insurance manual ver 1

INSURANCE

MANUAL

Version: 1.1

TATA Consultancy Services

Tata Consultancy Services Insurance Dictionary

2nd Feb 2000

/tt/file_convert/5528f62c4a795986158b45a9/document.doc of 84

TATA Consultancy Services Insurance Manual (Version 1.0)

Revision History

Author Date Version Change Details

Shankar B.G.

Sanjay Patil

Kishan Kumar

26 Nov 99 1.0 Initial

Sanjay Patil 2nd Feb 2000

1.1 Added Chapter 2 – Insurance basics

TCS CONFIDENTIAL of 74


Table of Contents

1 Introduction...............................................................................................................42. Insurance Basics.......................................................................................................5

2.1 Need for Insurance..............................................................................................52.2 Risk.....................................................................................................................52.3 Principles of Insurance........................................................................................62.4 Benefits of Insurance..........................................................................................82.5 Business Functions.............................................................................................8

3 Life cycle of a policy...............................................................................................123.1 Principles of Life Insurance...............................................................................143.2 Various types of Life Assurance Policies............................................................15

4 Policy Servicing.......................................................................................................194.1 New Business....................................................................................................194.2 Endorsements...................................................................................................264.3 Reinsurance......................................................................................................284.4 Claims...............................................................................................................29

5 Premium Calculation...............................................................................................336 Product Features.....................................................................................................397 Agent........................................................................................................................438 General Insurance...................................................................................................45

8.1 Quote................................................................................................................468.2 New Business....................................................................................................468.3 Policy Enquiry...................................................................................................478.4 Endorsement....................................................................................................488.5 Renewal............................................................................................................488.6 Claims...............................................................................................................498.6 Premium Accounting.........................................................................................508.7 General Ledger.................................................................................................508.8 Reinsurance......................................................................................................50

9 Insurance Dictionary...............................................................................................529.1 Life Insurance...................................................................................................529.2 Investment, Annuity and Pension......................................................................579.3 General Insurance.............................................................................................629.4 SuperAnnuation................................................................................................66

10 Popular Packages...................................................................................................6810.1 CLOAS.............................................................................................................6810.2 HUON Application...........................................................................................70

11 Insurance Products...............................................................................................7212 Glossary of Terms.................................................................................................73APPENDIX.......................................................................................................................74

Appendix A DFD for New Business..........................................................................75Appendix B DFD for Endorsement...........................................................................76Appendix C DFD for Claims Death...........................................................................77Appendix D DFD for Claims Maturity.......................................................................78Appendix E DFD for Reinsurance............................................................................79Appendix F DFD for Premium Accounting...............................................................80

TCS Confidential of 80


1 Introduction

Insurance provides financial protection against some of the uncertainties in life. Evidence exists of burial societies as far back as the days of the Roman Empire, where the members contributed to a fund and had their burial costs met by the society. Over a period of time Insurance has grown into an multifaceted industry encompassing all areas of society. The present day Insurance can be broadly classified as Life Insurance, General Insurance and Health Insurance.

The scientific basis for conducting life assurance was developed by a mathematics teacher James Dodson, who realized that the premiums paid into the fund rested on the principle of probability, i.e., how likely it was that the person might die. He produced the first mortality table – a table showing the numbers of people who died at each age between the years 1756 and 1759. Using this mortality table, compound interest and probability he calculated a premium for each age which would remain fixed for life and which would yield a guaranteed sum on death.

This system became known as the Level Premium System and it has been modified to form the basis of the many life assurance contracts available today. The present day Insurance covers not only risk but is also a medium of savings and pension.

Insurance - Normally refers to protection against a loss resulting from an Accident which may or may not happen e.g., Motor insurance

Assurance - Refers to protection against the occurrence of something bound to happen, e.g., Life assurance.

Life Assurance is a contract which is bound to produce a death benefit, although this is not always the case. Usually, it is a long-term contract for which the premium is fixed and cannot normally be lowered or raised.

In comparison, General Insurance contracts are for a term of one year and must be renewed at the end of the term. Short-term contracts are also available for Holiday and Travel. At each renewal the case is reviewed and premiums depend on the Claim history. If there is no claim the insured will get a discount in premium. This Document deals with both Life Insurance and General Insurance. It gives a indepth analysis about the various process in the business of Insurance and also talks about the Insurance Products available in the market.



2. Insurance Basics

2.1 Need for Insurance

Insurance exists because people need security. Individuals or organisations constantly run risks like accidents, thefts, loss due to fire, arson, injury at work, business interruption etc. They want to carry on their everyday life and business and at the same time do not wish to be exposed financially to all the risks involved in their endeavors. Insurance gives them the security they need and relief from a great deal of financial hardship. The individual or organisation seeking insurance is referred to as the ‘insured’ and the person or company that insures them as the ‘insurer’.How does the insurer provide this security ?

The fable of the pig that died.

The insurer because of long experience in dealing with risk, knows that it is not everyone who will suffer loss due to risk occurrence based on Law of Averages. The insurer is able to offer protection by grouping together a large number of people who feel exposed to the same form of risk. The Law of Large Numbers dictates that larger the group of similar exposure units, the closer the actual losses experienced will approach those that can be anticipated. By collecting an amount of money (‘premium’) from each person in the group, the insurer accumulates a fund out of which the losses suffered by the few who become victims can be paid. The premium paid to the insurer will be very small in comparison with the value of the insured subject.

Other concepts defining insurance

Spreading risk among many so that a single party will not lose everything

2.2 Risk

Possibility of an undesirable occurrence Absent minded surgeon We are running a risk by insufficient outlay for fire prevention Uncertainty regarding a particular loss - whether it will occur or not Subject of Insurance The risk to be insured is a petrol station Risk flow



Fundamental Risks cannot be controlled even partially by any one person. Risks are present in the forces of economy, nature etc. and governments would deal with the consequences of such events.

Speculative Risk is present if either beneficial or adverse outcome could stem from a specific event => wagering.

If possible harm or damage is the only outcome, the situation is one of Pure Risk.

Risk Management : Risk identification, Measurement and Control.

Risk characteristics

Not all risks are insurable. To deserve insurance, a risk should have the following characteristics:

It must involve a loss that can be measured in monetary terms. Eg. Obsolescence is not insurable

There must exist a large number of similar risks. However, one-off risks may also be insured, but the premium will be very high and prohibitive. Eg. Space vehicles

Insurance should not aim at profit making. It should be for security. Eg. A shop cannot insure to have guaranteed profits

A loss must be entirely fortuitous or accidental. Eg. Loss should not be pre-mediated Insurance must not be against public good. Eg. Penalties for traffic rules violation The person insuring should be the person who will suffer if loss occurs.

2.3 Principles of Insurance

Insurable interest

Person insuring should have insurable interest in the risk being insured. Essentials of insurable interest are: There must be a property capable of being insured Such property must be the subject of insurance Insured should have a legal relation and right to the subject matter Insured should benefit from subject matter’s survival and suffer from damage or loss

to it or incur liability in respect of it.Insurable interest exists between husband & wife but not between parent & child. Employer is deemed to have insurable interest in employees and on their acts of dishonesty.

Indemnity



The object of insurance is to place the insured in the same financial position as he was just before the loss. This principle prevents the insured from making a profit out of a loss. Exceptions are PA policies as it is not possible to place a value on life as such and these policies are called “benefit policies”. Methods of indemnification :

Cash payment Repair Replacement Reinstatement

Utmost good faith

Proposer should furnish all material facts concerning the property proposed for insurance. Insured needs to inform the insurer of all changes. Following facts need not be disclosed : which would diminish the risk of insured peril. Eg. appointment of a watchman that are presumed to have been known to insurer. Eg. large scale rioting which could be understood from info already furnished. Eg. Customary process in an

industry which ought to have been enquired but omitted by the insurer.

Subrogation

Right of insurer to receive back from the insured, anything the insured may recover from another source.

Average loss

To prevent insured from under-valuing insured property. In case the insured has purposely understated the value, in the event of loss, the actual loss will not be paid; only a proportion of the actual loss as the insured value bears to total actual value is paid : Loss amount payable = Actual Loss Amount (claimed) x (Sum Insured / Actual value of insured property)



2.4 Benefits of Insurance

Relieves insured from worry Stimulates economic growth as business can take bigger risks to gain larger profits Insurance companies have the expertise to reduce losses and often suggest ways in

which the likelihood of some risk occurring may be reduced Premiums collected become investible funds Eases burden on governments - reduces payment towards calamities.

2.5 Business Functions

Business Planning

Prepare and review corporate planAssess market potentialPrepare market strategyPrepare and monitor budgetsPrepare and monitor business planPrepare rates scales based on claims experience feed-back from claims dept. - Performed by Actuarials

Policy Underwriting

Marine Cargo was the first class to be insured. In Edward Lloyd’s coffee house, details of a particular marine adventure would be documented and circulated. Consenting merchants would write their names underneath, indicating proportion of risk they were willing to cover and the premium. That’s how the word “underwriter” was coined.

Claims Processing

Register claimsValidate claimsAssess lossArrange survey / Appoint surveyors (adjusters) - could be third partyAnalyze claimsSettle claimsProcess salvageImplement loss control measures

Reinsurance



Insurance of insurance - Insurable interest exists

RetrocessionReinsurance of reinsurance

InvestmentsInsurance generates investible funds which need to be invested wisely in various instruments

Finance and Accounts

Business Participants

InsuredPerson with insurable interest at the time of arranging cover and at the time of loss occurrence. Exceptions : Marine (only at the time of loss); Life (only at the time of arranging cover).

Insurer Insurance companies or individuals - Proprietary organisations. Lloyds of London is a group of unincorporated proprietary insurers (only individuals) and these members are referred to as “Names”. Mutual Cos. - No stock-holders. Policy-holders get share of profits in the form of reduced premiums.

Reinsurer

Captive insurer Self insurance - Eg. Rent-a-car

Middlemen

Brokers - Experts in insurance. Bring insured and insurer together and are involved in all aspects incl. claim settlement. Enjoy freedom of choice in where to place business

Agents - Not experts.Commission is paid to both by the insurer, as a percentage of premiums written through them. This forms part of acquisition costs and is recorded as an expense by the insurer.

As a recent development, direct insurers have started marketing personal lines products directly to its customers through tele-insurance. Such insurer however



continue to use brokers for commercial lines and those brokers who offer value added service to personal lines customers.

Third partiesIn some situations third parties (including other insurers) could lodge a claim in respect of a risk covered by the insurance co.

