bajaj allianz general insurance

8/12/2019 Bajaj Allianz General Insurance

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CHAPTERI

INTRODUCTION TO

GENERAL INSURANCE


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INTRODUCTION

None of us know what is going to happen to us in the future but what we do know is that

accidents happen. This is the simple idea that the insurance industry is founded on. You never

know when you might crash your car or come home to find someone has broken into your

home. But what you can do is protect yourself financially against something going wrong at

some point in the future. This protection is what we call insurance.

In one form or another, we all own insurance. Whether it's auto, medical, liability,

disability or life, insurance serves as an excellent risk-management and wealth-preservation

tool. Having the right kind of insurance is a critical component of any good financial plan.While most of us own insurance, many of us don't understand what it is or how it works. In this

tutorial, we'll review the basics of insurance and how it works, then take you through the main

types of insurance out there.

Insurance allows individuals, businesses and other entities to protect themselves against

significant potential losses and financial hardship at a reasonably affordable rate. We say


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"significant" because if the potential loss is small, then it doesn't make sense to pay a premium

to protect against the loss. After all, you would not pay a monthly premium to protect against a

$50 (Rs.3000) loss because this would not be considered a financial hardship for most

Insurance is appropriate when you want to protect against a significant monetary loss.

Take life insuranceas an example. If you are the primary breadwinner in your home, the loss

of income that your family would experience as a result of our premature death is considered a

significant loss and hardship that you should protect them against.

It would be very difficult for your family to replace your income, so the monthly

premiums ensure that if you die, your income will be replaced by the insured amount. Thesame principle applies to many other forms of insurance. If the potential loss will have a

detrimental effect on the person or entity, insurance makes sense.

INDIAN INSURANCE ACT,1938The insurance sector went through a full circle of phases from being unregulated to

completely regulated and then currently being partly deregulated. It is governed by a number of

acts. The Insurance Act of 1938 was the first legislation governing all forms of insurance to

provide strict state control over insurance business. Life insurance in India was completely

nationalized on January 19, 1956, through the Life Insurance Corporation Act. All 245

insurance companies operating then in the country were merged into one entity, the LifeInsurance Corporation of India.


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The General Insurance Business Act of 1972 was enacted to nationalize the about 100

general insurance companies

then and subsequently mergingthem into four companies. All the

companies were amalgamated into

National Insurance, New India

Assurance, Oriental Insurance and

United India Insurance, which were

headquartered in each of the four

metropolitan cities. Until 1999, there

were no private insurance companies in India. The government then introduced the Insurance

Regulatory and Development Authority Act in 1999, thereby de-regulating the insurance sector

and allowing private companies. Furthermore, foreign investment was also allowed and capped

at 26% holding in the Indian insurance companies.

The Insurance Act, 1938had provided for setting up of the Controller of Insurance toact as a strong and powerful supervisory and regulatory authority for insurance. Post

nationalization, the role of Controller of Insurance diminished considerably in significance

since the insurance companies were owned by the Government.


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TYPE OF INSURANCE

All too often we hear about various types of insurance policies without really

understanding what they are and more importantly, what they protect. The truth is, there are

two main types of insurance, namely life insurance and general insurance which covers

different aspects in your life.

LIFE INSURANCE

Life insurance is an insurance coverage that pays out a certain amount of money to the

insured or their specified beneficiaries upon a certain event such as death of the individual who

is insured. This protection is also offered in a Family takaful plan, a Shariah-based approach to

protecting you and your family. The coverage period for life insurance is usually more than a

year. So this requires periodic premium payments, either monthly, quarterly or annually.

Protecting your family from financial disasters is one of the fundamental components of

financial planning. Life insurance should be a core part of that planning process. This article is


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a basic primer on life insurance, which should introduce you to the concept and give you an

idea of how life insurance works.

Most people have a basic understanding of insurance. You receive financial compensation

when an insured event occurs. Consider auto insurance, for example. If your car is in an

accident or stolen, your insurance company provides compensation according to the terms

outlined in your insurance policy.

The risks that are covered by life insurance are:

Premature death

Income during retirement

Illness

The main products of life insurance include:

Whole life

Endowment

Term

Investment-linked

Life annuity plan

Medical and health

GENERAL INSURANCE

General insurance is basically an insurance policy that protects you against losses and

damages other than those covered by life insurance. For more comprehensive coverage, it is

vital for you to know about the risks covered to ensure that you and your family are protected


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from unforeseen losses. The coverage period for most general insurance policies and plans is

usually one year, whereby premiums are normally paid on a one-time basis.

This is an area of financial planning that is often overlooked. Traditionally, we have our

buildings and contents with our mortgage lenders, which may be uncompetitive in a very

competitive marketplace. It may also be the case that a property may be underinsured, due to

decoration, extension or the increase in house prices.

General insurance is important for your peace of mind. It enables you to minimize the effects

of unexpected and often unwelcome future events, and helps you to organize your personal and

business life with greater confidence.

