Insurance Manual Ver 1

INSURANCE
MANUAL
Version: 1.1
TATA Consultancy Services

2nd Feb 2000
TATA Consultancy Services Insurance Manual (Version 1.0)
Revision History
Author Date Version Change Details

Shankar B.G. 26 Nov 99 1.0 Initial
Sanjay Patil
Kishan Kumar
Sanjay Patil 2nd Feb 1.1 Added Chapter 2 – Insurance

2000 basics
TCS CONFIDENTIAL Page 2 of 74

TATA Consultancy Services Insurance Manual
(Version 1.0)
Table of Contents
1Introduction......................................................................................... ...........................4
2.Insurance Basics.............................................................................................. .............5
2.1 Need for Insurance............................................................................................. 5
2.2 Risk ......................................................................................................... ..........5
2.3 Principles of Insurance .................................................................... .................6
2.4 Benefits of Insurance................................................................... ......................8
................................................................................................................. ................8
2.5 Business Functions ...................................................................................... ....8
.................................................................................................................. ...............10
3Life cycle of a policy................................................................................ .....................12
3.1 Principles of Life Insurance ................................................ .............................14
3.2 Various types of Life Assurance Policies............................................... ............15
2Policy Servicing................................................................................................ ............19
4.1 New Business............................................................................................ .......19
4.2 Endorsements ....................................................................................... ..........26
4.3 Reinsurance................................................................................... ..................28
4.4 Claims ................................................................................................... ..........29
3Premium Calculation............................................................................... .....................33
4Product Features................................................................................................... .......39
5Agent....................................................................................................................... .....43
6General Insurance................................................................................................ ........45
8.1 Quote..................................................................................................... ..........46
8.2 New Business............................................................................................ .......46
8.3 Policy Enquiry..................................................................... .............................47
8.4 Endorsement..................................................................... ..............................48
8.5 Renewal....................................................................................... ....................48
8.6 Claims.................................................................................................... ..........49
8.6 Premium Accounting.......................................................................... ..............50
8.7 General Ledger......................................................................... .......................50
8.8 Reinsurance................................................................................... ..................50
7Insurance Dictionary.................................................................................................. ...52
9.1 Life Insurance....................................................................... ...........................52
9.2 Investment, Annuity and Pension................................................................ .....57
9.3 General Insurance....................................................................................... .....62
9.4 SuperAnnuation.......................................................................... .....................66
......................................................................................................................... .............66
8 Popular Packages................................................................................. .....................68
10.1 CLOAS............................................................................................. ...............68
10.2 HUON Application............................................................ ..............................70
9 Insurance Products.......................................................................... ...........................72
12 Glossary of Terms...................................................................... ..............................73
APPENDIX...................................................................................................... ...............74
Appendix A DFD for New Business ......................................................... ...............75
Appendix B DFD for Endorsement.................................................................... ......76
Appendix C DFD for Claims Death........................................................................ ..78
Appendix D DFD for Claims Maturity.............................................................. ........79
Appendix E DFD for Reinsurance ........................................... ...............................81
Appendix F DFD for Premium Accounting.............................................................. .82
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1 Introduction
Insurance provides financial protection against some of the uncertainties in
life. Evidence exists of burial societies as far back as the days of the Roman
Empire, where the members contributed to a fund and had their burial costs
met by the society. Over a period of time Insurance has grown into an
multifaceted industry encompassing all areas of society. The present day
Insurance can be broadly classified as Life Insurance, General Insurance and
Health Insurance.
The scientific basis for conducting life assurance was developed by a

mathematics teacher James Dodson, who realized that the premiums paid
into the fund rested on the principle of probability, i.e., how likely it was that
the person might die. He produced the first mortality table – a table showing
the numbers of people who died at each age between the years 1756 and
1759. Using this mortality table, compound interest and probability he
calculated a premium for each age which would remain fixed for life and
which would yield a guaranteed sum on death.
This system became known as the Level Premium System and it has been
modified to form the basis of the many life assurance contracts available
today. The present day Insurance covers not only risk but is also a medium of
savings and pension.
Insurance - Normally refers to protection against a loss resulting from an

Accident which may or may not happen e.g., Motor insurance
Assurance - Refers to protection against the occurrence of something bound

to happen, e.g., Life assurance.
Life Assurance is a contract which is bound to produce a death benefit,

although this is not always the case. Usually, it is a long-term contract for
which the premium is fixed and cannot normally be lowered or raised.
In comparison, General Insurance contracts are for a term of one year and
must be renewed at the end of the term. Short-term contracts are also
available for Holiday and Travel. At each renewal the case is reviewed and
premiums depend on the Claim history. If there is no claim the insured will get
a discount in premium.
This Document deals with both Life Insurance and General Insurance. It gives
a indepth analysis about the various process in the business of Insurance and
also talks about the Insurance Products available in the market.

2. Insurance Basics
2.1 Need for Insurance
Insurance exists because people need security. Individuals or organisations

constantly run risks like accidents, thefts, loss due to fire, arson, injury at work,
business interruption etc. They want to carry on their everyday life and business
and at the same time do not wish to be exposed financially to all the risks
involved in their endeavors. Insurance gives them the security they need and
relief from a great deal of financial hardship. The individual or organisation
seeking insurance is referred to as the ‘insured’ and the person or company that
insures them as the ‘insurer’.
How does the insurer provide this security ?
The fable of the pig that died.
The insurer because of long experience in dealing with risk, knows that it is not
everyone who will suffer loss due to risk occurrence based on Law of Averages.
The insurer is able to offer protection by grouping together a large number of
people who feel exposed to the same form of risk. The Law of Large Numbers
dictates that larger the group of similar exposure units, the closer the actual
losses experienced will approach those that can be anticipated. By collecting an
amount of money (‘premium’) from each person in the group, the insurer
accumulates a fund out of which the losses suffered by the few who become
victims can be paid. The premium paid to the insurer will be very small in
comparison with the value of the insured subject.
 Other concepts defining insurance
Spreading risk among many so that a single party will not lose everything
2.2 Risk
 Possibility of an undesirable occurrence

 Absent minded surgeon
 We are running a risk by insufficient outlay for fire prevention
 Uncertainty regarding a particular loss - whether it will occur or not
 Subject of Insurance
The risk to be insured is a petrol station
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 Risk flow
Fundamental Risks cannot be controlled even partially by any one person. Risks
are present in the forces of economy, nature etc. and governments would deal
with the consequences of such events.
Speculative Risk is present if either beneficial or adverse outcome could stem

from a specific event => wagering.
If possible harm or damage is the only outcome, the situation is one of Pure Risk.
Risk Management : Risk identification, Measurement and Control.
 Risk characteristics
Not all risks are insurable. To deserve insurance, a risk should have the following
characteristics:
 It must involve a loss that can be measured in monetary terms. Eg. Obsolescence is
not insurable
 There must exist a large number of similar risks. However, one-off risks may also be
insured, but the premium will be very high and prohibitive. Eg. Space vehicles
 Insurance should not aim at profit making. It should be for security. Eg. A shop
cannot insure to have guaranteed profits
 A loss must be entirely fortuitous or accidental. Eg. Loss should not be pre-mediated
 Insurance must not be against public good. Eg. Penalties for traffic rules violation
 The person insuring should be the person who will suffer if loss occurs.
2.3 Principles of Insurance
 Insurable interest
Person insuring should have insurable interest in the risk being insured.
Essentials of insurable interest are:
 There must be a property capable of being insured
 Such property must be the subject of insurance
 Insured should have a legal relation and right to the subject matter
 Insured should benefit from subject matter’s survival and suffer from damage or loss
to it or incur liability in respect of it.
Insurable interest exists between husband & wife but not between parent & child.
Employer is deemed to have insurable interest in employees and on their acts of
dishonesty.

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 Indemnity
The object of insurance is to place the insured in the same financial position as
he was just before the loss. This principle prevents the insured from making a
profit out of a loss. Exceptions are PA policies as it is not possible to place a
value on life as such and these policies are called “benefit policies”. Methods of
indemnification :
 Cash payment
 Repair
 Replacement
 Reinstatement
 Utmost good faith
Proposer should furnish all material facts concerning the property proposed for
insurance. Insured needs to inform the insurer of all changes. Following facts
need not be disclosed :
 which would diminish the risk of insured peril. Eg. appointment of a watchman
 that are presumed to have been known to insurer. Eg. large scale rioting
 which could be understood from info already furnished. Eg. Customary process in an
industry
 which ought to have been enquired but omitted by the insurer.
 Subrogation
Right of insurer to receive back from the insured, anything the insured may
recover from another source.
 Average loss
To prevent insured from under-valuing insured property. In case the insured has
purposely understated the value, in the event of loss, the actual loss will not be
paid; only a proportion of the actual loss as the insured value bears to total actual
value is paid :
Loss amount payable = Actual Loss Amount (claimed) x (Sum Insured / Actual
value of insured property)

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2.4 Benefits of Insurance
 Relieves insured from worry

 Stimulates economic growth as business can take bigger risks to gain larger profits
 Insurance companies have the expertise to reduce losses and often suggest ways in
which the likelihood of some risk occurring may be reduced
 Premiums collected become investible funds
 Eases burden on governments - reduces payment towards calamities.
2.5 Business Functions
 Business Planning
Prepare and review corporate plan

Assess market potential
Prepare market strategy
Prepare and monitor budgets
Prepare and monitor business plan
Prepare rates scales based on claims experience feed-back from claims dept. -
Performed by Actuarials
 Policy Underwriting
Marine Cargo was the first class to be insured. In Edward Lloyd’s coffee house,
details of a particular marine adventure would be documented and circulated.
Consenting merchants would write their names underneath, indicating proportion
of risk they were willing to cover and the premium. That’s how the word
“underwriter” was coined.
 Claims Processing
Register claims
Validate claims
Assess loss
Arrange survey / Appoint surveyors (adjusters) - could be third party
Analyze claims
Settle claims
Process salvage
Implement loss control measures
 Reinsurance

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Insurance of insurance - Insurable interest exists
 Retrocession
Reinsurance of reinsurance
 Investments
Insurance generates investible funds which need to be invested wisely in various
instruments
 Finance and Accounts
Business Participants
 Insured
Person with insurable interest at the time of arranging cover and at the time of
loss occurrence. Exceptions : Marine (only at the time of loss); Life (only at the
time of arranging cover).
 Insurer
Insurance companies or individuals - Proprietary organisations. Lloyds of London
is a group of unincorporated proprietary insurers (only individuals) and these
members are referred to as “Names”.
Mutual Cos. - No stock-holders. Policy-holders get share of profits in the form of
reduced premiums.
 Reinsurer
 Captive insurer
Self insurance - Eg. Rent-a-car
 Middlemen
Brokers - Experts in insurance. Bring insured and insurer together and are
involved in all aspects incl. claim settlement. Enjoy freedom of choice in where to
place business
Agents - Not experts.

Commission is paid to both by the insurer, as a percentage of premiums written
through them. This forms part of acquisition costs and is recorded as an expense
by the insurer.
As a recent development, direct insurers have started marketing personal lines

products directly to its customers through tele-insurance. Such insurer however

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continue to use brokers for commercial lines and those brokers who offer value
added service to personal lines customers.
 Third parties
In some situations third parties (including other insurers) could lodge a claim in
respect of a risk covered by the insurance co.
 Modern classes of business
Bonds : Bonding involves not two but three parties.

In a Surety bond the parties are the Principal (insured), Surety (insurer) and the
Obligee. The surety guarantees something about the principal’s performance to
the obligee. Surety does not guarantee employee honesty. It may guarantee the
performance of contracts or other obligations. Eg. Surety to guarantee that a
contractor will build a factory properly at a certain price in a certain time period.
Fidelity bonds insure against employee dishonesty. The principal is the

employee, the obligee is the employer and the surety is the insurance co.
 Types of Covers
Life : Pensions & Annuities

Annuity is a contract by which the purchaser (annuitant) in return for a lump sum
or a series of payments, receives a guaranteed income, often for the rest of his
or her life.
In short it is the reverse of insurance. In an annuity, the risk for the insurer is that
the annuitant will live for longer than expected.
 Policy Underwriting Process

Proposal : Utmost good faith Vs. Caveat Emptor : Bob / Steve - Sale of souped-
up car.
 Policy Underwriting Process

Cancellations
Other causes :
 Insured
 Voluntary cancellation by insured
 Cessation of insurable interest
 Insurer Bad claim experience - only in case of inclusion of a ‘cancellation clause’ in
the agreement which will require due notice of cancellation to insured.
 Voidable contracts.
Refunds :
 Only if no claims
 Refund pro-rata amount or on short term cover basis.

