Liability insurance

Liability Insurance
• Product Liability
• Professional Liability
• Arises if there is a violation of a person’s legal
rights or a failure to perform legal duty owed to
certain person or to society as a whole.
• Classes of legal wrong
– Crime
– Breach of contract
– Tort
 Categories of torts
• Intentional torts: assault, battery, trespass, false imprisonment,
fraud, libel, slander and patent and copyright infringement.
• Strict Liability: Rylands vs.Fletcher If a person brings on his land
anything which is likely to do mischief if it escapes, he will be prima
facie answerable for the damage caused by its escape though he
had not been negligent.
• Absolute liability: liability is imposed even without negligence or
fault. Examples
– Occupational injury and disease
– Blasting operations
– Manufacturing of explosives, medicines, food products eg. M C Mehta
vs. Union Of India
– Owning wild or dangerous animals
– Crop spraying by airplanes
• Negligence: failure to exercise standard of care required by law to
protect others from an unreasonable risk of harm.
 Defences against negligence
• Contributory negligence
• Comparative negligence
– Pure rule
– 49 percent rule
– 50 percent rule
• Last clear chance rule
• Assumption of risk
 Imputed negligence
• Employee employer relationship Vicarious
liability
• Family purpose doctrine
• Joint business venture
 Res ipsa loquitur
• Meaning the thing speaks for itself. Injury or
damage establishes a presumption of
negligence on behalf of the defendant.
• Requirements
– The event doesnot happen except in case of
negligence.
– The defendant has exclusive control over the
instrumentality causing the accident.
– The injured has not contributed to the negligence in
any way.
• Muncipal Corporation of Delhi v. Subhagwati
 Specific applications of the law of
negligence
• Property owners
– Liability in case of trespasser
– Liability in case of licensee
– Liability in case of invitee.
• Attractive nuisance doctrine : a condition that can attract
and injure children.
• Owners and operators of automobiles
• Governmental liability
• Charitable institutions
• Employee employer
• Parents and children
• Animal owners
 Special Tort Liability Problems
• Products Liability: liability of retailer or manufacturer
(privity of contract doctrine)
• Solutions:
– State of the art defense
– Alteration of the product defense
• Professional liability: A genuine error of judgement by
doctors, lawyers, accountants, architects, insurance
brokers, actuaries etc. Spring meadows hospital v.
Harjot Ahluwalia
• Employer’s liability/ workmen’s compensation insurance:
insurance compulsory, ESI Act
• Directors and Officers Liability:
 Public Liability Insurance
• For individuals
• Third party insurance
• Business risks
• The public Liability Insurance Act,1991:
mandatory for installations handling
hazardous substances.
Characteristics of liability insurance
• Liability may be by litigation, arbitration or
agreement.
• Loss is the sum finally determined by law. Law
means both statutory as well as common law.
• Potential liability is open-ended.
• Claimant is not the insured but a third party.
• Two stages of claims processing.
– Whether the policy covers the claim or not;
– Whether the insured is legally liable to pay or not. If
yes, how the amount is to be determined.
 Origin and development of liability
insurance in India
• Enactment of Workmen’s Compensation Act,1923, Motor
Vehicles Act,1939 and compulsory third party insurance.
• Bhopal Gas Tragedy in 1984.
• Environment Protection Act,1986, Public Liability
Insurance Act,1991.
• Consumer Protection Act,1986
• Employees State Insurance Act,1948
• Supreme Court decision in the case of Shriram Food &
Fertilizer Industries (vide M.C Mehta vs, Union of India)
ruled that civil liability of corporation for torts also
attached to directors and other officers.
 PUBLIC LIABILITY INSURANCE
• Coverage :
– Liability to a person and his dependants for death or injury,
– Liability for damage to property,
– Liability for legal costs involved in defending the case irrespective of
whether the case gets decided for or against the insured.
• Add on benefits by paying additional premium
– Liability due to Pollution
– Liability during transportation of material including hazardous ones
outside factory premises
– Liability because of effluents discharge through pipelines
– Earthquake risk
– Technical collaborators liability.
• Target Group: A whole range of industries starting from a humble
bakery or a beedi rolling unit to hi-tech aircraft hangers, chemical
manufacturing plants, hydroelectric power stations and ship building
units.
 What is the Amount of Cover
Available?
• AOA (any one accident) limit and AOY (any one year)/AOP (any
one period) limits.
• But there is a restriction that only four ratios are permitted for AOA
to AOY, i.e., 1:1, 1:2, 1:3 and 1:4.
• So, if an AOA limit of Rs. 50 Lacs is selected, the AOY limits can
either be Rs. 50, 100, 150 or 200 Lacs.
• It is also important to remember that these limits are inclusive of all
legal costs likely to be incurred.
• Factors to be considered for deciding the premium:
– Risk group of the industry
– Limit of AOA
– Ratio of AOA to AOY
– If more than one unit is to be covered in the policy, number of units
– Turnover of the business
– Additional covers opted for
 What Risks are not Covered in
the Policy?
• Excess: The first 0.5% of the AOA limit (subject to a
maximum of Rs. 2 lacs) for each claim is deducted from
the claim
• Liability assumed by any specific contract
• Loss of goodwill, market, etc.
• Punitive or exemplary damages
• Specific liabilities covered elsewhere such as liability due
to the use of a motor vehicle, aircraft, watercraft,
hovercraft, etc.
• Liability covered under Public Liability Act of 1991
• Liability arising due to war, civil war, etc.
• Liability due to radiation or contamination from
radioactivity.
 What is the Claims procedure?
• Liability claims are said to have a “long tail”, i.e., an incident occurring at
one point of time can produce an effect much later. Claims made vs.
occurrence coverage.
• So, the policy provides for special relaxations to the insured to register and
get claims from an Insurance company much after the first incident has
occurred provided the policy has been kept in force and all premiums paid
on time.
• Normal steps for making a claim are as follows:
– Inform Insurers as soon as possible of any incident, which may produce
a liability claim at a future date.
– The rule is to settle claims through the legal channel only. However, if
the liability is clear, the insurer may prefer to compromise the claim out
of court.
– The basic assessment is of actual monetary loss suffered due to the
incident. Some component of pain and suffering as well as loss of future
earnings also are considered.
– The peculiarity of a liability claim is that the insured does not have to do
very much except providing the Insurer the information asked for.
Insurer does the final settlement with the affected party.
 Directors’ and officers’ Liability
Policy
• Coverage: ‘Loss’ shall mean legal liability of the directors or officers to pay
damages or costs awarded against them and costs and expenses incurred
by the directors or Officers with the written consent of underwriters in
respect of investigation, defense or settlement of any claim.
• A wrongful Act shall mean actual or alleged breach of duty, breach of trust,
neglect, misstatement, misleading statement, omission, and breach of
warranty of authority or other act done or wrongly attempted by any Director
or Officers.
• Claims : Any writ or summons issued against or served upon any directors
or officers for any Wrongful Act, or,
• Any written communication alleging a wrongful Act communicated to any
Director or Officer.
• Loss arising from claim first made against the Directors or Officers where
company is required or permitted to indemnify the Directors or Officers
pursuant to the law, common or statutory, or the Memorandum and Articles
of Association
• Company reimbursement provision shall be applicable if such an obligation
is expressly mentioned in the Company’s Articles of Association or in an
agreement between the company and the concerned director or officers.
 Exclusions
• Legal action or litigation brought in a court of law within the Excluded
Territories
• Indemnity or payment is available from any source, other than the policy.
• Any actual or alleged bodily injury, sickness, disease or death of any person
or any tangible property, including loss of use thereof arising out of, any
actual or alleged seepage, pollution or contamination of any kind . (This is a
subject matter of public liability policy)
• Made by any third party based upon breach of any professional duty owed
to such third party. (This is a subject matter of a professional indemnity
policy).
• Brought about by any circumstances existing prior to or at the inception date
of the policy and which the directors or officers or the company knew or
ought reasonably to have known could give rise to a claim.
• For tax or fines or penalties or punitive or exemplary or multiple damages or
any claim deemed uninsurable under law.
• Based upon, actual or alleged libel, slander, infringement of copyright,
infringement of patent (separate policies can be availed of)
• Directly, resulting from goods or products manufactured or sold or supplied
by the company (this is a subject-matter of products liability policy).
 Professional Liability Insurance
• Also referred as Malpractice policies or errors-and-
omissions policies.
• Professional vs. other liability contracts
• Insurer needs consent of insured to settle claims out of
court as it may damage the reputation of the
professional.
• Limit of liability not by per accident but in terms of per
claim.
• The act that gives rise to the claim is not accidental but
deliberate.
• The policy responds to suits based on professional’s
error, mistake or malpractice but not to warranty
successful results.
 Commercial General Liability and
Commercial Umbrella Policy
• Under CGL one can insure general products and completed
operations liability; personal injury; advertising liability; medical
payments; and liability for damage to premises rented to the
insured. Two options for events that trigger coverage: claims made
and occurrence.
• Commercial umbrella policy is purchased to pay for catastrophic
losses. In this case the insurer will require primary insurance in form
of CGL, a business auto policy, workers compensation policy etc.
• Coverage under the umbrella includes property in the insured’s
care, custody and control, worldwide products coverage.
• Umbrellas are written with few exclusions, and endorsements are
used to limit coverage. However, in primary policies, endorsements
are used to broaden the coverage.
• For higher liability coverage, excess umbrella policies may be
purchased.
 Property Insurance- Non Life
Insurance
• Marine Insurance
• Motor Insurance
• Fire Insurance
• Health Insurance
• Project and Engineering Insurance
 Marine Insurance
• Ocean marine insurance
– Hull insurance
– Cargo insurance
– Protection and indemnity insurance
– Freight insurance
• Inland marine insurance
• Hull Insurance deals the Loss associated with
floating crafts, Cargo insurance provides cover
in respect of loss or damage to goods during
transit by rail, road, sea or air.
TYPES OF MARINE INSURANCE
POLICIES
• Voyage Policy
• Annual policy
• Open cover
• Duty policy
• Marine Cum Erection Policy
 MARINE CARGO SALE
CONTRACTS - TYPES
TYPE OF CONTRACT RESPONSIBILITY

