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INSURANCE FUNCTION

Presented by: Subir Purohit

CONTENTS
       

Objective of Insurance Audit Risk Management Policy Various Insurance Companies available Selection of Insurance Company Various types of policies and audit issues Outsourcing the Insurance function Various Control Issues Questions & Answers

OBJECTIVE OF INSURANCE AUDIT


    

Ensure that all the risks to the organization are adequately defined and covered At appropriate cost With the best available Insurance Company Identification of under / over insurance Timely lodgment and settlement of claims

RISK MANAGEMENT POLICY


      

Assets to be insured Risks to be insured Self Insurance Appropriate authority to decide the acceptable risks Basis of valuation and frequency of valuation by third party Communication within the organization Loss prevention & minimization procedures such as Fire Proof Doors or safe, installation of Fire Hydrant System, Fire Alarm & Smoke Detector System etc. etc. Periodic review of Risk Management Policy

VARIOUS INSURANCE COMPANY


GENERAL INSURANCE COMPANY Public sector Private sector Oriental Insurance ICICI Lombard New India Assurance Bajaj Alliance United India Assurance IFFCO Tokyo National Insurance Tata AIG Other 9 companies

SELECTION OF INSURANCE CO.




Criterias to be considered for selection of Insurance company: company:  Financial Stability such as Solvency Margin  Claim Paying Ability  Level & Quality of Services  Claims Philosophy of Fairness  Adequate protection such as Reinsurance Programs  Long-term Player Long Rating reports of the various accredited agencies such as A.M.Best rates for companys ability to meet its financial obligations, Fitch and Weiss rate for Claims-Paying Ability and Standard and Poor Claimsrate for financial strength
-Contd.

SELECTION OF INSURANCE CO.




Direct quotations from various Insurance Co. Co.


Select companies for sending inquiries Receive quotations Quotation Comparison Statement Negotiation with L1, L2 or L3 based on other performance criteria  Entering into Insurance Contract    

Reverse Auction
 Computation of total sum insured  Selection of Companies for inviting bidding at fixed date and time  Conducting the auction on the schedule date  Negotiation with L1, L2 or L3 based on other performance criteria  Entering into Insurance Contract -Contd.

TYPES OF INSURANCE POLICY




Tariff based Policy based on tariffs decided by Tariff Advisory Committee: Committee:
 Industrial All Risk Policy  Storage / Erection Policy  Motor Car Policy

Non tariff based policies: policies:


      Marine Policy Mediclaim Policy Aviation Policy Laptop, Mobile etc. Policy etc. Directors / Officers Liability Cover Fidelity, Cash in transit / Cash in Safe Policy
-Contd.

TYPES OF INSURANCE POLICY


Type of Risks
Fire to premises/ assets/ stock/ Machinery Breakdown/ Earth quakes/ Terrorism/ Loss of profit Medical expenses / Accident of employees Damages to vehicle due to accident and third party liability Damage to Stock in transit

Policy
Industrial all risk policy (IAR )

Mediclaim/ Overseas Insurance / Personal Accident Policy Vehicle Insurance

Marine Inland / oversea transit Insurance Personal Injury / damages to third Public Liability Insurance party / property arising out of accident for which company is held liable by law
-Contd.

TYPES OF INSURANCE POLICY


Type of Risks Theft of cash/ stock Policy Fidelity policy/ Cash in transit/ Safe policy Damages to any party by or out of Directors/ officers liability any act of Director cover Loss/ damages to various Marine cum insurance policy. activities at any projects under construction. Legal liability of the Employer Workman Compensation towards the Employees under Policy Workman Compensation Act Personal Injury / damage caused Product liability to third party / property due to defect in the product of the company
-Contd.

INDUSTRIAL ALL RISK POLICY


   

Sum Insured of Rs. 100 crore and above in one or more location in India Credit of maximum 60 days available for premium payment against issue of Bank Guarantee Assets in transit not covered Sum Insured  Assets Reinstatement Value / Replacement Cost  Stocks Market Value  RM & Stock in process At Cost Average Clause applicable subject to sum insured not less than 85% of the reinstatement value

-Contd.

INDUSTRIAL ALL RISK POLICY




Reinstatement or replacement value means: means:  Where property is lost or destroyed, the destroyed, replacement of any other property by similar property, property, in a condition equal to but not better or more extensive than its condition when new  Where property is damaged, the repairs of the damaged, damage and the restoration of the damaged portion of the property to a condition substantially the same as but not better or more extensive than its condition when new

-Contd.

