Irda Aug09

Volume VII, No. 8

August 2009

Best Practices in Insurance -
Sure Shot Recipe for Success

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Editorial Board
J. Hari Narayan
C.R. Muralidharan
S.V. Mony
S.B. Mathur
S.L. Mohan
Vepa Kamesam
Ashvin Parekh

Editor
U. Jawaharlal
Hindi Correspondent
Sanjeev Kumar Jain
Printed by Alapati Bapanna and
published by J. Hari Narayan on behalf of
Insurance Regulatory and Development Authority.
Editor: U. Jawaharlal
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(with design inputs from Wide Reach)
1-1-60/5, RTC Cross Roads
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Phone: +91-40-66820964, 66789768
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e-mail: irdajournal@irda.gov.in

© 2007 Insurance Regulatory and Development Authority.
Please reproduce with due permission.
Unless explicitly stated, the information and views published in this
Journal may not be construed as those of the Insurance Regulatory
and Development Authority.

From the Publisher

C
ustomer satisfaction in a domain that deals instrumental in drawing a clear road-map. It is very
with intangibles, like the financial services, essential that the underwriters make use of the
for example, is hugely challenging. Within information provided in a very objective manner;
this space, insurance occupies an even more and arrive at decisions that take care of the business
important position – considering that the moment priorities and at the same time render the best
of truth viz. the claim settlement may arise at the services to the clientele.
end of a very long term in some cases. In several
Emphasis should be placed on communicating the
others, it may never arise in view of the fact that
intricacies of the contract to the prospect,
the claim becomes payable only on the contingent
especially with regard to the limitations / exclusions
happening of the event. In such a scenario, to
so that the scope for a later heartburn or
achieve high standards of customer satisfaction is
controversy is reduced to the barest minimum.
a tall order; and adopting best practices of service
Where a rejection or repudiation of a claim is
delivery would go a long way in building up one’s
inevitable, it should be dealt with a great deal of
reputation.
sensitivity and an element of empathy with the
The adoption of best practices should not merely claimant. It should be the endeavour of the players
be a routine exercise wherein a player sets a to ensure that adoption of best practices of business
standard list of activities that have to be achieved is a way of life; and that they go beyond mere
within certain limits. It has to be a part of the mind- customer satisfaction.
set and the best practices have to be followed,
‘Best Practices in Insurance’ is the focus of this
and also demonstrated; in their true spirit. For a
issue of the Journal. It is around a decade since
player to be able to achieve this in the Indian
the industry has been opened up; and during this
insurance domain has additional challenges, for
period, several new initiatives have been taken.
obvious reasons.
‘Innovations and Developments in the Insurance
The need for best practices should begin at the Industry’ will be the focus of the next issue of the
very beginning and insurance companies should Journal.
make the proposal form a document of
comprehensive and purposeful questions that aim
to elicit the right answers from the proponent. In a
contract where it forms the pedestal of the huge
edifice of the insurance contract, best practices in
designing a meaningful questionnaire will be J. Hari Narayan

FOCUS
Adding Value to Your Client
- S. L. Mohan 10

Best Practices in Reinsurance
- K.L. Naik 15

Braving the Turbulence
- Malti Jaswal 18
ISSUE

Market Share or Market Leadership?
- R. Venugopal 23

Working in Tandem
- Dr. Somil Nagpal 26

Statistics - Life Insurance 4
THINKING CAP
In the Air 6
28 Rashtriya Swasthya Bima Yojana
Vantage Point - Anil Swarup
U. Jawaharlal 9

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35 Insurable Interest
Statistics - Non-Life Insurance 47 - K. Subrahmanyam

from the editor

Adopting Best Practices
- Survival of the Fittest

F
or a business entity, one factor that puts it apart from the others is the reputation that it enjoys
over a period of time in rendering the best services to its clientele. This reputation, however, should
be based on the sustained best practices that the organization puts into its regular operations, rather
than one based on a one-off achievement or a short-term initiative. More recently, corporates have been
vociferously announcing several measures that they have been adopting in pursuit of rendering best customer
service. This has been a global phenomenon that has come to catch the attention of everyone although it needs
a closer scrutiny of assessment to know the extent to which it is really being achieved.

The need for a visible adoption of best practices is more emphatic in a service that is intangible - like insurance,
for example. It needs no special mention that it is all the more important in an emerging domain like the Indian
insurance industry. There have been several new initiatives that have been taken in the post-liberalized scenario
but the fact remains that insurance business still remains one with lots of misapprehensions and a few misgivings.
There is urgent need to put these behind us and ensure that the progress of the industry is on a smoother note.

In order to derive the best results in the fulfillment of contractual obligations, insurers would do better to make
the proposal form very plain and explicit. There may be need for explaining the contents of the proposal form
and the implications of the answers thereto, in light of the low awareness levels of the Indian populace. It
should be the endeavour of the players as well as the distributors to ensure that the essence of the underlying
facts is clearly understood by the proponents before taking their sign of approval. It should also be the effort of
all the stakeholders to ensure that at every stage of interaction, best corporate practices are in place. While
the Indian insurance industry has made a lot of progress in this regard, it has to be realized that the road ahead
is long and bumpy; and calls for a high degree of concerted effort.

