRDAI is obliged to provide information to
members of public in accordance with the provisions of the said Act. Agents should
be aware that as per the RTI Act, IRDAI and Insurance Companies may have to reveal
certain information to customers and others; as also allow them to inspect the work,
document, records, extracts or certified copies of documents/ records and also
information stored in electronic form. However, there are certain categories of
information that are exempt from disclosure.93**Test Yourself 1**The ______________ has jurisdiction to entertain complaints, where value of the
goods or services and the compensation claimed is up to Rs.20 lakhs.I. District CommissionII. State CommissionIII. Zilla ParishadIV. National Commission**Summary**IRDAI has launched an Integrated Grievance Management System (IGMS) which
acts as a central repository of insurance grievance data and as a tool for
monitoring grievance redress in the industry.Consumer disputes redressal agencies are established in each district and state
and at national level.As far as insurance business is concerned, the majority of consumer disputes fall
in categories such as delay in settlement of claims, non-settlement of claims,
repudiation of claims, quantum of loss and policy terms, conditions etc.The Ombudsman, by mutual agreement of the insured and the insurer can act
as a mediator and counsellor within the terms of reference.- If the dispute is not settled by intermediation, the Ombudsman will pass award
to the insured which he thinks is fair, and is not more than what is necessary
to cover the loss of the insured.**Key Terms**1. Integrated Grievance Management System (IGMS)
2. The Consumer Protection Act, 2019 | Final IC-38 - Corporate Agent _Composite _ English.md | null | The Ombudsman, by mutual agreement of the insured and the insurer can act as | Final IC-38 - Corporate Agent _Composite _ English_049 | {
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goods or services and the compensation claimed is up to Rs.20 lakhs.I. District CommissionII. State CommissionIII. Zilla ParishadIV. National Commission**Summary**IRDAI has launched an Integrated Grievance Management System (IGMS) which
acts as a central repository of insurance grievance data and as a tool for
monitoring grievance redress in the industry.Consumer disputes redressal agencies are established in each district and state
and at national level.As far as insurance business is concerned, the majority of consumer disputes fall
in categories such as delay in settlement of claims, non-settlement of claims,
repudiation of claims, quantum of loss and policy terms, conditions etc.The Ombudsman, by mutual agreement of the insured and the insurer can act
as a mediator and counsellor within the terms of reference.- If the dispute is not settled by intermediation, the Ombudsman will pass award
to the insured which he thinks is fair, and is not more than what is necessary
to cover the loss of the insured.**Key Terms**1. Integrated Grievance Management System (IGMS)
2. The Consumer Protection Act, 2019
3. District Commission4. State Commission5. National Commission6. Insurance Ombudsman**Answers to Test Yourself****Answer 1** -The correct answer is I.94## CHAPTER C-10## REGULATORY ASPECTS FOR CORPORATE AGENTS**Chapter Introduction**In this chapter, we discuss Regulatory aspects of corporate agents.**Learning Outcomes**Regulations of Corporate AgentsThe IRDAI ( Registration of Corporate Agent ) regulations,2015 has come into effect
from 1st April, 2016.
Before this the IRDAI (Licensing of Corporate Agents) regulations,2002 was dealing
with Corporate Agency licencing, etc.,95**Corporate Agents**The IRDAI (Registration of Corporate Agent) regulations, 2015. These regulations
deal with matters relating to who can Corporate Agent, Scope and applicability of
the regulations, Registration, Arrangement with Insurers for distributions products,
remuneration, code of conduct, etc..The following definitions are relevant.**1.** **Definitions:**(a) "Act" means the Insurance Act, 1938 (4 of 1938), as amended from time to time(b) "Applicant" means(i) A company formed under the Companies Act, 2013 (18 of 2013) or any
enactment thereof or under any previous company law which was in force;or
(ii) A limited liability partnership formed and registered under the Limited
Liability Partnership Act, 2008; or
(iii) A Co-operative Society registered under Co-operative Societies Act, l9l2 orunder any law for registration of co-operative societies, or
(iv) a banking company as defined in clause (4A) of section 2 of the Act; or
(v) a corresponding new bank as defined under clause (da) of sub-section (1)
of section 5 of the Banking Companies Act, 1949 (10 of 1949); or
(vi) a regional rural bank established under section 3 of the Regional RuralBanks Act, 1976 (21 of 1976): or
(vii) a Non-Governmental organisation or a micro lending finance organizationcovered under the Co-operative Societies Act, 1912 or a Non-Banking
Financial Company registered with the Reserve Bank of India; or
(viii) Any other person as may be recognized by the Authority to act as acorporate agent.
(c) “Approved Institution" means any institution engaged in education and/ortraining particularly in the area of insurance sales, service and marketing,
approved and notified by the Authority from time to time, and includes
Insurance Institute of India, Mumbai.
(d) "Authorized Verifier" means a person employed by a Telemarketer for thepurpose of solicitation or sale over telephonic mode and shall fulfill the
requirements as specified under regulation 7(3) of these regulations for a
specified person;
(e) "Authority" means the Insurance Regulatory and Development Authority of Indiaestablished under the provisions of Section 3 of the Insurance Regulatory and
Development Authority Act, 1999 (41 of 1999).
(f) "Corporate Agent" means any applicant specified in clause (b) above holds a validcertificate of registration issued by the Authority under these regulations for
solicitation and servicing of insurance business for any of the specified category
of life, general and health.96(g) “Corporate Agent (Life)" means a corporate agent who holds a valid certificateof registration to act as such, for solicitation and servicing of insurance business
for life insurers as specified in these regulations; | Final IC-38 - Corporate Agent _Composite _ English.md | n4 | Summary | Final IC-38 - Corporate Agent _Composite _ English_050 | {
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(c) “Approved Institution" means any institution engaged in education and/ortraining particularly in the area of insurance sales, service and marketing,
approved and notified by the Authority from time to time, and includes
Insurance Institute of India, Mumbai.
(d) "Authorized Verifier" means a person employed by a Telemarketer for thepurpose of solicitation or sale over telephonic mode and shall fulfill the
requirements as specified under regulation 7(3) of these regulations for a
specified person;
(e) "Authority" means the Insurance Regulatory and Development Authority of Indiaestablished under the provisions of Section 3 of the Insurance Regulatory and
Development Authority Act, 1999 (41 of 1999).
(f) "Corporate Agent" means any applicant specified in clause (b) above holds a validcertificate of registration issued by the Authority under these regulations for
solicitation and servicing of insurance business for any of the specified category
of life, general and health.96(g) “Corporate Agent (Life)" means a corporate agent who holds a valid certificateof registration to act as such, for solicitation and servicing of insurance business
for life insurers as specified in these regulations;
(h) "Corporate Agent (General)" means a corporate agent who holds a validcertificate of registration to act as such, for solicitation and servicing of
insurance business for general insurers as specified in these regulations;
(i) "Corporate Agent (Health)" means a corporate agent who holds a valid certificateof registration to act as such, for solicitation and servicing of insurance business
for health insurers as specified in these regulations;
(j) "Corporate Agent (Composite)" means a corporate agent who holds a validcertificate of registration to act as such, for solicitation and procurement of
insurance business for life insurers, general insurers and health insurers or
combination of any two or all three as specified in clauses (f) above:
(k) “Examination Body” for the purpose of these Regulations is Insurance Instituteof India, Mumbai or any other body approved and notified by the Authority for
conducting certification examination for principal officer and specified persons
of the corporate agents.
(l) Fit and Proper" is the criteria for determining the suitability for registering anApplicant including his principal officer, directors or partners or any other
employees to act as Corporate Agent.
(m)“Principal Officer" of a Corporate Agent means a director or a partner or anyofficer or employee so designated by it, and approved by the Authority,
exclusively appointed to supervise the activities of Corporate Agent and who
possesses the requisite qualifications and practical training and has passed
examination as required under these Regulations.
(n) "Registration" means a certificate of registration to act as a corporate agentissued under these regulations.
(o) "Regulations" means Insurance Regulatory and Development Authority of India(Registration of Corporate Agent) Regulations, 2015.
(p) "Specified Person" means an employee of a Corporate Agent who is responsiblefor soliciting and procuring insurance business on behalf of a corporate agent
and shall have fulfilled the requirements of qualification, training and passing
of examination as specified in these regulations;
(q) "Telemarketer' means an entity registered with Telecom Regulatory Authority ofIndia under Chapter III of the Telecom Commercial Communications Customer
Preference Regulations, 2010 to conduct the business of sending commercial
communications and holding a certificate issued by the Authority;
(r) Words and expressions used and not defined in these Regulations but defined inthe Act, as amended from time to time, the Insurance Regulatory and
Development Authority Act, 1999 or in any of the Regulations / Guidelines made
there under shall have the meanings respectively assigned to them in those Acts
/ Regulations / Guidelines.**2.** **Scope and applicability of these Regulations:**(1) These regulations shall cover Registration of Corporate Agents for the purposeof soliciting, procuring and servicing of Insurance business of life insurers,
general insurers and health insurers during the validity of certificate of
registration as follows.97(a) A Corporate Agent (Life), may have arrangements with a maximum ofthree life insurers to solicit, procure and service their insurance
Products.
(b) A Corporate Agent (General), may have arrangements with a maximumof three general insurers to solicit, procure and service their insurance
products. Further, the Corporate Agent (General) shall solicit, procure
and service retail lines of general insurance products and commercial
lines of such insurers having a total sum insured not exceeding rupees
five crores per risk for all insurances combined.
(c) A Corporate Agent (Health), may have arrangements with a maximum ofthree health insurers to solicit, procure and service their insurance
products.
(d) In the case of Corporate Agent (Composite), the conditions as specifiedin clauses (a) to (c) shall apply. | Final IC-38 - Corporate Agent _Composite _ English.md | null | Scope and applicability of these Regulations: | Final IC-38 - Corporate Agent _Composite _ English_051 | {
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there under shall have the meanings respectively assigned to them in those Acts
/ Regulations / Guidelines.**2.** **Scope and applicability of these Regulations:**(1) These regulations shall cover Registration of Corporate Agents for the purposeof soliciting, procuring and servicing of Insurance business of life insurers,
general insurers and health insurers during the validity of certificate of
registration as follows.97(a) A Corporate Agent (Life), may have arrangements with a maximum ofthree life insurers to solicit, procure and service their insurance
Products.
(b) A Corporate Agent (General), may have arrangements with a maximumof three general insurers to solicit, procure and service their insurance
products. Further, the Corporate Agent (General) shall solicit, procure
and service retail lines of general insurance products and commercial
lines of such insurers having a total sum insured not exceeding rupees
five crores per risk for all insurances combined.
(c) A Corporate Agent (Health), may have arrangements with a maximum ofthree health insurers to solicit, procure and service their insurance
products.
(d) In the case of Corporate Agent (Composite), the conditions as specifiedin clauses (a) to (c) shall apply.
(e) any change in the arrangement with the insurance companies shall bedone only with the prior approval of the Authority and with suitable
arrangements for servicing existing policyholders.**3. Consideration of application** –(1) The Authority while considering an application for grant of registration shall takeinto account, all matters relevant for carrying out the activities of a corporate
agent.(2) Without prejudice to the above, the Authority in particular, shall take intoaccount the following, namely:(a) whether the applicant is not suffering from any of the disqualificationsspecified under sub-section (5) of section 42 D of the Act;
(b) whether the applicant has the necessary infrastructure, such as, adequateoffice space, equipment and trained manpower on their rolls to effectively
discharge its activities;
(c) whether any person, directly or indirectly connected with the applicant, hasbeen refused in the past the grant of license/registration by the Authority.(d) Whether the principal officer of the applicant is a graduate and has receivedat least fifty hours of theoretical and practical training from an approved
institution according to a syllabus approved by the Authority, and has passed
an examination, at the end of the period of training mentioned above,
conducted by the examination body.
