COMMERCIAL INSURANCE
PREFACETHIS PROJECT IS UNDERTAKEN TO FULFIL THE PROJECT WORK
COMPONENT OF THE BANKING & INSURANCE PROGRAM IN THE VI
SEMESTER. MY PROJECT GUIDE FROM BHAVANS SOMANI COLLEGE IS PROF.
ARVIND DHOND. THIS PROJECT SHOWS THE IMPORTANCE OF COMMERCIAL
INSURANCE IN THE BUSINESS FIRM & ALSO THE TYPES OF INSURANCE
NEEDED FOR THE BUSINESS. COMMERCIAL INSURANCE PROVIDES VALUABLE
PROTECTION AGAINST SUCH THINGS AS THEFT, PROPERTY DAMAGE, AND
LIABILITY. THIS PROJECT ALSO GIVES AN OVERVIEW OF HOW TO OBTAIN
COMMERCIAL INSURANCE & ALSO LEADING COMMERCIAL INSURANCE
PROVIDERS.
1
COMMERCIAL INSURANCE
INDEXCHAPTER NO 1 2 34
CHAPTER NAME COMMERCIAL INSURANCE DIFFERENT TYPES OF COMMERCIAL
INSURANCE PARTICIPANTS OF COMMERCIAL INSURANCE COMPANY OPERATIONS
STANDARDS FOR CANCELLATION, RENEWAL
PAGE NO 7-1011-27 28-35 36-39
5
AND NON-RENEWAL OF COMMERCIAL INSURANCE POLICIES
40-41
6
COMMERCIAL INSURANCE AGENT COMMERCIAL INSURANCE COVERAGES
COMPANIES PROVIDING COMMERCIAL INSURANCE DO'S AND DON'TS: BUSINESS
INSURANCE COMMERCIAL INSURANCE PLANNING WORKSHEET COMMERCIAL
INSURANCE FORM WEBLIOGRAPHY
42-42 43-48 49-53 54-55 56-56 57-58 59-59
78
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CHAPTER 1 COMMERCIAL INSURANCE2
COMMERCIAL INSURANCE
1.1 INTRODUCTIONCommercial insurance is insurance for a
business. In fact, it is one of the most important investments a
business owner can make. Commercial insurance can be instrumental
in protecting a business from potential loss caused by unforeseen
and unfortunate circumstances. Commercial insurance can provide
valuable protection against such things as theft, property damage,
and liability. It can also provide coverage for business
interruption and employee injuries. A business owner who chooses to
operate a business without insurance puts his enterprise at risk of
losing money and property in the wake of an unfortunate event. In
some situations, a business owner may even place personal money and
property at risk by failing to secure adequate commercial
insurance.
Whether you are contemplating starting a new business, are a new
business owner, or have owned a business for many years, commercial
insurance can be one of the most important ongoing financial
investments you make in the life of your company. Operating a
business is 3
COMMERCIAL INSURANCE extremely challenging without having to
worry about suffering significant financial loss due to unforeseen
circumstances. Commercial insurance can protect from some of the
most common losses experienced by business owners such as property
damage, business interruption, theft, liability, and worker injury.
Purchasing the appropriate commercial insurance coverage can make
the difference between going out of business after a severe loss or
recovering with minimal business interruption and financial
impairment to your companys operations. Commercial insurance
performs a critical role in the world economy. Without it, the
economy could not function. Insurers essentially protect the
economic system from failure by assuming the risks inherent in the
production of goods and services. This transfer of risk frees
insured companies from the potentially paralyzing fear that an
accident or mistake could cause large losses or even financial
ruin. Organizations need to reduce both internal and external
risks. They also require to safeguard their business against
unforeseen circumstances/events. Insurance companies are catering
to small, medium and large scale companies to minimize their risk.