INDUSTRIAL ALL RISK POLICY




Discounts available under the policy:  Claims Experience discount based on Claim Ratio for preceding 3 policy period  Fire Extinguisher Appliances discount  Voluntary deductibles  Special discount (5%) in lieu of agency commission

-Contd.

A. Claims Experience Discount


Claim ratio Up to 5% 5% to 10% 10% to 15% Above 15% Discount (%) 15% 10% 5% NIL

 Loading ranging from 2.5% to 15% if the claim ratio

higher than 30%


-Contd.

B. Fire extinguishing appliances discount




Certificate from professional agencies confirming the effectiveness of the system. Installation maintained in efficient working order at all the time and AMC with an external agency shall be in forced. Cost benefit analysis to be carried out

Type of installation Discount (%) a. Hand appliances & Trailer pumps/ Fire 2.5 extinguishers b. Hand appliances & Hydrant system 5 c. Hand appliances & Sprinkles / Fixed water spray system d. (b+c) 7.5 10
-Contd.

C. Voluntary Deductibles
1. Material Damage Claims
Deductible 5% of the claim amount minimum of Rs. 10 lakh 5% of the claim amount minimum of Rs. 15 lakh 5% of the claim amount minimum of Rs. 20 lakh 5% of the claim amount minimum of Rs. 25 lakh Discount 10% 15% 20% 25%

subject to subject to subject to subject to

-Contd.

C. Voluntary Deductibles
2. Business Interruption Claims
Deductible 7 days Gross Profit subject to minimum of Rs. 10 lakh 14 days Gross Profit subject to minimum of Rs. 15 lakh 21 days Gross Profit subject to minimum of Rs. 20 lakh 28 days Gross Profit subject to minimum of Rs. 25 lakh 35 days Gross Profit subject to minimum of Rs. 30 lakh Discount 5% 10% 15% 20% 25%

IAR POLICY - AUDIT ISSUES


    

Reconciliation of assets insured with the Fixed Assets Register Basis of arriving at sum insured Verification of premium rates as per tariff order Revaluation to be carried out on periodic basis Additions / Sale of assets to be timely communicated to Insurance Company at additional premium / for claiming refund Peak stock needs to be monitored on monthly basis and major increasing / decreasing trend to be communicated to Insurance Company Cost benefit analysis of voluntary deductibles availed in the policy to be documented

MEDICLAIM POLICY


 

Hospitalization cover which reimburses expenses incurred in respect of following situation: situation:  Sudden illness  Accident  Any Surgery arisen during policy period Extends to pre-hospitalization (30 days) and post prehospitalization (60 days) Policy covers any person between the age of 3 months to 75 years. In case of age above 75 years only years. renewal proposal is accepted. Person above age of 45 accepted. years needs to undergo medical test through Insurance companys panel doctor Separate Overseas Mediclaim for employees traveling abroad
-Contd.

MEDICLAIM POLICY


-Contd.

Major exclusions under the policy: policy:  Pre-existing disease Pre Expenses incurred during first 30 days from the first date of commencing of insurance, unless hospitalization due to accidental injury  Treatment for cataracts, benign prostratic hypertrophy, hernia, piles, etc. and related disorder for first year of policy. etc. policy.  AIDS  Treatment arising due to pregnancy

MEDICLAIM POLICY AUDIT ISSUES


    

Reconciliation of total number of employees insured with the total number of employees on payroll Monthly communication of addition / resignation / retirement / death of employees Verification of payment of additional premium or refund of premium for additions / deletion Monitoring recovery of mediclaim advance given to the employees with the claim settlement Validation of employees names submitted to the Insurance Company to ensure timely settlement of claims

-Contd.

GROUP PERSONAL ACCIDENT POLICY


 

 

Group Personal Accident Policy available to covers employees of a Firm / Company / Association Covers accidental death, loss of limbs, Permanent, Partial and Temporary Total Disablement due to accidental bodily injury Age limit 18 to 70 years Documents to be submitted for claim: claim:  Doctors Certificate  Diagnostics Reports like, X-Ray etc. etc.  Post Mortem Report  Death Certificate  FIR, if any

GROUP PERSONAL ACCIDENT POLICY




Two types of policy available: available:  Named Employees Names of all employees with the respective sum insured proposed to be included in the policy declared  Unnamed Employees Sum insured based on category of the employees. Number of employees employees. in each category with the Sum Insured to be declared in advance. advance.