The risks that are covered by

general insurance are:

1) Property loss, for example,stolen car or burnt house.

2) Liability arising fromdamage caused by yourself

to a third party.

3) Accidental death or injury.

The main products of general insurance includes:

1) Motor insurance.2) Fire/ House owners/ Householders insurance.3) Personal accident insurance.4) Medical and health insurance.5) Travel insurance.


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Important Sections:-

10. SEPARATION OF ACCOUNTS AND FUNDS

(1) Where the insurer carries on business of more than one of the 2[ following classes,

namely, life insurance, fire insurance, marine insurance or miscellaneous insurance], he shall

keep a separate account of all receipts and payments in respect of each such class of insurance

business 3[ and where the insurer carries on business of 2[ miscellaneous insurance] whether

alone or in conjunction with business of another class, he shall, unless the 4[ Controller]

waives this requirement in writing, keep a separate account of all receipts and payments in

respect of 2[ each of such sub- classes of miscellaneous insurance business] as may be

prescribed in this behalf: Provided that no sub- class of 2[ miscellaneous insurance business]

shall be prescribed under this sub- section if the insurance business comprised in the sub- class

consists of insurance contracts which are terminable by the insurer at intervals not exceeding

twelve months and under which, if a claim arises, the insurer' s liability to pay benefit ceases

within one year of the date on which the claim arose.]

(2) Where the insurer carries on the business of life insurance 5[ all receipts due in respect of

such business], shall be carried to and shall form a separate fund to be called the life insurance

fund 6[ the assets of which shall, after the expiry of six months from the commencement of the

Insurance (Amendment) Act, 1946 (6 of 1946 ), be kept distinct and separate from all other

assets of the insurer] and the deposit made by the insurer in respect of life insurance business

shall be deemed to be 7[ part of the assets of such fund (2A) 1[ No insurer carrying on life

insurance business shall be entitled to be registered for any class of insurance business in

addition to the class or classes for which he has been already registered unless the 2[

Controller] is satisfied that the assets of the life insurance fund of the insurer are adequate to

meet all his liabilities on policies of life insurance maturing for payment.]
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11. ACCOUNTS AND BALANCE- SHEET

(1) Every insurer, in the case of an insurer specified in sub- clause (a) (ii) or sub- clause

(b) of clause (9) of section 2 in respect of all insurance business transacted by him, and in the

case of any other insurer in respect of the insurance business transacted by him in India, shall

at the expiration of each calendar year prepare with reference to that year--

(a) in accordance with the regulations contained in Part I of the First Schedule, a balance- sheet

in the form set forth in Part II of that Schedule;

(b) in accordance with the regulations contained in Part I of the Second Schedule, a profit and

loss account in the forms set forth in Part II of that Schedule, except where the insurer carries

on business of one class only of 1[ the following classes, namely, life insurance, fire insuranceor marine insurance] and no other business;

(c) 2[ in respect of each class or sub- class of insurance business for which he is required under

sub- section (1) of section 10 to keep a separate account of receipts and] 3[ payments, a

revenue account in accordance with the regulations, and in the form or forms, set forth in the

Third] Schedule applicable to 4[ that class of insurance business].

(2) Unless the insurer is a company 5[ as defined in clause (2) of sub- section (1) of section 2

of the Indian Companies Act, 1913 (7 of 1913 )] the accounts and statements referred to in sub-

section (1) shall be signed by the insurer, or in the case of a company by the chairman, if any,

and two directors and the principal officer of the company, or in the case of a firm by two

partners of the firm, and shall be 6[ accompanied by a statement containing the names

descriptions and occupations of, and the directorships held by, the persons in charge of the

management of the business] during the period to which such accounts and statements refer

and by a report 7[ on the affairs of the business during that period.
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12. AUDIT

The balance- sheet, profit and loss account, revenue account and profit and loss

appropriation account of every insurer, in the case of an insurer specified in sub- clause (a) (ii)

or sub- clause (b) of clause (9) of section 2 in respect of all insurance business transacted by

him, and in the case of any other insurer in respect of the insurance business transacted by him

in India, shall, unless they are subject to audit under the Indian Companies Act, 1913 (7 of

1913 ), be audited annually by an auditor, and the auditor shall in the audit of all such accounts

have the powers of, exercise the functions vested in, and discharge the duties and be subject to

the liabilities and penalties imposed on, auditors of companies by section 145 of the Indian

Companies Act, 1913 .