In case where the principal officer of the applicant is an Associate/ Fellowof the Insurance Institute of India, Mumbai; or Associate/Fellow of the CII,
London; or Associate/Fellow of the institute of Actuaries of India; or holds
any post graduate qualification of the Institute of Insurance and Risk
Management, Hyderabad, the theoretical and practical training shall be
twenty five hours.
(e) whether the principal officer' directors and other employees of the applicanthave not violated the code of conduct as specified in Schedule III to these
regulations during the last three years;98(f) Whether the applicant, in case the principal business of the applicant isother than insurance' maintain an arms-length relationship in financial
matters between its activities as Corporate Agent and other activities.
(g) Whether the Principal Officer/Director(s)/Partner(s)/Specified Personsis/are Fit and Proper based on the statement in Annexure I of these
regulation; and
(h) the Authority is of the opinion that the grant of registration will be in theinterest of policyholders.(3) The specified persons of the applicant shall fulfill the following requirements –a. Having passed minimum of l2th Class or equivalent examination from arecognized Board/Institution:b. (i) The specified person shall have undergone at least fifty hours of training' forthe specified category of life, general, health for' which registration is sought
for, from an approved institution and shall have passed the examination
conducted by the examination body;
(ii) The specified person of corporate agent (composite) shall have undergone
at seventy five hours of training from an approved institute and shall have pass
the examination conducted by the examination body;c. the specified persons engaged by the corporate agent to solicit and procureinsurance business shall have valid certificate issued by the Authority as,
specified in these Regulations.
The certificate shall be valid for a period of three years from the date of issuedsubject to the valid registration of the corporate agent;
The specified person shall apply through the principal officer of the corporate
agent to the Authority in the format specified in Annexure 3 of these regulations
for issuance of certificate.d. A specified person of a corporate agent wishes to switch over to any other
corporate agent, shall do so by applying to the Authority through the new
corporate agent along with a no objection certificate issued by the present
corporate agent. In case, the present corporate agent does not issue a no | Final IC-38 - Corporate Agent _Composite _ English.md | l2 | Scope and applicability of these Regulations: | Final IC-38 - Corporate Agent _Composite _ English_052 | {
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for, from an approved institution and shall have passed the examination
conducted by the examination body;
(ii) The specified person of corporate agent (composite) shall have undergone
at seventy five hours of training from an approved institute and shall have pass
the examination conducted by the examination body;c. the specified persons engaged by the corporate agent to solicit and procureinsurance business shall have valid certificate issued by the Authority as,
specified in these Regulations.
The certificate shall be valid for a period of three years from the date of issuedsubject to the valid registration of the corporate agent;
The specified person shall apply through the principal officer of the corporate
agent to the Authority in the format specified in Annexure 3 of these regulations
for issuance of certificate.d. A specified person of a corporate agent wishes to switch over to any other
corporate agent, shall do so by applying to the Authority through the new
corporate agent along with a no objection certificate issued by the present
corporate agent. In case, the present corporate agent does not issue a no
objection certificate within 30 days, it shall be deemed that the said corporate
agent has no objection to his switching over. The Authority after receipt of
request from the corporate agent, issue a revised certificate changing the name
of the corporate agent indicating the switching over.4. **Renewal of registration** –(1) As per this regulation a corporate agent may, within thirty days before the
expiry of the registration, make an application in Form A along with requisite
fee to the Authority for renewal of registration.Provided however that if the application reaches the Authority later than that
period but before the actual expiry of the current registration, an additional fee
of rupees one hundred, plus applicable taxes, shall be payable to the Authority.99Provided further that the Authority may for sufficient reasons offered in writing
by the applicant for a delay not covered by the previous proviso, accept an
application for renewal after the date of the expiry of the registration on
payment of an additional fee of seven hundred and fifty rupees, plus applicable
taxes, by the applicant._Note: A corporate agent is permitted to submit the application for renewal of_
_registration ninety days prior to the expiry of the registration._(2) Principal Officer and specified persons before seeking a renewal of
registration shall have completed, at least twenty five hours of therefore local
and practical raining, imparted by an approved institution.(3) The Authority, on being satisfied that the applicant fulfills all the conditions
specified for a renewal of the registration, shall renew the registration in Form
C for a period of three years and send intimation to the applicant.**5. Procedure where a registration is not granted -**(1) Where an application for grant of a registration under regulation 4 or renewal
thereof under regulation 11, does not satisfy the conditions set out in regulation
7, the Authority may refuse to grant or renew the Certificate of Registration.Before the application is rejected the applicant has to be given a reasonable
opportunity of being heard.(2) The refusal to grant or renew a Certificate of Registration shall be
communicated by the Authority within thirty days of such refusal to the
applicant stating therein the grounds on which the application has been
rejected.(3) Any applicant aggrieved by the decision of the Authority may make an appeal
to Securities Appellate Tribunal, within a period of forty-five days from the date
on which a copy of the order made by the Authority under sub-regulation (2)
above is received by it.6. **Effect of refusal to grant registration-** An applicant, whose application for grantof registration under regulation 4 or of a renewal thereof under regulation 11
has been refused or rejected by the Authority, shall, on and from the date of
the receipt of the communication under regulation 12(2) cease to act as a
corporate agent.
He, however, shall continue to be liable to provide services in respect ofcontracts already entered into through him.
Such a service shall continue upto the period of expiry of those existingcontracts, which have already been closed, or for a period of six months,
whichever is earlier within which time they shall make suitable arrangements
with the concerned insurer.1007. **Conditions of grant of registration to Corporate Agent:**The registration granted under regulation 9 or the renewal granted under
regulation 11 shall be subject to the following conditions:(i) The corporate agent registered under these regulations shall be permitted
to solicit and service insurance business as specified in regulation (3) above
only;
(ii) The corporate agent shall comply with the provisions of the Act, Insurance
Regulatory and Development Authority Act, 1999 and the Regulations,
Circulars, Guidelines and any other instructions issued there under from
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has been refused or rejected by the Authority, shall, on and from the date of
the receipt of the communication under regulation 12(2) cease to act as a
corporate agent.
He, however, shall continue to be liable to provide services in respect ofcontracts already entered into through him.
Such a service shall continue upto the period of expiry of those existingcontracts, which have already been closed, or for a period of six months,
whichever is earlier within which time they shall make suitable arrangements
with the concerned insurer.1007. **Conditions of grant of registration to Corporate Agent:**The registration granted under regulation 9 or the renewal granted under
regulation 11 shall be subject to the following conditions:(i) The corporate agent registered under these regulations shall be permitted
to solicit and service insurance business as specified in regulation (3) above
only;
(ii) The corporate agent shall comply with the provisions of the Act, Insurance
Regulatory and Development Authority Act, 1999 and the Regulations,
Circulars, Guidelines and any other instructions issued there under from
time to time by the Authority;
(iii) The corporate agent shall take adequate steps for redressal of grievancesof its clients within 14 days of receipt of such complaint and keep the
Authority informed about the number, nature and other particulars of the
complaints received from such clients in format and manner as may be
specified by the Authority;
(iv) The corporate agent shall solicit and procure reasonable number ofinsurance policies commensurate with their resources and the number of
specified persons they employ.
(v) The corporate agent shall maintain records in the format specified by the
Authority which shall capture policy-wise and specified person-wise details
wherein each policy solicited by the corporate agent is tagged to the
specified person, except for those products which are simple, sold over
the counter and specifically approved by the Authority. The corporate
agent shall put in place systems which allow regular access to such records
and details by the Authority.
(vi) The corporate agent under no circumstance shall undertake multi-levelmarketing for solicitation of insurance products;
(vii) The Corporate Agent shall ensure compliance of Code of Conductapplicable to its directors, principal officer and specified persons;
(viii) The corporate agent shall maintain separate books of accounts for theircorporate agency business as specified in regulation 31;**8. Payment of fees and the consequences of failure to pay fees –**(1) Every corporate agent shall at the time of application of registration and
renewal thereof pay non refundable application fee of Rs.10,000/-, plus
applicable taxes. No application shall be processed without the application fee.(2) Upon receipt of communication for grant of registration from the Authority,
the applicant shall pay a fee of Rs.25,000/-, plus applicable taxes, within 15
days of receipt of such communication. On receipt of the fee and on satisfactory
compliance of terms and conditions for grant of registration, the Authority shall
grant the registration to act as a corporate agent under the category for which
an application is made.101(3) A corporate agent desirous of applying for renewal shall make an application
for renewal in the prescribed format along with a fee of Rs.25, 000/-, plus
applicable taxes.9. **Remuneration-**The payment of remuneration to or receipt of remuneration by a corporate
agent shall be governed by the regulations notified in this behalf by the
Authority from time to time.**10. Conflict of interest –**While soliciting and procuring the insurance business, the corporate agent shallcomply with the following:(i) The corporate agent having tie-ups with more than one insurer in a particular
line of business, disclose to the prospective customer the list of insurers, with
whom they have arrangements to distribute the products and provide them with
the details such products. Further, disclose the scale of commission in respect
of the insurance product offered, if asked by the prospect;(ii) Where the insurance is sold as an ancillary product along with a principal
business product, the corporate agent or its shareholder or its associates shall
not compel the buyer of the principal business product to necessarily buy the
insurance product through it.
The Principal Officer and CFO (or its equivalent) of the corporate agent shall file
with the Authority a certificate in the format given in the Schedule VIII on halfyearly basis, certifying that there is no forced selling of an insurance product to
any prospect.**11. Disclosures to the Authority-**(1) An applicant desires to become a corporate agent shall disclose to theAuthority at the time of filing application all material facts relevant for
consideration of application, on its own. In case of any change in the
information provided for consideration of their application, subsequent to
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line of business, disclose to the prospective customer the list of insurers, with
whom they have arrangements to distribute the products and provide them with
the details such products. Further, disclose the scale of commission in respect
of the insurance product offered, if asked by the prospect;(ii) Where the insurance is sold as an ancillary product along with a principal
business product, the corporate agent or its shareholder or its associates shall
not compel the buyer of the principal business product to necessarily buy the
insurance product through it.
The Principal Officer and CFO (or its equivalent) of the corporate agent shall file
with the Authority a certificate in the format given in the Schedule VIII on halfyearly basis, certifying that there is no forced selling of an insurance product to
any prospect.**11. Disclosures to the Authority-**(1) An applicant desires to become a corporate agent shall disclose to theAuthority at the time of filing application all material facts relevant for
consideration of application, on its own. In case of any change in the
information provided for consideration of their application, subsequent to
filing of application or during the processing of application, such change shall
be disclosed to the Authority, voluntary by the applicant, for consideration
of the Authority.(2) Similarly, a corporate agent disclose, to the Authority voluntarily, anychange in material facts, based on which a registration was made to them,
within a reasonable time but not later than 30 days from the happening of
such change.
(3) A corporate shall disclose to the Authority proceedings initiated against themby other regulatory or Government bodies within a reasonable time but not
later than 30 days from the initiation of such proceedings. Any action or
direction issued by such other bodies shall also be disclosed to the Authority
within the time limits prescribed above102(4) The corporate agent shall disclose to the Authority the details of its officesin which they propose to distribute insurance products and details of
Specified Persons along with their certificate number issued by the
Authority. Further, any opening or closure of an office by a corporate agent
shall be informed to the Authority.
