Insurance Management – I (MB3H1INS) : October 2008
Section A : Basic Concepts (30 Marks)
This section consists of questions with serial number 1 - 30.
Answer all questions.
Each question carries one mark.
Maximum time for answering Section A is 30 Minutes.
Which of the following is not the role of an underwriter?
(a) Deciding the underwriting policy of the insurance company
(b) Examining the applications received – identifying risks and classifying the insureds
(c) Deciding whether to accept an application or reject it
(d) Determining the extent of coverage to be offered and the terms and conditions that
would be applicable
(e) Calculating an appropriate premium.
Which of the following is not true about evaluation of loss experience?
(a) Insurers do have an idea of the level of losses that are likely to be incurred
(b) Where excessive losses are suffered in respect of a particular insurance product,
then there will be a need for greater analysis
(c) Loss data is studied by the staff underwriters to pinpoint the source of these
(d) The research conducted includes analysis of loss experience of the particular
company only and not that of the industry as a whole
(e) The outcome of the analysis will determine the modifications to be made in the
Which of the following reasons is not true for obtaining additional information by the
(a) To collect missing information
(b) To probe into information that appears conflicting
(c) To check the correctness of information furnished
(d) To handle complex accounts
(e) To handle accounts that present relatively low degree of risk.
Which of the following is quick ratio?
(a) Total current assets / Total current liabilities
(b) (Cash + Government securities + Receivables) / Total current liabilities
(c) Net profit before tax / Net assets
(d) Net profit before tax / Net worth
(e) Gross profit / Net sales.
Which of the following statements is false about insurance pricing?
(a) The insurance mechanism is based on the mathematical principle of the law of large
(b) Through the insurance device, the uncertainty of a loss is replaced by certainty of
insurance premium payment
(c) By improving the predictability of the insurance pool the unpredictability of
individual members of the pool is lessened
(d) The law of probability sheds light on how accuracy in projections can be improved
as well as the conditions that are to be fulfilled for it to operate efficiently
(e) As per this principle, the accuracy projections relating to future losses will increase
if the number of exposure units increase and these exposure units should be similar.
Which of the following is an example of a physical hazard?
(a) An untrained driver
(b) Poor moral character
(c) A weak financial condition
(d) Undesirable associates
(e) Individuals exhibiting an attitude of indifference.
Which of the following statements is false?
(a) Rating manuals lay down the procedures to be followed for development of
(b) The responsibility of ensuring that accounts are priced appropriately lies with the
(c) While pricing the insurance products, it should be ensured that the price is adequate
to enable the insurer to continue operating profitably
(d) Departmental goals are normally passed on to the line underwriters through
(e) The marketing strategies of the insurer should correspond with the underwriting
policy of the insurer.
In insurance terminology, risk is
(a) An insured peril
(b) An expected peril
(c) Speculative in nature
(d) The chance of possibility of loss
(e) The equivalent of hazard.
Which of the following factor(s) play an important role in determining whether normal
cover is to be provided for a motor vehicle?
I. Age of the proposer.
II. Performance of the vehicle.
III. Financial status of the proposer.
(a) Only (I) above
(b) Only (II) above
(c) Both (I) and (II) above
(d) Both (I) and (III) above
(e) All (I), (II) and (III) above.
First loss covers are provided by insurers only in case of
(a) Motor insurance
Which of the following statements is not true?
(a) The doctrine of insurable interest is a condition that is implied by law
(b) An insurance contract is legally binding only if the insured has an interest in the
subject matter of insurance
(c) The doctrine of insurable interest was developed to ensure that the insurance
contract would not be used for wagering and also to reduce moral hazard
(d) In case of property and liability insurance, the insurable interest must exist at the
inception of the policy
(e) In case of property insurance, ownership is one of the relationships that gives rise to
The main objectives of underwriting are to ensure that
I. Risks are safely distributed.
II. Risks are profitably distributed.
III. Equity is maintained between the insureds in the pool.
IV. Weeding out undesirable applications.
V. Determining the degree of risk represented by the applicant.
(a) (I), (II) and (III) above
(b) (I), (II) and (IV) above
(c) (I), (II), (III) and (IV) above
(d) (I), (II), (III) and (V) above
(e) All (I), (II), (III), (IV) and (V) above.