14. REGISTER OF POLICIES AND REGISTER OF CLAIMS

Every insurer, in the case of an insurer specified in sub- clause (a) (ii) or sub- clause (b)

of clause (9) of section 2 in respect of all business transacted by him, and in the case of any

other insurer in respect of the insurance business transacted by him in India, shall maintain--

(a) a register or record of policies, in which shall be entered, in respect of every policy issued

by the insurer, the name and address of the policy- holder, the date when the policy was

effected and a record of any transfer, assignment or nomination of which the insurer has notice

and

(b) a register or record of claims, in which shall be entered every claim made together with the

date of the claim, the name and address of the claimant and the date on which the claim was

discharged, or, in the case of a claim which is rejected, the date of rejection and the groundstherefore
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27B. FURTHER PROVISIONS REGARDING INVESTMENTS

(1)No insurer carrying on general insurance business shall, after the commencement of the

Insurance (Amendment) Act, 1968 (62 of 1968 ), invest or keep invested any part of this assets

otherwise than in any of the following approved investments, namely:--

(a) the investments specified in clauses (a) to (e), (n), (q) and (r) of sub- section (1) of section

27A;

(b) debentures secured by a first charge on any immovable property, plant or equipment of any

company which has paid interest in full for the three years immediately preceding or for at least

three out of the four or five years immediately preceding on such or similar debentures issued

by it;

(c) debentures secured by a first charge on any immovable property, plant or equipment of any

company where either the book value or the market value, whichever is less, of such property,

plant or equipment is more than twice the value of such debentures;

(2) Any prescribed assets shall, subject to such conditions, if any, as may be prescribed, be

deemed to be assets invested or kept invested in approved investments specified in sub- section(1)

(3)Notwithstanding anything contained in sub- section (1), an insurer may, subject to the

provisions contained in the next succeeding sub- sections, invest or keep invested any part of

his assets otherwise than in an approved investment specified in sub- section (1), if,--

(i) after such investment, the total amounts of all such investments of the insurer do not exceed

twenty- five per cent. of his assets, and

(ii) the investment is made, or, in the case of any investment already made, the continuance of

such investment is with the consent of all the directors, other than the directors appointed under

section 34C, present at a meeting and eligible to vote, special notice of which has been given to
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all the directors then in India, and all such investments, including investments in which any

director is interested, are reported without delay

to the Controller with full details of the investments and the extent of the director' s interest in

any such investment: Provided that the making, or the continuance, of such investment is not

objected to by any director appointed under section 34C.

40. PROHIBITION OF PAYMENT BY WAY OF COMMISSION OR

OTHERWISE FOR PROCURING BUSINESS

(1)No person shall, after the expiry of six months from the commencement of this Act, pay or

contract to pay any remuneration or reward whether by way of commission or otherwise for

soliciting or procuring insurance business in India to any person except an insurance agent 1[

2[ or a principal, chief or special agent].

(1A) 3[ In this section and sections 4[ 40A], 41 and 43, references to an insurance agent shall

be construed as including references to an individual soliciting or procuring insurance business

exclusively in 5[ the territories which, immediately before the Ist November, 1956 , were

comprised in a Part B State] notified in this behalf by the Central Government in the Official

Gazette and holding a valid license as an insurance agent under the law of 6[ that Part B

State].]

(2)No insurance agent 1[ shall be paid or contract to be paid by way of commission or as

remuneration in any form an amount exceeding, in the case of life insurance business, forty per

cent. of the first year' s premium payable on any policy or policies effected through him and

five per cent. of a renewal premium, 3[ payable on such a policy], or, in the case of business of

any other class, fifteen per cent. of the premium: Provided that insurers, in respect of life

insurance business only, may pay, during the first ten years of their business, to their insurance

agents fifty- five per cent. of the first year' s premium payable on any policy or policies

effected through them and six per cent. of the renewal premiums 3[ payable on such policies]:
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4[ Provided further that nothing in this sub- section shall apply in respect of any policy of life

insurance issued after the 31st day of December, 1950 (47 of 1950 ), or in respect of any policy

of general insurance issued after the commencement of the Insurance (Amendment) Act, 1950

.]

Insurance Regulatory And Development Authority (IRDA)

The IRDA (Insurance Regulatory And Development Authority) is the regulatory

authority, which looks over all related aspects of the insurance business.

The provisions of the IRDA bill acknowledge many issues related to insurance sector.

The IRDA bill provides guidance for three levels of players 1.Insurance Company

2.Insurance brokers and 3.Insurance agent. Life Insurance sector is one of the key areas where

enormous business potential exists. In India currently the life insurance premium as a

percentage of GDP is 1.3 % against, 5.2 per cent in the US. General Insurance is another

segment, which has been growing at a faster pace. But as per the current comparative statistics,

the general insurance premium has been lower than life insurance.

General Insurance premium as a percentage of GDP was a mere 0.5'per cent in 1996. In

the General Insurance Business, General Insurance Corporation (GIC) and its four subsidiaries

viz. New India Insurance, Oriental Insurance, National Insurance and United India Insurance,

are doing major business. The General Insurance Industry has been growing at a rate of 19

percent per year.

