1. What is the difference between an Insurance Agent and an Insurance Broker?
An insurance agent can represent only one insurer and do business for him. An insurance Broker is basically the representative of the customer and can sell the policies of more than one insurer. In the Indian context, an Agent can represent one Life insurer, one Non-Life insurer, and one Health insurer. In addition, he can represent one credit insurance company and agricultural insurance company too.
Detailed regulations have been framed by Insurance Regulatory and Development Authority (IRDA) for both Agents and Brokers and they govern them.
2. What is meant by Insurable Interest?
The financial interest that the assured possesses in whatever is being insured is known as “Insurable interest”. In other words, it is the right of a person to insure something which when lost or damaged, would mean a financial loss to him.
If a person is allowed to insure something that he does not own it becomes a wagering contract and therefore void under Section 30 of Indian Contract Act.
Therefore Insurable interest is a prerequisite for insurance and the compensation is limited by the value of the subject matter of insurance and the extent of insurance coverage. In Life Insurance, though human life value cannot be measured in monetary terms, insurers determine the sum assured as a multiple of the income of the life assured and his remaining productive years.
3. What is Utmost Good Faith?
Utmost Good Faith is one of the principles that insurance is based on. It denotes a positive duty of the person seeking insurance to voluntarily disclose all facts material to the risk being proposed whether requested or not.
4. What is an ‘insured peril’?
The purpose of insurance is to compensate you for the loss caused by an insured peril. If your stocks are destroyed in a fire, the loss is payable under a fire policy. If the stocks are stolen, the loss is not payable under a fire policy as “Burglary” is not a covered peril.
5. Can an insured claim any amount from his insurer regardless of the extent of loss?
No. The loss will be surveyed and amount payable assessed and this is subject to calculations like depreciation and policy excess so that the compensation is strictly for the loss suffered and to the extent suffered. The concept is that an insurance policy should not be the means to making a profit. However it is possible to take some policies on a ‘Reinstatement Value Basis’ so that, in the event of a loss, the claim will be paid on the basis of creating a new asset in the place of the old one rather than on the depreciated or market value of the old asset.
6. What is the meaning of Deductibles?
In some policies there is a clause that a specified amount will be deducted from the claim amount. For example in Industrial Risks 0.5 per cent of the total sum insured subject to a minimum of Rs.1 lakh is the deductible if loss is due to Terrorist Act. This means that the first Rs one lakh of any claim and up to 0.5 per cent of the claim has to be borne by the insured. If the loss is below Rs one lakh then no claim is payable.
This is a way for the insurance companies to avoid the administrative costs of small claims and the insured is usually given a premium rebate for accepting this burden.
7. What is the meaning of Proximate Cause?
If the loss is due to two or more causes acting simultaneously or one after the other, then it is necessary to choose the most important/effective cause of the loss. This cause is termed Proximate Cause and the other as Remote Cause.
8. What is the meaning of Co-Insurance?
Corporate clients, who want to oblige more than one insurer or benefit from the competitive forces among insurers place their insurance business with more than one insurance company. While doing so, they select one company as the “Leader” who is given a higher share of premium and others are given a lesser share. Client deals only with the “Leader” who shares the premium (in the ratio decided by the client) as well as claims with other participating insurers who are called Co-insurers. Depending on the total volume of premium it can be placed with 2, 3, 4 or more insurers.
9. Is the Insured responsible for Loss Minimisation ?
Even when a property is insured, it is the responsibility of insured to take all reasonable steps to protect against or minimise the loss. Every insured is expected to behave as though he is “a prudent uninsured”.
If the insured neglects to take such steps, as per the policy condition of “Negligence”, the claim can be repudiated or partially allowed.
10. What is a TPA and what are its functions?
A TPA is a Third Party Administrator. They are commercial entities duly licensed by IRDA. Their services are utilized by Insurance Companies both Life and Non-Life, to render on their behalf post-sales services to health insurance policyholders.
They provide services like:
- Guiding the insured with regard to claims
- Issuing photo ID cards to insured persons
- Issuing pre-authorisation to hospitals to facilitate insured persons to avail of the cashless facility, and
- Process and settle claims for reimbursement