'Best Practices in Insurance' is the focus of this issue of the Journal. Mr. S.L. Mohan, Secretary General, General
Insurance Council opens the debate with a detailed note on what the general insurance players can do in
demonstrating their zeal in adopting best practices. Best practices in reinsurance are absolutely essential if the
insurance industry is to be run on sound lines. Mr. K.L. Naik emphasizes the nuances of reinsurance business in
his article. The role of the Third Party Administrator has always been facing challenges of different kinds. Ms.
Malti Jaswal brings home a detail of the best practices being followed by the TPAs which is eventually leading
to more meaningful equations between the service providers and the insured.

The success of a life insurer has often been measured by the top-line growth of its business which may not be
a wholesome indicator. Mr. R. Venugopal brings in all his experience in highlighting some of the priorities that
should drive a life insurer. In the last article on the issue focus, Dr. Somil Nagpal talks about the various
initiatives taken by different stakeholders in bringing Health insurance to higher levels of growth. In the 'thinking
cap' section, we have an article by Mr. Anil Swarup that narrates the success of the Rashtriya Swasthya Bima
Yojana (RSBY); and what lies ahead. In the end, we have an article by Mr. K. Subrahmanyam in which he throws
light on the aspect of insurable interest that is so essential for an insurance contract.

The opening up of the insurance industry, approximately a decade ago, has led to the innovation of several new
initiatives that were hitherto unknown in the Indian insurance industry. 'Innovations and Developments in the
Liberalized Regime' will be the focus of the next issue of the Journal.

U. Jawaharlal

Report Card:LIFE
First Year Premium of Life Insurers for the Period Ended June, 2009
Sl
Premium u/w (Rs. in Crores) No. of Policies / Schemes No. of lives covered under Group Schemes
No. Insurer
June, 09 Up to June, 09 Up to June, 08 June, 09 Up to June, 09 Up to June, 08 June, 09 Up to June, 09 Up to June, 08
1 Bajaj Allianz
Individual Single Premium 27.11 51.10 71.55 6433 14520 16939
Individual Non-Single Premium 193.89 428.49 735.98 146193 342282 480898
Group Single Premium 4.71 8.41 0.51 1 3 0 5228 5912 856
statistics - life insurance

Group Non-Single Premium 11.08 89.66 21.20 102 182 120 1511887 2561086 758734
2 ING Vysya
3 Reliance Life

irda journal
4 SBI Life

4
5 Tata AIG

Aug 2009
6 HDFC Standard
7 ICICI Prudential
8 Birla Sunlife
9 Aviva
10 Kotak Mahindra Old Mutual
11 Max New York
Group Single Premium 0.02 0.08 4.63 -1 5 7 -27 206205 187072
Group Non-Single Premium 1.48 4.21 10.84 51 246 181 -9417 196375 189120

12 Met Life
13 Sahara Life
14 Shriram Life
15 Bharti Axa Life
16 Future Generali Life
statistics - life insurance

17 IDBI Fortis Life
18 Canara HSBC OBC Life

irda journal
19 Aegon Religare
Individual Single Premium 0.06 0.18 11 27

5
Individual Non-Single Premium 4.66 11.44 2399 5068
Group Single Premium 0.00 0.00 0 0 0 0
Group Non-Single Premium 0.00 0.00 2 2 2745 2745
20 DLF Pramerica

Aug 2009
21 Star Union Dai-ichi @
Private Total
22 LIC
Grand Total

Note: 1. Cumulative premium / No.of policies upto the month is net of cancellations which may occur during the free look period.
2. Compiled on the basis of data submitted by the Insurance companies.
3. @ Started operations in February, 2009.

in the air

CORPORATE AGENTS GUIDELINES
July 3, 2009 IRDA/AGENTS/ORD/ 17 /JULY 2009

Re: Guidelines on Qualifications of Corporate Insurance c.an Associate / Fellow of the Institute of Costs and Works
Executives and Faculty of Agents' Training Institutes. Accountants of India, Calcutta;