FREE ON BOARD SELLER IS RESPONSIBLE TILL THE

(F.O.B) GOODS ARE PLACED ONBOARD.

COST & FREIGHT THE BUYERS RESPONSIBILITY STARTS

(C & F) FROM THE TIME THE GOODS ARE
PLACED ONBOARD

COST INSURANCE THE SELLER IS RESPONSIBLE FOR

& FREIGHT (C.I.F) ARRANGING INSURANCE WHICH IS
INCLUDED IN THE COST OF THE GOODS.
 MARINE CARGO SALE
CONTRACTS - TYPES
• The type of sale Contract determines the
person responsible for insurance
• This information is essential for considering
proposal for cargo insurance
• For Normal sales within the country, risk in the
goods moves from seller to buyer at the same
time the property is transferred
• It means that seller is responsible for any loss or
damage to goods until ownership passes to
buyer.
 MARINE CARGO SALE
CONTRACTS - TYPES
• In normal transactions the buyer is responsible
after the transfer is complete
• This does not apply to Export sales.In
international trade, Transfer of Risk & Transfer
of property (ownership) are separated.
• In FOB, C&F,CIF , the risk in the goods passes
to buyer once the goods are put on ship.
• However the ownership passes to buyer only
when he accepts the goods /documents in the
destination country.
A further security in the form of insurance
policy is also required by the bank to protect its
interest in case of goods suffering loss or
damage while in transit, in which case the
importer may not make the payment.

The terms and conditions of the insurance are

specified in the letter of CREDIT.
The RISKS covered in a marine policy falls
under three categories

•MARINE PERILS

•EXTRANEOUS PERILS

•WAR & STIRKES, RIOTS & CIVIL

COMMOTION RISKS (S.R.C.C)
MARINE PERILS : are the perils associated
with rivers, seas.

EXTRANEOUS PERILS: Ex: theft, pilferage

non delivery are some of the extraneous perils.

Loss due to WAR, STRIKES and CIVIL

COMMOTIONS (SRCC) can also be covered
under a Marine policy.

