Block 3

Block-3
General Insurance
BLOCK 3 GENERAL INSURANCE
Health Insurance plays a very important role and forms a considerable part of insurance
business. In Unit 7 we try to understand the centrality of concept of Universal Coverage
& the role of Insurance in it. Looking at the health expenditure by different countries
across the globe, a broad idea about financing health insurance is also provided. This
unit also gives a clear understanding about the various health insurance products
provided by insurers.
The role of government especially in social health insurance providing necessary financial
support, through the Rashtriya Swasthya Bima Yojana (RSBY) is also covered. The
unit also deals with Health Insurance Business, Health Claims and the future of health
insurance.
Motor insurance being a mix of personal property (own damage to the vehicle) &
social liability (liability to third party victim of an accident), warranted a special treatment,
and thus taken up separately in Unit-8. Here a discussion of Tariff & Non-Tariff
Insurance markets, Own Damage & Third Party covers, modes of Motor Claim
settlements is done. You will be able to get an overview of Motor Vehicle Act &
highlights of proposed changes in Road Safety Bill. Impact of technology on vehicles
and their insurances is dealt with.
Unit 9 is on Property Insurance. In this unit we have discussed how in common parlance,
Fire Insurance and Property Insurance are used interchangeably. The distinctive features
of fire insurance, principles of insurance that apply to Fire Insurance, Standard Fire
and Special Perils Policy etc. are also covered. The unit also provides knowledge
about fire insurance coverage and processes. The various aspects related to underwriting,
policy issuance, claims and renewal are also given.
Agriculture insurance (Unit 10) which is very important for economic and social
development for a county like India has been covered extensively. Risk in agriculture
originates from different variables such as- biological, climatic, agricultural practice
and price, the coverage for each of these has been discussed. Crop insurance products
broadly classified under indemnity-based insurance and index insurance or weather
index insurance are elaborately explained in this unit.
Unit 11 - The insurance policies of importance which could not find place in other units
have been covered in this unit on ‘other types of Insurance’ (miscellaneous insurance).
Insurance covers vary across things (property, goods, money, jewellery, valuables)
and situations (burglary, fidelity) and serve households and various businesses from
small to medium and large. While there are a number of individual covers, some of
them are combined and conveniently packaged, and sold as Package Policies. Most
of these policies have been covered in this unit.
General Insurance
176
Health Insurance
UNIT 7 HEALTH INSURANCE
Objectives
After going through this unit, you should be able to:
 Understand the role of Health Insurance
 Appreciate the importance of financing mechanism for health & the role of
Government in it
 Get an overview of various Health insurance products
 Understand the need & role of TPA in Health insurance claim settlement
 Have a glimpse of some technological trends which may effect Healthcare &
Health insurance in future
Structure
7.1 Introduction: Health & Health insurance

7.2 Health financing
7.3 Health insurance products
7.3.1 Basic Mediclaim policy
7.3.2 Individual & Group policies
7.3.3 Hospital Indemnity
7.3.4 OPD (out patient department) cover
7.3.5 Critical Illness
7.3.6 Earnings cover
7.3.7 Long term care
7.3.8 Wellness
7.3.9 Health products of Life Insurers
7.4 Role of Government

7.5 Health Insurance Business
7.6 Health claims - PPN & TPA
7.7 Future
7.8 Summary
7.9 Keywords
7.10 Self-Assessment Questions
7.11 Further Readings
7.1 INTRODUCTION: HEALTH & HEALTH

INSURANCE
When we talk of Health in our day to day conversation, we understand it as absence of
any disease. However, if we look at the more comprehensive definition by World 177
General Insurance Health Organisation (WHO), it says- Health is “a state of complete physical, mental
and social wellbeing and not merely the absence of disease or infirmity.” This
definition has been further modified later to include - the ability to lead a ‘socially
and economically productive life.’
The addition of mental, social aspects & economic productivity to the definition underline
the challenges that global body like WHO faces, when it talks of Health for All or in
other words- Universal Health Care. From the ambit of this definition, it is obvious that
Health Insurance may play only a small part in this overall objective. Let us then
understand the centrality of concept of Universal Coverage & the role of Insurance in
it.
Universal Health Care
The global community realised & acknowledged the importance of Health as a basic
pre-requisite for economic & social development in Alama Ata declaration almost
thirty years back. The idea of Universal Health Care (UHC) took centrestage in 2005,
when member states of WHO commited to develop their health financial systems so
that everyone has access to health services & does not suffer from financial hardship
in paying for it. This was the seed of UHC that was sown for the global community to
nurture in future.
The three dimensions considered for the purpose of UHC & the action to be taken for
it is shown in the cube below. Three factors considered by WHO for this are:
 Population which is covered by Health services
 Which Health services are covered
 What is the Payment made by the population for these services
Attempts to extend the health services to all the population, covering all health needs &
at the same time reducing direct costs are the steps required to be taken for universalising
health care.
Fig. 7.1:
178
In India a High level expert group (HLG) was formed under the erstwhile Planning Health Insurance
Commission. It submitted its report in November, 2011 & laid down an elaborate
road map for implementation. Following the WHO norms, it started with a
comprehensive definition of the basic concept & suggested logistics for taking the idea
forward.
To begin with the definition- it sets the target of Universal Health Care (UHC) in India
as Ensuring equitable access for all Indian citizens in any part of the country,
regrdless of income level, social status, gender, caste or religion, to affordable,
accountable & appropriate, assured quality health services (Promotive, preventive,
curative & rehabilitative) as well as services addressing wider determinants of
health delivered to individulas & populations, with the Government being the
guarantor & enabler, although not necessarily the only provider of health &
related services‘‘
As expressions of a noble goal go, this is an excellent example of one. However to
implement any good idea, the first step required is to arrange for the finances for it- on
Global/ country specific level.
7.2 HEALTH FINANCING

Overview- Looking at the generic scenario in a country, the expenditure on Health
may be made from financial resources which may be from Public/ Government or from
the personal resources of an individual.The government may use its revenue resources
for financing the health arrangement or it may introduce a compulsory premium
contribution by citizens to finance a Health Insurance Plan or rely on the international
aid/grants for this purpose.
Similarly, a private citizen may use his own resources (out of pocket expenditure) to
finance Health Care expenses or he may buy an insurance policy by premium payment
or he may rely on donations etc. for financing this expenditure.
Fig. 7.2:
With this broad Idea of funding, if we look at the health expenditure by different countries
across the globe, we may be able to find a pattern in it and an indication of the desired
areas of action.
179
General Insurance Looking at the table below, let us compare the expenditure in India, China and USA.
Before we start this comparison, please remember that the figures given here are in US
dollars and may not reflect the purchasing power parity value, among these countries.
Table 7.1:
In USA the per capita health expenditure is USD 5711, in China USD 61 and in India
USD 27. However, it is also important to look at the contribution of government
expenditure as compared to the private expenditure in these countries. In USA the
ratio of government to private expenditure is 45 to 55, in china it is 37 to 63, in India
the figure is 25 to 75. The obvious message is that in India the government is contributing
very little to the health expenditure.
Let us also explore the breakup of Expenditure made from private resources. In India
the out of pocket expenditure is 97% of private expenditure whereas the spending on
arranging Health Insurance is just 1%. In China, the figure is 88% and 6% whereas in
USA it is 24% and 66% respectively.
A few lessons from this data-
 A high government expenditure shows that the government is fully involved in
ensuring healthcare for its citizens (as in USA).
 A high expenditure on out of pocket expenses by private citizens is not a very
desirable state.
 Similarly low percentage figure on arranging private insurance is also not very
desirable
Challenges
This brings us to the challenges that governments face in implementation of Universal
healthcare in the country. Some of these challenges are:
 The first challenge is finding the resources to maximize the involvement of
government in health expenditure.
180
 The second challenge is to allocate these resources equitably so that all sections Health Insurance
of the people across varied geography get the benefit of the health services.
 Third is to ensure efficiency in the system so that the out of pocket(OOP)
expenses of citizens are minimised as a percentage of the total health
expenditure.
We give below a graph showing the actual expenditure by the government in India as
compared to out of pocket (OOP) expenses for 3 years and then take it forward to
the projected desired proportion of these expenses in the future, a few year hence.
The first concrete step in this direction is doubling of the health expenditure by government
from around 2% of GDP to 4% of GDP in the next 5 years ( as being suggested in the
National Health plan)
Fig. 7.3:
7.3 HEALTH INSURANCE PRODUCTS

Depending on the source of funding, the Health Insurance products may be classified
under one of the four categories (in Table below). To cite examples- the National
Health Scheme in UK is entirely funded & managed by the Government. But in USA,
part of the funding is from the specific health contribution from all employees. The third
& fourth options are individuals or groups respectively buying an insurance product for
themselves.These broad categories, mentioned just for conceptual clarity, may overlap
in countries/ communities. For example, category three of Individual Health insurance
may co-exist along with any of the other three categories; & so on.
Table 7.2:
181
General Insurance Product benefit categories
With an idea of the overall categories, let us look at the variety of products that are
available in the market today. The products offered by Non-Life Insurers & Health
Insurers are similar but those by Life Insurers are slightly different. We begin with the
basic Mediclaim policy of the Non-Life Insurers, that started the health insurance
coverage in India.
7.3.1 Basic Mediclaim policy

The basic Mediclaim policy was started as a market agreement policy among the then
public sector insurers in 1985. Some features of this policy are:
 The policy offered a hospitalization cover only. This meant that a person had
to be admitted in the hospital for a minimum period of 24 hours to get the
benefit of the policy. “Hospital” in the policy was defined as a medical
establishment complying with the requirement as detailed in the policy. This
included certain basic medical facilities as well as qualified doctors and nursing
staff in the hospital.
 The minimum 24 hour admission condition was later modified to include certain
treatment which were feasible to be done in less than 24 hours but also
necessarily required hospitalization. As Medical Technology developed, more
& more procedures were possible to be done within a few hours of admission
in a hospital. Hence, the condition of minimum 24 hours admission was relaxed
for these procedures & these advanced medical methods were included in
the list of procedures “deemed to be hospitalization” for purposes of the
policy.
 The policy originally offered a single overall sum insured to cover all the medical
expenses under the policy. Later this was modified to include sub-limits offering
a specific percentage of total value under different heads of medical costs,
doctor fee, operation theatre charges etc.
 Initially, the policy offered cover to individuals listed out in the policy. Later a
combined “floater” policy to give benefit of the common sum insured in the
policy to all members of the group was offered. This was a major improvement
since the probability of all members of the family falling ill together was not
very likely.
 A major exclusion in the Policy was of pre-existing diseases; which meant

that any illness existing on the date of taking a policy was not to be covered in
the current policy. Later this was modified to have time specific exclusion of a
month/one year/2 year/ 4 year respectively for different categories of diseases
eg. Tonsilectomy was covered after one year waiting period, Cataract only
after two years of policy, joints replacement after four years.
 Any expenses relating to Maternity was in general excluded from all policies
given to individuals.
 Treatment under modes other than Allopathy (like Naturopathy, Yunani etc)
182 were also not covered in the initial policy.
7.3.2 Individual & Group policies Health Insurance
As mentioned above the medical cover can be taken by an individual, a family or for a
specific group consisting of say employees of a company. With passage of time the last
category of group medical insurance has become very popular in the corporate world.
Since the premium involved for policy are quite high, insurance companies compete
among themselves to offer them “tailor made” terms at lower than standard rates. The
group policies of Health Insurance today have almost 40 to 45 per cent of the total
health portfolio. In view of their better bargaining power to get better benefits etc., loss
ratios under these policies are high.
7.3.3 Hospital Indemnity

The hospital indemnity policy is the basic health policy which indemnifies a person for
the expenses that he incurs at a medical establishment. With passage of time, various
additional covers as well as limitations on this policy have created a wide variety of
health policies available in the market today.
7.3.4 OPD (out patient department) cover

The standard health policy in the Indian market is the family hospitalization cover.
However with tailor made variations being offered to large clients, the outpatient
department(OPD) expenses are also gradually getting covered in the group policies.
This means that if you have a cold cough or a fever for a day or two, for which you buy
the medicines from shop and do a self-medication/treatment; this will be covered under
the OPD component of the policy.
7.3.5 Critical Illness

Critical illness policy is a special type of Health Insurance. Normally the health policies
are issued on indemnity basis i.e the policy reimburses the expenses incurred by a
person in a medical establishment. However this policy is available for a set of a specified
dread diseases like cancer, kidney transplant, liver transplant etc. If after 6 months of
taking this policy, the person is detected to have been afflicted by say cancer, he gets
the benefit of entire policy sum insured under the policy & not limited to only the
expenses incurred by him in a hospital. This makes this policy a benefit policy as
different from a normal indemnity policy. Basic prerequisite for this policy is that on the
date of taking a policy, the person concerned is not detected to be suffering from the
specified diseases. In addition, the policy has a compulsory waiting period (say six
months) before the benefit of the policy can be given to the person. With high cost of
treatment of these major diseases, the popularity of this policy cover is growing.
7.3.6 Earnings cover

This is a new concept that has come to the field of Health Insurance recently. The
earlier policies only reimbursed the cost incurred at a medical establishment. This policy
in addition, also takes care of the cost of the salary/earnings of the person who is bed
ridden due to a disease & is unable to earn his living. The scale of benefits offered
under this extension can be varied according to the treatment of disease the person is
suffering from. For example, a person in ICU may get rupees 4000 per day as loss of
earnings, whereas the person in a normal room gets only rupees 2000 per day. The
183
General Insurance policy may have limits on number of days or the total amount payable as earnings
insurance/or as a percentage of the total sum insured /or as an absolute figure.
7.3.7 Long term care

Long term care is a kind of Insurance which is almost on the boundary of insurability.
To cite an example, if a person suffering from severe joint problems is confined to
home, he does not require hospitalization for treatment, but he may require almost 24
hour or maybe 12 hours support for carrying out his day to day activities. So, a policy
that provides the benefit of support at home which takes care of his daily needs is what
the Long term care policy covers. This is still a developing concept, not very common
in India so far.
7.3.8 Wellness
This Policy takes the level of Healthcare to the realm of Wellness rather than
reimbursement or payment of cost incurred in treatment of a disease. For example, if a
person is suffering from diabetes, the policy will offer him encouragement to live a
healthy lifestyle and bring his health parameters to a better level than earlier.
As is apparent, this is a Quantum jump in terms of the cover offered. It offers cover to
a person who is already suffering from a disease and it helps him to regain his health by
following the specified steps. Policy offers benefit by way of Bonus points, which can
be utilised for purchase of medicines, sectors or even for renewal of the policy next
year. It also provides support by way of a portal, a guide/mentor for the person etc.
7.3.9 Health products of Life Insurers

In view of nature of life insurance policies being long term, Health plans of life insurance
are also different from non life companies in that respect. We are giving below three
LIC policies, which can be taken as representative of the policies offered by Life
Insurers in India.
Health Plus- is a unit linked health plan which offers health cash benefit (HCB) and
major surgical benefit (MSB). Under MSB, there is a scale of benefits identified for
each surgical procedure. The health cash benefit is like the cash payment option in
case of non-life insurance policies. The difference from a non life product is in the
linked investment part.
Jeevan Arogya- is a non unit linked policy offering surgical and other benefits.
Cancer insurance policy- is similar to the critical insurance policy offered by non
Life Insurance. This means that on the date of taking a policy the person concerned
has not been diagnosed with cancer. After a waiting period of 180 days if the person is
diagnosed to be suffering from Cancer, the sum insured under the policy is paid to him,
on a graded scale for different types of cancer.
7.4 ROLE OF GOVERNMENT

We have earlier talked about the global movement, piloted by WHO, towards achieving
universal coverage on health. We have also seen, how important is the role of financing
184
in it. The Government of a country may have to step in here to provide necessary Health Insurance
financial support, especially for the low-income population, which is not in a position
to pay for health care.Thus, apart from its role in regulation & supervision of health
infrastructure, the Government may become a direct player in providing health care to
its citizens. This may take the form of National Health scheme like UK or be limited to
social health care by channelizing pay roll deductions.
1. Social Health schemes
In India, traditional concept of Social Health Insurance is modified to include not

just payroll deduction but also incorporate the concept of community based
insurance. The major health initiative of the Indian Government- Rashtriya Swasthya
Bima Yojana (RSBY) was primarily intended for people below the poverty line
and the Central and State government share the total amount of premium. Later,
this was also offered to people above the poverty line, who had to pay the premium
themselves. Different states in the country have modified this basic idea to include
even high level secondary and tertiary Health Care in the policy. The RSBY scheme
has been hailed at international level for its inclusive health initiative.
Ayushman Bharat
In the Union Budget 2018, Finance Minister announced a major health initiative
consisting of two main steps- one upgradation of the primary health infrastructure
throughout the country & second an ambitious secondary and tertiary level Health
Care scheme of rupees 5 lacs for people below a certain economic level. The
entire premium of the scheme shall be shared between the Union and State
governments in specified ratio.
It is expected that the successful Health Scheme running in several parts of the
country like Maharashtra, Tamil Nadu, Andhra Pradesh etc. shall be merged with
this scheme. One of the components of the proposed scheme is to fix basic rates
for package covers eg. Knee replacement surgery for Rs. 90,000; Heart valve
change for Rs. 1,50,000 etc.
Targeted to cover over 50 crore population across the country, it is being hailed as
the next big reform in the health sector by the Indian government. This scheme is
expected to be made applicable to the entire country.
2. Health Regulation
Health is an area which is of concern to all levels of society. Hence for the
Government it is a very important area to be addressed. In the insurance domain,
health is the only sector which has a specific regulation issued by the insurance
regulator in the year 2013.
Some of the highlights of the Health Insurance Regulation are:
 It is a very customer focused regulation which tries to make the insurance

practice in the health area simple and similar across all the companies offering
health Insurance. Remember the fact that Health Insurance is a product, which
can be offered by General Insurance, life Insurance or a Health Insurance
Company.
185
General Insurance  To safeguard the interest of the policyholder, it is provided that policy once
offered to the public cannot be withdrawn without giving advance notice, to
enable the insured to arrange for alternate Health Insurance.
 Renewal of a policy can not be denied only on grounds of age or adverse

claim experience in the earlier years
 The practice of free look period & the Insurer bearing part of the cost of pre-
insurance health check-up has also been provided in the Regulations.
 An attempt has been made to standardise the terms in use across the industry.
 Special policies and better servicing window for senior citizens has also been
provided in the norms
 The principle of portability, as in mobile phone services has also been brought
to the area of Health Insurance
3. Standardisation & Coding
Standardisation- Procedures & Pricing: If you have visited two doctors for
consultation on the same matter, you must have seen that more often than not, the
opinions of the two doctors may differ. For a lay man, this may seem very confusing.
If the disease is the same, why should there be subjectivity in treating it? To address
this issue, attempts have been made to arrive at some consensus on treatment at a
basic level. The medical fraternity has got together to attempt building a common
opinion on various steps involved in identifying and treatment of a disease. The
more challenging aspect of this exercise is trying to put a cost involved for the
various procedure across the variations in the country as big as India. The advantage
that can be seen from the point of view of insurers is that the reimbursement of
cost for a specific disease, can be made uniform across the country. This will help
in standardising and bringing down the cost of health reimbursement under insurance
policies.
Coding: Information, it is said, is power. If the information relating to Ebola virus

is communicated to everyone who is travelling to the area, it may be much easier
to control its further spread. This presumes having a standard system across the
globe so that, the virus is identified as fast as possible, data captured and
communicated to everyone who may be impacted. Thus a need of having data in
the same template, which is understood in the same way across the globe is
paramount. One of the initiatives in this regard at the global level is the adoption of
International Coding of Diseases (ICD). The ICD system translates the Diagnosis,
Diseases & other Health problems in to alpha numeric code. Once a globally
accepted code is agreed upon, all countries capture the data using the same code
and collation and communication becomes much easier. This data can then be
easily stored, retrieved and analysed as the need be.
Conceptually, a great idea, the challenges in implementing this across the globe are
equally big. The hardware, software, data purity etc. are some of the challenges. The
most important challenge in implementation is training of all concerned in understanding,
capturing & using this data correctly and the financial cost for the entire process.
186
Health Insurance
7.5 HEALTH INSURANCE BUSINESS
Health Insurance portfolio is one of the fastest growing component of the general
insurance industry today. It has been growing at a CAGR of almost 22%. In the process
it has become the largest portfolio and displaced the traditional property portfolio of
Fire Engineering Insurance as well as the motor components [taking the own damage
(OD) and third party (TP) section separately].
One of the major reasons for this remarkable growth has been the latent Health Insurance
need of the large population of the country. The regulator and the government have
also contributed to this process by recognising the importance of health portfolio and
assigning it a separate place in the insurance classification and ensuring fair play in the
Health Insurance sector. We have already seen that Health Insurance is the only
segment of insurance to have a specific regulation issued by IRDAI. This is also the
only sector where Life, Non-life, and Health specific insurers offer their products to
the people.
Fig. 7.4:
Fig. 7.5:
This growth has also come with its own challenges. The claims ratio of the portfolio has
always been hovering around 90 to 100%. The offer of tailor-made products to large
groups like companies, commercial organisations etc has specially contributed to this
high level of claim ratio.
187
General Insurance
Fig. 7.6:
7.6 HEALTH CLAIMS- PPN & TPA