The large scale recruitment of agents by insurers in last few years d.an Associate / Fellow of the Institute of Company Secretaries
and phenomenal growth in sales through corporate agencies has of India, New Delhi;
necessitated large number of professionals in the fields of training e.an Associate / Fellow of the Actuarial Society of India, Mumbai;
and marketing. Firstly, the insurers have expanded their training f. possessing Certified Associate ship of Indian Institute of
facilities to accommodate new agent recruits and are making Bankers (CAIIB)
efforts to recruit the faculty required. Secondly, the corporate
g.MBA (Two year) Course / PG Diploma (One year) course in
agents of insurers required large number of persons who are
Insurance from Amity School of Insurance & Actuarial Science,
qualified to be specified persons or corporate insurance executives.
Noida
In the above context several insurers represented to IRDA to
suitably modify the training requirements for the faculty of Agents' h.PG Diploma (One year) course in Insurance from Institute of
Training Institutions, Corporate Insurance Executives, Specified Insurance and Risk Management, Hyderabad
Persons etc. i. MBA (Two year) course in Insurance from National Insurance
Academy, Pune
As per IRDA Guidelines on Licensing of Corporate Agents, the
minimum qualification of Chief Insurance Executive (CIE) is FIII / j. PGMBA (Two Year) course in Insurance from National Law
AIII or such other qualification or experience that IRDA, may at its University, Jodhpur
sole discretion, consider adequate. As of now only these two k.PGMBA (Two year) course in Insurance from MET, Mumbai
qualifications are being considered. l. MBA (Two year) course in Insurance from Birla Institute of
To identify the qualifications which are suitable for the above Management Technology, Noida
positions in insurance company and evaluate their equivalence to 2. The persons with above qualifications (except at (a)) shall
presently specified qualifications, Chairman, IRDA constituted the undergo a "Workshop for Insurance executives" at National
standing panel with the following members: Insurance Academy, Pune or Insurance Institute of India,
1.Executive Director (Administration), IRDA, Hyderabad (Chairman Mumbai or Institute of Insurance and Risk Management,
& Convenor) Hyderabad as prescribed by the Authority.
2.Managing Director, IIRM, Hyderabad
3. Faculty of Agents Training Institute:
3.Secretary General, Life Insurance Council, Mumbai
4.Secretary General, General Insurance Council, Mumbai With regard to the qualification of faculty of Agents' Training
5.Secretary General, Insurance Institute of India, Mumbai Institutes, point no. 6 of STANDARD INSTRUCTIONS AND
GUIDELINES issued on October 4, 2004 is modified as below:
The Standing Panel considered various issues connected with the
qualifications and made recommendations which are submitted "Every Institute should have at least one qualified permanent
to the Authority. faculty who is an Associate or Fellow from the Insurance
Institute of India for each stream i.e. for Life and Non-Life.
After considering the recommendations of the Standing Panel,
However, the training institutes can employ faculty with more
Authority accepted the following recommendations and ordered
than 15 years of service in the insurance company with last
that this be incorporated in Circulars concerned:
three years in managerial capacity i.e. Scale III Officer and
1. The qualifications required for Corporate Insurance Executive above in the public sector insurance companies".
(CIE), Specified Person, Faculty of ATI shall include the following
The above guidelines come into force with immediate effect.
qualifications:
a.An Associate / Fellow of the Insurance Institute of India,
Mumbai. (A Giridhar)
b.an Associate / Fellow of the Institute of Chartered Accountants Executive Director
of India, New Delhi; with diploma in Insurance and Risk
Management.

irda journal 6 Aug 2009

in the air

CIRCULAR
July 9, 2009 No.018/AML-CIR/IRDA/E-Payments/Jul-09

To
the increasing utility of electronic payments, which also ensure
All CEOs of Life Insurance Companies, safety and speed of such payments, it has been decided to permit
We draw you attention to the AML Guidelines dt. 31st March 2006 payments to all policyholders and beneficiaries through electronic
issued by the Authority and in particular to the clause 3.1.9 (i) of payment methods such as ECS, NEFT Systems (as per details
the Guidelines which among others specifies that all payments enclosed) as approved by the Reserve Bank of India in addition to
should be made after due verification of the bonafide beneficiary account payee cheques as stipulated in the clause mentioned
through ‘account payee’ cheques. above.

The above stipulations were aimed at having audit trail and also a (C.R. Muralidharan)
control mechanism on all payments in light of the vulnerability of Member (F&I)
such fund transfers for money laundering purposes. Recognizing

CIRCULAR
22nd Jul, 2009 Circular No: 20/IRDA/Actl/ULIP/09-10

Sub: Unit linked products — Cap on charges to earn additional returns thereby and taking into account the
product features and the current cost structure, it is mandated
The Insurance Industry has introduced ULIPs which have found
that the cap on charges will be based on the difference between
favour with insurance customers in India. These products prescribe
gross and net yields of any product. The net yield is the gross
certain charges which are deducted either from contributions or yield adjusted for all charges. For insurance contracts which are
from the fund. In 2005, the IRDA had in its Circular No.032/IRDA/ of a tenor of less than or equal to 10 years duration, the difference
Actuary/DEC-2005 dated 21/12/2005 defined various charges between gross and net yields shall not exceed 300 basis points, of
which could be levied for the management of the ULIPs. The IRDA which fund management charges shall not exceed 150 basis points.
has observed that the insurance industry is generally following For other contracts, i.e., those whose contract period is above 10
these definitions. years , the difference between gross and net yields shall not exceed
However, there are several heads of charges and in order to enable 225 basis points, of which the fund management charges shall not
the customers to comprehend ULIPs, the IRDA had also mandated exceed 125 basis points.It is relevant to note that in many markets
across the world the Regulators have prescribed gross and net
a signed customer-centric benefit illustration to be included as
yield to the customer for ULIPs.
part of the policy document. This was to ensure that the customers
would have a clear understanding of the product before making Further, the following must be observed.
an investment decision.
Extra premium due to underwriting emanating from extraordinary
In order to further enhance clarity and to ensure that the charges health conditions, cost of all rider benefits, service tax on charges
are reasonable, relevant to the services being provided and clearly (as applicable) and any explicit cost of investment guarantee shall
understandable by the customers, the IRDA through this Circular be excluded in the calculation of net yield
mandates an overall cap on all charges put together. Care has In these calculations, all charges should be as per the ‘file and
been taken to enable the insurers freedom to distribute charges use’ document as approved by the IRDA.
across the policy term in order to impart flexibility and facilitate
product innovation. Please refer IRDA circular letter IRDA/ACTL/ULIP/2008-09 of
January 25, 2008 on ‘benefit illustration’. There should be a
It is important to keep in mind that insurance is a long term specific mention of the gross yield and net yield to the customer
business and policy measures should encourage such long term at the point of sale. This benefit illustration must be approved by
savings through various instruments available in the insurance the IRDA.
sector. On an analysis, it is established that the majority of the
At the time of sale, for benefit illustration purpose, the insurer
products have a tenor of 10 years and above and a smaller
may assume a growth rate of 10% per annum of the investment as
proportion is with a tenor of less than 10 years.
a model, as suggested by the Life Council. This will help the
Hence to encourage long term business and enable policyholders


