POS Booklet.pdf

POINT OF SALES INSURANCE MANUAL PREPARED BY National Insurance Company Ltd Head Office-Marketing Department 3rd Middleton Street Kolkata-...

POINT OF SALES INSURANCE MANUAL PREPARED BY National Insurance Company Ltd Head Office-Marketing Department 3rd Middleton Street Kolkata- For further details mail us at: [email protected], [email protected], [email protected] POINT OF SALES-INSURANCE MANUAL Page 1  Table of Contents (Page No to be filled by the Trainees during Learning from Booklet Page No Module 1 - lntroduction to lnsurance 1. Concept of Insurance 2. Purpose and Need of Insurance 3. Concepts of Risk, Peril and Hazard Module 2 - lndian lnsurance Market 1. IRDAI 2. lnsurers 3. lnsurance lntermediaries 4. lnsurance Agents 5. Point of Sales Persons Module 3 - Principles and Practice of lnsurance 1. Offer (Proposal) and Acceptance 2. Consideration (Premium) 3. lnsurable interest - Utmost Good Faith - lndemnity - Contribution and Subrogation - Proximate Cause 4. Proposal Form - Sales Literature - Payment of premium - Section 64VB of lnsurance Act - Premium Receipt - lnsurance Policy - Endorsements - Warranties - Section 41 of lnsurance Act (Rebating) 5. lntimation of claim - appointment of surveyor - survey report - assessment of loss - Settlement of loss - discharge voucher - payment of claim Module 4 - Point of Sale - General lnsurance Products lncluding Health lnsurance 1. POS - General lnsurance including Stand-Alone Health lnsurance 2. POS - Categories of POS Products and Salient Features of POS Products Module 5 - Miscellaneous 1. Grievance Redressal Mechanism 2. Protection of Policyholders lnterests Regulations 3. AMU KYC norms 4. Do's and Don't's for POS Persons POINT OF SALES-INSURANCE MANUAL Page 2  Module 1 –Introduction to Insurance We live in a world of uncertainty. We hear about: -maturely Why do these events make us anxious and afraid? The reason is simple. i. Firstly these events are unpredictable. If we can anticipate and predict an event, we can prepare for it. ii. Secondly, such unpredictable and untoward events are often a cause of economic loss and grief. A community can come to the aid of individuals who are affected by such events, by having a system of sharing and mutual support. The idea of insurance took birth thousands of years ago. Yet, the business of insurance, as we know it today, goes back to just two or three centuries. History of Insurance Insurance has been known to exist in some form or other since 3000 BC. Various civilizations, over the years, have practiced the concept of pooling and sharing among themselves, all the losses suffered by some members of the community. Let us take a look at some of the ways in which this concept was applied. Insurance through the ages Babylonian Traders The Babylonian traders had agreements where they would pay additional sums to lenders, as a price for writing off of their loans, in case a shipment was lost or stolen. These were called bottomry loans‟. Under these agreements, the loan taken against the security of the ship or its goods had to be repaid only if and when the ship arrived safely, after the voyage, at its destination. Traders from Bharuch and Surat Practices similar to Babylonian traders were prevalent among traders from Bharuch and Surat, sailing in Indian ships to Sri Lanka, Egypt and Greece. POINT OF SALES-INSURANCE MANUAL Page 3 Greeks The Greeks had started benevolent societies in the late 7th century AD, to take care of the funeral – and families – of members who died. The Friendly Societies of England were similarly constituted. Inhabitants of Rhodes The inhabitants of Rhodes adopted a practice whereby, if some goods were lost due to jettisoning1 during distress, the owners of goods (even those who lost nothing) would bear the losses in some proportion. Chinese Traders Chinese traders in ancient days would keep their goods in different boats or ships sailing over the treacherous rivers. They assumed that even if any of the boats suffered such a fate, the loss of goods would be only partial and not total. The loss could be distributed and thereby reduced. Modern concepts of Insurance In India the principle of life insurance was reflected in the institution of the joint-family system in India, which was one of the best forms of life insurance down the ages. Sorrows and losses were shared by various family members in the event of the unfortunate demise of a member, as a result of which each member of the family continued to feel secure. The break-up of the joint family system and emergence of the nuclear family in the modern era, coupled with the stress of daily life has made it necessary to evolve alternative systems for security. This highlights the importance of life insurance to an individual. i. Lloyds: The origins of modern commercial insurance business as practiced today can be traced to Lloyd‟s Coffee House in London. Traders, who used to gather there, would agree to share the losses, to their goods being carried by ships, due to perils of the sea. Such losses used to occur because of maritime perils, such as pirates robbing on the high seas, or bad sea weather spoiling the goods or sinking of the ship due to perils of the sea. POINT OF SALES-INSURANCE MANUAL Page 4 ii. Amicable Society for a Perpetual Assurance founded in 1706 in London is considered to be the first life insurance company in the world. History of Insurance in India a) India: Modern insurance in India began in early 1800 or thereabouts, with agencies of foreign insurers starting marine insurance business. The Oriental Life Insurance Co. Ltd The first life insurance company to be set up in India was an English company Triton Insurance Co. Ltd. The first non-life insurer to be established in India Bombay Mutual Assurance Society Ltd. The first Indian insurance company. It was formed in 1870 in Mumbai National Insurance Company Ltd. The oldest insurance company in India. It was founded in 1906 and it is still in business. Many other Indian companies were set up subsequently as a result of the Swadeshi movement at the turn of the century. Important In 1912, the Life Insurance Companies Act and the Provident Fund Act were passed to regulate the insurance business. The Life Insurance Companies Act, 1912 made it compulsory that premium-rate tables and periodical valuation of companies be certified by an actuary. However, the disparity and discrimination between Indian and foreign companies continued. The Insurance Act 1938 was the first legislation enacted to regulate the conduct of insurance companies in India. This Act, as amended from time to time continues to be in force. The Controller of Insurance was appointed by the Government under the provisions of the Insurance Act. b) Nationalisation of life insurance: Life insurance business was nationalized on 1st September 1956 and the Life Insurance Corporation of India (LIC) was formed. There were 170 companies and 75 provident fund societies doing life insurance business in India at that time. From 1956 to 1999, the LIC held exclusive rights to do life insurance business in India. c) Nationalization of non-life insurance: With the enactment of General Insurance Business Nationalization Act (GIBNA) 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. At that point of time, 106 insurers in India doing non-life insurance business were amalgamated with the formation of four subsidiaries of the GIC of India. d) Malhotra Committee and IRDAI: In 1993, the Malhotra Committee was setup to explore and recommend changes for development of the industry including the reintroduction of an element of competition. The Committee submitted its report in 1994.In 1997 the Insurance Regulatory Authority (IRA) was established. The passing of the Insurance Regulatory& Development Act, 1999(IRDAI) led to the formation of Insurance Regulatory and Development Authority of India (IRDAI) in April 2000 as a statutory regulatory body both for POINT OF SALES-INSURANCE MANUAL Page 5 life, non-life and health insurance industry. IRDA has been subsequently renamed as IRDAI in 2014. Amending the Insurance Act in 2015, certain stipulations have been added governing the definition and formation of insurance companies in India. An Indian Insurance company includes a company „in which the aggregate holdings of equity shares by foreign investors, including portfolio investors, do not exceed forty-nine percent of the paid up equity capital of such Indian insurance company, which is Indian owned and controlled, in such manner as may be prescribed’. Amendment to the Insurance Act also stipulates about foreign companies in India, A foreign insurance company can engage in reinsurance through a branch established in India. The term "re-insurance" means the ‘insurance of part of one insurer's risk by another insurer who accepts the risk for a mutually acceptable premium’ POINT OF SALES-INSURANCE MANUAL Page 6  Concept of lnsurance Modern commerce was founded on the principle of ownership of property. When an asset loses value (by loss or destruction) due to a certain event, the owner of the asset suffers an economic loss. However if a common fund is created, which is made up of small contributions from many such owners of similar assets, this amount could be used to compensate the loss suffered by the unfortunate few. In simple words, the chance of suffering a certain economic loss and its consequence could be transferred from one individual to many through the mechanism of insurance. Definition of Insurance Insurance may thus be considered as a process by which the losses of a few, who are unfortunate to suffer such losses, are shared amongst those exposed to similar uncertain events / situations. How insurance works a) Firstly, these must be an asset which has an economic value. The ASSET: i. May be physical (like a car or a building) or ii. May be non-physical (like name and goodwill) or iii. May be personal (like one’s eyes, limbs and other aspects of one’s body) b) The asset may lose its value if a certain event happens. This chance of loss is called as risk. The cause of the risk event is known as peril. c) There is a principle known as pooling. This consists of collecting numerous individual contributions (known as premiums) from various persons. These persons have similar assets which are exposed to similar risks. d) This pool of funds is used to compensate the few who might suffer the losses as caused by a peril. e) This process of pooling funds and compensating the unlucky few is carried out through an institution known as the insurer. f) The insurer enters into an insurance contract with each person who seeks to participate in the scheme. Such a participant is known as insured. a) Insurance reduces burdens 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. There are two types of risk burdens that one carries – primary and secondary. a) Primary burden of risk POINT OF SALES-INSURANCE MANUAL Page 7 The primary burden of risk consists of losses that are actually suffered by households (and business units), as a result of pure risk events. These losses are often direct and measurable and can be easily compensated for by insurance. b) Secondary burden of risk Suppose no such event