What does ‘not excessive’ an insurance constraint refer to?
(a) Less burden in the form of premium on the insureds
(b) Less coverage accepted by the insurer
(c) Reasonable profit made by the insurer
(d) Level premium fixed by the insurer
(e) Statutory limit fixed by the government for insurers.
Which of the following is not true about burning cost?
(a) It is referred to as the value of claims reported for a given period as a percentage of
a measure of exposure
(b) It has been accepted as the standard for risk assessment
(c) It uses past data, usually last five years, to arrive at the burning cost
(d) It is a moving average, weighted by the exposure measure
(e) It is used only for commercial insurance.
Which of the following statements are true with regard to Predator pricing?
I. It cannot be applied in the insurance market.
II. It is used for pricing the products reasonably to avoid competition.
III. It is generally used by the existing players.
IV. It may lead to losses.
(a) Both (I) and (IV) above
(b) Both (II) and (III) above
(c) (I), (II) and (III) above
(d) (I), (III) and (IV) above
(e) (II), (III) and (IV) above.
Reciprocal claims should be
(c) Mutually exclusive
(d) Part of multiple claims
(e) Both (a) and (c) above.
The obligation of the insurer to pay claim to the insured arises primarily because of
(a) The insured has insurable interest in the subject matter at the time of claim
(b) The insured complied with all the conditions and warranties
(c) The insured paying the consideration which the insurer accepts
(d) It being the fundamental right of the insured
(e) It being mandatory on the part of the insurer.
Which of the following is not the main factor affecting claims settlement?
(a) Sufficient documentary evidence should be presented along with the claim
(b) The risk and the cause of the event should be covered by the policy
(c) Policy should be in force on the date of the event
(d) Loss assessment estimation
(e) Presence of insurable interest.
Which of the following statements on insurance mechanism is not true?
(a) Insurance has the mechanism of risk transfer from the person who lost the asset to
the other customers who have contributed to the common pool of the insurance
fund in the shape of insurance premium
(b) Insurance saves the owners from risk of loss of asset and arranges payment of
compensation as an alternative to the asset
(c) Insurance will curb the risk prevailing to asset due to happening of uncertainties or
not happening of certainties
(d) Insurance will not save the asset or has no control on the risk or cannot postpone
the happening of the uncertainties, but it only provides the alternative source to
meet the contingencies resulting due to happening of uncertainties and the income
loss due to the loss of the asset
(e) The mechanism of the insurance has the limitation that the members are
compensated only if they experience risk of asset, i.e., only if the asset is damaged
and no further income is generated from it.
Which of the following is false about assessment of claims in different classes of
(a) Claims in life insurance differ from claims in general insurance
(b) Claims in marine insurance and motor insurance is considered on the same footing
(c) Procedure of assessment of insurance claim for the natural death differs from
(d) The payment of claim and assessment of the loss depends upon various factors and
differs from one class of insurance to another class of insurance
(e) However, in all cases the payment of the claim discharges the insurer from the
obligations of the insurance contract.
Which of the following common factors of the life policies in relation to the claims
management is not true?
(a) The claim is paid either on happening of event, which is insured or on the date of
maturity or after expiry of contract period
(b) If the policy is for a specified purpose, say, for the benefit of child education or
marriage or to meet hospitalization expenses, the claim will be paid as per the
specified terms of the contract
(c) The amount of claim of the life policy depends on the face value of the policy and
the benefits thereupon are payable on the date of maturity or on the date of
happening of the event insured (death/accident)
(d) The life policies are compensatory in nature as the life of a person cannot be valued
(e) The life policies are benefit policies which are paid as judicious payments to
support the beneficiaries under the policy on happening of event which is beyond
control of any party to the contract.
Which among the following is a claims handling function?
(a) Risk management techniques
(b) Loss assessment
(c) Business forecasting
(e) Negotiating process.
Which of the following procedure is not true regarding depositing of claim amount in a
court of law as per Section 47 of the Insurance Act, 1938?
