IC - 38 - New Syllabus - Final - e-booklet.pdf

IC-38 - (LIFE) NEW SYLLABUS This material is strictly meant for KLI internal training and communication purposes only and should not be further circulated general public at large. Page| 0 ...

IC-38 - (LIFE) NEW SYLLABUS This material is strictly meant for KLI internal training and communication purposes only and should not be further circulated general public at large. Page| 0  CONTENTS CHAPTER NO. TITLE PAGE NO SECTION 1 COMMON CHAPTERS 1 Introduction to Insurance 2 2 Core Elements of Insurance 11 3 Principles of Insurance 18 4 Features of Insurance Contracts 24 5 Underwriting and Rating 29 6 Claims Processing 33 7 Documentation 37 8 Customer Service 42 9 Grievance Redressal Mechanism 48 10 Regulatory Aspects for Insurance Agents 55 SECTION 2 LIFE INSURANCE 1 What Life Insurance Involves 59 2 Financial Planning 63 3 Life Insurance Products: Traditional 68 4 Life insurance products: Non-Traditional 72 5 Applications of Life Insurance 76 6 Pricing and Valuation in Life Insurance 79 7 Life Insurance Documentation 83 8 Life Insurance Underwriting 90 9 Life Insurance Claims 96 SECTION 3 HEALTH INSURANCE 1 Introduction to Health Insurance 100 2 Health Insurance Documentation 106 3 Health Insurance Products 112 4 Health Insurance Underwriting 124 5 Health Insurance Claims 135 SECTION 4 QUESTION BANK 144 SECTION 5 QUESTION BANK ANSWERS 191 This material is strictly meant for KLI internal training and communication purposes only and should not be further circulated general public at large. Page| 1  Chapter – 1 (Common) Introduction to Insurance Chapter Introduction: This chapter aims to introduce the basics of insurance, trace its evolution and how it works. It intends to teach how insurance provides protection against economic losses arising as a result of unforeseen events and serves as an instrument of risk transfer. Learning Outcomes: A. Insurance – History and evolution B. The Principle of Risk Pooling C. Risk management techniques D. Insurance as a tool for managing risk E. Considerations before opting for Insurance F. Insurance Market Players G. Role of Insurance in the Society A. Insurance – History and Evolution Insurance – in simple language it means to transfer risk to someone who is capable of handling it generally to insurer (Insurance Company). We live in a world of uncertainty. Trains Floods destroying Earthquakes Young people colliding entire that bring grief dying suddenly communities pre-maturely This material is strictly meant for KLI internal training and communication purposes only and should not be further circulated general public at large. Page| 2 1. History of insurance Insurance has existed in some form or other since 3000 BC. Many civilizations, have practiced the concept of pooling and sharing among themselves, all the losses suffered by some members of the community. 2. Insurance through the ages – Some instances Traders of Babylon paid extra money to their lenders to write off their loans if Bottomry shipment was lost or stolen. Loans Traders of Bharuch and Surat also had similar practices. Benevolent Greeks of 7th Cy. AD, used to pay in advance to take care of the family of members who Societies/ died and also the funeral expenses of the Friendly member. Similar practices were followed in Societies England as well. Traders of Rhodes who were sending goods by sea, were sharing losses if any of them lost their goods due to jettison. Rhodes (Jettison/ Jettisoning’ refers to throwing away some of the cargo to reduce the weight of the ship while at sea.) Chinese traders in ancient days used to Chinese send their goods in different ships, so that Traders even if some boats sank, their loss would be partial. 3. Modern concepts of insurance  The origin of insurance business started from London’s Lloyd coffee house.  1st Life insurance company in the world was Amicable society for Perpetual Assurance founded in 1706 in London. 4. History of insurance in India India: Modern insurance in India began in early 1800. This material is strictly meant for KLI internal training and communication purposes only and should not be further circulated general public at large. Page| 3  The first life insurance The Oriental Life company to be set up in India Insurance Co. Ltd was an English company The first non-life insurer to be Triton Insurance Co. Ltd. established in India The first Indian insurance Bombay Mutual company. It was formed in Assurance Society Ltd. 1870 in Mumbai The oldest insurance National Insurance company in India. It was Company Ltd. founded in 1906 Important 1. The Insurance Act 1938 was the first legislation to regulate the conduct of insurance companies in India. This Act, as amended from time to time continues to be in force. 2. Life insurance business was nationalized on 1st September 1956 and the Life Insurance Corporation of India (LIC) was formed. From 1956 to 1999, the LIC held exclusive rights to do life insurance business in India. 3. In 1972, the non-life insurance business was also nationalized and the General Insurance Corporation of India (GIC) and its four subsidiaries were set up. 4. The Malhotra Committee, in its report submitted in 1994, recommended opening of the market for competition. 5. The Insurance market was liberalized in 2000, with the passing of the Insurance Regulatory & Development Act, 1999 (IRDA), which also established the Insurance Regulatory and Development Authority of India (IRDAI) in April 2000 as a statutory regulatory body for the insurance industry. This material is strictly meant for KLI internal training and communication purposes only and should not be further circulated general public at large. Page| 4 6. An amendment of the Insurance Act in 2021, has allowed Foreign investors, to hold up to 74% of the paid up equity capital in an Indian Insurance company. Foreign insurers can now establish branches in India to do reinsurance. Insurance industry today (As on 30th September 2021)  There are 24 Life insurance companies operating in India. Of these, Life Insurance Corporation (LIC) of India is a public sector company (PSU) and the remaining 23 life insurance companies are in the private sector.  There are 34 General Insurance companies.  There is one Reinsurance Company – The General Insurance Corporation of India [GIC Re] and 11 foreign Reinsurers that operate through branch offices.  The Department of Posts (called as India Post) of the Government of India, also transacts life insurance known as Postal Life Insurance. India post is exempt from the purview of the Insurance Regulator. How Insurance works: 1.Insurance is about value There must be an asset which has economic value (Car-physical; Goodwill-nonphysical; Eye-personal). These assets may lose value due to uncertain event. This chance of loss/damage is known as risk. The cause of risk is known as peril. Persons having similar risks pool (contribute) money (premium) together. There must be an asset which has economic value (Car- physical; Goodwill-nonphysical; Eye-personal). These assets may lose value due to uncertain event. This chance of loss/damage is known as risk. The cause of risk is known as peril. Persons having similar risks pool (contribute) money (premium) together. This material is strictly meant for KLI internal training and communication purposes only and should not be further circulated general public at large. Page| 5  2.Insurance reduces Risk Burden The burden of risk refers to the costs, losses and disabilities one has to bear as a result of being exposed to a given loss situation/ event. Risk burdens that one carries There are two types of risk burdens that one carries – primary and secondary.  Primary burden of risk – losses actually suffered. Eg.: Factory getting fire.  Secondary burden of risk – losses that might happen. Eg.: physical/mental Stress strain. B. The Principle of Risk Pooling Insurance companies enter into contracts with different entities – policyholders, who can be individuals or corporates. The benefits they pay to policyholders are contractual obligations. Insurance contracts are meaningful only if the Insurers are financially capable of taking over the risks and compensating for the losses, if and when they occur. The structure arises from application of the mutuality or the pooling principle. Mutuality and Diversification are two important ways to reduce risk in financial markets. They are fundamentally different. Diversification Mutuality Under mutuality or pooling, Here the funds are spread the funds of various out among various assets individuals are combined (eggs are placed in different (all eggs are placed in one baskets). basket). Funds flow from one source Funds flow from many to many destinations. sources to one. This material is strictly meant for KLI internal training and communication purposes only and should not be further circulated general public at large. Page| 6 C. Risk Management Techniques The various types of techniques that can be used to manage risk are  Risk avoidance - Controlling risk by avoiding a loss situation  Risk retention - One tries to manage the impact to risk and divides to bear the risk and its effects by oneself.  Risk reduction and Control - This is a more practical and relevant approach than risk avoidance. It means taking steps to lower the chance of occurrence of a loss and / or to reduce severity of its impact if such loss should occur.  Risk transfer - An alternative to risk retention. It involves transferring the responsibility for losses to another party. Insurance is a risk transfer mechanism. D. Insurance as a tool for managing risk  Don’t risk a lot for a little. E.g. there is no need to insure a ball pen as its cost is not high.  