(5) Failure to adhere to the conditions set out above shall attract regulatoryactions such as suspension or cancelation of registration, imposition of
monetary penalty or any other action.**12. Arrangements with insurers for distribution of products**a) Corporate agents registered under these regulations shall have to enter intoarrangements with insurers for distribution of products. These arrangements
shall have to be disclosed to the Authority within 30 days of entering into
such arrangements. The minimum period of such arrangement shall be forone year;
(b) while entering into such arrangements, no corporate agent shall promise norshall any insurer compel the corporate agent to distribute the products of a
Particular insurer;
(c) Arrangements shall have provisions to include duties and responsibilities ofcorporate agents towards the policyholders, duties and responsibilities of
insurers and corporate agents, terms and conditions for termination of
arrangements;
(d) No arrangements shall be made against the interests of Policyholders;
(e) In case a corporate agent wishes to terminate arrangement with any insurer,they may do so after informing the insurer and the Authority, the reasons or
termination of arrangement. In such cases, they shall ensure that the policies
solicited and placed with the insurer are serviced till the expiry of policies,
or for a Period of six months, whichever is earlier with in which time they
shall make suitable arrangements with the concerned insurer;
(f) In case an insurer wishes to terminate the arrangement with any corporateagent, they may do so after informing the corporate agent and the Authority,
the reasons for termination of arrangement.
In such cases, the concerned insurer shall take the responsibility of servicing
the policies Procured by the corporate agent. In all such cases, the insurer
shall inform the policyholder concerned of the changes made in servicing
arrangements;
(g) No insurer shall directly pay incentives (cash or non-cash) to the principalofficer, specified persons and other employees of the corporate agents;**13.** **Servicing of policyholders-**(1) A corporate agent registered under these regulations shall have the duty toservice its policyholders during the entire period of contract. Servicing
includes assisting in payment of premium required under section 64VB of the
Act, providing necessary assistance and guidance in the event of a claim.103**14. Sale of Insurance by tele-marketing mode and distance marketing activities****of a corporate agent –**(1) A corporate agent who intends to engage the services of a telemarketer or
engage in distance marketing activities for the purpose of distribution of
insurance products shall follow the instructions as laid down in Schedule VII.(2) A corporate agent shall have to comply with the following additional | Final IC-38 - Corporate Agent _Composite _ English.md | e102 | Servicing of policyholders- | Final IC-38 - Corporate Agent _Composite _ English_055 | {
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the reasons for termination of arrangement.
In such cases, the concerned insurer shall take the responsibility of servicing
the policies Procured by the corporate agent. In all such cases, the insurer
shall inform the policyholder concerned of the changes made in servicing
arrangements;
(g) No insurer shall directly pay incentives (cash or non-cash) to the principalofficer, specified persons and other employees of the corporate agents;**13.** **Servicing of policyholders-**(1) A corporate agent registered under these regulations shall have the duty toservice its policyholders during the entire period of contract. Servicing
includes assisting in payment of premium required under section 64VB of the
Act, providing necessary assistance and guidance in the event of a claim.103**14. Sale of Insurance by tele-marketing mode and distance marketing activities****of a corporate agent –**(1) A corporate agent who intends to engage the services of a telemarketer or
engage in distance marketing activities for the purpose of distribution of
insurance products shall follow the instructions as laid down in Schedule VII.(2) A corporate agent shall have to comply with the following additional
conditions for engaging the services of a telemarketer:a. The telemarketer engaged by the corporate agent shall comply with variouscirculars and/or guidelines or any other direction issued by Telecom
Regulatory Authority of India in the matter;b. A corporate agent intends to undertake telemarketing activities forinsurance intermediation shall seek prior approval of the Authority in the
form specified by the Authority at Annexure 4 of these regulations. The
Authority on verification of the same issue a certificate to the telemarketer;
c. Further, the corporate agent shall file with the Authority the names ofAuthorised verifiers engaged/proposed to be engaged by the telemarketer
in the form specified at Annexure 5 of these regulations,.
d. The Authority on verification of the same issue a certificate to theAuthorised verifier.e. In case an Authorised Verifier intends to switch to another telemarketer whois also dealing with insurance intermediation, they shall obtain a No
Objection Certificate from the erstwhile telemarketer and submit the same
to the Authority for issuing a fresh certificate. In case, the present
telemarketer does not issue a no objection certificate within 30 days from
the date of application for the same, it shall be deemed that the
telemarketer has no objection to his switching over;
f. Application for removal or addition of Authorised Verifiers shall be made bythe Corporate Agent concerned through the Principal Officer;
g. In case the corporate agent registers as telemarketer with TRAI, thecorporate agent shall act as telemarketer for only those insurers with whom
he has arrangements;
h. No corporate agent or its telemarketer shall make outbound calls to anyperson unless he or she has shown interest in buying an insurance policy by
making enquiries to that effect. They shall maintain the database of such
persons and the enquiry made for verification and checking by the Authority
or any person authorized by it.
i. The telemarketer shall disclose to the prospective customer the followinginformation
(a) The name of the corporate agent they represent;
(b) The registration number of the corporate agent;
(c) Contact number of the telemarketer and-/or corporate agent in case the
customer desires to call back or verify the telesales information;104(d) Name and identification number of the person (Authorised Verifier)
making the tele-call.
j. A corporate agent engaging a telemarketer shall enter into an agreementwith the telemarketer and the agreement shall provide the details such as
source of the database, duties and responsibilities, payment details, period
of agreement, actions to be taken in case of violation of Act, regulations,
guidelines, circulars, directions issued by the Authority, Code of Conduct of
Authorised Verifiers. The agreements shall be made available to the
Authority or any person authorized by the Authority for verification as and
when required;
k. Every telemarketer and the authorized Verifier shall abide by the Code ofConduct applicable to corporate agents as specified in Schedule III of these
regulations.
l. The Authority shall have the power to inspect the premises of thetelemarketer or any other premises, which the Authority feels necessary for
the verification of records / documents, and seek any document/record,
record statements of any employee of the telemarketer or make copies of
any documents/records at its discretion:
m. The telemarketer shall have to comply with any other terms and conditionsas may be prescribed by the Authority from time to time in the matter.(3) A telemarketer shall not be engaged with more than three insurers or | Final IC-38 - Corporate Agent _Composite _ English.md | null | Servicing of policyholders- | Final IC-38 - Corporate Agent _Composite _ English_056 | {
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source of the database, duties and responsibilities, payment details, period
of agreement, actions to be taken in case of violation of Act, regulations,
guidelines, circulars, directions issued by the Authority, Code of Conduct of
Authorised Verifiers. The agreements shall be made available to the
Authority or any person authorized by the Authority for verification as and
when required;
k. Every telemarketer and the authorized Verifier shall abide by the Code ofConduct applicable to corporate agents as specified in Schedule III of these
regulations.
l. The Authority shall have the power to inspect the premises of thetelemarketer or any other premises, which the Authority feels necessary for
the verification of records / documents, and seek any document/record,
record statements of any employee of the telemarketer or make copies of
any documents/records at its discretion:
m. The telemarketer shall have to comply with any other terms and conditionsas may be prescribed by the Authority from time to time in the matter.(3) A telemarketer shall not be engaged with more than three insurers or
insurance related entities**15. Code of conduct for Corporate Agents-**(1) Every Corporate Agent shall abide by the Code of Conduct as specified in
Schedule III of these regulations,(2) The corporate agent shall be responsible for all (the acts and omissions of its
principal officer, specified persons and other employees including violation of
code of conduct specified under these regulations and liable to a penalty which
may extend to one crore rupees under the provisions of Sec.102 of the Act.**16. Maintenance of Records**A Corporate Agent shall maintain the following records including in electronic
form and shall be made available as and when required by the Aurhority –(i) Know Your Client (KYC) records of the client, as required under therelevant Authority’s guidelines and provisions of Prevention of Money
Laundering Act;
(ii) Copy of the proposal form duly signed by the client and submitted to theinsurer with ACR signed by the specified person of corporate agent;
(iii)A register containing list of clients, details of policy such as type of policy,premium amount, date of issue of the policy, charges or fees received;105(iv) A register containing details of complaints received which include name ofthe complainant, nature of complaint, details of policy issued/solicited
and action taken thereon;
(v) A register which shall contain the name, address, telephone no,photograph, date of commencement of employment, date of leaving the
service, if any, monthly remuneration paid to the specified person;
(vi) Copies of the correspondence exchanged with the Authority;
(vii) Any other record as may be specified by the Authority from time to time.**17. Maintenance of books of account, records, etc. –**(1) A corporate agent, which is incorporated exclusively for the purposes of
insurance intermediation, shall prepare the following books of accounts for
every financial year(i) a balance sheet or a statement of affairs as at the end of each accountingperiod;
(ii) a profit and loss account for that period;
(iii) a statement of cash/fund flow:
(iv) Additional statements as may be required by the Authority from time to
rime.**Note.1** : For purposes of this regulation, the financial year shall be a period of 12
months (or less where a business is started after 1 [st] April) commencing on the first
day of the April of an year and ending on the 31 [st] day of March of the year following
and the accounts shall be maintained on accrual basis._Note.2: There shall be a schedule to their financial statements or providing the_
_details of all the incomes received from insurers and insurer's group companies,_
_insurer-wise, by the corporate agent, and also the details of payments received by_
_the group companies and/or associates of the corporate agent from any insurer and_
_the details thereof._(a) A copy of the audited financial statements as stated in sub-regulation (1) alongwith the auditor's report thereon shall be submitted to the Authority before
30 [th] September every year along with the remarks or observations of the
auditors, if any, on the conduct of the business, state of accounts, etc., and a
suitable explanation on such observations shall be appended to such accounts
filed with the Authority.(b) Within ninety days from the date of the Auditor's report necessary steps torectify any deficiencies, made out in the auditor's report, be made and
informed to the Authority.(c) All the books of account, statements, document, etc., shall be maintained atthe head office of the corporate agent or such other branch office as may be | Final IC-38 - Corporate Agent _Composite _ English.md | null | Note.1 | Final IC-38 - Corporate Agent _Composite _ English_057 | {
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and the accounts shall be maintained on accrual basis._Note.2: There shall be a schedule to their financial statements or providing the_
_details of all the incomes received from insurers and insurer's group companies,_
_insurer-wise, by the corporate agent, and also the details of payments received by_
_the group companies and/or associates of the corporate agent from any insurer and_
_the details thereof._(a) A copy of the audited financial statements as stated in sub-regulation (1) alongwith the auditor's report thereon shall be submitted to the Authority before
30 [th] September every year along with the remarks or observations of the
auditors, if any, on the conduct of the business, state of accounts, etc., and a
suitable explanation on such observations shall be appended to such accounts
filed with the Authority.(b) Within ninety days from the date of the Auditor's report necessary steps torectify any deficiencies, made out in the auditor's report, be made and
informed to the Authority.(c) All the books of account, statements, document, etc., shall be maintained atthe head office of the corporate agent or such other branch office as may be
designated and notified to the Authority, and shall be available on all working
days to such officers of the Authority, and authorised in this behalf for
inspection.106(d) All the books, documents, statements, contract notes etc., referred to in thisregulation and maintained by the corporate agent shall be retained for a
minimum period of ten years from the end of the year to which they relate.