(a) The insurer has to file a petition for permission to pay in the court only when all
efforts to identify the claimant are exhausted by the insurer
(b) The insurer has to file a petition six months after date of maturity of the policy, but
within one year
(c) The insurer has to file petition in the court that has the jurisdiction
(d) The court after examining the facts mentioned in the petition permits the insurer to
pay the insurance amount in the court
(e) The payment of amount in the court will discharge the insurer of his obligation.
The claims estimation and preparation of claims reserve is not essential
(a) To decide on insurance pricing
(b) To calculate claims cost
(c) To understand the average cost of claim and receipts of individual claims
(d) To improve the services to the shareholders and the business
(e) To understand the solvency of the industry and insurance company.
For which of the following types of claims the Lok Adalat has been set up?
(a) Health insurance claims
(b) Motor insurance third-party claims
(c) Fire insurance claims
(d) Motor insurance own damage claims
(e) Burglary insurance.
Which of the following is true about Woolf’s reforms?
(a) They relate to only life insurance
(b) They were introduced in USA
(c) They increase the use of litigation by the consumers
(d) They introduced the new set of civil laws and rules for claims management in
insurance in UK
(e) They were introduced in Germany after the World war-II.
Which of the following is true?
(a) Appeal cannot be made in the higher court of law in case of change in law
(b) Conditions are clauses expressly stated in the policy to ensure that the insured does
not do certain things
(c) Beneficiary cannot appeal or complain in a court under an insurance policy
(d) The power of the court to hear the case and decide its jurisdiction
(e) Under motor insurance, claim can be made only for the damage to the vehicle and
not to the accessories.
Permanent disablement of a person does not include
(a) Destruction or permanent impairment of the senses of a person
(b) Permanent disfiguration of the head or face
(c) Fracture of hand due to a fall on the ground
(d) Permanent privation of the sight of either eye
(e) Permanent privation of the hearing of either ear.
Which of the following conditions is not true about declaration policies?
(a) Claim in the same proportion as the declared amount bears to the total value of
stocks at risk on the date of declaration
(b) Other policies on declaration basis covering the same property shall be identical in
(c) Reduction in sum insured is allowed
(d) Refund of premium on adjustment based on the declarations/cancellations shall not
exceed 50% of the total premium
(e) The basis of value for declaration shall be the market value unless otherwise agreed
to between insurers and insured.
Which of the following is not an essential element of doctrine of contribution?
(a) All insurances must relate to the same subject matter
(b) All policies must cover the same interest of the insured
(c) All policies must cover the same peril which was the cause of loss
(d) Contribution and subrogation is against the third parties
(e) All policies must be in force and all of them must be enforceable at the time of
END OF SECTION A
Section B : Problems/Caselets (50 Marks)
This section consists of questions with serial number 1 – 8.
Answer all questions.
Marks are indicated against each question.
Detailed workings/explanations should form part of your answer.
Do not spend more than 110 - 120 minutes on Section B.
Read the caselet carefully and answer the following questions:
1. Discuss how occupation, hobbies and life style affects the underwriting process. ( 10 marks) <Answer>
Rohit is employed in an MNC as a Senior Manager. His monthly remuneration is
approximately Rs.l,50,000. Apart from enjoying his work tremendously, he also has a
stable and peaceful life. He is also financially strong. His hobbies include scuba
diving, rock climbing and bungee jumping. He is aware of the benefits of insurance
and hence decides to opt for life insurance cover. As a part of the underwriting
process, he was asked to go for a medical check up. The reports of the medical test
indicated that he was not suffering from any major medical problem. The insurance
agent, however, is apprehensive whether Rohit will be provided cover at normal
rates. This is in spite of the fact that there is very less probability of Rohit defaulting
on the insurance premiums. In this context, discuss the impact that hobbies and
lifestyle have on the underwriting process.
Read the caselet carefully and answer the following questions:
2. What is the role of personal history for the underwriting decision making? ( 5 marks) <Answer>
3. Despite the requirement of medical reports, what are the reasons behind the <Answer>
acceptance of proposals without any medical test in many cases? ( 5 marks)
When a person applies for life insurance coverage, he is required to fill up an
application form, giving details about his/her personal history, especially the health
history. Sometimes, the details of the previous medical reports are required to be
furnished. It is essential that one should furnish all the information correctly as asked
for by the insurer to avoid future questions or worse, rejection of future claims to be
made by the insured. So, one should declare the past medical experiences correctly. If
one is suffering from any ailment, the insurer may exclude that ailment as well as the
related adversities that are expected in future. However, the declaration of the
proponent is considered as final and binding to both the parties in most of the cases.