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 Policy contents
 Agreement
Gives the outline of coverage offered (Fire - states the perils insured Liability -
states legal actions for which the insured will be defended).
 Exclusions
Exclusions are designed to protect the insurer against non provable losses and
against catastrophic losses (flooding, war, invasion etc.)
 Schedule / Declarations
What is covered, Who is insured, Period of policy, Policy limits, premium amount.
Declaration states all facts about the parties and the contract.
 Conditions
Sets out the rights duties and responsibilities of both parties.
 Government regulations
Why ?
Public funds are being pooled. Protection of public interest is essential. Insurance
industry being a major finance force failure of an insurance company can have a
negative effect on investment markets and public confidence in financial
institutions.
Who? What ?
All state governments have regulations in place. Each state has an insurance
department headed by a Commissioner who is vested with powers to license
agents, brokers, adjusters and companies; to control rates and policies; to
conduct audits; to specify types of investments and to settle the finances of
bankrupt companies.
The National Association of Insurance Commissioners is an association of state

insurance officials which attempts to provide national guidelines and suggestions.
It helps to iron out unnecessary differences in state regulations.

3 Life cycle of a policy

The duration from the purchase of a policy to its maturity is called the life of a
policy. A policy passes through various stages of growth or change before it
finally matures or closed.
 Purchase of Policy
A life assurance policy can be purchased through

 Life Office
 Insurance Broker
 Independent Insurance Agents
 Banks and Building societies
 Direct Salesman
The new life assurance proposals are usually termed as New Business by
the Insurance Company. However, if the proposal is canceled at the very onset
or before the start of the premium payment then the policy is termed as Not
Taken Up.
 Premium Payment
After issuing the policy, the policyholder will continue to pay the premiums at
regular intervals ( weekly, monthly, Quarterly, Yearly ) until a claim arises.
The following are the common modes of payments followed

- Conventional i.e. agents collect the premium
- Regular payments deducted from Salary
- Direct Debit from the bank account
- Bank Standing Order
 Customer Enquiries / Changes

The Customers will call the service line or approach life office to
enquire about the status of their policies or to make changes to their policy
details. These changes include changing the customer address, changing the
mode of premium payment etc.
1. Changes to the Policy

Customers might call the life office and ask their policy to be changed to a
different type of a policy. This is done depending on what kind of policy the
customer originally has. The change could lead to recalculation of premium, Sum
Assured etc.
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2. Lapse of the Policy
The Policy will lapse if the customer fails to pay the premium for a specific
period of time. If the customer is not able to pay the premium for a
reasonable period then the insurer will work out a strategy where it will pay
the premium for the customer and finally deduct that amount when the
policy matures or close the policy and pay the customer whatever is due at that
point.
3. Paid-up Policy
This is another way of converting the policy. In this the reduced sum
assured will be paid in the event of a claim. The reduced amount being
calculated by multiplying the original sum assured by the number of
premiums actually paid and dividing by the total no of premiums that would
have been paid over the term of the contract. Appropriate calculations take
account of bonus additions on with profits policies and on whole life
contracts which do not have a fixed term. No further premium would be
payable.
 Surrendering the policy
This is an option where the customer can decide in the middle of the policy
term, to surrender the policy and get whatever amount is due at that point. He
could stop paying premiums and cancel the policy by accepting its current value
in cash which is called the surrender value. The surrender value is the part of the
reserve built up under the policy. It is very low in the early years of a policy but
increases steadily as the policy nears maturity.
 Cancellation of the policy
The customer can cancel the policy at the middle of the term and claim
whatever is due to him at that point of time.
1. Death of the Policy Holder
If the policy holder dies in the middle of the policy term then the insurer will
Pay the beneficiary mentioned in the policy, the sum assured amount and
any bonuses that have accrued.
2. Taking a Loan
The customer can take a loan from the insurance company, using the
policy as security and assigning it to the insurance company. The amount of

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loan available is proportion of the current surrender value of the policy.

Interest will be payable on the loan outstanding. when a claim arises, will
be deducted by the insurance company before the policy proceeds are
paid.
3. Maturity of the Policy
If the policyholder pays the premium till the end of the specified term, the
policy is matured and the proposer receives the sum assured together with
any bonuses in the case of with profit policies, or the value of units
attaching for unit-linked policies.
4. Payment / Closure of the policy
Once the policy has matured or has been terminated then the insurer will
pay the customer the amount of money due to him and close the policy.
3.1 Principles of Life Insurance
 Insurable interest
An insurable interest is necessary for the contract to be valid. It means a
life or limb, property, potential liability, or financial interest should be involved.
The insured should suffer loss due to the occurrence of the insured event. The
loss should be pecuniary. Loss should be recognized by law e.g. Father has no
insurable interest in the event of death of the son, unless the father can prove
that he has a financial dependency on the son.
 Indemnity
It is the concept of ‘Exact financial compensation’ when a loss occurs. This
implies that the insured is placed in the same financial position before and after
the event.
However, loss due to death of a person is linked to an extent to the
income status and potential of the person. Because such a loss cannot be
exactly compensated, it is not an indemnity but only a guarantee of a benefit.
Hence we use the term ‘assurance’ for life, whereas we use ‘insurance’ for motor
and other non-life risks.
 Subrogation
On payment of claim, the insurer is entitled for any rights the insured might
have enjoyed before the claim.
 Average Clause

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If a property is insured for a value lesser than the current value, the claim
will also be settled at a proportionately reduced value. This average clause is not
applicable to life Insurance.
3.2 Various types of Life Assurance Policies
Life Assurance policies can be broadly classified into Term, Whole of Life and
Endowment Assurance.
BOOKMARK
 Term assurance
In this case the life is assured for a fixed term. The Sum Assured is paid if death
occurs within the term. However, on survival of the term no benefit is payable to
the insured. Normally premiums will be low compared to other types as there are
no benefits on survival. In some contracts, however, premiums may be paid back
with little or no interest, on survival.
Different variants of term assurance policies are available in the market.
 Level term assurance

The Life is assured for a fixed term, the premium and sum assured remain the
same throughout the period.
 Renewable term assurance

This is same as Level term assurance, but with an option for the policyholder to
renew for another term without any further medical evidence at ordinary rates.
The rates for the renewed policy will be high as it will be based on the age at
renewal.
 Convertible term assurance

This is Level term assurance, with an option for the policyholder to convert into
an endowment or whole of life policy without further evidence of health.
 Decreasing term assurance

This is term assurance where the Sum assured decreases every year by a preset
amount, decreasing to nil at the end of term. These are usually taken to cover a
reducing debt, such as capital outstanding on a house purchase loan.
 Expanding term assurance

Because of inflation, a level term assurance gives reduced real cover every year.
To overcome this the sum assured is increased at a preset rate of the original
sum assured every year in this type of policy.

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 Index Linked Term assurance

To combat the effects of inflation, the sum assured and premium are escalated in
proportion to the rate of inflation by linking them to the Retail Price Index (RPI),
with a maximum limit on the increase (say 10%).
 Family income policies

This is term assurance where, instead of a lump sum payment at death, an
income is paid to the beneficiary. The intention is to replace the income which the
life assured would have provided if he were alive. Family income policies could
also be of type expanding or index-linked.
 Basics of Investment linked policies

Whereas term assurance is only a way of insuring the risk of death, the next two
types are effective investment media. Both Whole of life and Endowment polices
can be for a guaranteed return only - in which case they are called ‘non-profit’. Or
they could be linked to the life office’s investment performance. Two ways to link
a policy to the investment performance are - having a ‘with-profits’ policy or
having a ‘Unit Linked’ policy.
 With profits policy

Every year the life office evaluates the assets and liabilities of its life fund, to
determine the surplus funds. A major part of this surplus (such as 90%) is
allocated to with-profits policyholders as bonus, in the form of an addition to the
sum assured. The bonus so declared cannot be subsequently reversed by the
life office.
There are two distinct stages of bonus namely

 Reversionary Bonus
which is declared annually and added to the Sum Assured under the policy. It is
called reversionary bonus as it is payable only at the time of claim and not at
declaration.
 Terminal bonus
where the bonus is payable only on the policy resulting in a claim.
While the reversionary bonus additions every year are on a cautious assessment
approach, the terminal bonus can be construed as a reflection of fair return to
policyholder at the last opportunity.
Premiums for With-profits policies are always higher than those for
corresponding non-profit contracts, since higher benefits are paid out.
 Unit Linked Policy

The value of the policy is directly linked to units in one or more unitised funds run
by the life office. Part of the premium is used to purchase life and disability cover
and remaining premium is used to buy units in the fund.
Usually the life office operates a variety of funds and the policyholder has options
to invest in any of them and also switch periodically. On claim or maturity, the

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value of the policy is calculated based on the unit value on that date. The life
office usually levies charges for fund management and fund switching.
Unlike the With profits policy where the bonus is attached irrevocably, here the
profits will vary depending on the Unit value on the date of claim or maturity.
Various flavours of whole of life and endowment assurance policies are

structured based on their investment linkage.
 Whole of Life assurance

Benefit is paid on death of the life assured, irrespective of term. Premiums for
this type tend to be high as a pay out is a sure event and the cover extends over
a long term till death. Whole life policies can be used as security for a loan, either
from the life office or other lenders.
 Non-profit whole life policies

It has a level premium payable throughout life and the sum assured is fixed. No
bonus is paid to the policyholder.
 With-profit whole life policies

Here in addition to the sum assured, whatever profits that have been declared as
bonuses so far will be paid on maturity or death. A terminal bonus may also be
payable, if the insurer follows this practice. While the reversionary bonus
additions are on a cautious assessment approach, the terminal bonus can be
construed as a reflection of fair return to the policyholder at the last opportunity,
by the insurer.
 Low-cost whole life policies

This is a with-profit whole life policy with a guaranteed life cover. They are
structured with sum assured in two parts, one which is basic and has bonus
applied every year, and the other which remains constant throughout the term. In
principle, this combines the with-profit and non-profit concepts.
 Single Premium Unit Linked whole of life policies

When the policy is effected, the premium is used to purchase units in the chosen
fund and thereafter the policy value is dependent on unit price.
 Regular premium Unit Linked whole of life policies

These policies have gained popularity in the recent past as they offer a variable
mix between life cover and investment. The initial level of cover is set for every
few years based on the growth rate of the fund to which premiums are linked.
They are periodically reviewed when the sum assured is compared with value of
units purchased and increased.

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 Endowment assurance
Here again the life is assured for a fixed term, but benefit is payable either on
earlier death or at the end of the term. This type of assurance is usually taken for
long terms such as 20 or 30 years. Very often the maturity date is kept closer to
the retirement date, though not necessarily so. An endowment policy can be
used as security in getting loans because a return is assured. This is the most
popular type of assurance in U.K.
All the variants of Whole of life policies are also available for Endowment
assurance policies.