However, the documents pertaining to the cases where claims are reported and
the settlement is pending for a decision from courts, the documents are
required to be maintained till the disposal of the cases by the court.(2) In the case of corporate agents whose principal business is other than insuranceintermediation, they shall maintain segment wise reporting capturing the
revenues received for insurance intermediation and other income frominsurers.(3) Every insurer who is engaging the services of a corporate agent shall file withthe Authority a certificate, separately for all such corporate agents, in the
format given in the Schedule VIA to be signed by the CEO and CFO. A similar
certificate from the Principal Officer and CFO (or its equivalent) of the
corporate agent specifying the commission/ remuneration received from the
insurer shall be filed with the Authority as given in Schedule VlB.107**Code of Conduct****I.** **General Code of Conduct****1.** Every corporate agent shall follow recognised standards of professional conductand discharge their duties in the interest of the policyholders. While doing soa) conduct its dealings with clients with utmost good faith and integrity at alltimes;
b) act with care and diligence;
c) ensure that the client understands his relationship with the corporate agentand on whose behalf the corporate agent is acting;
d) treat all information supplied by the prospective clients as completelyconfidential to themselves and to the insurer(s) to which the business is
being offered;
e) take appropriate steps to maintain the security of confidential documents intheir possession;
f) No director of a company or a partner of a firm or the chief executive or aprincipal officer or a specified person shall hold similar position with another
corporate agent;**2.** **Every Corporate Agent shall**a) be responsible for all acts of omission and commission of its principal officerand every specified person;
b) ensure that the principal officer and all specified persons are properlytrained, skilled and knowledgeable in the insurance products they market;
c) ensure that the principal officer and the specified person do not make to theprospect any misrepresentation on policy benefits and returns available
under policy;
d) ensure that no prospect is forced to buy an insurance product;
e) give adequate pre-sale and post-sale advice to the insured in respect of theinsurance product;
f) Extend all possible help and cooperation to an insured in completion of allformalities and documentation in the event of a claim;
g) give due publicity to the fact that the corporate agent does not underwritethe risk or act as an insurer;
h) enter into agreements with the insurers in which the duties andresponsibilities of both are defined**II.** **Pre-sale Code of Conduct****3.** Every corporate agent or principal officer or a specified person shall also followthe code of conduct specified below:i) Every corporate agent/principal officer/ specified person shall,a) identify himself and disclose his registration/ certificate to the prospect ondemand;
b) disseminate the requisite information in respect of insurance productsoffered for sale by the insurers with whom they have arrangement and take108into account the needs of the prospects while recommending a specific
insurance plan;
c) disclose the scales of commission in respect of the insurance product offeredfor sale, if asked by the prospect; | Final IC-38 - Corporate Agent _Composite _ English.md | e108 | Code of Conduct | Final IC-38 - Corporate Agent _Composite _ English_058 | {
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under policy;
d) ensure that no prospect is forced to buy an insurance product;
e) give adequate pre-sale and post-sale advice to the insured in respect of theinsurance product;
f) Extend all possible help and cooperation to an insured in completion of allformalities and documentation in the event of a claim;
g) give due publicity to the fact that the corporate agent does not underwritethe risk or act as an insurer;
h) enter into agreements with the insurers in which the duties andresponsibilities of both are defined**II.** **Pre-sale Code of Conduct****3.** Every corporate agent or principal officer or a specified person shall also followthe code of conduct specified below:i) Every corporate agent/principal officer/ specified person shall,a) identify himself and disclose his registration/ certificate to the prospect ondemand;
b) disseminate the requisite information in respect of insurance productsoffered for sale by the insurers with whom they have arrangement and take108into account the needs of the prospects while recommending a specific
insurance plan;
c) disclose the scales of commission in respect of the insurance product offeredfor sale, if asked by the prospect;
d) indicate the premium to be charged by the insurer for the insurance productoffered for sale;
e) explain to the prospect the nature of information required in the proposalform by the insurer, and also the importance of disclosure of material
information in the purchase of an insurance contract;
f) bring to the notice of the insurer any adverse habits or income inconsistencyof the prospect, in the form of a Confidential Report along with every
proposal submitted to the insurer, and any material fact that may adversely
affect the underwriting decision of the insurer as regards acceptance of the
proposal, by making all reasonable enquiries about the prospect;
g) inform promptly the prospect about the acceptance or rejection of theproposal by the insurer;
h) obtain the requisite documents at the time of filing the proposal form withthe insurer, and other documents subsequently asked for by the insurer for
completion of the proposal;ii) No corporate agent/ principal officer/ specified person shall,----a) solicit or procure insurance business without holding a valid
registration/certificate;
b) induce the prospect to omit any material information in the proposal form;
c) induce the prospect to submit wrong information in the proposal form ordocuments submitted to the insurer for acceptance of the proposal;
d) behave in a discourteous manner with the prospect;
e) interfere with any proposal introduced by any other specified person or anyinsurance intermediary;
f) offer different rates, advantages, terms and conditions other than thoseoffered by the insurer;
g) force a policyholder to terminate the existing policy and to effect a newproposal from him within three years from the date of such termination;
h) No corporate agent shall have a portfolio of insurance business from oneperson or one organization or one group of organizations under which the
premium is in excess of fifty percent of total premium procured in any year;
i) become or remain a director of any insurance company, except with theprior approval of the Authority,
j) indulge in any sort of money laundering activities;
k) indulge in sourcing of business by themselves or through call centers byway of misleading calls or spurious calls;
l) undertake multi-level marketing for soliciting and procuring of insuranceproducts;
m) engage untrained and unauthorised persons to bring in business;
n) provide insurance consultancy or claims consultancy or any other insurancerelated services except soliciting and servicing of insurance products as per
the certificate of registration.109o) Engage, encourage, enter into a contract with or have any sort ofarrangement with any person other than
a specified person, to refer, solicit, generate lead, advise, introduce, find
or provide contact details of prospective policyholders in furtherance of the
distribution of the insurance product;
p) Pay or allow the payment of any fee, commission, incentive by any othername whatsoever for the purpose of sale, introduction, lead generation,
referring or finding to any person or entity**III. Post-Sale Code of Conduct**4. Every Corporate Agent shall
a) advise every individual policyholder to effect nomination or assignment orchange of address or exercise of options, as the case may be, and offer
necessary assistance in this behalf, wherever necessary;
b) with a view to conserve the insurance business already procured throughhim, make every attempt to ensure remittance of the premiums by the
policyholders within the stipulated time, by giving notice to the policyholder
orally and in writing.
c) ensure that its client is aware of the expiry date of the insurance even if itchooses not to offer further cover to the client:
d) ensure that renewal notices contain a warning about the duty of disclosureincluding the necessity to advise changes affecting the policy, which have | Final IC-38 - Corporate Agent _Composite _ English.md | e108 | II. | Final IC-38 - Corporate Agent _Composite _ English_059 | {
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a specified person, to refer, solicit, generate lead, advise, introduce, find
or provide contact details of prospective policyholders in furtherance of the
distribution of the insurance product;
p) Pay or allow the payment of any fee, commission, incentive by any othername whatsoever for the purpose of sale, introduction, lead generation,
referring or finding to any person or entity**III. Post-Sale Code of Conduct**4. Every Corporate Agent shall
a) advise every individual policyholder to effect nomination or assignment orchange of address or exercise of options, as the case may be, and offer
necessary assistance in this behalf, wherever necessary;
b) with a view to conserve the insurance business already procured throughhim, make every attempt to ensure remittance of the premiums by the
policyholders within the stipulated time, by giving notice to the policyholder
orally and in writing.
c) ensure that its client is aware of the expiry date of the insurance even if itchooses not to offer further cover to the client:
d) ensure that renewal notices contain a warning about the duty of disclosureincluding the necessity to advise changes affecting the policy, which have
occurred since the policy inception or the last renewal date;
e) ensure that renewal notices contain a requirement for keeping a record(including copies of letters) of all information supplied to the insurer for the
purpose of renewal of the contract;
f) ensure that the client receives the insurer’s renewal invitation well in timebefore the expiry date.
g) render necessary assistance to the policyholders or claimants orbeneficiaries in complying with the requirements for settlement of claims by
the insurer;
h) explain to its clients their obligation to notify claims promptly and to discloseall material facts and advise subsequent developments as soon as possible;
i) advise the client to make true, fair and complete disclosure where it believesthat the client has not done so. lf further disclosure is nor forthcoming it
shall consider declining to act further for the client;
j) give prompt advice to the client of any requirements concerning the claim;
k) forward any information received from the client regarding a claim or anincident that may give rise to a claim without delay, and in any event within
three working days;
l) advise the client without delay of the insurer's decision or otherwise of aclaim; and give all reasonable assistance to the client in pursuing his claim.
m) shall not demand or receive a share of proceeds from the beneficiary underan insurance contract;
n) ensure that letters of instructor, policies and renewal documents containdetails of complaints handling procedures:
o) accept complaints either by phone or in writing:110p) acknowledge a complaint within fourteen days from the receipt ofcorrespondence, advise the member of staff who will be dealing with the
complaint and the timetable for dealing with it;
q) ensure that response letters are sent and inform the complainant of what hemay do if he is unhappy with the response;
r) ensure that complaints are dealt with at a suitably senior level;
s) Have in place a system for recording and monitoring complaints.111## SECTION## LIFE INSURANCE112## CHAPTER L-01## WHAT LIFE INSURANCE INVOLVES**Chapter Introduction**We have seen some aspects related to Insurance in the common chapters. However,
when it comes to Life insurance, we need to look at them more deeply. An asset
The risk insured against
The principle of pooling
The contractLet us now examine the features of life insurance. This chapter will take a brief
look at the various components of life insurance mentioned above.**Learning Outcomes**113**A.** **Life insurance business – Components, human life value, mutuality****a)** **The Asset – Human Life Value (HLV)**We have already seen that an asset is a kind of property that yields value or a return.
For most kinds of property both the value and loss of value amounts can be measured
in precise monetary terms.**Example**If the estimated damage of a car meeting an accident is Rs 50000, the insurer will
compensate the owner for this loss.How do we estimate the amount of loss when a person dies?Is he worth Rs. 50,000 or Rs. 5,00,000?An Agent must be able to answer the above question when meeting a customer.
Based on this the agent can determine how much insurance to recommend to the
customer. It is in fact the first lesson a life insurance agent must learn.Luckily we have a measure, developed almost seventy years ago by Prof. Hubener.
It is known as **Human Life Value (HLV)** and is used worldwide.The HLV concept considers human life as a kind of property or asset that earns an
income. It thus measures the value of human life based on an individual’s expected | Final IC-38 - Corporate Agent _Composite _ English.md | E112 | III. Post-Sale Code of Conduct | Final IC-38 - Corporate Agent _Composite _ English_060 | {
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For most kinds of property both the value and loss of value amounts can be measured
in precise monetary terms.**Example**If the estimated damage of a car meeting an accident is Rs 50000, the insurer will
compensate the owner for this loss.How do we estimate the amount of loss when a person dies?Is he worth Rs. 50,000 or Rs. 5,00,000?An Agent must be able to answer the above question when meeting a customer.
Based on this the agent can determine how much insurance to recommend to the
customer. It is in fact the first lesson a life insurance agent must learn.Luckily we have a measure, developed almost seventy years ago by Prof. Hubener.
It is known as **Human Life Value (HLV)** and is used worldwide.The HLV concept considers human life as a kind of property or asset that earns an
income. It thus measures the value of human life based on an individual’s expected
net future earnings. Net earnings means the income a person expects to earn each
year in the future, less the amount he would spend on himself. It thus indicates the
economic loss a family would suffer if the wage earner were to die prematurely.