in the air

customer to understand the product and charges easily so that The charges for the ULIPs as filed under the File & Use guidelines
the prospect could consider the gross yield and net yield while as approved by the IRDA, shall not be modified or changed without
making an informed decision. obtaining the prior approval of the IRDA.
At the time of maturity, the insurer must issue the policyholder a The circular comes into effect from October 1, 2009 so that all
certificate showing year-wise contributions, charges deducted, products which are approved by the IRDA on or after October 1,
fund value and final payment made to the policyholder taking 2009 will be governed by the provisions of this circular. All existing
into account partial withdrawals, if any. In addition, this certificate products that do not meet the requirements of this circular should
must also show the actual gross yield and net yield taking into be withdrawn or modified by 31 December 2009.
account the actual charges deducted. This certificate must confirm
Sd/-
adherence of above prescription.
(R. Kannan)
Member (Actuary)

PRESS RELEASE
July 22, 2009

Motor Insurance Data (2007-08) less opening provision at the beginning of the year expressed as a
percentage to the premium]
The Motor Insurance data for all classes of vehicles was hosted on
the website of the Tariff Advisory Committee for the period 2006- The Summary Reports of the data have been collated from
07 with a link provided in the IRDA website. The tabulations in the transactional level data submitted by the respective insurance
the form of Summary Reports contain (i) Public Sector aggregate companies. The summary statements have been duly verified
data, (ii) Private Sector aggregate data and (iii) Industry level and validated by the concerned insurance company. The Summary
data. Reports do not include (i) one public sector company,
viz M/s United India Insurance Company as they have note
Similar tabulations have been generated for the period 2007-008.
submitted the transactional level data and (ii) One private sector
They relate to both, Public Sector and Private Sector insurance
company, viz M/s Royal Sundaram General Insurance Company as
companies as well as Industry level aggregate data. Three types
they have not validated their data.
of tabulations have been generated as detailed below:
The Summary Reports for the period 2007-08 have now been hosted
MR1 gives the vehicle class-wise details of total number of policies,
on the TAC website (www.tac.org.in). A link to the TAC site is also
total premium and total incurred claims and claims paid.
available in the IRDA website (www.irdaindia.org)
MR2 gives the vehicle class-wise details of Premium and claims
These reports are hosted for the benefit of all stakeholders and
break-up of Own Damage (OD) and Third Party (TP).
general public. Comments and suggestions, if any, may be sent to
MR3 gives the vehicle class-wise details of claims ratios (claims Data Centre, 9th floor, United India Insurance Towers, 3-5-817/
paid ratio, incurred claims ratio)[Claims paid ratio is a percentage 818, Hyderguda, Hyderabad 500 029.
of claims paid to premium. Incurred claims ratio means claims
paid during the year plus closing provision at the end of the year

CIRCULAR
23 July, 2009 Circular No:. 021/IRDA/LIFE/PAN/Jul-2009

To premium payable on the insurance policies, per policy basis,
All Insurers, exceeds Rs. 1.00 lakh.

Re:Requirement of PAN for Insurance Products This circular comes into force with immediate effect. All Insurers
are advised to comply with the directions issued in this circular
It has been decided to mandate the requirement of PAN on all
under confirmation to the Authority not later than 01.08.2009.
high value insurance products.
(J. Hari Narayan)
All Insurers are therefore advised to collect PAN from all persons
Chairman
purchasing insurance products where the contracted annual


vantage point

A Decade of Innovations
MORE IN STORE …
‘IT HAS BEEN A BUSY DECADE FOR THE INSURANCE INDUSTRY AND THE SUPERVISORS. WE HAVE WITNESSED SEVERAL
NEW INITIATIVES BEING TAKEN DURING THE PERIOD WHICH HAVE CONTRIBUTED TO AN ALL-ROUND GROWTH; AND ONE

LOOKS FORWARD TO MANY MORE’ WRITES U. JAWAHARLAL.