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2 Policy Servicing
4.1 New Business
Issuing a New Life Policy to a client is known as known as New Business. The
following are the tasks to be carried out.
 Proposal
 Underwriting
 Premium Calculation
 Policy Issue
Client
Submits
Proposal
Validation
of
The
Underwritin
g
Premium
Calculati
Issuing
the
The Data Flow diagram for New Business is as shown in Appendix A

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4.1.1 Proposal
The proposal is the beginning of the New Business. The client who is getting
insured will submit the proposal to the Agent or to the Life office.
The proposal has the following information
1. Proposal details
This contains the basic details like Name, Address, Date of Birth, Sex,
Occupation, Family history, Annual Income, Policy Plan, Sum Assured, Agent
Name, Previous policy details.
2. Medical certificate
This consists of the medical fitness of the person who is getting insured. This will
be taken into account in order to fix the premium in addition to other factors.
3. Age Proof
The date of birth certificate is the proof to check the eligibility criteria of the
person for taking the policy. The policy plan will have Minimum and Maximum
age criteria for entry.
4. Agent Confidential Report
Agent will have to provide the confidential report regarding the correctness of the
proposal details. This is to avoid any frauds.
5. Deposit
A minimum amount will have to deposited along with the proposal as a

commitment by the client. The minimum amount depends on the Sum Assured
and plan of the policy.
The Client will submit the proposal to the agent or Life office. The following initial
scrutiny of the proposal will be done by the insurer administration before passing
it to the Underwriter.
 Proposal Details
 Previous policy history
 Client status
 Declined policies
 Age

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4.1.2 Underwriting
This is a process performed by the insurer, on receipt of a proposal, to decide

whether or not to accept the risk, and if so, on what terms. An underwriter is the
person authorized to accept, reject or fix terms for accepting a risk. The
underwriter looks for factors adversely affecting the longevity of the life assured,
such as health, occupation, industry and life style.
The underwriter scrutinizes the facts given in the medical part of the proposal. He
can also check in the alphabetical name index maintained by the life office to find
out whether the proposer has been offered an under-average rate for an earlier
policy or has been declined a policy previously. He will compare the sum assured
and age with the non-medical limits set by the life office, and also will examine
whether the insurance cover including earlier insurance is at a reasonable level
and not too high.
Some of the Important things we should know about Underwriting are as follows
 Definition
The Process of Selection and classification of risk is called as underwriting
 Purpose
The purpose of Underwriting is to
• Ascertain correct Mortality of the life proposed
• Prevent Anti Selection
 Automatic and Manual underwriting

The process of underwriting is automatic once the proposal is submitted.
Based on the facts and details he will calculate the risk. This is called Automatic
underwriting
If the underwriter finds that there is something wrong then Manual underwriting is
done. Here underwriter has a discussion with the proposer, there will be a
medical checkup once again, he can request for a Moral Hazard report and
based on all these facts underwriting is done.
 Hazards
Any factor that would influence the rate of mortality adversely is a hazard,they
can be classified into
• Physical Hazard
• Occupational Hazard
• Moral Hazard

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 Physical Hazard
The Probability of death or expectancy of Life are largely dependent upon these
physical factors like
• Age
• Sex
• Present state of Health
• Family history
• Hobbies and Vacation
 Moral Hazard
The Likelihood of withholding or distortion of vital information relating to the
financial standing of the proponent or insurable interest in the life to be insured ,
affecting risk appraisal is called moral hazard.Here, Underwriter has to find out
the Reasons for distortion of facts.
 Occupational Hazard
The Occupation of the Proposer may affect the risk attached to the proposal.
Some of the occupations where these restrictive clauses may apply are
• Military Personnel
• Aviation
• Submarine Employees
• Mine workers
• Race car driver
• Stunt masters
 Medical Underwriting
Here the Underwriter will examine the Medical reports of the proposer in order to
find out whether he is Standard life or substandard life. The Underwriter can also
get more information about any medical problems of the proposer through a
questionnaire .The questionnaire has to be answered by the proposer and the
attending medical practitioner . Based on all these factors he can assign Extra
Mortality rating for each condition other than normal. For normal person the Extra
Mortality rating is 0%. The Extra Mortality rating can be upto 400% .
Medical Underwriting is done for Policies above a certain Insurable limit.
Medical underwriting forms a very important part of underwriting.
 Agent Confidential Report

The Underwriter can also get the Report from Agent. This is called Agent
Confidential report. Agent who is part of the Insurance company has to give a
Report on the proposer thereby complimenting the facts that the underwriter has
at his disposal for underwriting.

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 Clauses
Clauses are the restrictions on the policy. The Underwriter can sometimes accept
a policy with some clauses. The Clauses tells that the policy is not insured for
these exclusions. The clauses can be
• War and Aviation Clause
• Suicide Clause
• First Pregnancy
• Minority Clause
If there is any claim for any of these clauses for the policy then no Sum assured
is payable by the Insurer.
Based on all these factors the underwriter can classify the proposer into
• Standard life
• Sub-standard life
This is further divided into Class1, Class2, Class3, Class4, Class5 and
Class6 depending on Medical / Physical /Moral Hazard report
Based on this the underwriter arrives at a decision on the risk. The various underwriting
decisions are:
 Accept at ordinary rates as proposed

All lives which are within the non-medical limits and do not have any adverse
evidence will be accepted at the normal premium rates. They reflect assumptions
of risk underlying normal premium rates. They are called ‘standard lives’.
Proposers being assessed by the underwriter as having a greater risk of death

than implied in the premium rates are termed sub-standard lives and they will be
offered special terms.
 Offer ordinary rates for a limited type of policy

If the extra risk becomes high at a later stage in life then the office may choose to
offer a term cover rather than whole of life cover, but at standard rates. Similarly,
under an endowment plan term may be reduced to fall below a certain age such
as 60.
 Charge an extra premium

If the proposer has risky hobbies like hang-gliding or motor racing or if the
medical reports reveal extra risk such as high blood pressure then an extra
premium proportional to per $100 (per mille) sum assured may be charged.

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 Impose a rating
By rating, the proposer’s age is hiked up by a few years. For example a person
aged 50 with asthma may be rated as ‘plus 2’ and he will be charged the rates for
a 52 year old person.
 Impose a debt
A debt is a reduction from the sum assured. It will often decrease and become nil
at the end of the term. This may be offered if the proposer disagrees to pay the
extra premium quoted for the extra risk and the nature of risk is not of increasing
type.
 Decline the risk

The underwriter decides that the risk is not insurable because it is extremely high
and declines the proposal. In practice less than 1% of proposals are declined,
while majority of the under-average lives are offered some form of special terms.
 Defer the Policy

If the Underwriter feels that there is a element of doubt and wants to wait for
some more time before the policy can be issued then he can defer the policy for
a period ranging from 3 – 6 months. At the end of the specified period the
proposal is once again reviewed by the underwriter and decision taken either to
issue the policy or decline it.
The decision of the underwriter is written on the Application form or sometimes a

review slip is attached with the underwriter decision.
4.1.3 Policy Issue
Once the underwriter decision is known then a letter is sent to the Client
for his consent / approval because insurance is a contract between the proposer
and the Life office which has to be agreed by both the people. This Letter of
consent is sent only when there is a change in the terms of the policy or
premium based on Extra Mortality rating applied by the Underwriter.
Once the Proposer gives his consent then Premium is calculated based
on the Plan , Underwriter loading , accident benefit extra , age , occupation ,
sum assured , frequency and other options. The initial deposit is adjusted with
the first premium if the premium deposit is equal to the proposal deposit. If the
installment deposit is less than the first premium then the deficit amount is called
for from the client. If there is a excess in deposit then the extra amount is
refunded.

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The proposal is checked for whether it requires Reinsurance if the risk is

high. If Reinsurance is required then the Reinsurance retention limit table is read
to select the Reinsurer. The Proposal is updated with the reinsurance details and
details of reinsurance is sent to the Reinsurer.
After all this activity the Proposal becomes the Policy. The Policy is printed
and sent to the Client along with Premium advice and Specific Terms and
conditions as applicable to this policy for which he has taken an Insurance.
Advice is sent to the agent along with first Commission which is due to him. Also
a advice is sent to the Medical officer with the Medical advice fee. A report is
generated and sent to the management for information.

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4.2 Endorsements
A lot of details can be changed by the policyholder when the policy is in force,
with the consent of the insurer and as per the provisions laid out in the policy
contract. All changes to policy terms like additional benefits, additional premiums,
increased or decreased term, fund switches, indexation changes, date of birth
change are called Policy Endorsements.
A lot of other details that do not affect the terms of the policy but alter data held
for the policy like bank account details, address details can also be altered when
a policy is in force. This is called General Amendments.
The following are the processes involved in endorsements
Validate Endorsements
Receive the endorsement request from the policyholder and validate the
request. If the request is not valid then the declination of the request is sent to
the Policyholder.
Process Endorsements
The valid endorsement requests are processed and the new premium rate is
fixed for the policy.
Effect Endorsements
After processing all the requests the original is endorsed and an intimation is
sent to the policyholder along with the new premium statement.
The Following diagram illustrates the Endorsement process

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Client
Validate Process
Or
Endorsem Endorsem
Policyhol
der
Effect
Endorsem
Client
Or
Policyholde
The Data flow diagram for Endorsement is in Appendix B

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4.3 Reinsurance
This is a method where the insurer takes insurance to cover the risks that he has
underwritten. It is an effective risk sharing method where a portion of the risk is
transferred to the reinsurer. All insurance companies assess the risks they
underwrite and reinsure based on their past experience on claims. Reinsurers
also provide assistance to insurance companies, particularly in the area of
underwriting, when the insurers Underwriter wants to have a second opinion on
the life at risk. Some of the world largest reinsurers are in the UK.
The type of reinsurance used is determined by the needs of the insurer. The most common
reasons for purchasing reinsurance are
- Allows the Insurer to write larger amounts of insurance.
- Protects the Insurer against a single, catastrophic loss or multiple large losses.
- Helps smooth the Insurer’s overall operating results from year to year.
- Eases the strain on the insurer’s surplus during rapid premium growth.
- Provides a means for the reinsured to withdraw from a line of business or

geographic area or production source.
- Helps the reinsured spread the risk on new lines of business until premium
volume reaches a certain point of maturity; can add confidence when in
unfamiliar coverage areas.
- Provides the insurer with a source of underwriting information when entering

new line of insurance or a new market.
Types of Reinsurance
There are two types of Reinsurance arrangements

1. Facultative Reinsurance
Reinsurance transacted on an individual risk basis. The insured company has
the option to offer individual risk to the reinsurer and the reinsurer retains the
right to accept or reject the risk.
2. Treaty Reinsurance
In this there will be a contract between the insurer and reinsurer. The
Reinsurer must accept all business within the terms of the contract.
The Data Flow Diagram for Reinsurance is in Appendix E

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4.4 Claims
Claims is one of the most important events in the Life cycle of a Policy.
The main purpose of Insurance is protection against risk . Whenever a risk
happens the person will be down by emotions. In addition to this if he has
financial problems then the situation will be very worse. Insurance is there to
mitigate the problems of the insured when he suffers a loss. At the end of the
term if the policy has savings benefit then he can make a claim for the sum
assured. The handling of claims by the Insurance department is very sensitive
because on one hand they are dealing with people who have suffered a risk and
on the other hand the company will be under loss if they are complacent . In
handling of Claims the Insurance company’s reputation is at stake and their basic
aim is to see that the insured person / survivors get their claim as quickly and as
easily as possible. A Insurance company is gauged by its ability to settle claims
as quickly as possible with ease to the insured . The true worth of Insurance and
Insurer is found only when the insured person suffers a loss and gets relief by
way of insurance. Under Indian tax laws the claim paid by life insurance company
is tax free.
In Life Insurance there are two type of claims. They are

 Maturity Claims
 Death claims
4.4.1 Maturity Claims

The Life Insurance policy can be Term assurance and also Savings. At the
end of the term the Insured can make a Claim. This is called Maturity Claim. All
Maturity processing starts a few weeks before the maturity date as life offices
endeavor to release the cheque, so that it reaches the policy holder on Maturity
date. Normally the Claim processing for Maturity claims will start four to six
weeks before the due date. The Policy status should be in ‘ In force ‘. Once
Maturity processing starts then the policy status is updated to ‘ Maturity
Intimation’. This tells the Life office that the Maturity proceedings have started
against this policy.
Four to six weeks before the maturity date, the Maturity value is calculated
and a letter is sent to the policyholder stating the amount, listing the requirements
for payment and enclosing a claim form. On receipt of the completed claim form
and all required documents the cheque will be sent out. For whole life policies,
when the insured person attains a age of 85 then it is taken as end of life and
claim is settled.
The Maturity processing will involve the following activities
 Maturity value
The Maturity value is calculated based on the Sum assured, Policy
Benefits, Bonus, Occupational extra, Sex extra and other factors. Any Loans or
Outstanding premiums are deducted .