occurs and there is no loss. Does it mean that those who are exposed to the peril carry no burden? The answer is that apart from the primary burden, one also carries a secondary burden of risk. The secondary burden of risk consists of costs and strains that one has to bear merely from the fact that one is exposed to a loss situation. Even if the said event does not occur, these burdens have still to be borne. Let us understand some of these burdens: i. Firstly there is physical and mental strain caused by fear and anxiety. The anxiety may vary from person to person but it is present and can cause stress and affect a person’s wellbeing. ii. Secondly when one is uncertain about whether a loss would occur or not, the prudent thing to do would be to set aside a reserve fund to meet such an eventuality. There is a cost involved in keeping such a fund. For instance, such funds may be held in a liquid form and yield low returns. By transferring the risk to an insurer, it becomes possible to enjoy peace of mind, invest funds that would otherwise have been set aside as a reserve, and plan one‟s business more effectively. It is precisely for these reasons that insurance is needed. Purpose and need of Insurance The risk only means that there is a possibility of loss or damage. The damage may or may not happen. Insurance is done against the possibility that the damage may happen. There has to be an uncertainty about the risk. The earthquake may occur, but the building may not have been affected at all. The word ‘possibility’ implies uncertainty. Insurance is relevant only if there are uncertainties. In case of a human being, death is certain, but it’s time is uncertain. The person is insured, because of the uncertainty about the time of his death. In the case of a person who is ill, the time of death is not uncertain, though not exactly known. It would be ‘soon’. He can’t be insured. Human beings, his family and properties are always exposed to different kinds of risks. Risks involve the losses. Insurance is a tool which reduces the cost of loss or effect of loss caused by variety of risk. It accumulates funds to meet individual losses. It is not device to prevent unwanted event of happening or cause of loss but protects them against that loss by compensating which as lost. The role and importance of insurance are discussed as follows: 1. Insurance provides security Insurance provides safety and security against the loss on a particular event. Life insurance provides security against death and old age sufferings. Fire insurance protects against loss due to POINT OF SALES-INSURANCE MANUAL Page 8 fire while Marine insurance provides protection and safety against loss of ship and cargo. For personal accident and sickness insurance financial protection is given when the individual is unable to earn. In other insurance too, this security is provided against the loss at a given contingency. 2. Insurance reduces business risk or losses In Business, commerce and industry, huge properties are employed. Because of slight negligence, the property may be turned in to ashes. A person may not be sure of his life, health and cannot continue the business up to the longer period to support his dependents. By the help of insurance, he can be sure of his earning, because the insurance company will pay a fixed amount at the time of death, damage by fire, theft, accident and other perils. 3. Insurance provides peace of mind Insurance removes the tensions, fears, anxiety, frustrate or weaken of the human mind associated with the future uncertainty. By providing financial position and promise to compensate losses arise out from various risk, it provides peace of mind and stimulates more and better work performance of an individual. 4. Life insurance encourages saving The insured has an obligation to pay premium regularly and cannot be withdrawn easily before the expiry of the term of policy. Life insurance encourages the habit of regular and systematic saving through premium and after a certain period, it would be a part of necessary saving of the insured person. 5. Insurance accelerates the economic growth of the country To develop the economic growth of the country, insurance provides strong hand and mind, with protection against loss of property and capital to produce more wealth. It provides protection against different kinds of loss caused by risk. It accumulates the capital from the insured and utilizes for the development of country. Thus, the insurance meets all the requirements for the economic growth of a country. 6. Insurance provides credit facilities The insured person can get loan by pledging insurance policy and the interest will not exceed the cash value of policy charged by insurer. In case of death of insured person, the policy can be utilized for setting of the loan with interest. Business person can take loan on the basis of insurance documents from the bank also. 7. Insurance helps to reduce inflation Inflation created from oversupply of money and on less production entities. Insurance can help to reduce the inflationary pressure in two ways. Firstly, it collects money as an amount of premium which controls over supply of money and secondly, it provides sufficient funds for increase production entities. Thus, it reduces the impact of inflation. 8. Insurance makes security and welfare of employees The security and welfare of employees is the responsibility of employer. These security and welfare are easily met by life insurance, accident and sickness benefit and pension which are generally provided by group insurance. The premium for group insurance is normally paid by the POINT OF SALES-INSURANCE MANUAL Page 9 employer. Insurance is the simple method for employer to fulfill their responsibility. Due to these benefits, employee will devote their maximum capacities to complete their job. 9. Other Importance’s of Insurance a) Insurance helps to promote foreign trade providing protection again trade risk. b) Insurance increases business efficiency eliminating the loss of damage, destruction, or disappearance of property of goods. c) Insurance protects the social wealth providing protection against social evil. d) Development of insurance business helps to solve the evil of unemployment, generating employment opportunity in the country. e) The insured gets tax benefit in life insurance. Concepts of Risk Peril and Hazard Risk, peril, and hazard are terms used to indicate the possibility of loss, and are often used interchangeably, but the insurance industry distinguishes these terms. A risk is simply the possibility of a loss, but a peril is a cause of loss. A hazard is a condition that increases the possibility of loss. For instance, fire is a peril because it causes losses, while a fireplace is a hazard because it increases the probability of loss from fire. Some things can be both a peril and a hazard. Smoking, for instance, causes cancer and other health ailments, while also increasing the probability of such ailments. Many fundamental risks, such as hurricanes, earthquakes, or unemployment, that affect many people are generally insured by society or by the government, while particular risks that affect individuals or specific organizations, such as losses from fire or vandalism, are considered the particular responsibilities of those affected. Types of Risk There are different types of risks — only some are preventable, and only certain types of risk are insurable. Risk can be categorized as to what causes the risk, and to whom it affects. Pure Risk is a risk in which there is only a possibility of loss or no loss—there is no possibility of gain. Pure risk can be categorized as personal, property, or legal risk. Pure risk is insurable, because the law of large numbers can be applied to estimate future losses, which allows insurance companies to calculate what premium to charge based on expected losses. Static and Dynamic Risks are distinguished by their temporality. The possibility of loss is uniform over an extended period of time for static risks, so static risks are more predictable, and, therefore, more insurable. Dynamic risks change with time, making them less predictable and less insurable. For instance, the risk of unemployment changes with the economy, so it is difficult to predict what unemployment will be next year. On the other hand, the number of houses that burn down within a given year within a specific geographical area is steadier, not cyclical, and so is more predictable. POINT OF SALES-INSURANCE MANUAL Page 10 Personal Risks are risks that affect someone directly, such as illness, disability, or death. Property risk affects either personal or real property. Thus, a house fire or car theft is examples of property risk. A property loss often involves both a direct loss and consequential losses. A direct loss is the loss or damage to the property itself. A consequential loss (aka indirect loss) is a loss created by the direct loss. Thus, if your car is stolen, that is a direct loss; if you have to rent a car because of the theft, then you have some financial loss—a consequential loss—from renting a car. Legal Risk (aka liability risk) is a particular type of personal risk that you will be sued because of neglect, malpractice, or causing willful injury either to another person or to someone else's property. Legal risk is the possibility of financial loss if you are found liable, or the financial loss incurred just defending yourself, even if you are not found liable. Most personal, property, and legal risks are insurable. Speculative Risk differs from pure risk because there is the possibility of profit or loss, such as investing in financial markets. Most speculative risks are uninsurable, because they are undertaken willingly for the hope of profit. Also, speculative risk will generally involve a greater frequency of loss than a pure risk, since profit is the only other possibility. So although many people take precautions to protect their lives or their property, they willingly engage in speculative risks, such as investing in the stock market, to make a profit; otherwise, a person could avoid most speculative risks simply by avoiding the activity that gives rise to it. The speculative risk of investments can also be distinguished as systemic risk (a.k.a. systematic risk) or diversifiable risk (a.k.a. unsystematic risk). Systemic risk affects the whole economy, causing the value of many financial instruments to lose value. Diversifiable risk, on the other hand, affects only specific investments, such as particular stocks or particular assets. It is called a diversifiable risk because this risk can be minimized by diversifying investments, by not putting all of your eggs in one basket. By contrast, systemic risk cannot be diversified away, because it affects almost all investments. Systemic risk can be minimized if the investments are diversified and held long enough, since the value of most investments, like businesses, goes through cycles. Unlike pure risk, where there is only possibility of a loss, society benefits from speculative risks. For instance, investments benefit society, and starting a business helps to create jobs and generate tax revenue for society, and