D
uring the period of liberalized emergence of practices that will contribute has been the detariffing of non-life
environment in the insurance towards drawing a road-map for the future. insurance business. When it was originally
industry which is around a decade The trend continues; and hopefully, will mooted, there have been several
now, a tremendous business growth has take the Indian insurance industry closer reservations whether the Indian players
been achieved in both life and non-life to global standards. have sufficient maturity to operate in a
domains. There has been a progressive free environment. More than a couple of
The intermediary plays a very crucial role
transition in the penetration and density years after detariffing, no major upheavals
in insurance business world over. In the
of insurance, although we are yet to reach have been observed; and the prices are
Indian domain, it is even more pronounced.
international standards. Another gratifying certainly showing a stabilizing trend that
The agent has been a key factor especially
fact is that the growth has been observed should indicate stronger relationships
in the life insurance domain and during the
across most classes of insurance, although between the insurers and the insured. It
it is higher in some classes than others. period of liberalization, several initiatives has often been said that life insurance in
Above all, health insurance which is so vital have been taken to ensure that the agent India has its roots only in traditional forms
for the overall improvement of healthcare is himself well-trained and facilitates the of products. The surge of ULIPs has set this
delivery in the country has been growing process of the average applicant taking an argument at naught, although it has been
by leaps and bounds; and this augurs well informed decision. Similarly, the brokers’ perennially debated whether we have a
for the health of the nation itself. regulation brought into place the active healthy mix of market-related products
role that a broker can play in corporate and the traditional ones. Promoting micro-
It cannot however be presumed that all risk management – not merely broking a insurance products has been another key
the growth that has been noticed was deal. Another important development to reform that aims at making financial
without any hiccups. Further, it would also promote the cause of health insurance is inclusion a reality. Above all, there have
amount to complacency to treat this the introduction of Third Party been rapid strides of progress in the realm
growth as the resultant of any single Administrators. The institution of TPAs ran of monitoring and supervision which are
initiative. There have been several factors
into rough weather initially but lately it is so vital for the confidence of the average
that have made the growth possible as also
falling into place and can certainly claim policyholder.
the surge of a few classes that remained
to be an important element of all the
dormant earlier. There have been a spate ‘Innovations and Developments in the
growth that we have been witnessing in
of initiatives that have been taken during Liberalized Environment’ will be the focus
health insurance.
the post-liberalization period which have of the next issue of the Journal. We look
contributed to business growth as also the A landmark development during the period forward to a healthy debate on the issue.

Years of Innovations
in the next issue...


issue focus

Adding Value to Your Client
BEST PRACTICES IN NON-LIFE INSURANCE

S. L. MOHAN REMARKS THAT THERE IS NEED FOR INSURERS TO EMPHASIZE ON THE BEST PRACTICES WHILE RENDERING

CUSTOMER SERVICE WHICH WILL IN DUE COURSE BE THE DIFFERENTIATOR BETWEEN THE BEST AND THE 'ALSO-RAN'S.

T
o understand and appreciate the known members. As gradually unknown insurance of insurance (namely,
best practices prevailing today in parties and unseen losses started entering Reinsurance) have attained the status of
the insurance industry, there is the scene, there was need to write the an industry. Insurance and reinsurance
need to recall the history of origin and rules of the game and enter into clear companies render valuable services in the
gradual development of insurance unambiguous insurance contracts, which financial sector. These institutions practise
practices over the centuries. paved the way for evolution of insurance sound ethics and transparency and are
principles like Utmost Good Faith, subject to supervision by government and
In 2500 B.C., rich people in Babylonia gave
Insurable Interest, Indemnity, regulators. Management of insurance
loans to small caravan traders, who had to
Contribution, Subrogation, Proximate fund calls for absolute professionalism,
repay the loan with interest on safe arrival
Cause and so on to ensure that the practice transparency and efficiency on the part of
of their goods. Rig Veda (one of the four
of insurance did not result in the victim all stake-holders, viz. insurers,
Vedas of the Aryans in India) refers to intermediaries, insuring public, policy-
profiteering out of a calamity, but just
“Yogakshema” suggesting prevalence of holders, regulating authority, Government
rehabilitated the victim to the position
‘community insurance’ amongst the Aryans and so on. Today’s corporate world firmly
which he enjoyed on the eve of the
in India around 1000 B.C. The origin of believes that they owe their existence to
calamity.
life insurance can be traced to ancient the consumer; and that ‘consumer is king’.
Rome, where burial clubs formed by the Over the centuries, the insurance and the This has led to self-regulation and
citizens would pay for their members’ voluntary adoption of best practices by all
funeral expenditure as well as make some stake-holders in all segments of the
payments to rehabilitate survivors of economy. Falling in line with these pro-
deceased members. With the progress of consumer developments, association of
civilizations, social institutions and welfare insurers in most of the countries, including
practices took deep roots. Insurance, as
Today’s corporate
General Insurance Council in India, have
we see it today as a well-developed world firmly adopted codes of best business practices
financial sector industry, owes its existence believes that they with the following objectives in mind:
to the year 1688 in Lloyd’s Coffee House
owe their • Make clear the standard of good
in London where merchants, ship-owners insurance practice that can be expected
and insurance underwriters conceived the existence to the while entering into insurance contracts
concept of insurance for encouraging consumer; and and in the event of claims there-under;
entrepreneurs by sharing the loss incurred that ‘consumer is • Disclose information which are relevant
by them because of fortuitous events
during their adventure, particularly losses
king’. and useful so that customers can make
informed decisions and contract
arising from maritime voyages. insurance policies effectively;
In the early days, insurance was practiced • Enlighten the customers about their
without any written document simply to rights and obligations under insurance
make good the genuine seen loss/losses of policies;