These earnings are capitalised, using an appropriate interest rate to discount them.Although there are multiple parameters used to calculate HLV including taking into
account inflation, wage rise, future earning capacity etc., a simple thumb rule to
calculate HLV is to determine the amount that would generate the annual income
the family would be needing by way of interest. In other words HLV is the annual
contribution for the family by the breadwinner divided by the prevailing rate of
interest.**Example**Mr. Rajan earns Rs. 1,20,000 a year and spends Rs. 24,000 on himself. The net
earnings his family would lose, were he to die prematurely, would be Rs. 96,000 per
year. Suppose the rate of interest is 8% (expressed as 0.08).**Human-Life-Value (HLV) = Annual Contribution for Dependents ÷ Rate of****Interest**HLV = 96000/ 0.08 = Rs. 12,00,000HLV helps to determine how much insurance one should have for full protection. It
also tells us the upper limit beyond which providing life insurance may not be
reasonable.114In general, the amount of insurance should be around 10 to 15 times one’s annual
income. Thus one should grow suspicious if Mr. Rajan was to ask insurance of Rs. 2
crores, while earning only Rs. 1.2 lakhs a year. The actual amount of insurance
purchased would depend on factors like how much insurance one can afford and
would like to buy.**B.** **Risk and Life Insurance**As we have seen above, life insurance provides protection against those risk events
that can destroy or reduce the value of human life as an asset. There are three kinds
of situations where such loss can occur. They are typical concerns which ordinary
people face.**Diagram 1:** Typical concerns faced by ordinary peopleGeneral insurance on the other hand typically deals with risks that affect property
– like fire, loss of cargo while at sea, theft and burglary and motor accidents. They
also cover events leading to loss of name and goodwill. These are covered by liability
insurance.Finally there are risks that can affect the person. Termed as personal risks, these
may also be covered by general insurance.**Example**Accident insurance which protects against losses suffered due to an accident.**a)** **How exactly does life insurance differ from general insurance?**|General Insurance|Life Insurance|
|---|---|
| Indemnity: General insurance policies,<br>with the exception of Personal Accident<br>Insurance, are usually contracts of<br>indemnity i.e. after an event like fire, the<br>insurer assesses the exact amount of loss<br>that has occurred and compensates only<br>that amount of loss – no more, no less.| **Assurance:** Life insurance policies are<br>contracts of assurance.<br> The amount of benefit to be paid in<br>the event of death is fixed at the<br>beginning of the contract.<br> An assured sum is paid to the<br>nominees or beneficiaries of the<br>insured when he dies.|
| Duration: The contract is generally short<br>period or for one year renewable basis| The contract is generally long term<br>though some one year renewable<br>contracts are also prevalent| | Final IC-38 - Corporate Agent _Composite _ English.md | null | Example | Final IC-38 - Corporate Agent _Composite _ English_061 | {
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may also be covered by general insurance.**Example**Accident insurance which protects against losses suffered due to an accident.**a)** **How exactly does life insurance differ from general insurance?**|General Insurance|Life Insurance|
|---|---|
| Indemnity: General insurance policies,<br>with the exception of Personal Accident<br>Insurance, are usually contracts of<br>indemnity i.e. after an event like fire, the<br>insurer assesses the exact amount of loss<br>that has occurred and compensates only<br>that amount of loss – no more, no less.| **Assurance:** Life insurance policies are<br>contracts of assurance.<br> The amount of benefit to be paid in<br>the event of death is fixed at the<br>beginning of the contract.<br> An assured sum is paid to the<br>nominees or beneficiaries of the<br>insured when he dies.|
| Duration: The contract is generally short<br>period or for one year renewable basis| The contract is generally long term<br>though some one year renewable<br>contracts are also prevalent|
| Uncertainty: In general insurance<br>contracts, the concerned risk event is| There is no such question Death is<br>certain once a person is born. What is|115|uncertain. No one can be certain about<br>whether a house would catch fire or a car<br>meet an accident.|uncertain is the time of death. Life<br>insurance offers protection against<br>the risk of premature death.|
|---|---|
| Increase in probability: In case of General<br>insurance perils like fire or earthquake,<br>the probability of happening of the event<br>does not increase with time.| In life insurance the probability of<br>death increases with age.|**b)** **Nature of life insurance risk**Since probability of death increases with age, lower premiums are charged for those
who are young and higher premiums for older people. One result was that old
individuals who were in good health, tended to withdraw while unhealthy members
remained in the scheme. Insurance companies faced serious problems as a result.
Their attempts to develop life insurance policies that people could afford led to the
development of level premiums.**c)** **Level premiums**The level premium is fixed such that it does not increase with age but remains
constant throughout the contract period. This means premiums collected in early
years is more than the amount needed to cover death claims of those dying when
young, while premiums collected in later years are less than what is needed to meet
claims of those dying at higher ages. The level premium is an average of both. The
excess premiums of earlier ages compensate for the deficit of premiums in later
ages. The level premium feature is illustrated below.**Diagram 2:** **Level Premium**Level premiums are required because life insurance contracts are long term
insurance contracts that run for 10, 20 or many more years. The concept of level
premiums, do not arise for general insurance policies, which are typically short term
and expire annually.116**Example**The level premium rate is arrived at by the insurers based on the mortality
(probability of death) during the term of the policy as the age of the insured would
increase every year. The rate once decided shall be constant for the entire term of
the policy.**d)** **The Principle of Risk Pooling and Life Insurance**We have already discussed the Principle of Pooling and Mutuality earlier. The
pooling principle plays two specific roles in life insurance.i. It **provides protection against the economic loss arising as a result of one’s****untimely death** . This is done by creating a fund that pools the contributions of
many who have purchased a life insurance contract.**e)** **The Life Insurance Contract**The Policy document is the **evidence of the insurance contract** which a details all
the terms and conditions of the **insurance** .The contract states the sum assured of the life insurance policy. Life insurance is
regarded a **financial security** as the sum Insured is guaranteed by the contract. The
guarantee implies that life insurance is managed efficiently and conservatively;
strongly regulated and strictly supervised.Since Life insurance contracts involve both risk cover and savings, they are often
compared with financial products. They are also seen as a way of holding wealth
than as protection. Indeed, many life insurance products have a large cash value or
savings component which can form a significant part of an individual’s savings. Some
do argue that it may be better to buy only Term Insurance from an insurance
company and invest the balance premiums in instruments that yield higher returns.Let us consider the arguments for and against traditional cash value insurance | Final IC-38 - Corporate Agent _Composite _ English.md | null | Example | Final IC-38 - Corporate Agent _Composite _ English_062 | {
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many who have purchased a life insurance contract.**e)** **The Life Insurance Contract**The Policy document is the **evidence of the insurance contract** which a details all
the terms and conditions of the **insurance** .The contract states the sum assured of the life insurance policy. Life insurance is
regarded a **financial security** as the sum Insured is guaranteed by the contract. The
guarantee implies that life insurance is managed efficiently and conservatively;
strongly regulated and strictly supervised.Since Life insurance contracts involve both risk cover and savings, they are often
compared with financial products. They are also seen as a way of holding wealth
than as protection. Indeed, many life insurance products have a large cash value or
savings component which can form a significant part of an individual’s savings. Some
do argue that it may be better to buy only Term Insurance from an insurance
company and invest the balance premiums in instruments that yield higher returns.Let us consider the arguments for and against traditional cash value insurance
contracts.**a)** **Advantages**i. Insurance has historically been proven as a **safe and secure investment**
**offering** a minimum guaranteed rate of return, which may increase with
contract duration.ii. Regularity of premium payments requires compulsory planning of one’s
savings and results in savings **discipline** .iii. The Insurer takes care of professional investment management and **frees** the**individual** of this responsibilityiv. Insurance **provides liquidity** . The insured can take a loan on or surrenderthe policy and convert it into cash.v. Both cash value type life insurance and annuities may enjoy some **income**
**tax advantages.**vi. Insurance may be **safe from creditors’ claims**, generally in the event of theinsured’s bankruptcy or death.117**b)** **Disadvantages**i. As insurance gives relatively fixed and stable returns, it can be seriously
affected by inflation.ii. High marketing and other initial costs reduces the amount of cash value
accumulated in earlier years of life insurance policies.iii. The guaranteed yield may be below that of other financial instruments**Test Yourself 1**How does diversification reduce risks in financial markets?I. Collecting funds from multiple sources and investing them in one placeII. Investing funds across various asset classesIII. Maintaining time difference between investmentsIV. Investing in safe assets**Summary**a) Asset is a kind of property that yields value or a return.b) The HLV concept considers human life as a kind of property or asset that earnsan income. It thus measures the value of human life based on an individual’s
expected net future earnings.c) The level premium is a premium fixed such that it does not increase with agebut remains constant throughout the contract period.d) Mutuality is one of the important ways to reduce risk in financial markets, theother being diversification.e) The element of guarantee in a life insurance contract implies that life insuranceis subject to stringent regulation and strict supervision.**Key Terms**1. Asset2. Human Life Value3. Level premium4. Mutuality5. Diversification**Answers to Test Yourself****Answer 1** - The correct answer is II.118## CHAPTER L-02## FINANCIAL PLANNING**Chapter Introduction**In previous chapters we discussed life insurance and its role in providing financial
protection. Security is only one of the concerns of individuals who seek to allocate
their income and wealth to meet various needs of the present and the future. Life
insurance must be understood in the wider context of “Personal Financial Planning”.