Usually, an insurer asks a proposer to have a medical test to check the status of
insurability subject to conditions like age, term, sum assured, etc.
Read the caselet carefully and answer the following questions:
4. Advise the legal heirs of Nitin Kapoor whether the denial of claim is justified. ( 3 marks) <Answer>
5. Are the Consumer Councils competent to handle such cases? If so, explain the <Answer>
provisions of Consumer Protection Act, relating to such settlement. ( 3 marks)
6. What are the important documents required to be submitted by legal heirs of Mr. <Answer>
Nitin Kapoor for settling the claim? ( 4 marks)
Mr. Nitin Kapoor, an IT professional, aged 28 years, purchased a life insurance
policy from Good Services Life Insurance Company Ltd., on 12-4-1998. The
premium is to be paid annually. The last premium was paid on 23-4-2001. Mr. Nitin
Kapoor expired in an accident on 01-5-2002 and cheque dated 28-4-2002 issued by
Nitin Kapoor towards the premium was presented on 01-05-2002 and dishonored by
the bank. The insurance company denied the claim.
7. Many insurance companies take recourse to reinsurance to protect their exposure in <Answer>
underwriting the risk of policyholders and it is for the same reason that Mighty
Insurance Ltd., engaged in insurance business for the last 5 years, plans to take
reinsurance cover. It has 50 different kinds of products catering to the insureds’ needs
both in life and general insurance business. The company decided to go in for a
reinsurance cover with reputed reinsurance companies and started consulting them.
At last, it successfully roped in two reinsurance companies that agreed to provide
reinsurance cover to an extent of Rs.200 crore.
Identify the main reasons that can be attributed to an insurance company seeking
reinsurance cover. ( 10 marks)
8. Mr. Ramesh took a life insurance policy from Sensible Insurance Ltd. The life <Answer>
insurance policy is for an amount of Rs.10 lakhs. Ramesh regularly paid the premium
amounts to the insurance company. He nominated his wife Uma to be the nominee of
the policy. As part of his job, Ramesh went to some remote village in a hill district.
There he contacted some unknown viral infection and due to lack of medical
facilities in that area succumbed before being brought to a good medical hospital in a
nearby town. His wife filed for compensation and pleaded with the insurance
company to pay the due amount. The insurance company suspected some foul play
and rejected her plea.
Can an insurance company reject a claim immediately when it is submitted? Do you
think the nominee received justice? ( 10 marks)
END OF SECTION B
Section C : Applied Theory (20 Marks)
This section consists of questions with serial number 9 - 10.
Answer all questions.
Marks are indicated against each question.
Do not spend more than 25 - 30 minutes on Section C.
9. a. Is it necessary for the underwriter to be aware about the latest <Answer>
advancements in diagnosing and treating diseases? Discuss in brief.
( 5 marks)
b. ‘In case of a diabetic individual, his age and the duration of diabetes are
important factors to be considered before accepting the insurance
proposal.’ State the reason.
( 5 marks)
10. “Claims management is a very important functional area of an insurance <Answer>
company.” Discuss the role of claims management function in an insurance
company and bring out the difference between claims management and claims
( 10 marks)
END OF SECTION C
END OF QUESTION PAPER
Insurance Management – I (MB3H1INS) : October 2008
Section A : Basic Concepts
1. A Insurer decides the underwriting policy and the job of the underwriter is to implement < TOP >
it. The underwriter has no role to play in deciding the underwriting policy. The
underwriters role is summarized in the other four points listed from (b) to (e) in the
2. D The research conducted includes analysis of loss experience of the insurance industry < TOP >
as a whole and not that of a particular company.
3. E To handle accounts that present a relatively high degree of risk and not low degree of < TOP >
risk as stated in the question.
4. B Quick ratio = (Cash + Government securities + Receivables) / Total current liabilities. < TOP >
Current ratio = Total current assets / Total current liabilities
Return on assets = Net profit before tax / Net assets
Return on investment = Net profit before tax / Net worth
Gross margin ratio = Gross profit / Net sales
5. D The law of large numbers sheds light on how accuracy in projections can be improved < TOP >
as well as the conditions that are to be fulfilled for it to operate efficiently and not the
law of probability.
