The Japanese eat very little fat and suffer fewer
heart attacks than the British or Americans.
On the other hand, the French eat a lot of fat
and also suffer fewer heart attacks than the
British or Americans.
The Chinese drink very little red wine and
suffer fewer heart attacks than the British or
Americans.
The Italians drink excessive amounts of red
wine and also suffer fewer heart attacks than
the British or Americans.
Conclusion: Eat & drink what you like.
“ It's English that kills you ”. 1
INSURANCE
2
Insurance in broad terms may be
described as a method of sharing
financial losses of few from a common
fund who are equally exposed to the
same loss.
3
Example
Say 1000 motor cars valued @ 300000/- are
observed over a period of five years. On an
average say per year two are total loss by
accident. Then the total annual loss would
be Rs.600000. If the loss is to shared by all
the thousand owners then they have to
contribute Rs.600/-
The loss experience will be established by
taking the past experience, geographical
area in which the vehicles are used and
density of traffic.
4
PRINCIPLES OF INSURANCE
A.Rate of contribution or premium
B.The degree of hazard it is exposed to.
C.Classification of various types of properties.
5
IMPORTANT ELEMENTS INVOLVED IN
THE CONCEPT OF INSURANCE
Subject matter of insurance.
The PERIL (risk)
The financial loss.
6
Subject matter is property, human life, machinery,
goods etc.,
Perilis fire, storm, burglary, earth quake, injury,
explosion etc.,
Financial loss is normally defined before the
contract is signed.
7
RISK
RISK:- can be defined as the unforeseen element
which may impede your progress in achieving the
objective.
8
In insurance jargon they term RISK as an
uncertainty regarding loss or what is termed as
a FORTUITOUS risk.
Concept of chance and risk can be expressed
in a single mathematical term called
“Probability”.
9
An example of impossibility can be quoted say
the 9/11 incident where insurance companies
were washed out.
Hyderabadis never in their dreams thought of
taking cover for flood. When the encroached
drains could not contain rains for 2 days, the
resultant floods had washed away score of
vehicles, property etc.,
So, Risk is inherent in human existence. Human
life and material possessions are constantly
exposed to loss or damage due to the
mechanizations of fortuitous circumstances
10
A RISK OF TRADE is a loss due to a
specified event say fire, storms burglary etc.,
These are classified and their frequency in
already assessed.
A TRADE RISK is a risk of loss inherent in the
trade itself. Broadly speaking we can say loss
of profit as a result of change due to market
collapse, political factors etc.,
Risk of trade is insurable as it is already
assessed,
Trade risk is yet to be classified and hence
majority of these are not covered. 11
MATHEMETICAL VALUE OF RISK
L/V x 100 where
L= total losses reported
V=refers to the total values
the product of the above analysis is called
Law of averages or the doctrine of probability.
So premium rates depend upon past loss
experience by systematically classifying the
risks. Which are homogenous in characters
Example:- Motor vehicle.
12
ITC
RICE INSURANCE ATFL
EMMSONS
13
SCOPE OF INSURANCE:
General Insurance is divided into three
categories:
FIRE,
MARINE
&
MISCELLANEOUS
14
FIRE INSURANCE
FIRE INSURANCE BUSINESS:
Loss due to FIRE, LIGHTINING, EXPLOSION,
IMPLOSION,, RIOTS & STRIKES, IMPACT BY
RAIL, AIRCRAFT DAMAGE, EARTH QUAKE,
FLOOD, STORM, TEMPEST, TORNADO,
TYPHOON, CYCLONES & LAND SLIDE.
15
MARINE INSURANCE BUSINESS:
This is the oldest branch of Insurance comprising
HULL & CARGO.
Hull Insurance deals the Loss associated with
floating crafts, Cargo insurance provides cover
in respect of loss or damage to goods during
transit by rail, road, sea or air.
16
MISCELLENOUS INSURANCE BUSINESS:
Mainly includes the motor business, accident,
aviation , engineering and guarantee insurances.
17
CONTRACT OF INSURANCE
In between the insured and insurer
INSURED:- Party effecting insurance,
(Individual, Company, Firm,
Corporate body etc., with
legal status)
INSURER:- Party granting the protection
under an insurance policy.
Policy:- Is the evidence of contract
18
Insurance contracts are governed by Indian
contract act 1872 which states that to be
legally valid following elements should be in
order.