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 Maturity requirements
The Life office will send a voucher to the policy holder informing him of
the maturity date and amount with the details of his bonus and deductions. This
voucher has to be signed by the Life assured and sent back to the insurer along
with the Original Policy certificate and other details which the insurer will want.
 Validate requirements
The details of the Insured is validated by the Life office. The details
normally looked into are Policy Certificate , Age proof , Legal evidence and
other details
If the requirements are met with in the maturity date then the Claim is processed
as normal maturity claim.
If the requirements are not met with in the maturity date then a remainder is sent
to the Policy holder and even then if there is no reply then the agent is sent to
the house of the policy holder for information. If the Life office is not able to locate
the policy holder then the Claim will be written off.
 Cheque preparation
The Claim is processed and a cheque is sent to the policy holder so that
he is able to encash the amount on the maturity date. After the claim is paid the
claim status is updated as ‘Claim paid ‘ and the Policy status is updated as Exit .
The Data Flow diagram for Claim (Maturity) is in Appendix D

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4.4.2 Death Claims
Whenever a Insured person suffers a risk his nominees / survivors /

Legal heirs can make a claim . Normally a death claim will be initiated by the
claimant or the solicitors of the deceased when the life assured dies. On receipt
of a death claim the life office will calculate the amount payable. In case of with
profit policies this will include the bonuses declared till date and also any terminal
bonus. For Unit Linked policies it will be the higher of the Guaranteed Minimum
Death benefit or the bid value of units held by the policy holder.
A Claim form, a letter stating the claim amount and request for documents
to settle the claim will be sent .The main requirements are proof of death, proof of
entitlement by the claimant, proof of age ( if age is not given at proposal time ) .
On receipt of the completed claim form and all required documents the cheque
will be sent out. If the claim is with in three years of its inception then it is called a
Early claim which requires a lot of investigation before it is settled because there
is a possibility that the contract could have been entered knowing the possibility
of early death. Likewise if there is a suicide clause in the policy which is operative
for one year and the cause of death is suicide then no amount is payable.
Normally if it is a ordinary claim and all documents are correct then it will
be settled in one week. If it is a accident claim or early claim requiring
investigation then it may take between one to three months. If the claim has legal
problems then it may take anywhere between 6 months to 1 year. If no person
makes a claim then the claim is written off.
If the client has more than one policy then all policies of the policy holder
are taken up and processed simultaneously. A single voucher / cheque for the
amount of all the policies is issued.
The Processing of Death claims involves
 Receive Death intimation

Here Death intimation is received and the policy status is updated as
‘Death intimated ‘. There will be no regular processing of the policy like premium
notice and other things.
 Claim Admission
This is basically to check if the claim is a admissible one. There should not
be any Fraudulent Suppression of Material facts. If the claim is with in three
years of its inception then it is called a Early claim which requires a lot of
investigation before it is settled because there is a possibility that the contract
could have been entered knowing the possibility of early death. Likewise if there
is a suicide clause in the policy which is operative for one year and the cause of
death is suicide then no amount is payable.

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The reason of death also plays a key factor in settling claims as the claim
period. There is a benefit called double accident benefit. This benefit will be
added only if the life assured died by accident and his policy covers this benefit.
In ordinary claims the basic claim is settled first and if there is death due to
accident the accident claim is settled later. If it is a early claim both the basic and
accident claim are paid only if the accident is established.
 Process Accident cases

If it is a accident then he will get double accident benefit ( if the policy has
this benefit) . In case it is a accident if it is established that the cause of the
accident is life assured or claimant himself, then no claim is payable.
 Process Illness cases

If anything adverse is found from the requirements that are obtained from
the client that is if the period of illness was found to be prior to the date of
proposal/revival date then after investigation the claim can be repudiated. In all
these cases a ex-gratia payment can be made.
 Calculate Death benefit

Death benefit is normally sum assured and all benefits like bonus. All
deductions like outstanding premium, loans etc are subtracted from the sum
assured. If the policy status is ‘paid up’ only the paid up value is paid.
The Data Flow Diagram for Claims (Death) is in Appendix C

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3 Premium Calculation
The Premium Calculation for each Plan is very Complex and critical
because the very survival of the Life office depends on it. The Premium rates
have to be competitive as compared to other Life office products and it should
bring profits to the Life office . The Premium Rate table or the Commutation table
is calculated by the Actuary. The Department where a Actuary works is called the
Actuary Department . Actuary is the person who is key to the Life office and he is
responsible for designing new Plans and its associated Premium Rate Tables.
Premium Rates depends on the Mortality rate and Life Expectancy of the people
of a particular country or region .
 Life Expectancy
The average number of years a person aged X is bound to live is called
Life Expectancy
 Mortality Rate
The Probability that a person aged X will die in next one year is called the
Mortality
The Mortality rate is calculated using Mathematical techniques like

 Theory of Probability
 Law of Large Numbers
Now a days since most of the Life offices are computerized the Mortality
rate tables are calculated every two years. By finding out the number of claims
from survivors of Policy holders in the last two years and the age of the people
who have died the Mortality rate tables are created . Each Life office has their
own set of Mortality rate tables. This tables are used by the Actuary for
calculation of Premium Rate tables.
 Premium Calculation
I= rate of interest ( 0.06 for 6% )
V = Present value of 1 Rupee payable after 1 year
V = 1 / (1 + I)
Vn = Present value of Rupee 1 payable after n years
Lx = no of person living at age x

(Version 1.0)
dx = Mortality rate
x = Age at entry
n = term
Dx = V x * Lx
Cx = Vx+1 * dx
Nx = Dx + Dx+1+Dx+2+ …….. Dw
Mx= Cx + Cx+1+ Dx+2+……… Cw

(Version 1.0)
Term Assurance
Sum Assured = 1000 Age = 30 years

Term = 10 Yrs P = Premium
Assumptions
Ignore Expenses
Claims at the end of year
Premium received for all 10 years

P( LX + VLX+1 +…… V9LX+9 )
Amount paid as Claims

1000(VdX + V2dx+1+……..V10dx+9)
Mulitply by V30
P(N30 – N40) = 1000 (M30 – M40)
P = 1000 ( M30 – M40)

---------------------------
(N30 - N40)
General formula
P = 1000 ( MX – MX+N)
---------------------------
(NX - NX+N)

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ENDOWMENT
Assumptions
Ignore Expenses

P( LX + VLX+1 +…… V9LX+9 )

1000(VdX + V2dx+1+……..V10dx+9) + 1000 * V10L40
Mulitply by V30
P(N30 – N40) = 1000 (M30 – M40) +1000

* D40
P = 1000 ( M30 – M40 + D40)

---------------------------
(N30 - N40)
General formula
P = 1000 ( MX – MX+N +DX+N )

---------------------------
(NX - NX+N)

(Version 1.0)
DOUBLE ENDOWMENT
Assumptions
Ignore Expenses

P( LX + VLX+1 +…… V9LX+9 )

1000(VdX + V2dx+1+……..V10dx+9)+2*1000*V10L40
Mulitply by V30
P(N30 – N40) = 1000 (M30 – M40) +2000

* D40
P = 1000 ( M30 – M40 +2*D40)

---------------------------
(N30 - N40)
General formula
P = 1000 ( MX – MX+N +2*DX+N )

---------------------------

(Version 1.0)
(NX - NX+N)
These Formulas are generic and are same for all Insurance companies.
The only difference is the Loadings and Assumptions that are specific to each
company. These Loadings can be yearly Bonus , Terminal bonus , Expenses
and agent commission . The values for M , N and D can be taken from Premium
rate or Commutation tables and premium calculated.

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4 Product Features
Every Life Assurance Contract has well defined features. This Life
Assurance Contract is called a Plan or sometimes as Product. The Product is
designed after doing a Market Analysis. Normally Market analysis is done by the
Insurance company. Sometimes they will also employ other research agencies to
do the study. Like any other Commodity Product, Life Insurance policy is also a
Product. Market analysis means knowing the needs of the people based on the
trends and based on the needs / trends developing products that will cater to a
wide variety of people . Unlike other products Insurance is a concept and it is
very difficult to sell an Insurance product to the ordinary man because here you
get only a Certificate. It requires a great deal of advertising and marketing to sell
Insurance Products. The marketing of Insurance products is called Concept
Marketing. The Product is designed by the Actuary based on the Market
analysis and Actuary experience .
Each Product has standard features and many options . The Insured can
take the standard policy and optionally take some of the options . Some of the
attributes in a product are
 Contract type
Which tells what type contract it is like Term Assurance, Endowment or

Whole life.
 Contract name
Which tells the name of the Plan like Bima Kiran , Asha Deep etc.
 Qualifying status
Tells whether the premium paid by the Insurer is eligible for Tax benefits
under the relevant tax laws.
 Purpose
Which tells the purpose of the product like Life cover , savings , Mortgage
redemption , Health cover , disability cover , Tax savings or Investment .
 Age Limits
Gives the Minimum and Maximum age at entry . It also gives the
maximum age at expiry and Maximum age at Premium paying term

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 Lives Covered
Tells what type of lives are covered like Single life , Joint life first death ,
Joint life survivor , life of Minor and Life of another
 Term limits
Gives the Minimum and Maximum term of the policy and also the
Maximum Premium paying term of the policy .
 Sum Assured
Gives the Minimum and Maximum Sum assured for this policy and also
the sum assured Limitations to cover like death , maturity , critical illness ,
disability or Mortgage redemption.
 Premium
Premium gives the Minimum premium for this policy , premium paying
frequencies like Annual / quarterly / Monthly , discount in premium if paid
correctly , Smoker / Non smoker rates , Low start version , Agent Commission ,
Policy fee .
 Types of cover
The Types of cover of this policy like Death , Maturity , Critical/Serious

illness , disability and Mortgage redemption .
 Privileges Granted by the Policy
The Privileges granted by this policy like days of Grace , Surrender value ,
Revival facility , Automatic non-forfeiture , Loan , Premium suspension , Paid-up ,
and Free cover for Individuals and groups , Guaranteed Renewal and Cooling
off period.

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 Policy conditions
Some of the Conditions attached with this policy like Lapse , Paid-up ,
Automatic non-forfeiture , Deductions from premium , policy review , Early
surrender penalty , fund switching .
 Options
Inception
The Options of this policy at Inception like Additional Life cover , Additional
Health cover , Premium waiver benefit and child option.
Term
The options of this policy during the Term of this policy like Increase in
Premium , Decrease in Premium , Increase in sum Assured , decrease in sum
assured , increase in term , decrease in term , paid up option , additional Life
cover , Additional Health cover , Premium waiver benefit , Inclusion of additional
life , Exclusion of additional life and change of life
Maturity
The options of this policy at Maturity/Death like Return of fund , Sum
assured + return of fund , greater of sum assured and return of fund , tax free
lump sum , income benefit , partly lump sum and partly pension , term extension ,
surrender and term extension + part lump sum.
 Clauses
Tells what are the clauses for this policy like

War
Pregnancy
Aviation
Self inflicted injuries
Suicide
 Exclusions
Tells what are the Exclusions for this policy like

Restrictions on cover due to suicide

(Version 1.0)
 Unit Allocation
Tells how Units are allocated like Allocation period , Deductions from
premium like Mortality cover charges , Morbidity cover charges , Administration
fee , Policy fee , Bid/offer spread , Fund management charges.
 Fund Management
Fund management tells how many funds are available , when policy can
be reviewed to change the funds , Restrictions on fund switch , Fund switching
charges , Minimum switch amount .
 Special features
Like Early repayment , Child option , Variable cover option , Home

insurability option , replacement option , change of house option , segmentation
of policies , continuation and income option.
 Benefits
Tells what are the benefits from this policy like

Death benefit
Terminal Illness benefit
Disability benefit
Living benefit
Buy back benefit
Inflation protection
 Profits
Tells what are the profits from this policy like