can lead to economic growth, or even technological advancement. Risk can also be classified as to whether it affects many people or only a single individual. Fundamental risk is a risk, such as an earthquake or terrorism that can affect many people at once. Economic risks, such as unemployment, are also fundamental risks because they affect many people. Particular risk is a risk that affects particular individuals, such as robbery or vandalism. Insurance companies generally insure some fundamental risks, such as hurricane or wind damage, and most particular risks. In the case of fundamental risks that are insured, insurance companies help to reduce their risk of great financial loss by limiting coverage in a specific geographic area and by POINT OF SALES-INSURANCE MANUAL Page 11 the use of reinsurance, which is the purchase of insurance from other companies to cover their potential losses. However, private insurers do not insure many fundamental risks, such as unemployment. These risks are generally insured by the government, because the government has some control over economic risks through specific policies, such as monetary policy, and law. Fundamental and particular risks can be pure or speculative risks. Fundamental risks are risks that affect many members of society, but fundamental risks can also affect organizations. For instance, enterprise risk is the set of all risks that affects a business enterprise. Speculative risks that can affect an organization are usually subdivided into strategic risk, operational risk, and financial risk. Strategic risk results from goal-oriented behavior. A business may want to try to improve efficiency by buying new equipment or trying a new technique, but may result in more losses than gains. Operational risks arise from the operation of the enterprise, such as the risk of injury to employees, or the risk that customers' data can be leaked to the public because of insufficient security. Financial risk is the risk that an investment will result in losses. Because most enterprise risk is speculative risk, and because the enterprise itself can do much to lower its own risk, many companies are learning to manage their risk by creating departments and hiring people with the express purpose of reducing enterprise risks—enterprise risk management. Many larger firms may have a chief risk officer (CRO) with the primary responsibility of reducing risk throughout the enterprise. Peril and Hazard Risk is the chance of loss, and peril is the direct cause of the loss. If a house burns down, then fire is the peril. A hazard is anything that either causes or increases the likelihood of a loss. For instance, gas furnaces are a hazard for carbon monoxide poisoning. A physical hazard is a physical condition that increases the possibility of a loss. Thus, smoking is a physical hazard that increases the likelihood of a house fire and illness. Moral hazards are losses that results from dishonesty. Thus, insurance companies suffer losses because of fraudulent or inflated claims. The American legal system is a moral hazard in that it motivates many people to sue simply for financial profit because of the enormous amount of money that can sometimes be won, and because there is little cost to the plaintiff, even if he loses. A good example is the current asbestos litigation, which has bankrupted many companies, even though very few plaintiffs show any real evidence of disease, and are unlikely to ever develop any disease that can be shown, by the preponderance of the evidence, to have resulted from asbestos exposure. This type of moral hazard is often referred to as legal hazard. Legal hazard can also result from laws or regulations that force insurance companies to cover risks that they would otherwise not cover, such as including coverage for alcoholism in health insurance. Insurance can be regarded as a morale hazard because it increases the possibility of a loss that results from the insured worrying less about losses. Therefore, they take fewer precautions and may engage in riskier activities—because they have insurance. A good example of morale hazard is when the federal government bails out financial institutions who have made bad decisions. Many financial institutions have taken significant risks in the recent subprime debacle by buying toxic instruments, such as CDOs and mortgage-backed securities based on subprime mortgages POINT OF SALES-INSURANCE MANUAL Page 12 that paid high yields, but were extremely risky. The financial institutions have considered themselves too big to fail—in other words, if things started going badly, then the federal government would step in to stop their collapse for fear that the whole financial system will collapse, which is exactly what the federal government did in September, 2008. Freddie Mac and Fannie Mae have both been taken over by the government, and American International Group (AIG) has been propped up by an infusion of $85 billion of taxpayers' money. AIG sold credit default swaps on mortgage-backed securities to buyers, mostly banks, thinking that they could collect the premiums, but would never have to actually to pay for defaults—but if they were wrong, then the government would save them, because otherwise the banks that had bought that credit default protection could also possibly fail. As recent events have demonstrated all too clearly, this federal government "insurance" creates a morale hazard for financial institutions—taxpayers pay the premium, but the big financial institutions, with their overpaid CEOs and managers, receive the benefits! Distinction between Moral Hazard and Morale Hazard The distinction between moral and morale hazard in insurance is one of intention, but in other disciplines, such as banking, the term moral hazard is used in a more general sense that includes morale hazard. Moral hazard is often applied to a receiver of funds, such as a borrower, and means that there is a risk that the receiver of funds will not use the money as was intended or that they may take unnecessary risks or not be vigilant in reducing risk. This definition includes not only intentional dishonesty, but also a change in behavior that results from using someone else's money, which, in insurance, would be described as morale hazard. POINT OF SALES-INSURANCE MANUAL Page 13  Module 2 –Indian lnsurance Market IRDAI The Insurance Regulatory and Development Authority of India (IRDAI) is an autonomous, statutory agency tasked with regulating and promoting the insurance and re-insurance industries in India. It was constituted by the Insurance Regulatory and Development Authority Act, 1999, an act of Parliament passed by the government of India. The agency's headquarters are in Hyderabad, Telangana, where it moved from Delhi in 2001. The IRDAI attempted to raise the foreign direct investment (FDI) limit in the insurance sector to 49 percent from its current 26 percent. The FDI limit in the sector was raised to 49 percent in June 2016. The IRDAI and its linked organizations In India insurance was mentioned in the writings of Manu (Manusmrithi), Yagnavalkya (Dharmasastra) and Kautilya (Arthasastra), which examined the pooling of resources for redistribution after fire, floods, epidemics and famine. The life-insurance business began in 1818 with the establishment of the Oriental Life Insurance Company in Calcutta; the company failed in 1834. In 1829, Madras Equitable began conducting life-insurance business in the Madras Presidency. The British Insurance Act was enacted in 1870, and Bombay Mutual (1871), Oriental (1874) and Empire of India (1897) were founded in the Bombay Presidency. The era was dominated by British companies. In 1914, the government of India began publishing insurance-company returns. The Indian Life Assurance Companies Act, 1912 was the first statute regulating life insurance. In 1928 the Indian Insurance Companies Act was enacted to enable the government to collect statistical information about life- and non-life-insurance business conducted in India by Indian and foreign insurers, including provident insurance societies. In 1938 the legislation was consolidated and amended by the Insurance Act, 1938, with comprehensive provisions to control the activities of insurers. The Insurance Amendment Act of 1950 abolished principal agencies, but the level of competition was high and there were allegations of unfair trade practices. The Government of India decided to nationalize the insurance industry. An ordinance was issued on 19 January 1956, nationalizing the life-insurance sector, and the Life Insurance Corporation was established that year. The LIC absorbed 154 Indian and 16 non-Indian insurers and 75 provident societies. The LIC had a monopoly until the late 1990s, when the insurance industry was reopened to the private sector. General insurance in India began during the Industrial Revolution in the West and the growth of sea-faring commerce during the 17th century. It arrived as a legacy of British occupation, with its roots in the 1850 establishment of the Triton Insurance Company in Calcutta. In 1907 the Indian Mercantile Insurance was established, the first company to underwrite all classes of general POINT OF SALES-INSURANCE MANUAL Page 14 insurance. In 1957 the General Insurance Council (a wing of the Insurance Association of India) was formed, framing a code of conduct for fairness and sound business practice. Eleven years later, the Insurance Act was amended to regulate investments and set minimum solvency margins and the Tariff Advisory Committee was established. In 1972, with the passage of the General Insurance Business (Nationalisation) Act, the insurance industry was nationalized on 1 January 1973. One hundred seven insurers were amalgamated and grouped into four companies: National Insurance Company, New India Assurance Company, Oriental Insurance Company and United India Insurance Company. The General Insurance Corporation of India was incorporated in 1971, effective on 1 January 1973. The re-opening of the insurance sector began during the early 1990s. In 1993, the government set up a committee chaired by former Reserve Bank of India governor R. N. Malhotra to propose recommendations for insurance reform complementing those initiated in the financial sector. The committee submitted its report in 1994, recommending that the private sector be permitted to enter the insurance industry. Foreign companies should enter by floating Indian companies, preferably as joint ventures with Indian partners. Following the recommendations of the Malhotra Committee, in 1999 the Insurance Regulatory and Development Authority (IRDA) was constituted to regulate and develop the insurance industry and was incorporated in April 2000. Objectives of the IRDA include promoting competition to enhance customer satisfaction with increased consumer choice and lower premiums while ensuring the financial security of the insurance market. The IRDA opened up the market in August 2000 with an invitation for registration applications; foreign companies were allowed ownership up to 26 percent. The authority, with the power to frame regulations under Section 114A of the Insurance Act, 1938, has framed regulations ranging