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The significance of the humble insurance proposal form

Oct 16, 2017

Buying insurance requires considerable paperwork. Brochures and key-feature documents need to be read, illustrations and declarations signed, and financial and Know Your Customer information submitted. The most important document, however, is the humble proposal form.

This proposal form comes in different shapes and sizes. In many insurances, it is paper-based and needs to be filled by hand. Sometimes, the information can be provided electronically, and in a few cases such as motor insurance, the proposal form may not even be required.

The form is important, obviously because that’s where you provide information that is the basis of your insurance. But equally valuable is the fact that completing a proposal form requires putting pen to paper or fingers to keyboard. The act of writing forces mindfulness. The few minutes when a proposal form is being completed are when buyers understand the product best, specifically the features they get and the claims that will get paid.

In filling up a proposal form you should be accurate. That’s easier said than done. The most basic information asked is your contact detail. Yet, crores of claims and maturity amounts remain unpaid because insurers are unable to reach policyholders at the numbers and addresses they gave. Do ensure that the address you give is permanent, the phone number is one that you intend to keep and the email is personal. People change jobs more often than they expect.

Provide the information asked and not more. Be to the point. There is little benefit in giving additional information. There have been situations, in health insurance for example, where the applicants opened up about feeling anxious and had their applications declined. In motor insurance, there is little advantage to describing small dents if they are not asked for, particularly if the insurance is getting renewed on time. You will find those damages excluded from your renewed insurance.

Complete the form yourself. That allows you to control what is shared. All too often applicants will sign a blank proposal form and have an adviser do the rest. That’s a recipe for disaster. It’s not that the adviser will deliberately mis-state facts but there may be information the advisers just do not know or, in their wisdom, leave out things they consider unimportant.

When insurers send back a copy of the completed proposal form, read it. That’s an important check to see the basis on which the insurance was issued. Sometimes, information may be altered by someone in the distribution chain and it’s good to look for such inconsistencies.

For life insurance, in particular, the nominee section in the proposal form is key. Previously, the benefits of a life insurance policy were paid to the legal heirs with the nominee being a temporary custodian of the money. However, according to the new insurance Act, if the nominees you select in the proposal form are legal heirs then the entire benefit will be paid to them in the proportion you specify. This gives you much better control over directing who should benefit from your insurance.

Insurers should design their proposal forms to be brief, specific and educative. The length of the forms varies hugely amongst insurers. In home insurance they range from 2 to 6 pages. In health, from 3 to 12. Lengthy forms have two problems. First, the formatting is poor making them cumbersome to fill. It’s often not possible to write legibly in the form. Second, you are never sure which information is mandatory and whether the fields you left out are the ones that will matter when you make a claim.

Specificity is also required. Some common reasons why home insurance claims are rejected are that the basement, where the loss often occurs, was not declared or commercial activity such as an office or clinic was not mentioned or the length of time the house was vacant was not listed. In a good form all these questions should be specifically asked to reduce the possibility of a claim being rejected. Health insurance has a similar need for specificity. All health insurance forms have catch-all medical questions that require applicants to mention diseases they suffer from. Some insurers leave these broad. For example, “Have you had any other illness other than mentioned in the questionnaire (other than common cold)?” or “Any additional facts which affect the insurance & should be disclosed to the insurer?” These catch-all questions always leave applicants doubtful about what to declare. However, some catch-all questions are more specific. For example, “Are you currently suffering from any symptom(s) or complaint(s) persisting from more than five consecutive days?” or “Have you undertaken any surgery or a surgery been advised in the last 10 years?” The specific questions leave less scope for disputes and are better from the customer’s perspective.

Finally, a good proposal form educates buyers about the insurance once more. It will tell buyers that in a home insurance there is a choice between reinstatement value, where cost of reconstruction is paid or market value, where depreciated value is paid. In motor insurance, it will clearly specify the add-ons and exclusions such as engine seizure or tyre bursts. In health insurance, it will remind the insured of the waiting periods for diseases.

Buyers should take their time to fill this form. Remember, those who act in haste repent at leisure.