Annual Bonus
Loyalty bonus
Premium discount on correct payment

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5 Agent
Agent is a intermediary between the Insured and the Life office. He
markets the products of Life office and in the process gets commission for the
amount of business he has done. In countries like UK/US a broker and agent can
be different. As far as Insured person is concerned he is a broker or financial
advisor who can advice the client about the products of various insurance
companies so that client can select the one that is most suited to him. The
agents of Insurers are Individual sales persons , firms and others like
accountants , motor dealers etc. The agents of the client are independent
insurance brokers , consultants . In Indian context a agent and broker are same .
Some times Life office will have fixed salary employees as agents and these
people called Sales Officer. Clients can take the policy through the agent or can
approach the life office directly for the policies.
Agent is not employed by life office but has to be registered with the life
office. The Life office will select prospective agents, provide training for the
agents so that they are aware of the plans and products, are able to calculate
premium, aware of the market trends and finalize terms of appointment. Agent
can be dual agent in the sense he can be a agent of more than one insurance
company. For the agent to be with the life office he has to do a minimum amount
of business else his membership will be cancelled. Agents can be of specialised
agents in the sense they will be catering to different sectors like salary savings
business, defence personnel because the rules will be different.
Some of the agent activities are

 Examining client circumstances
 Advising prospective clients about insurance products
 Recommending suitable insurers
 Premium calculation
 Check and define policy features to client like extent of cover , conditions etc
 Remind premium payment
 Collect premium payments
 Negotiate claim settlements
 Agent Confidential report
For the amount of Business that is done by the agent he will receive commission.
The agent will get the commission only if the proposal is accepted by the life
office and also on the regular premium that is paid by the client.
The commission rates are as follows
Deposit 35 %
Second premium 7.5 %
Third premium 7.5 %
Fourth premium onwards 5 %

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In some countries the initial commission rate can be as high as 135%

The commission that is payable to the agent is accumulated and paid at the end
of the month
The agent is penalized if he does some fraudulent activity. At the first instance he
will be Warned if his crime is less severe. If he does some activity like not paying
premium collected by the client he will be suspended by the life office. If he
continues doing the same he will be terminated. If the Life office finds that he has
colluded with the client then he will be black listed and his name will be circulated
to all insurers so that he cannot act as agent to any other insurer.
In order to motivate the agents he is given due recognition and other

benefits based on the quantum of business he brings. Some of the benefits to
agents other than the commission are
Club membership
Interest free loan
Advances for purchase of vehicle, PC etc
Allotment of status symbols
When the agent does very good business continuously for a certain period they
will be appointed as Development Officer. The Development officer will have a
set of agents under him. The Development officer will get 20 % Salary and 80%
commission.
When agent retires all his policies will be transferred to a new agent in that
area. The new agent will get the commission here afterwards.
The agents are governed by the guidelines set by

Consumer Forum in India
Financial act in UK for agency (1997)

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6 General Insurance
Non Life Insurance also called as General Insurance covers customers house,
contents, motor vehicles and other things. It deals with all forms of Insurance
except Life Insurance. Cover can also be arranged for travel and Personal
Accident insurance. General Insurance companies also insure small businesses,
offering a range of commercial insurance products tailored to different type of
business such as shop keepers, hoteliers and tradesmen. Commercial insurance
also covers small commercial vehicles, offices and farms. Each Policy belongs to
a Product like House & Home, Motor Car, Shop, Personal accident and Sickness.
Policy under each Product can also have Class and Sub-Class. Class and Sub-
class will give the salient features of that insurance.
Some of the differences between General Insurance and Life Insurance are as
follows
Non-Life Insurance Life Insurance
Insurance Assurance
Indemnity Guarantee
one Policy Many Policies
Term is one year Fixed or whole Life
Renewal Maturity
IRA IRA
Main & Secondary Claim Main claim
Tax No Tax
Product Plan

(Version 1.0)
The Important Process in General Insurance is
 Quote
 New Business
 Policy Enquiry
 Endorsement
 Renewal
 Claims
 Premium Accounting
 General Ledger
 Reinsurance
8.1 Quote
The Quote System is useful in getting a quick quote based on the Client
requirements. Normally Clients will be requesting for a quick quote from different
General Insurance companies, so that they can evaluate the premium amount
from different companies and select the company with the lowest Premium.
The Quote system will calculate the Premium based on certain broad
parameters. The Client will ask for a Quote and will give the major features of the
insured item. This Premium will be approximate and the actual premium will be
slightly different because it takes into account all the parameters of the insured
risk . The difference in premium will be within the tolerance limits.
Quote system is very simple but powerful tool for any Insurance company
business and is prominently used by the Insurers , Agents and Sales
representatives.
8.2 New Business
The New Business Process involves the following activities
 Receiving the Proposal

 Validating Information
 Declined Index
 Underwriting
 Premium Calculation
 Premium Accounting
 Policy Issue
 Reinsurance

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 Agent Intimation
The Client will submit a proposal with details of the risk to be insured. The
proposal can be submitted through the Agent or directly to the Insurer
incorporating the Agent details. The Insurer will check for all the details in the
Proposal. They will check whether he is a existing client, whether the client has
any previous policies and the Client Status and if it is a new client the client
details are stored in the Client table. They will also check whether any of his
previous policies has been declined. The Agent details are validated
Like in Life Insurance the Proposal undergoes Underwriting where the insured
risk is validated. The purpose of Underwriting is to make sure whether the risk
compensates for the premium that is charged or charge an appropriate premium
if the risk is more. The Underwriter will check all the details of the risk and then
the Premium is calculated. If the insurance is for a standard item like House,
Computer or Motor Car then the insured risk is accepted directly. If the insured
item is of very large value or which includes complexity it is referred to a panel of
experts who will decide whether to accept the risk or not and the premium to be
charged. The premium is calculated based on a number of parameters of the
insured risk item.
Once the proposal is accepted the Premium is calculated and the initial deposit is
converted into first premium. The agent commission is calculated and
apportioned proportionately. The Policy is issued to the Insured with all the
details and Schedule. Normally General Insurance Policies have a term of one
year. Short term policy for a period of three months can be taken for Holiday and
Travel.
If the Policy is declined then it is stored in the Declined Index table with all the
details of the Client and risk insured. The Agent is intimated about the Policy
details. Reinsurance is done on the Policy depending on the Reinsurance treaty.
8.3 Policy Enquiry
Client requests for information related to policy are handled by the Call center.
The Policy Information module facilitates
• Policy Enquiry like Names on the policy, term, Start and end dates of the
policy, risk items and conditions of the policy.
• Premium Enquiry like Premium overdue, date of payment, cheque realization
and any other discrepancies.
• Client information like Client name, address, telephone no, age and other
details
• Claims like Claim information, Claim status, Claim payment details and other
information.
This is most frequently used module in the General Insurance office.

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8.4 Endorsement
Endorsement is the change on the existing policy. The change can be adding
new items of insurance to the existing policy, changing client information, change
of Risk Address, Change in Frequency of payment, Addition/ deletion of Drivers,
etc. In all these cases the premium changes and a new policy with all the
information is sent to the client.
Instead of taking a new policy for additional items, New Items can be added to
the existing policy at any time during the term of the policy. The premium
changes accordingly. Also Items can be deleted from the Policy. In this case any
excess premium paid is refunded. One more change on the policy is the change
in Risk address. On Endorsement a new policy is issued with all the details. The
term of the policy will remain the same. The Change in Premium frequency from
monthly to annually or vice versa is also called endorsement.
When the Client details change like Change in client address, telephone no and
other details the information is updated on the policy. No new policy certificate is
issued in this case and the premium does not change. The Agent is intimated
about the Endorsement.
8.5 Renewal
At the end the term, which is normally one year, the policy is renewed. The
Renewal Process is one of the important events in General Insurance. The
process requires understanding the Business policies of the Insurance company.
Renewal takes place in three stages spanning a period of 6 weeks before the
renewal date.
The Policy is checked whether it is eligible for Renewal about 6 weeks before
the due date. In this validation it will check whether the policy is in force, and all
the premiums are paid and if any premium is due a remainder is sent to the client
to pay. During this stage the policy will not be endorsed for new items of
insurance or deletion of existing items.
About three weeks before the Renewal date the policy is checked once again
whether it is eligible for Renewal. The Policy should be in force and all the
premiums should be paid. The new premium is calculated and a letter is sent to
the client for his consent. During this stage the client can also add new items to
the policy which is to be renewed. The Client has also the option to refuse the
Renewal in which case the policy is Lapsed.

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About three days before the Renewal date the Policy is once again checked
whether it is eligible for Renewal. The policy should be in force and the client
should have given the consent. The policy is Renewed and a new policy is sent
to the client
8.6 Claims
Claims is one of the most important events in Insurance. The primary purpose of
insurance is to compensate for the loss suffered by the insurer.
Whenever the Insured suffers a Loss (s)he can inform the Insurance company
about the Loss details. After the loss information is received by the Insurance
company on the specified form along with all necessary proof and estimates, the
Claim details are validated and stored for further processing. The policy should
be in force and all the premium due should have been paid and the risk should
have been insured for the type of Loss.
The Insurer will investigate the details of the Loss and if it is a Small claim it is
settled immediately.
If it is a big claim or where loss cannot be easily estimated the help of Chartered
Loss adjustor (CLA) is taken. CLA are experts in Loss valuation. Based on their
recommendation the Claim is settled.
Normally Insurance companies will try to replace the items that is under Loss. If it
is a damage to the building or car insurance company will ask the insurer to
repair the damage and send the bill directly to the Company for which the
Insurer will pay.
You can also Associate a event No to a series of Claims for some Natural
Calamity, for Example Floods in Scotland in 1997. All claims under this category
will belong to this event no. This will help the insurance company management to
find out at any point of time how much this event cost the company.
Claims can be of two types Main Claim and Secondary claims. The Main claim
will have a Claim no ending with 00. Secondary claim have a claim no ending
with 01 and there can be 99 secondary claims for each main claim. If a motor
car meets with a accident then that claim is a Main Claim. If in the accident
some pedestrians are injured and make a claim that is called the secondary
claim.

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8.6 Premium Accounting
The Premium Accounting module will generate the Premium notice for Annual
and quarterly policies to be sent to the client. Usually it is done by a batch
process which identifies premiums payable two to three weeks ahead of the due
date, sets up a premium record for the policy and generates a renewal notice. It
also generates direct debit BACS file to be sent to the bank.
When premiums thus billed are received the Accounting process starts. Here the
received payment is tallied with the bill pending for the policy. On receipt of
premium payment a record is created with status ‘Policy suspense’ which is
called a suspense account record. Then the premium dues for the policy for
which payment has been received is picked up and payments are allocated and
settled. If premium is received as cheques and they bounce the payment has to
be Unsettled where the old premium record is cancelled and a new premium
record is created.
The premium paying frequencies can be monthly, quarterly or yearly. Yearly and
quarterly payments will be manual by cheque. Monthly payments will be by direct
debit. Everyday a BACS file is generated and sent to the bank for payment.
8.7 General Ledger
The Financial accounting is performed in the General Ledger. The inflows like
Premium should match the Outflow like claims, agent commission and Tax. The
Premium amount is accounted in the General Ledger and sub-Ledger under
various heads. The money paid as Claims is also accounted in the General
Ledger and various sub-ledgers. The Tax payments are calculated and paid to
the Government authorities. Various Reports are generated on monthly basis and
sent to the Regulatory authorities.
8.8 Reinsurance
Reinsurance is Insurance against Insurance. In order to distribute the risk

companies take to Reinsurance. The same Company can act as a Insurer and
Reinsurer for some other insurance companies.
Reinsurance module helps in managing Reinsurance Treaties with Reinsurers.
Reinsurance Treaty can be
• Reinsurance for 25 % of all policies
• Reinsurance for Policies above a certain limit

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• Reinsurance for certain Products
Depending upon the Reinsurance treaty the policies are reinsured. The Premium
that are payable to the Reinsurers are paid. The Claim payment is received for
the claims that are paid to the Clients for reinsurance policies. The Reinsurance
can be done with more than one Reinsurer

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7 Insurance Dictionary
The Business of Insurance is very complex and exhaustive . There are
various Jargons and terminology’s used in conducting the Business of Insurance.
These differ from one Country to another Country and also from one Insurance
Company to another Insurance Company in the same country. The same word
has different meanings in different Insurance companies .All this makes it very
difficult to understand what are the different types of Insurance Business a
particular company is involved, its various Products and Schemes, future plans
etc.
This Dictionary on Insurance will contain the general terminology’s that is

used in the Jargon of Insurance Industry and will go a long way in understanding
the Business Concepts of a particular Insurance company. This document will
also act as a quick reference guide to understand and decipher the Jargons of
Insurance Business.
Data has been compiled based on two Insurance companies