from company registrations to the protection of policyholder interests since 2000. In December 2000, the subsidiaries of the General Insurance Corporation of India were restructured as independent companies and the GIC was converted into a national re-insurer. Parliament passed a bill de-linking the four subsidiaries from the GIC in July 2002. There are 28 general insurance companies, including the Export Credit Guarantee Corporation of India and the Agriculture Insurance Corporation of India, and 24 life-insurance companies operating in the country. With banking services, insurance services add about seven percent to India’s GDP. CURRENT SITUATION The IRDA attended to raise foreign direct investment limit in the insurance sector to 49% from 26%. it is a 10 member body including the chairman, 5 full time and 4 part time members appointed by the government of India. Structure Section 4 of the IRDAI Act 1999 specifies the authority's composition. It is a six-member body consisting of a chairman, two full-time and three part-time members appointed by the government of India. In September 2016, the authority was chaired by T. S. Vijayan and its full-time members were P. J. Joseph, Nilesh Sathe, V. R. Iyer, Pournima Gupte and D. D. Singh. POINT OF SALES-INSURANCE MANUAL Page 15 Functions The functions of the IRDAI are defined in Section 14 of the IRDAI Act, 1999, and include:  Issuing, renewing, modifying, withdrawing, suspending or cancelling registrations  Protecting policyholder interests  Specifying qualifications, the code of conduct and training for intermediaries and agents  Specifying the code of conduct for surveyors and loss assessors  Promoting efficiency  Promoting and regulating professional organizations connected with the insurance and re-insurance industry  Levying fees and other charges  Inspecting and investigating insurers, intermediaries and other relevant organizations  Regulating rates, advantages, terms and conditions which may be offered by insurers not covered by the Tariff Advisory Committee under section 64U of the Insurance Act, 1938 (4 of 1938)  Specifying how books should be kept  Regulating company investment of funds  Regulating a margin of solvency  Adjudicating disputes between insurers and intermediaries or insurance intermediaries  Supervising the Tariff Advisory Committee  Specifying the percentage of premium income to finance schemes for promoting and regulating professional organizations  Specifying the percentage of life- and general-insurance business undertaken in the rural or social sector lnsurers Insurance company that issues a particular insurance policy to an insured. In case of a very large risk, several insurance companies may combine to issue one policy. lnsurance lntermediaries Insurance is a complex product representing a promise to compensate the insured or third party according to specified terms and conditions in the event of the occurrence of a covered contingency. In most insurance transactions there is usually an intermediary - an insurance agent (individual or corporate) or an insurance broker. Insurance intermediaries serve as a bridge between consumers (seeking to buy insurance policies) and insurance companies (seeking to sell those policies). Insurance brokers are licensed by the IRDA and governed by the Insurance Regulatory and Development Authority (Insurance Brokers) Regulations, 2002. Individual insurance agents and corporate agents are also licensed by the IRDA and governed by the Insurance Regulatory and Development Authority (licensing of Individual Insurance Agents) Regulations, 2000 and the Insurance Regulatory and Development Authority (Licensing of Corporate Agents) Regulations, POINT OF SALES-INSURANCE MANUAL Page 16 2002, respectively. These Regulations lay down the Code of Conduct for the respective intermediaries. An intermediary has a distinct role to play in the entire life cycle of a product, from the point of sale 2 3 through policy servicing, up to claim servicing. An intermediary shall provide all material information with respect to a proposed cover to enable the prospect to decide on the best one. The intermediary is expected to advise the prospect with complete disclosures and transparency.. After the sale is affected, the intermediary must coordinate effectively between the customer and the insurer for policy servicing as well as claim servicing. IRDA has prescribed regulations for protecting the interests of policyholders casting obligations not only on Insurers but also Intermediaries. These prescribe obligations at the point of sale as well as policy servicing and claims servicing. INTERMEDIARIES A number of people and organizations providing services as part of the insurance industry also form part of the health insurance market. All such intermediaries are governed by IRDA. These include: 1. Insurance Brokers who may be individuals or corporates and work independently of insurance companies. They represent the people who want insurance and connect them to insurance companies obtaining best possible insurance covers at best possible premium rates. They also assist the insuring people during times of loss and making insurance claims. Brokers may place insurance business with any insurance company handling such business. They are remunerated by insurance companies by way of insurance commission. 2. Insurance Agents are usually individuals but some can be corporate agents too. Unlike brokers, agents cannot place insurance with any insurance company but only with the company for which they have been granted an agency. As per current regulations, an agent can act only on behalf of one general insurance company and one life insurance company one health insurer and one of each of the mono line insurers. at the most. They too are remunerated by insurance companies by way of insurance commission. 3. Third Party Administrators are a new type of service providers who came into business since 2001. They are not authorized to sell insurance but provide administrative services to insurance companies. Once a health insurance policy is sold, the details of the insured persons are shared with a appointed TPA who then prepares the data base and issues health cards to the insured persons. Such health cards enable the insured person to avail cashless medical facilities (treatment without having to pay cash immediately) at hospitals and clinics. Even if the insured person does not use cashless facility, he can pay the bills and seek reimbursement from the appointed TPA. TPAs are funded by the insurance companies for their respective claims and are remunerated by them by way of fees which are a percentage of the premium. 4. Insurance Web Aggregators are one of the newest types of service providers to be governed by IRDAI regulations. Through their web site and/or telemarketing, they can solicit insurance POINT OF SALES-INSURANCE MANUAL Page 17 business through distance marketing without coming face to face with the prospect and generate leads of interested prospects to insurers with whom they have an agreement. They also display products of such insurance companies for comparison. They may also seek IRDAI authorization to perform telemarketing and outsourcing functions for the insurers such as premium collection through online portal, sending premium reminders and also various types of policy related services. They are remunerated by insurance companies based on the leads converted to business, display of insurance products as well as the outsourcing services performed by them. 5. Insurance Marketing Firms are the latest types of intermediaries to be governed by IRDAI. They can perform the following activities by employing individuals licensed to market, distribute and service such products: Insurance Selling Activities: To sell by engaging Insurance Sales Persons (ISP) insurance products of two Life, two General and two Health Insurance companies at any point of time, under intimation to the Authority. In respect of general insurance, the IMF is allowed to solicit or procure only retail lines of insurance products as given in the file & use guidelines namely motor, health, personal accident, householders, shopkeepers and such other insurance products approved by the Authority from time to time. Any change in the engagement with the insurance companies can be done only with the prior approval of the Authority and with suitable arrangements for servicing existing policyholders. Insurance Servicing Activities: These servicing activities shall be only for those insurance companies with whom they have an agreement for soliciting or procuring insurance products and are enumerated below: a. undertaking back office activities of insurers as allowed in the Guidelines on Outsourcing Activities by Insurance Companies issued by the Authority; b. becoming approved person of Insurance Repositories; c. undertaking survey and loss assessment work by employing on their rolls licensed surveyor & loss assessors; d. any other insurance related activity permitted by the Authority from time to time. Financial Products Distribution: To distribute by engaging Financial Service Executives (FSE) who are individuals licensed to market, distribute and service such other financial products namely: a. mutual funds of mutual fund companies regulated by SEBI; b. pension products regulated by PFRDA; c. other financial products distributed by SEBI licensed Investment Advisors; d. banking/ financial products of banks/ NBFC regulated by RBI; e. non-insurance products offered by Department of Posts, Government of India; f. any other financial product or activity permitted by the Authority from time to time. POINT OF SALES-INSURANCE MANUAL Page 18 lnsurance Agents An agent is a person who is licensed by the Authority to solicit and procure insurance business including business relating to continuance, renewal or revival of policies of insurance. An agent could be an Individual Agent or a Corporate Agent. An Individual Agent, as the name suggests is an individual who in an intermediary representing an insurance company while a corporate agent is an intermediary other than an individual, representing an insurance company. A Composite Insurance Agent means an insurance agent who holds a licence to act as an insurance agent for a life insurer and a general insurer. An Insurance Broker means a person licensed by Insurance Regulatory and Development Authority who arranges insurance contracts with insurance companies on behalf of his clients. An Insurance Broker may represent more than one insurance company. Point of Sales Persons  To increase insurance penetration in the country, the industry needs more distributors to travel the last mile. To achieve that goal, what’s needed is a simple certification process for these distributors. So, to get such distributors on board quickly, the Insurance Regulatory and Development Authority of India (Irdai), in 2015, allowed for a new type of distributor, called the point of sale (PoS) person. Given that these individuals have a lower qualification and training threshold, compared to other insurance distributors such as agents, brokers and corporate agents, Irdai has allowed these individuals to sell only basic