Don’t risk more than what we can afford to lose. Eg.: we cannot afford to not insure our house as its cost is high.  Don’t insure without considering the likely outcome. Eg.: can anyone insure a space satellite? Note: - Insurance refers to protection against an event that might happen whereas Assurance refers to protection against an event that will happen E. Considerations before opting for Insurance When deciding whether to insure or not, one needs to evaluate the cost of transferring the risk [the insurance premium] against the cost of bearing it oneself. 1.Do not risk a lot for a little: Would it make sense to insure an ordinary ball pen? This material is strictly meant for KLI internal training and communication purposes only and should not be further circulated general public at large. Page| 7  2.Do not risk more than one can afford to lose: If a large oil refinery gets destroyed, the owners cannot afford to bear the loss. 3.Consider the likely outcomes of the risk carefully: The loss of a space satellite can be so costly that it has to be insured. F. Insurance Market Players The Insurance Companies (Insurers) are the major players in the insurance industry. There is the Insurance Regulator, which regulates the entire market. IRDAI regulations provides that intermediaries have certain responsibilities towards the prospect. The intermediary has a responsibility towards the insurer as well. G. Role of Insurance in the Society 1.Insurance benefits society economically and socially. 2.It also provides employment 3.The money raised from premium is invested in to the development of infrastructure needs. 4.Removes the fear, worry and anxiety associated with one’s future. Insurance and Social Security a) Social security is an obligation of the State. The Employees State Insurance Act, 1948 provides for Employees State Insurance Corporation to pay for the expenses of sickness, disablement, maternity and death for industrial employees and their families, who are covered. b) Insurers play an important role in social security schemes sponsored by the Government such as 1. PMJJBY –Pradhan Mantri Jeevan Jyoti Bima Yojana 2. PMSBY – Pradhan Mantri Suraksha Bima Yojana 3. PMFBY- Pradhan Mantri Fasal Bima Yojana 4. PMJAY – Pradhan Mantri Jan Arogya Yojana (Ayushmaan Bharat) This material is strictly meant for KLI internal training and communication purposes only and should not be further circulated general public at large. Page| 8  5. PMVVY - Pradhan Mantri Vaya Vandana Yojana – a Pension plan 6. APY - Atal Pension Yojana These, and other Government schemes have been benefiting the Indian society/ community. c) In addition to supporting Government schemes, the insurance industry offers insurance covers the rural insurance schemes, operated on a commercial basis, are designed to provide social security to the rural families. Test Yourself 1. Which among the following is the regulatory body for the insurance industry in India? I. Insurance Authority of India II. Insurance Regulatory and Development Authority of India III. Life Insurance Corporation of India IV. General Insurance Corporation of India 2. Which among the following is a secondary burden of risk? I. Business interruption cost II. Goods damaged cost III. Setting aside reserves as a provision for meeting potential losses in the future IV. Hospitalization costs as a result of heart attack 3. Which among the following is a method of risk transfer? I. Bank Fixed Deposit II. Insurance III. Equity shares IV. Real Estate 4. Which among the following scenarios needs insurance? I. The sole bread winner of a family might die untimely II. A person may lose his wallet This material is strictly meant for KLI internal training and communication purposes only and should not be further circulated general public at large. Page| 9  III. Stock prices may fall drastically IV. A house may lose value due to natural wear and tear 5. Which of the following insurance schemes are sponsored by the Government of India? I. PM Jan Arogya Yojana - Ayushmaan Bharat II. PM Fasal Bima Yojana III. PM Suraksha Bima Yojana IV. All of the above Summary Key Terms 1.Risk 2. Pooling Insurance is risk transfer through 3. Asset risk pooling. 4. Burden of risk  Commercial insurance 5. Risk avoidance business as practiced today 6. Risk control started at the Lloyd’s Coffee 7. Risk retention House in London. 8. Risk financing  When persons having similar 9. Risk transfer assets, exposed to similar risks, contribute into a common pool Answers to Test Yourself of funds it is known as pooling. Answer 1 - The correct option  Apart from insurance, other is II. risk management techniques Answer 2 - The correct option include: is III.  Risk avoidance, Answer 3 - The correct option  Risk control, is II.  Risk retention, Answer 4 - The correct option  Risk financing and is I.  Risk transfer Answer 5 - The correct option is IV. This material is strictly meant for KLI internal training and communication purposes only and should not be further circulated general public at large. Page| 10  Chapter – 2 (Common) Core Elements of Insurance Chapter Introduction: In this chapter, we shall learn about the various key elements and principles of insurance that govern the working of insurance. Learning Outcomes: A. Elements of Insurance 1. Assets 2. Risk 3. Hazard 4. Peril 5.Risk Pooling A. Elements of insurance We have seen that the process of insurance has four elements  Asset  Peril  Risk  Risk pooling Let us now look at the various elements of the insurance process in some detail. 1. Asset An asset may be defined as ‘anything that confers some benefits and has an economic value to its owner’. An asset must have the following features:  Economic value: An asset must have economic value. Value can arise in two ways. This material is strictly meant for KLI internal training and communication purposes only and should not be further circulated general public at large. Page| 11   a) Income generation: Asset may be productive and generate income. Eg.: A machine used to manufacture biscuits, or a cow that yields milk, both generate income for their owner. A healthy worker is an asset to an organization.  b) Serving needs: An asset could also add value by satisfying one or a group of needs. Eg.: A refrigerator cools and preserves food while a car provides comfort and convenience in transportation, similarly a body free of illness adds value to oneself and family also.  Scarcity and Ownership  What about air and sunlight? Are they not assets? - The answer is ‘No’. Few things are as valuable as air and sunlight. We cannot live without them. Yet they are not considered as assets in the economic sense of the term. There are two reasons for this: 1.Their supply is abundant and not scarce. 2.They are not owned by any one individual but are freely available to all.  Insurance of assets  Insurance provides protection only against financial losses arising from unexpected events and not natural wear and tear, of assets due to usage over time. We must note that insurance cannot protect an asset from loss or damage. Eg.: An exporter would lose a great deal if the importer on the other side refused to accept the goods or defaulted on payments.  Life insurance  There is indeed nothing as valuable to us as our own lives and those of our loved ones. Our lives can be seriously affected when subjected to an accident or an illness. This material is strictly meant for KLI internal training and communication purposes only and should not be further circulated general public at large. Page| 12  This can impact in two ways: 1.Firstly, there are costs of treatment of a particular disease. 2.Secondly there may be loss of economic earnings, both due to death or disability. These kinds of losses are covered by insurances of the person or personal lines of insurance. 2. Risk Risk can be defined as the chance of a loss. Eg.: Examples of risks are the possibility of economic loss arising from the burning of a house or a burglary or an accident which results in the loss of a limb. This has two implications. i. Firstly, it means that that the loss may or may not happen. ii. Secondly, the event, the occurrence of which actually leads to the loss, is known as a peril. It is the cause of the loss. Eg.: Perils are fire, earthquakes, lightning, burglary, heart attack etc…  Natural wear and tear It is true that nothing lasts forever. Every asset has a finite lifetime during which it is functional and yields benefits. This is a natural process and one discards or changes one’s mobiles, washing machines and clothes when they are worn out. Therefore, losses arising out of normal wear and tear are not covered in insurance.  Exposure to risk: Occurrence of a peril need not necessarily lead to a loss. Eg.: A fire may break out in factory premises without causing actual damage. Insurance comes into play only if there is an actual economic (financial) loss as a result of a peril.  Degree of Risk Exposure: Two assets may be exposed to the same peril but the likelihood of loss or the amount of loss may vary greatly. This material is strictly meant for KLI internal training and communication purposes only and should not be further circulated general public at large. Page| 13 Eg.: A vehicle carrying explosives can yield far greater loss from fire than tanker carrying water. 3. Risk Management  Extent of damage likely to be suffered This is given by the degree of loss and its impact on an individual or business. On this basis one may identify three types of risk events or situations:  Critical Where losses are of such a magnitude; that may result in total loss or bankruptcy. Critical losses would include those resulting in serious financial losses, compelling a firm to borrow to continue operations. Eg.: A fire in the plant of a large multinational company at Gurgaon destroys inventory worth Rs 1 crore. The loss is heavy but not so high as to lead to bankruptcy.  