Modern classes of business

Bonds : Bonding involves not two but three parties.In a Surety bond the parties are the Principal (insured), Surety (insurer) and the Obligee. The surety guarantees something about the principal’s performance to the obligee. Surety does not guarantee employee honesty. It may guarantee the performance of contracts or other obligations. Eg. Surety to guarantee that a contractor will build a factory properly at a certain price in a certain time period.

Fidelity bonds insure against employee dishonesty. The principal is the employee, the obligee is the employer and the surety is the insurance co.

Types of Covers

Life : Pensions & AnnuitiesAnnuity is a contract by which the purchaser (annuitant) in return for a lump sum or a series of payments, receives a guaranteed income, often for the rest of his or her life.In short it is the reverse of insurance. In an annuity, the risk for the insurer is that the annuitant will live for longer than expected.

Policy Underwriting Process Proposal : Utmost good faith Vs. Caveat Emptor : Bob / Steve - Sale of souped-up car.

Policy Underwriting Process Cancellations Other causes : Insured Voluntary cancellation by insured Cessation of insurable interest Insurer Bad claim experience - only in case of inclusion of a ‘cancellation clause’ in

the agreement which will require due notice of cancellation to insured. Voidable contracts.

Refunds : Only if no claims Refund pro-rata amount or on short term cover basis.



Policy contents

AgreementGives the outline of coverage offered (Fire - states the perils insured Liability - states legal actions for which the insured will be defended).

ExclusionsExclusions are designed to protect the insurer against non provable losses and against catastrophic losses (flooding, war, invasion etc.)

Schedule / DeclarationsWhat is covered, Who is insured, Period of policy, Policy limits, premium amount. Declaration states all facts about the parties and the contract.

ConditionsSets out the rights duties and responsibilities of both parties.

Government regulations

Why ?Public funds are being pooled. Protection of public interest is essential. Insurance industry being a major finance force failure of an insurance company can have a negative effect on investment markets and public confidence in financial institutions.

Who? What ?All state governments have regulations in place. Each state has an insurance department headed by a Commissioner who is vested with powers to license agents, brokers, adjusters and companies; to control rates and policies; to conduct audits; to specify types of investments and to settle the finances of bankrupt companies.

The National Association of Insurance Commissioners is an association of state insurance officials which attempts to provide national guidelines and suggestions. It helps to iron out unnecessary differences in state regulations.



3 Life cycle of a policy

The duration from the purchase of a policy to its maturity is called the life of a policy. A policy passes through various stages of growth or change before it finally matures or closed.

Purchase of Policy

A life assurance policy can be purchased through Life Office Insurance Broker Independent Insurance Agents Banks and Building societies Direct Salesman

The new life assurance proposals are usually termed as New Business by the Insurance Company. However, if the proposal is canceled at the very onset or before the start of the premium payment then the policy is termed as Not Taken Up.

Premium Payment

After issuing the policy, the policyholder will continue to pay the premiums at regular intervals ( weekly, monthly, Quarterly, Yearly ) until a claim arises.

The following are the common modes of payments followed - Conventional i.e. agents collect the premium- Regular payments deducted from Salary- Direct Debit from the bank account- Bank Standing Order

Customer Enquiries / Changes The Customers will call the service line or approach life office to enquire about the status of their policies or to make changes to their policy details. These changes include changing the customer address, changing the mode of premium payment etc.

1. Changes to the Policy Customers might call the life office and ask their policy to be changed to a different type of a policy. This is done depending on what kind of policy the customer originally has. The change could lead to recalculation of premium, Sum Assured etc.



2. Lapse of the Policy The Policy will lapse if the customer fails to pay the premium for a specific period of time. If the customer is not able to pay the premium for a reasonable period then the insurer will work out a strategy where it will pay the premium for the customer and finally deduct that amount when the policy matures or close the policy and pay the customer whatever is due at that point.

3. Paid-up Policy

This is another way of converting the policy. In this the reduced sum assured will be paid in the event of a claim. The reduced amount being calculated by multiplying the original sum assured by the number of premiums actually paid and dividing by the total no of premiums that would have been paid over the term of the contract. Appropriate calculations take account of bonus additions on with profits policies and on whole life contracts which do not have a fixed term. No further premium would be payable.

Surrendering the policy This is an option where the customer can decide in the middle of the policy term, to surrender the policy and get whatever amount is due at that point. He could stop paying premiums and cancel the policy by accepting its current value in cash which is called the surrender value. The surrender value is the part of the reserve built up under the policy. It is very low in the early years of a policy but increases steadily as the policy nears maturity.

Cancellation of the policy The customer can cancel the policy at the middle of the term and claim whatever is due to him at that point of time.

1. Death of the Policy Holder

If the policy holder dies in the middle of the policy term then the insurer willPay the beneficiary mentioned in the policy, the sum assured amount and any bonuses that have accrued.

2. Taking a Loan

The customer can take a loan from the insurance company, using the policy as security and assigning it to the insurance company. The amount



of loan available is proportion of the current surrender value of the policy. Interest will be payable on the loan outstanding. when a claim arises, will be deducted by the insurance company before the policy proceeds are paid.

3. Maturity of the Policy

If the policyholder pays the premium till the end of the specified term, the policy is matured and the proposer receives the sum assured together with any bonuses in the case of with profit policies, or the value of units attaching for unit-linked policies.

4. Payment / Closure of the policy Once the policy has matured or has been terminated then the insurer will pay the customer the amount of money due to him and close the policy.

3.1 Principles of Life Insurance

Insurable interest An insurable interest is necessary for the contract to be valid. It means a

life or limb, property, potential liability, or financial interest should be involved. The insured should suffer loss due to the occurrence of the insured event. The loss should be pecuniary. Loss should be recognized by law e.g. Father has no insurable interest in the event of death of the son, unless the father can prove that he has a financial dependency on the son.

IndemnityIt is the concept of ‘Exact financial compensation’ when a loss occurs.

This implies that the insured is placed in the same financial position before and after the event.

However, loss due to death of a person is linked to an extent to the income status and potential of the person. Because such a loss cannot be exactly compensated, it is not an indemnity but only a guarantee of a benefit. Hence we use the term ‘assurance’ for life, whereas we use ‘insurance’ for motor and other non-life risks.

Subrogation On payment of claim, the insurer is entitled for any rights the insured might

have enjoyed before the claim.

Average Clause



If a property is insured for a value lesser than the current value, the claim will also be settled at a proportionately reduced value. This average clause is not applicable to life Insurance.

3.2 Various types of Life Assurance Policies

Life Assurance policies can be broadly classified into Term, Whole of Life and Endowment Assurance.

BOOKMARK

Term assurance In this case the life is assured for a fixed term. The Sum Assured is paid if death occurs within the term. However, on survival of the term no benefit is payable to the insured. Normally premiums will be low compared to other types as there are no benefits on survival. In some contracts, however, premiums may be paid back with little or no interest, on survival.

Different variants of term assurance policies are available in the market.

Level term assurance The Life is assured for a fixed term, the premium and sum assured remain the same throughout the period.

Renewable term assuranceThis is same as Level term assurance, but with an option for the policyholder to renew for another term without any further medical evidence at ordinary rates. The rates for the renewed policy will be high as it will be based on the age at renewal.

Convertible term assuranceThis is Level term assurance, with an option for the policyholder to convert into an endowment or whole of life policy without further evidence of health.

Decreasing term assuranceThis is term assurance where the Sum assured decreases every year by a preset amount, decreasing to nil at the end of term. These are usually taken to cover a reducing debt, such as capital outstanding on a house purchase loan.

Expanding term assuranceBecause of inflation, a level term assurance gives reduced real cover every year. To overcome this the sum assured is increased at a preset rate of the original sum assured every year in this type of policy.



Index Linked Term assurance To combat the effects of inflation, the sum assured and premium are escalated in proportion to the rate of inflation by linking them to the Retail Price Index (RPI), with a maximum limit on the increase (say 10%).

Family income policies This is term assurance where, instead of a lump sum payment at death, an income is paid to the beneficiary. The intention is to replace the income which the life assured would have provided if he were alive. Family income policies could also be of type expanding or index-linked.

Basics of Investment linked policiesWhereas term assurance is only a way of insuring the risk of death, the next two types are effective investment media. Both Whole of life and Endowment polices can be for a guaranteed return only - in which case they are called ‘non-profit’. Or they could be linked to the life office’s investment performance. Two ways to link a policy to the investment performance are - having a ‘with-profits’ policy or having a ‘Unit Linked’ policy.

With profits policyEvery year the life office evaluates the assets and liabilities of its life fund, to determine the surplus funds. A major part of this surplus (such as 90%) is allocated to with-profits policyholders as bonus, in the form of an addition to the sum assured. The bonus so declared cannot be subsequently reversed by the life office.

There are two distinct stages of bonus namely Reversionary Bonuswhich is declared annually and added to the Sum Assured under the policy. It is called reversionary bonus as it is payable only at the time of claim and not at declaration. Terminal bonuswhere the bonus is payable only on the policy resulting in a claim.While the reversionary bonus additions every year are on a cautious assessment approach, the terminal bonus can be construed as a reflection of fair return to policyholder at the last opportunity.

Premiums for With-profits policies are always higher than those for corresponding non-profit contracts, since higher benefits are paid out.

Unit Linked PolicyThe value of the policy is directly linked to units in one or more unitised funds run by the life office. Part of the premium is used to purchase life and disability cover and remaining premium is used to buy units in the fund. Usually the life office operates a variety of funds and the policyholder has options to invest in any of them and also switch periodically. On claim or maturity, the



value of the policy is calculated based on the unit value on that date. The life office usually levies charges for fund management and fund switching. Unlike the With profits policy where the bonus is attached irrevocably, here the profits will vary depending on the Unit value on the date of claim or maturity.

Various flavours of whole of life and endowment assurance policies are structured based on their investment linkage.

Whole of Life assurance Benefit is paid on death of the life assured, irrespective of term. Premiums for this type tend to be high as a pay out is a sure event and the cover extends over a long term till death. Whole life policies can be used as security for a loan, either from the life office or other lenders.

Non-profit whole life policies It has a level premium payable throughout life and the sum assured is fixed. No bonus is paid to the policyholder.

With-profit whole life policiesHere in addition to the sum assured, whatever profits that have been declared as bonuses so far will be paid on maturity or death. A terminal bonus may also be payable, if the insurer follows this practice. While the reversionary bonus additions are on a cautious assessment approach, the terminal bonus can be construed as a reflection of fair return to the policyholder at the last opportunity, by the insurer.