A. Offer and acceptance
B. Consideration
C. Agreement between the parties
D. Capacity of the parties
E. Legality of the contract
19
UTMOST GOOD FAITH:
The greatest degree of good faith by law, is
expected from the proposer, that is the main
reason why good faith in case of Insurance
contracts becomes UTMOST good faith.
It is the duty of the proposer to disclose all
material facts not only already known but
also extends to material facts which he ought
to know.
20
Examples of material facts:
FIRE: Construction of building, type of
occupancy, nature of good stored etc.
MARINE: method of packing, inherent vice
etc.
21
INSURABLE INTREST
In nutshell if property is the subject matter of
insurance then the subject matter of
insurance contract is the insured’s pecuniary
interest in that property.
LEGAL RIGHT TO INSURE IS THE
INSURABLE INTEREST. Insurable Interest is
required to support the contract of Insurance
in order to make it legal, other wise the
contract is null and void.
22
HOW INSURABLE INTEREST ARISES:
1. By ownership
2. By Law
3. By Contract
4. By Legal liability
5. Interest of a Person in Life
23
When insurable interest must exist:
For Fire or Miscellaneous policy the
insurable interest must exist at the time of
taking the policy and at the time of the loss.
For Marine policy an insurable interest need
not exist at the time of policy taking.
24
WARRANTY:
means an assurance by the assured, that he
will not do some particular things or will fulfill
any conditions that are laid in advance.
WARRANTIES are further classified as
express
or implied
25
ASSIGNMENT
Assignment means transfer of rights and
liabilities of an insured to another person
who had acquired insurable interest in the
property insured.
Fire policies have to be assigned with the
consent of the insurers, where as Marine
cargo policies can be freely assigned
without the knowledge or consent of the
insurer. This is because the ultimate buyer is
not known at the time of taking the cover.
26
Marine hull policies cannot be assigned.
INDEMINITY:
Can be defined as “ compensation for loss or
injury sustained” or “ to make good the loss
or damage” .
27
Methods of indemnification:
1. Cash payment
2. Repair
3. Replacement
4. Reinstatement.
28
Mode of indemnity:
Buildings:
the cost of reinstating or repairing the
damaged portion, is assessed, and from that
an appropriate allowance is made towards
depreciation, depending on the age and
condition of the building. Allowances are
made for improvement due to repairs.
29
Machinery:
Here the method of indemnity is supposed
to be the market value for a similar machine
of same age and model as determined on
the date of loss. In practice this is difficult so
the measure of indemnity becomes the
replacement value less depreciation. In case
of repairs the cost of repairing is borne by
the insured. However replacement of parts
is subject to an allowance towards
depreciation.
30
Household goods:
Consideration similar to those applicable for
machines.
Stocks:
In case of wholesalers or retailers, the
measure of indemnity is the price at which
he will be able to replace his goods. The
element of profit will not be taken care of.
31
Fire insurance
Fire insurance policies may be issued on
REINSTATEMENT value basis. Although the
insured gets new property which is in similar
condition and of same kind, to protect the basic
of idea of indemnity the property will not be of
superior nature.
32
Motor:
If the vehicle is a total loss, the sum insured
or the value of the vehicle, which ever is
less is paid. If the vehicle is damaged the
cost of repairs or paid, if parts are replaced
the cost of new part will be subjected to
depreciation. In all the cases age and
general maintenance of the vehicle are
considered.
33
MARINE INSURANCE
In this branch what is provided as indemnity
becomes commercial indemnity because,
Almost all the policies issued are agreed
value policies.
To be precise the insured and the insurer
agree that the sum insured is the value of
the property insured. The agreed amount is
then payable in case of total loss, with no
attachments what so ever. 34
MISCELLANEOUS
Miscellaneous Insurance: the insurances of
property, liability and insurance are contracts of
strict indemnity. Normally books of accounts
are referred when settling claims in this branch.
( ex. fidelity guarantee insurance)
35
Under insurance: Property insurances are
generally subject to the condition of
average, and if there has been under
insurance, only that portion of the loss is
payable.
Ex.value of property : Rs.20000
Sum insured : Rs.15000
Loss assessed : Rs.10000
Amount payable will then be:
15000 x 10000 = 7500
20000
The insured is then considered as his own
insurer for the difference of the liability.
36
EXCESS OR FRANCHISE
In some policies an EXCESS or FRACHISE is
incorporated, which means that a certain
circumstances a part of the loss may have to
be borne by the insured.