insurance products, which don’t require a lot of underwriting. Mandate of a Point of Sale Person As per the regulator, products such as motor insurance, travel insurance and personal accident insurance require very little underwriting as they are based on information provided by the prospect. Also, such insurance policies are automatically generated by the system. Therefore, the intervention required for such products is minimal and the training and exams for such persons could be of a lesser degree than those for a full-fledged distributor. In fact, last year in November, Irdai had allowed the life insurance industry to use point of sale persons to sell life insurance products. For this, it identified products that are simple to understand, and in which the benefits are stated upfront and they are fixed and predefined. And this year, in order to ensure faster certification of point of sale persons, the regulator has relaxed the certification programme by allowing the insurers or intermediaries hiring them to train and examine these individuals in-house. POINT OF SALES-INSURANCE MANUAL Page 19  Module 3 – Principles and Practice of lnsurance 1. Insurance contracts – Legal aspects a) The insurance contract Insurance involves a contractual agreement in which the insurer agrees to provide financial protection against certain specified risks for a price or consideration known as the premium. The contractual agreement takes the form of an insurance policy. b) Legal aspects of an insurance contract We will now look at some features of an insurance contract and then consider the legal principles that govern insurance contracts in general. A contract is an agreement between parties, enforceable at law. The provisions of the Indian Contract Act, 1872 govern all contracts in India, including insurance contracts. An insurance policy is a contract entered into between two parties, viz., the company, called the insurer, and the policy holder, called the insured and fulfils the requirements enshrined in the Indian Contract Act, 1872. The elements of a valid contract are: i. Offer and acceptance When one person signifies to another his willingness to do or to abstain from doing anything with a view to obtaining the assent of the other to such act, he is said to make an offer or proposal. Usually, the offer is made by the proposer, and acceptance made by the insurer. When a person to whom the offer is made signifies his assent thereto, this is deemed to be an acceptance. Hence, when a proposal is accepted, it becomes a promise. The acceptance needs to be communicated to the proposer which results in the formation of a contract. When a proposer accepts the terms of the insurance plan and signifies his assent by paying the deposit amount, which, on acceptance of the proposal, gets converted to the first premium, the proposal becomes a policy. If any condition is put, it becomes a counter offer. The policy bond becomes the evidence of the contract. ii. Consideration This means that the contract must contain some mutual benefit for the parties. The premium is the consideration from the insured, and the promise to indemnify, is the consideration from the insurers. iii. Agreement between the parties Both the parties should agree to the same thing in the same sense. In other words, there should be “consensus ad-idem” between both parties. Both the insurance company and the policyholder must agree on the same thing in the same sense. iv. Free consent There should be free consent while entering into a contract. POINT OF SALES-INSURANCE MANUAL Page 20 Consent is said to be free when it is not caused by Coercion Undue influence Fraud Misrepresentation Mistake When consent to an agreement is caused by coercion, fraud or misrepresentation, the agreement is voidable. v. Capacity of the parties Both the parties to the contract must be legally competent to enter into the contract. The policyholder must have attained the age of majority at the time of signing the proposal and should be of sound mind and not disqualified under law. For example, minors cannot enter into insurance contracts. vi. Legality The object of the contract must be legal, for example, no insurance can be had for illegal acts. Every agreement of which the object or consideration is unlawful is void. The object of an insurance contract is a lawful object. Important i. Coercion - Involves pressure applied through criminal means. ii. Undue influence - When a person who is able to dominate the will of another, uses her position to obtain an undue advantage over the other. iii. Fraud - When a person induces another to act on a false belief that is caused by a representation he or she does not believe to be true. It can arise either from deliberate concealment of facts or through misrepresenting them. iv. 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 contract. POINT OF SALES-INSURANCE MANUAL Page 21 lnsurable lnterest - Utmost Good Faith - lndemnity - Contribution and Subrogation - Proximate Cause Uberrima Fides or Utmost Good Faith This is one of the fundamental principles of an insurance contract. Also called uberrima fides, it means that every party to the contract must disclose all material facts relating to the subject matter of insurance. A distinction may be made between Good Faith and Utmost Good Faith. All commercial contracts in general require that good faith shall be observed in their transaction and there shall be no fraud or deceit when giving information. Apart from this legal duty to observe good faith, the seller is not bound to disclose any information about the subject matter of the contract to the buyer. The rule observed here is that of ―Caveat Emptor‖ which means Buyer Beware. The parties to the contract are expected to examine the subject matter of the contract and so long as one party does not mislead the other and the answers are given truthfully, there is no question of the other party avoiding the contract Utmost Good Faith: Insurance contracts stand on a different footing. Firstly, the subject matter of the contract is intangible and cannot be easily known through direct observation or experience by the insurer. Again there are many facts, which by their very nature, may be known only to the proposer. The insurer has to often rely entirely on the latter for information. Hence the proposer has a legal duty to disclose all material information about the subject matter of insurance to the insurers who do not have this information. Insurable interest The existence of „insurable interest‟ is an essential ingredient of every insurance contract and is considered as the legal pre-requisite for insurance. Let us see how insurance differs from a gambling or wager agreement. i. Gambling and insurance Consider a game of cards, where one either loses or wins. The loss or gain happens only because the person enters the bet. The person who plays the game has no further interest or relationship with the game other than that he might win the game. Betting or, wagering is not legally enforceable in a court of law and thus any contract in pursuance of it will be held to be illegal. In case someone pledges his house if he happens to lose a game of cards, the other party cannot approach the court to ensure its fulfillment. Now consider a house and the event of it burning down. The individual who insures his house has a legal relationship with the subject matter of insurance – the house. He owns it and is likely to suffer financially, if it is destroyed or damaged. This relationship of ownership exists independent of whether the fire happens or does not happen, and it is the relationship that leads to the loss. The event (fire or theft) will lead to a loss regardless of whether one takes insurance or not. Unlike a card game, where one could win or lose, a fire can have only one consequence – loss to the owner of the house. POINT OF SALES-INSURANCE MANUAL Page 22 The owner takes insurance to ensure that the loss suffered is compensated for in some way. The interest that the insured has in his house or his money is termed as insurable interest. The presence of insurable interest makes an insurance contract valid and enforceable under the law. Proximate Cause The last of the legal principles is the principle of proximate cause. Proximate cause is a key principle of insurance and is concerned with how the loss or damage actually occurred and whether it is indeed as a result of an insured peril. If the loss has been caused by the insured peril, the insurer is liable. If the immediate cause is an insured peril, the insurer is bound to make good the loss, otherwise not. Under this rule, the insurer looks for the predominant cause which sets into motion the chain of events producing the loss. This may not necessarily be the last event that immediately preceded the loss i.e. it is not necessarily an event which is closest to, or immediately responsible for causing the loss. Other causes may be classified as remote causes, which are separate from proximate causes. Remote causes may be present but are not effectual in causing an event. Indemnity The principle of indemnity is applicable to Non-life insurance policies. 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. The insurance contract (evidenced through insurance policy) guarantees that the insured would be indemnified or compensated up to the amount of loss and no more. The philosophy is that one should not make a profit through insuring one’s assets and recovering more than the loss. The insurer would assess the economic value of the loss suffered and compensate accordingly. Subrogation Subrogation follows from the principle of indemnity. Subrogation means the transfer of all rights and remedies, with respect to the subject matter of insurance, from the insured to the insurer. It means that if the insured has suffered from loss of property caused due to negligence of a third party and has been paid indemnity by the insurer for that loss, the right to collect damages from the negligent party would lie with the insurer. Note that the amount of damage that can be collected is only to the extent of amount paid by the insurance company. Proposal Form - Sales Literature - Payment of premium - Section 64VB of lnsurance Act - Premium Receipt - lnsurance Policy - Endorsements - Warranties - Section 41 of lnsurance Act (Rebating) A. Proposal forms As stated earlier, insurance is a contract which is reduced in writing to a policy. Insurance documentation is not limited to issuance of policies. As there are many intermediaries like brokers and agents who operate between them, it is possible that an insured and his insurer may never meet. POINT OF SALES-INSURANCE MANUAL Page 23 The insurance company comes to know the customer and his/her insurance needs only from the documents that are submitted by the customer. Such documents also help the insurer to understand the risk better. Thus, documentation is required for the purpose of bringing understanding and clarity between insured and insurer. There are certain documents that are customarily used in the insurance business. The insurance agent, being the person closest to the customer, has to face the customer and clarify all doubts about the documents involved and help him/her in filling them up. Agents should understand the purpose of each document involved and the importance and relevance of information contained in the documents used in insurance. 