Low-cost whole life policiesThis is a with-profit whole life policy with a guaranteed life cover. They are structured with sum assured in two parts, one which is basic and has bonus applied every year, and the other which remains constant throughout the term. In principle, this combines the with-profit and non-profit concepts.

Single Premium Unit Linked whole of life policiesWhen the policy is effected, the premium is used to purchase units in the chosen fund and thereafter the policy value is dependent on unit price.

Regular premium Unit Linked whole of life policiesThese policies have gained popularity in the recent past as they offer a variable mix between life cover and investment. The initial level of cover is set for every few years based on the growth rate of the fund to which premiums are linked. They are periodically reviewed when the sum assured is compared with value of units purchased and increased.



Endowment assuranceHere again the life is assured for a fixed term, but benefit is payable either on earlier death or at the end of the term. This type of assurance is usually taken for long terms such as 20 or 30 years. Very often the maturity date is kept closer to the retirement date, though not necessarily so. An endowment policy can be used as security in getting loans because a return is assured. This is the most popular type of assurance in U.K.

All the variants of Whole of life policies are also available for Endowment assurance policies.



2 Policy Servicing

4.1 New BusinessIssuing a New Life Policy to a client is known as known as New Business. The following are the tasks to be carried out.

Proposal Underwriting Premium Calculation Policy Issue

The Data Flow diagram for New Business is as shown in Appendix A


Client SubmitsProposal

Validation ofThe proposal

UnderwritingThe proposal

Premium Calculation

Issuing thepolicy


4.1.1 Proposal

The proposal is the beginning of the New Business. The client who is getting insured will submit the proposal to the Agent or to the Life office.The proposal has the following information

1. Proposal details

This contains the basic details like Name, Address, Date of Birth, Sex, Occupation, Family history, Annual Income, Policy Plan, Sum Assured, Agent Name, Previous policy details.

2. Medical certificate

This consists of the medical fitness of the person who is getting insured. This will be taken into account in order to fix the premium in addition to other factors.

3. Age Proof

The date of birth certificate is the proof to check the eligibility criteria of the person for taking the policy. The policy plan will have Minimum and Maximum age criteria for entry.

4. Agent Confidential Report

Agent will have to provide the confidential report regarding the correctness of the proposal details. This is to avoid any frauds.

5. Deposit

A minimum amount will have to deposited along with the proposal as a commitment by the client. The minimum amount depends on the Sum Assured and plan of the policy.

The Client will submit the proposal to the agent or Life office. The following initial scrutiny of the proposal will be done by the insurer administration before passing it to the Underwriter. Proposal Details Previous policy history Client status Declined policies Age



4.1.2 Underwriting

This is a process performed by the insurer, on receipt of a proposal, to decide whether or not to accept the risk, and if so, on what terms. An underwriter is the person authorized to accept, reject or fix terms for accepting a risk. The underwriter looks for factors adversely affecting the longevity of the life assured, such as health, occupation, industry and life style.

The underwriter scrutinizes the facts given in the medical part of the proposal. He can also check in the alphabetical name index maintained by the life office to find out whether the proposer has been offered an under-average rate for an earlier policy or has been declined a policy previously. He will compare the sum assured and age with the non-medical limits set by the life office, and also will examine whether the insurance cover including earlier insurance is at a reasonable level and not too high.

Some of the Important things we should know about Underwriting are as follows

Definition The Process of Selection and classification of risk is called as underwriting

PurposeThe purpose of Underwriting is to

Ascertain correct Mortality of the life proposed Prevent Anti Selection

Automatic and Manual underwritingThe process of underwriting is automatic once the proposal is submitted.

Based on the facts and details he will calculate the risk. This is called Automatic underwritingIf the underwriter finds that there is something wrong then Manual underwriting is done. Here underwriter has a discussion with the proposer, there will be a medical checkup once again, he can request for a Moral Hazard report and based on all these facts underwriting is done.

HazardsAny factor that would influence the rate of mortality adversely is a hazard,they can be classified into

Physical Hazard Occupational Hazard Moral Hazard



Physical HazardThe Probability of death or expectancy of Life are largely dependent upon these physical factors like

Age Sex Present state of Health Family history Hobbies and Vacation

Moral HazardThe Likelihood of withholding or distortion of vital information relating to the financial standing of the proponent or insurable interest in the life to be insured , affecting risk appraisal is called moral hazard.Here, Underwriter has to find out the Reasons for distortion of facts.

Occupational HazardThe Occupation of the Proposer may affect the risk attached to the proposal. Some of the occupations where these restrictive clauses may apply are Military Personnel Aviation Submarine Employees Mine workers Race car driver Stunt masters

Medical UnderwritingHere the Underwriter will examine the Medical reports of the proposer in order to find out whether he is Standard life or substandard life. The Underwriter can also get more information about any medical problems of the proposer through a questionnaire .The questionnaire has to be answered by the proposer and the attending medical practitioner . Based on all these factors he can assign Extra Mortality rating for each condition other than normal. For normal person the Extra Mortality rating is 0%. The Extra Mortality rating can be upto 400% . Medical Underwriting is done for Policies above a certain Insurable limit. Medical underwriting forms a very important part of underwriting.

Agent Confidential ReportThe Underwriter can also get the Report from Agent. This is called Agent Confidential report. Agent who is part of the Insurance company has to give a Report on the proposer thereby complimenting the facts that the underwriter has at his disposal for underwriting.



ClausesClauses are the restrictions on the policy. The Underwriter can sometimes accept a policy with some clauses. The Clauses tells that the policy is not insured for these exclusions. The clauses can be

War and Aviation Clause Suicide Clause First Pregnancy Minority Clause

If there is any claim for any of these clauses for the policy then no Sum assured is payable by the Insurer.

Based on all these factors the underwriter can classify the proposer into Standard life Sub-standard life

This is further divided into Class1, Class2, Class3, Class4, Class5 and Class6 depending on Medical / Physical /Moral Hazard report

Based on this the underwriter arrives at a decision on the risk. The various underwriting decisions are:

Accept at ordinary rates as proposed All lives which are within the non-medical limits and do not have any adverse evidence will be accepted at the normal premium rates. They reflect assumptions of risk underlying normal premium rates. They are called ‘standard lives’.

Proposers being assessed by the underwriter as having a greater risk of death than implied in the premium rates are termed sub-standard lives and they will be offered special terms.

Offer ordinary rates for a limited type of policy If the extra risk becomes high at a later stage in life then the office may choose to offer a term cover rather than whole of life cover, but at standard rates. Similarly, under an endowment plan term may be reduced to fall below a certain age such as 60.

Charge an extra premiumIf the proposer has risky hobbies like hang-gliding or motor racing or if the medical reports reveal extra risk such as high blood pressure then an extra premium proportional to per $100 (per mille) sum assured may be charged.



Impose a ratingBy rating, the proposer’s age is hiked up by a few years. For example a person aged 50 with asthma may be rated as ‘plus 2’ and he will be charged the rates for a 52 year old person.

Impose a debt A debt is a reduction from the sum assured. It will often decrease and become nil at the end of the term. This may be offered if the proposer disagrees to pay the extra premium quoted for the extra risk and the nature of risk is not of increasing type.

Decline the risk The underwriter decides that the risk is not insurable because it is extremely high and declines the proposal. In practice less than 1% of proposals are declined, while majority of the under-average lives are offered some form of special terms.

Defer the PolicyIf the Underwriter feels that there is a element of doubt and wants to wait for some more time before the policy can be issued then he can defer the policy for a period ranging from 3 – 6 months. At the end of the specified period the proposal is once again reviewed by the underwriter and decision taken either to issue the policy or decline it.

The decision of the underwriter is written on the Application form or sometimes a review slip is attached with the underwriter decision.

4.1.3 Policy Issue

Once the underwriter decision is known then a letter is sent to the Client for his consent / approval because insurance is a contract between the proposer and the Life office which has to be agreed by both the people. This Letter of consent is sent only when there is a change in the terms of the policy or premium based on Extra Mortality rating applied by the Underwriter.

Once the Proposer gives his consent then Premium is calculated based

on the Plan , Underwriter loading , accident benefit extra , age , occupation , sum assured , frequency and other options. The initial deposit is adjusted with the first premium if the premium deposit is equal to the proposal deposit. If the installment deposit is less than the first premium then the deficit amount is called for from the client. If there is a excess in deposit then the extra amount is refunded.



The proposal is checked for whether it requires Reinsurance if the risk is high. If Reinsurance is required then the Reinsurance retention limit table is read to select the Reinsurer. The Proposal is updated with the reinsurance details and details of reinsurance is sent to the Reinsurer.

After all this activity the Proposal becomes the Policy. The Policy is printed and sent to the Client along with Premium advice and Specific Terms and conditions as applicable to this policy for which he has taken an Insurance. Advice is sent to the agent along with first Commission which is due to him. Also a advice is sent to the Medical officer with the Medical advice fee. A report is generated and sent to the management for information.



4.2 Endorsements

A lot of details can be changed by the policyholder when the policy is in force, with the consent of the insurer and as per the provisions laid out in the policy contract. All changes to policy terms like additional benefits, additional premiums, increased or decreased term, fund switches, indexation changes, date of birth change are called Policy Endorsements.

A lot of other details that do not affect the terms of the policy but alter data held for the policy like bank account details, address details can also be altered when a policy is in force. This is called General Amendments.

The following are the processes involved in endorsements

Validate EndorsementsReceive the endorsement request from the policyholder and validate the request. If the request is not valid then the declination of the request is sent to the Policyholder.

Process EndorsementsThe valid endorsement requests are processed and the new premium rate is fixed for the policy.

Effect EndorsementsAfter processing all the requests the original is endorsed and an intimation is sent to the policyholder along with the new premium statement.

The Following diagram illustrates the Endorsement process



The Data flow diagram for Endorsement is in Appendix B


Client Or Policyholder

ValidateEndorsement

ProcessEndorsement

EffectEndorsement

ClientOrPolicyholde


4.3 Reinsurance

This is a method where the insurer takes insurance to cover the risks that he has underwritten. It is an effective risk sharing method where a portion of the risk is transferred to the reinsurer. All insurance companies assess the risks they underwrite and reinsure based on their past experience on claims. Reinsurers also provide assistance to insurance companies, particularly in the area of underwriting, when the insurers Underwriter wants to have a second opinion on the life at risk. Some of the world largest reinsurers are in the UK.

The type of reinsurance used is determined by the needs of the insurer. The most common reasons for purchasing reinsurance are

- Allows the Insurer to write larger amounts of insurance.