The Rapid growth of the health portfolio has resulted in it occupying almost 30% of the
general insurance portfolio. In addition, there is this factor of health matters being of
high importance for every individual, from the lowest level of economic status to the
highest. Then the sheer number of claims occurring in this portfolio warrant special
treatment mechanism for it. In the year 2016-17 the total number of claims handled in
the health portfolio were close to 1.2 crores.
Two sets of arrangements have been implemented by the general insurance industry to
facilitate the faster handling of the huge number of claims. First, the system of cashless
treatment. This means that the persons covered in the policy will have a ID card, on
showing which the treatment up to the policy limit for them can be availed from the
identified hospitals without making payment for the treatment. To avoid confusions,
there is a system of pre-authorisation before hospitalization, which has been put in
place. Obviously, this is a great relief to the customers in cases of medical emergency.
The hospital concern is paid directly by the insurance company or a TPA (Third Party
Administrator).
Preferred Provider Network (PPN): Since the insurance companies are bulk buyers
of the hospital facilities, they have also started another idea of PPN (Preferred provider
network). As is the case of bulk buying of any goods or services in the commercial
world, the insurance companies demand lower rates for its policyholders, when they
come to the hospital for treatment. This arrangement helps in two ways. One it lowers
the cost of treatment for the insurance company policy holders and two, it helps the
selected Hospitals in getting a large number of customers for their service.
Third Party Administratar (TPA): We have seen above the large number of health
claims which are made on general insurance companies every year. This along with the
necessity of existing health related matters of every individual on a priority basis, the
insurance industry has created an Intermediary service provider called TPA. These
service providers exclusively deal with health claims on 24x7 basis for their customers
throughout the country with help of their toll free lines. The utility of this system is
reflected in almost 75% of health claims being settled through TPA and only 25% of
health claims being settled by the companies in-house. To ensure adequate and proper
service to all customers, Insurance Regulator has provided a specific regulation to
govern the qualification, licencing and conduct of TPAs.
188
Health Insurance
7.7 FUTURE
The greying population-By the year 2050, it is expected that population of USA will
be around 400 million. At the same time, it is expected that number of citizens of age
65+ in China alone, maybe around 400 million. This in a way, illustrates the challenge
of the future for Healthcare industry. In future, rate of population growth may not be
high but longevity due to advancement of technology & improved health care shall be
a major factor, and consequently, the number of old people as a percentage of total
population shall increase a lot.
Let us look at some other trends that are likely to be of importance in the future:
(a) Wearables & individualised health care- the main attraction of diagnostic data
retrieved by variables is that the focus of health treatment shall shift from high cost
institutional care to the residences/communities. This may translate to lower overall
health administration cost and consequently bring about a health revolution by
using the same cost for a larger population. For the insurance industry, this may
mean a paradigm shift from relying on statistical analysis of group claim data to
policies based on individual health profiles. Electronic medical record (EMR) may
become a reality in the future. Of course, this also requires a large focus on the
privacy aspect of the data so captured
(b) 3D printed body parts -This is no longer science fiction. Human body parts
printed by 3D printers are already being used. The obvious advantage of such a
technology is that the doctor does not have to worry about the rejection/ acceptance
of a donated kidney or liver or heart. The parts can also be tailor made according
to the requirement of individual person.
(c) Genomic treatment -The availability of the genetic sequence of an individual for
as low as 1000 USD (in 2015) has thrown open huge possibility of accurate
diagnosis and personalized Healthcare. Taken to the logical conclusion, this may
mean that mankind may not suffer from any disease in the future. The analysis of a
child in the womb itself may indicate susceptibility to any disease for the child
when born. The development of CRISPR (Clustered regularly interspaced short
palindromic repeats) technology which allows precise and efficient gene editing in
any organism, is another very important step in man acting like God, hopefully
with a positive purpose.
7.8 SUMMARY
As elaborated by WHO & adopted by countries across the globe, Health as a concept
encompasses aspects of physical, mental & social well-being. This wide definition
underscores the challenges faced by Governments across the globe as well as for
individual citizens. One of the basic challenges is finding enough financial resources for
the purpose – both at the country & individual level.
Since Health is a factor that effects all strata & individuals, Governments have to per
force get involved in the process. In addition to overall direction, infrastructure &
funding, they may also offer Health Insurance on a free/ contributory basis to all its
citizens.Health insurance products of the Insurers come in a wide range. The basic
cover is for only reimbursement of hospitalisation expenses. This gets further extended 189
General Insurance to OPD cover, daily cash allowance for illness period & now getting to the realm of
preventive care in form of wellness cover. The developments of technology, are helping
in regular monitoring by way of wearables & extending horizons by gene editing as a
curative proposition.
7.9 KEYWORDS
Health : It is “a state of complete physical, mental and social wellbeing and
not merely the absence of disease or infirmity.” further it also includes
‘the ability to lead a socially and economically productive life.’
Hospital : “Hospital” in the policy was defined as a medical establishment

complying with the requirement as detailed in the policy. This
included certain basic medical facilities as well as qualified doctors
and nursing staff in the hospital.
Health Plus : is a unit linked health plan which offers health cash benefit (HCB)
and major surgical benefit (MSB).
7.10 SELF-ASSESSMENT QUESTIONS

1. Discuss the concept of Health & its feasibility in practice.
2. Briefly describe the range of Health insurance products in the market in India
3. Examine the operation of PPN & TPA system in India
4. Critically examine the role of Government of India in offering Health cover to its
citizens
5. Can we have any innovative solution for financing the Global Health need
Discuss.
7.11 FURTHER READINGS

1. HealthRegulations, IRDAI https://www.irdai.gov.in/ADMINCMS/cms/
Uploadedfiles/Regulations/Consolidated/Web%20Aggregators%20Regulations-
2017-After%20Amendment-May%202020.pdf
2. Mental Healthcare Act, 2017

https://www.irda.gov.in/ADMINCMS/cms/Circulars_Layout.aspx?
page=PageNo3555&flag=1
3. High Level Expert Group on UHC, India

https://nhm.gov.in/index1.php?lang=1&level=2&sublinkid=1244&lid=270
4. WHO on UHC
https://www.who.int/health-topics/universal-health-coverage#tab=tab_1
5. Health & Technology

https://medicalfuturist.com/ten-ways-technology-changing-healthcare/
190
Health Insurance
UNIT 8 MOTOR INSURANCE
Objectives
After going through this unit, you should be able to:

 Distinguish between Tariff & Non-Tariff Insurance markets
 Appreciate the role & importance of Motor Insurance
 Develop an overview of Motor Vehicle Act & highlights of proposed changes in
Road Safety Bill
 Understand the details of Own Damage & Third Party covers
 Understand different modes of Motor Claim settlements
 Appreciate the disruptive impact of technology on Vehicles & their Insurances
Structure
8.1 Introduction
8.2 Features of Motor Insurance
8.3 Motor Vehicle Act & Rules
8.4 Own Damage
8.5 Underwriting considerations
8.6 Third Party liability
8.7 O D Claims
8.8 Future- Technology, Ownership patterns & Liabilities
8.9 Summary
8.10 Keywords
8.1 INTRODUCTION
Ever since the patenting of an internal combustion Motor Car by Karl Benz in 1885,
Motor/Auto insurance has become a commercial necessity. The objective of Motor
insurance is two-fold, one-offering protection against unseen events to the property
(vehicle) & its users & second- the more important social objective of offering protection
& solace to the victims of accidents due to use of vehicles. To ensure the widest
implementation of the social objective, the latter is further extended to offer basic
compensation to even the victims of an accident in which the offending vehicle is not
identifiable (aptly described as “Hit & run” cases). In different parts of the world, the
funding for compensation of the Hit & Run cases is either entirely by Government or a
mix of Government & Insurance Industry contribution.
Tariff & Non-Tariff regime in Insurance: Globally, the rates for insurance policies
(premium) & the Policy terms are either controlled by a designated regulatory authority 191
General Insurance (Tariff regime) or left to the market forces to be decided by individual Insurance
Companies (Non-Tariff regime).
In India, Tariff Advisory Committee (TAC) formed under Insurance Act, 1938 was
such a designated authority. It sets the terms of a policy cover as well as decides on the
rates for almost 70% of Non-Life insurance market. Since TAC was a body formed
under a statute, any breach of its instructions, invited a penalty as specified in that law.
However, this changed, during the period 2005 to 2010. One by one, various classes
of insurance Fire, Motor, Personal accident etc. were “de-tariffed” & individual Insurers
were given freedom to decide the premium rates. But at the same time, the policy
terms of the Tariff era were retained & could only be altered on case to case basis by
the sector regulator (IRDAI- Insurance Regulatory & Development Authority of India).
However, Motor insurance being a mix of personal property (own damage to the
vehicle) & social liability (liability to third party victim of an accident), warranted a
special treatment. The own damage portion of Motor insurance was freed from
regulatory restriction (de-tariffed) but the terms of cover & premium for Third Party
insurance continued to be controlled by the sector regulator.
8.2 FEATURES OF MOTOR INSURANCE

The various aspects of motor insurance are discussed below:
Segment size & the Need:
The mandatory nature of the social responsibility cast on ever increasing number of
vehicle owners, driving on a public road, is one of the major drivers of growth of the
liability (TPL) section of the Motor insurance. The rising cost of ownership, increasing
values of the vehicles & the remarkable growth in the number of vehicles on Indian
roads are the contributors to increase in the other component of Motor insurance
(OD) premium.
It is interesting to note that motor insurance contributes a high of 80% of Non-Life

premium in Romania, 73% in Bulgaria & a low of 33% in Yemen & 36% in Egypt.
What is noteworthy here is that even at its lowest, Motor business constitutes 1/3rd or
higher, of the total Non -Life premium. In India the figure has been in the range of 40 to
45% over the last decade. Due to this, Motor insurance remains the largest & most
important component of both the top line & bottom line of the Indian Insurers.
The World Bank group in a study has projected the global motor fleet to double in the
near future. It has also projected that in the ranking of major causes of death world-
wide, road safety factors shall become the fifth leading factor. Hence the need &
urgency for a socially ameliorative insurance to address this issue.
Own Damage (OD) & Third Party Liability (TPL)
We have seen above the relevance, growing size & importance of both facets of Motor
insurance ie
 Property insurance component, own damage (OD) covering accidental damage

to the vehicle & related effects on the Owner/Driver/ other employees; &
192
 Socially relevant protection, third party liability (TPL) for the personal injury/ Motor Insurance
death of victims of road accidents as well as damage to their property.
In the following sections, we get an overview of the Motor Tariff & details of the Policy
covers, exclusions & the new developments following de-tariffing in the OD section of
the Motor insurance portfolio.
Motor Tariff; Policy conditions, Rating & IMT (India Motor Tariff)
endorsements
The Tariff consists of the following components:
 General Regulations including Policy A & B wordings
 Tariffs including Policy wordings, rating & Certificate format as per Motor
Vehicle Act for the following vehicle classes
 Private Car
 Two Wheeler
 Commercial vehicles-
 Goods carrying
 Passenger carrying
 Special vehicles- covering quite a large variety of vehicles like

Agriculture, Ambulance, OB Vans, Road roller, Cranes & Dumpers
etc.
 Motor Trade- Road risks & Internal risks- meets the insurance
requirements of Vehicle dealers
 IMT (India Motor Tariff) endorsements specifying the wordings of various

add on covers etc.
General Regulations (GR)
Some of the important GRs are:
 Policy wordings for
(i) Policy A- covering only liability as per the MV Act provisions &
(ii) Policy B (Package policy)- covering both the mandatory liability &
own damage to the vehicle. Other benefits / covers (as per the wording in
the IMT endorsements) may be opted on payment of additional premium.
 To ensure continuity of mandatory TPL coverage irrespective of change in

ownership, it is provided that in case of transfer of ownership, the TP portion
of the policy shall remain operational till replaced by another insurance policy.
 Text of the “Certificate of insurance” as per MV Act & Central Motor Vehicle
Rules is also provided here.
 Vintage car are defined as one that are over 40 year old & certified in a
193
General Insurance working condition by an Automobile Engineer. These can be covered for a
pre-decided “Agreed value” (agreed between Insurer & Insured)
 A discount of 33 1/3rd of premium is given for vehicles being confined within

premises of Insured
Policy conditions- These deal with the various actions to be taken/avoided in the life
cycle of the policy eg. policy cancellation, claim intimation & further follow up, dispute
on quantum of claim etc.. One of the important norms here is that the Insured is to
always behave as a “prudent uninsured”; meaning thereby that the level of care of a
property should not be reduced, only because an insurance cover has been taken for it.
IMT Endorsements
This section provides for the wordings for various additional covers or discounts for
specific situations eg. Personal accident cover to the driver/ cleaner/ workmen etc;
Discount for Anti-Theft device, Discount for vehicles used by handicapped or discount
for opting for higher deductible in event of a claim.
8.3 MOTOR VEHICLE (M V) ACT & RULES

Motor Vehicle Act, 1939- This is the basic law on various matters dealing with vehicle
registration, licensing etc. This law, effective from 1st July 1939 has been amended in
1988, 1994 & 2015. The last Amendment proposed in 2016 has been approved by
Lok Sabha only recently in 2017.
Central Motor Vehicle Rules, 1989 provide for the All India administrative guidelines
for implementation of various provisions of MV Act. Individual States may also issue
their own guidelines for regulating the activities under their control.
The provisions of MV Act relating to Insurance & related areas are summarized below:
Chapter X of 1988 Act deals with No Fault Liability
Chapter XI deals with Insurance of Motor Vehicles against Third Party Risks
Chapter XII deals with Claims Tribunals for TPL claims
The 1994 amendment provided for:
Protection against the losses arising out of the use/carrying of hazardous goods
Structured Compensation scheme for TPL claims was included by addition of two
new sections 163A & 163B in the Act.
The 2015 amendment made provisions for battery operated vehicle “e cart / e-rikshaw”
In the 2016 bill, a proposal was made to cap the unlimited liability of Insurers (a long
standing demand of Insurers); however this was dropped in the approved version in
2017.
It also created a Motor Vehicle Accident Fund for treatment & compensation to Hit &
Run victims. The Fund is to be financed by a mode to be specified & is expected to
replace the Solatium Fund.
194
The basic definitions used in the MV Act are: Motor Insurance
Motor Vehicle: “Mechanically self-propelled vehicle having engine capacity above

25 CC.”. Thereby mopeds with engines smaller than 25 CC, are not considered a
Motor Vehicle & hence not required to have the mandatory TPL policy.
Articulated vehicle: “ a motor vehicle to which a Semi-trailer is attached”
Trailer: “ Any vehicle other than a Semi trailer or a Side car drawn by a motor vehicle”
In general an articulated vehicle & a trailer get rated togther depending on the use it is
put to.
The following definitions are relevant for categoristion of vehicle type under the
Commercial Vehicle section of the Motor Tariff.
Contract Carriage: “a motor vehicle that carries a passenger for hire or reward
under a contract on fixed or agreed rate from one point to another or on time basis”
Stage Carriage: “a motor vehicle that carries more than 6 passengers excluding driver
for hire or reward at separate fares paid by individual passengers for whole or part
journey (eg a City Bus service)
Light MV: Up to Gross Vehicle Weight (GVW) of 7500 kgs
Medium MV: GVW between 7500 kgs to 12000 kgs
Heavy GV: GVW above 12000 kgs
Public place: “a road /street/way/other place, whether a thorough or not, to which the
public have a right of access and includes place or stand from where the public are
picked up or set down by a Stage Carriage (As per Court interpretation it covers
all places including those under private ownership where members of public have
an access, whether free or controlled, in any manner whatsoever).”
The importance of the above definition & of Motor Vehicle can be appreciated when
reading the mandatory TPL insurance under Section 146 below.
Reciprocating Country:” Any country as notified by Govt. of India through its Gazette
on the basis of reciprocity for the purposes of this Chapter.”
The SAARC countries recognize the validity of an Insurance policy issued in another
SARC country on a reciprocal basis. The Motor tariff has the enabling provision as
above, for the same.
8.4 OWN DAMAGE (OD)

Perils covered & excluded in the Motor Insurance Policy
The Motor policy is a “specified/named peril” policy i.e the perils covered under this
policy are specifically mentioned (as opposed to an “All Risk” policy covering All
perils except the specified/named exclusions)
Section I. Loss Or Damage: The cover for a Private car is:
The Company will indemnify the Insured against loss or damage to the Motor Car and
or its accessories whilst thereon : 195
General Insurance a) by fire, explosion, self ignition or lightning;
b) by burglary, housebreaking or theft;
c) by Riot and Strike
d) by Earthquake (Fire and Shock Damage)
e) by Flood, Typhoon, Hurricane, Storm, Tempest, Inundation, Cyclone,
Hailstorm, Frost;
f) by accidental external means;
g) by malicious act;
h) by terrorist activity;
i) whilst in transit by road, rail, inland waterway, lift, elevator or air.
j) by landslide rockslide
Though most of the terms are self-explanatory, a few points need to be highlighted.
 Accessories are covered only when fitted on the vehicle
 Theft as defined in Section- 377 of Indian Penal Code is covered as well as
Burglary (defined as theft accompanied by violent breaking in or out).
 “External means” indicate a factor not internal to the car & hence includes a
passenger or a pet in the car. So an accident caused by distraction created by
a pet shall be construed as “external”.
 Transit cover as detailed above means that there is no need for a separate
transit insurance for a vehicle covered as above, being carried in a truck/
train/ air etc.
Subject to a deduction for depreciation at the rates mentioned below in respect of
parts re-placed:
1. For all rubber nylon plastic parts tyre and Battery - 50%
2. For all parts made of glass Nil
3. All other parts
Age of car % of depreciation
Upto 6 months ...................................................................... Nil
Between 6 months and 1 year................................................ 5%
Between 1 year and 2 years..................................................10%
Between 2 years and 3 years................................................15%
Between 5 year and 10 years................................................40%
Over 10 years..................................................................... 50%
196
The concept of depreciation flows from the basic principle of indemnity (putting a Motor Insurance
person in same financial position as he was before the loss). Hence, while permitting
replacement of an old damaged part by a new one, the Insurer insists on co-payment
by the Insured. Insured has to bear the incremental cost for getting a new part in place
of an old one. In other words, indemnity is maintained by giving him the value of an old
part, by deducting the amount of depreciation from the value of a new one.
The rates of depreciation mentioned above are from the Tariff document & may vary
in policies of different Insurers.
The Company shall not be liable to make any payment in respect of :-
(a) consequential loss, depreciation, wear and tear, mechanical or electrical breakdown,
failures or breakages;
(b) damage to Tyres and Tubes unless the Motor Car is damaged at the same time
when the liability of the Company is limited to 50% of cost of replacement; and
(c) any accidental loss or damage suffered whilst the Insured or any person driving
with the knowledge and consent of the Insured is under the influence of intoxicating
liquor or drugs.
It has been mentioned earlier that in the De-tariffed regime, the Tariff policy terms
could be changed by individual Insurers through a case to case approval from the
IRDAI. Using this provision, Insurers have “clawed back” many of the above exceptions
to the standard policy & are today offering covers for several of these viz. Consequential
loss, Depreciation & Breakdown etc. These are detailed in the following section.
Add on covers
Nil Depreciation: This extension takes away the requirement of co-payment of

depreciation amount on replacement of old damaged parts by new one. The Insured
needs to weigh the cost benefit of additional premium for this extension against the
likelihood of his needing this benefit. Generally, Insurers grant this cover for a vehicle
not older than three/five years.
Back to Invoice: In case of total loss/ theft of a vehicle, reimbursement does not
include Registration charges & Road tax amounts. This provision enables coverage of
these amounts on payment of additional premium.
NCB protection: A vehicle earning No claim bonus (NCB) in its insurance is likely to
lose this benefit if there is a claim under the policy. On opting for this cover, for up to
two claims in a year, the benefit of existing NCB is not taken away.
Road side assistance: Opting for this extension ensures Technical manpower/ logistic
support for various contingencies like a flat tyre/ No or low fuel/ dead battery/ urgent
medical attention etc. Generally, a toll free line with a service provider on 24x7 basis
ensures delivery of this service.
Cash allowance: In general, all consequential results of an accident are not covered in
a policy. This & the next two add on covers however specifically make this available to
the customers. Cash allowance offers a periodical payment for the extra time (beyond
the specified time limits) taken in repair of a vehicle at a specified garage.
197
General Insurance Alternative vehicle use: This extension ensures availability of an equivalent vehicle
for use of the Insured, while his vehicle is undergoing repairs.
EMI cover: For a commercial vehicle purchased with a commercial loan, an accident
means a time gap in the earnings of that vehicle. But it does not end the liability to pay
the loan EMI on time. This provision comes to help of the owner of such a vehicle.
8.5 UNDERWRITING CONSIDERATIONS

8.5.1 Insured declared value (IDV)
Motor policy is different from other indemnity policies in the sense that in settling a
partial loss, it does not penalise an Insured for specifying the sum insured of a vehicle
for a value lower than its actual value (underinsurance factor). However, in settling a
total loss, this factor is considered. Earlier the concept of IEV (Insured estimated
value) was in use in Motor insurance, for deciding the value of a vehicle. As the term
indicates, this was a value considered by the Insured to be appropriate for the vehicle.
However, in settling total loss/ theft claims, this value was often questioned by the
Insurers. Hence, the concept of IDV was evolved.
This is a price based on the invoice of the manufacturer, to which appropriate

depreciation factor is applied for the number of years of use. Thus, ending the adhocism
of individual vehicle owner choosing his own value & replacing it by a scientific
methodology. All Insurers maintain the data base of the manufacturing price of different
brands of vehicles & help the Insured in choosing the correct IDV for their vehicle.
8.5.2 Vehicle age & brand

As is apparent, the value of vehicle changes with age. It is also obvious that a new
vehicle requires less maintenance than an old one. So, some Insurers limit their portfolio
to new vehicles of up to a specified age, say three/ five years only. Or they may decide
to only accept/ not accept some brands
8.5.3 Underwriting experience of an Insurer

The experience of an Insurer in his overall Motor portfolio or a specific segment, say
of two wheelers/ Private cars or Commercial vehicle, may be one of the factors to
encourage or discourage business from that segment. Some other factors are- the risk
appetite of the Insurer, the target of profitability or growth of business; the reinsurance
arrangements etc.
8.5.4 Tie up arrangements

This is a relatively recent development in the Indian market. It involves a tie up between
an Auto manufacturer & one or more Insurer to offer seamless insurance services.
Dealers of the vehicle manufcaturer are authorised to issue an insurance policy at the
time of sale of vehicle. More importantly, the policyholders of this Tie up enjoy the
facility of a cashless claim settlement at the specified garages. This means that such a
policyholder walks in with his Tie up policy document & subject to policy terms, gets
his vehicle repaired & walks out. The admissible claim is paid directly by the Insurer to
198
the garage. Encouraged by the very positive feedback of the customers, even other Motor Insurance
garages are trying out this arrangement with Insurers for non-tieup calims.
8.5.5 Pay as you drive

The present system of premium rates take into consideration only the factors of engine
capacity, IDV & area of operation of a vehicle. So two persons with similar vehicles
pay the same premium even if one person uses his vehicle sparingly (say 20 km per
day) & other one extensively (say 200 km per day); though it is obvious the vehicle
which is plying more has a higher chances of meeting with an accident. To set right this
unfair mode of premium computation, attempts are being made to link premium to the
distsnce covered by a vehicle. This concept is fairly common in Europe & USA, where
mileage based insurance (not annual period based) are sold like KM recharge card, as
in prepaid mobile telephony.
Activity 8.1
Check the Indian Motor Tariff (IMT) Endorsements from the website. Write in brief
about IMT.2- Agreed Value Clause, applicable to Vintage Cars.
...............................................................................................................................
...............................................................................................................................
...............................................................................................................................
...............................................................................................................................
8.6 THIRD PARTY LIABILITY

