INSURANCE

1
The Japanese eat very little fat and suffer
fewer heart attacks than the British or
Americans.On the other hand, the French eat a
lot of fat and also suffer fewer heart attacks
than the British or Americans. The Chinese
drink very little red wine and suffer fewer
heart attacks than the British or Americans. The
Italians drink excessive amounts of red wine and
also suffer fewer heart attacks than the British
or Americans. Conclusion Eat drink what you
like. It's English that kills you .
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I N S U R A N C E
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• Insurance in broad terms may be described as a
  method of sharing financial losses of few from a
  common fund who are equally exposed to the same
  loss.

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Example

• Say 1000 motor cars valued _at_ 300000/- are
  observed over a period of five years. On an
  average say per year two are total loss by
  accident. Then the total annual loss would be
  Rs.600000. If the loss is to shared by all the
  thousand owners then they have to contribute
  Rs.600/-
• The loss experience will be established by taking
  the past experience, geographical area in which
  the vehicles are used and density of traffic.

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PRINCIPLES OF INSURANCE

• Rate of contribution or premium
• The degree of hazard it is exposed to.
• Classification of various types of properties.

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IMPORTANT ELEMENTS INVOLVED IN THE CONCEPT OF
INSURANCE

• Subject matter of insurance.
• The PERIL (risk)
• The financial loss.

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• Subject matter is property, human life,
  machinery, goods etc.,

• Peril is fire, storm, burglary, earth quake,
  injury,
• explosion etc.,

• Financial loss is normally defined before the
• contract is signed.

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RISK

• RISK- can be defined as the unforeseen element
  which may impede your progress in achieving the
  objective.

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In insurance jargon they term RISK as an
uncertainty regarding loss or what is termed as
a FORTUITOUS risk. Concept of chance and risk
can be expressed in a single mathematical term
called Probability.
10
An example of impossibility can be quoted say the
9/11 incident where insurance companies were
washed out. Hyderabadis never in their dreams
thought of taking cover for flood. When the
encroached drains could not contain rains for 2
days, the resultant floods had washed away score
of vehicles, property etc., So, Risk is inherent
in human existence. Human life and material
possessions are constantly exposed to loss or
damage due to the mechanizations of fortuitous
circumstances
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A RISK OF TRADE is a loss due to a specified
event say fire, storms burglary etc., These are
classified and their frequency in already
assessed. A TRADE RISK is a risk of loss
inherent in the trade itself. Broadly speaking we
can say loss of profit as a result of change due
to market collapse, political factors
etc., Risk of trade is insurable as it is
already assessed, Trade risk is yet to be
classified and hence majority of these are not
covered.
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MATHEMETICAL VALUE OF RISK L/V x 100 where L
total losses reported Vrefers to the total
values the product of the above analysis is
called Law of averages or the doctrine of
probability. So premium rates depend upon past
loss experience by systematically classifying the
risks. Which are homogenous in characters
Example- Motor vehicle.
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ITC
RICE INSURANCE
ATFL
EMMSONS
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SCOPE OF INSURANCE General Insurance is
divided into three categories FIRE,
MARINE MISCELLANEOUS
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FIRE INSURANCE

• FIRE INSURANCE BUSINESS
• Loss due to FIRE, LIGHTINING, EXPLOSION,
  IMPLOSION,, RIOTS STRIKES, IMPACT BY RAIL,
  AIRCRAFT DAMAGE, EARTH QUAKE, FLOOD, STORM,
  TEMPEST, TORNADO, TYPHOON, CYCLONES LAND SLIDE.
  

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MARINE INSURANCE BUSINESS This is the oldest
branch of Insurance comprising HULL CARGO.
Hull Insurance deals the Loss associated with
floating crafts, Cargo insurance provides cover
in respect of loss or damage to goods during
transit by rail, road, sea or air.
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MISCELLENOUS INSURANCE BUSINESS Mainly
includes the motor business, accident, aviation ,
engineering and guarantee insurances.
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CONTRACT OF INSURANCE
In between the insured and insurer
INSURED- Party effecting insurance, (Individ
ual, Company, Firm, Corporate body etc., with
legal status)
INSURER- Party granting the protection under
an insurance policy. Policy- Is the evidence
of contract
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Insurance contracts are governed by Indian
contract act 1872 which states that to be legally
valid following elements should be in order.