The purpose of this chapter is to introduce the subject of financial planning.**Learning Outcomes**119**A.** **Financial planning and the individual life cycle****1.** **What is financial planning?**Most of us spend a major part of our lives working to make money. Financial planning
is a smart way to make money work for us.**Definition**Financial planning is a process of identifying one’s life’s goals, translating these
goals into financial goals and managing one’s finances to achieve those goals.Financial planning involves preparing a roadmap to meet both current and future
needs, which may be unforeseen. It plays a crucial role in building a life with less
worry. Careful planning can help to set one’s priorities and work to achieve your
various goals.**Diagram 1:** **Types of Goals**i. Goals may be **short term** : Buying an LCD TV set or a family vacationii. They could be **medium term** : Buying a house or a vacation abroadiii. The **long term** goals may include: Education or marriage of one’s child orpost retirement provision**2.** **Individual’s life cycle**From the day a person is born till the day of his/ her death, he/ she goes through | Final IC-38 - Corporate Agent _Composite _ English.md | t2 | The Life Insurance Contract | Final IC-38 - Corporate Agent _Composite _ English_063 | {
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is a smart way to make money work for us.**Definition**Financial planning is a process of identifying one’s life’s goals, translating these
goals into financial goals and managing one’s finances to achieve those goals.Financial planning involves preparing a roadmap to meet both current and future
needs, which may be unforeseen. It plays a crucial role in building a life with less
worry. Careful planning can help to set one’s priorities and work to achieve your
various goals.**Diagram 1:** **Types of Goals**i. Goals may be **short term** : Buying an LCD TV set or a family vacationii. They could be **medium term** : Buying a house or a vacation abroadiii. The **long term** goals may include: Education or marriage of one’s child orpost retirement provision**2.** **Individual’s life cycle**From the day a person is born till the day of his/ her death, he/ she goes through
various stages in life, during which he/ she is expected to play a series of roles
These stages are illustrated in the diagram given below.**Diagram 2:** **The Economic Life Cycle**120**Life Stages and Priorities****a)** **Learner (till say age 20 -25)** :The stage when one is preparing for hisfuture byimproving his or her knowledge and skills. Funds are required
for financing one’s education. For instance, meeting the high cost of
fees for Medical or Management Education.**b)** **Earner (from 25 onwards)** :When one has found employment andperhaps earns enough to meet his or her needs and has some surplus to
spare.There are family responsibilities and one may also save and invest
in order to have money to meet the needs that may arise in the
immediate future.For instance, a young man takes a housing loan and
invests in a house.**c)** **Partner(on getting marriage at say 28 - 30)** : The stage when one ismarried and has a family of one’s own.This creates new needs like
having a house of one’s own, perhaps a car, consumer durables,
planning for children’s future etc.**d)** **Parent(say 28 to 35)** : The years when one becomes the parent of oneor more children.One now has to worry about their health and
education - getting them into good schools etc.**e)** **Provider(say age 35 to 55)** : The stage when children have grown intoteenagers, and includes their high school and college years. One is
concerned about the high cost of education to make the child qualified
to face the challenges of life.For instance, consider the amount that
needs to be set up to finance a medical course that runs for five years.In
many Indian homes, making provision for marriage and settlement of
girl children is a critical area of concern.Indeed, marriage and
education of children is a prime motive for savings for most Indian
families today.**f)** **Empty Nester(age 55 to 65):** The term ‘empty nester’ implies that theoffspring have flown away leaving the nest [the household] empty.This
is the period when children have married and sometimes have migrated
to other places for work, leaving the parents.Hopefully by this stage,
one has liquidated one’sliabilities [like housing loan and other
mortgages] and has built up a fund for reirement.It is also the period
when ailments like BP and Diabetes begin to manifest and plague one’s
life.Health care,financial independence and security of income become
very important at this stage.**g)** **Retirement – the twilight years (age 60 and beyond):** The age whenone has retired from active work and spends one’s savings to meet the
needs of life.The living needs of the husband and wife as long as both
are alive is the focus.One is concerned abouthealth
issues,adequateincome and loneliness.This is also the period when one
would seek to enhance the quality of life and enjoy many of the things
that one had dreamt of but could not achieve – like pursuing a hobby or
going on a vacation or a pilgrimage.Whether one ages gracefully or in
poverty would depend on how much one has provided for these years.121As we can see above, the economic life cycle has three phases: a student or Pre –
job phase; the working phase that begins between ages 18 to 25 and lasts for 35 to
40 years; and the retirement years that begin after one has stopped working.**3.** **Why does one need to save and purchase various financial assets?**The reason is that during each stage in an individual’s life, when one performs a | Final IC-38 - Corporate Agent _Composite _ English.md | null | Definition | Final IC-38 - Corporate Agent _Composite _ English_064 | {
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life.Health care,financial independence and security of income become
very important at this stage.**g)** **Retirement – the twilight years (age 60 and beyond):** The age whenone has retired from active work and spends one’s savings to meet the
needs of life.The living needs of the husband and wife as long as both
are alive is the focus.One is concerned abouthealth
issues,adequateincome and loneliness.This is also the period when one
would seek to enhance the quality of life and enjoy many of the things
that one had dreamt of but could not achieve – like pursuing a hobby or
going on a vacation or a pilgrimage.Whether one ages gracefully or in
poverty would depend on how much one has provided for these years.121As we can see above, the economic life cycle has three phases: a student or Pre –
job phase; the working phase that begins between ages 18 to 25 and lasts for 35 to
40 years; and the retirement years that begin after one has stopped working.**3.** **Why does one need to save and purchase various financial assets?**The reason is that during each stage in an individual’s life, when one performs a
particular role, a number of needs come up for which funds have to be provided.**Example**When a person gets married and starts a family of his own, he may need to have his
own house. As children grow older, funds are needed for their higher education. As
an individual goes well past middle age, the concern is for having money to meet
health costs and post retirement savings so that one does not need to depend on
one’s children and become a burden. Living with independence and dignity becomes
important.The Savings – Investment process may be considered as being made of two decisions.**i.** **Postponement of consumption:** an allocation of resources between present andfuture consumption.**ii.** **Parting with liquidity** (or ready purchasing power) in exchange for less liquidassets. For instance, purchase of a life insurance policy would mean exchanging
money for a contract which is less liquid.Financial planning includes both kinds of decisions. One needs to plan in order to
save for the future and also must invest wisely in appropriate assets to meet the
various needs that will arise in future.**4.** **Individual needs**If we look at the stages of the life cycle that has been discussed above, we would
see that three types of needs can arise. These give rise to three types of financial
products.a) **Enabling future transactions**The first set of needs arise from funds for meeting a range of anticipated
expenditures that are expected to arise at different stages of the life cycle.
There are two types of such needs:**i.** **Specific transaction needs** : that are linked to specific life events whichrequire a commitment of resources. For instance making a provision for
higher education/ marriage of dependents; or purchase of a house or
consumer durables**ii.** **General transaction needs:** Amounts set aside from current consumptionwithout being earmarked for any specific purposes – these are popularly
termed as ‘future provisions’**b)** **Meeting contingencies**Contingencies are unforeseen life events that may call for large funds. These
cannot met from current income and need to be pre-funded. Some of these122events, like death and disability or unemployment, lead to a loss of income.
Others, like a fire, may result in a loss of wealth.Such needs may be addressed through insurance, if the probability of their
occurrence is low but cost impact is high. One may alternatively meet them by
setting aside a large amount of liquid assets as a reserve.**c)** **Wealth accumulation**The accumulation motive refers to an individual’s desire to invest for
accumulating wealth, taking advantage of favourable market opportunities.
Some individuals may take a cautious approach while investing, while some may
be willing to take more risks, with a view to earn a higher return. Higher return
is desired because it helps to increase one’s wealth or net worth more rapidly.
Wealth is linked with independence, enterprise, power and influence.**5.** **Financial products**Corresponding to the above sets of needs there are three types of products in the
financial market:|Transactional<br>products|Bank deposits and other savings instruments that enable one<br>to have adequate purchasing power (liquidity) at the right<br>time and quantum.|
|---|---|
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occurrence is low but cost impact is high. One may alternatively meet them by
setting aside a large amount of liquid assets as a reserve.**c)** **Wealth accumulation**The accumulation motive refers to an individual’s desire to invest for
accumulating wealth, taking advantage of favourable market opportunities.
Some individuals may take a cautious approach while investing, while some may
be willing to take more risks, with a view to earn a higher return. Higher return
is desired because it helps to increase one’s wealth or net worth more rapidly.
Wealth is linked with independence, enterprise, power and influence.**5.** **Financial products**Corresponding to the above sets of needs there are three types of products in the
financial market:|Transactional<br>products|Bank deposits and other savings instruments that enable one<br>to have adequate purchasing power (liquidity) at the right<br>time and quantum.|
|---|---|
|**Contingency**<br>**products like**<br>**insurance**|These provide protection against large losses that may be<br>suffered in the event of sudden unforeseen events.|
|**Wealth**<br>**accumulation**<br>**products**|Shares and high yielding bonds or real estate are examples of<br>such products. Here the investment is made with a view to<br>committing money for making more money.|An individual would typically have a mix of all of the above needs and thus may
need to have all three types of products. In a nutshell one may say there is:i. A need to save – For cash requirementsii. A need to insure – Against uncertaintiesiii. A need to invest – For wealth creation**6.** **Risk profile and investments**As an individual moves through various stages in the life cycle, from young earner
towards middle ages and then towards the final years of one’s work life, the risk
profile, or approach towards taking risks also changes.When one is young, one may be quite aggressive and willing to take risks in order to
accumulate as much wealth as possible. As the years pass however, one may become
more prudent and careful about investing. One is now concerned to secure and
consolidate one’s investments.Finally, as one nears retirement one may be more conservative. The focus is now to
have a corpus from which one can spend in the post retirement years. One may also
think about making donations for one’s children, for gifting to charity etc.123**One’s investment style also changes to keep pace with the risk profile.** This is
indicated below:**Diagram 3:** **Risk Profile and Investment Style****Risk Profile** **Investment Style****Test Yourself 1**Which among the following gives specific protection against unforeseen events?I. InsuranceII. Transactional products like bank Fixed DepositsIII. SharesIV. Debentures**B.** **Role of financial planning****1.** **Financial planning**Financial planning is the process of carefully evaluating a ~~cl~~ ient’s current and future
needs along with his or her risk profile and income, to chart out a road map for
meeting various anticipated/ unforeseen needs through recommending appropriate
financial products.Elements of financial planning include: Investing - allocating assets based on one’s risk taking appetite, Risk management, Retirement planning, Tax and estate planning, and Financing one’s needsTo put it in a nutshell financial planning involves 360 degrees planning.124**Diagram 4:** **Elements of Financial Planning****2.** **Role of Financial planning**Financial planning is not a new discipline. It was practiced in simple form by our
fore fathers. There were limited investment options then. A few decades ago many
considered equity investment as akin to gambling. Savings were largely channelled
in bank deposits, postal savings schemes and other fixed income instruments. The
challenges facing our society and our customers are far different today. Some of
them are:**i.** **Disintegration of the joint family**The joint family has given way to the nuclear family, consisting of father,
mother and children. The typical head and earning member of this family has to
bear the responsibility for taking care of oneself and one’s immediate family.
This may call for a lot of proper planning and advice from a professional financial
planner.**ii.** **Multiple investment choices**A large number of investment instruments are available today for wealth
creation, each offering varying degrees of risk and return. To achieve financial
goals, one has to choose wisely and make the right investment decisions based
on one’s risk taking appetite. Financial planning can help with one’s asset
allocation.**iii.** **Changing lifestyles**Instant pleasure seems to be the order of the day. Individuals want to have the | Final IC-38 - Corporate Agent _Composite _ English.md | null | Wealth accumulation | Final IC-38 - Corporate Agent _Composite _ English_066 | {
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fore fathers. There were limited investment options then. A few decades ago many
considered equity investment as akin to gambling. Savings were largely channelled
in bank deposits, postal savings schemes and other fixed income instruments. The
challenges facing our society and our customers are far different today. Some of
them are:**i.** **Disintegration of the joint family**The joint family has given way to the nuclear family, consisting of father,
mother and children. The typical head and earning member of this family has to
bear the responsibility for taking care of oneself and one’s immediate family.
This may call for a lot of proper planning and advice from a professional financial
planner.**ii.** **Multiple investment choices**A large number of investment instruments are available today for wealth
creation, each offering varying degrees of risk and return. To achieve financial
goals, one has to choose wisely and make the right investment decisions based
on one’s risk taking appetite. Financial planning can help with one’s asset
allocation.**iii.** **Changing lifestyles**Instant pleasure seems to be the order of the day. Individuals want to have the
latest mobile phones, cars, large homes, memberships of prestigious clubs, etc.
To satisfy these desires, people often borrow heavily and spend a good part of
their income to pay off loans, leaving little scope to save. Financial planning
helps to plan and one’s expenditure so that one can cut down unnecessary
expenses so as to maintain one’s present standard of living while upgrading it
over time.**iv.** **Inflation**Inflation is a rise in the general level of prices of goods and services in an
economy over a period of time. This leads to a fall in the value of money. As a
result, the purchasing power of money gets reduced. Inflation can play havoc125post retirement. Financial planning can help to ensure that one is equipped to
deal with inflation, especially in later years.**v.** **Other contingencies and needs**Financial planning also enables individuals to meet a number of other needs and
challenges like medical emergencies and tax liabilities. Individuals also need to
ensure that their estate consisting of their wealth and properties, smoothly pass
on to their loved ones after their death. There are other needs like the need to
do charity or meet certain social and religious obligations during one’s lifetime
and even thereafter. Financial planning is the means to achieve all this.3. **When is the right time to start financial planning?****Financial planning** is not meant only for the wealthy. Indeed, Planning should
ideally start one earns one’s first salary. There is no trigger point to tell when one
should begin to plan.**There is however an important principle that should guide us – the longer the**
**time period of our investments, the more they will multiply.**Hence one should start early. One’s investments would then get the maximum
benefit of time. Again, planning is not only for wealthy individuals. It is for
everyone. To achieve one’s financial goals, one must follow a disciplined approach.