6. A Physical hazards are tangible characteristics of the person, property, or operations to < TOP >
be insured that affect the expected frequency and severity of loss. Thus, an untrained
driver represents a physical hazard.
7. B It is the responsibility of the line underwriters to see that accounts are priced < TOP >
8. D Risk is the chance of possibility of loss. < TOP >
9. C When a proposal for insuring a motor car is put forward, application of normal terms < TOP >
of cover will depend on whether the proposer is young, the performance of the
vehicle and the driving record of the proposer (including past claims and convictions).
Financial status of the proposer is not taken into consideration.
10. D Insurers provide first loss covers only in respect of property. < TOP >
11. D The time at which the insurable interest must exist is an important aspect of the < TOP >
application of the doctrine of insurable interest to property and liability insurance.
The insurance contract will be valid only if the insurable interest exists at the time of
the loss, regardless of whether it was or was not present at the inception date of the
12. A Weeding out undesirable applications and determining the degree of risk represented < TOP >
by the applications are the selection process, whereas the other three are the
objectives of underwriting.
13. C A rate is said to be ‘not excessive’ if it does not lead to unreasonable/excessive profits < TOP >
for the insurer. It is very difficult to define the term ‘unreasonable profit’. While
pricing the insurance products, the insurer is not sure whether the said price will result
in excessive profits. This is basically due to uncertainty attached to insurance pricing.
Competition in the market helps regulators to determine whether a certain price is
excessive or not.
14. E It is used for life and non-life insurance policies. All others are true with reference to < TOP >
15. E Insurance market is no different from any other market or industry and predator < TOP >
pricing can be easily implemented in insurance market also.
16. B The most important aspect of reciprocal claims is that they should be independent of < TOP >
each other. The reciprocal claims vary from multiple claims. Two incidents if
separated should have independent existence.
17. C The insurer is under a contractual obligation to pay claim because he has accepted the < TOP >
contract for a consideration of premium paid by the insured.
18. D Claims settlement is affected by insurable interest, risk and the cause of event and < TOP >
evidence of loss and is not affected by the estimation of loss.
19. C Insurance will not curb the risk prevailing to asset due to happening of uncertainties < TOP >
or not happening of certainties, but it reduces the loss of assets
20. B Claims in marine insurance differ from that of motor vehicle insurance. < TOP >
21. D Life policies are not compensatory in nature as the value of life of a person cannot be < TOP >
22. E Claims handling is functional in nature such as claims review, investigation, and < TOP >
undertaking the negotiating process. Claims management is a control system that has
an important place in risk management techniques, loss assessment, and business
forecasting and planning.
23. B The insurer has to file a petition six months after date of maturity of the policy, but < TOP >
within nine months
24. D The claims estimation and preparation of claims reserve is not essential to improve < TOP >
the services to the shareholders and the business whereas it is required for the reasons
given in the other alternatives.
25. B Lok Adalat has been created for providing speedy justice to the families affected by < TOP >
the motor accidents.
26. D Woolf’s reforms were aimed to introduce new civil laws for claims management and < TOP >
to reduce the use of the litigation process adopted by the customers.
27. D Warranties are clauses expressly stated in the policy to ensure that the insured does < TOP >
not do certain things. Beneficiary can appeal or complain in a court under an
insurance policy and appeal can be made in case of change in law. Under motor
insurance claim can be made not only for the damage of the vehicle but also to the
28. C Facture of hand due to a fall on the ground is not a permanent disablement where as < TOP >
all other causes of permanent disablement
29. C Reduction in sum insured shall not be allowed under any circumstances in declaration < TOP >
30. D Contribution is between the insurers but subrogation is against third parties. It is one < TOP >
of the differences between the doctrine of contribution and doctrine of subrogation.
All others are essential elements of the doctrine of contribution.