Catastrophic Catastrophic losses signify death or total disability for a large number of people. Catastrophic losses usually signify disasters that are sudden, widespread and unstoppable. Eg.: A pandemic like Covid – 19 causing disease to people across the globe.  Marginal/ Insignificant Where the possible losses are insignificant and can be easily met from an individual or a firm’s existing assets or current income without imposing any undue financial strain. Eg.: A minor car accident results in the side being slightly grazed due to which some of the paint is damaged and a fender is slightly bent. A hazard may be any action, condition, habit, circumstance, or situation that makes a peril more likely to occur or a loss more likely to be suffered as the result of a peril. 4. Hazards and Perils This material is strictly meant for KLI internal training and communication purposes only and should not be further circulated general public at large. Page| 14  Asset Peril Hazard Life Cancer Excessive Smoking Factory Fire Explosive material left Unattended Car Car Careless driving by driver Accident Water seeping in & Cargo not Cargo Storm packaged in waterproof containers  Types of hazards a) Physical hazard is a physical condition that increases the chance of loss. Eg.: Indulging in water sports b) Moral hazard refers to dishonesty or character defects in an individual that influence the frequency or severity of the loss. Eg.: A dishonest individual may attempt to commit fraud and make money by misusing the facility of insurance. c) Legal hazard is more prevalent in cases involving a liability to pay for damages. Eg.: The enactment of law governing workmen’s compensation in the case of accidents can raise the amount of liability payable considerably. 5. Risk pooling - Mathematical Principle of Insurance The third element in insurance is a mathematical principle that makes insurance possible. It is known as the principle of risk pooling. Suppose there are 100000 RCC houses exposed to the risk of fire that can cause an average loss of Rs. 50000. If the chance of a house catching fire is 2 in 1000 [or 2/ 1000 = 0.002] it would mean that the total amount of loss suffered would be Rs 10000000 [= 50000x 0.002 x 100000]. If an insurer were to get the owners of each of the 100000 houses to contribute Rs 100 and if these contributions (100000 x 100 = Rs.10000000) were to be pooled into a single fund, it would be enough to pay for the loss of the unfortunate few who suffered from the fire. This material is strictly meant for KLI internal training and communication purposes only and should not be further circulated general public at large. Page| 15 a) How exactly does the principle work in insurance? It is by pooling number of risks of all the insured similarly placed and exposed to possibility of loss due to a peril that the insurer is able to assume that risk and its financial impact. b) Risk pooling and the law of large numbers: The probability of damage [derived as 2 out of 1000 or 0.002 in the example above] forms the basis on which the premium is determined. This becomes possible because of a principle known as the “Law of large numbers”. It states that the larger the size of the pool of risks, the actual average of losses would be closer to the estimated or expected average loss. c) Insurance Companies to remain Solvent: If the pools of risks and the premium pools created are not sufficient to meet the liabilities towards paying claims (in case they occur), the system of risk pooling and insurance may fail. Insurers need to have sufficient money with them to honor their promises to all the members of the pool. If they have the sufficient money, they are considered solvent and if they do not have money to meet their obligations, they become insolvent. In India, IRDAI has mandated that insurers are required to maintain a minimum solvency ratio of 1.5. Important  Conditions for insuring a risk Six broad requirements for a risk to be considered insurable are given below. i. A sufficiently large number of homogenously [similar] exposed units to make the losses reasonably predictable. This follows from the law of large numbers. ii. Loss produced by the risk must be definite and measurable. It is difficult to decide the compensation if This material is strictly meant for KLI internal training and communication purposes only and should not be further circulated general public at large. Page| 16  one cannot say for sure that a loss has occurred and how much it is. iii. Loss must be fortuitous or accidental. It must be the result of an event that may or may not happen. iv. Sharing of losses of the few by many. v. Economic feasibility: The cost of insurance must not be high in relation to the possible loss; otherwise the insurance would be economically unviable. vi. Public policy: Finally, the contract should not be contrary to public policy and morality. Test Yourself 1 1. Which one of the following does not represent an insurable risk? I. Fire II. Stolen goods III. Burglary IV. Loss of goods due to ship capsizing Summary Key Terms The process of insurance has four a) Asset elements (asset, risk, risk pooling b) Risk and an insurance contract). c) Hazard b) An asset may be anything that d) Risk pooling confers some benefit and is of e) Offer and economic value to its owner. acceptance c) A chance of loss represents risk. f) Lawful d) Condition or conditions that consideration increase the probability or severity Answers to Test of the loss are referred to as Yourself hazards. Answer 1 - The e) The mathematical principle, that correct option is II. makes insurance possible is known as principle of risk pooling. This material is strictly meant for KLI internal training and communication purposes only and should not be further circulated general public at large. Page| 17  Chapter – 3 (Common) Principles of Insurance Chapter Introduction: In this chapter, we discuss the principles, based on which the mechanism of insurance works. Learning Outcomes: A. Uberrima fides B. Insurable Interest C. Proximate Cause D. Indemnity E. Subrogation F. Contribution A. Uberrima Fides Insurance contracts have various special features that are discussed below:  Uberima Fides (or) Utmost good faith - It means that every party to contract must disclose all material facts relating to the subject matter of insurance whether asked or not. If Utmost Good Faith is not observed by either party, the contract may be avoided by the other. This follows from the logic that no one should be allowed to take advantage of his own wrong especially while entering into a contract of insurance. 1. Material facts/Information – proposer’s family history; medical history; financial details; This material is strictly meant for KLI internal training and communication purposes only and should not be further circulated general public at large. Page| 18  occupational details; illness if any; habits etc. are known as material facts. Example: i. Life Insurance: One’s own medical history, family history of hereditary illnesses, habits like smoking and drinking, absence from work, age, hobbies, financial information like income details of proposer, pre-existing life insurance policies, occupation etc. ii. Fire Insurance: Construction, location/ situation of risk and usage of building, age of the building, nature of goods in premises etc. iii. Marine Insurance: Description of goods, method of packing and mode of transit etc. iv. Motor Insurance: Description of vehicle, date of purchase and Regional Registration authority etc. v. Health Insurance: Pre-existing disease, age etc.  When a Fact becomes ‘Material’ – Some types of material facts that one needs to disclose are those indicating that the particular risk represents a greater exposure than can be normally expected. Eg.: Hazardous nature of cargo being sent by a ship, past history of illness, past history burglary of a house.  Information 1.Material Facts that need not be disclosed: Unless there is a specific enquiry by underwriters, the proposer has no obligation to disclose facts like: 1. Measures implemented to reduce the risk. E.g.: The presence of a fire extinguisher 2. Facts which the insured does not know or is unaware of. E.g.: An individual, who had high blood pressure but was not aware. 3. Which could be discovered, by reasonable diligence. E.g.: When insuring a textile shop one does not need to specifically say that some of the synthetic clothes in the shop are highly combustible. This material is strictly meant for KLI internal training and communication purposes only and should not be further circulated general public at large. Page| 19  4. Matters of law: E.g.: Municipal laws about storing of explosives 5. About which insurer appears to be indifferent (or has waived the need for further information) 6. In such cases, the insurer cannot later disclaim responsibility on grounds that the answers were incomplete. 2. Duty to Disclose: In the case of insurance contracts, the duty to disclose is present throughout the entire period of negotiation until the proposal is accepted and a Life Insurance policy is issued. Once the Life Insurance policy is accepted, there is no further need to disclose any material facts that may come up during the term of the policy. E.g.: Mr. Rajan has taken a Life insurance policy for a term of fifteen years. Six years after taking the policy, Mr. Rajan has some heart problems and has to undergo some surgery. Mr. Rajan does not need to disclose this fact to the insurer. 3. Situations of Non-Disclosure: not informing certain details. 