1. Offer and acceptance

1. Consideration

1. Agreement between the parties

1. Capacity of the parties

1. Legality of the contract

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UTMOST GOOD FAITH The greatest degree of good
faith by law, is expected from the proposer, that
is the main reason why good faith in case of
Insurance contracts becomes UTMOST good
faith. It is the duty of the proposer to
disclose all material facts not only already
known but also extends to material facts which
he ought to know.
21
Examples of material facts FIRE
Construction of building, type of occupancy,
nature of good stored etc. MARINE method of
packing, inherent vice etc.
22
INSURABLE INTREST In nutshell if property is
the subject matter of insurance then the subject
matter of insurance contract is the insureds
pecuniary interest in that property. LEGAL
RIGHT TO INSURE IS THE INSURABLE INTEREST.
Insurable Interest is required to support the
contract of Insurance in order to make it legal,
other wise the contract is null and void.
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• HOW INSURABLE INTEREST ARISES
• By ownership
• By Law
• By Contract
• By Legal liability
• Interest of a Person in Life

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When insurable interest must exist For Fire
or Miscellaneous policy the insurable interest
must exist at the time of taking the policy and
at the time of the loss. For Marine policy an
insurable interest need not exist at the time of
policy taking.
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WARRANTY means an assurance by the
assured, that he will not do some particular
things or will fulfill any conditions that are
laid in advance. WARRANTIES are further
classified as express or implied
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ASSIGNMENT Assignment means transfer of rights
and liabilities of an insured to another person
who had acquired insurable interest in the
property insured. Fire policies have to be
assigned with the consent of the insurers, where
as Marine cargo policies can be freely assigned
without the knowledge or consent of the insurer.
This is because the ultimate buyer is not known
at the time of taking the cover. Marine hull
policies cannot be assigned.
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INDEMINITY Can be defined as
compensation for loss or injury sustained or
to make good the loss or damage .
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• Methods of indemnification
• Cash payment
• Repair
• Replacement
• Reinstatement.

29
Mode of indemnity Buildings the cost of
reinstating or repairing the damaged portion, is
assessed, and from that an appropriate allowance
is made towards depreciation, depending on the
age and condition of the building. Allowances
are made for improvement due to repairs.
30
Machinery Here the method of indemnity is
supposed to be the market value for a similar
machine of same age and model as determined on
the date of loss. In practice this is difficult
so the measure of indemnity becomes the
replacement value less depreciation. In case of
repairs the cost of repairing is borne by the
insured. However replacement of parts is subject
to an allowance towards depreciation.
31
Household goods Consideration similar to
those applicable for machines.   Stocks In
case of wholesalers or retailers, the measure of
indemnity is the price at which he will be able
to replace his goods. The element of profit will
not be taken care of. 
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Fire insurance

• Fire insurance policies may be issued on
  REINSTATEMENT value basis. Although the insured
  gets new property which is in similar condition
  and of same kind, to protect the basic of idea of
  indemnity the property will not be of superior
  nature.

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Motor If the vehicle is a total loss, the
sum insured or the value of the vehicle, which
ever is less is paid. If the vehicle is damaged
the cost of repairs or paid, if parts are
replaced the cost of new part will be subjected
to depreciation. In all the cases age and general
maintenance of the vehicle are considered.
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MARINE INSURANCE In this branch what is
provided as indemnity becomes commercial
indemnity because, Almost all the policies issued
are agreed value policies. To be precise the
insured and the insurer agree that the sum
insured is the value of the property insured. The
agreed amount is then payable in case of total
loss, with no attachments what so ever.
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MISCELLANEOUS

• Miscellaneous Insurance the insurances of
  property, liability and insurance are contracts
  of strict indemnity. Normally books of accounts
  are referred when settling claims in this branch.
  ( ex. fidelity guarantee insurance)

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Under insurance Property insurances are
generally subject to the condition of average,
and if there has been under insurance, only that
portion of the loss is payable. Ex.value of
property Rs.20000 Sum insured
Rs.15000 Loss assessed Rs.10000 Amount
payable will then be 15000 x 10000
7500 20000 The insured is
then considered as his own insurer for the
difference of the liability.
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EXCESS OR FRANCHISE In some policies an
EXCESS or FRACHISE is incorporated, which means
that a certain circumstances a part of the loss
may have to be borne by the insured.
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SALVAGE Property which is saved from loss or
damage and still has some commercial value is
called salvage.
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SUBROGATION

• may be defined as the transfer of rights and
  remedies of the insured to the insurer who has
  indemnified the insured in respect of the loss.