8.6.1 Mandatory coverage
The policy wording providing for the mandatory cover as per MV act for a Private car
is:
Section II – Liability to Third Parties
1. Subject to the limits of liability as laid down in the schedule hereto, the Company
will indemnify the Insured in the event of an accident caused by or arising out of
the Motor Car, against all sums which the Insured shall become legally liable to
pay in respect of :-
(i) death of or bodily injury to any person including occupants carried in the
Motor Car (provided such occupants are not carried for hire or reward) but
except so far as it is necessary to meet the requirements of Motor Vehicles
Act the Company shall not be liable where such death or injury arises out of
and in the course of the employment of such person by the insured.
(ii) damage to property other than property belonging to the Insured or held in
trust or in the custody or control of the Insured.
2. The Company will pay all costs and expenses incurred with its written
consent.
199
General Insurance 8.6.2 Motor Vehicles Act provisions relating to TPL
Section 146: Necessity for insurance against third party risk
No person shall use, except as a passenger, or cause or allow any other person to use,
a motor vehicle in a public place, unless there is in force in relation to the use of the
vehicle by that person or that other person, as the case may be, a policy of insurance
complying with the requirements of this Chapter (Insurance Of Motor Vehicles Against
Third Party Risks).
The section provides for mandatory insurance for bringing a motor vehicle to public
place. Third party includes Government Vehicles carrying dangerous or hazardous
goods shall compulsorily be insured under Public Liability Insurance Act policy Central
/ State Govt. Local authority, State transport Undertaking vehicles are exempt from
this requirement provided a fund is established and maintained to take care of its TPL
needs.
Section 147: Requirements of policies and limits of Liability
(1) In order to comply with the requirements of the insurance of motor vehicles against
third party risks, a policy of insurance must be a policy which-
(a) is issued by a person who is an authorised insurer; or
(b) insurer the person or classes of persons specified in the policy to the extent
specified in sub-section (2)- (i) against any liability which may be incurred by
him in respect of the death of or bodily injury to any person, including owner
of the goods or his authorised representative carried in the vehicle, or damage
to any property of a third party caused by or arising out of the use of the
vehicle in a public place;
(ii) against the death of or bodily injury to any passenger of a public service
vehicle caused by or arising out of the use of the vehicle in a public place:
Provided that a policy shall not be required-
(i) to cover liability in respect of the death, arising out of and in the course of his
employment, of the employee of a person insured by the policy or in respect
of bodily injury sustained by such an employee arising out of and in the course
of his employment other than a liability arising under the Workmen’s
Compensation Act, 1923 (8 of 1923) in respect of the death of, or bodily
injury to, any such employee-
(a) engaged in driving the vehicle, or
(b) if it is a public service vehicle engaged as conductor of the vehicle or in

examining tickets on the vehicle, or
(c) if it is a goods carriage, being carried in the vehicle, or
(ii) to cover any contractual liability.
Policy to be issued by the authorised insurer covering unlimited liability for death and
200 bodily injury to any person including liability to:
Passengers of public service vehicles; but excluding Liability under Workmen’s Motor Insurance
Compensation (WC) Act in respect of Driver, Conductor or WC Lability Employees

in goods carrying vehicle.
Section 148: Validity of policies of insurance issued in reciprocating countries
Section 149 (1): Duty of Insurer to satisfy judgments against persons insured in respect
of third party risks
Section 149(2): Defence of Insurers can be:
Breach of policy condition, such as, use of vehicle for hire or reward, organised racing
or speed testing, not allowed by permit, being driven by a driver not holding appropriate
driving licence, War Policy was obtained by the non-disclosure of a material fact or by
a representation of fact which is false in some material particular.
Section 158(6): Duty of Police to inform Insurer about accidents in Form 54
Solatium Fund
The mandatory TPL portion of a Motor Vehicle policy takes care of the victims of
road accidents by identified vehicles. However, if the vehicle flees from the scene of
accident, a need to provide help to such victims arises. The Central Govt created a
fund w.e.f. 01.10.1982 for such Hit & Run cases. This was done by providing Section
161,162 & 163 in the Motor Vehicle Act. It provides for compensation of Rs. 25,000/
- for death & Rs. 12,500/- for grievously hurt. The fund is managed by the national
Reinsurer GIC Re. Funding in the ratio of 30 : 70 by Central & State Govt : General
insurance industry. District Magistrate acts as Claims Settlement Commissioner and
Taluka/ Sub-Divisional Officer acts as Claims inquiry officer. There is also a provision
for refund of paid amount in case the vehicle causing the accident is identified at a later
date.
8.6.3 Motor Accident Claim Tribunal (MACT) & Lok Adalat

MACT (Motor Accident Claim Tribunal)
This is a special legal infrastructure created for expeditious disposal of TPL cases.
Various provisions of MV Act in this regard are:
Section 165: deals with constitution of MACTs, State Governments are empowered
to constitute the Tribunals. A member has to be a judge in High Court or a District
Judge. MACT has the powers of a Civil Court in taking evidence on oath or enforcing
attendance of a witness
Section 169(1) empowers for summary procedure instead of going into detailed inquiry
Section 152: Any settlement between Insured & Insurer is not valid unless effected
third party agrees to it. This section thus allows Pre-litigation settlement
Section 170: Insurer can assume defence on behalf of Insured & Driver in case of
collusion between the Claimants and Insured or failure of the Insured to contest the
case
Section 168: Tribunal to send the copies of the award to the parties concerned within 201
General Insurance 15 days of the judgment & the judgment debtors to satisfy the award within 30 days
from the date of award
Section 174: In case of non satisfaction of the award, amount may be recovered from
the judgment debtor as Arrears of Land Revenue.
Section 171: Award of interest where claim is allowed
Application for compensation
Section 166 (2): This section gives the Claims Tribunal having jurisdiction over the
area where:
 accident took place, or
 Claimants resides or carries on business, or
 Defendant (Insured) resides
There is no time limit for filing of claim application. Thus, one can see the very wide
geographical jurisdiction available to the claimant. This along with absence of time limit
for filing claims makes the job of an Insurer defending a case very difficult.
Section 140. Normally the responsibility of proving the guilt of the offending party lies
on the victim for him to succeed (With fault liability). However, this section provides
for a claim under No Fault Liability. Claimant is not required to prove negligence. The
only documents required are a valid insurance policy and involvement of insured vehicle
in the accident. The liability provided for is Rs. 50000/- for death & Rs. 25000/- for
permanent Disability.
Section 166 provides for application of claim under Fault Liability, requiring the Claimant
to prove negligence. Claims can be filed simultaneously under both Section 140 &
166. But Claimants eligible for compensation under WC Act and MV Act can file
under one section only.
Structured Compensation
In order to bring some order in the system of computing liability, this norm was brought
into effect in 1994 by insertions of Section 163A & 163B. There is no need for Claimants
to prove negligence/fault of the vehicle owner but once claim was made under this
section, right to claim under section 140 & 166 is forfeited. The benefit of this section
was only available to persons having annual income of Rs. 40000/- seeking
compensation. Compensation is calculated as per the scale of compensation given in
2nd Schedule of the Act. This schedule provides for compensation on basis of the
annual income & age of the victim.
Appeals
The Appellate authority against the award of MACT is the High Court. Time limit for
filing appeal is 90 days from the date of award. Filing appeal on grounds of quantum is
allowed provided application under Section 170 had been filed before the Tribunal
after deposit of 50% of the awarded amount or Rs. 25000/- whichever is less prior to
filing of appeal. Award amount of Rs. 10000/- or less is not appealable. Appellate
authority against High Court order is Supreme Court by way of special Leave Petition
202
8.6.4 Lok Adalat & Legal services Act, 1987 Motor Insurance
Despite the good intention behind creating the MACT structure, it was found that the
pendency in courts dealing with this area has been worsening over a period of time. To
create a fast track mechanism to address the issue, Justice P.N. Bhagawati of the
Supreme Court started this initiative in the year 1986. The highlights of the Scheme
are:
Object – To provide free and competent legal services to the weaker section of the
society and to Organize Lok adalats to ensure speedy and inexpensive justice through
conciliation
Section 19 (5)-To determine and to arrive at a compromise settlement between the

parties to dispute in respect of:
any case pending before court or
any case not filed in court, but falling within the jurisdiction of Lok adalats.
Section 22- Permanent Lok adalat –to have the same powers vested in a civil court.
Section 22 E - Award of permanent Lok adalat to be deemed to be a decree of Civil

Court.
Award Passed by Lok adalat is final and cannot be questioned in any court and not
appealable.
This initiative has helped in bringing down the pendency in MACT. Its success has led
to its adoption even at levels of High Courts & even Supreme Court for faster disposal
of not just MACT but other cases also.
8.7 OD CLAIMS
The different types of OD claims and the procedures followed are discussed below:
 Partial loss - means a loss which can be set right by use of labour (eg dent
beating a damaged door) or replacement of a badly damaged part or both.
Most of the Original equipment manufacturer (OEM) like Maruti, Honda etc.
have standardised labour rates for carrying out specific repair jobs as well as
a price list of various vehicle parts. This arrangement helps in faster settlement
of claims.
 Total loss: means a vehicle which is beyond repair
 Constructive Total Loss (CTL) – As per policy, if the repair cost of a

damaged vehicle exceeds 75% of its Insured declared value (IDV), it is
construed to be a total loss. This claim may be settled as per IDV & Insurer
may take over the salvage/wreck or a deduction for the value of the damaged
vehicle (salvage value/ wreck value) as assessed by a surveyor, may be
deducted & the wreck left with the Insured to dispose.
 Theft- of parts/ accessories/ Vehicle- In general a FIR (First Information

Report) & its closure after due investigation in the FR (Final Report) by the 203
General Insurance Police/ designated authority is required. Norms of depreciation as in other
claims are applicable here.
Cashless settlements
We have seen above that in cases of Tie up between an Auto manufacturer & Insurer,
the facility of repairs without the claimant having to make any payment has been quite
successful. Buoyed by this, repair garages have extended the concept by creating
repair option for multi brand vehicles or even by simple tie-up with an operational
office of Insurer to provide this facility to all its customers.
Technology & its use
India has around 1.2 billion mobile phone users and around 600 million smart phone
users. Smart phone penetration in India is around 47 percent. The mobile penetration
in urban as well as the rural parts of India today is expected to be in range of 75-90 per
cent all over the country. The growing number of Apps for Smartphones provide an
indication of the potential use of this medium for commercial purposes.
Though Insurers have provided for policy issuance & renewal over internet, its use in
claims settlement is still not very common. Companies like Audatex have a large database
of various possible scenarios of collision impact of all major vehicle brands. So, the
impact of a frontal collision of say a Honda Amaze with a Maruti Ciaz can be analysed
to indicate the likely labour & parts cost to rectify the damage.
Armed with this detail, we can think of a claim settlement within a few hours. Let us
talk of this scenario: of 51%
 0000 hours: Insured vehicle meets with an accident
 0015 hours: Insured clicks a few pictures (with the time & location
coordinates) & attaches it to the message sent to the Claim Server on its Toll
free line
 0020 hours: Auto response system on Server checks if the driver/ passenger
needs medical help. If yes, an ambulance is rushed to the spot. If no, it proceeds
to next step.
 0030 hours: Based on the photos sent, it generates the likely repair cost &
communicates to the Driver Insured & also sends a pick-up vehicle for him.
 0045 Hours: The Insured agrees to the estimate & confirms to the Server.
 0100 Hours: Agreed claim amount is remitted online to the claimant.
If this sounds too futuristic, think again. Technology is there; Database is there; a few
logistic & commercial lose ends only remain to be tied.
8.8 FUTURE- TECHNOLOGY, OWNERSHIP

PATTERNS & LIABILITIES
The discernible pattern of changes unfolding before our eyes is:
 Cab aggregators like Ola, Uber, Meru etc.- the Technology providers, have
become the biggest taxi aggregators without owning a single vehicle.
204
 As the taxi service availability becomes ubiquitous; individuals have started Motor Insurance
looking at the cost & involvement in ownership of a Private vehicle (ie.

Purchase price + Regular maintenance + Running cost) & comparing it with
cost & convenience of a 24x7 taxi service
 Auto majors like Volvo, Tesla & BMW, Technology giants Google, Apple &
IBM & Aggregators like Uber are all racing to target the potential share of the
market by bringing up best vehicles on road. Law makers are getting ready
with the regulatory framework. However, the remaining last mile challenge is
that of creating the “smart” enabling infrastructure at the municipal/ city level.
 The following summary in Risk Dialogue magazine (22 of 2015) of Swiss Re;
gives us a peep in the future of Motor insurance, with its scenarios of 10/ 25
/ 50 years:
Supporting the above, the consultancy firm KPMG in its report of 29th June,
2017 underlines the following:
 KPMG sees a 90 percent reduction on loss frequency by 2050. That

along with severity declines and the effects of mobility on-demand
transportation will mean a 71 percent drop in total losses, or $137 billion.
The biggest effect will be felt by personal lines auto insurers— by 2050
only 22 percent of auto loss will be in personal auto.
 Partially offsetting this, average repair costs will continue to increase at a

higher rate than overall inflation as new technologies in future cars become
more expensive to repair.
 According to the consulting firm, three major forces are disrupting the
current, $247 billion premium, auto insurance marketplace:
 Autonomous technology is making cars increasingly safer, leading to

a potential 90 percent reduction in accident frequency by 2050. 205
General Insurance  Auto manufacturers (OEMs) will assume more of the driving risk
and associated liability, and have new opportunities to provide
insurance to car buyers, taking market share away from traditional
insurers. KPMG estimates that by 2050 there will be a significant
increase in products liability insurance to 57 percent of total auto
losses in order to cover the autonomous technology in vehicles, and
a considerable decrease in personal auto insurance to 22 percent of
total auto losses.
 The rapid adoption of mobility-on-demand is quickly translating into
the need for less personal auto coverage, with the use of fleets
requiring commercial auto insurance.
8.9 SUMMARY
In this unit we have seen the importance of Motor Insurance & factors contributing to
its growth. We have also explored the details of Third Party Liability & Own Damage
cover. In this we have looked at the Tariff provisions, the new options available in OD
Insurance as well as provisions of the Motor Vehicle Act. After understanding the
types of OD claims, we have also explored the use of technology in Motor claim
settlement. An attempt was made to look at the disruptive change in vehicle usage,
ownership patterns of vehicles & resultant tectonic effect on insurance market. The
scenario of insurance 30/50 years hence, shall be radically different from what we see
today.
8.10 KEYWORDS
Motor Vehicle : “Mechanically self-propelled vehicle having engine capacity
above 25 CC.”. Thereby mopeds with engines smaller than
25 CC, are not considered a Motor Vehicle & hence not
required to have the mandatory TPL policy.
Contract Carriage : “a motor vehicle that carries a passenger for hire or reward
under a contract on fixed or agreed rate from one point to
another or on time basis”
“External means” : indicate a factor not internal to the car & hence includes a
passenger or a pet in the car.
Nil Depreciation : This extension takes away the requirement of co-payment
of depreciation amount on replacement of old damaged
parts by new one.

1. What are the factors contributing to growth of Motor Insurance?
2. Discuss the relevance of Tariff in the de-tariffed environment in India?
3. Which vehicles are not covered by Motor Vehicle Act & can be issued a Non-
206 Motor Policy?
4. Define a “Public place” as in Motor Vehicle Act & elaborate its importance. Motor Insurance
5. Explain the concept of depreciation as a tool of indemnity.
6. What is the difference in concepts of IDV & IEV in Motor insurance?
7. discuss the exceptions to Section. 146 of Motor Vehicle Act.
8. What is the difference in MACT & Lok Adalat? Discuss their role in motor
insurance.
9. What is the advantage of a cashless claim settlement for a customer?

1. Profile of Automobile Industry in India 2016-17 by siamindia.com
2. http://www.worldbank.org/en/news/press-release/2018/01/09/road-deaths-and-
injuries-hold-back-economic-growth-in-developing-countries
3. https://www.legallyindia.com/views/entry/insights-into-the-proposed-road-
transport-and-safety-bill-2015
4. http://institute.swissre.com/research/library/Rdm Blockchain Kamesh

Raghavendra.html
http://institute.swissre.com/research/risk_dialogue/magazine/Autonomous_cars/
How_close_is_the_auto_insurance_end_game.html
207
General Insurance
UNIT 9 PROPERTY INSURANCE
Objectives
The unit will give you a complete knowledge about:

 a sound conceptual framework on Fire Insurance, its principles and practice
 domain knowledge on Fire Insurance coverage and processes
 benefits and costs of Fire Insurance from customers’ viewpoint
 orient the learner towards industry-readiness
Structure
9.1 Introduction
9.2 Fire Insurance and Property Insurance
9.3 Principles of Insurance: as Applicable to Fire Insurance
9.4 Products: Range of Covers
9.5 Processes: Fire Insurance Business and Operations
9.6 Summary
9.7 Keywords
9.1 INTRODUCTION
A few casual glances at news papers or television news over period of time, may
reveal the outbreak of fires and the resultant losses of lives and damage to property,
particularly in urban areas. Fire could lead to losses of assets (e.g., buildings, machinery,
equipment, goods etc.). Losses of significant magnitude may have a crippling financial
impact, either permanently or until normalcy is restored. In the absence of appropriate
Fire Insurance policies, losses are regrettably borne by the owners themselves (resulting
in capital erosion) or lead to bad debts for the lending banks. In the daily hustle and
bustle of business, due attention may not be given to the possibility of such events.
Hence, it is said that insurance is sold, not bought, as the customer needs to be educated
and counselled. Insurers also study incidents of fire to fine-tune their products, pricing
and processes on an ongoing basis.
9.2 FIRE INSURANCE AND PROPERTY INSURANCE

In the previous paragraph, the words fire and property have been used to bring in the
contextual background. At this point, it becomes necessary and important to
conceptually understand the differences and linkage between Fire Insurance and
Property Insurance.
Property Insurance is the wider concept, and Fire Insurance is a part of it. In other
208 words, Fire Insurance is a subset of Property Insurance. Thus, Property Insurance
includes Engineering Insurance (e.g. of project sites), in addition to Fire Insurance. Property Insurance
Fire Insurance policies generally cover a more limited set of perils, as compared to
Property Insurance. This clarifies the conceptual difference between Fire Insurance
and Property Insurance.
In India, the scope of Fire Insurance can be enhanced to include Industrial All Risk
(IAR) Package Policy. As packaged policies become wider in coverage, the distinction
between Fire and Property Insurance gets increasingly blurred.
Activity 9.1
(i) Examine your own household and neighbouring area and identify properties that
could come under insurance cover
...............................................................................................................................
...............................................................................................................................
...............................................................................................................................
(ii) Examine a business premises (office/factory/godown) and identify properties that

could come under insurance cover
...............................................................................................................................
...............................................................................................................................
...............................................................................................................................
Distinctive Features of Fire Insurance
Between Fire Insurance and other types of insurance, there are several commonalities
and a few distinctive features. The distinctive features of Fire Insurance are stated
below.
 Fire Insurance is useful to dwellings and industrial segments, households,

commercial establishments (shops, offices, factories) as well as non-commercial
establishments such as schools, colleges, hospitals etc.
 Although Fire Insurance is a subset of Property Insurance, Fire Insurance

itself is quite wide in its scope, viz., the Standard Fire and Special Perils
(SFSP) Policy also covers natural perils such as Storm, Tempest, Flood,
Inundation (STFI) and man-made perils such as Riots, Strikes, Malicious &
Terrorism Damage (RSMTD) as detailed in this unit.
 Consequential losses are covered for loss of profit during the closure of a
business due to fire. The consequential losses policy is offered only in
addition to a fire policy (material damage) and not sold on a stand-alone
basis. Hence, such insurance against ‘loss of profit’ are not a violation of the
Principal of Indemnity.
 Customized Fire Insurance policies can be offered to businesses having

higher fire hazards, such as petrochemicals, nuclear power etc.where the
underwriter assesses non-standard risks unique to each business and fixes
the premium rates based on such underwriting considerations. Insurance works
209
General Insurance out to be economical based on the statistical ‘Law of Large Numbers’, i.e.
large number of small policies, hence the magnitude of the total claim amounts
is small. In the case of say, large petrochemical complexes, there are a small
number of large policies, hence the magnitude of total claim amounts is large.
9.3 PRINCIPLES OF INSURANCE: AS APPLICABLE