Pearl Assurance Company, UK
Westpac Financial Services, Australia
These companies are involved in Life Insurance, General Insurance, Annuity and
Pensions, Investments and Superannuation.
9.1 Life Insurance
 Actuary A professional person qualified to calculate the risks and

premiums for pension, life assurance and investments.
 Actuarial Dept. The department that develops the product and defines
the business rules that govern it.
 Adjustable Policies where the exact extent of the risk insured cannot
be known at the outset, e.g., employer's liability , in such cases adjustments
are made to the premium charged at regular intervals.
 Agency The company owned by the Insurer that sells Insurance

products. A commission is paid for the sold products depending on the rules
that govern the particular product
 Agent The Individual who interacts with prospective clients and

sells the products. Generally most of the agents are employees of the Agency

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 Assignment An assignment is a transfer of ownership from one person,

the assignor, to another, the assignee. There are various types of assignment.
The most common involving life policies is where a policy is used as security
for a loan. Notice of an assignment should be sent to the chief office.
Company representatives must not have any policy assigned to or deposited
with them or aid in the drawing up or completion of assignments.
 Bonuses These are additions to the sum assured of 'with profits

policies declared out of surplus in the Industrial Branch for IB policies and the
Ordinary Branch for the OB policies.
 Brokers Similar to Agents but possibly external ones.
 Capital Accumulator An ordinary branch endowment assurance with

profits and options available on a single life basis only. This policy allows for
the sum assured plus any reversionary and terminal bonuses applicable to be
paid at the end of the initial ten year period or on the earlier death of the life
assured. The maturity proceeds may be taken as a lump sum or in
installments.
 Capital Investments Plan An Ordinary Branch single premium

endowment assurance with profits available on a single life basis only.
 Cash Surrender Value It is the immediate cash value of a

policy if premiums are discontinued. The value will be calculated after
allowing for expenses and life cover given to date. In the early years a policy
may acquire little or no surrender value.
 Cashiering Posting of cash with application. Posted with policy number

or receipt number
 Cancellation If a client does not prefer to proceed with the policy and
conveys his intention to Insurer within the government specified 14 days
cooling-off period , the policy gets canceled without any charges or fees
accrued into it.
 Children's gift Plan Unit Linked endowment assurance which is

written on the life of a child. It matures at the plan anniversary coincident with
or immediately preceding the child's 21st birthday.

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 Children's Policy The normal minimum age for policies is 16 next

birthday. The exception to this is the First step savings plan and the Children's
Gift Plan. It should be noted that life assurance cover for children under the
age of 16 is not available under these or any other Pearl Plan.
 Co-insurance describes a situation where the insured risk is shared

between a number of insurance companies.
 Company Representative An agent appointed by a life insurance

company who is authorized to sell that company's products.
 Conservation officer An employee of the Insurance office who tries

to keep policies from getting lapsed/surrendered/canceled by personally
interacting with the client. Also tries to revive a policy after its lapse. Belongs
to the Business conservation Dept.
 Consultant Similar to Agents but external ones who will sell products of
the Insurance company and receives the commission.
 Contingency A happening, as defined by the policy for which cover

is provided.
 Contributions Term used to describe the regular or single payments

a person makes into their personal pension plan.
 Convertible Protection A rider benefit which provides additional ,

reducing temporary assurance benefit which may be attached to certain basic
plans. A guaranteed option is included for cases where the life assured is a
first class life.
 Convertible Term Assurance Is a Term Assurance Contract with the

opportunity of converting to other contracts. The new premium is calculated
based on the age at conversion.
 Declaration A statement attesting to the accuracy of the

information entered on a proposal form. The declaration appears on every
proposal and must be signed and dated by the proposer.
 Decreasing Term Assurance Term assurance cover where the

level of cover decreases throughout the term of contract . This Insurance is

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helpful for cases in capital repayment of mortgage where the sum assured
decreases in line with the repayment of mortgage based on a maximum rate
of interest.
 Economy Cover Plan Temporary life assurance available as single or

joint life. Cover provides for the sum assured to be paid on the death of the
life assured. The life cover operates during the selected term of the
assurance only.
 Endorsement An amendment to an insurance policy which then

becomes a part of it. Endorsement can be any changes to the existing policy
like adding of new element of Life cover , change / addition of client details ,
superannuation benefit or investment .
 Endowment Policy A life assurance policy which pays a sum of

money after an agreed period of time, or on the earlier death of the assured.
 Ex Gratia Payment A payment made to the insured where there is

no liability under the policy for the insurer to make payment.
 Front End Loading Term used in connection with unit linked

policies to describe charges being deducted from the first years premiums
hence the phrase 'front end loading'.
 Gold Plan A unit linked endowment assurance policy available

as single or joint life.
 Intermediary A person or organization that offers advice and

arranges policies for clients.
 Indexation Value of the sum assured loses its value progressively, when
the premium is kept constant due to price increase in commodities. So to
counter this effect the premium payable is increased by a rate fixed earlier or
variably depending on the commodity price index (CPI). The sum assured too
is similarly modified.
 LAUTRO Life Assurance and Unit Trust Regulatory

Organization under whose rules the Pearl operates to meet the requirements
of the Financial Services Act.
 Level Premium Applies to policies where the premium remains the

same throughout the term of the policy.

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 Life Assurance Contract is a agreement between two parties , the

insurer and the proposer , that one party (Insurer) will pay a sum of money
called the Sum Assured , to the other party (proposer) on the occurrence of a
specific event .
 Life Cover Plan An Industrial Branch whole life assurance policy with
limited period of premium payment.
 Life Expectancy the average number of years expected to be lived in

future by a group of people of the same age .
 Life Insurance Commissioner A government executive who polices the

activities of Insurance companies .
 Maturity If the policy holder pays the premium till the end of the
specified term the policy is matured and the customer receives the sum
assured together with any bonus.
 Payment/Closure of Policy once the policy has matured or has

been terminated then the insurer will pay the amount of money due to the
customer and close the policy.
 Paid Up Policy A policy free of further premiums for a reduced sum

assured.
 Plan A scheme or a policy of the Insurance company and assures a

specific benefits for Clients who invest money in it
 Policy Once the Insurance company has accepted the proposal and the
premium has been paid , it will issue a policy as evidence of the contract. This
policy would contain the details of contract and policy holders personal
information.
 Proposer The person or company who affects the policy. This may be
on his/her own life or on the life of another.
 Proposal The action of applying for a policy to the Insurance company

by a prospective client

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 Risk For practical purposes a Risk can be considered the Sum assured
for a type of Product on a policy or for a client
 Surrender A mode of claim where the client cashes a policy after it

acquires a surrender value that is the policy is past the cooling off period and
all set up expenses, commission and charges have been paid. This usually
does not happen until a few years since the policy was set into force.
 Term Assurance the Term assurance policy is for protection only and no
savings is attached. This is the cheapest form of Life Insurance.
 Underwriting evaluation specifying any outstanding requirements ,

application of loadings and sign off of the proposal before it can be set in
force.
 Underwriter A employee of the Insurance company who actually

assesses the risk involved in a new proposal and directs the administration
department to reject/accept/defer with underwriting requirements /modify the
proposal for different terms of risk acceptance or other decisions.
 Whole Life The Whole Life policies provide both protection and savings
which could be with profit or non profit.
9.2 Investment, Annuity and Pension
 Accumulation Unit Applies to the following unit linked plans

Ultima, Gold, Children’s Gift Plan and Unit Linked Prosperity Plan. Premiums
invested into these plans are used to purchase units in the mixed fund or for
Prosperity Plans mixed or sterling funds. The initial units purchased equal to 2
times the annual premium are known as Capital units. Once the capital units
obligation for the plan has been met then the money invested will be used to
purchase what are known as accumulation units. Accumulation units have a
lower periodical management charge and therefore will increase at a faster
rate than capital units.
The term is also used in connection with the Unit Trust investments to
describe a type of unit where all income earned is re-invested automatically in
the Unit Trust and thereby increases the value of the unit.
 Allocation Direction of Money to a selected fund or funds

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 Attribution Application of Unit price to the money in the cash fund to

purchase units
 Alterations Internal Alterations Alterations generated by the system

when due For Ex. Decreasing term assurance , expiry of loadings , reduction
in sums at risk relating to increases in investment value , premium expiry ,
renewable term processing , premium resumption following waiver , policy
memo processing etc.
External Alterations Alterations generated by the users like

unit price input , switching policy investment funds , canceling a policy or a
benefit from inception , reviving a policy from Lapse and assigning a policy to
Banks/building societies .
 Annuity A vehicle by which Insurer will pay a guaranteed income in

return for a lump sum investment.
 Annuitant a person receiving a annuity .
 Appropriate Personal Pension Another term for a Protected

Rights Pension Policy which is an alternative to the State Earnings Related
Pension Scheme.
 Bid Price Applies to Unit Fund and Unit Trust business and is the price
which the company uses for determining benefits and to buy back units from
the investor.
 Bonus Interest The term given to additions to 'with profits' personal

pension plans resulting from any distribution of profits of the Company's
pension fund business. Bonus interest is declared as a rate percent per
annum and will be applied on a day to day basis to the balance of the
retirement account.
 Capital Gains Tax A tax which may be payable on an increase in

value of a capital asset. Any tax liability applicable would be calculated after
due allowance for a person's exemptions.
 Capital Units Applies to Ultima, Gold, Children Gift Plan and Unit
Linked Prosperity Plans. Capital units are used to help recoup initial expenses
including commission and commission related expense. There is an
obligation to invest money into Capital Units in the following circumstances -
when a new policy is issued, when the premium is increased each year

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through indexation provision, and when the premium is increased by the

policy holder.
The capital unit obligation will equal two times the regular annual premium.
When the annual premium is increased (whether by indexation or by the
policy holder voluntarily increasing their own contribution) a further Capital
Unit obligation will arise equal to two times the annual increase in premiums.
 Cash Value The face value of a Prosperity Pension Plan scheme

reduced in accordance with the Company's basis for early retirement. This
applies where the retirement account is transferred, the pension age
commenced before the age of 60 years, the plan has been in force for less
than 5 years, or where regular contributions have been increased or single
contribution made in the previous five years.
 Equity Fund A fund used for unit linked policies, which

invests mainly in ordinary shares of industrial and commercial companies.
 Family Income Benefit An additional temporary assurance rider benefit

for a specified term which provides an income from the date of death until the
end of a specified term. Family Income Benefit is also available as a stand
alone policy.
 Financial Advisor A holder of a license to advice clients of the financial

implications of taking up a particular product.
 Freedom Bond This is a single premium ordinary branch policy which

provides for a sum of money to be made available with which to purchase a
pension.
 Fund Manager a person who manages a investment fund of which a

client can be a member through unit linked policies or personal portfolio
services .
 Gilt and Fixed Interest Fund A fund used for unit linked
policies which invests in bank deposits and very short term British
Government or public authority debt. It provides for security but with little
prospect of growth.
 Immediate Income Plan This is an immediate temporary annuity

combined with a deferred annuity available on a single life basis only ( this
policy is also referred to as a guaranteed income bond). The single premium
invested is divided into two portions, one to purchase an immediate

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temporary annuity for either 5 or 10 years, the remaining portion to purchase

a deferred annuity.
 Immediate Life Annuity A single premium investment used to

purchase an annuity which will provide the annuitant with a regular income
for the remainder of their lifetime.
 Investment investment linked Life assurance policies are usually either

single premium contracts or annual premium contracts for ten years or more.
Part of the premium is used to cover the Insurers charges and pay for life
assurance cover. The balance is used to buy units either in a unit trust or
investment funds run by the Insurer.
 Managed Fund An investment fund used in connection with unit

linked products. This fund invests in ordinary shares, properties and UK gilt-
edged stocks giving a mix of different types of investment to provide growth
with reduced risk.
 Maximum Investment Plan A unit-linked endowment assurance

contract with a guaranteed minimum death benefit. This product is available
on a single life basis only.
 Offer This is one of the elements of a valid contract (e.g., an insurance

policy) which means that the offer may be made to a definite person, must not
be vague, must state all the terms of the offer, may be terminated at any time
before acceptance, i.e., by revocation, death, rejection etc.
 Offer Price Used in connection with unit linked and unit trust
investments and is the price at which the company allocates units in the
chosen fund or trust.
 Pension Pensions are normally periodic payments from the

government or a former employer when someone reaches the end of his
working life. Insured schemes through a Insurance company can be arranged
for the employee to get pension.
 Pension Fund a superannuation fund which pays retirement benefits

in the form of pensions.
 Rebalancing The act of switching parts of investment from one fund to

another in a portfolio and then balancing them based on request from client or
PPS fund manager

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 Switching The act of moving the capital from one fund /portfolio to
another. The insurance company will levy a small charge on this transaction.
 Trustee a person or company appointed under the terms of the trust

deed to hold the trust property for the beneficiaries and to make sure that the
plan is operated in accordance with the trust deed.
 Trust deed a document which sets out the rules for establishment and
operation of a fund.
 Unit Trust Unit Trust will pool the small amount of investors money and
places it under the control of Investment managers . This money is then
invested in property or stocks. The investment being held by a trustee or
trustees on behalf of the investor. Each pool is divided into equal units and
the investor then receives a number of units depending on the amount of his
investment.
 Unit Linked Insurance Policy a ULIP as it is called, is for a fixed term

of 10 or 15 years and is managed by a trust, who will invest part of the money
paid as premium to take a life insurance policy on insured and will invest the
remaining in units managed by investment funds.