37
SALVAGE
Property which is saved from loss or damage
and still has some commercial value is called
salvage.
38
SUBROGATION
may be defined as the transfer of rights and
remedies of the insured to the insurer who has
indemnified the insured in respect of the loss.
39
CONTRIBUTION:
An insured may have taken many policies on
the same subject matter. The principal of
contribution would lead to a situation in which
the insured would be able to recover his loss
from any one insurer, who then will have to
effect proportionate recoveries from other
insurers concerned. Normally the insurers
seek to control additional insurances at the
proposal stage itself.
Remember at no cost an infringement to the
principle of indemnity is accepted.
The principal of contribution does not apply to
personal accident policies. 40
PROXIMATE CAUSE
Means the DIRECT, DOMINANT or effective
cause of which the loss is the natural
consequence. It is the cause which is most
closely connected with the loss, not necessarily
in time but in efficiency.
Although the doctrine is clear in theory, it is
difficult to determine the proximate cause, as a
clear demarcation should be maintained
between insured peril, excepted peril and un
insured peril.
41
Example:
An insured sustained an accident while
hunting. Due to shock and weakness, he was
unable to walk and whilst lying on wet ground,
he contracted cold which developed into
pneumonia causing death ultimately.
The proximate cause was considered to be the
accident and not the pneumonia, the disease,
which was only a remote cause. The claim was
payable under personal accident policy.
42
MARINE INSURANCE
A. cargo insurance
B. hull insurance
Cargo insurance provides insurance cover in
respect of loss of or damage to goods during
transit by RAIL, ROAD, SEA, AIR OR
REGISTERED POST.
43
TYPE OF CONTRACT RESPONSIBILITY
FREE ON BOARD SELLER IS RESPONSIBLE TILL THE
(F.O.B) GOODS ARE PLACED ONBOARD.
COST & FREIGHT THE BUYERS RESPONSIBILITY STARTS
(C & F) FROM THE TIME THE GOODS ARE
PLACED ONBOARD
COST INSURANCE THE SELLER IS RESPONSIBLE FOR
& FREIGHT (C.I.F) ARRANGING INSURANCE WHICH IS
INCLUDED IN THE COST OF THE GOODS.
44
A further security in the form of insurance policy
is also required by the bank to protect its
interest in case of goods suffering loss or
damage while in transit, in which case the
importer may not make the payment.
The terms and conditions of the insurance are
specified in the letter of CREDIT.
45
The RISKS covered in a marine policy falls
under three categories
•MARINE PERILS
•EXTRANEOUS PERILS
•WAR & STIRKES, RIOTS & CIVIL
COMMOTION RISKS (S.R.C.C)
46
MARINE PERILS : are the perils associated
with rivers, seas.
EXTRANEOUS PERILS: means not relevant.
Ex: theft, pilferage non delivery are some of the
extraneous perils.
Loss due to WAR, STRIKES and CIVIL
COMMOTIONS (SRCC) can also be covered
under a Marine policy.
The consequences of these perils may result in
total loss.
47
TOTAL LOSS IS DIVIDED INTO
ACTUAL
OR
CONSTRUCTIVE .
48
PARTIAL LOSS
This is once again divided into
PARTICULAR AVERAGE
OR
GENERAL AVERAGE
In marine insurance the word average is
synonymous with LOSS.
49
PARTICULAR AVERAGE
A particular average loss is a partial loss of
subject matter insured. Deductions are as per
excess and franchise clauses.
50
Example: If fire is discovered onboard a
laden vessel, the following items make up
the general average loss:
1. Cost of damage caused by water or any
other methods used to extinguish the fire
2. Cost of repair if the ships structure has to be
altered to gain access to fire.
3. Value of any cargo damaged or jettisoned
during efforts to control fire
4. Cost of using the ships equipment and the
wages of the crew during the general
average incident.
51
Example: A vessel runs aground in a
dangerous position
1. Cost of tugs to refloat the vessel including
salvage award
2. Cost of running ships equipment while
refloating
3. Cost of discharging cargo into lighters and
reloading into vessel.
4. cost of pollution removal if the cargo is
jettisoned and the value of the cargo lost.
5. stores consumed and wages paid to crew
during the general average incident.
