PRACTICE OF INSURNCE

RAJESH NANDAN

Transaction of Insurance in India is governed by

INSURANCE ACT 1938 – Passed in 1938, came in to effect from 1st July 1939 and has been amended time to time.

IRDA 1999 – came in to effect from 19th April 2000

INSURANCE LEGISLATION

The important provisions of the Act relate to Registration – Certificate of Registration must be obtained

from IRDA and to be renewed Annually. Accounts & Returns Investments Limitation on Expenses of Management Prohibition of Rebates Powers of Investigation Licensing of Agents/Corporate Agents Licensing of Brokers/Reinsurance Brokers Advance payment of Premium

INSURANCE LEGISLATION

Other Acts General Insurance Business

(Nationalisation) Act 1972 Motor Vehicles Act 1988 Marine Insurance Act 1963 Workmen’s Compensation Act 1923 Public Liability Insurance Act 1991 The Indian Stamp Act 1899 The Consumer Protection Act 1986

INSURANCE LEGISLATION

Proposal FormCover NoteCertificate of InsuranceEndorsementsClaim Form

Insurance Forms

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MARINE INSURANCE ORIGINATED IN ENGLAND owing to

frequent movement of ships over high seas for trade.

PROVIDES COVER FROM LOSS suffered due to marine perils loss incurred during shipment of cargo over water

bodies like rivers, lakes and inland waterways. ships under construction, and ships transporting

consignment GOVERNED BY - Indian Marine Insurance

Act 1963

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Marine Insurance (Contd.) COVERS THREE MAIN INTERESTS in a

marine venture :-Hull – it represents the ship;Cargo – it is the goods being transported by the

vessel; andFreight – is the profit or earnings of the ship at the

end of a marine venture. Marine insurance policy covers not only sea

voyage but also purely inland transits through any mode like rail, road,multimodal, even by post

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MARINE INSURANCE COVERAGE FORTUITOUS - sea accidents or casualties caused

without willful intervention of human (an element of chance or ill luck)

INSURED PERILS Fire, Pirates and Thieves, Stranding Barratry - act willfully committed by master and crew

against owner or charterer of ship, Jettison –throwing of cargo overboard due to either a

deliberate act or at the wake of grave danger Taking at sea –when vessel is captured by enemy or

others Foundering at Sea –ship has been reported lost after

a stipulated time Collision –ship collides with another ship or with other

objects, causing damage UNINSURED PERILS Wear and Tear, Leakage, Breakage of goods, Inherent

Vice, Loss by Rats and Vermin

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MARINE POLICY MANDATORY REQUIREMENTS (MARINE

INSURANCE ACT, 1963)Name of assured, or someone representing him;object being insured and perils thereofThe voyage, period of time, or both; Insured sum;Name of insurer TYPES OF POLICIESTime and Voyage PolicyValued/Unvalued Policy (settled value of subject matter)Floating policyOpen Policy

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HULL INSURANCE HULL refers to ocean going vessels (ships,

trawlers, barges, fishing vessels, etc) REGISTRATION OF INDIAN SHIPS - The

Indian Register of Shipping (IRS) CERTAIN TERMS USED TO MEASURE A

SHIPRegister Tonnage – Gross, Net and Dead TYPES OF VESSELSOcean going or general cargo vessels, Dry

bulk carriers, Tankers or Liquid bulk carriers, Combination carriers, Container vessels, Passenger vessels

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TYPES OF HULL POLICIESa) HULL AND MACHINERY INSURANCE: cover

to protect ship owner from partial/total lossb) DISBURSEMENT AND INCREASED VALUE

INSURANCE: insurance for all those items not included in hull insurance estimation (upto 25 percent of insurance value)

c) PREMIUMS OF INSURANCE: as amount of insurance cover is very high, so are premiums. So, it is safe to insure premiums, including premium of the premium reducing policy.

d) RETURNS OF PREMIUM: policy is also applicable for a total loss situation. It is to insure the prospective returns in case of total loss

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Types Of Hull Policies (contd.)e) LOSS OF HIRE INSURANCE: protects

owner from loss incurred incase ship is stranded due to some failure in machinery

f) LOSS OF PROFITS INSURANCE: protects the Charterer’s in case of total lossg) SHIP REPAIRER’S LIABILITY: provides

cover to losses suffered other than repairs, due to negligence or an accident

h) BUILDERS’ RISK POLICY: covers risk of builders from beginning of construction, till delivery including all test and trials conducted before the delivery

i) CHARTERER’S LIABILITY POLICYj) WAR RISKS

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CARGO INSURANCE Cargo insurance are codified under the

Institute of Cargo Clauses (A), (B) and (C). RISKS COVERED BY ICC CLAUSESAll perils, Fire (including while extinguishing) Collision with another vessel/other objects Disposal of cargo at a port of distressLightning, earthquakes, volcanic activityLoss caused due to incursion of waterPackage lost/ damaged in loading and

unloading process (called sling loss) GENERAL EXCLUSIONS CLAUSE - willful

misconduct, breakage, financial default

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FREIGHT INSURANCE Profit a ship owner makes by transporting

his own cargo or the cargo of another person

TYPES OF FREIGHT:Prepaid Freight – paid in advance by

owner of goods, at his own risk. Covers this while insuring goods.