TO FIRE INSURANCE
The basic principles and their applicability to fire insurance is discussed here. The 4
basic principles of insurance (Utmost Good Faith, Insurable Interest, Indemnity and
Proximate Cause) and 2 Corollaries to Indemnity (Subrogation and Contribution),
remain the same for all branches of insurance. Their specific applicability to Fire Insurance
is tabulated below.
Principle of Insurance Applicability to Fire Insurance
Utmost Good Faith The contract of insurance between the two parties insured
(Uberrima Fides) (customer) and insurer is governed by the spirit of utmost
good faith. The insured (customer) must disclose
information and subsequent material alterations truthfully,
without any intention to deceive the insurer, to enable the
insurer to fairly assess risks, policy value and claim
amount. (e.g. nature of business, type of goods stored,
value of assets and goods etc.). Where the insurer or his
nominee surveys the premises, onus of ascertainment of
information is on the insurer. It is also the duty of the
insured to act prudently, by safeguarding at all times and
mitigating or minimizing the insured assets against risk.
This results in the insured not taking undue advantage
through negligence in respect of assets insured, and not
exposing it to risks that are under his control (e.g. safe
distance between goods and sources of heat). Failure on
the part of the insured gives the insurer the right to void
the contract.
Insurable Interest Only persons who have an insurable interest in the

subject matter (assets, goods) can buy a policy.
Owners of factory buildings or banks who have given a
loan for the factory buildings are examples of persons
who have insurable interest. Eg. HDFC, upon sanctioning
a housing loan to a borrower, may recommend that the
latter take a Fire Insurance cover from HDFC Ergo
General Insurance or any other insurer; in the event of a
fire, however unlikely, the compensation enables the repair
of the home or purchase of a new house. In this case,
both – the borrower as well as HDFC have an insurable
interest in the safety of the house. This aspect distinguishes
Fire Insurance from wagering or speculative betting.
210
Property Insurance
Indemnity It is the duty of the insurer to compensate the insured
for losses covered in a Fire Insurance policy, i.e. indemnify
the customer against financial losses. The claim amount
cannot exceed the amount of loss, as the objective of
insurance is compensation to the pre-loss position, and
not to result in a profit to the insured. The Sum Insured
(relatable to the value of the assets) is arrived at by various
methods: Fixed Sum, Market Value (Original Cost minus
Depreciation till date), Reinstatement Value (Cost of New
Asset), Agreed Value (e.g Art, Heritage buildings). In case
of Reinstatement Value, a relatively higher premium may
be determined by the insurer.
Subrogation (Corollary, The insurer, on payment of claim amount to the insured,
subset of Principle of obtains all rights of the insured. For example, if the full
Indemnity) claim is paid out for partially damaged goods, the insurer
gains rights to sell the salvage and also claim damages
against all third parties, if any, responsible for the loss.
This reduces the net claims of the insurer. In the absence
of the Principle of Subrogation, the insured could get the
full claim amount plus proceeds of salvage, resulting in a
gain. This would be a violation of the Principle of
Indemnity.
Contribution (Corollary, If an insured has more than one policy on the same asset/s,
subset of Principle of the settled claim amount is divided across each insurer,
Indemnity) so that the total claim amount received by the insured
from all insurers does not exceed the amount of loss.
Each insurer bears a proportion (known as rate-able
proportion) of the loss. In the absence of the Principle
of Contribution, an insured can receive an amount
resulting in an unintended gain. This would be a violation
of the Principal of Indemnity.
Proximate Cause There needs to be a direct cause-effect relationship
(Causa Proxima) between the loss-causing event and the loss. In other
words, the loss must be a consequence of an event
covered under the policy. The loss cannot be triggered
by any event not covered by the policy, and must be an
event of chance. This is known as novosactus
interveniens, to ensure that no new intervening event
not covered by a policy is the true proximate cause of
the loss-making incident.
E.g. If a policy document specifically excludes war, then
losses arising from fire caused during war are not covered,
as the proximate cause is war, although the subsequent
event is fire. It must be noted, however, that in case war
risk is specifically covered under the policy and premium/
higher premium paid, then losses due to war risk are
included.
211
General Insurance Activity 9.2
Give examples of how a potential customer with wrong intentions could misuse fire
insurance, involving violation/s of the basic principles.
...............................................................................................................................
...............................................................................................................................
...............................................................................................................................
...............................................................................................................................
9.4 PRODUCTS: RANGE OF COVERS

Under the ambit of Fire Insurance, the common Proximate Cause is a fire accident. In
reality, the Standard Fire and Special Perils Policy has a wider ambit and lists the
following:
Perils Covered (12) General Exclusions (13) General Conditions (14)
Fire 5% of every claim Voidable on Non-Disclosure

(deductible)
Lightning War, Civil War Loss up to 7 days after

buildings fall
Explosion/Implosion Nuclear Risk Material Alteration
Aircraft Damage Pollution, Contamination Covered under Marine Policy
RSMTD Bullion, Art, Books, Termination: 15-day notice

Explosives
STFI Stocks in Cold Storage Claim in 15 days, extension

12 months.
Impact Damage from Electrical Machines, Insurer’s Right of Entry

3rd party Apparatus
Subsidence, Land/ Architects Fee, Debris Fraud and Forfeiture of Policy

Rock-slide Removal
Burst/Overflow of Loss of Earnings Pro-rata Average Condition

Water-tank
Missile-testing Spoilage from Process Contribution Condition

Operations
Leakage from Loss by Theft during/after Subrogation Condition

Sprinklers Peril
Bush-fires Earthquake/Volcanic Arbitration
Damage to Property Communications in Writing

Off-site Premium: Sum-Insured match
212
Most of the terms in the above lists are self-explanatory. However, a comprehensive Property Insurance
understanding is provided on the other items, in the paras below.
9.4.1 Perils Covered: The list shows that the Standard Fire and Special Perils
(SFSP) Policy covers several perils in additions to Fire. Impact Damage (like Aircraft
Damage) refers to damage caused by impact with any train, bus, vehicle or animal.
Leakage from Automated Sprinklers are also covered. Bush-fires refer to shrubs and
grassy areas adjoining the insured premises that cause fires to spread. Bush-fires are
viewed as distinct and different from Forest Fires, being smaller and less impactful.
General Exclusions: Generally, 5% of every claim is to be borne by the insured. This

is known by various names, such as a deductible, excess or franchise. The logic
behind this is, that the first loss of 5% needs to be borne by the insurer, to enforce a
behaviour of prudence, rather than negligence. War, nuclear risk and pollution damage
are excluded. Bullion, Art, Coins & Stamps, Books of Account, Computer Records
are also generally excluded as also explosives on the premises. Stocks in Cold Storage
that are damaged due to temperature fluctuations are excluded. Fees to Architects,
Surveys, Engineers etc. are excluded. If included under costs to be reinstated, Architect’s
fees in excess of 3% of the Sum Insured are excluded. Loss of profit during the period
of business interruption are excluded. In case of Debris Removal, up to 1% of the
claim amount can be considered, the remaining portion is excluded. Damage to
machinery and property due to covered perils but outside the insured’s normal premises
are excluded, unless removed temporarily for repairs. While the nature of the General
Exclusions are listed and elaborated upon, it may be noted that the coverage
of Fire Insurance can be extended with additional premiums.
General Conditions: Any acts of non-disclosure, mis-statement or misrepresentation

of facts by the insured, renders the insurance contract voidable at the option of the
insurer. Any material alterations in the business are to be communicated to the
insurer for continuance of cover. Losses incurred up to 7 days after the fall of a building
are covered. Claims are to be notified to the insurer within 15 days from the loss event,
and extendable with the consent of the insurer for a period of up to 12 months. This
12-month limitation period does not apply to claims already under process by the
insurer. An insurance policy can be terminated by mutual consent, and the pro-rata
premium be returned by the insurer. In case of fraud, the insurance policy and premium
stand to be forfeited. The premiums paid shall be of such amounts as to maintain the
Sum Insured at all times – this becomes applicable in case of claims paid during the
period of insurance and claim amount getting reduced from the Sum Insured.
An important aspect of Fire Insurance is under-insurance and application of the

Average Clause. Numerical examples illustrates this:
Illustration 1
If the Sum Insured is Rs.1,00,000 and value of a property is Rs.1,50,000 and the
claim loss is Rs.90,000. This is a case of under-insurance, since the value of the property
is Rs.1,50,000 as against the Sum Insured of Rs.1,00,000. The entire claim of
Rs.90,000 will be adjusted in the proportion of Rs.1,00,000/Rs.1,50,000, i.e. 67%.
Now, 67% of Rs.90,000 = Rs.60,000. Hence, Rs.60,000 will be the amount of claim
admitted for release of payment.
213
General Insurance Where a number of assets are insured, with sub-limits, claim losses will be
adjusted by using the Average Clause in respect of each class of assets
separately, using the formula:
Sum Insured/Value of Asset x Amount of Loss = Claim Admitted.
Illustration 2
The same company has 3 Assets – A, B and C, details as follows:
Asset A, Sum Insured Rs.1,00,000, property value Rs.1,50,000, claim loss Rs.90,000
Asset B, Sum Insured Rs.2,00,000, property value Rs.2,00,000, claim loss Rs.80,000
Asset C, Sum Insured Rs.3,00,000, property value Rs.2,50,000, claim loss

Rs.2,50,000
In the case of Asset A, the Average Clause applies, and the amount of claim admitted
will be Rs.60,000 i.e., 1,00,000/1,50,000 x 90,000 = 60,000. In the case of Asset
B, there is no under-insurance and the full claim of Rs.80,000/- can be admitted. In
case of Asset C, there is over-insurance, where there is no extra benefit, as the claim
loss will be limited to the property value of Rs. 2,50,000. Moreover, it is to be noted
that the over-insurance in case of Asset C cannot be adjusted against the under-insurance
of Asset A. Hence, each asset category is viewed as a distinct cluster.
9.4.2 Add-on Covers

In continuation to the General Exclusions listed under the Standard Fire & Special
Perils (SFSP) Policy, 15 add-on covers are available on payment of additional premium,
as mentioned below.
Add-on Cover Description
Spontaneous Combustion (by Fire only) Rating (rate per Rs.1000 Sum Insured)
based on Low/Medium/Variable/High
Earthquake (Fire and Shock) In respect of premises covered in Main

Policy, applicable with a 5% excess.
Earthquake rates are based on Zone I/
II/III/IV (Severe to Mild), and Non-
Industrial/Industrial (Low to High)
Forest Fire – loss directly by burning Rates are based on 5-years claims
experience
Impact Damage from Own Vehicle Power-driven vehicles, forklifts,

cranes, articles
Stocks in Cold Storage – Power-cut on Power cuts due to fire caused by

peril insured peril
Stocks in Cold Storage – Temperature Temperature fluctuation caused by

variation power outage consequent to insured
peril
214
Property Insurance
Architect’s Fee in excess of 3% of Sum Not to exceed 7.5% of claim amount
Insured
Debris Removal in excess of 1% of Not to exceed 10% of claim amount
Sum Insured
Omission to Insure, Alterations, Additions Not to exceed 5% of Sum Insured.
Extension granted on payment of
additional premium at policy rate
Spoilage Material Damage Cover Loss of stock in process, machinery
and containers, average clause
applicable to each block of assets
Leakage and Contamination Cover Applicable to oils and chemicals only,
due to accidental contamination
Temporary Removal of Stocks Clause Not to exceed 10% of Sum Insured
Loss of Rent Clause Only if building unfit for occupation.
For a period necessary for
reinstatement
Rent for Alternative Accommodation For non-manufacturing premises,
limited to the additional rent for
alternative premises
Startup (Restart) Expenses Necessary and reasonable expenses
9.4.3 Special Clauses

Other Special Clauses relevant to Fire Insurance are tabulated as under:
Special Clause Description

Escalation and Reinstatement Value Applicable to Building, Plant and Machinery.
(RIV) Escalation rate is @ 1/365 computed on a
daily basis from inception of cover, subject
to 25% of Sum Insured, at a premium of 50%
of the final rate. RIV is to compensate for
inflation and is subject to ‘same type’ and not
a superior model. Can also cover additional
expenses for complying with Government or
Local Municipal Authority regulations
Declaration Policies To cover assets whose value fluctuates
frequently, based on the highest anticipated
value of stocks
Floater Policies Where there is a movement of stocks between
various premises
Special Clauses:- Agreed Bank Clause, Contract Price Insurance

Clause, Designation of Property Clause 215
General Insurance
Agreed Bank Clause (where asset is financed
by loan from bank/financial institution),
Contract Price Insurance Clause (in respect
of imported goods) and Designation of
Property Clause (for mutual understanding
between insured and insurer on classification
of asset for reference by Surveyor – whether
Plant/Machinery/Equipment, to avoid disputes
later. Sometimes concrete walls are classified
as plant and pumps are classified as
machinery.
Some of the Packaged Policies include: Homeowner’s Comprehensive Insurance,

Shopkeeper’s Comprehensive Insurance and Banker’s Blanket Insurance. Customized
Policies include: Exposure-rated products such as Earthquakes, or Insurances for
Large Risks, e.g. Properties of Rs.2,500 crore or more at one location for property or
material damage.
Consequential Loss Policies are offered only as an add-on to the Fire Policy.
Consequential Losses arise due to loss of profit on account of the business interruption
caused by fire. The coverage period could be for 3 months to 3 years. The Turnover
(total sales or revenue) of a full Financial Year preceding the date of damage are
considered. If Turnover is Rs.20 lakhs and Variable Costs Rs.15 lakhs, the difference
= Rs.5 lakhs is called Gross Profit; the
Gross Profit Margin is 5/20 x 100 = 25% of Turnover. The turnover of the 12-
month period immediately preceding the loss event is considered, and compared with
the Turnover of the corresponding post-loss period, to determine the Turnover lost.
When multiplied by the Gross Profit Percentage, the resultant amount is the insurable
‘loss of Gross Profit’. Also insurable are Standing Costs (such as overheads) and
Increase in Cost of Working (ICW) incurred during post-damage situation. Other
payments coverable are statutory payments to workers under labour laws and auditors’
fees. Specific mention needs to be made of coverage and extensions, in the policy
document, with definitions of terminologies.
There are Specialized Policies for Petrochemicals, a high-risk activity. For Industry,
there are Packaged Policies such as the Industrial All Risk (IAR) and Commercial
Package Policy (CPP). In IAR, the perils covered are: Fire, Burglary, Machinery
Breakdown, Boiler Explosion, Electronic Equipment Insurance and Fire Loss of Profit.
Such wider packaging diminishes the distinction between Fire Insurance and Property
Insurance. Notably, cargo, if covered under some door-to-door Marine Policies, are
excluded from the Fire Policy, demonstrating the possibility of overlaps with widening
Fire Insurance covers.
Activity 9.3
Identify the features of any fire insurance policy and note it down in your own words.
216
............................................................................................................................... Property Insurance
...............................................................................................................................
...............................................................................................................................
9.5 PROCESSES: FIRE INSURANCE BUSINESS AND

OPERATIONS
Operations: Proposal-Claim-Renewal Cycle
Proposals are evaluated by the Underwriting department, which evaluates the risks
brought in by each proposal and, if found acceptable, lays down conditions and prices
the policies. This is followed by the issuance of the policy. Unlike life insurance policies
that are long term from age of entry until attainment of age 60, Fire Insurance policies,
like all non-life policies are generally for periods up to one year. In case claims do not
arise before expiry of the policy, nothing further needs to be done. In case a claim
arises, the same is evaluated by the claims department. A surveyor’s report evaluates
the genuineness and magnitude of the losses and the claims department makes the
requisite payment. The final step is renewal, upon expiry of a policy.
The Operational cycle is as follows:
Proposal
Underwriting

Policy Issuance
Claims
Renewal
The technical aspects of each step in the cycle are explained in detail in the following
paragraphs.
9.5.1 Proposal
The sales team, having explained the importance and need for Fire Insurance to the
customer, gets the Proposal Form filled in. The Proposal Form is designed so as to
garner full and correct information to the extent possible. A properly designed and
filled-in Proposal Form enables the Underwriting department to correctly process the
proposal for consideration and issue of the Policy Document. The Principles of Insurable
Interest and Utmost Good Faith (Uberrima Fides) apply. On the part of the customer,
disclosures are to be made in good faith; on the part of the insurer, the customer is
217
General Insurance enabled to take an informed decision. The filled in Proposal Form is accompanied by
the first premium payment.
The Proposal Form of an SFSP Policy contains the following points:
Point Explanation
Pre-condition The insurance cover does not commence unless the proposal is
accepted and premium paid.
Proposer Name, Address, Contact Details, Business, Parties having

Insurable Interest, Location, Period of Insurance, Whether
insurance declined by other insurers, Past 3 years premium and
claim history
Coverage Whether STFI, RSMTD and additional cover are required, any
add-on covers required, whether plinth is to be covered
Property Type of Property, Goods Stored, Goods Manufactured, Fire

Protection devices, Storage Area details, Construction Material
in Building, Height and Age of Building
Sum Insured Separately for each Block of Assets: Buildings, Machinery,

Furniture & Fittings, Stocks
Declaration Details in the Proposal Form are declaratory in nature and

misrepresentation could result in the contract of insurance being
void at the option of the insurer
All entities in financial services, including insurance, are required to gather Know Your
Customer (KYC) related information compliant under the Prevention of Money
Laundering Act (PMLA), 2002. Such data include the Proof of Identity, Proof of
Address and Income Tax Permanent Account Number (PAN). This may also be
incorporated into the details of Proposer.
Activity 9.4
Examine a Proposal Form and note down your observations
...............................................................................................................................
...............................................................................................................................
...............................................................................................................................
9.5.2 Underwriting
The Proposal Form is examined in detail and information gaps are filled in by making
queries or cross-verification. The Principle of Utmost Good Faith is tested here for
adherence. The idea is to examine the perils, hazards and risks associated with the
new proposal. Besides, the overall portfolio is also examined, from a risk management
perspective (e.g. a single insurance company cannot have too many textile companies
at a single location as a major part of its customer portfolio – a single event could wipe
out the insurer’s capital). Insurance works on the Law of Large Numbers, a statistical
218
probability concept that: the larger the pool of insureds, fewer the proportion of claim Property Insurance
losses to the total premium, in a given year. Also, conditions laid down by the reinsurer,
if any, need to be taken into consideration. If the risks associated with a particular
proposal are relatively higher than the standard or norm, the premium rates could be
enhanced, or exclusions may be specified. Relatively safer proposals may be given a
concession in the premium rates (Claims Experience Discount = CED and Fire
Extinguishing Appliances = FEA Discount). Premium Rates are generally quoted per
Rs.1,000 of Sum Insured. Thus, Sum Insured (Rs) x Rate (per Rs.1000) = Premium
(Rs.)
For example, if the Sum Insured is Rs.5,00,000 and Rate is Rs.5 per Rs.1000 (5/
1000) of Sum Insured, the Premium will be (Rs) 5,00,000 x 5/1000 = Rs.2,500.
The Principle of Indemnity applies here for compensation of loss, and not result in a
gain for the insured. Terms and conditions incorporate the Principle of Indemnity and
the Corollaries: Subrogation and Contribution. Subrogation means that the insurer, in
consideration for the compensation, acquires all rights against third parties relevant to
the policy, that vested in the insured. Contribution means that in the event the same loss
is covered under multiple policies, the total compensation to the insured shall not exceed
the loss, and the compensation is proportionately borne by all insurers. The Principle
of Proximate Cause is also embedded into the terms and conditions.
An important underwriting consideration is the fourfold aspects of:
Fire Hazard Fire Load Fire Resistance Fire Prevention
Fire Hazards- can be Originating, Contributing and Construction. Originating hazards

are the source of fire, such as electrical short-circuit. Contributing hazards are those
that magnify the fire, such as accumulated rags or scrap. Construction hazards result
from construction activity in the near proximity.
Fire Load- refers to the enhanced possibility for various classes of occupancy, viz.
Residential (Low), Retail Shops, Offices and Factory Buildings (Medium) and Bulk
Storage Godowns and Warehouses (High).
Fire Resistance- refers to the ability of various materials or structures to withstand

heat. The National Fire Code of India classification is Class I (4 hours), Class II (3
hours), Class III (2 hours) and Class IV (1 hour). Construction features and construction
material, and Exposure to a source of heat or fire are hazards that are important while
evaluating resistance.
Fire Prevention- measures contribute towards loss reduction and hence an important
aspect of underwriting. Fire Prevention measures include: Fire Extinguishment Systems,
Good/Bad Housekeeping practices, Storage Systems, Staff Loyalty, Staff Discipline
and Combustible Litter.
The outcome of underwriting is a Risk Inspection Report, whose main ingredients

are tabulated below.
219
General Insurance
Point Explanation
Objectives Complete picture, Recommendations, Claims history, Probable

Maximum Loss (PML)
Scope Location, brief history, buildings, constructional features

Lighting, heating and power
Process of manufacture
Exposure
Fire protection Management & supervision
Moral hazard (character of insured’s management)
Adequacy of Sum Insured
Insurance and loss experience
Risk improvement
Probable Maximum Loss (PML)
Site Plan (diagram – as an Annexure)
Thus, the discussion on underwriting can be rounded up in the following paragraph.
Underwriting involves the acceptance or rejection of proposals based on the assessment

and pricing of risks and making decisions on retention versus transfer of risk (through
reinsurance). Reinsurance is insurance ceded by the insurer to a reinsurer (insurer’s
insurer). The insurer cedes premium to the reinsurer in the same proportion to the sum
insured ceded to the reinsurer. A reinsurer may place certain criteria which the insurer
adheres to when underwriting proposals.
The objective of underwriting is to look at risks in individual proposals as well as their

addition to the overall portfolio. The overall objective is to generate business volumes,
earn premium income and profits after bearing claim losses, and marketing &
administrative expenses.
Underwriting factors are:
 Large volume of business, to permit the Law of Large numbers to operate
 Prudent selection of business, based on geographical and diversification of

assets
 Fixing of retentions and transfers through reinsurance
Reinsurance, in brief, can be in two manners – Facultative and Treaty.
Under Facultative, the insurer adopts a pick and choose approach while using the
reinsurance limit. Whereas in Treaty, a pre-determined ratio of all proposals covered
under the treaty are shared.
9.5.3 Policy Issuance

The Policy Document, guided by inputs from the underwriting department, specifies
the exact period of coverage, premium details, policy amount, scope of coverage,
terms and conditions. It reiterates all the 4 Principles and 2 Corollaries of insurance. It
also specifies the mode of making a claim in the event of a loss.
220
In practice, a two-step procedure is followed. It is customary to issue an Acceptance- Property Insurance
cum-Receipt or a Cover Note to the insured, pending preparation and dispatch of

the detailed Policy Document.
Main contents of the Acceptance-cum-Receipt or Cover Note are as follows:
Point Explanation
Main Note Policy No., Period, Property Covered, Perils Covered, Sum
Insured, Premium Paid
Schedule Name and address of Proposer, Brief Description of Property, Sum

Insured, Period, Risks Covered, Rate of Premium (provisional, if
not Immediately ascertainable)
The Policy Document or Policy Schedule comprises of 3 parts, as tabulated below.
Point Explanation
Identification Name and Address of Insured and Insurer, Policy No., Cover
Details Note No., Policy Period, Co-Insurer/s, if any
Risk Description Description of Property and Address, Premium, Sum Insured