1. Proposal forms The first stage of documentation is basically the proposal form through which the insured informs: 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 would mean the monetary value of the subject matter of insurance and all material facts connected with the proposed insurance. a) Risk assessment by insurer i. Proposal form is to be filled in by the proposer for furnishing all material information required by the insurer in respect of a risk, in order to enable the insurer to decide: whether to accept or refuse to grant the insurance and in the event of acceptance of the risk, to determine the rates, terms and conditions of the cover to be granted Proposal form contains information which are useful for the insurance company to accept the risk offered for insurance. The principle of utmost good faith and the duty of disclosure of material information begin with the proposal form for insurance. The duty of disclosure of material information arises prior to the inception of the policy, and continues throughout the period of insurance and even after the conclusion of the contract. Example In the case of Personal Accident policy, if the insured has declared in the proposal form that he does not engage in motor sports or horse riding, he has to ensure that he does not engage himself in such pursuits throughout the policy period. This is a material fact for the insurer who will be accepting the proposal based on these facts and pricing the risk accordingly. Proposal forms are printed by insurers usually with the insurance company‟s name, logo, address and the class / type of insurance / product that it is used for. It is customary for insurance companies to add a printed note in the proposal form, though there is no standard format or practice in this regard. Examples Some examples of such notes are: POINT OF SALES-INSURANCE MANUAL Page 24 Non-disclosure of facts material to the assessment of the risk, providing misleading information, fraud or non-co-operation by the insured will nullify the cover under the policy issued‟, The company will not be on risk until the proposal has been accepted by the Company and full premium paid‟. Declaration in the proposal form: Insurance companies usually add a declaration at the end of the proposal form to be signed by the proposer. This ensures that the insured takes the pain to fill up the form accurately and has understood the facts given therein, so that at the time of a claim there is no scope for disagreements on account of misrepresentation of facts. This also serves to stress the main principle of utmost good faith and disclosure of all material facts on the part of the insured. The declaration converts the common law principle of utmost good faith to a contractual duty of utmost good faith. Standard form of declaration The IRDAI has specified the format of the standard declaration in the health insurance proposal as under: 1. I/We hereby declare, on my behalf and on behalf of all persons proposed to be insured, that the above statements, answers and/or particulars given by me are true and complete in all respects to the best of my knowledge and that I/We am/are authorized to propose on behalf of these other persons. 2. I understand that the information provided by me will form the basis of the insurance policy, is subject to the Board approved underwriting policy of the insurance company and that the policy will come into force only after full receipt of the premium chargeable. 3. I/We further declare that I/we will notify in writing any change occurring in the occupation or general health of the life to be insured/proposer after the proposal has been submitted but before communication of the risk acceptance by the company. 4. I/We declare and consent to the company seeking medical information from any doctor or from a hospital who at any time has attended on the life to be insured/proposer or from any past or present employer concerning anything which affects the physical or mental health of the life to be assured/proposer and seeking information from any insurance company to which an application for insurance on the life to be assured/proposer has been made for the purpose of underwriting the proposal and/or claim settlement. 5. I/We authorize the company to share information pertaining to my proposal including the medical records for the sole purpose of proposal underwriting and/or claims settlement and with any Governmental and/or Regulatory authority. b) Nature of questions in a proposal form The number and nature of questions in a proposal form vary according to the class of insurance concerned. In personal lines like health, personal accident and travel insurance, proposal forms are designed to get information about the proposer‟s health, way of life and habits, pre-existing health conditions, medical history, hereditary traits, past insurance experience etc. POINT OF SALES-INSURANCE MANUAL Page 25 Elements of a proposal i. Proposer‘s name in full The proposer should be able to identify herself unambiguously. It is important for the insurer to know with whom the contract has been entered, so that the benefits under the policy would be received only by the insured. Establishing identity is important even in cases where someone else may have acquired an interest in the risk insured (like legal heirs in case of death) and have to make a claim. ii. Proposer‘s address and contact details The reasons stated above are applicable for collecting the proposer‟s address and contact details as well. iii. Proposer‘s profession, occupation or business In some cases like health and personal accident insurance, the proposer‟s profession, occupation or business are of importance as they could have a material bearing on the risk. Example A delivery man of a fast-food restaurant, who has to frequently travel on motor bikes at a high speed to deliver food to his customers, may be more exposed to accidents than the accountant of the same restaurant. iv. Details and identity of the subject matter of insurance The proposer is required to clearly state the subject matter that is proposed for insurance. Example The proposer is required to state if it is: i. An overseas travel (by whom, when, to which country, for what purpose) or ii. A person’s health (with person’s name, address and identification) etc. depending on the case v. Sum insured indicates limit of liability of the insurer under the policy and has to be indicated in all proposal forms. vi. Previous and present insurance The proposer is required to inform the details about his previous insurances to the insurer. This is to understand his insurance history. In some markets there are systems by which insurers confidentially share data about the insured. imposed The proposer is also required to state whether any insurer had declined his proposal, or special conditions, required an increased premium at renewal or refused to renew cancelled the policy. Details of current insurance with any other insurer including the names of the insurers are also required to be disclosed. Especially in property insurance, there is a chance that insured may take policies from different insurers and when a loss happens, claim from more than one insurer. This information is required to ensure that the principle of contribution is applied so that the insured is indemnified and does not gain/profit due to multiple insurance policies for the same risk. Further, in personal accident insurance an insurer would like to restrict the amount of coverage (sum insured) depending on the sum insured under other PA policies taken by the same insured. vii. Loss experience POINT OF SALES-INSURANCE MANUAL Page 26 The proposer is asked to declare full details of all losses suffered by him / her, whether or not they were insured. This will give the insurer information about the subject matter of insurance and how the insured has managed the risk in the past. Underwriters can understand the risk better from such answers and decide on conducting medical examination or collecting further details. viii. Declaration by insured As the purpose of the proposal form is to provide all material information to the insurers, the form includes a declaration by the insured that the answers are true and accurate and he agrees that the form shall be the basis of the insurance contract. Any wrong answer will give the right to insurers to avoid the contract. Other sections common to all proposal forms relate to signature, date and in some cases, the agent‘s recommendation. ix. Where a proposal form is not used, the insurer shall record the information obtained orally or in writing, and confirm it within a period of 15 days thereof with, the proposer and incorporate the information in its policy. Where the insurer later claims that the proposer did not disclose any material information or provided misleading or false information on any matter material to the grant of a cover, the burden of proving it falls on the insurer. It means the insurance company has a duty to record all the information received even orally, which the agent has to keep in mind by way of follow up. Given below are some of the details of proposal form for a health insurance policy: 1. The proposal form incorporates a prospectus which gives details of the cover, such as coverage, exclusions, provisions etc. The prospectus forms part of the proposal form and the proposer has to sign it as having noted its contents. 2. The proposal form collects information relating to the name, address, occupation, date of birth, sex, and relationship of each insured person with the proposer, average monthly income and income tax PAN No., name and address of the Medical Practitioner, his qualifications and registration number. Bank details of the insured are also now a days collected to make payment of claim money directly through bank transfer. 3. In addition, there are questions relating to the medical condition of the insured person. These detailed questions in the form are based on past claims experience and are to achieve proper underwriting of the risk. 4. The insured person is required to state full details if he has suffered from any of the specified diseases in the form. 5. Further, the details of any other illness or disease suffered or accident sustained are called for as follows: a. Nature of illness / injury and treatment b. Date of first treatment c. Name and address of attending Doctor d. Whether fully recovered 6. The insured person has to state any additional facts which should be disclosed to insurers and if he has any knowledge of any positive existence or presence of any illness or injury which may require medical attention. POINT OF SALES-INSURANCE MANUAL Page 27 7. The form also includes questions relating to past insurance and claims history and additional present insurance with any other insurer. 8. The special features of the declaration to be signed by the proposer must be noted. 