Mandatory insurance in adventure tourism - Are you well covered for the next big adventure trip?

Oct 16, 2017

India has the potential of becoming a major global hub for adventure tourism. The country has every conceivable geographical terrain, is a global biodiversity hotspot, and has 73 pc of the culturally diverse Himalayan range, as well as rich fauna, flora and avifauna. Little wonder then that India hosts eight million foreign tourists annually.

However, there are no specific adventure insurance policies in India. Standard life and health insurance policies will reject claims for lives lost or injuries incurred while participating in adventure sports.

Now India has proposed mandatory insurance coverage for adventure tourists, tourism operators and hotels to safeguard them against any losses, including injury and death from adventure tourism.

The 165-page draft guidelines of the tourism ministry for adventure tourism in India states, “In India, where no specific adventure insurance policy exists, the past is witness to many situations, where such specialised insurance would have been useful and immensely helpful.”

With the exponential increase in adventure tourism in the country, especially among domestic tourists, there is “an urgent” need for specific insurance products, to cover all parties in the adventure sports ecosystem.

An adventure tour operator should have one of the three insurance policies — a third-party liability insurance, a comprehensive general liability insurance or a tour-operator liability insurance.

As per the guidelines, “Adventure (tourism) operators must also consider having a personal accident and group medical covers for their staff, as well as directors and officers’ liability insurance.”

The guidelines state that a basic adventure policy for tourists should comprise accidental protection or coverage for death and disabilities, accidental hospitalisation and basic medical evacuation, be it in the air, on land, in water, on ice or in the mountains. The need of the hour is policies, which will offer a 360-degree protection.

The draft prepared in consultation with the Adventure Tour Operators Association of India says insurances create a sense of professionalism among the operators, clients and the medical service providers. “Better risk management, swift action and high-value financial security due to the coverage will lead to many more people venturing into outdoor pursuits, with a sense of calm and peace of mind. It’s a vital component of the vast growth potential of Indian adventure tourism.”

Ajeet Bajaj, Padmashri awardee and co-founder of the Adventure Tour Operators Association of India notes that, when it comes to risk mitigation and management, India has to address guidelines, guides as well as gear.


To grow, Indian insurance companies need IPOs

Oct 10, 2017

The Indian insurance sector is conceivably as longstanding as the banking industry, but it has seen a sea change in business expansion and disclosure standards over the past 10-15 years. The Insurance Regulatory and Development Authority of India (Irdai), which was instituted in 2000, opened the insurance sector to private enterprises allowing Indian companies to partner with foreign establishments. This has redefined the insurance sector, allowing common people to have adequate financial cover at reasonable cost. A developed and evolved insurance sector is a catalyst for economic development of a country. It provides long-term funds for various developmental activities and simultaneously strengthens the risk-taking ability of the country.

Strong insurance IPO pipeline

This year is a landmark year for the Indian insurance sector as a spate of initial public offerings (IPO) are expected from leading insurance companies, with at least 5-6 in advanced stages of hitting the bourses. Irdai’s move to relax capital raising norms last August (allowing insurance companies over 10 years to go public), has pushed many companies to tap Indian capital markets. Industry estimates suggest that insurance companies are eyeing a mop-up of Rs30,000-35,000 crore this financial year. Union Cabinet has also approved the public listing of five state-owned general insurance companies, and reduction of government’s stake to 75% from 100%. The current buoyancy in Indian stock markets, which are trading near all-time highs, should also support these public issues.

Indian insurance sector consists of 57 companies, out of which 24 are life insurance, 31 general insurance, and two are re-insurance companies. Ironically, there are only three listings on the stock exchanges.

However, the public listing initiative by insurance companies has gained tremendous momentum this year, with growth potential in the sector and acceptability among institutional and retail investors. This signifies increasing traction in the sector on the IPO front. Listing is also a step towards improving disclosure standards and their periodicity, which will make businesses answerable to investors, and society in general. Till a decade ago, there was little transparency in terms of policy details, claims and surrender rates. The insurance regulator changed the landscape by bringing in more disclosures.