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9.3 General Insurance
 All Risks Describes a type of policy which gives wider cover than
usual. Can cover any loss or damage caused subject to any exclusion stated
in the policy.
 Associated Claims these are secondary or additional claims to the main

claim. For e.g. there is a damage to the Building due to a Storm for which
there is a main claim . After two days the water seeps in and destroys the
carpet. The claim due to this is called an Associated claim.
 Business Associates (BIA) BIA as they are called are experts in Insurance
and usually BIA advice is taken for large Insurance’s on Commercial
undertakings / Industry . In addition to the Agent, BIA will also get some part
of the commission.
 Chartered Loss Adjustor (CLA) CLA are experts in Loss evaluation. The
help of CLA is taken whenever there is a very large Claim. CLA will evalauate
the Loss and based on his recommendation the Insurance company will settle
the Claim.
 Client an individual or company associated with the office. Could

be a Personal Client - an individual associated with the office like Policy
owner , proposer beneficiary , insured or
Business Client - any Company associated with the Insurance company
 Class Within each Segment (Product) there are various schemes

to cater to the specific needs of the people
Ex. For Product House Home Standard the Classes are
Buildings
Content
Holiday and Travel
All risk
 Claims Whenever a Insured person suffers a Loss he can approach

the Insurance company to Compensate for the Loss. This is called a Claim.
 Comprehensive this insurance will cater to all form of claims from the
insured as well as third party damage.

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 Contribution A principle of general branch insurance which means

that if for example, a person had an item insured with company A and also
company B then should a claim arise the two companies concerned would
pay half the claim amount each in settlement.
 Direct Debit Mode of payment in which the payment is done by a debit

directly from a bank .
 Duration of Policy normally General Insurance policies is for a

period of one year. At the end of a year it is Renewed.
 Event No you can associate a Event no to a set of claims due to

disaster like Floods. This helps the Insurance management to know, at any
point of time, how much this Event has cost the company.
 Facultative Reinsurance Facultative Reinsurance is usually taken on a

Individual policy where the single policy has a very large sum assured or
there are extra factors that increase the risk of the policy
 Indemnity Compensation for Loss
 Insurance Arbitrator Whenever there is a dispute on the amount of

Claim the advice of Insurance Arbitrator is taken who will in turn study the
case and settle the claim to the mutual satisfaction of both the parties
 Insurer A Insurance Company doing the business of Insurance
 Insured Any person who has taken a Policy with the company
 Lapse Happens when the policy holder defaults the payment of premium.
Reviving a policy from Lapse is allowed within a set period free of charge.
Beyond this tolerance period it can be revived for a fee until it goes out of
force.
 Legal Dept. The department that is responsible for the compliance of the
product to statutory guidelines.
 No Claim Discount Whenever a Policy has no Claims , the

Premium reduces at Renewal . No Claim Discount will be for a period of five
years ranging from 30% - 50% .

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 Product A scheme that is developed by the Insurance Company that

assures a specific benefit for Clients who take this policy. A Insurance
company has Products to cater to each and every segment
Ex . House and Home Standard (HHS)
Drivewise Gold (DWG)
 Product Manager A Person who is responsible for the product from

Inception to the end , including the proper implementation of the product into
the system.
 Recapturing When a new reinsurance treaty is negotiated for all existing

risk as well as new risk and it replaces all other treaties with the reinsurer
then this is called ‘Recapturing’ .
 Reinsurance Reinsurance is Insurance taken out by the Insurer on a Risk.

If a claim is made the Reinsurer shares the burden of the Claim to the agreed
sum reinsured.
 Reinsurance Commission Is commission paid to the Insurer for placing

the business with the reinsurer.
 Renewal at the end of the year the policy is Renewed for further term
of one year subject to clients acceptance else the policy is Lapsed .
 Retention Limits specifies how much risk the insurer is to retain. For
ex. if a policy has risk of 10K and retention limit is 2K , then the sum reinsured
is 8K. The first 2K of risk is retained by the insurer.
 Sub-Class Within each Product-Class, Sub class represents the salient

features of the Insurance.
Ex . For Product /Class House and Home Standard /Buildings the Sub-
Class is With Accident damage
No Accident damage
 Short Term Policy sometimes while going on Travel/Holiday short term

policy for a period of 1 to 3 months are taken. It will generally come as part of
the Holiday package .
 Taxation Office Details of Contribution tax, Lumpsum tax, group tax

reconciliation, unclaimed money etc goes to this government agency. Details
about the surcharge/surtax also is received/sent to this department.

(Version 1.0)
 Third Party this insurance will cater to claims only from the others who
have suffered a loss. Insured person will not be compensated for any loss or
damage he has suffered.
 Treaty Reinsurance a reinsurance treaty specifies a set of reinsurance

rates and retention limits on a group of products for a selection criteria. The
Reinsurer agrees to reinsure all risks that fall within the agreed guidelines.
There is a set formulae for the calculation of reinsurance premium that is
used for all risks reinsured.
 User Any person who uses the system to enter / alter / enquire the data
corresponding to a member or can suggest business changes.

(Version 1.0)
9.4 SuperAnnuation
 AGC Australian Guarantee corporation Ltd. is a wholly owned subsidiary

of Westpac Banking corporation which is a finance company for WFS. Money
invested in Westpac Fixed rate Superannuation Bond is in turn invested in
first charge debentures issued by AGC.
 Benefit the amount of money in the superannuation fund to which the fund
member is entitled
 Beneficiary a person for whose benefits, assets are being held .

Beneficiaries can be members and their dependents.
 Lump sum in superannuation terms the benefit taken as a single

payment rather than taken as a pension or annuity .
 Occupational Superannuation superannuation provided by an

employer as part of terms and conditions of employment .
 Superannuation a long term savings arrangement which operates

primarily to provide income for retirement.
 Superannuation Division A regulated Superannuation Fund in a

Insurance company that complies with the provisions of the Superannuation
Industry Supervision (SIS) Act .
 Superannuation Fund/Plan/scheme usually a trust fund to

provide benefits for members on retirement/resignation/death/disability or
other specified events. The funds are governed by a trust deed and
administered by trustees
 Superannuation Industry (Supervision ) Act SIS act prescribes

prudential standards and rules that govern the superannuation entities .
 Superannuation Pension a pension payable from a

superannuation fund .

(Version 1.0)
 Surplus is the amount by which the current value of assets plus present
value of future contributions is greater than the present value of expected
liabilities .
 Unclaimed Monies money in the superannuation fund which is not

claimed by the beneficiary who is eligible for it.

(Version 1.0)
8 Popular Packages
Some of the popular packages available in the market are

CLOAS - Life Insurance
HUON - Non-Life Insurance
10.1 CLOAS
CLOAS – Comprehensive Life Office Administration System, a product

developed by Continuum Australia in 1975. The main objective of this product
was to manage and execute the Life assurance business for the insurance
companies. Later on the product functionality’s are enhanced to take care of
Superannuation business also. Currently many insurance companies around the
globe are efficiently using the CLOAS system for their day to day business
needs, which includes Pearl Assurance from U.K, Westpac Insurance Company
from Australia to name the few.
 Overview of CLOAS
Initially CLOAS system was built around flat files as their data source, later on
moved to a single, centralized database structure. This centralized database
stores all the relevant information of Life office. The information includes client
details, client’s policy details, agencies and agent details, the government rules
and regulations, Company’s product details, Sales and marketing details. Only
authorized users can access the database and because of its centralized nature
the duplication of data is also minimized to a great extent. CLOAS maintains a
three level security mechanism: terminal level, user level and transaction level.
These security features can be tailored according to requirement of a company.
CLOAS functionality’s are executed via numerous transactions. A transaction is

nothing but an execution of a business function in the system right from its
initiation to its end. A simple example of a transaction could be an interaction
between the system and a user, who captures the policy proposal details via on-
line screens and finally, stores it in the main database. Internal activities will also
trigger a variety of transactions based on next activity date. These activities might
be maturity of a policy, notice on premium due, statement generation etc.
CLOAS basically deals with Life, Superannuation and Investment products. The
business functions that CLOAS supports are, proposal processing, policy
maintenance, policy billing and accounting, client administration, general ledger,
agency & commission and statistics.

(Version 1.0)
Currently, the CLOAS application programs are written in COBOL and execute in
the IBM mainframe environment. CICS panels serve as user interface to the
system. Different CICS panels represent different business function. The
centralized database can be IDMS or IMS/DB or DB2.
 Product Features
• All application modules will execute under the environment of control

programs, a special kind of programs.
• These control programs are mostly written in Assembler.
• On-line transactions captured initially will be stored in the intermediate
database called Transaction Capture database (TCDB).
• Majority of application transactions will execute during over night batch
run. This also includes the moving of TCDB transaction to main
database.
• The concept of TCDB helps in the reducing the load on the main database
during peak day time.
• However, some of the important transactions can be processed in real
time by using ‘Dripfeed’ technique.
• Dripfeed is a technique in which CICS application programs will be
executed side by side with the batch application programs.
• CLOAS generates lot of reports that caters to various business
requirements.
 Highlights of the Product
• Because of Control programs the application code is completely

independent of hardware, operating systems, DBMS and on-line systems.
• System can be ported across hardware, operating systems and DBMS.
• Easier to transaction program development using standard calling
sequences to perform common functions.

(Version 1.0)
10.2 HUON Application
Huon application was developed by Huon corporation of Australia in the year

1989. It is a high value integrated Client based software solution for Insurance
companies to map their business processes to their IT systems. The package is
functionally advanced to meet needs of the financial services corporations today
and well into the next millennium
The evolution of the huon solution since 1986 has been due to implement the
requirements of the Customers. The latest version provides many new
enhancements like
 Multi language support

Which allows the customers to write the policy in different languages on the
same system.
 Enterprise Server Enablement

Allows the users to access the system via a variety of interfaces. This interfaces
could be either Huon developed GUI using Java or other Graphical Front end
Enterprise Server Enablement positions companies to exploit the emerging
business available through internet
 Electronic Data Interface

EDI has long been a focus of efficient business processing
Huon application is made of four modules all working on the Relational Database
management system. Each of these modules can be implemented separately or
as part of the Huon solution.
 Client
The Huon solution is a client based software package and stores information on
each and every client associated with the insurer. These can include policy
holders, claimants, agents, banks and loss adjusters.
The information held against the client include multiple names, addresses,
telephone no and bank accounts. The client module enables the business to take
into account the entire relationship with the customer.
 Protect
Protect is the Insurance module of the Huon solution. It provides end-to-end

policy and claims administration from quotations to reinsurance for both
commercial and personal classes of insurance

(Version 1.0)
The Protect module has Full policy processing like quotations, New business,
Endorsements, Lapses and cancellations. These are all affected by the
associated underwriting acceptance, rating , taxation and commission rules
controlled by the business analyst using the business manager subsystem.
Claims processing includes new claim registration, amendments, express claims
handling and payments. These are also controlled by the business manager
subsystem.
The Policy, claims, and Agent administration can be tailored to each company’s
requirements allowing rapid development of new products.
 Provision
Provision is the fully integrated General Ledger and Financial Accounting module
of the Huon solution. It also provides for all back office support for banking
receipts, payables, receivable, disbursements, agent accounts and reinsurance
accounting. Provision also provides full Audit trails of transactions carried out with
in Huon system.
 Billing
Billing is the payment management module of the Huon solution. It allows you to
vary the payment collection method by the Product or the distribution channel
through which the policy is sold.
Collection methods can be either lump sum payments or installments.