The consequences of these perils may result in

total loss.
 CARGO CLAIMS
• Types of Marine cargo Losses are:-
Total Loss - Actual or Constructive
Partial Loss – Particular Average,
General
Average
Expenses - Sue & Labour charges
Particular Charges
Salvage charges
Extra charges- Survey Fees
Sale charges etc.
 TOTAL LOSS
• Two Types  Actual Loss and Constructive
loss
• Actual Total loss :
• Goods completely lost / destroyed due to
Marine peril
• Measure of Compensation(Indemnity) is Full
Insured Value.
• Damaged to such extent that it is no longer a
thing of the kind insured (Fruits damaged)
• Insurers can take over the salvage
 TOTAL LOSS
• Constructive total loss
• It is a commercial loss only
• Occurs in following situations:-
• When subject matter Insured is
abandoned since Actual Total loss
is unavoidable
• When expenditure for Repairs or
Recovery exceeds value of subject
matter after Repair / Recovery
 PARTICULAR AVERAGE

A particular average loss is a partial loss of

subject matter insured. Deductions are as per
excess and franchise clauses.
 Example: If fire is discovered onboard a
laden vessel, the following items make up
the general average loss:

3. Cost of damage caused by water or any

other methods used to extinguish the fire
4. Cost of repair if the ships structure has to be
altered to gain access to fire.
5. Value of any cargo damaged or jettisoned
during efforts to control fire
6. Cost of using the ships equipment and the
wages of the crew during the general
average incident.
 GENERAL AVERAGE
• GA Losses – Shared proportionately by all
the interested persons w.r.t. risks In case
of GA Act, Ship owner has lien on goods
(security) for GA contribution from
consignee of goods
• Usually consignee executes a Bond
for this contribution.
• Bank guarantee/Deposit are also given
Example: A vessel runs aground in a
dangerous position

3. Cost of tugs to refloat the vessel including

salvage award
4. Cost of running ships equipment while
refloating
5. Cost of discharging cargo into lighters and
reloading into vessel.
6. cost of pollution removal if the cargo is
jettisoned and the value of the cargo lost.
7. stores consumed and wages paid to crew
during the general average incident.
SALVAGE LOSS:

With Marine cargo policies, the term is

often referred to as salvage loss. Ex. Say
goods insured are damaged enroute, and
the goods are such that they deteriorate
incase of prolonged storage or by they time
they reach their destination. It is then
prudent and sensible to dispose of the
same at an early date for the best price
obtainable. The difference between the
insured value and the net proceeds of the
sale becomes the salvage loss.
SUE & LABOUR CHARGES:

These are expenses incurred by the insured

or his agents in order to avert minimize a
loss covered by the policy. Example of such
charges are the landing cost at intermediate
ports , ware housing , reconditioning and re
forwarding. It should be noted that the
insured should always THINK AND ACT in
such manner as a UNINSURED would act.
 Fundamental concepts of ocean
marine insurance
• Covered Perils: Types of covers
– Institute Cargo Clause (C) : Named Peril basis
– Institute Cargo Clause (B) : Named Peril basis
– Institute Cargo Clause (A) offers the widest form of cover under Marine Cargo Insurance in
so far as it relates to the perils covered. ICC (A) is an unnamed perils clause.
• Particular Average : partial loss of or damage to the subject matter of insurance.
• General Average: when a sacrifice is made or an expense voluntarily incurred to
preserve the rest of a venture, the loss or expense should be shared among all the
interests involved in proportion to their value.
• General average is a voluntary and deliberate loss whereas particular average is
fortuitous or accidental.
• General average losses are borne rateably by all the interests, which benefit, but
particular average rests where it falls, and is recoverable from the insurer of the
particular subject matter lost or damaged.
• A general average loss may include expenditure, but particular average can only be
loss or damage of the subject matter insured caused by an insured peril and would
not embrace any expenses.
• Abandonment: The cession by the insured to the insurer of the remains of his
property, and rights relating to it, when a constructive total loss is claimed.
 Common clauses attached to an
Inland policy
• Warehouse to warehouse clause
• The Insurable Interest
• The Agreed Value: Normally insurance is taken for Invoice cost plus
Insurance charges plus 10% loading on the total figure.
• Factors determining premium:
– Commodity being transported;
– Types of packing;
– Mode of transport;
– Details of the Vessel used for the shipment;
– Length/duration of journey;
– Season in which the journey is to be undertaken;
– Volume of business;
– Claims experience of the Client and /or the commodity; and
– Voluntary excess (The minimum amount which an Insured agrees to
bear out of every claim, normally in consideration of a reduction in
premium rates)
 The exclusions
• Exclusions vary according to the type of cover opted.
However general exclusions are:
– Loss due to wilful misconduct of the insured.
– Ordinary leakage, ordinary losses in weight or volume or
ordinary wear & tear.
– Loss caused by insufficiency or unsuitability of packing.
– Loss proximately caused by delay, even though delay be caused
by a risk insured against.
– Loss caused by inherent nature of the subject matter insured
– Strikes, Riots and Civil Commotion Clause. These risks are
normally excluded but can be covered by payment of additional
premium
 INSTITUTE CARGO CLAUSES (A), (B) & (C)
Risks/Contingencies Covered by ICC(A):
a)All risks of loss or damage to the subject
matter insured except those specifically
excluded. The term “all risks” is not to be
construed as embracing loss or damage,
which is inevitable. The loss or damage, in
order to be recoverable, must have occurred
fortuitously.
b)General average and salvage charges
incurred to avoid loss from any cause or
causes except those excluded.
c)Liability under “Both to Blame Collision”
clause of the bill of lading.
d) Charges reasonably and properly incurred to
avert or minimize an insured loss and to
preserve and pursue recovery rights are also
covered (as per Duty of Assured Clause).

e) In the event of termination of the transit

resulting from a risk covered. EXTRA
CHARGES incurred in unloading, storing and
forwarding the insured cargo to destination
(as per the Forwarding Charges Clause).
Comparison between the institute cargo clauses (A), (B) &
(C) Cargo Clauses (A), (B) & (C)
A comparative analysis of the institute
Type of risks
Covered () not covered () A B C
Loss / damage reasonably attributable to:
1. Fire or explosion   
2. Vessel/Craft being stranded, grounded, sunk or
capsized.   
3. Overturning/derailment of land conveyance.  