Growing accountability for insurers

India’s economy gives further impetus to international investors’ interests, leaving constructive circumstances to attract IPOs in the insurance sector. A public listing fundamentally amends a company’s legal and economic structure. The management becomes more accountable to a new group of shareholders, unlike the concentrated ownership of a private company. Information regarding the company’s financial health and operations, which were kept private, gets publicly disclosed. This reflects on the company’s performance in many areas including: growth, innovation, managing fraud, customer service, and regulatory compliance.

The IPO channel is essentially taken by companies to raise capital for expansion of operations, increase liquidity for shareholders, improve brand image and create valuable currency stocks that can be used to make acquisitions and compensate employees. An IPO also enhances a company’s public profile—increasing its visibility and giving recognition of its products and services. This progressively benefits customers as the company constantly brings in better products and enhanced service standards to remain proficient, while outspreading penetration of insurance services.

Indian insurance IPO market is taking off at a time when the sector itself is poised for a giant leap. India’s insurance market is expected to quadruple in size over the next 10 years from its current size of $60 billion, according to a report published by India Brand Equity Foundation (IBEF), an initiative of the Ministry of Commerce and Industry, Government of India. This is an opportunity waiting to be harnessed. India currently accounts for less than 1.5% of world’s total insurance premiums and about 2% of its life insurance premiums, despite being the second most populous nation.

India’s insurable population is anticipated to touch 750 million by 2020, with life expectancy reaching 74 years. In addition, life insurance is projected to comprise 35% of total savings by end of this decade, as against 26% in 2009-10. There is substantial potential for growth in the sector due to several factors that include initiatives like Pradhan Mantri Jan-Dhan Yojana aimed towards enhancing financial inclusion, raising financial literacy along with increase in domestic savings, expanding coverage of crop insurance, expected revival of the investment cycle, and increasing penetration of auto and health insurance. Demographic factors such as a growing middle class, young insurable population and growing awareness for protection and retirement planning will also support the growth of Indian insurance companies. The country is the 15th largest insurance market in the world in terms of premium volume, and has the potential to grow exponentially. This certainly makes a strong case for insurance companies to unlock value and tap stock markets for future expansion plans.


Insurance claim can’t be denied due to delay in filing it: Supreme Court

Oct 08, 2017

Insurance claims cannot be rejected if the reason for delay in filing it is satisfactorily explained, the Supreme Court has said while granting relief to a man who was denied the claim for his stolen vehicle.

A bench of justices R.K. Agrawal and S. Abdul Nazeer said that rejection of the claims on purely technical grounds in a mechanical manner will result in the “loss of confidence of policy-holders in insurance industry”.

The observations came as the bench allowed the appeal of a man against the ruling of the National Consumer Disputes Redressal Commission (NCDRC) that insurance firms could deny the claim benefit for delay in filing it.

The apex court directed Reliance General Insurance Co. to pay Rs8.35 lakh to the Hisar-based customer whose insured truck was stolen but his claim was rejected on the grounds of delay in filing it.

“If the reason for delay in making a claim is satisfactorily explained, such a claim cannot be rejected on the ground of delay. It is also necessary to state here that it would not be fair and reasonable to reject genuine claims which had already been verified and found to be correct by the Investigator,” the bench said.

The apex court said that the Consumer Protection Act aims at providing better protection of the interest of consumers. “It is a beneficial legislation that deserves liberal construction. This laudable object should not be forgotten while considering the claims made under the Act,” it said.

The court also observed that a person who has lost his vehicle may not straightaway go to the insurance company to claim compensation and would first make efforts to trace the vehicle. “It is true that the owner has to intimate the insurer immediately after the theft of the vehicle. However, this condition should not bar settlement of genuine claims particularly when the delay in intimation or submission of documents is due to unavoidable circumstances. The decision of the insurer to reject the claim has to be based on valid grounds,” the apex court said.

According to the appeal filed by Om Prakash, his truck was stolen in Bhiwari in Rajasthan on 23 March 2010 but he filed the insurance claim on 31 March with the firm, as during that period, he was busy trying to trace it.