- Protects the Insurer against a single, catastrophic loss or multiple large losses.

- Helps smooth the Insurer’s overall operating results from year to year.

- Eases the strain on the insurer’s surplus during rapid premium growth.

- Provides a means for the reinsured to withdraw from a line of business or geographic area or production source.

- Helps the reinsured spread the risk on new lines of business until premium volume reaches a certain point of maturity; can add confidence when in unfamiliar coverage areas.

- Provides the insurer with a source of underwriting information when entering new line of insurance or a new market.

Types of Reinsurance

There are two types of Reinsurance arrangements1. Facultative Reinsurance

Reinsurance transacted on an individual risk basis. The insured company has the option to offer individual risk to the reinsurer and the reinsurer retains the right to accept or reject the risk.

2. Treaty ReinsuranceIn this there will be a contract between the insurer and reinsurer. The Reinsurer must accept all business within the terms of the contract.

The Data Flow Diagram for Reinsurance is in Appendix E



4.4 Claims

Claims is one of the most important events in the Life cycle of a Policy. The main purpose of Insurance is protection against risk . Whenever a risk happens the person will be down by emotions. In addition to this if he has financial problems then the situation will be very worse. Insurance is there to mitigate the problems of the insured when he suffers a loss. At the end of the term if the policy has savings benefit then he can make a claim for the sum assured. The handling of claims by the Insurance department is very sensitive because on one hand they are dealing with people who have suffered a risk and on the other hand the company will be under loss if they are complacent . In handling of Claims the Insurance company’s reputation is at stake and their basic aim is to see that the insured person / survivors get their claim as quickly and as easily as possible. A Insurance company is gauged by its ability to settle claims as quickly as possible with ease to the insured . The true worth of Insurance and Insurer is found only when the insured person suffers a loss and gets relief by way of insurance. Under Indian tax laws the claim paid by life insurance company is tax free.

In Life Insurance there are two type of claims. They are Maturity Claims Death claims

4.4.1 Maturity ClaimsThe Life Insurance policy can be Term assurance and also Savings. At the

end of the term the Insured can make a Claim. This is called Maturity Claim. All Maturity processing starts a few weeks before the maturity date as life offices endeavor to release the cheque, so that it reaches the policy holder on Maturity date. Normally the Claim processing for Maturity claims will start four to six weeks before the due date. The Policy status should be in ‘ In force ‘. Once Maturity processing starts then the policy status is updated to ‘ Maturity Intimation’. This tells the Life office that the Maturity proceedings have started against this policy.

Four to six weeks before the maturity date, the Maturity value is calculated and a letter is sent to the policyholder stating the amount, listing the requirements for payment and enclosing a claim form. On receipt of the completed claim form and all required documents the cheque will be sent out. For whole life policies, when the insured person attains a age of 85 then it is taken as end of life and claim is settled.

The Maturity processing will involve the following activities

Maturity valueThe Maturity value is calculated based on the Sum assured, Policy

Benefits, Bonus, Occupational extra, Sex extra and other factors. Any Loans or Outstanding premiums are deducted .



Maturity requirementsThe Life office will send a voucher to the policy holder informing him of

the maturity date and amount with the details of his bonus and deductions. This voucher has to be signed by the Life assured and sent back to the insurer along with the Original Policy certificate and other details which the insurer will want.

Validate requirementsThe details of the Insured is validated by the Life office. The details

normally looked into are Policy Certificate , Age proof , Legal evidence and other detailsIf the requirements are met with in the maturity date then the Claim is processed as normal maturity claim.If the requirements are not met with in the maturity date then a remainder is sent to the Policy holder and even then if there is no reply then the agent is sent to the house of the policy holder for information. If the Life office is not able to locate the policy holder then the Claim will be written off.

Cheque preparationThe Claim is processed and a cheque is sent to the policy holder so that

he is able to encash the amount on the maturity date. After the claim is paid the claim status is updated as ‘Claim paid ‘ and the Policy status is updated as Exit .

The Data Flow diagram for Claim (Maturity) is in Appendix D



4.4.2 Death Claims

Whenever a Insured person suffers a risk his nominees / survivors / Legal heirs can make a claim . Normally a death claim will be initiated by the claimant or the solicitors of the deceased when the life assured dies. On receipt of a death claim the life office will calculate the amount payable. In case of with profit policies this will include the bonuses declared till date and also any terminal bonus. For Unit Linked policies it will be the higher of the Guaranteed Minimum Death benefit or the bid value of units held by the policy holder.

A Claim form, a letter stating the claim amount and request for documents to settle the claim will be sent .The main requirements are proof of death, proof of entitlement by the claimant, proof of age ( if age is not given at proposal time ) . On receipt of the completed claim form and all required documents the cheque will be sent out. If the claim is with in three years of its inception then it is called a Early claim which requires a lot of investigation before it is settled because there is a possibility that the contract could have been entered knowing the possibility of early death. Likewise if there is a suicide clause in the policy which is operative for one year and the cause of death is suicide then no amount is payable.

Normally if it is a ordinary claim and all documents are correct then it will be settled in one week. If it is a accident claim or early claim requiring investigation then it may take between one to three months. If the claim has legal problems then it may take anywhere between 6 months to 1 year. If no person makes a claim then the claim is written off.

If the client has more than one policy then all policies of the policy holder are taken up and processed simultaneously. A single voucher / cheque for the amount of all the policies is issued.

The Processing of Death claims involves

Receive Death intimationHere Death intimation is received and the policy status is updated as

‘Death intimated ‘. There will be no regular processing of the policy like premium notice and other things.

Claim AdmissionThis is basically to check if the claim is a admissible one. There should not

be any Fraudulent Suppression of Material facts. If the claim is with in three years of its inception then it is called a Early claim which requires a lot of investigation before it is settled because there is a possibility that the contract could have been entered knowing the possibility of early death. Likewise if there is a suicide clause in the policy which is operative for one year and the cause of death is suicide then no amount is payable.



The reason of death also plays a key factor in settling claims as the claim period. There is a benefit called double accident benefit. This benefit will be added only if the life assured died by accident and his policy covers this benefit. In ordinary claims the basic claim is settled first and if there is death due to accident the accident claim is settled later. If it is a early claim both the basic and accident claim are paid only if the accident is established.

Process Accident casesIf it is a accident then he will get double accident benefit ( if the policy has

this benefit) . In case it is a accident if it is established that the cause of the accident is life assured or claimant himself, then no claim is payable.

Process Illness casesIf anything adverse is found from the requirements that are obtained from

the client that is if the period of illness was found to be prior to the date of proposal/revival date then after investigation the claim can be repudiated. In all these cases a ex-gratia payment can be made.

Calculate Death benefitDeath benefit is normally sum assured and all benefits like bonus. All

deductions like outstanding premium, loans etc are subtracted from the sum assured. If the policy status is ‘paid up’ only the paid up value is paid.

The Data Flow Diagram for Claims (Death) is in Appendix C



3 Premium Calculation

The Premium Calculation for each Plan is very Complex and critical because the very survival of the Life office depends on it. The Premium rates have to be competitive as compared to other Life office products and it should bring profits to the Life office . The Premium Rate table or the Commutation table is calculated by the Actuary. The Department where a Actuary works is called the Actuary Department . Actuary is the person who is key to the Life office and he is responsible for designing new Plans and its associated Premium Rate Tables.

Premium Rates depends on the Mortality rate and Life Expectancy of the people of a particular country or region .

Life ExpectancyThe average number of years a person aged X is bound to live is called

Life Expectancy

Mortality Rate The Probability that a person aged X will die in next one year is called the

Mortality

The Mortality rate is calculated using Mathematical techniques like Theory of Probability Law of Large Numbers

Now a days since most of the Life offices are computerized the Mortality rate tables are calculated every two years. By finding out the number of claims from survivors of Policy holders in the last two years and the age of the people who have died the Mortality rate tables are created . Each Life office has their own set of Mortality rate tables. This tables are used by the Actuary for calculation of Premium Rate tables.

Premium Calculation I= rate of interest ( 0.06 for 6% )

V = Present value of 1 Rupee payable after 1 year

V = 1 / (1 + I)

Vn = Present value of Rupee 1 payable after n years

Lx = no of person living at age x

dx = Mortality rate



x = Age at entry

n = term

Dx = Vx * Lx

Cx = Vx+1 * dx

Nx = Dx + Dx+1+Dx+2+ …….. Dw

Mx= Cx + Cx+1+ Dx+2+……… Cw



Term Assurance

Sum Assured = 1000 Age = 30 yearsTerm = 10 Yrs P = Premium

Assumptions Ignore Expenses Claims at the end of year

Premium received for all 10 yearsP( LX + VLX+1 +…… V9LX+9 )

Amount paid as Claims1000(VdX + V2dx+1+……..V10dx+9)

Mulitply by V30

P(N30 – N40) = 1000 (M30 – M40)

P = 1000 ( M30 – M40) --------------------------- (N30 - N40)

General formula P = 1000 ( MX – MX+N) --------------------------- (NX - NX+N) ENDOWMENT



Sum Assured = 1000 Age = 30 yearsTerm = 10 Yrs P = Premium



Amount paid as Claims1000(VdX + V2dx+1+……..V10dx+9) + 1000 * V10L40

Mulitply by V30

P(N30 – N40) = 1000 (M30 – M40) +1000 * D40

P = 1000 ( M30 – M40 + D40) --------------------------- (N30 - N40) General formula

P = 1000 ( MX – MX+N +DX+N ) --------------------------- (NX - NX+N) DOUBLE ENDOWMENTSum Assured = 1000 Age = 30 years



Term = 10 Yrs P = Premium



Amount paid as Claims1000(VdX + V2dx+1+……..V10dx+9)+2*1000*V10L40

Mulitply by V30

P(N30 – N40) = 1000 (M30 – M40) +2000 * D40

P = 1000 ( M30 – M40 +2*D40) --------------------------- (N30 - N40)

General formula

P = 1000 ( MX – MX+N +2*DX+N ) --------------------------- (NX - NX+N)

These Formulas are generic and are same for all Insurance companies. The only difference is the Loadings and Assumptions that are specific to each company. These Loadings can be yearly Bonus , Terminal bonus , Expenses



and agent commission . The values for M , N and D can be taken from Premium rate or Commutation tables and premium calculated.