An unplanned, impulsive approach to financial planning is one of the prime causes
of financial distress of individuals.**Test Yourself 2**When is the best time to start financial planning?I. Post retirement
II. As soon as one gets his first salary
III. After marriage
IV. Only after one gets rich**C.** **Financial planning - Types**Let us now look at the various types of financial planning exercises that an individual
may need to do.**Diagram 5:** **Financial Planning Advisory Services**126Consider the various advisory services that may be provided. There are six such
areas that are taken up Cash planning Investment planning Insurance planning Retirement planning Estate planning Tax planning**1.** **Cash planning**Managing cash flows has two purposes.i. To manage income and expenditures flow including establishing andmaintaining a reserve of liquid assets to meet unanticipated needs.ii. To systematically create and maintain a surplus of cash for capitalinvestment.Cash Planning involves a number of steps. One must prepare a budget and analyse
one’s income and expenditure flows to check on what regular and lump sum costs
have been incurred. While fixed expenses cannot be controlled easily, one can
reduce, postpone and manage expenses that are variable. The next step is to
**predict future monthly income and expenses over the whole year and** design a
plan for managing these cash flows.Another part of the cash planning process is to design strategies for maximizing
discretionary income.**Example**One can restructure one’s outstanding debts.One can meet outstanding credit card debts through consolidating them and paying | Final IC-38 - Corporate Agent _Composite _ English.md | c125 | Disintegration of the joint family | Final IC-38 - Corporate Agent _Composite _ English_067 | {
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may need to do.**Diagram 5:** **Financial Planning Advisory Services**126Consider the various advisory services that may be provided. There are six such
areas that are taken up Cash planning Investment planning Insurance planning Retirement planning Estate planning Tax planning**1.** **Cash planning**Managing cash flows has two purposes.i. To manage income and expenditures flow including establishing andmaintaining a reserve of liquid assets to meet unanticipated needs.ii. To systematically create and maintain a surplus of cash for capitalinvestment.Cash Planning involves a number of steps. One must prepare a budget and analyse
one’s income and expenditure flows to check on what regular and lump sum costs
have been incurred. While fixed expenses cannot be controlled easily, one can
reduce, postpone and manage expenses that are variable. The next step is to
**predict future monthly income and expenses over the whole year and** design a
plan for managing these cash flows.Another part of the cash planning process is to design strategies for maximizing
discretionary income.**Example**One can restructure one’s outstanding debts.One can meet outstanding credit card debts through consolidating them and paying
them off through a bank loan with lower interest.One may reallocate one’s investments to make them earn more income.**2.** **Insurance planning**There are certain risks to which individuals are exposed that can keep them from
attaining their personal financial goals. Insurance planning involves constructing a
plan of action to provide adequate insurance against such risks.The task here is to estimate how much insurance is needed and determining what
type of policy is best suited.**i.** **Life insurance** may be decided by estimating the income and expenserequirements of the dependents in the event of premature death of the
bread winner.**ii.** **Health insurance** requirements may be assessed in terms of thehospitalisation expenses that are likely to be incurred in any family medicalemergency.127a. Finally **insurance for one’s assets** may be considered in terms of thetype and quantum of cover required to protect one’s home/ vehicle/
factory etc. from the risk of loss.**3.** **Investment planning**There is no one right way to invest. What is appropriate would vary from individual
to individual. Investment planning is a process of determining the most suitable
investment and asset allocation strategies based on an individual’s risk taking
appetite, financial goals and the time horizon to meet those goals.**a)** **Investment parameters****Diagram 6:** **Investment Parameters**The first step here is to define certain investment parameters. These include:**i.** **Returns** : Returns on Investment is often the most important parameter thatpeople look for when they invest their money. The rate of return determines
how fast one’s wealth from investments would grow over time. The role of
returns can be appreciated when one considers the ‘Power of compounding’.
For instance, if an amount of Rs 1000 is invested today at 8% rate of interest,
at the end of five years, it would accumulate to Rs 1469 and at the end of
10 years it would more than double to reach Rs 2159. This expectation of
returns which helps to accumulate wealth is one of the prime motives of
investment. At the same time, one must note that higher rates of return may
be typically accompanied with higher levels of risk. One has to make a tradeoff between return and risk. This depends on an individual’s risk tolerance.**ii.** **Risk tolerance** : A measure of how much risk someone is willing to take inpurchasing an investment.**iii.** **Time horizon** : This is the amount of time available to attain a financialobjective. The longer the time horizon, the less concern is there about short128term liability. One can invest in longer term, in less liquid assets that earn
a higher return.**iv.** **Liquidity** : Individuals with limited investment capacity, or uncertain incomeand expenditure flows, or who are investing for meeting a particular
personal or business expenditure, would be concerned with liquidity [This
refers to the ability to convert investment into cash without loss of value.]**v.** **Marketability** : The ease with which an asset can be bought or sold.**vi.** **Diversification** : The extent to which one seeks to diversify or spread theinvestments to reduce the risks.**vii.** **Taxes** : Many investments confer certain income tax benefits and one maylike to consider the post-tax returns of various investments.**b)** **Selection of appropriate investment vehicles**The next step is selection of appropriate investment vehicles based on the above
parameters. The actual selection would depend on the individual’s expectations
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a higher return.**iv.** **Liquidity** : Individuals with limited investment capacity, or uncertain incomeand expenditure flows, or who are investing for meeting a particular
personal or business expenditure, would be concerned with liquidity [This
refers to the ability to convert investment into cash without loss of value.]**v.** **Marketability** : The ease with which an asset can be bought or sold.**vi.** **Diversification** : The extent to which one seeks to diversify or spread theinvestments to reduce the risks.**vii.** **Taxes** : Many investments confer certain income tax benefits and one maylike to consider the post-tax returns of various investments.**b)** **Selection of appropriate investment vehicles**The next step is selection of appropriate investment vehicles based on the above
parameters. The actual selection would depend on the individual’s expectations
about return and risk.In India there are a variety of products that may be considered for the purpose of
investments. These include: Fixed deposits of banks/ corporates, Small savings schemes of post office, Public issues of shares, Debentures or other securities, Mutual funds Unit linked policies that are issued by life insurance companies etc.**4.** **Retirement planning**It is the process of determining the amount of money that an individual needs to
meet his needs post retirement and deciding on various retirement options for
meeting these needs. Retirement planning involves three phases**a)** **Accumulation:** Accumulation of funds is done through various kinds ofstrategies to set aside money for investment with this purpose.**b)** **Conservation:** Conservation refers to the efforts made to ensure that one’sinvestments are put to hard work and that the principal gets maximised during
the individual’s working years.**c)** **Distribution:** Distribution refers to the optimal method of converting the corpusor principal into withdrawals/ annuity payments for meeting income needs
after retirement.**5.** **Estate planning**It is a plan for the devolution and transfer of one’s estate after one’s demise. There
are various processes like nomination and assignment or preparation of a will. The
basic idea is to ensure that one’s property and assets are smoothly distributed and
or utilised according to one’s wishes after one is no more.129**6.** **Tax planning**Tax planning is done to determine how to gain maximum tax benefit from existing
tax laws and also for planning of income, expenses and investments taking full
advantage of the tax breaks. As per the tax laws in India, life insurance premium
paid by an individual on a life insurance policy on his/ her own life, on the life of
his/ her spouse and children is eligible for deduction under Section 80C of the
Income Tax Act for calculating the taxable income. Currently, this deduction is
allowed up to Rs.1,50,000 subject to conditions. The maturity proceeds (sum
assured plus bonus) of such policies are also exempted under Section 10 (10D).
Similarly, Death Claim amounts are exempt from Income Tax at the hands of the
recipient. One must note that the purpose here is to minimise and not evade taxes.Life insurance agents may be often required by their clients and prospective
customers to advise them not only about meeting their insurance needs but also for
support in meeting their other financial needs as well. A sound knowledge of
financial planning would be of great value to any insurance agent.**Test Yourself 3**Which among the following is not an objective of tax planning?I. Maximum tax benefitII. Reduced tax burden as a result of prudent investmentsIII. Tax evasionIV. Full advantage of tax breaks**Summary**Financial planning is a process of: Identifying one’s life’s goals, Translating these identified goals into financial goals and Managing one’s finances in ways that will help one to achieve those goalsBased on the individual life cycle three types of financial products are needed.
These help in: Enabling future transactions, Meeting contingencies and Wealth accumulationThe need for financial planning is further increased by the changing societal
dynamics like disintegration of the joint family, multiple investment choices
that are available today and changing lifestyles etc.The best time to start financial planning is right after one receives the first
salary.Financial planning advisory services include: Cash planning,130 Investment planning,
Insurance planning,
Retirement planning,
Estate planning and
Tax planning**Key Terms**1. Financial planning
2. Life stages
3. Risk profile
4. Cash planning
5. Investment planning
6. Insurance planning
7. Retirement planning
8. Estate planning
9. Suitability information | Final IC-38 - Corporate Agent _Composite _ English.md | null | Liquidity | Final IC-38 - Corporate Agent _Composite _ English_069 | {
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These help in: Enabling future transactions, Meeting contingencies and Wealth accumulationThe need for financial planning is further increased by the changing societal
dynamics like disintegration of the joint family, multiple investment choices
that are available today and changing lifestyles etc.The best time to start financial planning is right after one receives the first
salary.Financial planning advisory services include: Cash planning,130 Investment planning,
Insurance planning,
Retirement planning,
Estate planning and
Tax planning**Key Terms**1. Financial planning
2. Life stages
3. Risk profile
4. Cash planning
5. Investment planning
6. Insurance planning
7. Retirement planning
8. Estate planning
9. Suitability information
10. Tax planning**Answers to Test Yourself****Answer 1** - The correct option is I.
**Answer 2** - The correct option is II.
**Answer 3** - The correct option is III.131## CHAPTER L-03## LIFE INSURANCE PRODUCTS: TRADITIONAL**Chapter Introduction**The chapter introduces you to the world of life insurance products. It begins by
talking about products in general and then proceeds to discussing the need for life
insurance products and the role they play in achieving various life goals. Finally we
look at some traditional life insurance products.**Learning Outcomes**132**A.** **Overview of life insurance products****1.** **What is a product?**To begin with, let us understand what is meant by a ‘product’. In popular terms a
product is normally just considered as a commodity or good that is brought and sold
in the market.It is necessary to understand that every Product is a bundle of features or attributes
that confer certain benefits.All Companies try to differentiate their products by making them more attractive
to customers and offering different kinds of features and benefits. A life insurance
agent’s role is to understand and pitch on these features and benefits to make the
products of their companies unique and attractive compared to others.**Example**Colgate, Close up and Promise are all different brands of toothpastes. But the
features of each brand is different from the other.Products may be:**i.** **Tangible** : refers to physical objects that can be directly seen or felt by touch
(for instance a car or a television set)**ii.** **Intangible:** refers to products that can only be perceived indirectly.Life insurance is a product that is intangible.**2.** **Purpose of Life Insurance products.**Human beings possess **an immensely valuable asset** - **human capital – which is the**
**source of our productive earning capacity.** However, there is an uncertainty about
life and human well-being. Events like death and disease can destroy our Earning
capabilities and life savings. Insurance provides protection for such situations.Life insurance products offer protection against the loss of economic value of an
individual’s productive abilities, as a result of death or disability. The moment an
individual takes a life insurance policy and pays the first premium, **an immediate**
**estate is created** in his/ her name and its proceeds are available to his/ her
dependents or loved ones.Life insurance provides peace of mind and protection to the near and dear ones of
an individual, in case of one’ unfortunate death. Beyond providing such protection,
life insurance fulfils other needs of the market, such as savings, wealth
accumulation, safety and security of investment and certain rates of return, which
are not discussed in this course.Life insurance industry has seen enormous innovations in product offerings over the
last two centuries. The journey began with death benefit products but over the
period, multiple living benefits like endowment, disability benefits, dreaded disease
covers and so on were added.133One of the major innovations of recent years was the creation of market linked
policies where the insured was invited to participate in choosing and managing his
investment assets. Another major innovation was the evolution of flexible
unbundled products, in which different benefits as well as cost components could
be varied by the policy holder as per changing needs, affordability and life-stages.**3.** **Suitability Information**In order to make insurance intermediaries including agents and brokers more
accountable and reduce instances of mis-selling, IRDAI has created a concept of
‘product suitability’. ‘Suitability information’ is the information of a prospect on
age, income, family status, life stage, financial and family goals, investment
objectives, insurance portfolio already held, etc. That is, before selling an insurance
policy to a client, an Agents should be able to justify the suitability of the product | Final IC-38 - Corporate Agent _Composite _ English.md | L-03 | Key Terms | Final IC-38 - Corporate Agent _Composite _ English_070 | {
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are not discussed in this course.Life insurance industry has seen enormous innovations in product offerings over the
last two centuries. The journey began with death benefit products but over the
period, multiple living benefits like endowment, disability benefits, dreaded disease
covers and so on were added.133One of the major innovations of recent years was the creation of market linked
policies where the insured was invited to participate in choosing and managing his
investment assets. Another major innovation was the evolution of flexible
unbundled products, in which different benefits as well as cost components could
be varied by the policy holder as per changing needs, affordability and life-stages.**3.** **Suitability Information**In order to make insurance intermediaries including agents and brokers more
accountable and reduce instances of mis-selling, IRDAI has created a concept of
‘product suitability’. ‘Suitability information’ is the information of a prospect on
age, income, family status, life stage, financial and family goals, investment
objectives, insurance portfolio already held, etc. That is, before selling an insurance
policy to a client, an Agents should be able to justify the suitability of the product
for the client’s needs.In other words, the Agent takes into account the particular prospect’s risk profile age, income, family status, life stage, financial and family goals, investment
objectives, insurance portfolio already held, insurance needs etc. and decides
whether the product is suitable for that prospect. The nature of product, the
amount of premium, the mode of premium payment and tenure of the policy as well
as the manner of premium payment are also part of the parameters of ‘Suitability’.IRDAI mandates that the suitability information collected should be signed by the
prospect and the agent; and preserved by the Insurer as part of the policy records
and made available for inspection by the Authority.**4.** **Riders in Life Insurance Products**A rider is a provision typically added through an endorsement, which becomes part
of the contract. Riders are commonly used to provide supplementary benefits like
increasing the amount of death benefit provided by a policy, say, because of
accidents. Life insurance companies offer a number of riders through which the
value of their offerings get enhanced Riders help to customise different
requirements of a person into a single plan.Riders provide a means to provide benefits like Disability cover, accident cover and
Critical Illness cover as additional benefits in a standard life insurance contract.
