SETTLEMENT OF CLAIMS AND INSURANCE

 Settlement of the claims is the  culmination of a contract of life insurance . It will not be an exaggeration  to say that the image of an  insurance company , created in the minds of policy holders in a  particular and the insuring public in general, depends, on the  efficiency and effectiveness  with which claims are processed and settled. The speed  with which they are settled acts like a booster to the morale of the marketing  force of a company . Claim  settlement , therefore  occupies an important place in the total operations of an   insurance company.

 In fact the  insurance Regulatory  and Development Authority  (IRDA)  has issued instructions  to all  insurance companies to settle  claims within a period of 30 days failing which they should pay a penel interest at the rate of 10 percent for the   the period of delay . This impose a statutory obligation on every  insurance company. Basically the following  two types of claim which come before an  insurance company:  1. Maturity claims,  2.  Death Claims:  1.  MATURITY CLAIMS: Maturity claims come up for payments in the following manners: (1) All  endowments  types of policies have pre-determined date of maturity which is shown  in the policy bond.   (2) Under joint  life policies on the lives of couples  claim by way of maturity arises in the following ways:  (a) Both the lives survive the date of maturity  in which case maturity claim is payable.  (b)  During the term of the policy. one of the lives dies and death  claims paid. Even thereafter  the second surviving  life remains covered till the maturity date. . In the event of the second life surviving  up to the maturity date, the sum  assured becomes payable as maturity  claim. The insurer  therefore, has to keep track of the cases that may come up as maturity claims.  

3. Under Fixed Term Marriage/ Educational Annuity Plan, benefits  are payable on the maturity date even if the policy holder dies before that date. The only effect of death  will be that further premiums  cease. Thus, claim under the policy is also   payable as maturity claim.   4.  Under Money Back Plains , survival  benefits become due for payment after regular interval of 4 or 5 years depending  upon the terms of the policy. These survival  benefits are treated claims by maturity  because date of payments is pre-determined.  CLAIMS INTIMATIONS: Claims by maturity and their date of maturity are known  before hand . Therefore every  insurance company  prints. Claims  Intimation Registers well in advance of the date of maturity. Then printed letters are usually sent to the policy holder to inform them to comply with the requirements  for payments of claim amount . It gives instructions  for obtaining  payments. A copy of this is also endorsed to the agent so that he is able to maintain his liaison with the claimant . This letter of instructions for obtaining the payment is called the claim intimations letter.   

BASIC REQUIREMENT FOR SETTLEMENT OF  MATURITY CLAIMS: The requirements are as under:  (a) Original  policy bond, if loan was availed from the insurer, (b) Discharge form  duly completed and executed. ( C ) Age of proof  , if age was not admitted  previously . The salesmen are advised to realises the importance  of age admission at the time of obtaining policy. Their attention is also drawn to Section 45 to Insurance Act whereby it is obligatory  on the part of the life assured to furnish  age proof at the time of claim settlement.  (d) If any assignment or re-assignment was executed  by a separate  deed or deeds, such deeds must be submitted  along with the other documents as listed above:. (e) Insurer’s  office sends the Discharge Form as per item (b) above along with the claim intimation  letter. The policy holder  has to return  their Discharge  Receipt  duly completed  with the policy bond.  If the policy stands assigned in favour of a Bank or an institution or some individual  the discharge  form will be return by the institution or the individual along with the policy bond.

 A nominee  has no locus standi in the event of claims by maturity.   2.  DEATH CLAIMS: Life  insurance is basically for providing financial  security to the families of deceased policy holder. Death claim settlement naturally assumes very great importance in the total operations of any life  insurance company. Despite  several problems  encountered,  Life  insurance companies  struggle to efficiently and effectively attend to this  function. The death claims are generally  divided into a two category  viz, normal death claim  and premature claim. If the assured dies after two years of the commencement of the policy it is treated as normal death claim. In case, the assured dies within two years  of the commencement  of the policy, it is called premature claim. The actual procedure involved in death claim is as follows.

RATE FIXATION IN FIRE INSURANCE

The term Rate Fixation refers to determination  of an appropriate premiums rate for different risks. The rate  fixation in fire  insurance is not so scientific  as in life  insurance. While fixing the rates of premium for different risks in fire  insurances various factors or both  the physical and moral hazards are to be property evaluated  and calculation  work is to be carried out as accurately as possible. The rates of premiums determined  must be adequate  not unfairly discriminatory not excessive, economically feasible stable and flexible  and should encourage   loss prevention. In other  words the rates of premium should be adequate  enough to provide for full payments  of claims including catlastrophe  losses administrative  costs I.e. printing costs. transport  requirements  staff salaries  etc., provision for unexpectedly  large claim in the form of reserve and a margin of profit. 

  SYSTEM  OF RATE FIXATION:  The actual process of rating  consists  of three steps viz. (1) Classifications (2) Discrimination and (3) Fixing rates or schedule rating. (1) CLASSIFICATIONS:  The first step in fixing  rates of the premiums for different risks is the process of classifying  the various properties to be insured. Properties  are generally classified  into three categories  viz (a) Common or ordinary (b) Hazardous and:  ( C ) Extra hazardous or doubly  hazardous. Different rates of  premiums are determined for each class of property. These classifications  do not hold good for a long  time because  of varied nature of risk. Now the risk or properties  are classified into a various  classes according to factors affecting  fire risk.   (a) CONSTRUCTIONS: For the purpose of rating simple risks e.g.  dwellings offices  etc., building are classified into two categories according  materials  used in constructions  of external walls and roof. Class A constructions includes building which have external wall of stone/ bricks concrete  blocks and off RCC / Masonry  asbestos concrete  sheets Metel sheets/ Tiles . The layer of grass  hay or reeds on incombustible roofing is permitted . Any  constructions  other than Class “A”  constructions as above stated is considered class “B”  constructions. (b) OCCUPANCY : Risks or properties  are classified according to occupancy of the premises e.g.  Private residents shops, godowns,  industrial or manufacturing  risks etc., Again the goods stored in godown  are classified into non-hazardous  and external  hazardous categories  . 