Details (separately for each Block of Assets), Applicable Warranties
(conditions attached), Agreed Bank’s Clause (where asset/s is
on loan from a Bank), Discounts, 5% discount in case of
proposal routed through Bank, Net Premium.
Endorsements are made by the insurer after approving, for

changes in Name of insured, Bank Clause, Change of Address
or Location of Property, Alteration in Construction, Occupation,
Sum Insured or Period of Insurance
Occupancy-wise Risk Code, Rate for Buildings & Contents, Claims Experience
Net Rate Data Discount (CED), Fire Extinguishing Appliances (FEA) Discount,
Net Rate
Activity 9.5
Make visits to a dwelling unit and a business organization and list down the various
risks, from an insurer’s viewpoint.
...............................................................................................................................
...............................................................................................................................
...............................................................................................................................
...............................................................................................................................
9.5.4 Claims
Claims are at first intimated by the insured, and recorded by the insurer. A surveyor
shall, after confirming that the policy is in force, make an assessment of adherence or
otherwise of the policy conditions, and evaluate the losses and specify the net claim 221
General Insurance amount. The Principle of Proximate Cause, of all stated principles, is the most applicable
at this stage. On receipt of survey reports, the recommended claim amount is released.
In case of large and complex cases, an ‘on-account’ payment is released, to enable the
insurer to bear urgent repair expenses, and adjusted against final claim and disclosed in
the financial accounts. Provisions are also made in the accounts for known losses but
not intimated (Incurred But Not Reported – IBNR).
The Legal and Procedural aspects of Claims are detailed in the paragraphs below.
The Legal Aspects of Claims are: the insured acts in Utmost Good Faith and makes
all effort at mitigating losses; the insurer on his part also agrees to abide by the same
principle while indemnifying the insured against covered perils, in the spirit of the contract
of insurance. The insured shall, upon intimating the insurance company, cooperate
with the fire-fighting agencies and submit all proofs of losses supporting the claim and
make true declarations. The insurer, on his part, on receipt of the Claim Form will
verify the Proximate Cause and indemnify the insured, taking into consideration the
Market Value, Depreciation or Reinstatement Values, as the case may be and make
deductions (excess) as applicable. The insurer has the right to enter the premises, and
ascertain the adherence to warranties or conditions specified in the policy. In case of
under-insurance, the pro-rata average condition applies, as explained in illustration
2 above. Procedures laid down by the Insurance Regulatory and Development Authority
of India (IRDAI) and the Institute of Insurance Surveyors and Loss Assessors (IISLA)
provide the framework for actions.
Ex-gratia payments (i.e. compensation amounts not included in the policy) may be
made without legal liability or obligation. Such Ex-gratia payment is made ‘without
prejudice’ to or without admission of liability of the insurer, has the effect of waiving off
the Principle of Subrogation. The Ex-gratia payment is made after consulting the co-
insurers and reinsurers, as may be the case.
The Procedural Aspects of Claims are:
 Verify Policy coverage and period on receipt of claim
 Register claim and allot Claim Number
 Issue Claim Form
 For large claims, appoint surveyor
 Surveyor submits preliminary report
 Surveyor submits final report with loss assessment (within 30 days, maximum)
 From settlement amount, deduct premium for remaining period pro-rata, to

retain full insurance
 Get discharge voucher signed and issue cheque
 Claims paid to be reflected in insurer’s financial accounts
 Surveyor’s duties as per Insurance Surveyor and Loss Assessors (ISLA)

Regulations, 2000
222
 In reinstatement claims, surveyor needs to physically verify reinstated assets Property Insurance
 In business interruption claims, surveyor plays role of Managing Director (MD)

for loss minimization
 In small and simple claims, surveyor examines damaged property and

ascertains proximate cause
 In large complex cases, inspection report is detailed, loss minimization and

salvaging steps suggested
 Early and thorough examination is best suited for determining cause of fire
 Thorough examination determines value and property and extent of loss
 No fixed format of Final Survey report. Name of bank/financial institution,

mortgage/loans required
 In simple claims, survey recommends amount, after discussion and negotiation

with insured
 In complex claims with extensive damage, survey report is more detailed
9.5.5 Renewal
The nature of Fire Insurance (like all general insurance products) is short-term, extending
up to one year, renewable based on mutual consent and based on approval by the
underwriting department. Each renewal is a separate contract of insurance. From the
insurers’ viewpoint, the renewal and its terms are based on the claim history, new risks
perceived, and appropriate pricing. The Principal of Utmost Good Faith is once again
reinforced at this stage.
Activity 9.6
(i) Examine a Claim Form and note down the salient features
........................................................................................................................
........................................................................................................................
........................................................................................................................
(ii) Speak to a representative of an insurance company and also to a claimant, and
note down their experiences
........................................................................................................................
........................................................................................................................
........................................................................................................................
9.6 SUMMARY
In this unit we have discussed how in common parlance, Fire Insurance and Property
Insurance are used interchangeably. The distinctive features of fire insurance are also
covered. In specific terms, Property Insurance is the wider term and includes Fire
Insurance plus Engineering Insurance. However, due to ever-widening coverage of 223
General Insurance Package Policies, the distinction between Fire Insurance and Property Insurance is
increasingly getting blurred.
This unit covers all the established and time-honoured principles of insurance that apply
to Fire Insurance. Fire safety measures by the insured, average clause, architect’s fee,
debris removal, large risks and consequential loss coverage are features unique to Fire
insurance and ingrained into the basic principles, are also dealt with. The Standard Fire
and Special Perils Policy states the covers, general exclusions and general conditions.
The general exclusions that can be considered under add-on covers at an extra premium
is also discussed. The various aspects related to underwriting, policy issuance, claims
and renewal are also given.
9.7 KEYWORDS
Fire Hazards : can be Originating, Contributing and Construction. Originating
hazards are the source of fire, such as electrical short-circuit.
Contributing hazards are those that magnify the fire, such as
accumulated rags or scrap. Construction hazards result from
construction activity in the near proximity.
Underwriting : is based on a consideration of various hazards, load, resistance

and preventive measures. These conditions go into the rating
process for the purpose of pricing.
Claims : are verified by examining the proposal form, policy, claim

form and surveyors’ report. Claim amounts are settled based
on amounts and deductions recommended by the surveyor.
Renewals : are made based on mutual consent, generally on an annual

basis, with conditions and pricing based on the past claims
experience.

1. Compare and contrast the concepts of Property Insurance and Fire Insurance
and give your comments. What are the distinctive features of fire insurance?
2. Provide one example of each Principle and Corollary of Insurance, as applicable

to Fire Insurance.
3. What are the Perils covered under the Standard Fire and Special Perils (SFSP)
Policy?
4. Describe the General Exclusions under the SFSP Policy and the available Add-on
Covers.
5. Explain the concept of under-insurance and over-insurance with your own

numerical examples
6. Explain in brief: Fire Hazard, Fire Load, Fire Resistance and Fire Prevention.
224
7. What are the features of a Risk Inspection Report? Property Insurance
8. What are the Legal Aspects of Claims processing? Discuss the Procedural Aspects
of Claims processing.

Fire and Consequential Loss Insurance (IC 57), Insurance Institute of India,
Revised Ed., 2015
225
General Insurance
UNIT 10 AGRICULTURE INSURANCE
Objectives
After studying this unit you should be able to:
 Understand what is Agriculture Insurance
 Discuss different types of agriculture insurance covers
 Discuss about risks in Agriculture/Cultivation
 Explain Weather Based & Index Based Crop Insurance
 Discuss about the Crop Insurance Schemes launched by Government of India

and Growth of Crop Insurance in India
Structure
10.1 Introduction
10.2 Definition and Concept
10.3 Types of Agriculture Insurance
10.4 Determination of Premium Rates
10.5 History and Growth of Crop Insurance in India
10.6 Evolution of Crop Insurance Market in India
10.7 Pradhan Manrti Fasal Bima Yojana (PMFBY)
10.8 Issues and Challenges in Implementation of Crop Insurance in India
10.9 Livestock insurance
10.10 Farm Implement Insurance
10.11 Summary
10.12 Keywords
10.13 Self- Assessment Questions
10.1 INTRODUCTION
Agricultural is a major economic sector and a critical source of livelihood in India. It
contributes 18 per cent to GDP and engages 47 percent of the work force in India.
Over 58 per cent of the rural households depend on agriculture as their principal means
of livelihood. The share of primary sectors (including agriculture, livestock, forestry
and fishery) is estimated to be around 21 per cent of the Gross Value Added (GVA) at
current prices. The value output contribution from Indian Livestock sector to the GDP
of the country was about 41 percent of total contribution from Agriculture and allied
sector (FAO). Agriculture also provides raw material for food processing sector. Food
processing is India’s one of the largest and fastest growing sectors which contributes
around 9 and 10 per cent of Gross Value Added (GVA) in Manufacturing and Agriculture
226 respectively, 13 per cent of India’s exports and six per cent of total industrial investment
(India Brand Equity Foundation, 2018). It also has huge potential for employment Agriculture Insurance
generation. Thus, sustained growth and development of Agriculture sector is important

for economic growth of the country.
In India Agriculture is mostly rain fed as irrigation is available to only 45 percent of

cultivable land. It is exposed to adverse natural events such as excess or deficit of
rainfall, insect damage, crop diseases and poor weather conditions that negatively
impact production. The situation may aggravate for farmers as the economic costs of
major climatic disasters may increase in future due to fast changing climatic conditions.
To add to these issues, approximately 85 percent of farmers’ in India are small and
marginal farmers, who do not have enough resources to deal with economic shocks
coming from different sources. These smallholders operate in a complex environment
and face a number of constraints, which hold them back from developing their farm
activities and improve their livelihoods. Typical constraints include inadequate access
to means of production, limited farming know-how, difficulties in market access, cultural
restrictions, significant production and price uncertainty. In this scenario, Agriculture
Insurance has great potential to provide value to low-income farmers and their
communities, both by protecting farmers when shocks occur and by encouraging greater
investment in cultivation.
Farmers need advance risk management strategies to cope up with the adverse events.
Agriculture insurance is a financial tool available for farmers to mitigate the impact of
unpreventable risks in agriculture. However, its impact on farmer community needs to
be studied as risk and insurance needs vary across agroclimatic zones as well as
socio-economic parameters of individuals and farmers. Agriculture insurance is also
considered as a desirable alternative to the government provision of ex-post disaster
assistance. The cost of agriculture insurance in general is very high. Because of these
reasons, government involvement in agriculture insurance becomes inevitable.
Agriculture insurance is a financial tool available for farmers to mitigate the impact of
unpreventable risks in agriculture. However, its impact on farmer community needs to
be studied as risk and insurance needs vary across agroclimatic zones as well as socio-
economic parameters of individuals and farmers.Agriculture, insurance is also considered
as a desirable alternative to the government provision of ex-post disaster assistance.
The cost of agriculture insurance in general is very high. Because of these reasons,
government involvement in agriculture insurance becomes inevitable.
Government of India has taken keen interest in development and spread of Agriculture
insurance. Agriculture insurance in India was initiated effectively in 1972. But this initial
initiative had limited impact because of technical and administrative limitation of
agriculture insurance. It got wider reach after launch of National Agriculture Insurance
Scheme (NAIS) in 1999. NAIS became one of the largest agriculture schemes in the
world because of its wide coverage of number of farmers. In 2001, Government of
India setup a dedicated Agriculture insurance company in order to augment initiatives
in this direction. Today, majority of the market share is with Government supported
public sector company Agriculture Insurance Company (AIC) of India Ltd. In 2005,
private sector started its participation in agriculture insurance with help of World Bank.
The market share of private insurers is continuously increasing.
227
General Insurance The recent significant development in this direction is launch of Pradhan Mantri Fasal
Bima Yojana (PMFBY). The span of this scheme is so wide that it changed the whole
market dynamics of General Insurance. All public and major Private sector companies
are participating and crop insurance has become one of the important portfolio, for
these companies.
10.2 DEFINITION AND CONCEPT

Agriculture insurance is specifically targeted insurance for agriculture and allied sector.
Agriculture insurance covers production related risks of agriculture and allied sector
viz. sector crops, livestock, aquaculture, and forestry. Agriculture insurance consists of
crop insurance, cattle insurance, farm equipment and production related risks of
agriculture allied activities having direct or indirect impact. However, it does not include
cover of other normal risks of farming community; for example - health, property
(other than crop and agriculture equipment), life and old age risks. Agriculture insurance
forms part of miscellaneous insurance business in India.
Agriculture in India is characterised by high dependence on monsoon, low productivity,
small operational holdings, low investment in technology and high dependence of
population. Both cultivation practices and market of output is unorganised. These
characteristics put together has resulted in low bargaining power of farmers. The issue
becomes complex because of the risks involved in agriculture practices related with
backward linkages as well as forward linkages. The high risk in agriculture makes
farmers a weak link in the whole agrarian economy. It is important to understand the
risk profile of agriculture to get right perspective of agriculture insurance in India. The
next section elaborates the risk profile of Indian Agriculture.
Risk in agriculture originates from different variables such as- biological, climatic,
agricultural practice and price. Biological variables are adversities coming from pests
and diseases. Climatic variables account for vagaries of nature in form of drought and
flood or change in weather parameters. Variables associated with agricultural practices
are types of agricultural inputs used, and method of cultivation. Price variables are
associated with volatility of output prices in the agricultural commodity market. A farmer
faces risks in both favourable and unfavourable cropping conditions. In favourable
condition, it faces risk of price whereas in unfavourable conditions it faces risk of low
production.
The risks faced by agriculture are identified as:
(a) Production risks: Production risks impact the net income from farm because of
uncertainty associated with amount of crop output. Production risks originates
from two principal factors- change in expected weather parameters (rains, wind
velocity, temperature etc.) and incidence of pest and diseases; which impact overall
productivity of crop
(b) Price/Market risk: Price or market risks as the name represents originate from
price volatility of input and output prices in the primary agriculture market.
Information asymmetry related with use of input and price of output adversely
impacts farmers.
228
(c) Financial/Credit risk: Financial and credit risks emanate from high dependence Agriculture Insurance
of Indian farmer on informal course of credit, high transaction cost and interlinkage
of transactions in terms of purchase of input on credit and sale of output from the
same source.
(d) Institutional risk: Institutions play an important role in wellbeing of farmers as

regulations and policies by Governments highly impact farmers’ decisions.
Institutional risks arise from change in input and output support, input subsidy,
minimum support price, import and export policy etc.
(e) Technology risk/Information risk: High or low use of technology brings with it
associated risks that impact farm income. Use of High Yielding variety seeds,
agrochemicals need information of new agricultural practices and development in
agricultural technologies related with knowledge of soil type and nutrients, weather
forecasts and farm management practices. In absence of complete information,
farmers loose on net income as they make heavy investments without having
adequate knowhow.
(f) Personal risks: Personal risk are risks of life, health, asset, accident faced by a
farming household. Natural calamities impact health and life of the members of
household as well as the productive asset like livestock and farm implements.
Apart from it, they face risks due to exposure to hazardous chemicals that are
used in pesticides and micro-organisms, in handling of agriculture equipment, wild
animals and other agents of nature.
Farmers’ in India so far have been depending on informal risk management mechanisms
like social arrangements as formal risk management opportunities provided by market
were not available. Agriculture insurance fills in this gap of risk management and loss
mitigation. Risk management mechanisms are of two types- ex ante and ex-post. Ex
ante mechanism are applied prior to the occurrence of the risk and ex-post mechanisms
are applied after the risk has occurred. The informal ex- ante strategies adopted by
farmers are crop diversification, mixed cropping and other cultivation practices, stock
accumulation and sharing of land and equipment etc. the ex-post informal mechanism
are primarily income and consumption smoothening mechanism like reduction in food/
nutrition uptake, sale of asset, deferred social events, mutual aid and borrowing etc.
The formal ex-ante mechanism are farmer welfare schemes like agri-extension activities,
subsidies etc. Agriculture insurance offered by government and market constitutes formal
ex-post risk coping strategy. It is considered better option than disaster relief measures
taken by governments, as it does not impact financial planning of Government and is
more sustainable because of active participation and contribution by citizens.
10.3 TYPES OF AGRICULTURE INSURANCE

Agriculture insurance is classified based on type of asset, type of risk, type of risk
assessment method and risk management method. It can be classified in three categories
based on type of Asset-Crop, Livestock and Farm implements. Crop insurance covers
protect farmers’ against uncertainty of crop yield arising out of natural reasons beyond
their control. Crop insurance is further classified on the basis of type of crop in three
categories- food crop, commercial crop and plantation/ horticulture. 229
General Insurance Livestock insurance covers risks of animal husbandry, poultry, fisheries, sericulture,
apiculture etc. it can be divided into cattle insurance, small farm animals, poultry, fisheries
and others. Cattle insurance includes covers for cattle used in dairy farming, meat
production or draft purpose. Insurance cover is also available for small farm animals
like sheep, goat, pigs etc. Poultry insurance provides cover for bird species like chicken
and ducks. Fisheries insurance covers risks involved in fish and prawn farming. Insurance
cover is also available for large animals like elephant, camel, horse etc. insects used in
bee and silk farming. Insurance cover for large farm implements like tractor and thresher
as well as small farm implements like agriculture pump-set, oil engines is available
under agriculture insurance.
Classification based on type of assets is as below:
Figure 10.1: Classification of Agriculture Insurance
The following section describes important aspects of each type of agriculture insurance
covers available in India.
10.3.1 Crop Insurance

Crop insurance is a product aimed at protecting cultivators from farm production related
risks, which are measured in terms of yield or weather parameters. Mahul and Stutely
(2010) define crop insurance as ‘Insurance that provides financial compensation for
production or revenue losses resulting from specified or multiple perils, such as hail,
windstorm, fire, or flood. Most crop insurance pays for the loss of physical production
or yield. Coverage is also often available for loss of the productive asset, such as trees
in the case of fruit crops’. Crop insurance accounts for more than 90 percent of global
agricultural insurance.
230
Crop insurance is classified according to a number of different characteristics. There Agriculture Insurance
are policies that pay indemnities based on the occurrence of farm level losses. Other
policies pay indemnities based on shortfalls in an index that serves as a proxy for farm-
level losses. These indices can be area yield or a weather measure. Some policies
protect only against yield losses. There are other policies that protect against shortfalls
in revenue in terms of product yield and output price or margin (revenue minus specified
costs). Some policies are commodity-specific called “whole farm” policies that insure
aggregate farm revenue or margin across multiple commodities. Crop yield insurance
policies are further disaggregated according to whether they offer named-peril or
multiple-peril cover. Named-peril policies protect only against yield losses that are
determined to have been caused by one or more specified perils. Common examples
of named-peril crop insurance policies are those that protect against losses caused by
hail and/or fire. Multiple-peril crop insurance (MPCI) policies protect against losses
caused by any number of perils.
Overall, crop insurance products can broadly be classified into two major groups:
indemnity-based insurance and index insurance or weather index insurance.
Figure 10.2: Classification of Crop Insurance
10.3.1.1 Indemnity-Based Insurance
Indemnity means making compensation payments to one party by the other for the loss
occurred. Indemnity based insurance is a mutual contract between insured and the
insurer where one insurer promises the insured to compensate for the loss against
payment of premiums.
There are two main indemnity products:
(i) Damage-based Indemnity Insurance also called as Named Peril Crop

Insurance and
(ii) Yield-based Crop Insurance or Multiple Peril Crop Insurance, MPCI.
(i) Damage-based Indemnity Insurance (Named Peril Crop Insurance)
Damage-based indemnity insurance is crop insurance in which the insurance claim

is calculated by measuring the percentage damage in the field soon after the damage
occurs. The damage measured in the field, less a deductible expressed as a
percentage, is applied to the pre-agreed sum insured. The sum insured may be
based on production costs or on the expected revenue. Examples of damage 231
General Insurance based indemnity insurance are hail insurance, frost insurance and excessive/deficit
rainfall insurance. Since this kind of cover compensated losses caused by a single
peril, it is also called as Named Peril Crop Insurance (NPCI), ex. hail insurance,
frost insurance etc. Named peril crop insurance has operated as a financially
sustainable, market-based insurance in developed countries for more than a century,
generally without subsidy or government intervention.
(b) Yield-based Crop Insurance (Multiple Peril Crop Insurance, MPCI)
Yield-based crop insurance an insured yield (for example, tons/ha) is established

as a percentage of the farmer’s historical average yield. The insured yield is typically
between 50 percent and 70 percent of the average yield on the farm. If the realized
yield is less than the insured yield, an indemnity is paid equal to the difference
between the actual yield and the insured yield, multiplied by a pre-agreed value.
Yield-based crop insurance generally protects against multiple perils, hence it is
also called MPCI. It is a relatively standardized policy, irrespective of crop type
because of which it is preferred for Government interventions. MPCI has some
major issues in terms of loss adjustment, moral hazard, adverse selection, and high
operational costs. The high operational cost of MPCI makes it necessary to depend
on subsidy to bring viability for insurers.
10.3.1.2 Index-Based Crop Insurance
Index based insurance makes indemnity payments based on measures of an index that
is assumed to be proxy to actual losses instead of indemnity payments based on an
assessment of the policyholder’s individual loss. There are two types of index products
explained below.
(i) Area Yield Index Insurance
Here the compensation is based on the realized average yield of an area such as a
country or district or taluka and not the actual yield of the insured party. The insured
yield is established as a percentage of the average yield for the area. Compensation is
paid if the realized yield for the area is less than the insured yield regardless of the
actual yield on a policyholder’s farm. This type of index insurance requires historical
area yield data. Area yield index insurance is a relatively well established product,
adopted by Govt of India in National Agriculture Insurance Scheme (NAIS).
This given area is called as ‘insurance unit’. The actual yield of the insured crop in the
insurance unit is compared to the ‘threshold yield’ (TY) computed using actual data for
previous years. If the actual yield is lower than the threshold yield, all insured farmers
in the insurance unit become eligible for the same indemnity payout. The actual yield is
determined by harvested production measurements taken at a series of randomly chosen
crop cutting experiment (CCE) locations. The probable yield (PY) is based on a three-
year moving average of seasonal area-yields estimated from CCEs for rice and wheat
crops and a five-year moving average for all other crops.
(ii) Weather Index Insurance (WII)
Weather Index Insurance are contingent claims contracts for which payout are
determined by an objective weather parameter (such as rainfall, temperature, or soil
232
moisture) that is highly correlated with farm-level yields or revenue outcomes. In this Agriculture Insurance
type of insurance, compensation is based on realizations of a specific weather parameter

measured over a pre-specified period of time at a particular weather station. The
insurance can be structured to protect against index realizations that are either so high
or so low that they are expected to cause crop losses. For example, the insurance can
be structured to protect against either excess rainfall or deficit rainfall.
Compensation is paid whenever the realized value of the index exceeds a pre-specified
threshold (for example, when protecting against excess rainfall) or when the index is
less than the threshold (for example, when protecting against deficit rainfall). The
indemnity is calculated based on a pre-agreed sum insured per unit of the index. It is a
relatively new development for agricultural insurance, where experiments are happening
all across the globe. Many pilot projects have been started, but scaling up of weather
index has happened only in a few countries, especially, in India with launch of Weather
Based Crop Insurance Scheme (WBCIS) by Agriculture Insurance Company Ltd
(AIC), a Govt undertaking and ICICI Lombard, a private insurance company.
10.3.2 Approach to Crop Insurance