4. Collision or contact of vessel, craft or conveyance
With any external object other then water.   
5. Discharge of cargo at a port of distress   
6. Earthquake, volcanic eruption, lightning   
7. General average and salvage charges incurred to
avoid loss from any cause except those excluded   
8. General average sacrifice   
 A B C
9. Jettison   
10. Washing overboard   
11. Entry of sea, lake or river water into the vessel,
craft, hold, conveyance, container, lift van or
place of storage.   
12. Rainwater damage   
13. Total loss of any package lost overboard or
dropped whilst loading or unloading from
vessel or craft.   
14. Piracy.   
15. Deliberate damage or destruction by wrongful act
of any person or persons, (i.e. by malicious acts)   
(Can be covered by malicious Damage Clause for
I.C.C (B) and (C) upon payment or extra premium)
16. In the event of frustration of the voyage resulting
from a risk covered, extra charges incurred in
unloading, storing and forwarding to destination   
 A B C
17. Reasonable charges for averting or minimizing loss
recoverable under this insurance and also those
incurred, to pursue recovery rights against carriers,
bailees or third parties.   
18. Other or extraneous perils all involving a fourtuity
and from external causes(s), for example:
 Damage as a result of shifting in heavy weather   
 Improper stowage   
 Rough handling   
 Breakage, leakage, denting, scratching, crushing,
 crumpling, chipping, chafage   
 Heating sweating   
 Infestation, mould, mildew, rust, county damage   
 Hook and sling damage   
 Contact with mud, oils and acids, damage by
 other cargo   
 Shortage, theft, pilferage, non-delivery   
 Other loss/damage caused fortuitously and from
 external cause or causes   
 A B C
19. liability under “Both to blame collision” Clause of
Bill of Lading.   
 COMMON EXCLUSIONS
• Loss, damage or expenses attributable to willful misconduct of
the assured
• Ordinary or inevitable losses
• Loss, damage or expense caused by inherent vice or nature of
the subject matter insured
• Loss/damage due to insufficient, unsuitable or defective packing
(including stowage)
• Loss/damage or expenses proximately caused by delay even if
the delay is caused by a peril insured against
• Loss damage or expenses arising from insolvency of the
owners, managers, charterers or operators of the vessel.
• Loss damage due to un seaworthiness of the vessel or craft,
container, lift van employed for carrying the insured matter.
• Wars, strikes and civil commotions unless covered under
separate endorsements.
 Carriage of goods by Rail
• Effective from 1st July, 1990 the new Indian Railways Act, 1989
came into force, replacing the earlier Act of 1890.
• The liability of the railways is of a common carrier so long as the
goods are in transit and that of a bailee (under Sections 151, 152
and 161 of the Indian Contract Act, 1872) for a period of 7 days
thereafter. The liability of the railways ceases on expiry of 7 days
after termination of the transit.
• The liability of a common carrier is absolute as that of an insurer of
goods for any loss, damage, destruction, deterioration, short or non-
delivery, save and except where such loss, damage, etc. is caused
on account of act of God, enemies of state, inherent vice or fault of
the consignee himself.
• Liability of a bailee,on the other hand, is only for failure to take
reasonable care, that is for negligence and misconduct on his part
or on the part of his servants.
• Goods carried at owner’s risk rate
 Other Modes of Transport
• Carriage of goods by Road: The Carriers Act 1865
governs liability of road transporters, according to which
anyone who carries goods not belonging to him for hire
or reward is a common carrier. The common carrier may
limit his liability by a special contract, if he chooses to do
so. Otherwise his liability is absolute ‘’as of an insurer” of
the goods.
• Multimodal Transportation Of Goods Act, 1993
• The MTO remains responsible for the goods throughout
the period from the time he takes them in his charge until
the time of their delivery. The MTO shall be liable for loss
resulting from:
– Any loss of or damage to the consignment;
– Delay in delivery of the consignment and any
consequential’ loss/damage arising from such delay,
 Cargo claims procedure
summary
• You should inspect cargo on arrival;
• You must hold the transport operators liable for any loss or damage;
• You should contact the nearest claims settling agent;
• A surveyor may be required to determine the nature, cause and extent of
loss/damage; and
• Act swiftly - the cargo remains your property.
• Documentation that is usually required when presenting a claim includes:
– Bill of Lading/Air Waybill
– Commercial Invoice
– Insurance Certificate
– Copy of notice of claim reported against carrier
– Documentation relating to out-turn/receipt of goods
– Local Carriers Waybill, where applicable
– Copy of temperature records, where available
– Invoices to confirm salvage/sale price, where applicable
– Copy of instructions to carrier regarding carriage temperature, where applicable
– Note: For a marine insurance claim to be paid, insurers require:
– evidence of physical damage to cargo; and
– complete documentation.
 Motor Insurance
Divided into Three Broad categories of vehicles for the
purpose of Insurance
Private Cars
Motor Cycles/Scooters
Commercial Vehicles
• MV Act originally passed in 1939
• Far reaching wide amendments made-
1988MV Act provides for compulsory
Insurance against third party
Loss/Damage
• Compulsory Insurance applies only when
the vehicle is used in a public place
(Public Roads)
• Compulsory insurance is reqd for follg:-
• Compensation for
• * Death, Injury to third parties,
• * Property Damage
• Third persons/parties include:
• Owner of goods / Authorised
representative carried in the vehicle
• Passenger of Public service vehicle
• Maxm. Limit of compensation / liability
covered by a compulsory Ins. Policy for
any one accident is:-
• Death/Injury to any person –Unlimited
• Property Damage to III party- Rs.6000/-
• Sec 140 of Motor Vehicle Act 1988
• Owner of vehicle to pay compensation for Damage /
Injury from an accident
• Claimant need not prove negligence of the Motorist
• Liability is automatic
• Amt. of compensation is:-
• For Death…… ……………Rs.50000/-
• For permanent Disablement Rs.25000/-
• After receiving the above amount ,the claimant can also
proceed for compensation under other provisions of the
Act(Fault & Negligence)
 ACCIDENT AND MOTOR
INSURANCE
• Material Information in Motor Insurance
– cubic capacity of engine;
– the year of manufacture;
– carrying capacity of the vehicle;
– the purpose for which the vehicle is used;
– the geographical area in which it is used; and