Section B: Problems/Caselets
1. There are certain hobbies that are categorized as high risk by insurance companies. Persons < TOP >
who engage in activities like scuba diving, mountain climbing, racing, hang gliding are
exposed to additional risk. Such additional risk tends to increase the expected mortality of the
individual. The premium rates charged to such individuals will be prohibitive in view of the
high risk involved. The usual practice among insurance companies is to provide coverage to
the individual, with a rider excluding death resulting from the said activity. Such a clause
helps in maintaining the premium at reasonable levels. Because of this Rohit may either be
denied coverage or may be asked to pay higher premiums.
The occupation of an individual exposes him/her to various kinds of risks. Hence this factor is
of considerable importance to the insurer. Insurers treat the occupation of an individual as a
classification factor. Hazards arising out of occupation are mainly of three types .
Environmental hazard - This may be in the form of overexposure to violence, tendency
to use drugs or overindulgence in alcohol .
Work Environment - Hazardous or poor work conditions may have an effect on health
and longevity of the individual. For example: individuals working or exposed to
chemical substances pose a higher risk and will have to be classified accordingly by the
Thirdly, an individual may face the risk of accident because of his occupation. For example:
The risk of accident is high in case of professional auto racers and professional divers.
There may be instances where an individual has shifted from a hazardous occupation to a
safer one. Such applications should be underwritten carefully, as there is a possibility that the
individual is still suffering from the harmful effects of the previous job. Alternatively, the shift
to a new job may have been prompted by health factors. Also, the underwriter cannot rule out
the possibility of the employee going back to his former occupation. In recent years, the trend
among underwriters is to ignore details about an individual's prior occupation provided he has
been out of that job for a period of two years.
2. Personal history of an individual is an important parameter for the underwriting requirements, < TOP >
as the past experience of medical treatments significantly influences the risk of earlier death of
an individual. For example, if the proposer recently suffered from a chronic disease like,
asthma, diabetes, etc., he might not have recovered completely. These diseases are permanent
in nature in the human body and will have long-term after-effects.
While, in case of a recent attack of an acute disease, like, jaundice, typhoid, etc. the health of
the person will be too weak, leading to a low resistive power against other diseases. But in the
near future, the person may be expected to recover completely. Based on the nature of the
history, the underwriter should decide whether to offer the necessary insurance coverage
immediately or to defer it and if the insurance coverage is to be offered, the exact terms at
which the coverage should be given.
3. Medical report regarding the health of the insured is an indispensable component of the < TOP >
underwriting functions. But still, insurance coverage is offered in some cases, without asking
the proponent to undergo further medical examination for the following reasons:
– It has been observed that in hardly ten percent of the cases, the adversities have come to
surface, despite the medical examination.
– Doing away with the requirements of medical reports, may increase the expenses of the
insurer for the settlements of the claims. But the savings of the expenses for medical
tests and other administrative costs as well as the extra revenue obtained from the issue
of more policies can easily outweigh those expenses.
– In our country, more than 70 percent of the total population resides in rural areas where
in most places, suitable medical expertise is not available. Therefore, for them, medical
tests cannot be conducted satisfactorily. Similar problem also arises for the female
– If the proposer is an employee of a reputed organization, he is liable to be tested for
medical fitness prior to joining the service. Therefore, for them, medical test may not be
– The negative effect of the lack of medical test may occur during the earlier years of
insurance coverage. Therefore, suitable exclusion clause may be imposed for these years.
4. In the present case, Mr. Nitin Kapoor has purchased a life insurance policy from Good < TOP >
Services Life Insurance Ltd., on 12-4-1998. The premium payable is on yearly mode. The
dates of insurance premium shall fall due on 12-4-1999, 12-4-2000, 12-4-2001 and 12-4-2002.
The last premium was paid on 23-4-2001 which will make the policy valid up to 12-4-2002
and Mr. Nitin Kapoor is under a duty to pay the premium on 12-4-2002 or within the grace
period. The premium being yearly, the grace period for payment of premium shall be one
month but not less than 30 days from the due date of the unpaid premium i.e., up to 12-5-2002
and till that date the policy will be in force. Any event/risk happened during the grace period
shall be covered. As such, the policy owned by Mr. Nitin Kapoor shall be valid till 12-5-2002.
As Mr. Nitin Kapoor expired on 01-5-2002; the insurance cover is available subjected to
satisfaction of other conditions. The claim is maintainable as the event of death occurred
during the grace period of the policy even though the premium cheque was dishonoured
within the days of grace.