Freight payable on delivery – paid once goods are delivered. If carrier fails to deliver goods, then they are not entitled to freight.

Lump sum Freight – when carrier is not required to deliver entire cargo, but a sizeable amount of cargo should be delivered.

Time charter hire – paid to ship owner by owner of goods for making use of the ship for transporting his goods

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MOTOR INSURANCE Governing Act – Motor Vehicles Act 1988 to

mainly safeguard interests of pedestrians Mandatory – all vehicles shall be covered by

Third Party Insurance CERTIFICATE OF INSURANCE AND COVER

NOTE Issued by IC, includes a cover note complying with the prescribed requirements COMPULSORY INSURANCE - COMPRISES Liability arising out of bodily injury or death

of third party or damage to his property. Compulsory insurance of passengers carried by - hired vehicles, reason of a contract of employment, an employee under Workmen’s Compensation Act Exceptions – State owned vehicles

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THIRD PARTY INSURANCE LIABILITY COVERAGELiability to TP injury/death -unlimitedLimited to any one accidentGoods vehicle - Workmen’s Compensation ActHired passenger vehicle – Rs. 15,000Any vehicle other – Rupee value of actual liability.Any damage to property - Rs. 6,000 TP cover cannot be terminated without proof of existence of another insurance INSURER’S DUTY TO THIRD PARTY IC has no rights to avoid or reject the

liability but has right to defendLiability is determined by court. Liability is

unlimited. Insurer has right to receive notice of case proceedings

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FIRE INSURANCE PERILS COVERED Fire, Lightning, Explosion, Aircraft damage,

Riot, Strike, malicious damages, tempest, flood, landslide, bursting, missile testing operations, bush file, terrorist cover (with extra premium)

COVER MAY BE EXTENDED WITH EXTRA PREMIUM (ADD-ON COVERS)

Architect's, surveyor's consulting engineers fees, impact damage, bursting and/or overflowing of water tanks

Removal of debris, deterioration of stock in cold storage, forest fire, earthquake, loss of rent, start-up expenses

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FIRE - SPECIAL POLICIES FLOATER – cover stocks at various specific

locations under one Sum Assure, beneficial for insured

DECLARATION POLICIES – takes care of frequent fluctuations in stocks/stock values; monthly declaration to be made; refund of premium not to exceed 50% of premium paid

REINSTATEMENT VALUE POLICIES – fire policy with reinstatement value clause attached with special provisions; in the event of loss amount payable is cost of reinstating property of same kind or type or by new property

INDUSTRIAL ALL RISKS POLICY – cover designed for industrial risks (both manufacturing and storage facilities)

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CONSEQUENTIAL LOSS (FIRE) INSURANCE WHY THIS COVER- Fire insurance provides

indemnity against material damages, it may result to total/partial interruption of insured's business. Losses may be:-

a) Net Profitb) Standing Charges THIS POLICY PROVIDES indemnity for loss

of Gross Profit (NP + SC) PERILS COVERED similar to Fire Policy. EXTENSIONS PERMISSIBLE to cover

special perils – failure of electric/gas/water supply, damage to property

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HEALTH INSURANCE MEDICLAIM POLICY (Individual) – reimbursement of

room, boarding, nursing, surgeon, Doctors fees, artificial limbs, organs, similar expenses

DOMICILIARY HOSPITALIZATION BENEFIT – medical treatment at home, cannot be removed to hospital condition such/no accommodation

GROUP MEDICLAIM POLICY – available to corporate, institutions subject to min. no of persons covered; similar to Individual Mediclaim with minor difference

CANCER POLICY – granted to members of Cancer Patients Aid Association

CRITICAL ILLNESS INSURANCE – contracted during period of insurance and survived atleast 30 days thereafter

OVERSEAS MEDICAL POLICY – illness suffered or accident sustained by Indian resident during overseas trips for specified purposes

CORPORATE FREQUENT TRAVELERS

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SOME MISCELLANEOUS INSURANCE PERSONAL ACCIDENT INSURANCES GROUP POLICY BHAVISHYA AROGYA POLICY VIDESH YATRA POLICY GOLFER’S INDEMNITY INSURANCE CRIME INSURANCE BURGLARY INSURANCE BAGGAGE INSURANCE BANKERS’ INDEMNITY INSURANCE FIDELITY GUARANTE INSURANCE MONEY IN TRANSIT INSURANCE JEWELLERS’ BLOCK INSURANCE HORSE / DONKEY / MULE / PONY INSURANCE KIDNAP & RANSUM INSURANCE PACKAGE INSURANCE POLICY – HOUSEHOLD,

SHOPKEEPERS