– the owner’s or driver’s convictions for traffic
offences etc.
• Two types of policies –Liability only
• Package
• LIABILITY ONLY POLICY
• covers only third party damages
• Extent of cover as stipulated under MV
Act
• PACKAGE POLICY
• Known as “Comprehensive policy”
• Covers both Third party & Vehicle Damage Can
be extended to cover additional liabilities also.
 Types of Coverage
• Liability policy (informally called third party policy): Third Party Liability for
bodily injury and/ or death and Property Damage and Personal Accident
Cover for Owner-Driver.
• Package policy covers loss to insureds' vehicle on account of
– Fire, explosion, self ignition or lightning
– Burglary housebreaking or theft
– Riot and strike, malicious act, and terrorist activity
– Earthquake (fire and shock damage)
– Flood, typhoon, hurricane, storm, tempest, inundation, cyclone,
hailstorm, and frost.
– Accidental external means
– Whilst in transit by road, rail, inland-waterway, lift, elevator or air
– Landslide and rockslide.
• additional benefits on payment of extra premium include:
• Damage to the Electrical / Electronic fittings not part of standard
equipment of the vehicle.
• Damage to the CNG/LPG Fuel Kit System
• Liability to the paid driver in excess of that is provided by WC Act
1923.
• Personal Accident cover for occupants
• Legal liability to employees while traveling or driving (not as paid
driver)
 Personal Accident (PA) Cover
• applicable under both Liability Only and Package
policies.
• The owner of insured vehicle holding an ‘effective’
driving license is termed as Owner-Driver
• Cover is provided to the Owner-Driver whilst driving the
vehicle including mounting into/ dismounting from or
traveling in the insured vehicle as a co–driver.
• PA cover cannot be granted where a vehicle is owned by
a company, a partnership firm or a similar body
corporate.
• Where the owner-driver owns more than one vehicle,
compulsory PA cover can be granted for only one
vehicle as opted by him/her.
 Personal Accident (PA) Cover
TYPE OF CAPITAL PREMIUM COVER
VEHICLES SUM (Rs.)
INSURED
Motorised Rs.1 lakh 50/- i) 100% of CSI for Death, Loss
Two of Two Limbs or sight of both
Wheelers eyes or one limb and sight of
one eye.
Private ii) 50% of CSI for Loss of one
Rs.2 lakh 100/- Limb or sight of one
Cars
eye.iii)100% for Permanent
Total Disablement from
Commerci injuries other than named
al vehicles above.
iii) 100% for Permanent Total
Disablement from injuries
other than named above.
 Optional Personal Accident
Cover for persons other than
Owner-Driver
• The cover under this section is limited to maximum
Capital Sum Insured (CSI) of Rs. 2 lacs. per person.
• Cover is available only in respect of
– Private Cars, three wheelers rated as Private cars and
Motorized Two Wheelers (not used for hire or reward) with or
without side car
• For insured or any named person other than the paid driver and
cleaner.
• For unnamed passengers limited to the registered carrying
capacity of the vehicle other than the insured, his paid driver and
cleaner.
– In respect of all classes of vehicles: For paid drivers, cleaners
and conductors.
 Scope of the cover, Capital Sum
Insured and the annual premium
DESCRIPTION OF % OF
payable
PREMIUM FOR EVERY UNIT OF CSI
BENEFITS CAPITAL SUM OF Rs.10,000/- OR PART THEREOF
INSURED (IN Rs)
Pvt.Car Mot.TwoWheeler Com.Veh.
i) Death only 100% 5 7 6
ii) Loss of Two 100%
5 7 6
Limbs or sight of
two eyes or one
limb and sight of
one eye
iii) Loss of one 50%
5 7 6
Limb or Sight of
one eye
iv) Permanent 100%
5 7 6
Total Disablement
from injuries other
than named above
• AS AN ILLUSTRATION
• Rates of Premium depend on the following
• Private Cars
• *Cubic capacity as given by manufacturers
*Insureds’ declared Declared Value
• *Zone of operation
• *Extent of cover – TP / Own Damage
• Buses
• *Number of Passengers
• *Insured’s Declared Value
 EXCLUSIONS
• Consequential loss
• Depreciation
• Wear & TearMechanical & Electrical Breakdown
/ Failure / Breakage
• Damage to Tyres
• If the vehicle is also damaged along with Tyres
then only damage to tyres is allowed up to 50%
of replacement cost.
• Loss/Damage when vehicle is driven under the
influence of Intoxicating Drugs/ Liquor
 EXCLUSIONS
• Damage caused by overloading or strain of the vehicle
not covered
• Compulsory Excess to be borne by the Insured
• Loss of lamps/Tyres, Mudguards, Bonnet side parts,
Bumpers, Paint work not payable
• However if there is total loss of vehicle then the above is
covered.
• Repairs to be carried out with Insurer’s Authorisation.
• Exception is made if the cost of repairs not more than
Rs.500,(Rs.150/- for Motor cycles) &Insurers are
furnished with detailed estimate.
Extension of Geographical Area
• The Geographical Area of Motor Policies may be
extended by payment of a flat additional
premium to include:
• Bangladesh
• Bhutan
• Nepal
• Pakistan
• Sri Lanka
• Maldives
 Vintage Cars & Classic Cars
• Vintage car. :Any car manufactured prior to 31-
12-1940 and duly certified by the Vintage and
Classic Car Club of India.
• Classic Car : Any car manufactured after 31-12-
1940, but before 31-12-1970.
• Valued Policies: Under an Agreed Value Policy
a specified sum agreed as the insured value of
the vehicle is paid as compensation in case of
Total Loss/ Constructive Total Loss of the
vehicle without any deduction for depreciation.
• It is not permitted to issue Agreed Value Policies
excepting for policies covering vintage cars.
 Insured’s Declared Value (IDV)
• The Insured’s Declared Value (IDV) of the vehicle is deemed to be the ‘SUM
INSURED’ for the purpose of this tariff and it is fixed at the commencement
of each policy period for each insured vehicle.
• The IDV of the vehicle is to be fixed on the basis of manufacturer’s listed
selling price of the brand and model as the vehicle proposed for insurance
at the commencement of insurance /renewal and adjusted for depreciation
(as per schedule specified below).
• Schedule of Depreciation for Arriving at IDV
• Age of the Vehicle % of Depreciation for Fixing IDV
• Not exceeding 6 months 5%
• Exceeding 6 months but not exceeding 1 year 15%
• Exceeding 1 year but not exceeding 2 years 20%
• Exceeding 2 years but not exceeding 3 years 30%
• Exceeding 3 years but not exceeding 4 years 40%
• Exceeding 4 years but not exceeding 5 years 50%
• Depreciation on Parts for Partial Loss Claims: as provided by tarrif.
Basis of Premium Calculation
TARIFF FOR PRIVATE CAR
• Insured’s Declared Value (IDV) of the
vehicle
• Cubic Capacity
• Geographical Zones
– Zone A: Ahmedabad, Bangalore, Chennai,
Hyderabad , Kolkata, Mumbai, New Delhi and Pune.
– Zone B: Rest of India
• Age of the vehicle
 SCHEDULE OF PREMIUM
for Own Damage Cover
ZONE B ZONE A