Insurance Regulatory Authority of India issued regulations on 15 subjects which

included appointed. Actuary, actuarial report, Insurance agents, Solvency margins, re-


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insurance, registration of Insurers, and obligation of insurers to rural and social sector,

investment and accounting procedure. The reform in Insurance in India is guided by factors

like availability of a variety of products at a competitive price, improvement in the quality of

customer services etc.

Also the employment opportunities in the Insurance sector will increase as major players

set their business plans in India. The policy of the government to open up the financial sector

and the Insurance sector is expected to bring greater FDI inflow into the country. The increase

in the investment limit in this vital sector has generated considerable business interests among

the foreign Insurance companies" Their entry wil1 certainly change the Insurance sector

considerably.

Introduction to General Insurance

Insurance other than Life Insurance falls under the category of General Insurance.

General Insurance comprises of insurance of property against fire, burglary etc, personal

insurance such as Accident and Health Insurance, and liability insurance which covers legal

liabilities. There are also other covers such as Errors and Omissions insurance forprofessionals, credit insurance etc.

Non-life insurance companies have products that cover property against Fire and allied

perils, flood storm and inundation, earthquake and so on. There are products that cover

property against burglary, theft etc. The non-life companies also offer policies covering

machinery against breakdown, there are policies that cover the hull of ships and so on. A

Marine Cargo policy covers goods in transit including by sea, air and road. Further, insurance

of motor vehicles against damages and theft forms a major chunk of non-life insurance

business.


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Personal insurance covers include policies for Accident, Health etc. Products offering

Personal Accident cover are benefit policies. Health insurance covers offered by non-life

insurers are mainly hospitalization covers either on reimbursement or cashless basis. The

cashless service is offered through Third Party Administrators who have arrangements with

various service providers, i.e., hospitals. The Third Party Administrators also

provide service for reimbursement claims. Sometimes the insurers themselves process

reimbursement claims.

Accident and health insurance policies are available for individuals as well as groups. A

group could be a group of employees of an organization or holders of credit cards or deposit

holders in a bank etc. Normally when a group is covered, insurers offer group discounts.

Liability insurance covers such as Motor Third Party Liability Insurance, Workmens

Compensation Policy etc offer cover against legal liabilities that may arise under the respective

statutes Motor Vehicles Act, The Workmens Compensation Act etc. Some of the covers

such as the foregoing (Motor Third Party and Workmens Compensation policy ) are

compulsory by statute. Liability Insurance not compulsory by statute is also gaining popularity

these days. Many industries insure against Public liability. There are liability covers available

for Products as well.

There are general insurance products that are in the nature of package policies offering a

combination of the covers mentioned above. For instance, there are package policies available

for householders, shop keepers and also for professionals such as doctors, chartered

accountants etc. Apart from offering standard covers, insurers also offer customized or tailor-

made ones.


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It is important for proposers to read and understand the terms and conditions of a policy

before they enter into an insurance contract. The proposal form needs to be filled in completely

and correctly by a proposer to ensure that the cover is adequate and the right one.


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TYPES OF GENERAL INSURANCE

Fire Insurance

Insurance that is used to cover damage to a property caused by fire. Fire insurance is aspecialized form of insurance beyond property insurance, and is designed to cover the cost of

replacement, reconstruction or repair beyond what is covered by the property insurance policy.

Policies cover damage to the building itself, and may also cover damage to nearby

structures, personal property and expenses associated with not being able to live in or use the

property if it is damaged.

Homeowners and property owners may

consider fire insurance in addition to a property

insurance policy if the property contains

valuable items. A best practice would be to

document the property and its related contents,

which makes identifying the value of items

damaged or lost much easier after a fire has

taken place.

A fire insurance policy may contain exclusions based on the cause of the fire, such as not

covering fires caused by wars.


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Marine insurance

Marine insurance covers the loss or damage of ships, cargo, terminals, and anytransport or cargo by which property is transferred, acquired, or held between the points of

origin and final destination.

A type of insurance coverage that places a specific value on the insured property, such as

the hull or cargo of a shipping vessel. A valued marine policy pays up to, or in its entirety, the

specified value in the event of a total loss. It differs from an unvalued marine policy where the

value of the property would be determined

following the event of a loss. Marine insurance

provides coverage against losses sustained by ships

cargo and terminals.

The value is determined ahead of time in a

valued marine policy, and there is generally no

reassessment or revaluation necessary in the event

of an insured event or loss. A valued policy pays a pre-determined amount regardless of the

extent of the damages, as long as it is considered a total loss. It is important to note that if the

insured item depreciates in value, it will not affect the amount which can be claimed in the

event of a total loss. The same is also true if the value of the item appreciates - the insured is

unable to receive any addition damages based on the increase value of the item.


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Miscellaneous Insurance

Includes insurance against loss from damage done, directly or indirectly by lightning,

windstorm, tornado, earthquake or insurance under an open policy indemnifying the producer

of any motion picture, television, theatrical, sport, or similar production, event, or exhibition

against loss by

Benefits thatcover most medical costsincurred while the insured receives treatment as

an inpatient. These benefits, usually provided by a group healthpolicy,will not cover surgical

costs or room andboard.