52
SALVAGE CHARGES:
With Marine cargo policies, the term is
often referred to as salvage loss. Ex. Say
goods insured are damaged enroute, and
the goods are such that they deteriorate
incase of prolonged storage or by they time
they reach their destination. It is then
prudent and sensible to dispose of the
same at an early date for the best price
obtainable. The difference between the
insured value and the net proceeds of the
sale becomes the salvage value.
53
SUE & LABOUR CHARGES:
These are expenses incurred by the insured
or his agents in order to avert minimize a
loss covered by the policy. Example of such
charges are the landing cost at intermediate
ports , ware housing , reconditioning and re
forwarding. It should be noted that the
insured should always THINK AND ACT in
such manner as a UNINSURED would act.
54
INSTITUTE CARGO CLAUSES (A), (B) & (C)
Risks/Contingencies Covered by ICC(A):
a)All risks of loss or damage to the subject
matter insured except those specifically
excluded. The term “all risks” is not to be
construed as embracing loss or damage,
which is inevitable. The loss or damage, in
order to be recoverable, must have occurred
fortuitously.
b)General average and salvage charges
incurred to avoid loss from any cause or
causes except those excluded.
c)Liability under “Both to Blame Collision”
clause of the bill of lading.
55
d) Charges reasonably and properly incurred to
avert or minimize an insured loss and to
preserve and pursue recovery rights are also
covered (as per Duty of Assured Clause).
e) In the event of termination of the transit
resulting from a risk covered. EXTRA
CHARGES incurred in unloading, storing and
forwarding the insured cargo to destination
(as per the Forwarding Charges Clause).
56
Comparison between the institute cargo clauses (A), (B) & (C)
A comparative analysis of the institute Cargo Clauses (A), (B) & (C)
Type of risks
Covered () not covered () A B C
Loss / damage reasonably attributable to:
1. Fire or explosion
2. Vessel/Craft being stranded, grounded, sunk or
capsized.
3. Overturning/derailment of land conveyance.
4. Collision or contact of vessel, craft or conveyance
With any external object other then water.
5. Discharge of cargo at a port of distress
6. Earthquake, volcanic eruption, lightning
7. General average and salvage charges incurred to
avoid loss from any cause except those excluded
8. General average sacrifice
57
A B C
9. Jettison
10. Washing overboard
11. Entry of sea, lake or river water into the vessel,
craft, hold, conveyance, container, lift van or
place of storage.
12. Rainwater damage
13. Total loss of any package lost overboard or
dropped whilst loading or unloading from
vessel or craft.
14. Piracy.
15. Deliberate damage or destruction by wrongful act
of any person or persons, (i.e. by malicious acts)
(Can be covered by malicious Damage Clause for
I.C.C (B) and (C) upon payment or extra premium)
16. In the event of frustration of the voyage resulting
from a risk covered, extra charges incurred in
unloading, storing and forwarding to destination
58
A B C
17. Reasonable charges for averting or minimizing loss
recoverable under this insurance and also those
incurred, to pursue recovery rights against carriers,
bailees or third parties.
18. Other or extraneous perils all involving a fourtuity
and from external causes(s), for example:
Damage as a result of shifting in heavy weather
Improper stowage
Rough handling
Breakage, leakage, denting, scratching, crushing,
crumpling, chipping, chafage
Heating sweating
Infestation, mould, mildew, rust, county damage
Hook and sling damage
Contact with mud, oils and acids, damage by
other cargo
Shortage, theft, pilferage, non-delivery
Other loss/damage caused fortuitously and from
59
external cause or causes
A B C
19. liability under “Both to blame collision” Clause of
Bill of Lading.
60
COMMON EXCLUSIONS
Loss, damage or expenses attributable to willful misconduct of
the assured
Ordinary or inevitable losses
Loss, damage or expense caused by inherent vice or nature of
the subject matter insured
Loss/damage due to insufficient, unsuitable or defective packing
(including stowage)
Loss/damage or expenses proximately caused by delay even if
the delay is caused by a peril insured against
Loss damage or expenses arising from insolvency of the
owners, managers, charterers or operators of the vessel.
Loss damage due to un seaworthiness of the vessel or craft,
container, lift van employed for carrying the insured matter.
Wars, strikes and civil commotions unless covered under
separate endorsements.
61
PROTECTION & INDEMNITY
Is a mutual association operated on behalf of its
members (ship owners) by a board of Directors
appointed by and from the members of the club.
62
THANK YOU
63