4. Misrepresentation: Any statement made during negotiation of a contract of insurance is called representation. a) Innocent – by mistake giving wrong information b) Fraudulent – intentionally giving wrong information. 5. Fraud: The term “Fraud” has been specified under Section 45 (2) of the Insurance Act (amended in 2015). B. Insurable interest Insurable Interest – it is the financial interest the proposer has in his belongings. I.e. Self; spouse; parents; house; car etc. is termed as insurable interest. This material is strictly meant for KLI internal training and communication purposes only and should not be further circulated general public at large. Page| 20   In Life Insurance – Insurable interest should be present at the start of policy.  In Non-Life Insurance – Insurable interest should be present both at the start and during claim.  In Marine Insurance – Insurable Interest should be present at the time of claim. C. Proximate Clause Proximate Clause - it is the main reason behind the various activities taking place and there by resulting into any event. Eg.: Mr. Pinto, while riding a horse, fell on the ground and had his leg broken, he was lying on the wet ground for a long time before he was taken to hospital. Because of lying on the wet ground, he had fever that developed into pneumonia, finally dying of this cause. Though pneumonia might seem to be the immediate cause, in fact it was the accidental fall that emerged as the proximate cause and the claim was paid under personal accident insurance. There are certain losses which are suffered by the insured as a result of fire but which cannot be said to be proximately caused by fire. In practice, some of these losses are customarily paid by business under fire insurance policies. Example of such losses can be –  Damage to property caused by water used to extinguish fire  Damage to property caused by fire brigade in execution of their duty  Damage to property during its removal from a burning building to a safe place D. Indemnity Indemnity - It means that the policyholder, who suffers a loss, is compensated so as to put him or her in the same financial position as he or she was before the occurrence of the loss event. This material is strictly meant for KLI internal training and communication purposes only and should not be further circulated general public at large. Page| 21 Eg.: Ram has insured his house, worth Rs. 10 lakhs, for the full amount. He suffers loss on account of fire estimated at Rs. 70,000. The insurance company would pay him an amount of Rs. 70,000. The insured can claim no further amount. E. Subrogation Subrogation: It is the process an insurance company uses to recover claim amounts paid to a policy holder from a negligent third party. F. Contribution: The Principle of Contribution applies only to indemnity policies. It does not arise in the case of Life Insurance, because there is no upper limit that can be placed on the losses suffered when there is a loss of life. Test Yourself 1. Mr. Pinto contracted pneumonia as a result of lying on wet ground after a horse riding accident. The pneumonia resulted in death. What is the proximate cause of the death? I. Pneumonia II. Horse III. Horse riding accident IV. Bad luck 2. Which among the following is an example of coercion? I. Ramesh signs a contract without having knowledge of the fine print II. Ramesh threatens to kill Mahesh if he does not sign the contract III. Ramesh uses his professional standing to get Mahesh to sign a contract IV. Ramesh provides false information to get Mahesh to sign a contract This material is strictly meant for KLI internal training and communication purposes only and should not be further circulated general public at large. Page| 22 3. Which among the following options cannot be insured by Ramesh? I. Ramesh’s house II. Ramesh’s spouse III. Ramesh’s friend IV. Ramesh’s parents Summary Key Terms a. Non-Disclosure The special features b. Misrepresentation of insurance policies c. Material facts include: d. Agreed Value i. Uberrima fides, e. Under Insurance ii. Insurable interest, Answers to Test Yourself iii. Proximate cause, iv. Indemnity Answer 1 - The correct option is III v. Subrogation Answer 2 - The correct option is II vi. Contribution Answer 3 - The correct option is III This material is strictly meant for KLI internal training and communication purposes only and should not be further circulated general public at large. Page| 23  Chapter – 4 (Common) Features of Insurance Contracts Chapter Introduction: In this chapter, we discuss the elements that govern the working and special features of an insurance contract. Learning Outcomes: A. Legal Aspects of Insurance Contracts B. Elements of a valid contract C. Premium payment in advance D. Solicitation E. Enabling Provisions like Grace Period and Free-look A. Insurance contracts – Legal aspects and special features. The chapter also deals with the legal aspects and special features of an insurance contract. Insurance Contract – an insurance policy is a contract between 2 parties – Insurer (Insurance Company) and Insured (Policy holder) as per Indian Contract act 1872. This material is strictly meant for KLI internal training and communication purposes only and should not be further circulated general public at large. Page| 24 B. Elements of a valid contract The elements of a valid contract are: 1) Offer and Acceptance – out of the 2 parties‟ one should offer and other party should accept. Usually offer is made by proposer (policy holder) and acceptance is made by insurer. 2) Consideration – premium paid by policy holder and the promise to indemnify by insurer is known as consideration. 3) Agreement between parties – both parties should agree to the same thing. 4) Free consent – there should be no pressure on proposer while taking policy. Consent is free when the policy is taken under no-coercion; undue influence; fraud; misrepresentation; mistake. 5) Capacity of the parties – proposer should be legally competent. I.e. Sound mind, not disqualified by law, should not be minor. 6) Legality – the object of contract must be legal. C. Paying Premium in Advance As per Indian laws, Insurers are not allowed to assume risk unless they receive the premium in advance. In other words, insurance protection cannot be sold on credit basis in India. Section 64 VB of the Insurance Act 1938 states, “No risk to be assumed unless premium is received in advance”. No insurer shall assume any risk unless and until the premium is received in advance or is guaranteed to be paid or a deposit is made in advance in the prescribed manner. This is an important feature of the insurance industry in India. D. Solicitation Solicitation - Insurance has always been regarded as something to be purchased after a proper understanding the product and not just bought/ sold. Hence, insurance is to be ‘solicited’ or asked for by the customer. Traditionally, This material is strictly meant for KLI internal training and communication purposes only and should not be further circulated general public at large. Page| 25 insurers declare that “Insurance is the subject matter of solicitation”. E. Enabling Provisions 1. Grace Period Grace period is the specified period of time immediately following the premium due date during which a payment can be made to renew or continue a policy in force without loss of continuity benefits such as waiting periods and coverage of pre-existing diseases. Coverage is not available for the period for which no premium is received. The days of grace are computed from the next day after the due date fixed for payment of the premium.  For Life insurance, if there is no grace period, a single delay in payment can lead to a policy lapse. IRDAI Regulations allow a grace period of 15 days is applicable in case of Monthly mode of Premium collection and 30 days in other modes.  In respect of Health insurance also, certain number of days as grace period is allowed for renewal of individual health policies. As per IRDAI Regulations, the grace period is 15 days in case of Monthly mode of Premium collection and 30 days in other modes.  Motor Policies are usually valid for a period of one year and have to be renewed before the due date. Grace period for paying the premium do not apply. In case a comprehensive policy lapses for more than 90 days, the accrued No Claim Bonus (NCB) benefit would also be lost. In the interest of smooth operation of affairs during the Covid-19 pandemic, IRDAI permitted the following relaxations:  In case of Life insurance policies, Insurers were asked to enhance the grace period by additional 30 days if desired by the policyholders.  In case of Health insurance policies, Insurers were told to condone delays in renewal up to 30 days This material is strictly meant for KLI internal training and communication purposes only and should not be further circulated general public at large. Page| 26  without deeming such condonation as a break in policy. Insurers were requested to contact the policyholders well in advance to avoid discontinuance in coverage.  As regards Motor Vehicle Third Party Insurance policies that fell due for renewal and premiums could not be paid due to the Covid-19 situation, IRDAI allowed a grace period till 15th May, 2020. 2. Free-Look Period introduced by “IRDAI” If any proposer after entering into a contract i.e. After taking a policy if he wants to cancel or reject the policy then he or she take this decision within 15days from receiving of policy. Cancellation of Policies: When policies are cancelled by the insurer, the proportion of the premium corresponding to the expired period of insurance is charged/ retained by the insurer and the proportion corresponding to the unexpired period of insurance is returned to the insured, provided no claim has been paid under the policy. Such proportionate calculation of premium is called Pro-rata premium. Important  Coercion - Involves pressure applied through criminal means.  