Age
of

vehicle CUBIC CAPACITY CUBIC CAPACITY

Not exceed Exceed -ing Exceeed-ing Not exceed Exceeding Exceeding

-ing 1000cc but 1500 cc -ing 1000cc but 1500 cc
not exceed not exceed
1000 cc 1000 cc
-ing 1500 cc -ing 1500 cc
Not
exceeding
5 years 3.039 % on 3.191 % on 3.343 % on 3.127 % on 3.283 % on 3.440 % on
IDV IDV IDV IDV IDV IDV
Exceeding 5 3.191 % on 3.351 % on 3.510 % on 3.283 % on 3.447 % on 3.612 % on
years but not IDV IDV IDV IDV IDV IDV
exceeding 10
years
Exceeding 3.267 % on 3.430 % on 3.594 % on 3.362 % on 3.529 % on 3.698 % on
10 years IDV IDV IDV IDV IDV IDV
 DISCOUNTS
• No Claim Bonus
• Automobile Association Discount
• Discount for Vintage Car
• Discount for Anti-Theft Devices Voluntary deductibles
VOLUNTARY DISCOUNT
DEDUCTIBLE
Rs. 2500 20% on the OD premium of the vehicle,
subject to a maximum of Rs. 750/-
Rs. 5000 25% on the OD premium of the vehicle,
subject to a maximum of Rs. 1500/-
Rs. 7500 30% on the OD premium of the vehicle,
subject to a maximum of Rs. 2000/-
Rs. 15000 35% on the OD premium of the vehicle,
subject to a maximum of Rs. 2500/-
 No Claim Bonus
• The entitlement of NCB follows the fortune of the original insured.
• The percentage of NCB earned on a vehicle owned by an institution during the period
when it was exclusively operated by an employee should be passed on to the
employee if the ownership of the vehicle is transferred in the name of the employee.
• In the event of transfer of insurance from one insurer to another insurer, the
transferee insurer may allow the same NCB, which the insured would have received,
from the previous insurer.
• If an insured vehicle is sold and not replaced immediately, or laid up, and the policy is
not renewed immediately after expiry, NCB, if any, may be granted on a subsequent
insurance, provided such fresh insurance is effected within 3 (three) years from the
expiry of the previous insurance.
• On production of evidence of having earned NCB abroad, an insured may be granted
NCB on a new policy taken out in India as per entitlement earned abroad, if policy is
taken out in India within three years of expiry of the overseas insurance policy.
• No NCB can be allowed when a policy is not renewed within 90 days of its expiry.
• NCB is to be allowed only when the vehicle has been insured continuously for a
period of 12 months without any break.
Period of Insurance % of NCB on OD premium
The preceding year 20 %
Preceding Two consecutive years 25 %
Preceding Three consecutive years 35 %
Preceding Four consecutive years 45 %
Preceding Five consecutive years 50 %
 LIMITATIONS AS TO USE
• The Policy covers use of the vehicle for any
purpose other than
– Hire or Reward
– Carriage of goods (other than samples or personal
luggage)
– Organized racing
– Pace making
– Speed testing
– Reliability Trials
– Use in connection with Motor Trade
LIMITS OF LIABILITY FOR THIRD
PARTY
• Under Section II -1 (i) As per requirements of
of the Package Motor Vehicle Act, 1988
policy Under Section 1
(i) of the Liability Only
Policy)
a) Under Section II –1 Rs. 7.5 lakhs or
(ii) of the Package Rs.6,000/-, where the
policy proposer / insured opts
(Under Section 1(ii) of to limit the TPPD liability
the Liability Only Policy) to the statutory limit of
Rs.6000/-.
 CLAIMS
• Own (vehicle) Damage Claims
• On receipt of notice of loss, the Insurer
checks whether the policy is in force, and that
the vehicle is covered by the policy
• Loss is entered in claim Register
• Claim form is issued to the Insured
• Insured reqd. to furnish the estimate of repairs.
• Second estimate from another Repairer
required if Insurer believes Moral
Hazard/Integrity of the first repairer is in doubt.
 CLAIMS
• Survey Report is examined
• Settlement effected accordinglyInsurer will
authorise Repairer directly for
repairs.Repairers are to collect Salvage/
Amount of Excess from the Insured if
applicable Salvage is to be returned to
InsurerIf the salvage is not returned,the
value is deducted from the claim amount
 CLAIMS
• On submission of final Bill of Repairer &
Insureds’ Satisfaction Note on Repairs, payment
is effected
• Sometimes Insured pays the Repairers and in
turn receives the Insurance claim
• In both cases Discharge voucher is obtained
• Claim payment is recorded in Claim Regr.,
Policy/Renewal Records
• Amount paid, Salvage Amount received are also
indicated therein
 CLAIMS
• Besides claim form, Survey Report, other
documents for claim processing are:-
• Driving Licence
• Police Report
• Final Repair Bills
• Permit
• RC Book
• Fitness certificate
• Insureds’ satisfaction Note
• Receipted Bill if paid by Insured
 CLAIMS
• Such claims occur when Surveyor finds that
• *Vehicle is beyond repairs
• *Repairs are not economical.
• Surveyor negotiates with Insured to assess the
loss on Total loss basis
• Total loss claims are based on Market value of
vehicle immediately prior to loss
• Insured will be paid cash and salvage taken over
by the Insurer
• Salvage is disposed of by the Insurer thro tender
advertisements in Newspapers
 CLAIMS
• Total loss also arises due to vehicle theft
FIR(First Information Report) is lodged with the
Police by the Insured Police Authorities register
theft complaint
• They allot a Number- Station Diary Number
• OR Crime Register Number
• This Number is to be mentioned in claim
form.After reasonable time, if the police are not
able to trace the vehicle, they issue Non-
traceability certificate. This certificate is essential
for settlement of claim
 CLAIMS
• Documents to be furnished by the Insured
are same as in Total loss claims If RC
Book, Tax certificate are also stolen
• duplicate should be obtained & furnished
Only additional documents are:
• Letter by Insured to RTO about theft
• Filing Non user form to avoid further
• Road Tax payment
 TP CLAIMS
• TP claims are settled thro’ MACT
• MACTs are set up by State Govts.,under sec.165 of MV
Act 1988
• If there is a tribunal in an area, civil court has no
jurisdiction over claims coming under the tribunal.
• Claim before tribunal should be filed before 6 months
from accident date.
• Tribunal should specify the amount payable by the
Insurer, in the award
• Tribunal should arrange to deliver within 15 days copy
of award to concerned parties (contd)
 Procedure for TP claims
• On receipt of notice of claim, the Insurer entrusts
the same to Advocate
• Full informn. about accident is obtained
• Follg.documents are obtained:
• Driving Licence,Police Report,Med.certificate
• Details of Age, Income,Dependants etc
• Details of Driver’s prosecution
• Death certificate /Coroner’s certificate
• A written statement is filed in MACT about
– facts of the case by the Advocate
– Award amount paid against proper receipt.
 Indian Insurance Industry
• Ist Life Insurer in India-Bombay Mutual Life
Insurance Society -1870
• Ist Non Life Insurer in India-Tritan Insurance Co.
Ltd – 1850 Insurance Act, 1938
• Nationalisation of Life Insurance Industry –
Incorporation of LIC – 1956
• Nationalisation of General Insurance Business –
GIBNA, 1972
• Opening up of Insurance Industry - IRDA Act,
1999
• Public Grievances (Ombudsman) Rules, 1998
• Regulations of IRDA
• De-tariffing of Non Life (P&C) industry – January,
2007
INSURANCE MARKET GROWTH 