5. The rejection of the policy without verifying the provisions of the Act, facts of the case < TOP >
amounts to the deficiency of service and deficiency in service is one of the grounds on which
a consumer can file a case with the consumer councils. The consumer councils or consumer
forums are the quasi-judicial forums established under the Consumer Protection Act, 1986 to
help the consumers by less procedure costs and without much delay. The insurance contract is
a contract in which the insurer sells services (product) to the insured. Based on the value of
the claim, it has to be filed either in the district forums or state forums. The beneficiary has to
file a petition with the consumer council and council being a quasi-judicial forum can
summon the. parties, examine the evidence, hear the parties and pass an award. The aggrieved
party can file an appeal against the award. Thus, the consumer councils are one of the avenues
to settle the claims dispute.
6. The important documents to be submitted by the legal heirs along with claim application form < TOP >
Claim form duly filled and signed.
Policy document duly discharged.
Date of birth certificate if the date of birth was not admitted earlier.
If the death is due to accident following additional information/certificates are to be
submitted to the insurance company.
Information relating to the accident.
FIR of Police.
Panchanama Report if conducted.
Death Certificate, if there is any death in the accident.
All these documents/information is required for the assessment of loss and making a decision
on payment of compensation.
7. The following reasons can be attributed for an insurance company seeking reinsurance. These < TOP >
Capacity of the Reinsurance Company: The capacity of the insurance company
pertains to the financial amount it retains in accepting insurance risks. Reinsurance
allows an insurance company to compete with other insurance companies where size is
the issue, for example, aviation insurance.
Reinsuring for Business Reasons: These reasons are for stabilization of the company
and diversification of the insurance portfolio. Here, by stabilization we mean
smoothening of losses. Management of portfolio refers to the wide variety of risks the
company may write. If the insurance company feels that it can retain that much risk, it
will not go for unnecessary reinsurance.
Asset Management: This includes the general prudence with regard to investments and
the taxation issues. Generally, the insurance company will maintain a certain amount of
risk management in reinsurance. The insurance companies are taxed on their financial
position after considering the premiums received, losses and costs, reinsurance
premiums paid, etc.
Catastrophe Protection: This is generally very helpful if the insurance company has
taken a large exposure. If the insurance company does not have that exposure reinsured,
it could suffer losses which may make the company bankrupt.
Sharing of Risk: As is the mechanism with insurance, the same applies to reinsurance.
The risk of the insurance company spreads and the losses are brought down to bearable
Development of New Products: An insurance company may want to diversify its
product portfolio by getting into other insurance products. Reinsurance would give a
cushion against adverse results experienced in the new venture and the reinsurance
company may also offer assistance in product development, pricing of the policy and the
training of the staff.
Thus, we see that an insurance company is able to share costs by entering into reinsurance
8. No, an insurance company cannot reject outright any claim submitted either by the < TOP >
policyholder or his or her nominees or friends or relatives. It is very unfortunate that
sometimes, insurance companies show undue haste in settling claim cases. The insurance
company, without any investigation into the matter and without trying to know about the
details and circumstances in which Ramesh died, has shown haste in rejecting the claims
petition of the nominee. The unilateral repudiation of the insurance company without any
enquiry or investigation goes against the very foundation of insurance. Most insurance
companies tread cautiously while dealing with the insurance claims payment and take
elaborate steps to investigate into the case and then arrive at a decision. The Sensible
Insurance Ltd., has to consider in detail the causes that led to the death of the insured,
investigate properly and then take a decision regarding the payment of claim amount to the
Section C: Applied Theory
9. a. It is impossible for the insurance professional to be totally up to date about the recent < TOP >
developments in the medical diagnostics and treatment. But, as life insurance
underwriting purely depends on the present health of an individual, if an individual has
unidentified disease or sickness this can result in underwriting errors and unwanted
claims. Therefore, it is necessary for the insurer to be aware of the latest modalities
employed in detecting and treating diseases. Moreover, diabetes Type II is one of the top
10 killer diseases; it is the third leading cause of death in the United States after heart
disease and cancer. From insurance point of view, when the Type II diabetic individual
escapes the normal diagnostic systems it results in a group of people who are prone to
adverse claims, go unchecked.