Undue influence – using one’s position to dominate the will of another person, to obtain an undue advantage over that person.  Fraud – inducing another to act on a false belief that is caused by a representation one does not believe to be true. It can arise either from deliberate concealment of facts or through misrepresenting them.  Mistake - Error in one’s knowledge or belief or interpretation of a thing or event. This can lead to an error in understanding and agreement about the subject matter of the contract. This material is strictly meant for KLI internal training and communication purposes only and should not be further circulated general public at large. Page| 27 Test Yourself 1.Which among the following cannot be an element in a valid insurance contract? I. Offer and Acceptance II. Coercion III. Consideration IV. Legality 2.If the policyholder has bought a policy and does not want it, he/ she can return it during the _________ period, and get a refund. I. Free evaluation II. Free-look III. Cancellation IV. Free trial Summary Key Terms  A contract is an agreement 1. Offer and Acceptance between parties, enforceable at 2. Lawful consideration law. 3. Consensus ad idem  The elements of a valid contract Answers to Test Yourself include:  Offer and acceptance Answer 1 - The correct  Consideration, option is II.  Consensus ad-idem, Answer 2 - The correct  Free consent option is II.  Capacity of the parties and  Legality of the object This material is strictly meant for KLI internal training and communication purposes only and should not be further circulated general public at large. Page| 28  Chapter – 5 (Common) Underwriting & Rating Chapter Introduction: In this chapter you will learn the basics of underwriting and rating. You will learn about the different methods of dealing with hazards in the process of rating of risks. Learning Outcomes: A. Basics of Underwriting B. Product Filing with IRDAI C. Basics of Ratemaking D. Rating factors A. Basics of Underwriting Underwriting is the process of determining whether a risk offered for insurance is acceptable, and if so, at what rates, terms and conditions. Underwriting comprises the following steps: i. Assessment and evaluation of hazard and risk in terms of frequency and severity of loss ii. Formulation of policy coverage and terms and conditions iii. Fixing of rates of premium The underwriter decides on whether or not to accept the risk. The next step would be to decide the rates, terms and conditions under which the risk is to be accepted. Sources of information for underwriting The first stage in any numerical analysis is the collection of data. While pricing a risk, an underwriter This material is strictly meant for KLI internal training and communication purposes only and should not be further circulated general public at large. Page| 29 should gather as much information as possible to aid accurate assessment. Sources of information are: i. Proposal form or underwriting presentation ii. Risk surveys iii. Historic claims experience data Underwriting, equity and business sustainability The need for careful underwriting and risk classification in insurance arises from the simple fact that all risks are not equal. The main features of underwriting are as follows i. To identify risk based upon the characteristics ii. To determine the level of risk presented by the proposer The objectives of underwriting are achieved, in short, by deciding the level of acceptability, adequacy of premium and other terms. B. Product Filing with IRDAI Every Insurance product needs to be filed with IRDAI for approval before it is offered for sale. IRDAI allots a Unique Identification number (UIN) for every insurance product. C. Basics of Ratemaking Insurance is based on the volume & level of risk transferred to the insurer. The Insurer needs to adopt a process of calculating a price to cover the future cost of insurance claims and expenses, including a margin for profit. This is known as ratemaking. 1.Determining the rate of premium: The pure rate of premium is arrived at on the basis of past loss experience. Since insurance is transacted on a commercial basis, it is necessary to provide for a margin of profit which is a return on the capital invested in the business. Therefore, the ‘pure premium’ is suitably This material is strictly meant for KLI internal training and communication purposes only and should not be further circulated general public at large. Page| 30  loaded or increased by adding percentages to provide for expenses, reserves and profits. The final rate of premium will consist of the following components:  Loss payments  Loss expenses (e.g. survey fees)  Agency commission  Expenses of management  Margin for reserves for unexpected heavy losses  Margin for profits By taking all the relevant rating factors into consideration, one can ensure the rates are adequate, excessive or unfairly discriminatory as between risks of similar type and quality. 2. Deductible ‘Deductible’ or ‘excess’ is a cost-sharing provision between an insurer and insured. Deductibles provide that only the claims in excess of a particular threshold are payable by the insurer. In other words, the insurer will not be liable for claims below a specified level. The level or the threshold would be set as a fixed amount, or a percentage or even as a specified period of time (when it is called time- excess.) Franchise: Franchise refers to a threshold set, usually as a percentage of the sum insured, below which no claim is admissible, as in the case of deductibles. D. Rating factors The relevant elements that are used to add up the rates and make the rating plan are referred to as rating factors. Insurers use ‘rating factors’ to determine the risk and to decide the price they will charge. In Life Insurance the usual practice is to apply loading for adverse health, habits, heredity or occupational factors. This material is strictly meant for KLI internal training and communication purposes only and should not be further circulated general public at large. Page| 31 Test Yourself 1. Identify the two factors that affect insurance ratemaking. I. Probability and severity of risk II. Source and nature of risk III. Source and timing of risk IV. Nature and impact of risk 2. What is pure premium? I. Premium sufficiently big enough to pay for losses only II. Premium applicable to marginal members of the society III. Premium after loading for administrative costs IV. Premium derived from the most recent loss experience period Summary Key Terms Underwriting is the process of 1. Deductibles determining whether a risk offered 2. Franchise for insurance is acceptable, and if so, at what rates, terms and conditions. Answers to Test Sources of information are: Yourself  Proposal form or underwriting Answer 1 - The correct presentation option is I.  Risk surveys Answer 2 - The correct  Historic claims experience data option is I. This material is strictly meant for KLI internal training and communication purposes only and should not be further circulated general public at large. Page| 32  Chapter – 6 (Common) Claims Processing Chapter Introduction: The insured get to taste the benefit of insurance only when they are affected by losses. The entire insurance industry is sensitive to the losses faced by insured and try to settle the claims that arise as amicably as possible and as fast as possible. Learning Outcomes: A. Loss Assessment and Claim settlement B. Categories of claim C. Arbitration D. Other dispute resolution mechanisms A. Loss Assessment and Claim settlement  Claims Assessment (Loss Assessment) is the process of determining whether the loss suffered by the insured is covered by the insurance policy, i.e. the loss does not fall under any exclusion and there is no breach of warranty.  Settlement of claims has to be based on considerations of fairness. Each insurance company has internal guidelines about time taken in claims processing, which its employees follow. This is generally known by the term “Turnaround time” (TAT). Some insurers have also put in place, facility for the insured to check claim status online from time to time. Some insurance companies have also set up claims hub for speedy processing of claims. Important aspects in an insurance claim In the matter of claims relating to life insurance, the insurer checks whether This material is strictly meant for KLI internal training and communication purposes only and should not be further circulated general public at large. Page| 33  1) Conditions of policy have not been breached 2) Utmost good faith has been followed and 3) No material facts have been concealed fraudulently. 