MOTOR VEHICLE POLICY




Two types of cover available:  Liability Cover Covering the vehicle against accidental Third Party Liability. This cover is mandatory by law as in its absence vehicle registration number is not issued by RTO.  Comprehensive Cover Covering the vehicle against accidental damages and Third Party Liability. This cover is optional. The covers includes risk covered under Liability Cover

MOTOR VEHICLE POLICY AUDIT ISSUE


      

Type of vehicle cover obtained according to the policy of the Company Vehicle wise valuation carried out by the Insurance Company needs to be taken as sum insured Premium based on age of the vehicle, cubic capacity and zone in which it is registered Change of state needs to be informed to the Insurance Company Vehicle No. wise reconciliation between vehicles as No. per Insurance policy and Fixed Assets Register Timely communication of addition / sale of vehicle to the Insurance Company Verification of additional premium paid or refund received. received.

MOTOR VEHICLE POLICY AUDIT ISSUE


  

Comparison of claims filed vis--vis no claim bonus vislost Ensuring the receipt of no claim bonus Table for No Claim Bonus Period of the Policy 1st Year 2nd Year 3rd Year 4th Year 5th Year Bonus 20% 25% 35% 45% 50%

MARINE TRANSIT POLICY


 

Open Declaration based Policy Two types of policy: policy:  Inland Marine Transit (Rail, Road, Air or Ocean)
 Overseas Transit Policy (Air / Ocean)

   

Total sum insured arrived based on forecasted movements of goods during the year Each transit of goods with details should be declared / communicated to the Insurance Company Usually obtained warehouse to warehouse Amount paid in Cash Deposit Account and premium debited on actual basis based on declaration

MARINE TRANSIT POLICY AUDIT ISSUE




    

Comparison of total goods procured during the year with the declaration filed to verify timely declaration with the Insurance Company Cost benefit analysis of CIF vis--vis C & F visMaintenance of adequate balances in Cash Deposit Account Verification of premium debited in Cash Deposit Account with the rates agreed Monitoring of overall sum insured vis--vis actual visstock declaration made to increase the sum insured In case of imports, provisional Bill of Lading date needs to be communicated to the Insurance Company as Effective date of Insurance

MARINE, STORAGE CUM ERECTION POLICY


 

   

Comprehensive cover applicable to major projects Covers all type of risks from transit of materials / machinery, storage at site and continues till physical erection, commissioning and completion of test run. run. Premium payment by installment facility available Bifurcation of Sum Insured into Marine and Erection part based on overall Project Cost Declaration should be communicated to the Insurance Company Excludes loss or damage to erection of machinery due to Manufacturing defects, Mechanical / Electrical breakdown, faulty design, defective materials or bad workmanship etc. etc.

OTHER MISCELLANEOUS POLICIES




Cash in Transit / Cash in Safe




  

Monitoring of actual cash withdrawals vis--vis vissum insured under Money in transit policy on regular basis. basis. Ensure that all the locations carrying cash are adequately covered under the policy. policy. Monitoring of daily cash in safe for major locations with the sum insured done on regular basis. basis. Cash carried by employees of the company on travelling for Companies work. work.

OTHER MISCELLANEOUS POLICIES




Fidelity Insurance  Verify that appropriate basis taken for arriving at sum insured to adequately cover the infidelity of all the employees responsible for dealing with cash / stores Laptops & Mobile Insurance  Sum insured taken at reinstatement value  Reconciliation with Fixed Assets Register  Timely communication of additions / deletion

OUTSOURCING INSURANCE FUNCTION




Benefits of Outsourcing  Cost Saving  Expertise Services  Benchmarking the rates and services of Insurance Company with other companies  Faster receipt of claims Disadvantages of Outsourcing  Parting with confidentiality of data

VARIOUS CONTROL ISSUES


     

Lesser number of policy renewal dates to facilitate timely renewals Validation of policy documents by Legal department Safe storage and custody of Policy documents Documentation of losses incurred due to noninsurance or self insurance Timely filing of claims with the Insurance Company with all the relevant documents Follow-up for unsettled claims

-Contd.

VARIOUS CONTROL ISSUES




Reconciliation of Cash Deposit Account as per books of accounts with the Cash Deposit Statement on monthly basis Compilation of MIS report highlighting the claims to be lodged / claims lodged but pending to be received / claims received, etc.

-Contd.

INSURANCE CERTIFICATION
Indian Institute of Insurance & Risk Management coordinates with students for examination conducted by Institute of Risk Management (U.K) Exam comprises of 5 core subjects (compulsory) and 1 optional subject Contact Person Mr. P. Chandrasekar, Senior Manager Insurance and Risk Management, Hindustan Lever Ltd., Hindustan Lever House, 165 / 168 Backbay Reclamation, Mumbai. Phone : 22870622

Any Questions ?

Where there is a will, there is a way.


Subir Purohit Subir.Purohit@gmail.com

Thank You