There are two approaches to crop insurance depending on unit of insurance, individual
and Area
10.3.2.1 Individual approach
Under this approach, the basic unit of insurance is individual farmer. This approach
indemnifies the loss of individual farmer based on past yield data and loss experience
of the farmer. The premium paid by the farmer is also decided by the historical yield
and loss data of the farmer. Transaction cost is relatively high under this approach as
underwriting and loss assessment is to be done at individual farm level. Since the
landholding size is small in India, it is difficult to follow this approach.
10.3.2.2 Homogeneous Area Approach
In homogeneous area approach, the basic unit of insurance is an area homogeneous in

terms of crop production and variability. The unit of insurance under NAIS was taluka/
block, whereas it is village/panchayat in case of Pradhan Mantri Fasal Bima Yojana
(PMFBY) scheme. Area approach addresses the issue of reliable historical production
data of individual farms. It also reduces moral hazard, loss assessment is cheaper as
unit of insurance is large.
10.3.3 Underwriting and Claims in Crop Insurance

Crop insurance is different from other lines of business as it provides cover, season
wise and crop wise. The nature of crop and its productivity varies according to season
and geographical location. The productivity of plants depends on vegetation stage,
weather conditions and agricultural practices. Because of the number of variables
involved in determining productivity of a crop, the process of providing insurance cover
is highly complicated. Risk assessment, pricing and claim assessment are important
activities that determines success of crop insurance. Following section explains pricing
and claims process for different types of crop insurance.
233
General Insurance
10.4 DETERMINATION OF PREMIUM RATES
As discussed earlier, the indemnity based crop insurance covers are single peril crop
insurance covers-ex. Hail insurance, frost etc. These perils have impact on certain
locations. Occurrence of the event triggers heavy losses to the crop in that area.
Premium rates are determined by factors like frequency of occurrence to the location
and type of crop. Crops respond differently to different types of perils. Few crops are
selected as having basic rate of premium. Ex- wheat, barley etc. Premium of other
crops having high impact of the event leading to higher level of losses are fixed in
multiples of basic rates. Ex. 2 or 3 times of basic rates, lentils or peas have 2 times
basic rate. Presence of historical data of occurrence and loss helps in deciding the
rates.
The risk premium rate is then loaded for administrative cost and margins of profit,
catastrophic losses, high accumulation areas and uncertainty pertaining to statistical
data available. Sum insured is taken as ‘scale of finance’ for crop loan for a specific
crop in an area/district. These insurance covers also come with deductibles. Deductible
is the percentage of loss / sum insured that is borne by insured. The policy is valid for
one season only.
Claim settlement is done by using the formulae -
Claim per acre = Damage (%) - Deductible (%) x Sun Insured
Ex: If sum assured per acre = Rs 10000/-,
Damage = 80%, Deductible = 10%
Claim payable per acre = (80%-10%) x 10,000 = Rs.7000/-
Index Based Crop Insurance
1. Area Yield Index Based Crop Insurance
The prerequisite for weather index insurance is availability of crop wise, area wise
yield data. The index used in this cover is an area average of yield. The insurer constructs
an index based on a guaranteed yield for the insured unit, normally in the range of 50%
to 90% of the expected yield. The sum assured is arrived at by formulae - Threshold
Yield x (Minimum Support Price/Gate Price) of the insured crop. Premium rate is
decided on the basis of Loss Cost (Claim as a % of Sum Insured) observed for a crop
in unit area during the preceding ten similar (kharif/rabi) crop seasons. Premium loadings
are done for management/administrative expenses, insurers’ profit margin, non-parametric
risks etc.
There is a guaranteed yield termed as Threshold Yield for every crop in every
homogenous area e.g. taluka, block or gram panchayat etc. Threshold Yield is moving
average of past five years actual yield (three years in case of Paddy and Wheat) multiplied
by applicable level of indemnity. Indemnity level is the percentage of loss covered
under an insurance policy. For example, 90% indemnity means insurance cover for
90% of loss, rest 10% loss is to be borne by insured.
234
If current season’s actual yield recorded is lower than the Threshold yield, then claims Agriculture Insurance
become payable. Yield data used for claims is generated under General Crop Estimation
Surveys (GCES) by way of crop cutting experiments (CCEs).
The claim amount is calculated using the formulae below.
Claims payable = (Threshold Yield – Actual Yield) x Sum Assured/ Threshold Yield;
Whereas, Threshold Yield = Avg Yield in last 5/7 years x level of Indemnity (%)
2. Weather Index Based Crop Insurance
The prerequisite for weather index insurance is availability of crop wise, area wise
weather data. It also requires data of crop yield variation corresponding to variation in
weather parameter. In weather-based index insurance compensation is not determined
by the actual loss of yield at the individual level (each farmer) but by a defined weather
event that is correlated with the lifecycle of the insured crop. The payout is triggered by
changes in an index correlated to crop yield, such as rainfall, temperature, soil humidity,
number of storms a year, or wind velocity. The weather parameters indexed in India
are Rainfall (deficit, excess, dry-spell, and wet-spell), Temperature (minimum, maximum,
and mean), humidity and wind speed.
The claim amount is calculated on the basis of specific index (for example, rainfall), for
a said period and area, the threshold, the sum insured and indemnity limits. If the
rainfall is less than the index at the specified measurement point and over the period
specified in the contract, the insurer will be liable for a payout. The quantity of the
payout is determined according to the total sum insured and the extent of deviation of
actual parameter from the index following a pay-out table, which indicates amount to
be paid corresponding to deviation in weather parameter.
10.5 HISTORY AND GROWTH OF CROP

INSURANCE IN INDIA
The Government of India (GoI) has historically focused on crop insurance as a planned
mechanism to mitigate the risks of natural perils on farm production. The first attempt
on agriculture insurance in India was done by the Mysore state in 1915. Mysore state
proposed a rain insurance scheme for the farmers with view to insure them against
drought taking ‘area approach’. Similar attempts were made by certain princely states
like Madras, Dewas, and Baroda, to introduce crop insurance relief in various forms,
but with little success (AICL website).
Crop insurance took formal shape in independent India in 1970. Major conceptual
contribution to this step came from Prof. V. M. Dnadekar, a prominent economist,
who strongly advocated for introduction of crop insurance based on an area approach.
The first crop insurance scheme was introduced by the Government in 1972. Country
has come long way since then covering about 30% of the total number of land holdings
in the country. The next big leap in this direction came after launch of ambitious crop
insurance scheme ‘Pradhan Mantri Fasal Bima Yojana’ (PMFBY) launched by central
Govt. in 2016. A brief description of crop insurance schemes implemented by
235
General Insurance Government of India and subsequently through Agriculture Insurance Company of
India since inception is chronologically presented in next section.
10.5.1 First Crop Insurance Program

A number of models of crop insurance were considered for feasibility by the Government
and the ‘first crop insurance program’(FCIS) based on ‘Individual Approach ’was
introduced in 1972-73 for cotton, Groundnut, Wheat and Potato and implemented in
the states of Gujarat, Maharashtra, Tamil Nadu, Andhra Pradesh, Karnataka and West
Bengal. This experimental scheme continued up to 1978-79 and covered only 3110
farmers for a premium of Rs 4.54 lakhs against claims of Rs 37.88 lakhs. It was
realized that crop insurance programs based on the individual farm approach would
not be viable and sustainable.
10.5.2 Pilot Crop Insurance Scheme

Based on the learning’s of FCIS a second scheme named Pilot Crop Insurance Scheme
(PCIS) was introduced in1979. The scheme was linked to institutional credit, i.e.,
crop loan and was based on ‘area approach’. Participation by the State Governments
was voluntary in this scheme. The scheme covered cereals, millets, oilseeds, cotton,
potato, gram and barley. The risk was shared by General Insurance Corporation (GIC)
and the respective State Govt. in the ratio of 2:1. The insurance premium ranged from
5 to 10 per cent of the sum insured. The scheme ran till 1984-85 and 13 States
participated in the scheme. The scheme covered 6.27 lakh farmers. The premium
income from the scheme was Rs 1.97 crore against claims of Rs1.57 crore.
10.5.3 Comprehensive Crop Insurance Scheme

Based on the learning’s of PCIS, a scheme called Comprehensive Crop Insurance
Scheme (CCIS), was implemented from Kharif 1985 at the all-India level. This Scheme
was also optional for the State Governments. It took ‘Homogeneous Area approach’
and was compulsory for short-term crop credit. The CCIS was implemented for 15
years, from Kharif 1985 to Kharif 1999. Fifteen States and two UTs participated
during its tenure. In this entire period, the scheme covered Rs. 7.63 crore farmers
under an area of 12.76 crore hectares, for a sum insured of Rs. 24,949 crore at a
premium of Rs. 403.56 crore. Correspondingly, the total claims outgo was Rs. 2303.45
crore, thus having a claim ratio of 1: 5.71. About 59.78 lakh farmers were benefitted,
and the majority of the claims were paid in the States of Gujarat with Rs 1086 crore
(47%); Andhra Pradesh with Rs. 482 Crores (21%); Maharashtra with Rs. 213 crores
(9%) & Orissa with Rs. 181 Crores (8%).
10.5.4 National Agricultural Insurance Scheme

This scheme was replaced by a new and improved scheme in 1999 named National
Agricultural Insurance Scheme (NAIS). NAIS was launched with the aim to make
crop insurance schemes sustainable by shifting to an actuarial regime. The scheme was
based on an indexed approach, where the index used was ‘crop yield’ of the given
area. Three coverage levels were made available under NAIS and the threshold yield
was set at 60, 80 and 90 percent. The NAIS offered insurance for Food Crops
236
(Cereals, Millets & Pulses), Oilseeds, Commercial/ Horticultural crops through state Agriculture Insurance
owned insurer GIC and subsequently byAgriculture Insurance Company of India (AIC).
NAIS was available to borrowers and non-borrowers of crop loan.
Premiums for crop insurance depend on the crop grown and was subsidized by 50%
for small and marginal farmers. Farmers have the option of buying additional coverage
to a maximum of 150 percent of the threshold yield multiplied by a defined price. The
defined price could be the market price or floor price established by government.
The scheme was implemented in 23 States and UTs (except Punjab, Manipur, Nagaland,
Mizoram and Arunachal Pradesh among the States and Chandigarh, Daman & Diu,
Delhi, Dadra & Nagar Haveli and Lakshadweep among the UTs). The scheme covered
22.90 crore farmers in 30 implementation seasons as on May 2015. The area covered
under the scheme is 33.97 crore hectares. With about 25 million farmers insured, it
was the largest crop insurance program in the world (GFDRR, 2011).
10.5.5 Weather-Based Crop Insurance Scheme

In the year 2007, Weather-Based Crop Insurance Scheme (WBCIS) was piloted by
the AIC in Karnataka. Presently, these products are being offered in selected regions
for different crops by AIC and private insurers ICICI Lombard General Insurance
Company and IFFCO Tokyo General Insurance Company (ITGI).
WBCIS also operates on the concept of “area approach”. WBCIS is based on actuarial
rates of premium with a cap at 8-10% for food crops and oilseeds and 12% for
commercial crops. The scheme is made attractive by charging premium “at par” with
the NAIS. The difference between flat premium rates and the actuarial premium rates
are borne by the Central and the implementing State Government on a 50:50 basis.
The private companies are extended the same level of financial support by the
Government as is available to Government company AIC. Unlike NAIS, the entire
claim under the WBCIS scheme is borne by the insurers. Weather insurance scheme
(WBCIS) is treated as an “alternative” to NAIS as the WBCIS is not available to the
farmers in areas where the NAIS is notified. WBCIS was replaced with Restructured
WBCIS (RWBCIS) in the year 2016.
10.5.6 Modified National Agricultural Insurance Scheme

NAIS was replaced with Modified NAIS (MNAIS) after 2010-11 in phased manner.
The scheme was implemented by AIC on behalf of the Ministry of Agriculture. The
farmer insurance premiums and claim payments were channelled through the banking
system under the scheme. Under MNAIS, premium rates charged was actuarial.
Provision was made for up to 70 % subsidy by government in premium for all farmers.
Only upfront premium subsidy is shared by the Central and State Government on
50:50 basis and all claims liability is on the insurance Company. The scheme made
provision for immediate relief to farmers by paying up to 25% of likely claims in case of
calamity or natural disaster. The scheme was compulsory for loanee farmers and voluntary
for non loanee farmers. Participation of private sector insurers was allowed for the first
time in this scheme for creation of competitive environment. The states participating
actively under the scheme are Rajasthan, Andhra Pradesh, Bihar, West Bengal,
Karnataka and Uttar Pradesh. 237
General Insurance 10.5.7 National Crop Insurance Programme
In the year 2013-14 Government of India launched a new scheme called National
Crop Insurance Programme (NCIP) / Rashtriya Fasal Bima Karyakram (RFBK) in all
districts of the country. The scheme was formulated by merging MNAIS, WBCIS and
CPIS and incorporating changes based on the inputs from past performance and
recommendations to make it more farmer-friendly. Private participation on selective
basis was allowed under this scheme by state governments. The crops covered under
the scheme are Food crops (Cereals, Millets & Pulses), Oilseeds and Annual
Commercial/Horticultural crops. The program emphasised implementation of schemes
at panchayat level by reducing unit area of insurance to the village/village panchayat
level.
In 2015, government announced a new scheme PMFBY with aim to cover 50% of
farmers in next three years. PMFBY was an improved version of MNAIS with defined
expected outcome. Main features of PMFBY are explained in section10.7 of this unit.
A panoramic view of evolution of crop insurance in India indicates that constant efforts
by Government in this direction, has helped development of crop insurance in India.
India is looked upon as a role model for development and growth of crop insurance. It
has evolved as a laboratory for large scale implementation of government subsidized
schemes and many developed countries including the USA have studied schemes
launched by the Government and drawn learning for improving in their crop insurance
products. The next section presents a scenario of development of crop insurance
market in India.
10.6 EVOLUTION OF CROP INSURANCE MARKET

IN INDIA
If we examine the market structure of crop insurance in India, it was managed by the
General Insurance Corporation (GIC) since inception till 2004. Rural financial institutions
played important role in implementation of crop insurance as it was tied to crop loans.
In the year 2002, the government of India established a separate company named
‘Agriculture Insurance Company’ (AIC) with capital participation of GIC, the four
public sector general insurance companies, and NABARD. Since then, AIC was
implementing the crop insurance schemes run by Government. These schemes were
subsidized by the central and state governments.
After liberalisation of insurance sector in 1999, private sector companies like ICICI
Lombard and IFFCO Tokyo General Insurance Company launched their crop insurance
products. In 2003, ICICI Lombard launched weather-based insurance for groundnut
and castor in Andhra Pradesh with help of World Bank. This initiative was followed by
the pilot rainfall insurance scheme by IFFCO-Tokyo General Insurance (ITGI) in 2004-
05 in Andhra Pradesh, Karnataka and Gujarat. ICICI Lombard and other insurers use
brokers, or partner with local financial institutions which have well-established networks
for the provision of financial services to rural households, in reaching rural areas.
Intermediary receives a commission for each sale to cover marketing costs and payout
disbursements.
238
Participation of private sector insurance companies in Government schemes was allowed Agriculture Insurance
when WBCIS was opened under certain conditions up for private sector in 2008.
ICICI Lombard, HDFC Ergo and IFFCO Tokyo participated in the implementation.
The revised WBCIS scheme is being implemented by both public and private companies.
The scenario changed with launch of PMFBY, when participation of all general insurance
companies was allowed under certain conditions. Along with AIC, four public sector
general insurance companies and 14 private sector insurance companies are
participating in implementation of crop insurance scheme - PMFBY. The insurance
companies have to get empanelled for participating in the scheme and area of
implementation is allocated on the basis of tendering by state Governments.
The crop insurance premium in India was Rs. 1,500 Cr in the year 2009, which was 4
percent of total gross premium earned by General Insurance Industry. It grew to Rs
5,550 Cr in the year 2015, which was approximately 6 percent of the General Insurance
premium. The scenario dramatically changed in the year 2016 with launch of PMFBY.
The crop insurance premium jumped to Rs 20,000 Cr in 2016 which was 260 percent
of the earned premium in crop insurance in 2015. With this increase, crop insurance
premium became almost 16 percent of General insurance industry premium and third
largest portfolio in India after Motor and Health. This line of business is poised to
become second largest portfolio surpassing health in coming years. This growth in
premium attracted attention of the insurers all across the world. It became lucrative
proposition for reinsurers both in India and across the globe. GIC Re also registered
phenomenal growth because of phenomenal increase in reinsurance business in crop
insurance and joined league of large global reinsurers.
10.7 PRADHAN MANRTI FASAL BIMA YOJANA

(PMFBY)
Pradhan Mantri Fasal Bima Yojana (PMFBY) is an area based yield based crop
insurance scheme introduced by Government of India in January 2016. The Defined
Area (i.e., unit area of insurance) for this scheme is Village/Village Panchayat level.
The unit of insurance for loss assessment is the affected insured field of the individual
farmer for Risks of localised calamities and Post-Harvest losses on account of defined
peril. There is provision of Individual farm level loss assessment for localised peril and
Unit level loss assessment for Yield losses. All the Crops for which past yield data is
available and grown during the notified season are covered under the scheme.
The crops covered under the scheme are:
1) Food crops (Cereals, Millets and Pulses),
2) Oilseeds
3) Annual Commercial / Annual Horticultural crops
The scheme provides insurance cover for all stages of the crop cycle from preventive
sowing to post-harvest risks in specified instances. All farmers growing notified crops
in a notified area during the season who have insurable interest in the crop are eligible.
Enrolment is compulsory for Crop Loan account/KCC account (called as Loanee
Farmers). It is voluntary for non-loanee farmers. Voluntary coverage may be obtained
239
General Insurance by all farmers not covered in compulsory category, including Crop KCC/Crop Loan
Account holders whose credit limit is not renewed. Farmers need to have a bank
account in case of claim as the claim amount is transferred though NEFT.
10.7.1 Benefits available under the Scheme

The Risks Covered under the scheme are:
• Yield losses (standing crops, on notified area basis)
• Prevented sowing (on notified area basis)
• Post-harvest losses (individual farm basis)
• Localised calamities (individual farm basis)
The exclusions under the scheme are - Risks and Losses arising out of war & kindred
perils, nuclear risks, riots, malicious damage, theft, act of enmity, grazed and/or destroyed
by domestic and/or wild animals. In case of Post - Harvest losses the harvested crop
bundled and heaped at a place before threshing, other preventable risks are excluded.
The Sum Insured under the scheme are equal to Scale of Finance.
The premium (maximum charges) from farmers’ are

• 2 % of SI or actuarial premium, whichever is less for Kharif crops,
• 1 % of SI or actuarial premium, whichever is less for Rabi Crops and
• 5 % of SI or actuarial premium, whichever is less for Commercial/
Horticulture crops
The difference between premium and the rate of Insurance charges payable by farmers
is treated as Rate of Normal Premium Subsidy, which is shared equally by the Centre
and State.
The scheme is implemented through a multi-agency framework by selected insurance

companies under the overall guidance & control of the Department of Agriculture,
Cooperation & Farmers Welfare (DAC & FW), Ministry of Agriculture & Farmers
Welfare (MoA & FW), Government of India (GOI) and the concerned State in co-
ordination with various other agencies
10.7.2 Implementation/Distribution
Implementation of PMFBY is done on the basis of operational guidelines issued by
Ministry of Agriculture. The revamped operational guidelines replaced the earlier
guidelines from the Kharif 2020. Distribution of the scheme is done by AIC, four
public sector insurance companies and thirteen empanelled private insurance companies.
Selection of Implementing Agency (IA) is made through adopting the cluster approach
under which bunch of about 15-20 good & bad districts / areas with reference to risks
are bid together.
State Governments issue Notification/GR before cropping season specifying names of

the districts under certain crops for which crop insurance will be available. State
Governments invite tenders from insurance companies based on the notifications. After
240 scrutinising the bids offered by insurance companies, State Governments allocate areas/
clusters to insurance companies offering lowest bidding. Few states have issued Agriculture Insurance
notification for both Kharif and Rabi together, some states issue separate notification.
Some states are allocating clusters to insurance companies for a duration of three
years.
Rural and Cooperative banks are playing important role in implementation of PMFBY.
They enrol farmers and upload the data on web-portal specifically designed for the
schemes. The web address of the portal is http://pmfby.gov.in .The liability of the
Insurance companies in case of catastrophic losses computed at the National level for
an agricultural crop season, shall be up to 350 percent of total premium collected
(farmer share plus Govt. subsidy) or 35 per cent of total Sum Insured (SI), of all the
insurance companies combined, whichever is higher. The losses at the National level in
a crop season beyond this ceiling will be met by equal contribution (i.e. on 50:50 basis)
from the Central Government and the concerned State Governments.
10.7.3 Claim Process

The Claim Settlement Process for the scheme is explained below:
The scheme has four types of claims for crop loss as per the risks covered - Pre-
harvest (prevented sowing), Crop Failure, Post-harvest losses and Localized Risks
Presented below are the risk wise detail of claim settlement procedure:
(a) Pre-harvest (prevented sowing): The assessment of loss is done on individual

farm basis. The responsibility of loss assessment done by committee of
Representative of Insurance Company, Govt Official and Farmers. Immediate
relief amount is transferred to the insured account.
(b) Crop Failure: In the case of crop failure/ Crop damage a Joint Committee decides
the eligibility for on-account payment based on the weather data /long term average
rainfall data/satellite imagery supported by estimated yield losses at notified insurance
unit level. Based on joint committee report, a joint inspection of the affected area
is done by Insurance Company, State government officials and farmers is done for
ground truthing and extent of loss is decided. This loss is intimated to the concerned
insurance company, which in turn does the claim settlement.
After receiving the claims amount from the concerned Insurance Companies, the
financial institutions/banks remit/transfer the claim amount to the account of
beneficiary farmers within a week and also display the list of the beneficiaries
(both loanee and non-loanee) on the notice board of the branch within seven days
with details of beneficiaries and send a copy to concerned insurance companies
with utilization certificates within 15 days for further verification and audit.
(c ) Post-Harvest Claim Settlement: For the claims arising out of crop damage due
to post-harvest losses and localized risks, assessment of damage is made on
individual farm basis. The scheme provides for assessment of yield loss on individual
plot basis in case of occurrence of cyclone, cyclonic rains and unseasonal rains
throughout the country resulting in damage to harvested crop lying in the field in
‘cut and spread’ condition up to maximum period of two weeks (14 days) from
harvesting for sole purpose of drying. Immediate relief is provided to insured farmers 241
General Insurance in case of adverse seasonal conditions during the crop season viz. floods, prolonged
dry spells, severe drought etc., wherein expected yield during the season is likely
to be less than 50% of Threshold yield.
(d) Localized Risks: It is intended to provide insurance cover at individual farm

level to crop losses due to occurrence of localized perils/ calamities viz. Landslide,
Hailstorm and inundation affecting part of a notified unit or a plot. In this case
surveyors are appointed by the insurance company to do loss assessment by
visiting individual farms. The remaining procedure is the same for claim settlement.
The scheme has following special features with reference to claim settlement
procedure:
• In case of farmers covered through Financial Institution, claims is released
only through electronic transfer, followed by hard copy containing claim
particulars.
• In case of farmers covered on voluntary basis through intermediaries, payable
claims are directly credited to the concerned bank accounts of insured farmers
and details of the claims are intimated to them. The list of beneficiaries is
uploaded on the crop insurance portal immediately.
• The scheme has provisions to use proxy indicators for deciding claim conditions
in addition to normal Crop Cutting Experiments (CCE).
• The scheme also allows use of new technologies to improve speed of claim
settlement. The scheme will also consider use of mobile phones and pictures
sent via mobile phones to assess losses.
10.8 ISSUES AND CHALLENGES IN