4 Product Features

Every Life Assurance Contract has well defined features. This Life Assurance Contract is called a Plan or sometimes as Product. The Product is designed after doing a Market Analysis. Normally Market analysis is done by the Insurance company. Sometimes they will also employ other research agencies to do the study. Like any other Commodity Product, Life Insurance policy is also a Product. Market analysis means knowing the needs of the people based on the trends and based on the needs / trends developing products that will cater to a wide variety of people . Unlike other products Insurance is a concept and it is very difficult to sell an Insurance product to the ordinary man because here you get only a Certificate. It requires a great deal of advertising and marketing to sell Insurance Products. The marketing of Insurance products is called Concept Marketing. The Product is designed by the Actuary based on the Market analysis and Actuary experience .

Each Product has standard features and many options . The Insured can take the standard policy and optionally take some of the options . Some of the attributes in a product are

Contract type

Which tells what type contract it is like Term Assurance, Endowment or Whole life.

Contract name

Which tells the name of the Plan like Bima Kiran , Asha Deep etc.

Qualifying status

Tells whether the premium paid by the Insurer is eligible for Tax benefits under the relevant tax laws.

Purpose

Which tells the purpose of the product like Life cover , savings , Mortgage redemption , Health cover , disability cover , Tax savings or Investment .

Age Limits

Gives the Minimum and Maximum age at entry . It also gives the maximum age at expiry and Maximum age at Premium paying term



Lives Covered

Tells what type of lives are covered like Single life , Joint life first death , Joint life survivor , life of Minor and Life of another

Term limits

Gives the Minimum and Maximum term of the policy and also the Maximum Premium paying term of the policy .

Sum Assured

Gives the Minimum and Maximum Sum assured for this policy and also the sum assured Limitations to cover like death , maturity , critical illness , disability or Mortgage redemption.

Premium

Premium gives the Minimum premium for this policy , premium paying frequencies like Annual / quarterly / Monthly , discount in premium if paid correctly , Smoker / Non smoker rates , Low start version , Agent Commission , Policy fee .

Types of cover

The Types of cover of this policy like Death , Maturity , Critical/Serious illness , disability and Mortgage redemption .

Privileges Granted by the Policy

The Privileges granted by this policy like days of Grace , Surrender value , Revival facility , Automatic non-forfeiture , Loan , Premium suspension , Paid-up , and Free cover for Individuals and groups , Guaranteed Renewal and Cooling off period.



Policy conditions

Some of the Conditions attached with this policy like Lapse , Paid-up , Automatic non-forfeiture , Deductions from premium , policy review , Early surrender penalty , fund switching .

Options

InceptionThe Options of this policy at Inception like Additional Life cover , Additional

Health cover , Premium waiver benefit and child option.

TermThe options of this policy during the Term of this policy like Increase in

Premium , Decrease in Premium , Increase in sum Assured , decrease in sum assured , increase in term , decrease in term , paid up option , additional Life cover , Additional Health cover , Premium waiver benefit , Inclusion of additional life , Exclusion of additional life and change of life

MaturityThe options of this policy at Maturity/Death like Return of fund , Sum

assured + return of fund , greater of sum assured and return of fund , tax free lump sum , income benefit , partly lump sum and partly pension , term extension , surrender and term extension + part lump sum.

Clauses

Tells what are the clauses for this policy like War PregnancyAviationSelf inflicted injuriesSuicide

Exclusions

Tells what are the Exclusions for this policy likeRestrictions on cover due to suicide



Unit Allocation

Tells how Units are allocated like Allocation period , Deductions from premium like Mortality cover charges , Morbidity cover charges , Administration fee , Policy fee , Bid/offer spread , Fund management charges.

Fund Management

Fund management tells how many funds are available , when policy can be reviewed to change the funds , Restrictions on fund switch , Fund switching charges , Minimum switch amount .

Special features

Like Early repayment , Child option , Variable cover option , Home insurability option , replacement option , change of house option , segmentation of policies , continuation and income option.

Benefits

Tells what are the benefits from this policy likeDeath benefitTerminal Illness benefitDisability benefitLiving benefitBuy back benefitInflation protection

Profits

Tells what are the profits from this policy likeAnnual BonusLoyalty bonusPremium discount on correct payment



5 Agent

Agent is a intermediary between the Insured and the Life office. He markets the products of Life office and in the process gets commission for the amount of business he has done. In countries like UK/US a broker and agent can be different. As far as Insured person is concerned he is a broker or financial advisor who can advice the client about the products of various insurance companies so that client can select the one that is most suited to him. The agents of Insurers are Individual sales persons , firms and others like accountants , motor dealers etc. The agents of the client are independent insurance brokers , consultants . In Indian context a agent and broker are same . Some times Life office will have fixed salary employees as agents and these people called Sales Officer. Clients can take the policy through the agent or can approach the life office directly for the policies.

Agent is not employed by life office but has to be registered with the life office. The Life office will select prospective agents, provide training for the agents so that they are aware of the plans and products, are able to calculate premium, aware of the market trends and finalize terms of appointment. Agent can be dual agent in the sense he can be a agent of more than one insurance company. For the agent to be with the life office he has to do a minimum amount of business else his membership will be cancelled. Agents can be of specialised agents in the sense they will be catering to different sectors like salary savings business, defence personnel because the rules will be different.

Some of the agent activities are Examining client circumstances Advising prospective clients about insurance products Recommending suitable insurers Premium calculation Check and define policy features to client like extent of cover , conditions etc Remind premium payment Collect premium payments Negotiate claim settlements Agent Confidential report

For the amount of Business that is done by the agent he will receive commission. The agent will get the commission only if the proposal is accepted by the life office and also on the regular premium that is paid by the client.

The commission rates are as followsDeposit 35 %Second premium 7.5 %Third premium 7.5 %Fourth premium onwards 5 %

In some countries the initial commission rate can be as high as 135%



The commission that is payable to the agent is accumulated and paid at the end of the month The agent is penalized if he does some fraudulent activity. At the first instance he will be Warned if his crime is less severe. If he does some activity like not paying premium collected by the client he will be suspended by the life office. If he continues doing the same he will be terminated. If the Life office finds that he has colluded with the client then he will be black listed and his name will be circulated to all insurers so that he cannot act as agent to any other insurer.

In order to motivate the agents he is given due recognition and other benefits based on the quantum of business he brings. Some of the benefits to agents other than the commission are

Club membershipInterest free loanAdvances for purchase of vehicle, PC etcAllotment of status symbols

When the agent does very good business continuously for a certain period they will be appointed as Development Officer. The Development officer will have a set of agents under him. The Development officer will get 20 % Salary and 80% commission.

When agent retires all his policies will be transferred to a new agent in that area. The new agent will get the commission here afterwards.

The agents are governed by the guidelines set byConsumer Forum in IndiaFinancial act in UK for agency (1997)



6 General Insurance

Non Life Insurance also called as General Insurance covers customers house, contents, motor vehicles and other things. It deals with all forms of Insurance except Life Insurance. Cover can also be arranged for travel and Personal Accident insurance. General Insurance companies also insure small businesses, offering a range of commercial insurance products tailored to different type of business such as shop keepers, hoteliers and tradesmen. Commercial insurance also covers small commercial vehicles, offices and farms. Each Policy belongs to a Product like House & Home, Motor Car, Shop, Personal accident and Sickness. Policy under each Product can also have Class and Sub-Class. Class and Sub-class will give the salient features of that insurance.

Some of the differences between General Insurance and Life Insurance are as follows

Non-Life Insurance Life Insurance

Insurance Assurance

Indemnity Guarantee

one Policy Many Policies

Term is one year Fixed or whole Life

Renewal Maturity

IRA IRA

Main & Secondary Claim Main claim

Tax No Tax

Product Plan



The Important Process in General Insurance is

Quote New Business Policy Enquiry Endorsement Renewal Claims Premium Accounting General Ledger Reinsurance

8.1 Quote

The Quote System is useful in getting a quick quote based on the Client requirements. Normally Clients will be requesting for a quick quote from different General Insurance companies, so that they can evaluate the premium amount from different companies and select the company with the lowest Premium.

The Quote system will calculate the Premium based on certain broad parameters. The Client will ask for a Quote and will give the major features of the insured item. This Premium will be approximate and the actual premium will be slightly different because it takes into account all the parameters of the insured risk . The difference in premium will be within the tolerance limits.

Quote system is very simple but powerful tool for any Insurance company business and is prominently used by the Insurers , Agents and Sales representatives.

8.2 New Business The New Business Process involves the following activities

Receiving the Proposal Validating Information Declined Index Underwriting Premium Calculation Premium Accounting Policy Issue Reinsurance Agent Intimation



The Client will submit a proposal with details of the risk to be insured. The proposal can be submitted through the Agent or directly to the Insurer incorporating the Agent details. The Insurer will check for all the details in the Proposal. They will check whether he is a existing client, whether the client has any previous policies and the Client Status and if it is a new client the client details are stored in the Client table. They will also check whether any of his previous policies has been declined. The Agent details are validated

Like in Life Insurance the Proposal undergoes Underwriting where the insured risk is validated. The purpose of Underwriting is to make sure whether the risk compensates for the premium that is charged or charge an appropriate premium if the risk is more. The Underwriter will check all the details of the risk and then the Premium is calculated. If the insurance is for a standard item like House, Computer or Motor Car then the insured risk is accepted directly. If the insured item is of very large value or which includes complexity it is referred to a panel of experts who will decide whether to accept the risk or not and the premium to be charged. The premium is calculated based on a number of parameters of the insured risk item.

Once the proposal is accepted the Premium is calculated and the initial deposit is converted into first premium. The agent commission is calculated and apportioned proportionately. The Policy is issued to the Insured with all the details and Schedule. Normally General Insurance Policies have a term of one year. Short term policy for a period of three months can be taken for Holiday and Travel.

If the Policy is declined then it is stored in the Declined Index table with all the details of the Client and risk insured. The Agent is intimated about the Policy details. Reinsurance is done on the Policy depending on the Reinsurance treaty.

8.3 Policy Enquiry

Client requests for information related to policy are handled by the Call center. The Policy Information module facilitates Policy Enquiry like Names on the policy, term, Start and end dates of the

policy, risk items and conditions of the policy. Premium Enquiry like Premium overdue, date of payment, cheque realization

and any other discrepancies. Client information like Client name, address, telephone no, age and other

details Claims like Claim information, Claim status, Claim payment details and other

information. This is most frequently used module in the General Insurance office.



8.4 Endorsement

Endorsement is the change on the existing policy. The change can be adding new items of insurance to the existing policy, changing client information, change of Risk Address, Change in Frequency of payment, Addition/ deletion of Drivers, etc. In all these cases the premium changes and a new policy with all the information is sent to the client.