The accident or miscellaneous department

covers those types of risk which are not covered either

under Fire or Marine Departments. Its scope is

therefore, very vide and extensive and includes such a

wide range of contingencies as may not be included in

the strict interpretation of the term Accident. The

Accident or the miscellaneous insurance includes many sub-sections under which different

classes of business are transacted. A special feature of this department is that it covers many

branches which are grouped together in it which are apparently unrelated to each other

However in practice, unrelated risks are grouped together for the convenience of the insured.
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SCHEDULE B [GENERAL INSURANCE]

PART 1-ACCOUNTING PRINCIPLES FOR PREPARATION OF

FINANCIAL STATEMENTS

1. Applicability of accounting standards:Every Balance sheet, Revenue account, Receipts and Payments a/cs and Profit & Loss

A/c of an insurer shall be in conformity with the Accounting Standards issued by ICAI

to the extent applicable to insurers carrying on general insurance except that:

Accounting standard 3-Cash Flow Statements shall be prepared only under the Direct

Method.

Accounting Standard 17-Segment Reporting shall apply to all insurers irrespective of the

requirements regarding the listing and turnover mentioned therein.

2. Premium:

Premium shall be recognized as income over the contract period or the period of risk

whichever is appropriate.

A reserve for unexpired risks must be created as the amount representing the part of the

premium written which is allocated to succeeding accounting periods.

Reserve for unexpired risks in respect of:

a. Fire and miscellaneous business,50 percent.b. Marine cargo business,50 percent, andc. Marine hull business,100 percent.


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3. Premium Deficiency:

Premium deficiency shall be recognized if the sum of expected claim costs related

expenses and maintenance costs exceeds related reserve for unexpired risks.

4. Acquisition costs:

Acquisition costs shall be expensed in the period in which they are incurred. The most

essential test is the obligatory relationship between costs and execution of insurance contracts.

5. Claims:

A liability for outstanding claims shall be brought to account in respect of both direct

business reinsurance business. The liability shall include:

a. Future payments in relation to unpaid reported claims.

b. Claims incurred but not reported including inadequate reserves which will result in future

cash/asset out go for settling liabilities against those claims.

6. Procedure to determine the value of investments:

An insurer shall determine the values of investments in the following manner:

a. Real estate-Investment Property:The value of investment property shall be determined at the historical cost, subject to

revaluation at least once in every 3 yrs. The change in the carrying amount of the

investment property shall be taken to Revaluation Reserve.

b.

Debt Securities:Debt securities including government securities and redeemable preference shares shall

be considered as held to maturity securities and shall be measured of historical cost.

c. Equity Securities and Derivatives instruments that are in active markets.


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d. Unlisted and other than actively traded Equity Securities and Derivatuve instruments7. Loans:

Loans shall be measured at historical cost subject to impairment provisions. The insurer

shall assess the quality of its loan assets and shall provide for impairment.\

8. Catastrophe Reserve:

Catastrophe reserve shall be created in accordance with norms, if any, prescribe the

authority.

PART 2-DISCLOSURES FORMING PART OF FINANCIAL

STATEMENTS

The following should be disclosed by the way of notes to Balance sheet:

1.Contingent Liability:

a. Partly paid up investments.b. Underwriting commitments outstanding.c. Claims, other than those under policies, not acknowledged as debts.d. Guarantees given by or on behalf of the company, etc.

2.Encumbrances to assets of the company in and outside India.

3.Commitments made and outstanding for loans, investments, fixed assets .

4.Claims,less reinsurance, paid to claimants in/outside India.

Actuarial assumptions for determination of claim liabilities in case of claims.


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5.Ageing of claims-distinguishing between claims outstanding.

6.Premium , less reinsurance, written from business in/outside India.

Part 3-GENERAL INSTRUCTIONS FOR PREPARATION OF FINANCIAL

STATEMENTS:

1.The corresponding accounts for the immediately preceding financial year for all the items

shown in the Balance sheet, Revenue a/c and Profit and loss a/c should be given.

2.The figures in the financial statements may be rounded off to the nearest thousands.

3.Interest,dividends and rentals receivable in connection with an investment should be stated in

the gross value.

4.Income from rent shall not include any notional rent.

5.Extent of risk retained and reinsured shall be separately disclosed.