IMPLEMENTATION OF CROP INSURANCE IN
INDIA
India has seen systematic and unexpected growth of crop insurance in past few decades.
Still it has not been able to make desired impact in growth and development of agriculture
sector in India. The reason lies in complexity of the crop insurance and humongous
issues faced by the government and implementing agencies. Few of the challenges
faced by the sector is listed below.
(i) Issues related with Asymmetric Information: Crop insurance at present is

facing asymmetric information issues like adverse selection, moral hazard, which
is inherent in initial stage of development of insurance. It impacts implementation
as farmers enrol under the scheme if they foresee a bad weather and avoid enrolment
if weather looks promising. The resulting poor performance of the insurance product
may cause the insurer to raise premium rates across all risk classifications.
(ii) High Cost of Insurance: Agriculture insurance premium is high compared to

other products. The premium rate ranges from 2 % to 12 %. Under PMFBY,
companies have quoted premium rate as high as 40%. Cost of insurance adds to
the cost of cultivation. Crop insurance becomes unaffordable for farmers, especially
242 in county like India, where 85 % of farmers are Small and Marginal farmers. Since
government subsidizes premium for farmers, it has huge fiscal burden, which comes Agriculture Insurance
in way of making it sustainable.
(iii) Lack of Awareness: Farmers have limited information about crop insurance.
They are not aware how it works and in what conditions they can get compensation.
They do not know the claim structures, which at present are highly technical and
complicated. Even the insured farmers seldom have any knowledge of the various
covers as also the extent of weather deviation that would result in claims.They are
also not aware about the premium paid by them, as it is deducted by banks from
the loan amount. Farmers are also not aware which crops are covered in crop
insurance and what is the basis of coverage. It limits the scope of offtake of voluntary
crop insurance.
(iv) Issues Related with Distribution Channel: Crop insurance is distributed

through cooperative and rural banks. It is given as a mandatory part of crop loan.
Banks take it as an extra burden on them thrust by Government, which does not
form a part of their performance criteria. Banks do not have enough resources to
handle the schemes. They are reluctant in giving any information to the farmers.
There is no documentation handed over to the farmers as an evidence of their
coverage in crop insurance scheme. The loan pass-book does not have any entry
for the premium paid by the farmer. Because of discouraging attitude taken by
banks, crop insurance is not developing as a separate product with distinct
distribution channel.
(v) Delay from Government: State government is expected to announce the list of
notified crops and notified area. Delay in announcement from State Government
leads to delay in implementation of the schemes. Delay also occurs in release of
the subsidy of premium. In many cases there is delay in crop cutting exercise,
which delays the claim settlement process. Delay in announcement of drought also
leads to delay in claim settlement.
(vi) Lack of Basic Infrastructure/Resources: Implementation of crop insurance at

large scale requires trained human resource and basic infrastructure. Implementation
of weather based insurance, needs presence of weather stations at insurance unit
level. These issues impact efficiency of schemes.
(vii)Non Availability of Data: The success of crop insurance is critically dependent

on availability of accurate yield and weather. Many crops are not covered because
of lack of historical yield data.
(viii)Climatic Changes: Weather risks are spatially correlated and cause systemic
risks for insurance providers; for example, frequent droughts or unseasonal rains.
The volatility of weather is attributed to climatic changes, change over time in
some regions. Because of this, weather risks show characteristics that violate
classical requirements for insurability as risk is high.
10.9 LIVESTOCK INSURANCE

Livestock is important for balanced growth of agrarian economy as it is important
alternative source of income and food. Livestock substantiate the farm income by 243
General Insurance using by-products of farming. At the same time, by products of livestock add to the
fertility of the land. Thus, cultivation and livestock form a symbiotic relationship in
agrarian economy. However, livestock insurance has not developed because of inherent
issues like adverse selection, morale hazard and fraud. Due to these reasons, cost of
insurance is high, so it becomes deterrent for farmers. At the same time, loss ratio is
high, so it becomes deterrent for insurers.
The protection offered under livestock products includes against losses arising from
death, injury and loss of function as a result of accidents, natural causes, fire, lightning,
acts of God and acts of individuals other than the owner. Additional coverage can
generally be purchased for veterinary expenses, transport and non-epidemic diseases.
The sum insured is based on the market value of the animal and can be reduced based
on the animal’s age. Premium rates range from 1.5 percent to 10 percent of the sum
insured based on the type of animal, its age, location and the functions it performs.
Deductibles range from no deductible to ten percent. Insured animals are differentiated
from each other from ear tagging, which is numbered and facilitated identification of
animal.
Traditionally, epizootic (general or widespread) diseases have been a standard exclusion

under livestock policies although some companies have begun to offer cover on a very
selective basis. Apart from this, theft, accident, injury during transportation are excluded.
The new technological advancements like Radio Frequency Identification Device

(RFID), tagging and muzzle printing can revolutionize cattle insurance. Livestock
mortality index insurance is a relatively new form of livestock insurance that was
introduced into Mongolia.
10.10 FARM IMPLEMENT INSURANCE

Farm Implement insurance includes insurance for large implements like tractors, threshers
and other farm vehicles. It also covers small farm implements like agriculture plumpest
insurance, animal driven cart insurance.
Tractor insurance covers against burglary, theft, accidental external damage, natural
causes (Flood, storm, lightning, earthquake, landslide), third-party liabilities to any
injury, death, property damage etc. there is also option to insure paid driver & electrical
accessories.
Agriculture pump set insurance covers centrifugal pump sets (electrical/diesel/oil) and
submersible pump sets used for agriculture purpose. It includes pump, driving unit and
starter.
Future of Crop Insurance
The future of crop insurance lies in use of ICT. Use of mobile application in crop
cutting experiments (CCE), automated weather stations in recording and transmission
of weather data, use of satellite imagery in monitoring of crop yield may solve the
current issues faced in implementation of crop insurance schemes. Online registration
under the scheme can ease out the pressure on implementing agencies and increase
access to non-borrowing farmers.
244
Agriculture Insurance
10.11 SUMMARY
Agriculture insurance is important for economic and social development for a county
like India where majority of population is dependent on Agriculture and Allied Activities
for their livelihood. Crop insurance in India has come a long way with launch of PMFBY
being the biggest crop insurance scheme in the world. Crop insurance being a complex
product faces many challenges in implementation. The future of crop insurance lies in
finding technological solutions that will deal with the challenges without cost implications.
Livestock insurance in India has not seen the same kind of growth because of inherent
issues. It will require similar push from Government for growth and development.
10.12 KEYWORDS
Pradhan Mantri Fasal : is an area based yield based crop insurance
Bima Yojana (PMFBY) scheme introduced by Government of India in
January 2016.
National Agricultural : NAIS was launched with the aim to make crop
Insurance Scheme (NAIS) insurance schemes sustainable by shifting to an
actuarial regime. The scheme is based on an
indexed approach, where the index used is ‘crop
yield’ of the given area.
Indemnity-Based Insurance : Indemnity based insurance is a mutual contract

between insured and the insurer where one insurer
promises the insured to compensate for the loss
against payment of premiums.
Index-Based Crop Insurance : Index based insurance makes indemnity payments

based on measures of an index that is assumed to
be proxy to actual losses instead of indemnity
payments based on an assessment of the
policyholder’s individual loss.
Yield-based crop insurance : It is an insured yield (for example, tons/ha)

established as a percentage of the farmer’s
historical average yield.
10.13 SELF- ASSESSMENT QUESTIONS

1. Why agriculture insurance is important for India?
2. Explain difference between Agriculture insurance and Crop insurance. What are
different types of agriculture insurance?
3. What is difference between yield index and weather index insurance?
4. What are different types of crop insurance?
5. What are major crop insurance schemes in India? Which type of crop insurance is
growing fast? Give reasons.
245
General Insurance 6. PMFBY is considered to be a game changer in general insurance sector. Justify.
7. What are basic features of cattle insurance in India?

Agriculture Insurance (IC 71) and Crop Insurance (S 09) by Insurance Institute of
India, Mumbai;
Papers available on line by World Bank, Innovation facility, ILO, Geneva
246
Agriculture Insurance
UNIT 11 OTHER TYPES OF INSURANCES
Objectives
After studying this unit you will be able:
 To provide sound conceptual inputs on miscellaneous general insurance covers
 To provide domain knowledge on miscellaneous insurance covers
 Apply domain knowledge to customer requirements and identify market segments
 Evaluate the suitability of various products to customer requirements
 Devise possible solutions for evolving situations based on domain knowledge
Structure
11.1 Introduction
11.2 Personal Accident Insurance
11.3 Overseas Accident and Health Insurance
11.4 Burglary Insurance
11.5 Money Insurance
11.6 Fidelity Guarantee
11.7 Commercial Fidelity Guarantees
11.7 Banker’s Blanket Indemnity Insurance
11.8 Jeweller’s Block Insurance
11.9 Other Miscellaneous Insurance
11.10 Package Policies
11.11 Summary
11.12 Keywords
11.1 INTRODUCTION
Miscellaneous Insurance is a term of convenience, used for referring collectively to
various general insurance covers other than main lines of business such as fire, marine,
motor, engineering, health etc.
For ease of learning, this unit is divided into parts, as follows:
1. Personal Accident Insurance
2. Overseas Accident and Health Insurance
3. Burglary Insurance
4. Money Insurance 247

General Insurance 5. Fidelity Guarantee
6. Banker’s Blanket Indemnity Insurance
7. Jewellers Block Insurance
8. Other Miscellaneous Insurance
9. Package Policies
10. Specialized Covers – New Trends
It can be observed that the subject matter of insurance can be a thing (money, jewellery
and other valuables) or a situation (accident, theft, breach of trust etc.). For the sake
of convenience, many policies may be packaged together. As with every other line of
business, the insurer can cede some risk and premiums through reinsurance. In this
unit, new trends are also covered. The unit ends with sections on rural insurance and
some of the new initiatives taken by the Central Government in some general insurance
schemes.
The basic principles:Utmost Good Faith, Insurable Interest, Indemnity (including

Subrogation and Contribution) and Proximate Cause, apply to all policies in varying
degrees.
As the market for insurance gets wider and deeper, coverage gets wider with newer
policies and “packaging” of covers to suit the beneficiaries. Thus, items excluded in
traditional or standard products get covered as extensions and finally newer products
evolve in an ever-continuous process. The sequence of items covered in this unit broadly
follows this evolution.
11.2 PERSONAL ACCIDENT INSURANCE

Accidents occur by chance, and not under control of humans. The element of chance
is an important feature of an accident. Thus, suicide is not an act of chance. A murder
can be termed as accidental, as the consequent death is outside the control of the
victim.
The applicability of the principles of insurance to Personal Accident (PA) Insurance is

tabulated below.
Principle Applicability
Utmost Good Faith Disclosures in the Proposal Form must be true and correct,
especially in respect of Occupation (Vocation), hobbies etc.
Material alterations must also be brought to the notice of
the insurer.
Insurable Interest Every person has an insurable interest in himself. A married

couple have an insurable interest in each other’s lives.
Bankers have insurable interests in the lives of their
customers to whom money is lent. Employers have insurable
interests in the safety of their employees. The Trustee of an
248
Other Types of
educational institution has insurable interests in the students Insurances
and visitors on the campus premises.
Indemnity Every person has an unlimited interest in his or own life or

spouse and immediate family. However, the Sum Insured
(SI) is arrived at based on a reasonable consideration of
earning capacity, number of dependents etc.
Subrogation Subrogation applies only to a limited extent in PA Insurance.

The insured retains rights to damages from third parties even
if SI is received from his insurer. For example, the accident
victim can proceed against a third party under Motor
Insurance.
Contribution Contribution does not apply in the case of PA Insurance,

as the policy holder may claim the full benefits under each
such policy. However, insurers elicit information in the
proposal form about other policies, to ensure that undue
profit is not being made from accident/s.
Proximate Cause Proximate Cause is to be carefully evaluated under each

circumstance. If war risk is specifically excluded, injury or
death arising may not be covered. However, injury by fall in
trying to evade harm by fire, is considered accidental and
can be the proximate cause for injury or death.
Types of Disablement, as a consequence of PA are:
Disablement Description
Permanent Total e.g., Loss of sight in both eyes

Disablement e.g., Loss of entire hand or foot above wrist or ankle, loss
of use of limbs
e.g., Loss of sight of one eye and use of entire limb
Permanent Partial e.g., Loss of a toe or finger

Disablement
Temporary Total The injured is prevented from carrying on his occupation or

Disablement (TTD) business, for weeks
Amounts of compensation vary between 100% and 50% of SI (called Capital Sum
Insured) in the case of Permanent Total and Partial Disablement. In the case of TTD,
the payment can be up to 1% of Capital Sum Insured per week, for a maximum of 104
weeks.
Additional Benefits at no extra premium: Carriage of dead body of insured (max. 2%

of Capital SI), Education of dependent children below 25 years of age (max. 10% of
Capital SI)
249
General Insurance Exclusions under PA Insurance are:
 Intentional injury, suicide or attempted suicide
 Under the influence of intoxicants
 Aviation in unlicensed aircraft, or ballooning
 Insanity
 During breach of law or criminal act
 Service in armed forces
 Arising from childbirth or pregnancy
 War, kindred peril and nuclear risk
Rating is based on risk considerations. Higher the risk, higher the premium. The major
risk groups are as under:
Risk Group Occupation (Illustrative)

I (Normal) Accountants, Doctors, Lawyers, Architects, Consulting Engineers,
Teachers, Bankers
II (Medium) Builders, Contractors, Engineers engaged in Supervision, Drivers
III (High) Workers in Mining, Explosives, Electrical Installations, Sports
Packages under PA Insurance

Package Features
Family Package Policy Earning member, spouse, children aged 5-25
Group Policy Employees
Flight Policy Covering specific flight/s by regular airline on scheduled route
Janata Personal For economically weaker sections, for periods of 3-5 years,
Accident (JPA) SI Rs.1 lakh, simple underwriting procedure
Insurance
Group JPA Insurance Periods of 1-5 years
Student Safety For educational institutions
Insurance
Traffic Accident Policy Rasta Aapathi Kavach. This covers motor accidents,
covering death and disability as well as consequent
hospitalization
Domestic Traveller’s Suhana Safar Policy. Covers Rail/Road/Water including
Policy travel by insured’s own vehicle.
Educational Expenses Amartya Shiksha Yojana. Covers education expenses of
insured student if parent or guardian suffers accidental death
or disablement
250
Other Types of
Rajarajeshwari Mahila Economic security for women aged 10-75, irrespective of Insurances
Kalyan Yojana income or occupation
Bhagyashree Child For the benefit of the girl child up to age 18, in event of loss
Welfare Policy of either parent due to accidental death
Pradhan Mantri PMSBY is one of the financial inclusion schemes under the
Suraksha Bima Yojana Department of Financial Services, Ministry of Finance,
Government of India. Provides insurance up to Rs.2 lakhs,
at a premium of Rs.12 p.a. only for all bank account holders
aged 18-70. Covers accidental death and permanent
disablement
These policies are aimed at various types of beneficiaries, person/s, covering accidental
death and disability and in some cases, consequent medical expenses. Some of the
policies are also aimed at economically weaker sections, in the direction of financial
inclusion.
11.3 OVERSEAS ACCIDENT AND HEALTH

INSURANCE
Health Insurance is a main line of business. In India, it comes under General Insurance
(non-life insurance). Health Insurance is dealt with comprehensively in a separate unit
i.e unit-7 of this course. In this unit, Overseas Health Insurance is considered under
Miscellaneous Insurance.
The packaging of the Overseas Accident and Health Policies is such that it comprises
of aspects in addition to health – covering personal accident as well as loss of baggage.
Under Overseas Health Policy, there are two broad types:
Videsh Yatra Mitra Policy (outbound) Destination India Policy (inbound)
For persons travelling overseas from India For overseas persons travelling to India
The Videsh Yatra Mitra Policy is a package for persons travelling overseas from
India. The eligible age is from 6 months to 70 years. The insurance cover commences
from the date mentioned in the policy and extends for the days of travel mentioned in
the policy or upon return to India, whichever is earlier. In case of delay in public
transport, there is an automatic extension of up to 7 days. The journey must commence
within 14 days of initiation of policy cover.
This policy package covers not only medical treatment during overseas travel, but also
personal accident and loss of checked baggage etc. It is to be noted that medical
treatment and evacuation expenses are covered in cases of emergency.The policy
comes with Exclusions such as: known medical condition existing in the preceding
one year, travelling against the advice of physician, travelling for the purpose of medical
treatment, among others, are applicable. No claim is permissible in case the medical
treatment could be reasonably delayed until arrival into India.
251
General Insurance In the proposal, details normally available on the passport are taken, as also additional
details such as purpose of travel. The Indian insurer may appoint a claim settlement
agency outside India for emergency assistance and claim administration services.
Loss of checked baggage covers only total loss (and not partial loss), with Property
Irregularity Report (PIR) from the airline and proof of ownership in respect of items
valued at more than US$ 100. Claims will be limited to items listed in the schedule
(e.g., one set). Valuables (as defined under the policy) are excluded, are not to be
carried in checked baggage. Delay in checked baggage for more than 12 hours will
be subject to verification through ‘Mercury’ and will be set off against claims made for
loss of baggage. Loss of passport is also covered, including the expenses incurred
for processing a duplicate passport. Proof of complaint to police authorities is required
to be submitted under the claim.
The purpose of travel may be tourism, business, employment posting or study. In the
case of persons travelling overseas regularly in employment with a company (under
the Companies Act, 2013), annual covers can also be offered. There is a specially
designed ‘Employment and Student Policy’ for persons engaged in sedentary
occupations of a non-manual nature and students pursuing studies and research.
Having understood the nature of Videsh Yatra Mitra Policy, it is easy to understand
that the same features are contained in the Destination India Policy for overseas
persons travelling to India, covering personal accident and medical expenses.
Employment and Student Policy covers persons from ages 18-60 years. The Sum
Insured (SI) may be up to US $ 75,000, and the premium is payable in Indian Rupees.
It can cover accompanying spouse and children on payment of additional premium. It
covers medical expenses up to 52 weeks from the onset of injury or sickness. Overseas
medical expenses up to US $ 5000 are payable and cost of return air ticket and
medical treatment in India are all covered under the overall policy limit. In case of
illness requiring urgent family reunion and medical treatment in India, the air ticket of a
parent, spouse or guardian will be covered.
11.4 BURGLARY INSURANCE

In insurance parlance, Burglary specifically means use of force or violence to enter
or exit premises unauthorisedly and consequent theft. Force may be used for entry/exit
or against a person. The basic principles of insurance, particularly Indemnity and
Contribution, apply to Burglary Insurance.
Burglary insurance covers loss or damage to premises, property, cash from safe through
forcible means. In the case of loss of cash, claims need to be substantiated with credible
records.
Exclusions are: where any member of insured’s household or staff is involved, or

losses due to riots, strikes, terrorism, losses discovered upon stock-taking, securities,
books of account, documents etc. unless specifically covered, war risk etc.
Extensions are: riots, strikes and terrorism, theft using non-violent methods, restoration
of damage to papers, drawings, computers, data etc., clearing of debris.
252
Conditions include average clause in case of under-insurance, efforts to be taken by Other Types of
Insurances
insured to minimize losses, non-exaggeration of claims.
The Proposal Form contains essential details of premises and property, and past
history of insurance and claims, disclosed under the principle of Utmost Good Faith.
This is followed up with a Survey Report. Underwriting considerations include nature
of premises, nature of property, safety measures, moral hazards (tendency of insured
to mis-use insurance for wrongful gain) and record-keeping. Based on the underwriting
considerations, the Rating is quoted as a percentage to the Sum Insured (SI). This SI
can be Full Value or First Loss (partial value), Floating and Valued policies. Full
Value can be Non-Declaratory in case of property and Declaratory in case of goods.
In the case of First Loss policies, say, for large warehouses, the average clause applies.
Floating Policies where goods are spread across various locations and Valued Policies
based on the actual values of property.
Burglary Insurance is also packaged together with other policies such as Burglary
(Private Dwellings) Insurance Policy, Pair &Set Clause, All Risks Insurance
Policy and Baggage Insurance Policy, with their unique exclusions Except the last-
named, i.e., Baggage Insurance, the other three aforementioned policies cover valuables,
antiques, objects of art, documents etc. The Pair & Set Clause compensates for the
loss of an item which is part of a pair or set. Policies are offered by various insurers
with varying nomenclatures such as Home Guard, Office Guard, etc., packaging various
related covers.
Complaints are to be lodged with the police authorities and Claims are to be filed at
the earliest. The Surveyor and Loss Assessor is usually a chartered accountant who
will liaison with the police and also conduct his investigation. The claimant may, after
settlement, need to carry out the suggested improvements and also get the cover
reinstated (i.e., payment of premium for the residual period to keep in force the policy
and maintaining the policy value.)
11.5 MONEY INSURANCE

Money Insurance can be viewed as a modified version of Burglary Insurance. Its
main meaning is cash, and can be extended to cheques, drafts, postal orders, money
orders, postage, revenue stamps etc. The location of money is discussed twofold:
Money in Transit and Money in Safe.
Money in Transit could mean from bank to insured’s premises, main premises to branch,
insured’s premises to bank, cash withdrawn for wages, collections from customers in
transit to bank, cash withdrawn for other than wages, cash withdrawn for wages in
safe/strongroom, unpaid wages in safe/strongroom.
To ascertain the Sum Insured (SI), there are two basis:
 Maximum amount in transit at any one single trip (cash withdrawn for wages
could be the highest, or cash collection by employees from customers enroute
to bank could be the highest.
 Aggregate of amounts in transit during the insured period (say, a year).