Phase I Phase II Phase III

S-Curve of
Insurance Market Nascent Transitional Fully Mature
Development Market Market Market

Insurance
Penetration
(Premiums /
GDP)
 India  US
 China  Japan
 UK
 Brazil
 South
Korea

Economic Development of Country

(GDP / Capita)
Source: Swiss Re Economic Research & Consulting, Swiss Re Sigma
Insurance Market Potential in India
Phase Three Phase Two Phase One

Criteria US Brazil China India

Economic Strength

Regulatory Environment

Competitive Environment

Consumer Demand

Established Distribution

Source – Swiss Re Sigma

 Effects of liberalisation on critical
parameters
25,000
20,000 4,330
Millions

3,707 Total Premium Volume

15,000 3,197
2,573 increased by a 5-year 20%
10,000 2,338 16,919
10,504 12,275 14,425 compound annual
5,000 7,595
growth rate
-
2000 2001 2002 2003 2004
Total Life Premium Total Nonlife Premium

20%
4.0%
16% 3.5%
3.0%
12% Insurance Density increased
2.4%
2.3%
8%
12.9%
15.7% by a 5-year 18% compound
11.7%
4% 7.6% 9.1%
annual growth rate
0%
2000 2001 2002 2003 2004
Life Premium Per C apita Nonlife Premium Per C apita

3.5%
3.0% 0.67% 0.65%
2.5% 0.62%
0.55%
0.56% Insurance Penetration can
2.0%
1.5% be described as “embryonic”
2.59% 2.26% 2.52%
2.15%
1.0% 1.77% at this stage
0.5%
0.0%
2000 2001 2002 2003 2004
Life Premium % GDP Nonlife Premium % GDP

Sources: Swiss Re/sigma

 Peer Growth Potential Comparison

Total Premium Volume 2001-2004 Premium per Capita 2001-2004

compound annual growth rate compound annual growth rate

India 20%
India 18%
Brazil 10%
Brazil 8%
Russia 33% Russia 34%
China 25% China 25%

0% 10% 20% 30% 40% 0% 10% 20% 30% 40%

2004 Penetration
4
3.5 High growth and low penetration
3 0.65 position India, Russia and China for
1.05
2.5
1.63 unlimited market development
2
2.21
1.5 potential. India has put in place the
2.53 2.21
1 liberalization and regulation process
1.36
0.5 0.62 to make it happen.
0
India Brazil Russia China
Life Premium % of GDP Nonlife Premium % of GDP

Sources: EIU DataServices, Swiss Re/sigma

 Insurance Penetration
(% of Premium to GDP)
Market 2003 2004 2005

World 8.06 7.99 7.52

Asia 7.51 7.37 6.83

India 2.88 3.17 3.14

Steadfast growth of Industry
(raising penetration levels)

Insurance Penetratin

3.26 3.17
2.71 3.14
2.32 2.88
1.93

1999 2000 2001 2002 2003 2004 2005

Year

Insurance Penetratin
 Insurance Density
(% of Premium to Total Population)
Market 2003 2004 2005

World 469.6 511.5 518.5

Asia 183.4 194.3 197.9

India 16.4 19.7 22.7

 Steadfast growth of Industry
(raising density levels)

22.7
Insurance Density

14.7 19.7
16.4
9.9
11.5
8.5

1999 2000 2001 2002 2003 2004 2005

Year

Insurance Density
 Financial Services-Still a long way to
go
• Savings accounts 30
• Insurance Policies 04
• Shares and Mutual Funds 02
• General Insurance 2.5
• Health Insurance 0.2
• Credit Cards 03
• Debit Cards 5.6
• Small Overdrafts 3.6
• Entrepreneurial Credit 02
Figures in % of population

