MF0018 –Insurance and Risk Management -summer/spring 2012

Spring / February 2012

Master of Business Administration- MBA Semester 4

MF0018 –Insurance and Risk Management- 4 Credits

(Book ID: B1319)

Assignment Set- 1 (60 Marks)

Note: Each Question carries 10 marks. Answer all the questions.

Q1. Discuss the guidelines for settlement of claims by Insurance company.

General guidelines for claims’ settlement

There are some guidelines that must be followed while settling the claims. These guidelines are

general in nature, and are not compiled to be the same always. Therefore, the claim settling

authority uses discretion and records reasons.

Appointment of surveyor

The Insurance Act states that surveyor should survey claims above Rs. 20,000. The surveyor’s

appointment should be based on the following points:

· The surveyor should have a valid license.

· The surveyor selected should consider the type of loss and nature of the claims.

· Depending on the situation, if technical expertise is required, a consultant having technical

expertise assists the surveyor.

· One surveyor can be used for various jobs, if the surveyor’s competence is good for both.

Appointment of investigator

Depending on circumstances, it is necessary to appoint an investigator for verifying the claim

version of loss. The appointing letter of the investigator o mentions all the reference terms to

perform.

Guidelines for Settlement of Claims by IRDA

1. Proposal for insurance

The proposals for insurance are:

· In all cases to claim insurance, a proposal for grant of cover should be submitted with proof (a

written document). But a written proposal form is not required for marine insurance markets.

· Depending on the circumstances of the claim, forms and documents in the grant of cover can be made

available in the languages recognised by the constitution of India.

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· The prospect is to fill the form of proposal, under the guidance of the provisions of section 45

of the Insurance Act.

· If a proposal form is not used, the insurer has to record the information obtained, orally or in

writing, and confirmation is to be done by the insurer within 15 days. If any information is not

recorded, the burden of the missing information lies on the insurer, in case he claims that the

insured is suppressing information or is providing misleading information.

· The insurer is to educate the proposer, concerning the facilities available, like appointing

nominee or any facility based on the terms of act or conditions of policy.

· The insurer has to process the proposal quickly and efficiently. All the decisions and

confirmations should not exceed 15 days from the receipt of proposal by the insurer.

2. Matters to be stated in life insurance policy

A life insurance policy should clearly state the following:

· The name of plan in the policy, its terms and conditions.

· Whether participating in profits or not.

· The profits such as cash bonus deferred bonus, simple or compound bonus, if participating.

· The terms and conditions of the contract, benefits payable and contingencies on which the

benefits are payable.

· The dates of commencement of the policy, benefits availing date and maturity date.

· The time gap to pay premiums, the amount of premium, the grace period to pay premium.

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· The implications of not paying premium and the provisions of a surrender value.

· Policy requirements for converting the policy into paid-up policy, surrender value, non-

forfeiture and to revive lapsed policy.

· The provision for loan keeping the policy as the security and the rate of interest on the loan

amount is to be mentioned at the time of taking the loan.

· The address of the insurer to communicate with regard to the policy.

· All the documents to avail claim under a policy.

· When acting under regulations to forward policy to the insured, the insurer has to inform that

the letter forwarded has a time span of 15 days from the date of receipt, to review the terms and

conditions of the policy. If, in case, the insured do not agree, they can return the policy stating

the reasons for objection. The insured is entitled to refund the premium which is subjected to a

deduction with respect to a proportionate risk premium.

With respect to the policy coverage, if the premium charge depends on age, the insurer should

verify the age before issuing the policy document. If the premium charge does not depend on

age, the insurer is to obtain the proof of age as soon as possible.

3. Claims procedure of life insurance policy

The claims procedures with respect to life insurance policy are:

1. A life insurance policy should state all the documents to be submitted by a claimant, to

support a claim.

2. A life insurance company on receiving a claim, has to process the claim. Any additional

document, if needed, is to be raised within a period of 15 days of the receipt claim.

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3. A claim under a life policy has to be paid or disputed, by giving relevant reasons, and

clarifying within 30 days from the date of receipt. All investigations, that is, initiations and

completions of investigations, must be done not later than 6 months.

4. If a claim is ready for payment, but the payment is not made because of reasons related to

proper identification of the payee, the insurer has to hold the amount for the benefit of the payee,

and earn interest at the rate applicable to a savings bank account.

5. If there is a delay in payment from the part of the insurer, in processing a claim, then the

insurance company has to pay the claim amount at a rate two percent above the bank rate,

according to the rate at the beginning of the financial year, in which the claim is reviewed.

Q2. What is premium accounting and claim accounting?

Premium accounting

Q3. Critically evaluate the role of agents in insurance industry.

Q4. Explain product design and development process in Insurance Industry.

Q5. What is facultative reinsurance and treaty reinsurance?