issue focus

• Commit to high standards and • Proposal form as well as the
professionalism in all transactions and accompanying additional questionnaire,
recognize and respect the rights and if any, shall ask questions in plain
interests of customers; and language and, if appropriate, illustrate
• Promote and enhance the insurance how the questions are to be answered.
industry’s image and standing as a • Proposal form calling for the disclosure
responsible service-provider and good of material facts, shall: Proposal form as
corporate citizen by
– prominently explain the consequences well as the
– conducting business based on the basic of a failure to disclose all “material accompanying
spirit of respect for human dignity, facts” (i.e. facts relevant to the
– observing the laws and rules sincerely insurers’ decision whether or not to
additional
and responding to the expectations of provide coverage) and questionnaire, if
society at large; – highlight that, in addition to answering any, shall ask
– exchanging communications with all questions asked in the proposal, the questions in plain
concerned parties in a positive and proposer must also include any facts
pro-active manner; and
language and, if
that an insurer would regard as likely
– rendering easily comprehensible and to influence the insurer’s assessment appropriate,
user-friendly insurance services, and and acceptance of the proposal; and illustrate how the
thereby cementing the raison d’etre – warn that if the applicant is uncertain questions are to
of insurance business; as to whether or not some facts are
be answered.
• Strengthen the role of Regulator material, those facts should be
by practicing self-regulation disclosed
and encourage independence, • It shall be insurer’s duty to ask clear and
accountability, transparency, integrity specific questions in the proposal form/
and market responsiveness; accompanying questionnaire for eliciting
We shall examine some of these practices all information/data/facts considered to
which are in vogue globally today: be material to the particular type of • Insurer to keep in mind the best interests
insurance; of the policyholders while designing
Before and at the time of conclusion of
• Insurers to avoid questions which will insurance products and offer appropriate
insurance contract:
require a knowledge of certain facts and protection without jeopardizing
• Insurers to try and ensure that all underwriting standards and at rates and
which an average applicant is unlikely
information contained in their sales terms that are fair as between the client
to have;
materials/prospectus/brochure/ and the insurer.
leaflets/ illustrations is current, correct • The insurers and intermediaries working
on behalf of the insurers to present a • Insurers not to use unlicensed
and expressed in plain language and is
true and fair view of the product being intermediaries or sales channels that
not misleading to the public;
sold to the proposer. have the effect of circumventing the
• ‘Consensus ad idem’ is applicable to all
legitimate sales channels or use of
contracts and is more pronounced in the • The scope of cover, the exclusions and
unprofessional sales methods.
case of insurance contracts, which seek limitations of cover, the conditions that
to sell intangible security to the policy- the policyholder is required to comply • Insurers not to provide any remuneration
holder (or insured). To ensure that this with, the claims intimation and or financially significant facility to the
aspect is well addressed, the insurers to documentation requirements, loss licensed intermediaries or others that
furnish all material information about minimization requirements before and have the effect of exceeding the
the insurance product in their prospectus immediately after a loss, the in-house prescribed limits in whatever manner.
in plain and simple language so that the machinery for grievance redressal and • Insurer not to engage in any activity
customers can beforehand read and the external avenues for resolving that has the effect of offering an
understand the insurance coverage and disputes etc. to be informed to the additional inducement to the insured or
exclusions under the policy in question. proposer or policyholder in clear and any one associated in the purchase
(Rule 11 of Insurance Rules, 1939); simple language at the point of sale. of insurance, in any form, to influence


issue focus

the placement of the insurance with any language. The documentation to be • not repudiate a claim by a policyholder
given insurer; designed and presented with the aim of on the grounds of
• Insurer not to be a party to any insurance aiding comprehension by consumers; – non-disclosure of a material fact which
plan where the benefit of the financial • Insurers to use only the prescribed policy the policyholder could not reasonably
terms accrues to an intermediary or and endorsement wordings for various have been expected to disclose, or if
person associated with the insurance covers as far as possible. the insurance was issued without the
plan at the cost of the insured persons. policyholder being requested to submit
Insurers shall aim that any reductions in Indian market and policy a proposal;
premiums accrue to the benefit of the documentation – on the grounds of misrepresentation
persons insured. • Hon’ble Courts in India have time and unless this is a deliberate or negligent
• As far as practicable, every proposal for again expressed difficulties in misrepresentation of a material fact,
insurance shall be based on a proposal understanding the non-life insurance
– on the grounds of a breach of warranty
form that contains questions dealing policies, and have appealed to the
or condition if the loss is unrelated to
with all information that is relevant to insurers to simplify the language used
the breach in the absence of fraud by
the assessment of risk and ensures in their policies;
the policyholder;
disclosure of all material information by • Non-life insurance companies in India are
• make claim forms readily available to
the proposer. now considering issuance of one-page
claimants free of charge;
policy and of policy in electronic form.
• Where the proposer completes a • explain what information is required for
questionnaire in addition to the proposal a claim and the procedures for making a
form for the purpose of assessment of
Claim Servicing
In the event of any claim under the claim in plain language;
the risk, the questions shall be
insurance contract, the insurers shall: • promptly respond to reasonable requests
comprehensive and in simple language
• handle all claims efficiently, speedily and by claimants for assistance in making a
and the proposer shall be made aware
fairly. claim; and
that the duty of full disclosure applies
equally to the questionnaire. • not impose arbitrary and unreasonable • provide information as to the internal
time limits for reporting claims. A dispute resolution procedures of the
• In types of insurances where the
policyholder is required under the policy insurer and the availability of the
policyholder has a reasonable
terms to report a claim and subsequent external dispute resolution procedures,
expectation of renewal, the insurer shall
developments as soon as reasonably if any dispute remains unresolved.
make it clear even at the point of first
sale, if it wishes to retain the right not practicable, unless there are valid • use plain language in claim forms and
to renew or to offer renewal at higher reasons requiring claims to be reported design them in a manner that aids
within a specified time/ period. comprehension, identify in the first
terms or with restrictions on cover.
communication all the information/
Where the insurer wishing to exercise
requirements that the insurer needs to
this right shall give reasonable notice to
process the claim and also explain the
the policyholder before the date of
manner in which such information/
expiry of the current cover with regard
to the renewal and the terms so that the The proposer requirements are to be provided/
complied with.
policyholder has adequate time to look shall be made
for cover elsewhere if he so wishes. • promptly consider and determine the
aware that the claim, once all of the information/
• Consideration in insurance contracts –
Premium – “No risk to be assumed unless
duty of full requirements of the insurer have been