Source – India today

Financial Savings of Household
Sector
(% to GDP)
Item 2003-04 2004-05 2005-06

Bank 37.4 36.4 46.7

Deposits
Shares & 0.1 1.1 4.9
Debenture
Insurance 13.7 16.0 14.2
Funds
 Non-life at a Promising Stage
Gross Written Premiums
2002
Government-owned Companies
Privately-owned Companies
2005
Government-owned Companies
Privately-owned Companies
Sources: Swiss Re/sigma
* government-owned
 Despite its low penetration, non-
life premiums have increased by a
14% CAGR from 1999-2004.
 The private sector companies are
growing aggressively and
developing new products, sales
and distribution infrastructure.
 Private players have increased
market share from 6% in 2002 to
over 27% in 2005.
 The four state companies have
also benefited from competition,
streamlining operations, investing
in IT technology and launching
new products.
Booming Insurance Industry

Premium 2003-04 2004-05 2005-06

Growth
Life 18.91% 24.31% 27.78%
India
Non Life 11.16% 12.09% 15.61%
India
Global 11.71% 9.70% 4.90%
Increase in Premium Volumes
Expansion of market size

Increase in Premium Volumes

4000.00
Total Premium ($)

3000.00
2000.00
1000.00
0.00
1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06
Year

Life Non Life Total

 Growing Number
Indication of furthering penetration

52.89
47.25
No of New Policies sold

43.56 41.73
35.46
(million)

28.63
25.37 26.21

2002-03 2003-04 2004-05 2005-06

Year

Life Non Life

Market Share of Private players
Indication of increasing acceptance levels

16.91
Companies (No. of New
Market Share of Private

Policies Issued)

10.81 10.91
7.91
8.52
3.85
5.79
3.25

2002-03 2003-04 2004-05 2005-06

Year

Life Non Life

Growth of Unit Linked Funds
UL Funds under Management ($
Increased level of awareness

70000
64720.33
60000
50000
million)

40000
30000
20000 18818.6
10000 0.01
4220.77
0 664.77 0.48 1.76 5.31
2002-03 2003-04 2004-05 2005-06
Year

Total ULIP Funds % to Total Funds

 Opening up of Insurance Sector
Expectations
• Increased Coverage of population - including rural

• Choice of better products – with informed decision

• Economy of operations

• Better returns

• Service Excellence
 Regulator as Developer
• Shouldering the responsibility of developing
nascent insurance market
• Striking a right balance between developing
and regulating the industry
• Protection of Policy holders’ Interests – Mission
of IRDA
• Interests of policy holders prime objective while
framing regulations
 Regulatory role - consumer
protection
• Insurance Advertisement and Disclosures
regulations, 2000
• Protection of Policy holders’ interests
regulations, 2002
• Maintenance of Minimum Solvency Margins
• Introduction of cashless transactions – TPAs
 Regulatory role - consumer
protection
• Widening of Distribution Channels – Increased
Insurance accessibility
• Regulatory norms for intermediaries
– Licensing of Insurance (individual) Agents – 2000
– Licensing of Corporate Agents – 2002
– Insurance Brokers – 2002
• Entry of Banks under ‘Bancassurance’ model
• Mandatory Training, Pre-recruitment exam before
licensing
• Accreditation of Training Institutes – Upkeep of
training standards for intermediaries
 Regulatory role - consumer
protection
• Monitoring of underwriting policy through File
and Use
• Constitution of Grievances Redressal Cell
– Indication of operational inadequacies – triggering
regulatory intervention
• Committee to study existing grievances’
mechanism to formulate uniform guidelines
 Development Oriented Regulations
Spread of Insurance to all sections

Rural and Social Sector Obligations

Rural Sector - Cultivators

- Agri labourers
- Rural assets
Social Sector - Unorganised sector
- BPL population
- Persons with disabilities
- Informal sector
 Rural and Social Sector
Obligations
• Life Insurers – 7,9,12,14,16 & 18% of total
policies in first six years of operation as rural
obligations
• General Insurers – 2,3 & 5% of total gross
premium in I, II and subsequent years as rural
obligations
• Five, Seven, Ten, Fifteen, Twenty and Twenty
five thousand of lives as social sector
obligations by all insurers in first six years of
operation
 Development Oriented Regulations
Spread of Insurance through Micro
Insurance
• Micro Insurance Agency by agreement – A
relaxation from pre licensing training/test
• Local Institutions as MI agents – Helps in
spread of Insurance awareness
• Micro Insurance Products subject to File and
Use procedure – Expected to be self
supportive
• Issuance of documents in vernacular
languages – to reach the targeted
• Simplicity of forms – Avoidance of technical
jargons desired
Grievances Redressal Mechanism
Ombudsman

• Introduction of Insurance Ombudsman –

1998
• A quasi judicial mechanism – Empowering
adjudication of disputes
• Adjudication limited to personal lines of
business – A limit of Rs 2 millions contract
value
• Award binding on Insurer
 Insurance Education
• Lower level of insurance awareness
• Insurance not part of academic curricula
• Market dynamics weigh on insurance education
• Constitution of standalone Insurance academic
institution of International standards
– IIRM
– IIRM International School of Actuarial Sciences
– Distance Education programmes
 Insurance Awareness Programmes
• Programmes in Radio and Television – In 11
regional languages

• Publicity campaign in de tariffed scenario

• Efforts to standardise policy documents,

proposal forms, sales literatures

• Press Releases
 Role of Insurers

• Simplified policy wordings – Avoidance of

information asymmetry
• Updated web portals – premium calculator,
rates and conditions
• 24 hours toll free call numbers
• Implementation of advanced Technologies
 Role of Insurers
• Grievances Redressal cells – Constitution
of committees with an independent
director
• Claims review committees
• Introduction of on-line payments
• Representatives of consumer activists,
policy holders in the board
 Increased Public participation
• Seminars by voluntary organisations
• Works shops on health insurance, Micro
Insurance
• Consumers’ organisations
• Notices under Right to Information Act