Instead of taking a new policy for additional items, New Items can be added to the existing policy at any time during the term of the policy. The premium changes accordingly. Also Items can be deleted from the Policy. In this case any excess premium paid is refunded. One more change on the policy is the change in Risk address. On Endorsement a new policy is issued with all the details. The term of the policy will remain the same. The Change in Premium frequency from monthly to annually or vice versa is also called endorsement.

When the Client details change like Change in client address, telephone no and other details the information is updated on the policy. No new policy certificate is issued in this case and the premium does not change. The Agent is intimated about the Endorsement.

8.5 Renewal

At the end the term, which is normally one year, the policy is renewed. The Renewal Process is one of the important events in General Insurance. The process requires understanding the Business policies of the Insurance company.Renewal takes place in three stages spanning a period of 6 weeks before the renewal date.

The Policy is checked whether it is eligible for Renewal about 6 weeks before the due date. In this validation it will check whether the policy is in force, and all the premiums are paid and if any premium is due a remainder is sent to the client to pay. During this stage the policy will not be endorsed for new items of insurance or deletion of existing items.

About three weeks before the Renewal date the policy is checked once again whether it is eligible for Renewal. The Policy should be in force and all the premiums should be paid. The new premium is calculated and a letter is sent to the client for his consent. During this stage the client can also add new items to the policy which is to be renewed. The Client has also the option to refuse the Renewal in which case the policy is Lapsed.



About three days before the Renewal date the Policy is once again checked whether it is eligible for Renewal. The policy should be in force and the client should have given the consent. The policy is Renewed and a new policy is sent to the client

8.6 Claims

Claims is one of the most important events in Insurance. The primary purpose of insurance is to compensate for the loss suffered by the insurer.Whenever the Insured suffers a Loss (s)he can inform the Insurance company about the Loss details. After the loss information is received by the Insurance company on the specified form along with all necessary proof and estimates, the Claim details are validated and stored for further processing. The policy should be in force and all the premium due should have been paid and the risk should have been insured for the type of Loss.

The Insurer will investigate the details of the Loss and if it is a Small claim it is settled immediately.

If it is a big claim or where loss cannot be easily estimated the help of Chartered Loss adjustor (CLA) is taken. CLA are experts in Loss valuation. Based on their recommendation the Claim is settled.

Normally Insurance companies will try to replace the items that is under Loss. If it is a damage to the building or car insurance company will ask the insurer to repair the damage and send the bill directly to the Company for which the Insurer will pay.

You can also Associate a event No to a series of Claims for some Natural Calamity, for Example Floods in Scotland in 1997. All claims under this category will belong to this event no. This will help the insurance company management to find out at any point of time how much this event cost the company.

Claims can be of two types Main Claim and Secondary claims. The Main claim will have a Claim no ending with 00. Secondary claim have a claim no ending with 01 and there can be 99 secondary claims for each main claim. If a motor car meets with a accident then that claim is a Main Claim. If in the accident some pedestrians are injured and make a claim that is called the secondary claim.



8.6 Premium Accounting

The Premium Accounting module will generate the Premium notice for Annual and quarterly policies to be sent to the client. Usually it is done by a batch process which identifies premiums payable two to three weeks ahead of the due date, sets up a premium record for the policy and generates a renewal notice. It also generates direct debit BACS file to be sent to the bank.

When premiums thus billed are received the Accounting process starts. Here the received payment is tallied with the bill pending for the policy. On receipt of premium payment a record is created with status ‘Policy suspense’ which is called a suspense account record. Then the premium dues for the policy for which payment has been received is picked up and payments are allocated and settled. If premium is received as cheques and they bounce the payment has to be Unsettled where the old premium record is cancelled and a new premium record is created.

The premium paying frequencies can be monthly, quarterly or yearly. Yearly and quarterly payments will be manual by cheque. Monthly payments will be by direct debit. Everyday a BACS file is generated and sent to the bank for payment.

8.7 General Ledger

The Financial accounting is performed in the General Ledger. The inflows like Premium should match the Outflow like claims, agent commission and Tax. The Premium amount is accounted in the General Ledger and sub-Ledger under various heads. The money paid as Claims is also accounted in the General Ledger and various sub-ledgers. The Tax payments are calculated and paid to the Government authorities. Various Reports are generated on monthly basis and sent to the Regulatory authorities.

8.8 Reinsurance

Reinsurance is Insurance against Insurance. In order to distribute the risk companies take to Reinsurance. The same Company can act as a Insurer and Reinsurer for some other insurance companies.Reinsurance module helps in managing Reinsurance Treaties with Reinsurers. Reinsurance Treaty can be Reinsurance for 25 % of all policies Reinsurance for Policies above a certain limit Reinsurance for certain Products



Depending upon the Reinsurance treaty the policies are reinsured. The Premium that are payable to the Reinsurers are paid. The Claim payment is received for the claims that are paid to the Clients for reinsurance policies. The Reinsurance can be done with more than one Reinsurer



7 Insurance Dictionary

The Business of Insurance is very complex and exhaustive . There are various Jargons and terminology’s used in conducting the Business of Insurance. These differ from one Country to another Country and also from one Insurance Company to another Insurance Company in the same country. The same word has different meanings in different Insurance companies .All this makes it very difficult to understand what are the different types of Insurance Business a particular company is involved, its various Products and Schemes, future plans etc.

This Dictionary on Insurance will contain the general terminology’s that is used in the Jargon of Insurance Industry and will go a long way in understanding the Business Concepts of a particular Insurance company. This document will also act as a quick reference guide to understand and decipher the Jargons of Insurance Business.

Data has been compiled based on two Insurance companiesPearl Assurance Company, UKWestpac Financial Services, Australia

These companies are involved in Life Insurance, General Insurance, Annuity and Pensions, Investments and Superannuation.

9.1 Life Insurance

Actuary A professional person qualified to calculate the risks and premiums for pension, life assurance and investments.

Actuarial Dept. The department that develops the product and defines the business rules that govern it.

Adjustable Policies where the exact extent of the risk insured cannot be known at the outset, e.g., employer's liability , in such cases adjustments are made to the premium charged at regular intervals.

Agency The company owned by the Insurer that sells Insurance products. A commission is paid for the sold products depending on the rules that govern the particular product

Agent The Individual who interacts with prospective clients and sells the products. Generally most of the agents are employees of the Agency



Assignment An assignment is a transfer of ownership from one person, the assignor, to another, the assignee. There are various types of assignment. The most common involving life policies is where a policy is used as security for a loan. Notice of an assignment should be sent to the chief office. Company representatives must not have any policy assigned to or deposited with them or aid in the drawing up or completion of assignments.

Bonuses These are additions to the sum assured of 'with profits policies declared out of surplus in the Industrial Branch for IB policies and the Ordinary Branch for the OB policies.

Brokers Similar to Agents but possibly external ones.

Capital Accumulator An ordinary branch endowment assurance with profits and options available on a single life basis only. This policy allows for the sum assured plus any reversionary and terminal bonuses applicable to be paid at the end of the initial ten year period or on the earlier death of the life assured. The maturity proceeds may be taken as a lump sum or in installments.

Capital Investments Plan An Ordinary Branch single premium endowment assurance with profits available on a single life basis only.

Cash Surrender Value It is the immediate cash value of a policy if premiums are discontinued. The value will be calculated after allowing for expenses and life cover given to date. In the early years a policy may acquire little or no surrender value.

Cashiering Posting of cash with application. Posted with policy number or receipt number

Cancellation If a client does not prefer to proceed with the policy and conveys his intention to Insurer within the government specified 14 days cooling-off period , the policy gets canceled without any charges or fees accrued into it.

Children's gift Plan Unit Linked endowment assurance which is written on the life of a child. It matures at the plan anniversary coincident with or immediately preceding the child's 21st birthday.



Children's Policy The normal minimum age for policies is 16 next birthday. The exception to this is the First step savings plan and the Children's Gift Plan. It should be noted that life assurance cover for children under the age of 16 is not available under these or any other Pearl Plan.

Co-insurance describes a situation where the insured risk is shared between a number of insurance companies.

Company Representative An agent appointed by a life insurance company who is authorized to sell that company's products.

Conservation officer An employee of the Insurance office who tries to keep policies from getting lapsed/surrendered/canceled by personally interacting with the client. Also tries to revive a policy after its lapse. Belongs to the Business conservation Dept.

Consultant Similar to Agents but external ones who will sell products of the Insurance company and receives the commission.

Contingency A happening, as defined by the policy for which cover is provided.

Contributions Term used to describe the regular or single payments a person makes into their personal pension plan.

Convertible Protection A rider benefit which provides additional , reducing temporary assurance benefit which may be attached to certain basic plans. A guaranteed option is included for cases where the life assured is a first class life.

Convertible Term Assurance Is a Term Assurance Contract with the opportunity of converting to other contracts. The new premium is calculated based on the age at conversion.

Declaration A statement attesting to the accuracy of the information entered on a proposal form. The declaration appears on every proposal and must be signed and dated by the proposer.

Decreasing Term Assurance Term assurance cover where the level of cover decreases throughout the term of contract . This Insurance is



helpful for cases in capital repayment of mortgage where the sum assured decreases in line with the repayment of mortgage based on a maximum rate of interest.

Economy Cover Plan Temporary life assurance available as single or joint life. Cover provides for the sum assured to be paid on the death of the life assured. The life cover operates during the selected term of the assurance only.

Endorsement An amendment to an insurance policy which then becomes a part of it. Endorsement can be any changes to the existing policy like adding of new element of Life cover , change / addition of client details , superannuation benefit or investment .

Endowment Policy A life assurance policy which pays a sum of money after an agreed period of time, or on the earlier death of the assured.

Ex Gratia Payment A payment made to the insured where there is no liability under the policy for the insurer to make payment.

Front End Loading Term used in connection with unit linked policies to describe charges being deducted from the first years premiums hence the phrase 'front end loading'.

Gold Plan A unit linked endowment assurance policy available as single or joint life.

Intermediary A person or organization that offers advice and arranges policies for clients.

Indexation Value of the sum assured loses its value progressively, when the premium is kept constant due to price increase in commodities. So to counter this effect the premium payable is increased by a rate fixed earlier or variably depending on the commodity price index (CPI). The sum assured too is similarly modified.

LAUTRO Life Assurance and Unit Trust Regulatory Organization under whose rules the Pearl operates to meet the requirements of the Financial Services Act.

Level Premium Applies to policies where the premium remains the same throughout the term of the policy.