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FORMATSName of the Insurer:

Registration No. and Date of Registration with the IRDA

FORM B-RA

REVENUE ACCOUNT FOR THE YEAR ENDED 31STMARCH,20

`

PARTICULARS SCHEDULE

1

2

3

4

CURRENT

YEAR(Rs.000

)

PREVIOUS

YEAR(Rs.000)

PARTICULARS

1. Premium earned(Net)2. Profit/Loss on sale/redemption of investments3. Others( to be specified)4. Interest, Dividend & Rent-Gross

TOTAL(A)

1. Claims Incurred2. Commission3. Operating Expenses related to Insurance

Business

TOTAL(B)

Operating Profit/Loss from

Fire/Miscellaneous Business /Marine

C= (A-B)

APPROPRIATIONS

Transfer to Shareholders account

Transfer to catastrophe reserve

Transfer to Other Reserves

TOTAL(C)


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FORM B-PL

PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31STMARCH,20

FORM B-

BSBALANC

E SHEET

AS AT

31ST

MARCH,2

0

PARTICULARS

1. OPERATING PROFIT/LOSSa. Fire Insuranceb. Marine insurancec. Miscellaneous insurance

2. INCOME FROM INVESTMENTSa. Interest, dividend and rent-grossb. Profit on sale of investmentsLess: loss on sale of investments

3. OTHER INCOME(TO BE SPECIFIED)TOTAL(A)

4. PROVISIONS(OTHER THANTAXATION)a. For diminution in the value ofinvestmentsb. For doubtful debtsc. Others(to be specified)

5. OTHER EXPENSESa. Expenses other than those related to

insurance businessb. Bad debts written offc.

Others(to be specified)

TOTAL(B)Profit before taxProvision for taxation

APPROPRIATIONS

a. Interim dividends paid during the yearb. Proposed final dividendc. Dividend distribution taxd. Transfer to any reserves or other

accounts(to be specified)

Balance of profit/loss brought forward fromlast year.

Balance carried forward to balance sheet

SCHEDULE CURRENT

YEAR(000)

PREVIOUS

YEAR(000)


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Particulars Schedule Currentyear(000Rs)

Previousyear(000 Rs)

1.SOURCES OF FUNDSShare capitalReserves and surplusFair value change accountBorrowings

Total

2.APPLICATION OF FUNDSInvestmentsLoansFixed assetsCurrent assetscash and bank balancesAdvances and other assets

Sub-total(A)Current liabilitiesProvisions

Sub-total(B)

Net current assets(C)=A-B

Miscellaneous expenditure

(to the extent not written off oradjusted)Debit balance in profit and loss

account

TOTAL

56

7

8910

1112

1314

15


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CONTIGENT LIABILITIES

Particulars Current year(000

Rs)

Previous

year(000)

1. Partly paid-up investments2. Claims, other than against

policies, not acknowledged asdebts by the company

3. Underwriting commitmentsoutstanding

4. Guarantees given by or on behalfof the company

5. Statutory demands/liabilities indispute, not provided for

6. Reinsurance obligations to theextent not provided for inaccounts

7. Others

TOTAL


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SPECIFIED ITEMS IN GENERAL INSURANCE

REINSURANCE

Definition:

The practice of insurers transferring portions of risk portfolios to other parties by some

form of agreement in order to reduce the likelihood of having to pay a large obligation

resulting from an insurance claim. The intent of reinsurance is for an insurance company to

reduce the risks associated with underwritten policies by spreading risks across alternative

institutions.

Also known as "insurance for insurers" or "stop-loss insurance".

Overall, the reinsurance company receives pieces of a larger potential obligation in

exchange for some of the money the original insurer received to accept the obligation. The

party that diversifies its insurance portfolio is known as the ceding party. The party that accepts

a portion of the potential obligation in exchange for a share of the insurance premium is known

as the reinsurer.

There are two basic methods of reinsurance:1.Facultative Reinsurance:

It is negotiated separately for each insurance contract that is reinsured. Facultative

reinsurance is normally purchased by ceding companies for individual risks not covered,

or insufficiently covered, by their reinsurance treaties, for amounts in excess of the

monetary limits of their reinsurance treaties and for unusual risks. Underwriting

expenses, and in particular personnel costs, are higher for such business because each

risk is individually underwritten and administered. However as they can separately


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evaluate each risk reinsured, the reinsurer's underwriter can price the contract to more

accurately reflect the risks involved.

2.Treaty Reinsurance:Treaty Reinsurance means that the ceding company and the reinsurer negotiate and

execute a reinsurance contract. The reinsurer then covers the specified share of all the

insurance policies issued by the ceding company which come within the scope of that

contract.

Functions of Reinsurance:

Almost all insurance companies have a reinsurance program. The ultimate goal of that

program is to reduce their exposure to loss by passing part of the risk of loss to a reinsurer or a

group of reinsurers. In the United States, insurance is regulated at the state level, which only

allows insurers to issue policies with a maximum limit of 10% of their surplus (net worth),

unless those policies are reinsured. In other jurisdictions allowance is typically made for

reinsurance when determining statutory required solvency margins.

CO-INSURANCE:

A co-sharing agreement between the insured and the insurer under a health insurance

policy which provides that the insured will cover a set percentage of the covered costs after the

deductible has been paid. Similar to co-pay insurance plans except co-pays require the insured

to pay a set dollar amount at the time the service is rendered.