Installments methods can be set up with various collection frequencies and
amounts.

(Version 1.0)
9 Insurance Products
Life Insurance Corporation is a government of India undertaking is the only
company dealing with Life Insurance Products in India . A lot of Foreign
companies are eager to enter Indian market. They have tied up with Indian
counterparts and financial institutions . They are waiting for the Insurance
Regulatory authority (IRA) bill to be passed in the parliament. As of now LIC is
the only Indian company dealing with Life Insurance products.
Life Insurance Corporation of India is having a large number of Products to cater

to people in different sectors and different Income groups. They have more than
128 Plans . Some of it have been withdrawn but around 34 of them are in force
as of now. They are also introducing new plans to cater to changing trends and
requirements of the people. LIC is having Plans of all three basic types Term
assurance, Endowment and whole Life Policy. Some of the Plans are a
combination of these basic types. These Plans are for term assurance, Savings
oriented and profits. In LIC there is no Health Insurance Products as of now .
Some of the Plans of Life Insurance corporation are
Sl No Plan Type
1 Term Plans Term Assurance

2 Convertible Term Ass Term Assurance
3 Endowment Plan 1 Endowment
4 Endowment Plan 2 Endowment
5 Bima Kiran Endowment
6 Money Back Policy Endowment
7 Whole Life Plan1 Whole Life
8 Whole Life Plan2 Whole Life
9 Jeevan Raksha Annuity
10 Jeevan Dhara Annuity
11 Jeevan suraksha Pension
12 Asha Deep Term + Critical Illness
13 Jeevan Mitra Triple cover Endowment

(Version 1.0)
12 Glossary of Terms
AGC Australian Guarantee corp.

BIA Business Insurance Associate
CLA Chartered Loss Adjustor
CPI Consumer Price Index
DTI Department of Trade and Industry (UK)
DWG Drivewise Gold
HHS House Home Standard
IB Industrial Branch ( A Division of Pearl)
IRA Insurance Regulatory Authority
LAUTRO Life Insurance and Unit Trust Regulatory
LIC Life Insurance Corporation of India
OB Ordinary Business ( A Division of Pearl)
SIS Superannuation Industry Supervision Act
NCD No Claim Discount
WFS Westpac Financial Services

(Version 1.0)
APPENDIX

Appendix A DFD for New Business

Plan table Policy Details Medical details
1
Agent'S Confidential report
Decline index Proposal details Health Chart
AGENT Party Details Medical details
Insurance
history, MHR
Age,income,
Life assured's name, occupation Standard Parameters[M.4]
2 address, details
Declined request/call for deficit amount father's name plan details
P3
CLIENT P2
P1 Client details
Client, Proposal details Perform
Receive Client,proposal Store Automated Automated UW results in
Proposal details proposal Underwriting review slip
and Automated UW
details
Perform results[M.5]
Scrutiny
Moral Hazard Report[M.1] 5

3
Policy Details UW rating details Review Slip UNDER
P5
SALES WRITER
OFFICER Postponeme
UW decision nt
Postponed Intimation to Intimatio
P9
Premium rate lookup Proposal Clients n to
Advice to pay amount Details Client
FP
4
Cheque Rates
MEDICAL P4 Call for
Medical Report[M.2] dishonour
OFFICER cheque UW decision Additionaldetails
action[M.3]
details
Financial transaction Process
P6 Premiu Additional
additional details Review Slip
m details
Reverse proposal Details
Reinsurance Documents Reasons for
Policy entries Premium
retention limit required declination
reinsurance Validation[M.6]
Instalment
Premium Declined cases
P7 Policy details
Reinsurance Reins Policy Details Refund Proposal
amt retention limit deposit
P8 Refund Excess/Call for deficit
2
Issue
policy amount
Payment details for deficit amount CLIENT
Policy Details Advice to adjust proposal deposit, Medical fee advice
MIS policy
First Premium Commission Advice/reverse comm entries
details
Policy details Intimation to reinsurer
Policy, FPR, Acceptance[M.7] Declined Index
Policy
Reports Completi
on
8 Advice 2 6
7
1
MANAGE ACCOUNTS
AGENT/ REINSURER
MENT CLIENT DEPT
UNIT
MANAGER
DFD (LEVEL1) - New Business

Appendix B DFD for Endorsement
Policy Master Policy details Client details
Policy details
Client details
P1 P2
1 1
Valid policies
Declination of the request
CLIENT Request for Endorsement Validate Process CLIENT
Endorsements Endorsement Call for arrears,
Additional requirements
consent letter,original policy
Additional rqts
rates
Endorsement request, Requirements file
status
Premium rates
Endorsement details
P3
Endorsed original policy, refund amount status
Altered Policy Master
Effect details
endorsement
Consent Altered
details Client details
letter,original policy , arrears
Level 1 DFD - Endorsements


Appendix C DFD for Claims Death

D9 policy Benefits
D1 policy sum_assured,benefits,deductions
status
D10 settlement breakup
Policy details E1
E1 Death P1 D8 Death details repudiation
Intimation Client
Client L/a name,date_of-death,reason of death
details Receive death Amount
intimation payable
D6 policy claim
details
polocy_no,status P5
status D4 Legal Notes
call for requirements Calculate
requirements Death Benefit
p2
D3 System Parameters E3
status P4
status,claim_type Legal Heir
Admission of
claim Process
Bond
D6 Policy claim
Indemnity
Accident cases
P6 E3
Cause
of death Legal Heir
Prepare
D8 Death details
Discharge
E4
Requirements voucher
Indemnity Surety
P3 P5 Bond
D7 Documents Required Process Illness E7

Process early title
cases discharge
claims Nominee
voucher D6 policy claim
D2 Documents Required rival
claim cheque
decision
legal heir D2 Documents Required
adverse case
E1
D7 Documents Received
Client E6
E2 E5 signed Assignee
Requirements P8
Investigation/ D.V.
Court
Deciding Settle
team Payment
D1 policy
discharge
voucher
status
Death Claims

Appendix D DFD for Claims Maturity
Terminal bonus Bonus rates
Underwriting rates
policy
details
External loan
Age Admittance flag
Refunded extras
System
Policy Master parameters P2
P1 Loan
Policy details Details limit periods
Call For
Calculate Maturity
Maturity Written off
Maturity Value Maturity Requirements
Policy benefits requirements claims
details
Maturity Details
documents
Settlement
Policy Benefits required
breakup
documents
received
Policy claim Maturity
requirements
Policy claim written off claims
Maturity value P3
Revesed entry Request for

Validate guardian 2
Valid cases indemnity,
Claim Paid Status, Requirements evidence
age proof
amountpaid, or write off GUARDIAN
Date of Payment claim Request for
Maturity
Policy maturity date Requirements
Maturity
requirements
P5 P4
1
Preparation Of Legal heir evidence Receive Death

1 Cheque Intimation CLIENT
CLIENT Cheque
Documents
Request for
received
Death Certificate,
Cheque Cheque Legal Evidence
Cheque
Death Certificate, 5
2 4
3 Agent/Bank/
LEGAL Relatives of
GUARDIAN COURT HEIR Client
LEVEL1 DFD - AFM MATURITY

Appendix E DFD for Reinsurance
E1 P1
D1 Reinsurance Treaty
New
Choose
Business
reinsurance D2 Policy
company
policy no, treaty no, cession no,Reinsurance amount
D3 Policy Reinsurance
E2
Revival
P2
premium
Decide method
Medthod D1 Reinsurance Treaty
E3 D4 ReinsurancePremium rates
Policy
Alteration
E$
P3 case for Reinsurer

status assessment
Process decision
Reinsurance
D3 Policy reinsurance
D7 Reinsurance loading
Reinsurance indicator
E1 E2 E3
New Business Revival Policy

Alteration
D4
Reinsurance Premium rates
Reinsurer & Treaty number
D5 Financial Transactions P4 P5 D2 policy

Last paid date Premium Cancellationsum
of assured,policy term, maturity date,status
payment & Reinsurance
D1 Reinsurance Treaty settling claims
paymen D3 Policy Reinsurance
frequency t
Policy number,
E$
premium
method Reinsurer
D3 Policy Reinsurance
Level1 DFD - Reinsurance

Appendix F DFD for Premium Accounting
outstanding Error financial
Policy suspense Charges
deposits transactions
premium notice
Client
FinTran entry
Policy master
charge rates
premium amount,
policy status,
premium notice premium/deposit receipt Client
Bank next due date
policy number,
instalment premium, P2
P1
outstanding payment amount cheque/cash/DD
Collect
Generate next due date premium and
premium make FinTran premium/deposit receipt
notice & entry
create dues
outstanding dues
new due entries direct debit/standing orders
Bank
FinTran entry
Policy dues
outstanding dues Financial transactions

Accounts
cheque dishonour/
realisation P4 P3 FinTran entry
advice
Cheque unsettle policy dues settle dues Match
dishonour / FinTran entry
realisation cancelled / clawback commission commission entry with
action Policy dues
outstanding deposits
FinTran entry
create / clear deposits
policy suspense
Commission
Financial transactions
payments
DFD (Level 1) - Premium Accounting

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INSURANCE

TATA Consultancy Services

Author Date Version Change Details

Sanjay Patil 2nd Feb 1.1 Added Chapter 2 – Insurance

TCS CONFIDENTIAL Page 2 of 74

TCS Confidential Page 3 of 80

The scientific basis for conducting life assurance was developed by a

Insurance - Normally refers to protection against a loss resulting from an

Assurance - Refers to protection against the occurrence of something bound

Life Assurance is a contract which is bound to produce a death benefit,

TCS Confidential Page 4 of 80

2.1 Need for Insurance

Insurance exists because people need security. Individuals or organisations

The fable of the pig that died.

 Other concepts defining insurance

 Possibility of an undesirable occurrence

TCS CONFIDENTIAL Page 5 of 74

Speculative Risk is present if either beneficial or adverse outcome could stem

Risk Management : Risk identification, Measurement and Control.

2.3 Principles of Insurance

TCS Confidential Page 6 of 80

 Utmost good faith

TCS Confidential Page 7 of 80

2.4 Benefits of Insurance

 Relieves insured from worry

2.5 Business Functions

Prepare and review corporate plan

TCS Confidential Page 8 of 80

Insurance of insurance - Insurable interest exists

 Finance and Accounts

Agents - Not experts.

As a recent development, direct insurers have started marketing personal lines

TCS Confidential Page 9 of 80

 Modern classes of business

Bonds : Bonding involves not two but three parties.

Fidelity bonds insure against employee dishonesty. The principal is the

Life : Pensions & Annuities

 Policy Underwriting Process

 Policy Underwriting Process

TCS Confidential Page 10 of 80

The National Association of Insurance Commissioners is an association of state

TCS Confidential Page 11 of 80

3 Life cycle of a policy

A life assurance policy can be purchased through

The following are the common modes of payments followed

 Customer Enquiries / Changes

1. Changes to the Policy

TCS CONFIDENTIAL Page 12 of

2. Lapse of the Policy

 Surrendering the policy

 Cancellation of the policy

1. Death of the Policy Holder

TCS Confidential Page 13 of 80

loan available is proportion of the current surrender value of the policy.

3. Maturity of the Policy

4. Payment / Closure of the policy

3.1 Principles of Life Insurance

TCS Confidential Page 14 of 80

3.2 Various types of Life Assurance Policies

Different variants of term assurance policies are available in the market.

 Level term assurance

 Renewable term assurance

 Convertible term assurance

 Decreasing term assurance