Life Assurance Contract is a agreement between two parties , the insurer and the proposer , that one party (Insurer) will pay a sum of money called the Sum Assured , to the other party (proposer) on the occurrence of a specific event .

Life Cover Plan An Industrial Branch whole life assurance policy with limited period of premium payment.

Life Expectancy the average number of years expected to be lived in future by a group of people of the same age .

Life Insurance Commissioner A government executive who polices the activities of Insurance companies .

Maturity If the policy holder pays the premium till the end of the specified term the policy is matured and the customer receives the sum assured together with any bonus.

Payment/Closure of Policy once the policy has matured or has been terminated then the insurer will pay the amount of money due to the customer and close the policy.

Paid Up Policy A policy free of further premiums for a reduced sum assured.

Plan A scheme or a policy of the Insurance company and assures a specific benefits for Clients who invest money in it

Policy Once the Insurance company has accepted the proposal and the premium has been paid , it will issue a policy as evidence of the contract. This policy would contain the details of contract and policy holders personal information.

Proposer The person or company who affects the policy. This may be on his/her own life or on the life of another.

Proposal The action of applying for a policy to the Insurance company by a prospective client



Risk For practical purposes a Risk can be considered the Sum assured for a type of Product on a policy or for a client

Surrender A mode of claim where the client cashes a policy after it acquires a surrender value that is the policy is past the cooling off period and all set up expenses, commission and charges have been paid. This usually does not happen until a few years since the policy was set into force.

Term Assurance the Term assurance policy is for protection only and no savings is attached. This is the cheapest form of Life Insurance.

Underwriting evaluation specifying any outstanding requirements , application of loadings and sign off of the proposal before it can be set in force.

Underwriter A employee of the Insurance company who actually assesses the risk involved in a new proposal and directs the administration department to reject/accept/defer with underwriting requirements /modify the proposal for different terms of risk acceptance or other decisions.

Whole Life The Whole Life policies provide both protection and savings which could be with profit or non profit.

9.2 Investment, Annuity and Pension

Accumulation Unit Applies to the following unit linked plans Ultima, Gold, Children’s Gift Plan and Unit Linked Prosperity Plan. Premiums invested into these plans are used to purchase units in the mixed fund or for Prosperity Plans mixed or sterling funds. The initial units purchased equal to 2 times the annual premium are known as Capital units. Once the capital units obligation for the plan has been met then the money invested will be used to purchase what are known as accumulation units. Accumulation units have a lower periodical management charge and therefore will increase at a faster rate than capital units.

The term is also used in connection with the Unit Trust investments to describe a type of unit where all income earned is re-invested automatically in the Unit Trust and thereby increases the value of the unit.

Allocation Direction of Money to a selected fund or funds



Attribution Application of Unit price to the money in the cash fund to purchase units

Alterations Internal Alterations Alterations generated by the system when due For Ex. Decreasing term assurance , expiry of loadings , reduction in sums at risk relating to increases in investment value , premium expiry , renewable term processing , premium resumption following waiver , policy memo processing etc.

External Alterations Alterations generated by the users like unit price input , switching policy investment funds , canceling a policy or a benefit from inception , reviving a policy from Lapse and assigning a policy to Banks/building societies .

Annuity A vehicle by which Insurer will pay a guaranteed income in return for a lump sum investment.

Annuitant a person receiving a annuity .

Appropriate Personal Pension Another term for a Protected Rights Pension Policy which is an alternative to the State Earnings Related Pension Scheme.

Bid Price Applies to Unit Fund and Unit Trust business and is the price which the company uses for determining benefits and to buy back units from the investor.

Bonus Interest The term given to additions to 'with profits' personal pension plans resulting from any distribution of profits of the Company's pension fund business. Bonus interest is declared as a rate percent per annum and will be applied on a day to day basis to the balance of the retirement account.

Capital Gains Tax A tax which may be payable on an increase in value of a capital asset. Any tax liability applicable would be calculated after due allowance for a person's exemptions.

Capital Units Applies to Ultima, Gold, Children Gift Plan and Unit Linked Prosperity Plans. Capital units are used to help recoup initial expenses including commission and commission related expense. There is an obligation to invest money into Capital Units in the following circumstances - when a new policy is issued, when the premium is increased each year



through indexation provision, and when the premium is increased by the policy holder.The capital unit obligation will equal two times the regular annual premium. When the annual premium is increased (whether by indexation or by the policy holder voluntarily increasing their own contribution) a further Capital Unit obligation will arise equal to two times the annual increase in premiums.

Cash Value The face value of a Prosperity Pension Plan scheme reduced in accordance with the Company's basis for early retirement. This applies where the retirement account is transferred, the pension age commenced before the age of 60 years, the plan has been in force for less than 5 years, or where regular contributions have been increased or single contribution made in the previous five years.

Equity Fund A fund used for unit linked policies, which invests mainly in ordinary shares of industrial and commercial companies.

Family Income Benefit An additional temporary assurance rider benefit for a specified term which provides an income from the date of death until the end of a specified term. Family Income Benefit is also available as a stand alone policy.

Financial Advisor A holder of a license to advice clients of the financial implications of taking up a particular product.

Freedom Bond This is a single premium ordinary branch policy which provides for a sum of money to be made available with which to purchase a pension.

Fund Manager a person who manages a investment fund of which a client can be a member through unit linked policies or personal portfolio services .

Gilt and Fixed Interest Fund A fund used for unit linked policies which invests in bank deposits and very short term British Government or public authority debt. It provides for security but with little prospect of growth.

Immediate Income Plan This is an immediate temporary annuity combined with a deferred annuity available on a single life basis only ( this policy is also referred to as a guaranteed income bond). The single premium invested is divided into two portions, one to purchase an immediate



temporary annuity for either 5 or 10 years, the remaining portion to purchase a deferred annuity.

Immediate Life Annuity A single premium investment used to purchase an annuity which will provide the annuitant with a regular income for the remainder of their lifetime.

Investment investment linked Life assurance policies are usually either single premium contracts or annual premium contracts for ten years or more. Part of the premium is used to cover the Insurers charges and pay for life assurance cover. The balance is used to buy units either in a unit trust or investment funds run by the Insurer.

Managed Fund An investment fund used in connection with unit linked products. This fund invests in ordinary shares, properties and UK gilt-edged stocks giving a mix of different types of investment to provide growth with reduced risk.

Maximum Investment Plan A unit-linked endowment assurance contract with a guaranteed minimum death benefit. This product is available on a single life basis only.

Offer This is one of the elements of a valid contract (e.g., an insurance policy) which means that the offer may be made to a definite person, must not be vague, must state all the terms of the offer, may be terminated at any time before acceptance, i.e., by revocation, death, rejection etc.

Offer Price Used in connection with unit linked and unit trust investments and is the price at which the company allocates units in the chosen fund or trust.

Pension Pensions are normally periodic payments from the government or a former employer when someone reaches the end of his working life. Insured schemes through a Insurance company can be arranged for the employee to get pension.

Pension Fund a superannuation fund which pays retirement benefits in the form of pensions.

Rebalancing The act of switching parts of investment from one fund to another in a portfolio and then balancing them based on request from client or PPS fund manager



Switching The act of moving the capital from one fund /portfolio to another. The insurance company will levy a small charge on this transaction.

Trustee a person or company appointed under the terms of the trust deed to hold the trust property for the beneficiaries and to make sure that the plan is operated in accordance with the trust deed.

Trust deed a document which sets out the rules for establishment and operation of a fund.

Unit Trust Unit Trust will pool the small amount of investors money and places it under the control of Investment managers . This money is then invested in property or stocks. The investment being held by a trustee or trustees on behalf of the investor. Each pool is divided into equal units and the investor then receives a number of units depending on the amount of his investment.

Unit Linked Insurance Policy a ULIP as it is called, is for a fixed term of 10 or 15 years and is managed by a trust, who will invest part of the money paid as premium to take a life insurance policy on insured and will invest the remaining in units managed by investment funds.



9.3 General Insurance

All Risks Describes a type of policy which gives wider cover than usual. Can cover any loss or damage caused subject to any exclusion stated in the policy.

Associated Claims these are secondary or additional claims to the main claim. For e.g. there is a damage to the Building due to a Storm for which there is a main claim . After two days the water seeps in and destroys the carpet. The claim due to this is called an Associated claim.

Business Associates (BIA) BIA as they are called are experts in Insurance and usually BIA advice is taken for large Insurance’s on Commercial undertakings / Industry . In addition to the Agent, BIA will also get some part of the commission.

Chartered Loss Adjustor (CLA) CLA are experts in Loss evaluation. The help of CLA is taken whenever there is a very large Claim. CLA will evalauate the Loss and based on his recommendation the Insurance company will settle the Claim.

Client an individual or company associated with the office. Could be a Personal Client - an individual associated with the office like Policy owner , proposer beneficiary , insured or Business Client - any Company associated with the Insurance company

Class Within each Segment (Product) there are various schemes to cater to the specific needs of the people Ex. For Product House Home Standard the Classes are

BuildingsContentHoliday and TravelAll risk

Claims Whenever a Insured person suffers a Loss he can approach the Insurance company to Compensate for the Loss. This is called a Claim.

Comprehensive this insurance will cater to all form of claims from the insured as well as third party damage.



Contribution A principle of general branch insurance which means that if for example, a person had an item insured with company A and also company B then should a claim arise the two companies concerned would pay half the claim amount each in settlement.

Direct Debit Mode of payment in which the payment is done by a debit directly from a bank .

Duration of Policy normally General Insurance policies is for a period of one year. At the end of a year it is Renewed.

Event No you can associate a Event no to a set of claims due to disaster like Floods. This helps the Insurance management to know, at any point of time, how much this Event has cost the company.

Facultative Reinsurance Facultative Reinsurance is usually taken on a

Individual policy where the single policy has a very large sum assured or there are extra factors that increase the risk of the policy

Indemnity Compensation for Loss

Insurance Arbitrator Whenever there is a dispute on the amount of Claim the advice of Insurance Arbitrator is taken who will in turn study the case and settle the claim to the mutual satisfaction of both the parties

Insurer A Insurance Company doing the business of Insurance

Insured Any person who has taken a Policy with the company

Lapse Happens when the policy holder defaults the payment of premium. Reviving a policy from Lapse is allowed within a set period free of charge. Beyond this tolerance period it can be revived for a fee until it goes out of force.

Legal Dept. The department that is responsible for the compliance of the product to statutory guidelines.

No Claim Discount Whenever a Policy has no Claims , the Premium reduces at Renewal . No Claim Discount will be for a period of five years ranging from 30% - 50% .