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CONTRIBUTION An insured may have taken many
policies on the same subject matter. The
principal of contribution would lead to a
situation in which the insured would be able to
recover his loss from any one insurer, who then
will have to effect proportionate recoveries from
other insurers concerned. Normally the insurers
seek to control additional insurances at the
proposal stage itself. Remember at no cost an
infringement to the principle of indemnity is
accepted. The principal of contribution does not
apply to personal accident policies.
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PROXIMATE CAUSE Means the DIRECT, DOMINANT or
effective cause of which the loss is the natural
consequence. It is the cause which is most
closely connected with the loss, not necessarily
in time but in efficiency. Although the
doctrine is clear in theory, it is difficult to
determine the proximate cause, as a clear
demarcation should be maintained between insured
peril, excepted peril and un insured peril.
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Example An insured sustained an accident while
hunting. Due to shock and weakness, he was unable
to walk and whilst lying on wet ground, he
contracted cold which developed into pneumonia
causing death ultimately. The proximate cause
was considered to be the accident and not the
pneumonia, the disease, which was only a remote
cause. The claim was payable under personal
accident policy.
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MARINE INSURANCE  A. cargo insurance  B. hull
insurance Cargo insurance provides insurance
cover in respect of loss of or damage to goods
during transit by RAIL, ROAD, SEA, AIR OR
REGISTERED POST.
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TYPE OF CONTRACT RESPONSIBILITY FREE ON
BOARD SELLER IS RESPONSIBLE TILL
THE (F.O.B) GOODS ARE PLACED ONBOARD. COST
FREIGHT THE BUYERS RESPONSIBILITY STARTS (C
F) FROM THE TIME THE GOODS ARE PLACED
ONBOARD COST INSURANCE THE SELLER IS
RESPONSIBLE FOR FREIGHT (C.I.F) ARRANGING
INSURANCE WHICH IS INCLUDED IN THE COST OF THE
GOODS.
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A further security in the form of insurance
policy is also required by the bank to protect
its interest in case of goods suffering loss or
damage while in transit, in which case the
importer may not make the payment. The terms and
conditions of the insurance are specified in the
letter of CREDIT.
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• The RISKS covered in a marine policy falls under
  three categories
• MARINE PERILS
• EXTRANEOUS PERILS
• WAR STIRKES, RIOTS CIVIL
• COMMOTION RISKS (S.R.C.C)

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MARINE PERILS are the perils associated with
rivers, seas. EXTRANEOUS PERILS means not
relevant. Ex theft, pilferage non delivery are
some of the extraneous perils. Loss due to WAR,
STRIKES and CIVIL COMMOTIONS (SRCC) can also be
covered under a Marine policy. The consequences
of these perils may result in total loss.
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TOTAL LOSS IS DIVIDED INTO ACTUAL OR
CONSTRUCTIVE .
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PARTIAL LOSS

• This is once again divided into
• PARTICULAR AVERAGE
• OR
• GENERAL AVERAGE
• In marine insurance the word average is
  synonymous with LOSS.

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PARTICULAR AVERAGE

• A particular average loss is a partial loss of
  subject matter insured. Deductions are as per
  excess and franchise clauses.

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• Example If fire is discovered onboard a laden
  vessel, the following items make up the general
  average loss
• Cost of damage caused by water or any other
  methods used to extinguish the fire
• Cost of repair if the ships structure has to be
  altered to gain access to fire.
• Value of any cargo damaged or jettisoned during
  efforts to control fire
• Cost of using the ships equipment and the wages
  of the crew during the general average incident.

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• Example A vessel runs aground in a dangerous
  position
• Cost of tugs to refloat the vessel including
  salvage award
• Cost of running ships equipment while refloating
• Cost of discharging cargo into lighters and
  reloading into vessel.
• cost of pollution removal if the cargo is
  jettisoned and the value of the cargo lost.
• stores consumed and wages paid to crew during the
  general average incident.