Q6. What is the role of information technology in promoting insurance products?

Spring / February 2012

Master of Business Administration- MBA Semester 4

MF0018 –Insurance and Risk Management- 4 Credits

(Book ID: B1319)

Assignment Set- 2 (60 Marks)

Note: Each Question carries 10 marks. Answer all the questions.

Q1. What is the procedure to determine the value of various investments?

Procedure to determine the value of investments

According to this sub clause of the Regulations, a detailed procedure has been prescribed for

determining value of various investments like real estate, debt securities and equity securities.

Real estate

· Investment property – The investment property can be valued at a historical cost after

deducting the accumulated depreciation and impairment loss. Residual value is considered zero

and no re-evaluation is allowed. The change in the carrying amount of the investment property

shall be taken to Revaluation Reserve.

· The insurers can asses at every balance sheet date to check whether an impairment of the

investment property has occurred.

· All impairment losses are recognised as expense in the Revenue/Profit and Loss account.

Debt securities

Debt securities that include the government securities and the redeemable preference share must

be considered as “held to maturity” securities and can be measured at an historical cost that is

subjected to amortisation.

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Equity securities and derivative instruments that are traded in active markets

· Limited equity securities and derivative instruments that are traded in active markets must be

measured at a fair value according to the balance sheet date. The lowest of the last estimated

closing price of the stock exchanges where securities are listed can be considered for estimating

the fair value.

· The insurer can assess the balance sheet date to check whether an impairment of the listed

equity security instruments has occurred.

· An active market means the market where the securities that are traded are homogenous, it has

normal willing buyers and sellers and the prices are available publicly.

· Unrealised gains or losses that arise due to the change in the fair value of listed equity shares

and derivative instruments can be considered under the heading “Fair Value Change Account”

and reported in Profit or Loss account. The profit or loss on sale of such investments can include

the accumulated changes of the fair value that was previously recognised under the heading Fair

Value Change Account with respect to a particular security and recycled to Profit and Loss

Account on actual sale of that listed security.

· The balance in Fair Value Change Account or any part thereof cannot be distributed as

dividends. In addition to this, while declaring dividends, any debit balance in the Fair Value

Change Account can be reduced from the profits or free reserves.

Loans

Loans can be calculated at a historical cost that is subjected to impairment provisions.

Catastrophe reserve

Catastrophe reserve can be created according to the norms, if any prescribed by the authority.

Fund investment out of catastrophe reserve can be made according to the instruction given by the

authority. Further it is clarified that this reserve is created to meet the losses that may arise

because of some unexpected set of event and not any definite known reason.

The following need to be disclosed as notes to the Balance Sheet:

· Contingent liabilities:

- Partly paid-up investments.

- Outstanding underwriting commitments.

- Claims not judged as debts.

- Guarantees provided by or on behalf of the company.

- Statutory demands.

- Reinsurance commitments.

- Others (to be specified).

· Encumbrances to company assets (inside and outside India)

· Obligations made for loans, investments and fixed assets.

· Agein

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g of claims.

· Premiums, less reinsurance.

· Recognition of premium income extent based on different risk patterns.

· Contract values with respect to investments.

· Procurements where deliveries are delayed and pending.

· Sales where payments are not settled.

· Operational expenditures of the insurance business.

· Historical costs of valued investments on a fair value basis.

· Calculation of remuneration of managers.

· Amortisation basis of debt securities.

· Unrealised gains or losses due to fair value changes of equity shares and derivative instruments.

· The credit balance in Fair Value Change account is not available for distribution when

realisation is pending.

· Fair value of investment property and its basis.

· Claims settled and outstanding claims for a period of more than six months on the balance sheet

date.

The following accounting policies form an integral part of financial statements:

· All important accounting policies with respect to accounting standards issued by ICAI,

important policies mentioned in Part I of Accounting Principles. Other accounting principles of

an insurer are stated according to Accounting Standard AS 1 by ICAI.

· Any departure from the accounting policies as abovementioned need to be separately revealed

with reasons.

The following information also needs to be disclosed:

· Investments made according to statutory requirements need to be disclosed separately together

with its amount, security and special rights inside and outside India.

· Segregation of performing and non performing investments for income purpose as per the

directions issued by authorities.

· Percentage of business sector-wise.

· Summarised financial statements of last five years prescribed by authorities.

· Accounting ratios provided by authorities.

· Allocation of interests, dividends and rents among revenues, profits and losses.

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Q2. Explain chance of loss and degree of risk with examples.

Q3. Explain in detail Malhotra Committee recommendations?

Q4. What is VAR and how it is useful in risk management tool?

Q5. List and explain briefly the organisations of insurers in India.

Q6. Explain different types of pricing objectives and methods.





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MF0018 –Insurance and Risk Management -summer/spring 2012

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