Product A scheme that is developed by the Insurance Company that assures a specific benefit for Clients who take this policy. A Insurance company has Products to cater to each and every segment Ex . House and Home Standard (HHS)

Drivewise Gold (DWG)

Product Manager A Person who is responsible for the product from Inception to the end , including the proper implementation of the product into the system.

Recapturing When a new reinsurance treaty is negotiated for all existing risk as well as new risk and it replaces all other treaties with the reinsurer then this is called ‘Recapturing’ .

Reinsurance Reinsurance is Insurance taken out by the Insurer on a Risk. If a claim is made the Reinsurer shares the burden of the Claim to the agreed sum reinsured.

Reinsurance Commission Is commission paid to the Insurer for placing the business with the reinsurer.

Renewal at the end of the year the policy is Renewed for further term of one year subject to clients acceptance else the policy is Lapsed .

Retention Limits specifies how much risk the insurer is to retain. For ex. if a policy has risk of 10K and retention limit is 2K , then the sum reinsured is 8K. The first 2K of risk is retained by the insurer.

Sub-Class Within each Product-Class, Sub class represents the salient features of the Insurance. Ex . For Product /Class House and Home Standard /Buildings the Sub-Class is With Accident damage

No Accident damage

Short Term Policy sometimes while going on Travel/Holiday short term policy for a period of 1 to 3 months are taken. It will generally come as part of the Holiday package .

Taxation Office Details of Contribution tax, Lumpsum tax, group tax reconciliation, unclaimed money etc goes to this government agency. Details about the surcharge/surtax also is received/sent to this department.



Third Party this insurance will cater to claims only from the others who have suffered a loss. Insured person will not be compensated for any loss or damage he has suffered.

Treaty Reinsurance a reinsurance treaty specifies a set of reinsurance rates and retention limits on a group of products for a selection criteria. The Reinsurer agrees to reinsure all risks that fall within the agreed guidelines. There is a set formulae for the calculation of reinsurance premium that is used for all risks reinsured.

User Any person who uses the system to enter / alter / enquire the data corresponding to a member or can suggest business changes.



9.4 SuperAnnuation

AGC Australian Guarantee corporation Ltd. is a wholly owned subsidiary of Westpac Banking corporation which is a finance company for WFS. Money invested in Westpac Fixed rate Superannuation Bond is in turn invested in first charge debentures issued by AGC.

Benefit the amount of money in the superannuation fund to which the fund member is entitled

Beneficiary a person for whose benefits, assets are being held . Beneficiaries can be members and their dependents.

Lump sum in superannuation terms the benefit taken as a single payment rather than taken as a pension or annuity .

Occupational Superannuation superannuation provided by an employer as part of terms and conditions of employment .

Superannuation a long term savings arrangement which operates primarily to provide income for retirement.

Superannuation Division A regulated Superannuation Fund in a Insurance company that complies with the provisions of the Superannuation

Industry Supervision (SIS) Act .

Superannuation Fund/Plan/scheme usually a trust fund to provide benefits for members on retirement/resignation/death/disability or other specified events. The funds are governed by a trust deed and administered by trustees

Superannuation Industry (Supervision ) Act SIS act prescribes prudential standards and rules that govern the superannuation entities .

Superannuation Pension a pension payable from a superannuation fund .



Surplus is the amount by which the current value of assets plus present value of future contributions is greater than the present value of expected liabilities .

Unclaimed Monies money in the superannuation fund which is not claimed by the beneficiary who is eligible for it.



8 Popular Packages

Some of the popular packages available in the market are CLOAS - Life InsuranceHUON - Non-Life Insurance

10.1 CLOAS

CLOAS – Comprehensive Life Office Administration System, a product developed by Continuum Australia in 1975. The main objective of this product was to manage and execute the Life assurance business for the insurance companies. Later on the product functionality’s are enhanced to take care of Superannuation business also. Currently many insurance companies around the globe are efficiently using the CLOAS system for their day to day business needs, which includes Pearl Assurance from U.K, Westpac Insurance Company from Australia to name the few.

Overview of CLOAS

Initially CLOAS system was built around flat files as their data source, later on moved to a single, centralized database structure. This centralized database stores all the relevant information of Life office. The information includes client details, client’s policy details, agencies and agent details, the government rules and regulations, Company’s product details, Sales and marketing details. Only authorized users can access the database and because of its centralized nature the duplication of data is also minimized to a great extent. CLOAS maintains a three level security mechanism: terminal level, user level and transaction level. These security features can be tailored according to requirement of a company.

CLOAS functionality’s are executed via numerous transactions. A transaction is nothing but an execution of a business function in the system right from its initiation to its end. A simple example of a transaction could be an interaction between the system and a user, who captures the policy proposal details via on-line screens and finally, stores it in the main database. Internal activities will also trigger a variety of transactions based on next activity date. These activities might be maturity of a policy, notice on premium due, statement generation etc.

CLOAS basically deals with Life, Superannuation and Investment products. The business functions that CLOAS supports are, proposal processing, policy maintenance, policy billing and accounting, client administration, general ledger, agency & commission and statistics.



Currently, the CLOAS application programs are written in COBOL and execute in the IBM mainframe environment. CICS panels serve as user interface to the system. Different CICS panels represent different business function. The centralized database can be IDMS or IMS/DB or DB2.

Product Features

All application modules will execute under the environment of control programs, a special kind of programs. These control programs are mostly written in Assembler. On-line transactions captured initially will be stored in the intermediate

database called Transaction Capture database (TCDB). Majority of application transactions will execute during over night batch run. This also includes the moving of TCDB transaction to main database. The concept of TCDB helps in the reducing the load on the main database during peak day time. However, some of the important transactions can be processed in real

time by using ‘Dripfeed’ technique. Dripfeed is a technique in which CICS application programs will be

executed side by side with the batch application programs. CLOAS generates lot of reports that caters to various business

requirements.

Highlights of the Product

Because of Control programs the application code is completely independent of hardware, operating systems, DBMS and on-line systems.

System can be ported across hardware, operating systems and DBMS. Easier to transaction program development using standard calling

sequences to perform common functions.



10.2 HUON Application

Huon application was developed by Huon corporation of Australia in the year 1989. It is a high value integrated Client based software solution for Insurance companies to map their business processes to their IT systems. The package is functionally advanced to meet needs of the financial services corporations today and well into the next millennium

The evolution of the huon solution since 1986 has been due to implement the requirements of the Customers. The latest version provides many new enhancements like

Multi language supportWhich allows the customers to write the policy in different languages on the same system.

Enterprise Server EnablementAllows the users to access the system via a variety of interfaces. This interfaces could be either Huon developed GUI using Java or other Graphical Front endEnterprise Server Enablement positions companies to exploit the emerging business available through internet

Electronic Data InterfaceEDI has long been a focus of efficient business processing

Huon application is made of four modules all working on the Relational Database management system. Each of these modules can be implemented separately or as part of the Huon solution.

Client

The Huon solution is a client based software package and stores information on each and every client associated with the insurer. These can include policy holders, claimants, agents, banks and loss adjusters.

The information held against the client include multiple names, addresses, telephone no and bank accounts. The client module enables the business to take into account the entire relationship with the customer.

Protect

Protect is the Insurance module of the Huon solution. It provides end-to-end policy and claims administration from quotations to reinsurance for both commercial and personal classes of insurance



The Protect module has Full policy processing like quotations, New business, Endorsements, Lapses and cancellations. These are all affected by the associated underwriting acceptance, rating , taxation and commission rules controlled by the business analyst using the business manager subsystem. Claims processing includes new claim registration, amendments, express claims handling and payments. These are also controlled by the business manager subsystem.

The Policy, claims, and Agent administration can be tailored to each company’s requirements allowing rapid development of new products.

Provision

Provision is the fully integrated General Ledger and Financial Accounting module of the Huon solution. It also provides for all back office support for banking receipts, payables, receivable, disbursements, agent accounts and reinsurance accounting. Provision also provides full Audit trails of transactions carried out with in Huon system.

Billing

Billing is the payment management module of the Huon solution. It allows you to vary the payment collection method by the Product or the distribution channel through which the policy is sold.

Collection methods can be either lump sum payments or installments. Installments methods can be set up with various collection frequencies and amounts.



9 Insurance Products

Life Insurance Corporation is a government of India undertaking is the only company dealing with Life Insurance Products in India . A lot of Foreign companies are eager to enter Indian market. They have tied up with Indian counterparts and financial institutions . They are waiting for the Insurance Regulatory authority (IRA) bill to be passed in the parliament. As of now LIC is the only Indian company dealing with Life Insurance products.

Life Insurance Corporation of India is having a large number of Products to cater to people in different sectors and different Income groups. They have more than 128 Plans . Some of it have been withdrawn but around 34 of them are in force as of now. They are also introducing new plans to cater to changing trends and requirements of the people. LIC is having Plans of all three basic types Term assurance, Endowment and whole Life Policy. Some of the Plans are a combination of these basic types. These Plans are for term assurance, Savings oriented and profits. In LIC there is no Health Insurance Products as of now .

Some of the Plans of Life Insurance corporation are

Sl No Plan Type

1 Term Plans Term Assurance2 Convertible Term Ass Term Assurance3 Endowment Plan 1 Endowment4 Endowment Plan 2 Endowment5 Bima Kiran Endowment6 Money Back Policy Endowment 7 Whole Life Plan1 Whole Life8 Whole Life Plan2 Whole Life9 Jeevan Raksha Annuity10 Jeevan Dhara Annuity11 Jeevan suraksha Pension12 Asha Deep Term + Critical Illness13 Jeevan Mitra Triple cover Endowment



12 Glossary of Terms

AGC Australian Guarantee corp.BIA Business Insurance AssociateCLA Chartered Loss AdjustorCPI Consumer Price IndexDTI Department of Trade and Industry (UK)DWG Drivewise GoldHHS House Home StandardIB Industrial Branch ( A Division of Pearl)IRA Insurance Regulatory AuthorityLAUTRO Life Insurance and Unit Trust RegulatoryLIC Life Insurance Corporation of IndiaOB Ordinary Business ( A Division of Pearl)SIS Superannuation Industry Supervision ActNCD No Claim DiscountWFS Westpac Financial Services



APPENDIX



Appendix A DFD for New Business



Appendix B DFD for Endorsement



Appendix C DFD for Claims Death


Appendix D DFD for Claims Maturity

Appendix E DFD for Reinsurance

Appendix F DFD for Premium Accounting

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