6 most important aspects for Non-life claims are given below. i. Whether the loss causing event is within the scope of the policy ii. Whether the insured has complied with his part of the policy conditions iii. Compliance with warranties. The survey report would indicate whether or not warranties have been complied with. iv. Observance of utmost good faith by the proposer, during the commencement of the policy. v. On the occurrence of a loss, the insured is expected to act as if he is uninsured. In other words, he has a duty to take measures to minimize the loss. vi. Determination of the amount payable. B. Categories of claim Insurance Claims fall into the following categories: i. Standard claims These are claims which are clearly within the terms and conditions of the policy. ii. Condition of average or average clause This is a condition in some policies which penalizes the insured for insuring his property at a sum insured less than its actual value known as underinsurance. iii. Act of God perils - Catastrophic losses Natural perils like storm, cyclone, flood, inundation, and earthquake are termed as “Act of God” perils. iv. On account payment In Non-life insurance claims, apart from preliminary reports, interim reports may be submitted This material is strictly meant for KLI internal training and communication purposes only and should not be further circulated general public at large. Page| 34  from time to time where repairs and/ or replacements are made over a long period. v. Discharge vouchers Settlement of the claim is made only after obtaining a discharge under the policy. A sample of discharge receipt for claims (under personal accident insurance) for injuries is worded along the following lines: (may vary from company to company). vi. Post settlement action The action taken after settlement of the non-life claim in relation to underwriting varies from one class of business to another. Eg.: On payment of the capital sum insured under a personal accident policy, the policy stands cancelled. vii. Salvage Salvage generally refers to damaged property. On payment of loss, the salvage belongs to insurer. Eg.: When motor claims are settled on total loss basis, the damaged vehicle is taken over by insurer. viii. Recoveries After settlement of claims, the insurers under subrogation rights applicable to insurance contracts, are entitled to the rights and remedies of the insured and to recover the loss paid. Eg.: In the case of non- delivery of consignment, the carriers are responsible for the loss. ix. Disputes related to claims Despite best efforts, there could be delay in payment, non-payment (repudiation) of the claim, or the claim being admitted for a lesser amount, which might lead to dissatisfaction and dispute between Insurer and the insured. Apart from these, the most common reasons, to name a few are:  Non-disclosure of material facts  Lack of coverage  Loss caused by excluded perils This material is strictly meant for KLI internal training and communication purposes only and should not be further circulated general public at large. Page| 35   Lack of adequate sum insured  Breach of warranty  Issues regarding quantum due to underinsurance, depreciation, etc. C. Arbitration Arbitration is a method of settling disputes arising out of contracts. Arbitration is done in accordance with the provisions of the Arbitration and Conciliation Act, 1996. D. Other dispute resolution mechanisms As per IRDAI regulations, all policies have to mention about the grievance redressal mechanism available to the insured, in the event the insured is dissatisfied with the service of the insurer for any reason. Test Yourself 1. Which of the following activities would not be categorized under professional settlement of claims? I. Seeking information relating to the cause of the loss II. Approaching the claim with a prejudice III. Ascertaining whether the loss was a result of an insured peril IV. Quantifying the amount payable under the claim Answers to Test Key Terms Yourself  Turn Around  Recoveries Claims Answer 1 - The correct Time  Assessment option is II.  Salvage This material is strictly meant for KLI internal training and communication purposes only and should not be further circulated general public at large. Page| 36  Chapter – 7 (Common) Documentation Chapter Introduction: In the insurance industry we deal with a large number of forms and documents. These are required for the purpose of bringing clarity in the relationship between the insured and the insurer. Learning Outcomes: Understand the Importance of: A. Prospectus B. Proposal form C. Know Your Customer (KYC) documents A. Prospectus Prospectus is a proposal stage document. The prospectus is a formal legal document used by insurance companies that provides details about the product. It can mean a document issued by the insurer in physical, electronic or any other format to sell or promote insurance products. As per IRDAI’s (Protection of Policyholders’ Interests) Regulations, 2017 the prospectus should contain all facts that are necessary for a prospective policyholder to make an informed decision regarding purchase of a policy. It should contain the following for every insurance product, including rider: 1.The Unique Identification Number (UIN) allotted by the Authority for the respective insurance product. 2.The extent of insurance cover. 3.The Scope of benefits/ entitlements – guaranteed and non-guaranteed 4.Warranties, exclusions/ exceptions of the insurance cover with explanations This material is strictly meant for KLI internal training and communication purposes only and should not be further circulated general public at large. Page| 37 5.The terms and conditions of the insurance cover 6.Description of the contingency or contingencies to be covered by insurance 7.The class or classes of lives or property eligible for insurance under the terms of such prospectus 8.Whether the plan is participative or non-participative 9.The allowable Add-on covers (also called Riders in Life insurance) on the product Other important information which a Prospectus includes: 1.Any differences in covers and premium. E.g. for different age groups or for different entry ages 2.Renewal terms of the policy 3.Terms of cancellation of policy under certain circumstances 4.The details of any discounts or loading applicable under different circumstances 5.The possibility of any revision or modification of the terms of the policy including the premium. 6.Any incentives to reward policyholders for early entry, continued renewals, favorable claims experience etc. with the same insurer. 7.Prospectus shall necessarily contain the product UIN allotted by IRDAI 8.IRDAI Regulations mandate that Prospectus shall contain a copy of Section 41. This section prohibits any direct or indirect inducement to any person for buying a new insurance, continuing or renewing any kind of insurance relating to lives or property in India, including any rebate of the whole or part of the commission payable on the policy. In particular, the prospectus informs the proposer about the availability of facility for nomination. B. Proposal Form The insurance policy is a legal contract between the insurer and the insured. As required in any contract, there This material is strictly meant for KLI internal training and communication purposes only and should not be further circulated general public at large. Page| 38 is a proposal & its acceptance. The “Proposal form” is the application document that is used for making a proposal. It is a form to be filled in by the proposer in written or electronic or any other mode approved by the Authority. It contains all information required by the insurer to decide whether to accept or reject the proposal. In case the risk is accepted, the insurer can on the basis of this information, decide the rates, terms and conditions of the cover to be granted. a) Proposal Form - Details The proposal form is first stage of documentation through which the insured informs the insurer:  Who he/ she is  What kind of insurance he/ she needs?  Details of what he/ she wants to insure and  For what period of time  Details of the risk (E.g., for Life and Health insurances – details of health or pre-existing suffered are to be given)  Details would include the monetary value proposed on the subject matter of insurance and all material facts connected with the proposed insurance. b) Declaration in the Proposal Form Insurance companies usually add a declaration at the end of the proposal form to be signed by the proposer. C. Know Your Customer (KYC) Norms Anti-Money Laundering and KYC Norms Money laundering is the process of bringing illegal money into an economy by hiding its illegal origin so that it appears to be legally acquired. The Government of India launched the PMLA, 2002 to rein in money-laundering activities. It came into effect from 2005 to control money laundering activities. Know your customer Know your customer is the process used by a business to verify the identity of their clients. The objective of KYC This material is strictly meant for KLI internal training and communication purposes only and should not be further circulated general public at large. Page| 39 guidelines is to prevent financial institutions from being used by criminal elements for money laundering activities. Proposers should submit the proposal form along with the following as part of the KYC procedure: a. Proof of identity – driving license, passport, voter ID card, PAN card, Photographs etc. Proof of address – driving license, passport, latest telephone bill, latest electricity bill, bank passbook etc. Different documentation is prescribed for individuals, corporates, partnership firms, trusts and foundations b. Income proof documents and financial status, esp. in case of high-value transactions c. Purpose of insurance contract a) Age Proof – for Personal Lines Test Yourself 1. Which of the following it not usually part of the insurance prospectus? I. Name of Ombudsman II. Date of Scope of benefits III. The Entitlements IV. The Exceptions This material is strictly meant for KLI internal training and communication purposes only and should not be further circulated general public at large. Page| 40 2. Which of the following is not relevant in respect of a Proposal form? I. Utmost Good-faith II. Amount expected to be claimed III. Duty to Disclose material facts IV. Confidentiality of details given 3. Which of the following is not acceptable as valid Age Proof? I. Birth certificate extracted from municipal records II. Birth Certificate issued by Member of Legislative Assembly III. Passport IV. PAN Card Summary Key Terms Prospectus is a formal legal document used by insurance 1. Prospectus companies that provides details 2. Proposal form about the product. 