For example, an 80/20 coinsurance plan with a $300 deductible requires the insured to

pay 20% of the covered costs after the deductible as been paid, while the insurance company

will be liable for the remaining 80%. Today, with the growing cost of prescription drugs and


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medical expenses, more and more employers have switched from co-pay plans to coinsurance

plans to reduce employee-benefit costs.

UNEXPIRED RISKS AND RESERVES:

If an insurer considers its unearned premium reserve to be too small, then it may create

an unexpired risk reserve, more formally called an additional reserve for unexpired risk, in

addition to it. The unearned premium reserve always appears, the additional reserve for

unexpired risk appears when necessary.

If the estimated cost of claims and expenses resulting from claims exceeds the unearned

premium reserve, then an unexpired risk reserve should be created equal to this excess. This is

essentially a provision for an expected loss. The expected costs can be estimated from

the claims ratio, estimated changes in the level of claims, the effect of reinsurance.


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CHAPTERII

CASE STUDY

(COMPANYS PROFILE)

BAJAJ ALLIANZ

GENERAL INSURANCE


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BAJAJ ALLIANZ GENERAL INSURANCE

Introduction to Insurance The business is related to the protection of the economic values

of the assets. Every asset has value; the asset would have been created through the efforts of

the owner. The asset is valuable to the owner because he expects to get some of the benefits

from it. Insurance is a mechanism that helps to reduce the effect of such adverse situation.

Purpose And Need of Insurance

Assets are insured; because they are likely to be destroyed through accidental occurrences

such possible occurrences are called perils. Fire floods breakdowns, lighting, and earth quakesetc. If such perils can cause damage to the asset the asset is exposed to that risk. The risk only

means that there is a possibility of loss or damage. The damage may or may not happen.

Insurance is done against the contingency that it may happen. There has to be an

uncertainty about the risk. Insurance is relevant only if there are uncertain. In the

case of a person who is terminally ill the time of death is not uncertain though not exactly

known. Insurance does not protect the asset. It does not prevent its loss due to the peril .The

peril can sometimes be avoided, through better safety and damage control management

Insurance only tries to reduce the impact of the risk on the owner of the asset and those who

depend on that asset. It only compensates the looses and that too, not fully. Only

economic consequences can be insured. If the loss is not financial insurance may not be

possible

The Business of Insurance: The business of the insurance is to: Collect the share or contribution


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Pay out compensations (called claims) both those who suffer. Bring together persons with common insurance interests (sharing the same risks)In India

insurance is classified primarily as life and non-life or general. Life insurance includes

all risks related to the lives of human beings and general insurance coversthe rest. General insurance has three classifications; Fire, Marine, Miscellaneous

Personal accident and sickness insurance, which are related to human beings is classified

as non life inIndia, but is classifieds life in many other countries. The business of the

insurance is nothing but one of sharing. It spreads loose of an individual over the group

of individuals who are exposed to similar risks. People who suffer loss get relief

because their loss is made good. People who do not suffer loss are relieved

because they were spared the loss.

INSURANCE BUSINESS:

Nature of insurance business Limitations of insurance Types of insurance Principles of insurance Insuranceis sharing of Risks.

RISKS

1 . Th e t e r m r i sk m ay b e d e f i n ed a s t h e p o ss i b i l i t y o f a f i n an c i a l l o s s

f l o wi ng f r o m an y occurrence2. In insurance it is essential that the risk should be

measurable in financial terms

Risk sharing and risk transfer:

Insurance is a complex mechanism, it has two fundamental characteristics:

1. Transferring or shifting of a risk from one individual to a group;


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2. Sharing losses, on some equitable basis, by all members of the group.

Elements of an Insurable Risk:

Large numbers of exposure units Definite and measurable loss The loss must be fortuitous The loss must not be catastrophic Randomness-adverse selection Economic feasibility

Limitations of Insurance:

All risks cannot be insured There must be insurable interest Insurance is limited to the financial value There must be large number of similar risks It must be possible to calculate the risk of loss Losses should not be catastrophic

Losses must not be too small Losses must be reasonably unexpected Losses must be accidental It must be consistent with public policy

Insurance business is classified into four sections

1.Life Insurance Business:Life insurance originally conceived to protect a mans family when his death leftthem without

income has developed into a variety of policy plans.


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2.Marine Insurance BusinessMarine insurance protects shipping companies against the loss of a ship or its cargo, as well

as many other items, and so-called inland marine insurance covers a vast

miscellany of items, including tourist baggage, express and parcel post packages, truckscargoes, goods in transit, and even bridges and tunnels.

3.Fire Insurance Business:Fire Insurance usually includes damage from lightning other insurance against

the el ements includes hail, tornado, flood, and drought.