Policy holders can avail of them by paying an extra premium.**Test Yourself 1**Which among the following is an intangible product?
I. CarII. HouseIII. Life insurance
IV. Soap134**B.** **Traditional life insurance products**We shall now learn about some of the traditional types of life insurance products.**Diagram 1:** **Traditional Life Insurance Products****1.** **Term insurance plans**Term insurance is a contract that is valid only during a certain time period. This
may range from the short time required to complete an airplane trip to multiple
years. Protection may extend up to age 65 or 70. One-year term policies are quite
similar to property and casualty insurance contracts. There is no savings or cash
value element in this policy.In October 2020, IRDAI has introduced a Standard Individual Term Life Insurance
Product called, “Saral Jeevan Bima” (the Insurer’s name shall be prefixed to the
product name), a non-linked non-participating individual pure risk premium life
insurance plan, which provides for payment of Sum Assured in lump sum to the
nominee in case of the Life Assured’s unfortunate death during the policy term.Apart from certain benefits and riders specified by the Regulator, no other riders/
benefits/ options/ variants are allowed to be offered. Also, there shall be no
exclusions under the product other than the suicide exclusion. Saral Jeevan Bima is
to be offered to individuals without restrictions on gender, place of residence,
travel, occupation or educational qualifications.**a)** **Purpose**A Term Life insurance plan fulfils the main and basic idea behind life insurance,
which is to provide an assured sum of money to the dependents of the insured
on his/ her death.**The policy works as an income replacement plan also.** Here the payment of a
lump-sum amount is replaced by a series of monthly, quarterly or similar
periodical payments to the dependent beneficiaries.**b)** **Disability**
Normally a Term insurance policy covers only death. However, it is possible to
buy a Disability Protection Rider on the main policy. In such a case, if the insured
suffers from a specified disability during the term of the contract, a disability135benefit would be paid to the beneficiaries/ insured person. The benefits will | Final IC-38 - Corporate Agent _Composite _ English.md | p134 | Suitability Information | Final IC-38 - Corporate Agent _Composite _ English_071 | {
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benefits/ options/ variants are allowed to be offered. Also, there shall be no
exclusions under the product other than the suicide exclusion. Saral Jeevan Bima is
to be offered to individuals without restrictions on gender, place of residence,
travel, occupation or educational qualifications.**a)** **Purpose**A Term Life insurance plan fulfils the main and basic idea behind life insurance,
which is to provide an assured sum of money to the dependents of the insured
on his/ her death.**The policy works as an income replacement plan also.** Here the payment of a
lump-sum amount is replaced by a series of monthly, quarterly or similar
periodical payments to the dependent beneficiaries.**b)** **Disability**
Normally a Term insurance policy covers only death. However, it is possible to
buy a Disability Protection Rider on the main policy. In such a case, if the insured
suffers from a specified disability during the term of the contract, a disability135benefit would be paid to the beneficiaries/ insured person. The benefits will
continue till the death of the insured person.**Diagram 2:** **Disability****c)** **Term insurance as a rider**Protection under Term Life is usually provided as a stand-alone policy but it
could also be provided through a rider in a policy.**Example**A rider to a pension plan provides for a death benefit to be payable if one dies
before the date when pension is to start.**d)** **Convertibility**Convertible term insurance policies allow a policyholder to change or convert a
term insurance policy into a permanent plan like “Whole Life” without providing
fresh evidence of insurability. This privilege helps those who wish to have
permanent cash value insurance but are unable to afford its high premiums.
When the term policy is converted into permanent insurance the new premium
rate would be higher.**e)** **Unique Selling Proposition** ( **USP)**The unique selling proposition (USP) of term assurance is its low price, enabling
one to buy relatively large amounts of life insurance on a limited budget.**f)** **Variants**A number of variants of term assurance are possible.**Diagram 3:** **Variants of Term Assurance****i.** **Decreasing Term Assurance**
These plans typically consist of decreasing term insurance which provides an
amount of death benefit that is equal to the balance that is due on a loan, if the
borrower dies before the loan is paid. These are often marketed as Mortgage
Redemption (discussed in Chapter 15) or Credit Life Insurance. The plans are136usually sold to lending institutions as group insurance to cover the lives of their
borrowers. Purchase of mortgage redemption insurance is often a condition of
the mortgage loan. Such plans may also be available for automobile or other
personal loans.**ii.** **Increasing term assurance**
As the name suggests, the plan provides a death benefit, which increases along
with the term of the policy. Premium generally increases as the amount of
coverage increases.**iii.** **Term insurance with return of premiums**
Another type of policy (quite popular in India) is term assurance with return of
premiums. Though the premium paid would be much higher than for a similar
term insurance plan without return of premiums, some customers may need such
policies.**g)** **Relevant scenarios**Term insurance may have relevance in the following situations:
i. Where the need for insurance protection is purely temporary, as in case ofmortgage redemption
ii. As an additional supplement to a savings plan.
iii. As part of a “buy term and invest the rest” philosophy, where one seeks onlycheap term insurance protection from the insurance company and wants to
invest the difference of premiums in other attractive investments.**Important****Limitations of term plans:** Term Insurance plans are available only for specific
periods and one may not be able to continue the coverage beyond a certain age,
say 65 or 70.**2.** **Whole life insurance**Whole life insurance is an example of a permanent life insurance policy. Here, the
life insurer offers to pay the agreed death benefit when the insured dies, no matter
when the death might occur. The premiums can be paid throughout one’s life or for
a limited time as specified.Whole life premiums are much higher than term premiums as whole life policies are
designed to remain in force until the death of the insured, and pay the death benefit
anytime. The Plan also provides for a cash value in the policy holder’s account. He/
she can withdraw cash in the form of a policy loan from this cash value or even
redeem it by surrendering the policy for its cash value.In case of outstanding loans, the amount of loan and interest get deducted from the | Final IC-38 - Corporate Agent _Composite _ English.md | y135 | Purpose | Final IC-38 - Corporate Agent _Composite _ English_072 | {
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iii. As part of a “buy term and invest the rest” philosophy, where one seeks onlycheap term insurance protection from the insurance company and wants to
invest the difference of premiums in other attractive investments.**Important****Limitations of term plans:** Term Insurance plans are available only for specific
periods and one may not be able to continue the coverage beyond a certain age,
say 65 or 70.**2.** **Whole life insurance**Whole life insurance is an example of a permanent life insurance policy. Here, the
life insurer offers to pay the agreed death benefit when the insured dies, no matter
when the death might occur. The premiums can be paid throughout one’s life or for
a limited time as specified.Whole life premiums are much higher than term premiums as whole life policies are
designed to remain in force until the death of the insured, and pay the death benefit
anytime. The Plan also provides for a cash value in the policy holder’s account. He/
she can withdraw cash in the form of a policy loan from this cash value or even
redeem it by surrendering the policy for its cash value.In case of outstanding loans, the amount of loan and interest get deducted from the
pay-out to the beneficiaries upon death.**A whole life policy is a good plan for the main earner of the family who wishes**
**to protect his/ her loved ones in the event of premature death and preserve his/**
**her capital against erosion from various events like terminal illness.** One can also
use the cash value of the whole life insurance policy for retirement needs, if137required. Whole life insurance thus plays an important role in household saving and
creating wealth to be passed on to the next generation.**3.** **Endowment Assurance**It is a contract in which the sum assured is payable to the nominees of the insured
in case of the death of the insured during the term of the policy. If the insured
survives the term the sum assured is paid to the insured.**The product has both death and survival benefit components.** Endowment
Assurance links one’s insurance and savings programmes by offering a safe and
compulsory method of savings accumulation.People buy endowment plans as a sure method of providing against old age or for
meeting specific purposes like having a fund for (a) educational purposes, (b)
meeting children’s marriage expenses or(c) paying a mortgage (housing) loan.**Government usually offers tax benefits on the premiums paid, which make it**
**attractive.** Many endowment policies mature at ages 55 to 65, when the insured is
planning for his/ her retirement. In such cases such policies can supplement
retirement savings.**Variants:** Endowment assurance has certain variants - discussed below.**4.** **Money Back Policy**
The Money Back policy is a popular endowment plan in India. It has a provision for
returning some part of the sum assured in instalments during the term and the
balance sum assured at the end of the term.**Example**A Money Back policy for 20 years may provide for paying survival benefits of 20% of
the sum assured each at the end of the 5 [th], 10 [th] and 15 [th] years and the balance 40%
at the end of the full term of 20 years. If the life assured dies at the end of, say 18
years, the full sum assured and bonuses (explained in the next section) accrued are
paid as death benefit, even though the insured would have been paid a benefit of
60% of the face value already, as money back.Money Back plans have been popular because of their liquidity (cash back) element,
which make them attractive for meeting short and medium term needs. Such plans
provide full death protection also, if the individual dies at any point during the term
of the policy.**5.** **Participating (Par) and Non-Participating (Non-Par)Plans**The Life Insurance products can also be classified as Participating (Par) and Nonparticipating (Non-Par) products. The term “Par” implies policies which are
participating in the profits of the life insurer. “Non–Par”, on the other hand,
represents policies which do not participate in the profits. Both kinds are present
in traditional life insurance. Under all traditional plans, the pooled life funds, which
are derived from policyholders’ premiums, are invested as per regulatory norms.
Policy holders who opt for ‘par products’ are eligible to receive, in addition to a138guaranteed sum assured, a share in the surpluses( bonuses) that are generated by | Final IC-38 - Corporate Agent _Composite _ English.md | f137 | Important | Final IC-38 - Corporate Agent _Composite _ English_073 | {
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