9. The insured person agrees and authorizes the insurer to seek medical information from any hospital / medical practitioner who has at any time attended or may attend concerning any illness which affects his physical or mental health. 10. The insured person confirms that he has read the prospectus forming part of the form and is willing to accept the terms and conditions. 11. The declaration includes the usual warranty regarding the truth of the statements and the proposal form as the basis of the contract. 2. Role of intermediary The intermediary has a responsibility towards both parties i.e. insured and insurer An agent or a broker, who acts as the intermediary between the insurance company and the insured has the responsibility to ensure all material information about the risk is provided by the insured to insurer. IRDAI regulation provides that intermediary has responsibility towards the client. Duty of an intermediary towards prospect (client) IRDAI regulation states that “An insurer or its agent or other intermediary shall provide all material information in respect of a proposed cover to the prospect to enable the prospect to decide on the best cover that would be in his or her interest Where the prospect depends upon the advice of the insurer or his agent or an insurance intermediary, such a person must advise the prospect in a fair manner. Where, for any reason, the proposal and other connected papers are not filled by the customer, a certificate may be incorporated at the end of proposal form from the customer that the contents of the form and documents have been fully explained to him and that he has fully understood the importance of the proposed contract.” B. Acceptance of the proposal (underwriting) We have seen that a completed proposal form broadly gives the following information: Details of the insured Details of the subject matter Type of cover required Details of the physical features both positive and negative Previous history of insurance and loss In the case of a health insurance proposal, the insurer may also refer the prospective customer e.g. above 45 years of age to a doctor and/or for medical check-up. Based on the information available in the proposal and, where medical check-up has been advised, based on the medical report and the recommendation of the doctor, the insurer takes the decision. Sometimes, where the medical history is not satisfactory, an additional questionnaire to get more information is also required to be obtained from the prospective client. The insurer then decides about the rate to be POINT OF SALES-INSURANCE MANUAL Page 28 applied to the risk factor and calculates the premium based on various factors, which is then conveyed to the insured. Proposals are processed by the insurer with speed and efficiency and all decisions thereof are communicated by it in writing within a reasonable period. Note on Underwriting and processing of proposals As per IRDAI guidelines, the insurer has to process the proposal within 15 days‟ time. The agent is expected to keep track of these timelines, follow up internally and communicate with the prospect / insured as and when required by way of customer service. This entire process of scrutinizing the proposal and deciding about acceptance is known as underwriting. C. Prospectus A Prospectus is a document issued by the insurer or on its behalf to the prospective buyers of insurance. It is usually in the form of a brochure or leaflet and serves the purpose of introducing a product to such prospective buyers. Issue of prospectus is governed by the Insurance Act, 1938 as well as by Protection of Policyholders‟ Interest Regulations 2002 and the Health Insurance Regulations 2013 of the IRDAI. The prospectus of any insurance product should clearly state the scope of benefits, the extent of insurance cover and explain in a clear manner the warranties, exceptions and conditions of the insurance cover. The allowable riders (also called Add-on covers) on the product should also be clearly stated with regard to their scope of benefits. Also, the premium related to all the riders put together should not exceed 30% of the premium of the main product. Other important information which a Prospectus should also disclose includes: 1. Any differences in covers and premium 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. A declaration that all its Health insurance policies are portable which means that these policies can be renewed with any other insurer who offers similar cover with the same benefits he would have enjoyed had he continued with the existing insurer. Insurers of Health policies usually publish Prospectuses about their Health insurance products. The proposal form in such cases would contain a declaration that the customer has read the Prospectus and agrees to it. D. Premium receipt When the premium is paid by the customer to the insurer towards premium, the insurer is bound to issue a receipt. A receipt is also to be issued in case any premium is paid in advance. POINT OF SALES-INSURANCE MANUAL Page 29 Definition Premium is the consideration or amount paid by the insured to the insurer for insuring the subject matter of insurance, under a contract of insurance. 1. Payment of Premium in Advance (Section 64 VB of Insurance Act, 1938) As per Insurance Act, premium is to be paid in advance, before the start of the insurance cover. This is an important provision, which ensures that only when the premium is received by the insurance company, a valid insurance contract can be completed and the risk can be assumed by the insurance company. This section is a special feature of non-life insurance industry in India. a) Section 64 VB of the Insurance Act-1938 provides that 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 b) Where an insurance agent collects a premium on a policy of insurance on behalf of an insurer, he shall deposit with or dispatch by post to the insurer the premium so collected in full without deduction of his commission within twenty-four hours of the collection excluding bank and postal holidays. c) It is also provided that the risk may be assumed only from the date on which the premium has been paid in cash or by cheque. d) Where the premium is tendered by postal or money order or cheque sent by post, the risk may be assumed on the date on which the money order is booked or the cheque is posted as the case may be. e) Any refund of premium which may become due to an insured on account of the cancellation of policy or alteration in its terms and conditions or otherwise, shall be paid by the insurer directly to the insured by a crossed or order cheque or by postal / money order and a proper receipt shall be obtained by the insurer from the insured. It is the practice now a day to credit the amount directly to the Insured‟s bank account. Such refund shall in no case be credited to the account of the agent. There are exceptions to the above pre-condition payment of premium, provided in the Insurance Rules 58 and 59. One is for payment in installments’ in case of policies which run for more than 12 months such as life insurance policies. Others include payment through a bank guarantee in specified cases where the exact premium cannot be ascertained in advance or by debit to a Cash Deposit account maintained by the client with the insurer. 2. Method of payment of premium Important The premium to be paid by any person proposing to take an insurance policy or by the policyholder to an insurer may be made in any one or more of the following methods: a) Cash b) Any recognized banking negotiable instrument such as cheques, demand drafts, pay order, banker‟s cheques drawn on any schedule bank in India; c) Postal money order; d) Credit or debit cards; POINT OF SALES-INSURANCE MANUAL Page 30 e) Bank guarantee or cash deposit; f) Internet; g) E-transfer h) Direct credits via standing instruction of proposer or the policyholder or the life insured through bank transfers; i) Any other method or payment as may be approved by the Authority from time to time; As per IRDAI Regulations, in case the proposer / policyholder opts for premium payment through net banking or credit / debit card, the payment must be made only through net banking account or credit / debit card issued in the name of such proposer / policyholder. E. Policy Document Policy Document The policy is a formal document which provides an evidence of the contract of insurance. This document has to be stamped in accordance with the provisions of the Indian Stamp Act, 1899. IRDAI Regulations for protecting policy holder’s interest specified what A health insurance policy should contain: a) The name(s) and address (es) of the insured and any other person having insurable interest in the subject matter b) Full description of the persons or interest insured c) The sum insured under the policy person and/or peril wise d) Period of insurance e) Perils covered and exclusions f) Any excess / deductible applicable g) Premium payable and where the premium is provisional subject to adjustment, the basis of adjustment of premium h) Policy terms, conditions and warranties i) Action to be taken by the insured upon occurrence of a contingency likely to give rise to a claim under the policy j) The obligations of the insured in relation to the subject-matter of insurance upon occurrence of an event giving rise to a claim and the rights of the insurer in the circumstances k) Any special conditions l) Provision for cancellation of the policy on grounds of misrepresentation, fraud, non-disclosure of material facts or non-cooperation of the insured m) The address of the insurer to which all communications in respect of the policy should be sent n) The details of the riders, if any o) Details of grievance redressal mechanism and address of ombudsman Every insurer has to inform and keep (the insured) informed periodically on the requirements to be fulfilled by the insured regarding lodging of a claim arising in terms of the policy and the procedures to be followed by him to enable the insurer to settle a claim early. F. Conditions and Warranties POINT OF SALES-INSURANCE MANUAL Page 31 Here, it is important to explain two important terms used in policy wordings. These are called Conditions and Warranties. 1. Conditions A condition is a provision in an insurance contract which forms the basis of the agreement. EXAMPLES: a. One of the standard conditions in most insurance policies states: If the claim be in any respect fraudulent, or if any false declaration be made or used in support thereof or if any fraudulent means or devices are used by the Insured or any one acting on his behalf to obtain any benefit under the policy or if the loss or damage be occasioned by the wilful act, or with the connivance of the Insured, all benefits under this policy shall be forfeited. b. The Claim Intimation condition in a Health policy may state: Claim must be filed within certain days from date of discharge from the Hospital. However, waiver of this Condition may be considered in extreme cases of hardship where it is proved to the satisfaction of the Company that under the circumstances in which the insured was placed it was not possible for him or any other person to give such notice or file claim within the prescribed time-limit. A breach of condition makes the policy voidable at the option of the insurer. 