253
General Insurance The premium calculations are based on the above two criteria.
Exclusions:
 Shortages, errors and omissions
 Losses arising from entrusting cash to unauthorized persons
 Losses due to fraud or dishonesty of employees
 Losses covered under other policies
 Losses from riots, strikes, civil commotion, terrorism
 Losses via use of keys to safe, unless keys obtained by use of force
 Money carried under contract of affreightment
 Theft
Some of the above mentioned exclusions can be covered through Extensions, on

payment of additional premium. Extensions may include Infidelity of employees, Riots,
Strikes and Terrorism (RST), Disbursement risk, Money in Safe, Money at Business
Counter.
One of the unique features of Money Insurance is that the average clause is not
applicable. Based on the actual aggregate of amounts in transit in the insured period
and its comparison with the SI, the premium is adjusted, i.e., premium partly refunded
or additional amount paid, depending on whether the amounts were short of or in
excess when compared with the SI.
The Proposal Form is designed in a manner suitable for evaluating the Underwriting
and Rating. The business operations of the insured will need a close study, including
cash component in transacting with customers, wage disbursement, other payments,
location of premises, number of branches, distances between bank and premises,
distances between premises/branches, law and order situation in the state and district,
reputation and history or locations, condition of strongrooms, preventive measures by
insureds, etc. The manner of Rating is a percentage applied on the SI, separately for
Money in Transit (with adjustment of premium clause) and Money in Safe. Speed is
of utmost essence in the filing of claims and the investigation, as the efflux of time may
render investigations more difficult. Surveyors and Loss Assessors are generally
Chartered Accountants, as they are well-versed with recreation of records for estimation
of cash losses.
On a concluding note, financial inclusion and digitization of payments in India has the
effect of reducing risks arising from money in transit. However, there could still be a
cash component in toll collection points, petrol stations, retail shopping outlets, eateries
etc., especially due to internet connectivity problems or in remote areas.
11.6 FIDELITY GUARANTEE

Traditional and standard insurance products keep getting refined as the market for
254 insurance gets wider and deeper. Just as Money Insurance is a modified version of
Burglary Insurance, Fidelity Guarantees take into consideration one important exclusion: Other Types of
Insurances
fraud by employees. Bouts of economic recession have created a ground for newer
types of crime (white collar crime). Large consulting organizations such as KPMG
conduct studies on fraud risk. The Big-4 Audit Firms and other audit firms the world
over have sharpened their forensic audit practice in keeping up with the times. Unlike
burglary where there is a break-in or use of force, the main weapon of fraud is deception.
Crime could be carried on for years in small amounts and get detected after several
months or years. To an extent, such losses are insurable, salient features of which are
covered in the paragraphs below.
Fidelity Guarantee is of three types:
 Commercial Fidelity Guarantees
 Court Bonds
 Customs and State Excise Bonds
Commercial Fidelity Guarantees
Coverage is for acts of dishonesty by employee/s who take advantage of the trust
reposed in them for handling the money and/or goods of the organization to make
unlawful gain, causing pecuniary losses to the employer. For the purposes of insurance,
it is necessary that the loss is to be detected within a period of 12 months from the date
of the crime committed. The employee may have been terminated. In case the said
employee is reinstated by the aforesaid organization, the insurer is no longer bound by
the contract of insurance.
The insured needs to develop internal control measures for prevention or minimization
of fraud. Any material alteration in allocation of staff duties is to be intimated to the
insurer. On the occurrence of a fraud event, notice shall be given to the insurer and
claim filed within 3 months. The insurers, on their part, have a Subrogated right to
legally prosecute the perpetrator of fraud, to demonstrate the consequence of fraud to
the other employees and recover amounts due. In case of multiple insurers, the principle
of Contribution applies, where each insurer bears his rateable share. The insurer also
has a right to terminate the policy and return a proportion of the premium in respect of
the unexpired period.
Types of Policies are: Individual (one employee), Collective (entire staff), Floater (a
group of named employees in sensitive areas) a Position (designation in sensitive post),
Blanket (entire staff, unnamed but for a specified Sum Insured) and Excess Floating
(where the policy benefits set in after a minimum loss is absorbed by the insured).
The Proposal Form is designed to elicit appropriate details pertaining to various fraud
risks and is declaratory in nature to fix the onus of Utmost Good Faith on the insured.
In addition, key documents are the Applicant’s Form (to assess the moral hazard
angle of the concerned employee), Private Referee’s Form (person vouching for
the character of the employee), Previous Employer’s Form. In the case of Collective
Proposals, employee details are dispensed with, and the employer provides a master
statement detailing the employees covered.
255
General Insurance Underwriting considerations assess the system of internal controls and extent of
supervision over each employee (dual control, e.g., those handling goods should neither
have access to cash/collection nor books of account or computer records, and likewise
for others. Reporting periods should be at short intervals to prevent mishandling or
defalcation. A background check in respect of employees should be conducted to
verify the moral hazard angle. Among the Hazardous risks are: collection agents,
jewellery salespersons, cashiers in eateries, cinema houses, treasurers in societies and
associations and employees of bullion merchants and antique dealers. Ratings are based
on the amount of guarantee, type of occupation and adequacy of system controls. The
rate varies between 0.20% to 1% of the sum guaranteed or a fixed Rs. Per employee
or a combination of both. The cover period is usually 12 months.
For investigation of claims, chartered accountants are best equipped to study internal
controls, assess their adequacy and trace acts of fraud to accounting records. Generally,
the average clause is not applied in Fidelity Guarantee cases, as the extent of
‘underinsurance’ is difficult to estimate. In arriving at the loss amount to be compensated,
legitimate salaries, commission and dues to the employee are excluded.
Most importantly, at the time of reinstatement and renewal of the policy, it is necessary
to ensure that the suggestions for tightening internal control systems have been adhered
to and are in place.
Court Bonds
When an individual dies intestate (without writing a will), the Court appoints an
Administrator to oversee the distribution of his/her estate (property). Likewise, when
a Company is being wound up under the Companies Act, the Court appoints an Official
Liquidator to oversee the distribution of the assets across tax authorities, statutory
authorities, creditors, workers etc. The guarantee is from the insurer in favour of the
Court. Premiums are based on a percentage of the Sum Insured. The insured Official,
in turn, issues a counter-guarantee on stamp paper in favour of the insurer, minimizing
the insurer’s risk.
Customs and State Excise Bonds
Importers need to pay customs duty on the goods imported. To permit unimpeded
access to goods importers are permitted to carry away their goods and duties assessed
and paid later, on submission of a Bond. Insurers provide such bonds to indemnify the
customs authorities in respect of duties to be paid by importers at a later date. Similar
bonds exist in the case of State Excise on manufacture of alcohol. Premiums are based
on a percentage of the Sum Insured. The insured Official, in turn, issues a counter-
guarantee on stamp paper in favour of the insurer, minimizing the insurer’s risk.
11.7 BANKER’S BLANKET INDEMNITY INSURANCE

Banks are expected to hold large amounts of money, securities, bullion etc., and in
trust and on behalf of others. Banks conduct their work through employees and other
persons associated with them in the normal course of banking business and operations.
It may so happen that fraudulent transactions by any of the persons so entrusted may
result in loss of money but also valuables. For the sake of convenience, the Banker’s
256
Blanket Indemnity Insurance is designed as a comprehensive solution to address the Other Types of
Insurances
aforesaid.
Coverage is extended to the following:
 Money and securities on premises
 Money and securities in transit
 Forgery or alteration
 Dishonesty
 Hypothecated goods
 Registered postal sendings
 Appraisers
 Agents, Business Correspondents
The insurer may set an ‘excess’ which is the percentage amount of loss in every
incident. This acts as a deterrent against negligence, as the insured also has ‘skin in the
game’ as it is called. However, such excess shall not apply in the case of Fire, Riots
& Strikes and Burglary. Upon Settlement of a claim, the policy value needs to
be reinstated for the unexpired period of the insurance policy. Generally, a basic Sum
Insured (SI) is commenced with, subsequently raised at every renewal.
Exclusions:
 Wrongful acts by partners, owners
 Losses in respect of property/securities not described adequately
 Trading losses
 War and allied risks
 Faulty computer programme and loss of data
 Losses caused by earthquake, cyclone, flood and such other acts of nature
 Losses caused by radiation or nuclear risk
 Losses incurred on acts of an employee whose adverse antecedents were

known
A policy can be cancelled with 15 days prior notice and premium for the unexpired
policy period can be proportionally refunded, provided there is no claim in the existing
policy.
Ratings are based on the number of employees and number of branches. Larger the
number of branches, lesser the discount, as size leads to loosening of control.Claims
are surveyed by a Chartered Accountant, being well-versed with internal control
systems, also eligible to verify insurance claims.
257
General Insurance
11.8 JEWELLER’S BLOCK INSURANCE
Coverage consists of:
 Jewellery, currency etc. on premises due to fire, explosion, lightning, burglary,

riots, strikes and malicious damage
 Jewellery, currency etc. in the custody of employees, partners, authorized

third parties, or on display in exhibitions
 Jewellery etc., in transit by post, parcel, air freight, angadia etc.
 Furniture and fittings due to fire, explosion, lightning, burglary, riots, strikes
and malicious damage
The Sum Insured is usually based on a fixed amount, subject to sub-limits like ‘any one
loss’ event in respect of third-party custody and transit.
Exclusions are:
 Processing losses
 Shortages noticed on stock-taking
 Losses on items being worn by owner/partner or their spouses
 Theft or disappearance from unattended vehicle
 Loss or damage due to depreciation or wear-and-tear, exposure to air
 Loss or damage to fragile article except by air/rail/road accident
 Theft or act of dishonesty by employee/broker/agent
 Loss or theft on display after business hours
 Any consequential loss or damage
 Act of war or nuclear risk
Conditions: Basis of valuation is insured’s cost-plus-ten-percent. Fraud losses are to

be reported within 60 days of discovery or happening. Ratings are: Class I (24-hour
watchmen), Class II (common watchmen for entire building) and Class III (all other
types of risk); thus, Class I rated premises will have the lowest risk, hence rates. There
is a special discount in the case of premises covered by fully functional CCTV and
armed guards. Adverse events triggering claims are to be reported within 24 hours,
supported by police complaint, with complete details and proofs within 14 days of the
said event. Investigations are usually conducted by Chartered Accountants with the
assistance of appraisers and valuers.
11.9 OTHER MISCELLANEOUS INSURANCE

The types of covers are too numerous, hence tabulated below for ease of reference.
258
Other Types of
Insurance Cover Broad Features Insurances
Pedal Cycle Covers loss or damage from fire, lightning, explosion,

burglary or accidental external means and insured’s legal
liability for causing injury to others (limited to Rs.50,000).
Minor losses, repairs, damage due to wear & tear etc., are
excluded. Policies have an excess, say, Rs.25 per event
first borne by the insured before claiming for the rest. The
general law and order situation in the insured’s locality is an
important underwriting consideration. Sum Insured limited
to Rs.10,000 to Rs.25,000.
Television This covers loss or damage to the apparatus, including

fittings, due to accident. Some of the perils may be covered
as extensions. Normal damage due to usage, depreciation
and wear & tear and such repairs are excluded.Cover is
limited to Rs.25,000 for the television and apparatus and
Rs.2,000 for damage to the property housing the television
set.
Plate Glass Breakage of glass fixed to display windows of commercial

establishments. Exclusions: Against fire, explosion,
earthquake, riots/strike/terrorism (RST). Damage to frames,
imperfect glass, locality (slum, disturbed area). Higher
premium in case of jewellers and showrooms. Rate ranges
5-10% of glass value. RST can be extended with additional
premium.
Neon Sign Policy covers loss or damage by accident, fire, lightning,

explosion and theft. Exclusions: electrical malfunction and
short circuit damage, cost of repairs, wear & tear,
depreciation, over-heating, over-use, atmospheric
conditions, riots/strikes/terrorism, war and natural calamities.
RST can be extended with additional premium. The policy
is issued to regular 6-monthly check by a qualified electrician
Sports Insurance Only for amateurs (and not professional sportsmen) on

(equipment used in individual or family basis. Covers loss or damage to sporting
Angling, Badminton, equipment and apparel (up to Rs.2,000 per person) and
Cricket, Golf, loss or damage due to fire, or burglary up to Rs.1,000 per
Lawn Tennis, Squash, person. Also covers legal liability of insured up to Rs.5 lakhs
Sporting Guns) and accidental injury to insureds aged 10-70 years up to
Sum Insured Rs. 1 lakh. Exclusions: cricket/golf balls, and
shuttles. Also, minor damage and wear & tear, depreciation,
exposure damage etc, are excluded. Generally provided
only within India, can be extended to overseas locations on
payment of additional premium.
259
General Insurance
Pet Dog Only for pure, cross-breed and pedigreed dogs aged 2
months to 8 years. Cover is against death by disease or
accident (same as in cattle policy). Total and partial disability
are excluded. Identification marks such as tattoos, body
marks or photographs are acceptable. The purchase price
is treated as the Sum Insured; in its absence, valuation by a
recognized kennel/canine club is accepted. With additional
premium, the following extensions can be covered: Death
by accidental poisoning, theft, breeding risk, world wide
transport, loss of value (inability to appear in shows due to
accident/disability covered in the policy).
Missing Documents Duplicate certificates are issued to a beneficiary in place of

missing originals such as bank deposits, insurance policies,
shares, debentures etc. To cover the element of risk in the
event of misuse of original if found in the wrong hands, this
insurance is provided to the issuer. The insurer in turn, takes
a counter-guarantee (indemnity bond on stamp paper) from
the beneficiary, to indemnify the insurer against possible losses
arising from the misuse of the original, if found.
11.10 PACKAGE POLICIES

Package Policies, as the name suggests,are combinations of individual policies, so
that the insured need not worry about missing out on some covers, and also track
multiple renewal dates of separate policies for each cover.
The similarities and unique features of these packages are captured in the table below.
Package Common Features Unique Features

Householder’s Fire, lightning, explosion, Jewellery & Valuables –
Insurance bursting/overflowing water Covered under extensions
tanks, aircraft damage,
RST, Earthquake, Storm/
Flood/Tempest/Inundation
(STFI), Impact Damage,
Burglary
Loss or Damage to Property
Television, Plate Glass, Pedal
Cycle, Personal Baggage,
Personal AccidentExcluded:
Wear & Tear
Shopkeepers’ Fire, lightning, explosion, Excludes Restaurants,

Insurance bursting/overflowing water Eateries, Tea/Coffee Shops
tanks, aircraft damage, RST, Liability Insurance (injury to
Earthquake, Storm/Flood/ third party)
260
Other Types of
Tempest/Inundation (STFI), Personal Accident Cover for Insurances
Impact Damage, Burglary Employees
Neon Sign
Loss or Damage to Property Fidelity Guarantee
Television, Plate Glass, Pedal Business Interruption (as an
Cycle, Personal Baggage extension to Basic Fire
Excluded: Wear & Tear cover)
Package for LPG Fire, lightning, explosion, Money in transit, in safe, on

Dealers bursting/overflowing water the counter
tanks, aircraft damage, RST, Public Liability Insurance
Earthquake, Workmen’s Compensation
Storm/Flood/Tempest/ insurance
Inundation (STFI),
Impact Damage, Burglary

Cycle, Personal Baggage
Excluded: Wear & Tear
Doctors’ Package Fire, lightning, explosion, Professional Liability

bursting/overflowing water Insurance
tanks, aircraft damage, Covers for Equipment
RST, Earthquake, Fidelity Guarantee – cashier
Storm/Flood/Tempest/ Money
Inundation (STFI), Impact
Damage, Burglary

Office Protection Fire, lightning, explosion, Building Owners – buildings

Shield bursting/overflowing water Tenants – damage to
tanks, aircraft damage, RST, premises
Earthquake, Money
Storm/Flood/Tempest/ Fidelity Guarantee of
Inundation (STFI), Impact Employees
Damage, Burglary Computers and Data
Protection
Loss or Damage to Property Alternative Accommodation
Television, Plate Glass, Pedal Personal Accident – Staff
Cycle, Personal Baggage Public Liability
Package Policy for Fire, lightning, explosion, Money

Credit Societies bursting/overflowing water
261
General Insurance
tanks, aircraft damage, RST, Pledged Gold, Securities
Earthquake,
Storm/Flood/Tempest/
Inundation (STFI), Impact
Damage, Burglary

Adhikari Suraksha - Laptop

Kavach Cellular Phone
Loss of Cash
Baggage
Valuables
Personal Accident
Mediclaim
Personal Liability
Specialized Covers – New Trends
Some of the modern trends are for providing covers in respect of aspects hitherto not
underwritten or rated. Some illustrations in keeping with the times:
 Total abandonment of sports matches, event insurance
 Kidnap, ransom insurance
 Coverage against infringement of intellectual property (copyrights, trademarks,

knowhow, design, patent)
 E-Commerce covering the risks of doing business online
11.11 SUMMARY
The insurance policies of importance which could not find place in other units have
been covered in this unit on ‘other types of Insurance’ (miscellaneous insurance). The
term Miscellaneous Insurance is a coinage of convenience and spans across a very
wide variety of products. Insurance covers vary across things (property, goods, money,
jewellery, valuables) and situations (burglary, fidelity) and serve households and various
businesses from small to medium and large. While there are a number of individual
covers, some of them are combined and conveniently packaged, and sold as Package
Policies. As packages offer wider coverage, insurance companies are also getting more
and more innovative and moving into uncharged territories, such as sporting and event
insurance. The basic principles remain the same and apply in varying degree across
products.
262
Other Types of
11.12 KEYWORDS Insurances
Miscellaneous Insurance : is a term of convenience, used for referring collectively

to various general insurance covers other than main
lines of business such as fire, marine, motor,
engineering, health etc.
Videsh Yatra Mitra Policy : is a package for persons travelling overseas from
India. The eligible ages are from 6 months to 70 years.
Burglary insurance : In insurance parlance, Burglary specifically means use

of force or violence to enter or exit premises
unauthorisedly and consequent theft.
Package Policies : as the name suggests, are combinations of individual

policies, so that the insured need not worry about
missing out on some covers, and also track multiple
renewal dates of separate policies for each cover.

1. What are the 3 types of coverage included under Overseas Travel and Health
Insurance?
2. What are the main features of Employment and Student Insurance under overseas
travel and health insurance?
3. Describe the difference between Burglary and Fraud. How does it affect the choice
of insurance cover?
4. Explain the difference between Fidelity Guarantee, Court Bonds and Customs
Bonds
5. What sort of coverage exists under Bankers’ Blanket Insurance?
6. What is the scope of Jeweller’s Block Insurance?
7. What is the advantage of Package Policies over individual policies under the
Miscellaneous Insurance business?
8. Describe the common features of specialized policies. Discuss the unique features
of Adhikari Suraksha Kavach
9. What are the latest trends in modern insurance in the Miscellaneous business?

Miscellaneous Insurance (IC 78), Insurance Institute of India, 2013
263
General Insurance
264

Block 3

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Block 3

Uploaded by

Copyright:

Available Formats

Block-3

After going through this unit, you should be able to:

 Understand the role of Health Insurance

 Get an overview of various Health insurance products

7.1 Introduction: Health & Health insurance

7.4 Role of Government

7.1 INTRODUCTION: HEALTH & HEALTH

Universal Health Care

 Population which is covered by Health services

 Which Health services are covered

 What is the Payment made by the population for these services

7.2 HEALTH FINANCING

7.3 HEALTH INSURANCE PRODUCTS

7.3.1 Basic Mediclaim policy

 A major exclusion in the Policy was of pre-existing diseases; which meant

7.3.3 Hospital Indemnity

7.3.4 OPD (out patient department) cover

7.3.5 Critical Illness

7.3.6 Earnings cover

7.3.7 Long term care

7.3.9 Health products of Life Insurers

7.4 ROLE OF GOVERNMENT

1. Social Health schemes

In India, traditional concept of Social Health Insurance is modified to include not

Some of the highlights of the Health Insurance Regulation are:

 It is a very customer focused regulation which tries to make the insurance

 Renewal of a policy can not be denied only on grounds of age or adverse

3. Standardisation & Coding

Coding: Information, it is said, is power. If the information relating to Ebola virus

7.6 HEALTH CLAIMS- PPN & TPA

Hospital : “Hospital” in the policy was defined as a medical establishment

7.10 SELF-ASSESSMENT QUESTIONS

3. Examine the operation of PPN & TPA system in India

7.11 FURTHER READINGS

2. Mental Healthcare Act, 2017

3. High Level Expert Group on UHC, India

5. Health & Technology

After going through this unit, you should be able to:

8.2 FEATURES OF MOTOR INSURANCE

Segment size & the Need:

It is interesting to note that motor insurance contributes a high of 80% of Non-Life

Own Damage (OD) & Third Party Liability (TPL)

 Property insurance component, own damage (OD) covering accidental damage

death of victims of road accidents as well as damage to their property.

The Tariff consists of the following components:

 General Regulations including Policy A & B wordings

 Special vehicles- covering quite a large variety of vehicles like

 IMT (India Motor Tariff) endorsements specifying the wordings of various

General Regulations (GR)

Some of the important GRs are:

 Policy wordings for

 To ensure continuity of mandatory TPL coverage irrespective of change in

 A discount of 33 1/3rd of premium is given for vehicles being confined within

8.3 MOTOR VEHICLE (M V) ACT & RULES

Chapter X of 1988 Act deals with No Fault Liability

Chapter XII deals with Claims Tribunals for TPL claims

The 1994 amendment provided for:

Motor Vehicle: “Mechanically self-propelled vehicle having engine capacity above

8.4 OWN DAMAGE (OD)

The Company shall not be liable to make any payment in respect of :-

Nil Depreciation: This extension takes away the requirement of co-payment of

8.5 UNDERWRITING CONSIDERATIONS

This is a price based on the invoice of the manufacturer, to which appropriate