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SALVAGE CHARGES With Marine cargo
policies, the term is often referred to as
salvage loss. Ex. Say goods insured are damaged
enroute, and the goods are such that they
deteriorate incase of prolonged storage or by
they time they reach their destination. It is
then prudent and sensible to dispose of the same
at an early date for the best price obtainable.
The difference between the insured value and the
net proceeds of the sale becomes the salvage
value.
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SUE LABOUR CHARGES These are expenses
incurred by the insured or his agents in order
to avert minimize a loss covered by the policy.
Example of such charges are the landing cost at
intermediate ports , ware housing ,
reconditioning and re forwarding. It should be
noted that the insured should always THINK AND
ACT in such manner as a UNINSURED would act.
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INSTITUTE CARGO CLAUSES (A), (B) (C)
Risks/Contingencies Covered by ICC(A)
a)All risks of loss or damage to the subject
matter insured except those specifically
excluded. The term all risks is not to be
construed as embracing loss or damage, which is
inevitable. The loss or damage, in order to be
recoverable, must have occurred
fortuitously. b)General average and salvage
charges incurred to avoid loss from any cause or
causes except those excluded. c)Liability under
Both to Blame Collision clause of the bill of
lading.
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• d) Charges reasonably and properly incurred to
  avert or minimize an insured loss and to preserve
  and pursue recovery rights are also covered (as
  per Duty of Assured Clause).
• e) In the event of termination of the transit
  resulting from a risk covered. EXTRA CHARGES
  incurred in unloading, storing and forwarding the
  insured cargo to destination (as per the
  Forwarding Charges Clause).

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Comparison between the institute cargo clauses
(A), (B) (C)
A comparative analysis of the institute Cargo
Clauses (A), (B) (C)
Type of risks Covered (?) not covered
(?) A B C Loss / damage reasonably attributable
to
1. Fire or explosion ? ? ? 2.
Vessel/Craft being stranded, grounded, sunk or
capsized. ? ? ? 3.
Overturning/derailment of land conveyance. ? ? ?
4. Collision or contact of vessel, craft or
conveyance With any external object other
then water. ? ? ? 5.   Discharge of cargo at a
port of distress ? ? ? 6. Earthquake,
volcanic eruption, lightning ? ? ? 7. General
average and salvage charges incurred to
avoid loss from any cause except those
excluded ? ? ? 8. General average
sacrifice ? ? ?
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• A B C
• 9. Jettison ? ? ?
• 10. Washing overboard ? ? ?
• 11. Entry of sea, lake or river water into the
  vessel,
• craft, hold, conveyance, container, lift van or
• place of storage. ? ? ?
• 12. Rainwater damage ? ? ?
• 13. Total loss of any package lost overboard or
• dropped whilst loading or unloading from
• vessel or craft. ? ? ?
• 14. Piracy. ? ? ?
• 15. Deliberate damage or destruction by wrongful
  act
• of any person or persons, (i.e. by malicious
  acts) ? ? ?
• (Can be covered by malicious Damage Clause for
• I.C.C (B) and (C) upon payment or extra premium)
• 16. In the event of frustration of the voyage
  resulting
• from a risk covered, extra charges incurred in
• unloading, storing and forwarding to
  destination ? ? ?

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A B C 17. Reasonable charges
for averting or minimizing loss
recoverable under this insurance and also those
incurred, to pursue recovery rights
against carriers, bailees or third
parties. ? ? ? 18. Other or
extraneous perils all involving a fourtuity
and from external causes(s), for example

• Damage as a result of shifting in heavy weather
  ? ? ?
• Improper stowage ? ? ?
• Rough handling ? ? ?
• Breakage, leakage, denting, scratching, crushing,
• crumpling, chipping, chafage ? ? ?
• Heating sweating ? ? ?
• Infestation, mould, mildew, rust, county
  damage ? ? ?
• Hook and sling damage ? ? ?
• Contact with mud, oils and acids, damage by
• other cargo ? ? ?
• Shortage, theft, pilferage, non-delivery ? ? ?
• Other loss/damage caused fortuitously and from
• external cause or causes ? ? ?

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A B C 19. liability under Both to
blame collision Clause of Bill of
Lading. ? ? ?
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COMMON EXCLUSIONS

• Loss, damage or expenses attributable to willful
  misconduct of the assured
• Ordinary or inevitable losses
• Loss, damage or expense caused by inherent vice
  or nature of the subject matter insured
• Loss/damage due to insufficient, unsuitable or
  defective packing (including stowage)
• Loss/damage or expenses proximately caused by
  delay even if the delay is caused by a peril
  insured against
• Loss damage or expenses arising from insolvency
  of the owners, managers, charterers or operators
  of the vessel.
• Loss damage due to un seaworthiness of the vessel
  or craft, container, lift van employed for
  carrying the insured matter.
• Wars, strikes and civil commotions unless covered
  under separate endorsements.

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PROTECTION INDEMNITY

• Is a mutual association operated on behalf of its
  members (ship owners) by a board of Directors
  appointed by and from the members of the club.

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THANK YOU