premium is received in advance” (Sec. disclosure received/complied with;
• keep relevant persons reasonably
64VB of Ins. Act) - This is the best applies equally
practice prevailing in India. informed as to the progress of the claim
to the
• advise a claimant within the specified
After conclusion of insurance questionnaire. time - as to whether a claim has been
contract: accepted or rejected. If a claim has been
• Insurers to draft policy document, as far rejected the insurer shall advise the
as possible, in simple and plain claimant of the grounds, in general terms


issue focus

at least, for the rejection. (Note: internal complaint-handling mechanisms
However, the insurer is not required to which meet the following minimum
disclose anything that may prejudice the standards.
insurer in the event of the rejected claim
being pursued through judicial forums); Internal Inquiry and Complaints
As far as Arrangements
• make payment of the claim as soon as is
practicable, if a claim is admitted and
possible, the Insurers to have in place internal
the amount payable determined; claimant shall be complaint-handling procedures for
attempting to resolve complaints by
• ensure that third party appointed by informed of all policyholders. The procedures shall
insurer for investigation of the claim is documentation • be readily accessible to all persons who
member of relevant professional body,
practice professionalism and comply
requirements and have an interest in a policy and be free
with the relevant rules, regulations, all queries of charge to the complainant so that the
procedures can be easily invoked;
laws, codes of conduct, etc. arising from the
• insurers shall establish claims settlement • provide for the appointment of a
claims documents complaints officer who has authority to
procedures in a time-bound manner to
assure prompt, fair and friendly shall be raised at resolve most complaints within a
settlement of claims. The claims one time. reasonable period and without further
procedures and time schedules shall be referrals within the insurer; and
publicly disclosed at the insurer’s offices • advise the complainant in writing of the
and website. The claims forms and outcome of the complaint and, if the
appointed agents in the course of their
instructions for documentation of a claim complaint has not been resolved to the
agency;
shall be posted on the website to enable satisfaction of the complainant, of the
any person wishing to file a claim to • establish procedures/systems for dealing grounds for arriving at this decision as
download and print them for his use. with complaints against their insurance well as information on further actions
Insurers may also consider on-line filing agents; that the complainant can take through
of claims intimations. • provide education, training, support external dispute resolution mechanisms.
• As far as possible, the claimant shall be facilities and materials to the insurance • The grievance redressal machinery of an
informed of all documentation agents to enable them to render proper insurer to act in an impartial manner and
requirements and all queries arising from service to the customers; handle grievances with sympathy for the
the claims documents shall be raised at • ensure that insurance agents act claimant.
one time. The insurer shall not be seen honestly, in carrying out business on • Grievances to be disposed off within
as reluctant to process a claim to behalf of the principal, particularly when specified time schedule so that the
settlement. dealing with clients’ money; complainants are not put to unnecessary
• An in-house review machinery to resolve • ensure that insurance agents keep client delays in being attended to.
any disagreements in respect of a claim information confidential. • While communicating final decision,
between the claims staff of the insurer aggrieved party to be given details of
and the claimant shall be established Conduct by insurers further avenues open to him to seek
and activated in cases of claimant • to conduct their affairs honestly and redressal of his grievance.
dissatisfaction fairly and in a manner consistent with
• Insurers to participate in the external
the public interests;
dispute resolution mechanisms as
For management of insurance • to promote image building of the prescribed under the laws.
agents, the insurers to industry;
• ensure that the insurance agents
Healthy competition
engaged by them comply with the Inquiries, complaints and
requirements prescribed by the • Insurers to refuse to quote for business
disputes; and grievance redressal where they are not allowed an
insurance regulator and are not machinery opportunity to seek underwriting
disqualified in any manner whatsoever; Insurers to handle inquiries in a fair and information to help them assess the
• be liable for the actions of their timely manner, and have documented risks;