The Investigation and evaluation of blood for glucose content is the widely known
procedure for testing Diabetes. It would be profitable to have more details about the
insurability of an individual by knowing the latest advancements in the medical industry,
especially in case of life insurance underwriting. In the above said case, the findings that
diabetes which develops at an early stage of life is more likely to worsen, helps an
insurer to be wary about accepting a proposal from an individual who has diabetes at a
young age. But, the knowledge about the latest findings can be used only if the
insurance professionals and the management have necessary arrangements to know and
make use of the latest advancements in diagnosis and treatment of diseases.
b. Persons who have diabetes and are less than 25 years or more than 55 years are not
eligible for coverage. People under 25 are unfit because they are poor in their awareness
about certain factors including diet control and insulin administration which has to be
carefully monitored and taken care of. Therefore, as stabilization is very difficult to
achieve the application is postponed for 2 years for age group less than 35 and for one
year for age group more than 35. The older age group (more than 55) easily succumbs to
degenerative vascular diseases in the circulatory system, the heart, the kidney etc.
Duration of diabetes is also an important factor in the consideration of a proposal. A
diabetic condition for a period of more than 10 years is considered to be an adverse
case. And in a more serious case, a diabetic condition for 20 years is not accepted unless
other factors are favorable, because, with the increase in the duration of sickness, the
mortality rate also increases.
10. Claims management includes all the decisions and processes concerning the settlement and < TOP >
payments of claims. The focus of the claims management department is to lower the costs of
claims, monitor the claims to maintain a speedy settlement of claims. The important elements
in claims management are to have a claims philosophy, process the claims and settle them.
The claims department forms the backbone of the insurance company, for much of the
survival of the insurance company depends upon the efficiency and effectiveness of the
claims department. It is the claims department which acts as an interface between the other
departments of the company and the customers, except for the marketing department itself.
The claims department is different from the marketing department; the marketing department
looks after the sale of policies and promotional aspects of business which will be directly
related to the revenue stream, whereas the claims department looks after the costs of the
insurance company. Today, in this competitive world, the role of cutting costs cannot be
To have the insurance company growing, one needs to have a proactive and efficient claims
department. The claims philosophy is the first step to build up an efficient claims department
and keep in line its objective with the mission and goals of the company. The claims
philosophy is a method or a document or a procedure or a specified approach to settle claims.
It contains the principles which form the basis of managing and handling of claims. It
Preparation of guidelines regarding the receipt of claims from the insurers or claimants.
The analysis of claims.
Consideration of a decision on some particular issues and disputes. Evaluating the
impact of cost of claims and expenses.
Relation of claims to consumer satisfaction.
Monitoring the payment of claims.
Improving the efficiency of the claims settlement system. Improving the quality of services to
the end users.
The claims philosophy has both internal and external advantages. A good claims philosophy
will help the customers in timely receipt of claims; reduce costs and litigations, which
eventually will help develop the business. As far as the internal benefits are concerned, a
systematic claims process will help in speedy settlement of claims and the delays and the
associated problems therewith can be avoided. The claims philosophy has an influence on the
nature of claims received by the insurance company, the time taken for settlement and the
extent to which the cost and the service of claims are effective. A periodical analysis of this
process is however necessary to help plug the loop holes and to bring about an efficient
management of claims.
The claims philosophy is also necessary for the achievement of the objectives of the insurance
Attainment of targets. Review of performances. Identification of gray areas.
Comparison of actual costs with budgeted and targeted costs. Motivating personnel and
improving the services of the insurer.
Educating the policyholder and helping him take effective steps on the happening of the
The process of claims management consists of two important stages: claims management and
claims handling. Though the two terms appear quite synonymous, there is a difference
between the two. Claims handling is an integrated part of claims management and the
decisions are executed by the claims management machinery of the insurance company.
Claims management is a managerial function where the insurer has a definite role to play in
the analysis of data, processing of data, decision making, planning and budgetary control and
funds management. It is both subjective and objective, whereas claims handling is the
procedural way of processing claims. Claims management has a holistic approach whereas
claims handling is related to claims processing operations.
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