4.Miscellaneous Insurance BusinessSpecial casualty forms are issued to cover the hazards of sudden explosions from

equipment such as steam boilers, compressors, electric motors, flywheels, air tanks, furnaces

and engines. Boilers and machinery insurance has several distinctive features. A substantial

portion of the collected is used for inspection services rather than loss protection. The

business if insurance started with marine business. Traders, who used to gather in

the Lloyds coffee house in London, agreed to share the losses to their goods while being

carried

by ships .the losses used to occur because of pirates who robbed on the high seas of badweathe

r spoiling the goods or sinking the skip. The first insurance policy was started in 1583 in

England .In India, insurance began in 1870.The business of the insurance is the protection of

economic values of the assets. Every asset is expected to last for a certain period

of t ime during which it will perform. Insurance is mechanism that helps to

reduce the effect of such adverse situation. Insurance is relevant only if there are uncertainties

Life Insurers transact life insurance business the rest is transacted by General

Insurers. No composites are permitted as per law. The business of insurance essentially means


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defraying risks attached to any activity over time and sharing the risks between various entities

both persons and organizations. Insurance companies are important players in financia

markets as they collect and invest large amounts of the premium. Insurance products are multipurpose

and offer the following benefits.

1 ) P r o t ec t i o n t o t h e i n v es t o r s

2 ) A c c u m u l a t i v e s a v i n g s

3)Canalize savings

The last place where insurance companies are expected to be over active is

bourses.La t e l y i n su r an ce co mp an i e s h av e v en t u r ed i n t o p en s i o n s che mes a

nd mutual funds also.However, life insurance constitutes the major the major

share of insurance business. Life insurance depends upon the laws of mortality

and there lies the difference between life and general insurance businesses. Life has to

extinguish sooner or later and the claim in respect of life is certain. In case of general

insurance, however, there may never be a claim and the amount can never be

ascertained in advance. Hence, Life insurance includes, besides covering the risk of early

h ap p en i n g o f an ev en t , an e l em en t o f s av i n g s a l so f o r t h e b en e f i c i a r i e s .

Pension business also services from life insurance in as mush as the pension outgo

again depends upon the laws of mortality. The forays made by insurance in this area are,

therefore, natural corollary of their business

Duties, powers and functions of IRDA

Section 14 of IRDA Act, 1999 lays down the duties, powers and functions of IRDA.1 ) S u b je c t tot h e p r o v i s i o n s o f t h i s a c t an d an y o t h e r l aw f o r t h e t i m e b e i n g i n f o r ce ,

the authority shall have the duty to regulate, promote ensure orderly growth of

the insurance business and re-insurance business.2) Without prejudice to the generality of the


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provisions contained in sub-section (1) the power and functions of the authority shall include)

Issue to the applicant a certificate of registration, renew, modify, withdraw,

suspend or cancel such registration. b) Protection of the interests of the policy holders

in matters concerning assigning of policy, nomination by policy holders, insurab le

interests, settlement of insurance claim, surrender value of policy and other terms and

conditions of contracts of insurances) Specifying requisite qualification, code of conduct and

practical training for intermediary or insurance intermediaries and agent.


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CHAPTERIII

FINANCIAL STATEMENTS

(BAJAJ ALLIANZ GENERAL INSURANCE)


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Schedules


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CONCLUSION

Project on BAJAJ ALLIANZ General Insurance

This project revolves around the insurance products and services of Bajaj Allianz

General Insurance.

The project will help in exploring the factors behind growth, participants involved, and

the factors that affect the choice of the customer in selecting an i n s u r a n c e o f c o m p a n y o v e r t h e oh e r c o m p a n y. I t w o u l d a l s o h e l p i n k n o w i n g t h e customers, perception towards the present scenario

of the insurance industry. Since the costumer is only responsible to select the insurance

company through which they are associated so the data which affects the decision of a

customer is the best way to study the different factors responsible for the selection of

insurance products of a particular insurance company over the other company.

Primary data collection was done through websites and secondary data collection

through previous research reports and brochures. The whole s t u d y w i l l be b a s e d o n t h e r e s e a r c h o b

j e c t i v e s. The project includes the details of the insurance products and services of the Bajaj

Allianz general insurance. D e p e n d i n g u p o n t h e s e r v i c e s o f e r e d u n d e r t h e p a c k a g e p o l i c y b y v a r i o u s i n

s u r a n c e c o m p a n i e s c o m p a r i s o n h a s b e e n d o n e w i t h a n a l y s i s a n d d i s c u s s i o n s.

To understand what are areas where Bajaj Allianz general insurance is e x c e l l i n g u p o n a n d

w h a t a r e t h e a r e a s w h e r e t h e i m p r o v e m e n t i s n e e d e d . A t t h e e n d o f t h e p r o j e c t t h e c o n c l u s i o n, s u g g e

s t i o n , f i n d i n g a n d b i b l i o g r a p h y i s b e e n p r o v i d e d .the research work is all about to have a broad look

over the package policies and related services of Bajaj Allianz general insurance.

bajaj allianz general insurance

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