issue focus

• Insurers to use market standard Indian Insurance Act, 1938 read with
information forms to elicit information Insurance Rules 1939 specifically provide
on risks offered for insurance as a for addressing the above-referred
minimum standard of information to be matters. These statutory provisions have
provided. This will be without prejudice been further reinforced by subsequent
to the right of an underwriter to require Consumers to Regulations framed by Insurance
more information or an inspection of the receive disclosure Regulatory & Development Authority
vide IRDA (Insurance Advertisements and
risk prior to offering quotation for cover; of any actual or Disclosure) Regulations, 2000; IRDA
• Insurers to report to the Authority any
potential conflict (Protection of Policyholders’ Interests)
cases of improper conduct or non-
compliance with the Rules/Regulations; of interest in Regulations, 2002; IRDA (Manner of
Receipt of Premium) Regulations, 2002;
• Insurers not to offer illegitimate relation to the etc.
inducements to influence business to transaction in Insurers’ Councils constantly monitor and
themselves.
question. make amendments in their Codes of
• When competing for business, insurers Business Practices in the light of
to bear in mind the importance of sound developing market circumstances from
underwriting and to exercise discretion time to time. The following three
in judicious manner; principles are used to test whether a
• Where a client (or its broker) decides to given practice in the insurance industry
move an insurance from one insurer to is the best one which can instill consumer
another, the insurer who is taking over • pro-actively promote and participate in confidence:
the account to be entitled to check with public financial education; • Client’s interests come first or in other
the previous insurer regarding the claims • continuously engage themselves in words “Priority of the client’s interest”:
experience and other matters relevant Research & Development and bring about Whether the practice puts the interests
to underwriting and the previous insurer innovative practices and products for the of policyholders and purchasers of
to furnish the information promptly. benefit of consumers; insurance ahead of interests of other
• After an account is introduced to an • be mindful of the effects of their stake-holders;
insurer by a broker for quotation of decisions both at the macro level as well • Disclosure of actual or potential
terms, the insurer not to approach the as at the micro level; conflicts of interest: Consumers to
client to place the insurance directly • assist their governments in designing receive disclosure of any actual or
with it. However, there is no bar on an insurance regulation attuned to basic potential conflict of interest in relation
insurer who is already trying to win over principles of economics and insurance; to the transaction in question;
a client’s account from refusing to quote and • Ensuring product suitability, in other
to a broker on that account. words that the product sold is the right
• conduct open, transparent, ongoing, and
meaningful consultation with industry one: Product sold meets the needs of
General: Insurers to: and other stakeholders, routinely; the consumer.
• compile their respective companies’ • incentivize desired behaviours and dis- In a way, these Business Practices
business statistics/data with accuracy incentivise undesirable ones for indicate that the insurance industry of
and regularity and share them with all promoting orderly growth all around; today is by and large of the consumer,
stake-holders and enforce market for the consumer and by the consumer.
• adopt a zero tolerance approach to
discipline; misconduct and indiscipline
• invest the policy-holders’ funds safely, • encourage and promote risk
generate optimum yields and bring down management and actuarial science for
the cost of insurance for the consumers fundamental discipline in the market;
at large;
• adapt their business strategies for
• introduce latest Information Technology The author is Secretary General, General
servicing consumers in different
Insurance Council. Views expressed in this
solutions for minimizing cost, enhancing segments of markets and create sound paper are personal views of the author and
productivity and improving servicing market conditions where professionalism not of the institution/organization he
standards; prevails. represents.


issue focus

Best Practices in Reinsurance
IN THE BEST INTERESTS OF THE INDUSTRY

K.L. NAIK OBSERVES THAT IN THESE TUMULTUOUS TIMES, THE EMPHASIS FOR INSURERS AND THE REINSURERS SHOULD
BE ON UNDERWRITING PROFITS RATHER THAN DEPENDENCE ON INVESTMENT INCOME TO TURN THE CORNER.

Introduction Reinsurers provide automatic capacity to especially in recessionary trends, more

T
he basic principles and practices of insurers by accepting a share on capital is required. The solution is more
reinsurance are uniform and are reinsurance treaties and also extend reinsurance which provides support of the
universal. Utmost good faith in support of their higher financial strength capital base of reinsurers with their huge
reinsurance by Treaty method is believed to insurers who have limited equity base. free reserves. New capital is not needed
to be utmost blind faith of all reinsurers in After the WTC attack losses, in practice by insurers. Reinsurance protection keeps
good underwriters and good underwriting there is a visible shift of Afro-Asian insurers them safe as a disaster management tool
standards of insurance companies. to rely more on Afro-Asian reinsurers. This to avoid management disaster!
trend is further accentuated after the
Trust becomes a tradition in long-term
global recession which has impaired the Capacity for Insurers
relationship of insurers, reinsurers and
financial strength of many western Coverage of All Perils of Direct Policies
retrocessionnaires. Reinsurers ‘Follow the
reinsurers in greater grips. It is as if the + Confidence In the Security of
Fortunes’ of insurers in legal and technical
recession has resulted in the cart being put Reinsurers
aspects of claims settlements. Reinsurers
before the horse. + Continuity of Reinsurance Relationship
are not only carriers of risks underwritten
after losses during Reinsurance Treaty
by insurers but they are experienced As ‘parameters of economies’, both Period
advisers in risk-management for insurers insurers and reinsurers have to look for = Capacity to cover any Risk accepted by
in the risk transfer trade of insurance. underwriting profits irrespective of Insurer Automatically, Simultaneously
investment return, particularly during and Continuously!
current trends of recession in global
economies. Reinsurance is an International Trade with
transactions in foreign exchange. If writing
Reinsurance In Theory And a risk is like eating, reinsurance
Practice underwriting of a risk can be likened to
After the WTC digesting.
Reinsurance is like a shock-absorbing
attack losses, in device in a Motor Car. Its function is to Reinsurance Underwriting =
practice there is a make the journey comfortable on Roads — Fixing of retentions for any one risk
visible shift of with Humps-Bumps-Potholes — of losses! — Creating Treaty arrangements with
Reinsurance is to neutralize the damaging
Afro-Asian impact of large man-made and natural cat
capacity class-wise to minimize Fac Re.
— Protecting net retention by XL treaties.
insurers to rely losses. In summing up the insurer-reinsurer
Example:
more on Afro- relationship, one may say:
Company’s Financial Strength is 1,000 mn.
Asian reinsurers. • When loss of Insurer ONE
• Is shared by Reinsurers MANY Fire Surplus Reinsurance Treaty is created
• All Survive — it breaks not ANY. as under:

Insurers have a limited equity base and Net Line : 30,000,000 Any One Risk SI


Irda Aug09

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