3. Moral hazard  The application document used 4. Know your Customer (KYC) for making the proposal is 5. Age Proof commonly known as the 6. Standard and non-standard ‘proposal form’. age proofs  Some documents considered as 7. Free-look period standard age proofs include school or college certificate, Answers to Test Yourself birth certificate extracted from municipal records etc.  Insurers need to determine the Answer 1 -The correct option true identity of their customers. is I. KYC documents like address Answer 2 - The correct option proof, PAN card and is II. photographs etc. need to be Answer 3 – The correct option collected as a part of the KYC is II. procedure. This material is strictly meant for KLI internal training and communication purposes only and should not be further circulated general public at large. Page| 41  Chapter – 8 (Common) Customer Service Chapter Introduction: In this chapter you will learn the importance of customer service. You will learn the role of agents in providing service to customers. You will also learn how to communicate and relate with customers. Learning Outcomes: A. Customer service – General concepts B. Insurance Agent’s role in providing customer service C. Communication skills in customer service D. Non-verbal communication E. Ethical behavior A. Customer Service – General concepts 1. Why Customer Service? Customers are the most important part of any industry and no enterprise can afford to treat them indifferently. The role of customer service and relationships is important in the service sector and more so for insurance. A car can be seen, touched, test driven and experienced, whereas the Insurance of the car is just a promise to pay if there is loss or damage to the car due to an accident. This promise is intangible – it cannot be seen, touched or experienced. 2. Quality of service It is necessary for insurance companies and their personnel, which includes their agents, to render high quality service and delight the customer. The well-known SERVQUAL approach to service quality of Zeithaml, Parasuraman and Berry highlights 5 major indicators of service quality: Reliability, Responsiveness, Assurance, Empathy, Tangibles This material is strictly meant for KLI internal training and communication purposes only and should not be further circulated general public at large. Page| 42 3. Customer service and insurance One great mantra of success in insurance selling is to be able to convert one’s customers into one’s clients. Customers are those who buy a product. Clients are built by working with deep commitment to serving one’s customers. To understand how keeping a customer happy benefits the agent and the company, one should understand the concept of Customer’s Lifetime Value. Customer Lifetime Value may be defined as the sum of economic benefits that can be derived from building a sound relationship with a customer over a long period of time. It consists of three parts Historic Value Present value Potential Value The value of Premiums and other Future premiums that premiums that could revenues that have may be expected to be be derived by been received in the received if existing persuading the past from customer business is retained customer to buy additional products 4. Customer Relationships and Service While customer service is a key element in creating satisfied and loyal customers, it is also necessary to build a strong relationship with them. At the same time, there are other elements, which reinforce and promote that trust. Attraction Trust Being present Communication B. Insurance agent’s role in providing customer service. Point of sale The 1st point for service is the point of sale. The agent should understand the needs and suggest products beneficial to the customer as per the need. The role of an agent is like a personal financial planner and advisor. This material is strictly meant for KLI internal training and communication purposes only and should not be further circulated general public at large. Page| 43 Proposal stage The agent has to help customers in filling the proposal form. It is important that the agent explains and clarifies the proposer’s doubt while filling the form. Acceptance stage The promptness of agent in handing over FPR to customer develops surety in customer’s mind. Delivery of policy bond is another major opportunity. Premium payment Agents can be in continuous touch with their customers through reminder calls for premium due’s in order to avoid lapsation of policy. Claim settlement Agents play crucial role during claim settlement by providing policy holder details required during investigation stage. C. Communication skills in customer service 1. Process of Communication One of the most important set of skills that an agent needs to possess for effective performance is soft skills. Soft skills relate to one’s ability to interact effectively with other workers, customers. What goes in to making of a good relationship is TRUST that you generate in your customer’s mind through – Attraction; Being Present; Communication. Communication can take place in several forms Forms of Communication Non- Using body Oral Written verbal language 2. Barriers to effective communication Different kinds of barriers to effective communication can arise at each step in the above process, due to which communication can get distorted. The challenge is to visualize, understand and remove the barriers. This material is strictly meant for KLI internal training and communication purposes only and should not be further circulated general public at large. Page| 44  D. Non-verbal Communication 1. Making a great first impression  Always be on time / Be Punctual  Present yourself appropriately  A warm, confident and winning smile.  Be open, confident and positive  Interest in the other person. 2. Body Language - refers to movements, gestures, facial expressions, the way we talk, walk, sit and stand. a. Confidence b. Trust 3. Listening skills a. Active Listening: Is where we consciously try to hear not only the words but also, more importantly, try to understand the complete message being sent by another. b. Paying Attention: One needs to give the speaker undivided attention & should acknowledge him. c. Removing filters: A lot of what we hear may get distorted by one’s personal filters, like the assumptions, judgments, and beliefs one carries. (Not being judgmental). d.Empathetic listening: Empathy implies hearing and listening patiently, and with full attention, to what the other person has to say, even when one does not agree with it. It is important to show the speaker acceptance, not necessarily agreement. e. Responding appropriately: Active listening implies much more than just hearing what a speaker says. The communication can be completed only when the listener responds in some way, through word or action. Test Yourself 1. What is meant by customer lifetime value? I. Sum of costs incurred while servicing the customer over his lifetime This material is strictly meant for KLI internal training and communication purposes only and should not be further circulated general public at large. Page| 45  II. Rank given to customer based on business generated III. Sum of economic benefits that can be achieved by building a long term relationship with the customer IV. Maximum insurance that can be attributed to the customer 2. Identify the scenario where a debate on the need for insurance is not required. I. Property insurance II. Business liability insurance III. Motor insurance for third party liability IV. Fire insurance 3. What does not go on to make a healthy relationship? I. Attraction II. Trust III. Communication IV. Dislike 4. Which among the following is not an element of active listening? I. Paying good attention II. Being extremely judgmental III. Empathetic listening IV. Responding appropriately 5. Which among the following is not a characteristic of ethical behaviour? I. Making adequate disclosures to enable the clients to make an informed decision II. Maintaining confidentiality of client’s business and personal information III. Placing self-interest ahead of client’s interests IV. Placing client’s interest ahead of self interest This material is strictly meant for KLI internal training and communication purposes only and should not be further circulated general public at large. Page| 46  Summary Key Terms  The role of customer service a) Quality of service and relationships is far more b) Empathy critical in the case of c) Body language insurance than in other d) Active listening products. e) Ethical behavior  Five major indicators of Answers to Test Yourself service quality include reliability, responsiveness, assurance, empathy and tangibles.  Customer lifetime value may be defined as the sum of Answer 1 -The correct option is economic benefits that can be III. derived from building a sound Answer 2 - The correct option relationship with a customer is III. over a long period of time. Answer 3 - The correct option  The role of an insurance agent is IV. in the area of customer service Answer 4 - The correct option is absolutely critical. is II.  Active listening involves Answer 5 - The correct option paying attention, providing is III. feedback and responding appropriately.  