2. Warranties Warranties are used in an insurance contract to limit the liability of the insurer under certain circumstances. Insurers also include warranties in a policy to reduce the hazard. With a warranty, the insured, undertakes certain obligations that need to be complied within a certain period of time and also during the policy period and the liability of the insurer depends on the insured’s compliance with these obligations. Warranties play an essential role in managing and improving the risk. A warranty is a condition expressly stated in the policy which has to be literally complied with for validity of the contract. Warranty is not a separate document. It is part of the policy document. It is a condition precedent to (which operates prior to other terms of) the contract. It must be observed and complied with strictly and literally, whether it is material to the risk or not. If a warranty is not fulfilled, the policy becomes voidable at the option of the insurers even when it is clearly established that the breach has not caused or contributed to a particular loss. However, in practice, if the breach of warranty is of a purely technical nature and does not, in any way, contribute to or aggravate the loss, insurers at their discretion may process the claims according to norms and guidelines as per company policy. In such case, losses can be treated as compromise claims and settled usual for a high percentage of the claim but not for 100 percent. A personal accident policy may have the following warranty: It is warranted that not more than five Insured Persons should travel together in the same air conveyance at one time. The warranty may go on to say how the claims would be dealt if there is a breach of this warranty. G. Endorsements POINT OF SALES-INSURANCE MANUAL Page 32 It is the practice of insurers to issue policies in a standard form; covering certain perils and excluding certain others. Definition If certain terms and conditions of the policy need to be changed at the time of issuance, it is done by setting out the amendments / changes through a document called endorsement. It is attached to the policy and forms part of it. The policy and the endorsement together make up the contract. Endorsements may also be issued during the currency of the policy to record changes / amendments. Whenever material information changes, the insured has to advice the insurance company who will take note of this and incorporate the same as part of the insurance contract through the endorsement. Endorsements normally required under a policy relate to: a) Variations /changes in sum insured b) Change of insurable interest by way of taking of a loan and mortgaging the policy to a bank. c) Extension of insurance to cover additional perils / extension of policy period d) Change in risk, e.g. change of destinations in the case of an overseas travel policy e) Transfer of property to another location f) Cancellation of insurance g) Change in name or address etc. Specimen Endorsements For the purpose of illustration, specimen wordings of some endorsements are reproduced below: Cancellation of policy At the request of the insured the insurance by this Policy is hereby declared to be cancelled as from. The insurance having been in force for a period over nine months, no refund is due to the Insured. Extension of cover to additional member in the Policy At the request of the insured, it is hereby agreed to include Miss. Ratna Mistry, daughter of the insured and aged 5 years with a sum insured of Rs. 3 lakhs in the policy with effect from. In consideration, thereof an additional premium of Rs………………………….. is hereby charged to the insured. H. Interpretation of policies Contracts of insurance are expressed in writing and the insurance policy wordings are drafted by insurers. These policies have to be interpreted according to certain well-defined rules of construction or interpretation which have been established by various courts. The most important rule of construction is that the intention of the parties must prevail and this intention is to be looked for in the policy itself. If the policy is issued in an ambiguous manner, it will be interpreted by the courts in favour of the insured and against the insurer on the general principle that the policy was drafted by the insurer. Policy wordings are understood and interpreted as per the following rules: a) An express or written condition overrides an implied condition except where there is inconsistency in doing so. POINT OF SALES-INSURANCE MANUAL Page 33 b) In the event of a contradiction in terms between the standard printed policy form and the typed or handwritten parts, the typed or handwritten part is deemed to express the intention of the parties in the particular contract, and their meaning will overrule those of the original printed words. c) If an endorsement contradicts other parts of the contract the meaning of the endorsement will prevail as it is the later document. d) Clauses in italics over-ride the ordinary printed wording where they are inconsistent. e) Clauses printed or typed in the margin of the policy are to be given more importance than the wording within the body of the policy. f) Clauses attached or pasted to the policy override both marginal clauses and the clauses in the body of the policy. g) Printed wording is over-ridden by typewritten wording or wording impressed by an inked rubber stamp. h) Handwriting takes precedence over typed or stamped wording. i) Finally, the ordinary rules of grammar and punctuation are applied if there is any ambiguity or lack of clarity. 1. Construction of policies An insurance policy is proof of a commercial contract and the general rules of construction and interpretation adopted by courts apply to insurance contracts as in the case of other contracts. The principal rule of construction is that the intention of the parties of the contract is most important. That intention must be gathered from the policy document itself and the proposal form, clauses, endorsements, warranties etc. attached to it and forming a part of the contract. 2. Meaning of wordings The words used are to be construed in their ordinary and popular sense. The meaning to be used for words is the meaning that the ordinary man in the street would construe. On the other hand, words which have a common business or trade meaning will be construed with that meaning unless the context of the sentence indicates otherwise. Where words are defined by laws, the meaning of that definition will be used as per laws. Many words used in insurance policies have been the subject of previous legal decisions which will be ordinarily applied. Again, the decisions of a higher court will be binding on a lower court decision. Technical terms must always be given their technical meaning, unless there is an indication to the contrary. I. Renewal Notice Most of the non-life insurance policies are issued on annual basis. There is no legal obligation on the part of insurers to advise the insured that his policy is due to expire on a particular date. However, as a matter of courtesy and healthy business practice, insurers issue a renewal notice in advance of the date of expiry, inviting renewal of the policy. The notice shows all the relevant particulars of the policy such as sum insured, the annual premium, etc. It is also the practice to include a note advising the insured that he should intimate any material alterations in the risk. POINT OF SALES-INSURANCE MANUAL Page 34 The insured’s attention is also to be invited to the statutory provision that no risk can be assumed unless the premium is paid in advance. POINT OF SALES-INSURANCE MANUAL Page 35  Module 4 – Point of Sale - General lnsurance Products including Health lnsurance POS Critical Illness Insurance Policy Critical Illness Insurance Policy Critical Illness Insurance Policy is specially designed benefit policy to help you cope with the financial burden if you are diagnosed with a critical illness. The policy pays fixed amount in case you are diagnosed with any of the following critical illness i.e. coronary artery surgery, cancer, renal failure, stroke, multiple sclerosis, major organ transplants, paralysis and blindness Coverage Benefit Lump sum payment if diagnosed from any of the following critical illness 1. Stoke, 2. Cancer, 3. Renal Failure, 4. Major Organ Transplant, 5. Multiple Sclerosis, 6. Coronary artery surgery. Covered as add on with extra premium 1. Paralysis, 2. Blindness Services Pan India presence Our 1900+ offices across the country help us to serve our customers. Other benefits Free Look Period In case of fresh policies, you will be allowed a period of 15 days from the date of receipt of policy to review the terms and conditions of the policy, and to return the same if not acceptable. Provided there is no claim during the period, proportionate premium will be refunded. Exclusions The policy does not cover any expenses in connection with  Any treatment relating to drug addiction  Self-inflicted injury  HIV, AIDS  No claim payable if the insured smokes 40 or more cigarettes / cigars or equivalent tobacco in a day Eligibility You can avail the Policy if you are between 20 years to 45 years. The policy may be renewed for lifetime of the insured. POINT OF SALES-INSURANCE MANUAL Page 36 Loading on premium  In case of existence of Hypertension without other complications loading of 10% is to be charged.  In case of Hypertension with diabetes but without other complications loading of 20% is to be charged. Sum insured Sum insured available under the policy is Rs. 3, 00,000 Premium rate Premium rates have been provided. You may also refer to the prospectus or visit our web site. Paralysis and Blindness can be covered by paying additional premium of 15 % either or 25 % for both covers Buying procedure Proposal and Prospectus The proposal and prospectus duly completed are to be submitted to the office. Prospect must have a mediclaim policy and should produce same with proposal. Claim procedure The claim form along with relevant documents is to be submitted to the Company Disclaimer The brochure is a summary of the Policy features. For further details please read the Policy/ prospectus. In case of any difference in the terms contained in the brochure and the Policy, the terms and conditions in the Policy shall prevail. POINT OF SALES-INSURANCE MANUAL Page 37  POS Liability Only Policy (Applicable to Commercial Vehicles, Private Car and Two Wheelers) Whereas the insured by a proposal and declaration dated as stated in the Schedule which shall be basis of this contract and is deemed to be incorporated herein has applied to the Company for the insurance hereinafter contained and has paid the premium as consideration for such insurance in respect of events occurring during the period of insurance. Now this Policy witnessed: That subject to the Terms, Exceptions and Conditions contained herein or endorsed or expressed hereon: LIABILITY TO THIRD PARTIES 1. Subject to the Limit of liability as laid down in the schedule hereto, the Company will indemnify the insured in the event of accident caused by or arising out of the