This system  of classifications  takes into account the various  factors of occupancy which may cause or aggravate fore loss or damage such as the nature of goods exposed to varying degrees to ignition . combustion etc., manufacturing  process  methods of heating lighting  and power etc.   ( C ) NATURE OF FLOORING: Wooden floors add fuel to fire . Besides wooden floors collapse easily in the event of fire, causing damage  to property on lower floors  through falling machinery  or goods from upper floors.  (d) HEIGHT: The greater the number of stroeys the greater the  hazard because of difficulties  of fire extinguishment  . Besides the greater number of floors involve of the risk of collapse of the upper floor causing heavy impact damage.  (e) FLOOR AND WALL OPENINGS: Openings in the floor for lifts and belts constitute higher physical hazard. It may cause greater chances of ignition of fire and can cause difficulty in extinguishing  the fire.  (f) EXPOSURE:  The degree of risk  of each building is influenced  by its surroundings . If a number of factories  and workshops are situated around dwelling houses, the hazard involved  is far greater. 

  (g) LIGHTING  HEATING AND POWER: The fire may take place  due to short circuit . combustion  can also arise from faulty installation  and dampness . The lighting  system e.g. gas or oil leakage  of fuel and naked flames cause more hazard to property.  (h) PLACE: The geographical  area where the property is located  is of great importance . Losses compared with the amount to the of  insurance vary from State to State.  (I)TIME/: Five years is generally taken as a minimum period  upon which rates are based. Good and bad years must be  averaged out for rate making purposes over a  sufficiently  long period of time to enable the companies  to accumulate  during the years of light losses, funds necessary to absorb  the stock of heavy losses at other times.  (j) PROTECTION: Protection may be of two kinds: Public and Private. Public or Municipal protection   is of great importance. Private protection consist  of device installed by the owner such as fire extinguisher  sprinklers system and buckets, fire alarm etc.  

CLASSIFICATION OF INSURANCE BUSINESS

  Insurance can be broadly  into two classes: 

  1.  FIRST AND THIRD PARTY INSURANCE:  whereas  third party insurance  is insuring against one’s potential liability in law to pay damage to another. The law reflects  this difference by demanding that some  third party insurance should be compulsory and also  by recognized  that in a practice. third party insurance involves  the third party as much as the insured  person. 

  2.  LIFE AND  OTHER INSURANCES:  This classification  which is well recognized  in law and meaningful  in insurance circles  distinguish  between life insurance or one hand and all other insurance on the other. This classification  is highlighted  in the  given below.   The above mentioned types of insurance are discussed  in the pages to come: 

  (1) LIFE INSURANCE: It is a contract  in which  the insurance company, in consideration of a premium paid either in lump sum  of instalment undertakes to the person for whose benefit  the policy is undertaken a certain sum of a  money on the death  of the insured  or on the expiry of the policy, whichever  occurs first. For  life insurance the risk covered  against  is death .

The life insurance company pays the sum assured in the event of death. This insurance is not only  a protections but  is a sort of investment  because a certain sum is a  returnable  to the insured at the death or at the expiry of a period.  In contract  to fire or marine insurances.  life insurance does not contain the element  of indemnity because the lose arising out of the death of a person cannot be estimated . Since  the some for which a policy is taken is assured to be paid whether there is a death or not, contract  of life insurance is also often referred to as  Life Assurance. Let us now have a look  at some interesting  aspect of life insurance in one. two, three method. 

  GENERAL  INSURANCE”  General insurance business  refers to fire , marine and miscellaneous  insurance business whether carried on singly or in a combinaion  with one or more of them. Let us see each of the components  of General  in the pages to come:  (1)  FIRE INSURANCE: It is a contract of indemnity under which the insurance  company undertakes to pay the insured for the damage or loss caused to the property insured against  fire for considerations  of premium . Normally the fire insurance policy  is for a period of one year after which it is a to be a renewed from time to time. A claim for loss by fire must satisfy the following conditions: (a) There must be actual loss: and   (b)_Fire must be accidental and non-intentional.  The risk covered by the a fire insurance contract  is the loss resulting  from fire or some cause  which is the proximate cause of the loss. If damage is caused by overheating  without  ignition, it will not be regarded  as a fire loss within  the meaning of fire insurance and the  loss will not be recoverable  from the insurer.    

MARINE INSURANCE: Insurance took its birth in the form of marine insurance. Foreign  trade in earlier days was full of several sea hazards like sinking or sea  of the ship, fire to the vessel, storms, seizure or capture by the enemy or sea  pirates, collision, etc., Marine insurance was  conceived to safeguard the traders from these evils  of the sea.. Marine insurance is an arrangement  by which the insurer undertakes to the compensate  the owner  of a ship or cargo for complete or partial  loss at sea and also the loss of freight. Generally the following objects are sought to be insured  under marine insurance.  (a)  CARGO INSURANCE: When a  marine insurance taken by the cargo owner to be compensated for loss a caused  to his cargo in the course of its transmission  , it is known as cargo insurance.  (b) FREIGHT INSURANCE: Marine insurance is taken to guard against recovery of freight  is called freight insurance.   ( C ) HULL INSURANCE: When the ship is the  life  is a  insured as a whole it is a  termed as hull insurance.