Ethical behaviour involves placing the customer’s interest before one’s own. This material is strictly meant for KLI internal training and communication purposes only and should not be further circulated general public at large. Page| 47  Chapter – 9 (Common) Grievance Redressal Mechanism Chapter Introduction: Insurance industry is essentially a service industry where customer expectations are constantly rising. There is dissatisfaction with the standard of services. IRDAI Regulations on Protection of Policyholders’ Interests 2017 mandate that every Insurer shall have their own board approved policy for protection of policyholders. Learning Outcomes: A. Grievance Redressal Mechanism B. Integrated Grievance Management System (IGMS) C. Consumer Courts D. Consumer disputes redressal agencies E. The Insurance Ombudsman F. Right to Information A. Grievance Redressal Complaints/ grievances give us the chance to show how much we care for the customer’s interests. They are in fact the pillars on which an insurance agent builds goodwill and business. Word of mouth publicity (Good/ Bad) plays a significant role in selling and servicing. The time for high priority action is when the customer has a complaint. Remember that in the case of a complaint, the customer is angry due to a failure of service. All service failures cause two types of feelings: This material is strictly meant for KLI internal training and communication purposes only and should not be further circulated general public at large. Page| 48  1. A feeling that the insurer was unfair (a feeling of being cheated) 2. A feeling of hurt ego (being made to look and feel small) B. Integrated Grievance Management System (IGMS) Integrated grievance management system (IGMS) IRDA has launched an integrated grievance management system (IGMS) which acts as a central repository of insurance grievance data and as a tool for monitoring grievances in the industry. Policy holders can register on this system with their policy details. Complaints are then forwarded to the respective insurance company. C. Consumer Protection The Consumer Protection Act, 2019: This original Act of 1986 was passed “to provide for better protection of the interest of consumers and to make provision for the establishment of consumer councils and other authorities for the settlement of consumer’s disputes”. The Act was amended by the Consumer Protection (Amendment) Act, 2002 and later on 2019.Some definitions provided in the act are as follows:  Service – any provision made available to potential users such as banking, financing, transport, insurance etc.  Consumer – any person who buys any goods for a consideration or hires or avails of any services for a consideration.  Defect – it means any fault, imperfection, and shortcoming, inadequacy in quality, nature, manner or performance for any service that is taken by the customer.  Complaint – it means any allegation given in writing regarding any unfair trade, defect in goods, deficiency in services hired or availed, excess pricing. This material is strictly meant for KLI internal training and communication purposes only and should not be further circulated general public at large. Page| 49  Consumer dispute – it means a dispute where the person against whom the complaint is made, denies and disputes the allegations made on him. D. Consumer disputes redressal agencies Consumer disputes redressal agencies are established at district, state and national levels. 1.District Consumer Disputes Redressal Commission 2.State Consumer Disputes Redressal Commission 3.National Consumer Disputes Redressal Commission Channels for Consumer Disputes Redressal Judicial Channels District National Consumer State Consumer Consumer Disputes Redressal Disputes Redressal Disputes Commission Commission Redressal Commission Established by the Established by the Established by the Central Government State Government State Government Has jurisdiction to Has jurisdiction to Has jurisdiction to entertain entertain complaints, entertain complaints, complaints, where where value of the where value of the goods value of the goods goods or services or services exceeds or services not between Rs. 1 Crore Rs.10 crore exceed Rs. 1 and Rs.10 crore Crore Accept appeals against Accept appeals against the orders of the State the orders of the Commission District Commission a) Procedure for filing a complaint The procedure for filing a complaint is very simple in all the above three agencies. There is no fee for filing a complaint or filing an appeal whether before the State Commission or National Commission. The complaint can be filed by the complainant himself or by his authorized agent. It can be filed personally or can even be sent by post. It may be noted that no advocate is necessary for the purpose of filing a complaint. b) Consumer Commission Orders This material is strictly meant for KLI internal training and communication purposes only and should not be further circulated general public at large. Page| 50  If the Commission is satisfied that the goods in question have the defects specified in the complaint or that the allegations about the services are proven, Commission can issue orders directing the opposite party to do any of the following: 1. To return to the complainant the price (or premium in case of insurance) and/ or charges paid by the complainant 2. To award such amount as compensation to the consumers for any loss or injury suffered by the consumer due to negligence of the opposite party 3. To remove the defects or deficiencies in the services in question. 4. To discontinue the unfair trade practice or the restrictive trade practice or not to repeat them 5. To provide for adequate costs to the complainants c) Nature of complaints The majority of consumer disputes with the three Commissions relating to insurance business fall in the following main categories: 1.Delay in settlement of claims 2.Non-settlement of claims 3.Repudiation of claims 4.Amount or Quantum of loss 5.Policy terms, conditions etc. E. The Insurance Ombudsman The Central Government under the powers of the Insurance Regulatory & Development Authority Act, 1999 made Insurance Ombudsman Rules 2017 by a notification published in the official gazette on 25th April 2017. The Ombudsman, by mutual agreement of the insured and the insurer can act as a mediator and counsellor within the terms of reference. The decision of the Ombudsman, whether to accept or reject the complaint, is final. This material is strictly meant for KLI internal training and communication purposes only and should not be further circulated general public at large. Page| 51 a) Complaint to the Ombudsman  Complaints can be made to the Ombudsman if: 1.The complainant had made a previous written representation to the insurance company and the insurance company had rejected the complaint or the complainant had not received any reply within one month after receipt of the complaint by the insurer. 2.The complainant is not satisfied with the reply given by the insurer 3.The complaint is made within one year from the date of rejection by the insurance company 4.The complaint is not pending in any court or consumer Commission or in arbitration 5.The value of the claim including expenses claimed is not above Rs 30 lakhs. b) Recommendations by the Ombudsman The Ombudsman will send copies of complaints to both the complainant and the insurance company. The ombudsman will make his recommendations within one month of the receipt of the complaint. c) Award The dispute can be settled by intermediation. If this is not possible, the Ombudsman will pass an award to the insured which he thinks is fair within a period of 3 months from the date of receipt of all requirements from the complainant and sending a copy of the award to the complainant and the insurer. The insurer shall comply with the award within 30 days of the receipt of the award and intimate compliance of the same to the Ombudsman. The award of the Ombudsman shall be binding on the insurer. F. Right to Information In addition to the rules and regulations that are specific for grievance redressal in insurance, there are certain general laws common to everyone in the country. The Right to Information (RTI) Act, 2005 enacted by the This material is strictly meant for KLI internal training and communication purposes only and should not be further circulated general public at large. Page| 52 Govt. of India is an important law that gives citizens of India access to the information available with public authorities which promotes transparency and accountability in these organizations. Test Yourself 1. The ______________ has jurisdiction to entertain complaints, where value of the goods or services and the compensation claimed is up to Rs.20 lakhs. I. District Commission II. State Commission III. Zilla Parishad IV. National Commission 2. Expand the term IGMS. I. Insurance General Management System II. Indian General Management System III. Integrated Grievance Management System IV. Intelligent Grievance Management System 3.Which among the following cannot form the basis for a valid consumer complaint? I. Shopkeeper charging a price above the MRP for a product II. Shopkeeper not advising the customer on the best product in a category III. Allergy warning not provided on a drug bottle IV. Faulty products 4. Can a complaint be launched against a private insurer? I. Complaints can be launched against public insurers only II. Yes, complaint can be launched against private insurers III. Complaint can be launched against private insurers only in the Life Sector This material is strictly meant for KLI internal training and communication purposes only and should not be further circulated general public at large. Page| 53  IV. Complaint can be launched against private insurers only in the Non-Life Sector 5. What is the time limit for approaching an Insurance Ombudsman? I. Within two years of rejection of the complaint by the insurer II. Within three years of rejection of the complaint by the insurer III. Within one year of rejection of the compla