The theft was confirmed by the investigator and a claim of Rs7.85 lakh was approved by the corporate claims manager, it said, adding that the insurance firm denied him the amount saying he had violated a policy condition that made it mandatory to inform the firm immediately after any accidental loss or damage to the vehicle.


You need to buy insurance even if you think you don’t

Oct 03, 2017

Insurance is an expense that you are likely to ignore even when there is a demonstrated need for it. It is possible then that you may overlook circumstances where the need for protection is not immediately apparent, but the financial consequences of not taking adequate cover is likely to be severe.

Here are a few common situations where some people may believe that they do not need insurance. However, they would see the need for buying insurance if they think it through.

I don’t have dependents

The purpose of life insurance is to provide protection against the loss of income, in the event of your death, to those dependent on it. This would make it seem that life insurance an avoidable expense if you do not have any dependents. However, consider a few of these situations before you decide that your death may not have any financial consequences for others.

For example, if you have outstanding debt, then on your death it may become the responsibility of the co-signatory or guarantor of the loan.

To take care of such a situation, buying a term insurance policy—to the extent of the outstanding debt—will provide protection to those who would be liable for the repayment of the debt.

Even if you do not have dependents now, it may be prudent to take a life insurance while you are healthy—to lock-in better rates—in preparation for the future when you may have dependents, particularly if there is a pre-disposition to certain illnesses in your family.

I am retired

Life insurance is typically seen as redundant in retirement because there is no income being earned. However, insurance may have a place in your retirement strategy in certain situations.

One, if the pension during retirement is primarily linked to your life, then your spouse or dependents will lose their source of income in the event of your death.

Similarly, if the pension in retirement is being supplemented by income from employment or a second career, then it becomes necessary to protect your dependents from the loss of that income.

In these situations, life insurance—at least to the extent of income replacement required—should be part of the retirement plan. Similarly, continuing a life insurance taken earlier in life—at low premiums—may be a good way to leave a lump sum behind to compensate for the costs related to health and old-age care in the later years of a person’s life.

Insurance policies can also be used to leave a legacy for family members and others. The premium on insurance and the time available will be the primary considerations in deciding between insurance and building an investment corpus to meet the need.

I am a stay-at-home spouse

Consider the financial consequences on the household if the stay-at-home spouse were not there to take care of the many tangible and intangible services that they provide, before deciding that life insurance is not required for them.

In their absence, services such as taking care of minor children, managing the household and others could become expenses that will have to be paid out of the pocket. Often, a person’s income may not be able to cover the costs of buying these services at market price.

An insurance payout, in the event of an unfortunate passing away of a stay-at-home spouse, can help in meeting these expenses. The insurance payout can also compensate for any fall in income that an income-earning spouses may face if they have to cut-back on their career plans to now step into a nurturing role.

While it may be difficult to set a monetary value for these services, all the financial implications need to be considered before deciding the extent of insurance cover to be taken. The intent should be to provide, at least, financial stability to a family seeking emotional stability in such situations.

I have employer-sponsored cover for health

The health insurance provided by an employer may be limited in scope and coverage. This includes the types of illnesses and the number of dependents covered.

It is important to evaluate the protection provided to identify what more is required to provide complete health protection for yourself and your dependents.

The insurance provided by employers is unlikely to keep pace with changes in individual employees’ needs and inflation in health costs. This makes it important to add an individual cover to the employer-provided protection.

Apart from an inadequate cover, the risk with depending only on employer-sponsored plans is that the cover ends when the employment is terminated.

It may leave you unprotected till such time you are either employed again or get individual cover. The other big risk is that once you are no longer employed, you may find it difficult to get individual cover at reasonable premiums, given that you are older and likely to have more health issues.

A better strategy would be to take individual cover early on, when in good health, to supplement employer-provided health cover and to keep it in force without default. This will ensure health insurance later on in life too at reasonable rates without the risk of being refused cover for pre-existing conditions or having to pay a much higher premium for the same.

Also, features of employer-provided cover may change year to year without you being aware of these.

It is important to see insurance as protection and not merely as an expense. There will then be motivation to seek gaps in your financial security and see how best they can be protected by leveraging existing cover or with new insurance, as required.


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