Good Insurance advice can save time, money and worry. Insurance
companies undertake complex procedure to evaluate and review the
impact of any change in commercial activity or new ventures. Since
the first fire insurance policies were written in the 1700s, it has
responded to new types of risk by creating new coverages to protect
its policyholders and carving out niche products to respond to the
needs of specific industries. Recent examples of this are
technology errors & omissions and cyber-risk liability, both of
which were developed in the late 1990s to address risks involved in
such businesses as personal information data processing. The
convincing boom of corporate sector in India has given a new
definition to commercial insurance in the country. Proper risk
management against any kind of disaster is the mantra of successful
business and other commercial ventures. The function of risk
management is to provide safety against any kind of internal or
external hazard. Commercial insurance companies in India offer
products which suit the business and corporate needs and provide
the commercial avenues all kind of safety and security. The value
of premium for providing coverage to commercial ventures and
corporate sectors is determined on the basis of a few factors which
include: 4
COMMERCIAL INSURANCE i. Nature of the commercial venture ii.
Size of the organization iii. Type of the industry iv. Strength of
the employees v. Annual turn over of the business.
1.2 DEFINITION AND MEANING :1. The act, system, or business of
insuring property, etc., against loss or harm arising in specified
contingencies, as fire, accident, or the like, in consideration of
a payment proportionate to the risk involved. 5
COMMERCIAL INSURANCE 2. Coverage by contract in which one party
agrees to indemnify or reimburse another for loss that occurs under
the terms of the contract. 3. The contract itself, set forth in a
written or printed agreement or policy. 4. The amount for which
anything is insured. 5. An insurance premium. 6. Any means of
guaranteeing against loss or harm. The convincing boom of corporate
sector in India has given a new definition to commercial insurance
in the country. Proper risk management against any kind of disaster
is the mantra of successful business and other commercial ventures.
The function of risk management is to provide safety against any
kind of internal or external hazard. Commercial insurance can
provide valuable protection against such things as theft, property
damage, and liability. It can also provide coverage for business
interruption and employee injuries. A business owner who chooses to
operate a business without insurance puts his enterprise at risk of
losing money and property in the wake of an unfortunate event. In
some situations, a business owner may even place personal money and
property at risk by failing to secure adequate commercial
insurance.
CHAPTER 2 DIFFERENT TYPES OF COMMERCIAL INSURANCE
6
COMMERCIAL INSURANCE The most common types of commercial
insurance are property, liability and workers' compensation. In
general, property insurance covers damages to your business
property; liability insurance covers damages to third parties; and
workers' compensation insurance covers on-thejob injuries to your
employees. Depending on your business, you may want additional
specialized coverages. Listed below are some of the different types
of commercial insurance.
2.1 PROPERTY INSURANCE:Property insurance pays for losses and
damages to real or personal property. Property insurance provides
protection against most risks to property, such as fire, theft and
some weather damage. Property is insured in two main ways - open
perils and named perils. Open perils cover all the causes of loss
not specifically excluded in the policy. Common exclusions on open
peril policies include damage resulting from earthquakes, floods,
nuclear incidents, acts of terrorism and war. Named perils require
the actual cause of loss to be listed in the policy for insurance
to be provided. The more common named perils include such
damage-causing events as fire, lightning, explosion and theft. For
example, a property insurance policy would cover fire damage to
your office space. i. Boiler and Machinery Insurance: Boiler and
machinery insurance sometimes referred to as "equipment breakdown"
or "mechanical breakdown coverage," provides
coverage for the accidental breakdown of boilers, machinery, and
equipment. This type of coverage usually will reimburse you for
property damage and business interruption losses. For example, this
coverage would cover fire damage to computers.
7
COMMERCIAL INSURANCE ii. Debris Removal Insurance:
Debris removal insurance covers the cost of removing debris
after a fire, flood, windstorm, etc. For example, a fire burns your
building to the ground. Before you can start rebuilding, the
remains of the old building have to be removed. Your property
insurance will cover the costs of rebuilding, but not of removing
the debris. iii. Builder's Risk Insurance:
Builder's risk insurance covers buildings while they are being
constructed. For example, a Builder's risk policy would cover
losses if a windstorm takes down your partially constructed
condominium complex. iv. Glass Insurance: Glass insurance covers
broken store windows and plate glass windows. v. Inland Marine
Insurance: Inland marine insurance covers property people's
premises. in transit and on other your this property For
example,
insurance would cover fire-damage to customers' clothing from a
fire at your dry cleaning business.
vi. Business Interruption
Insurance:
Business interruption insurance covers lost income and expenses
resulting from property damage or loss. For example, if a fire
forces you to close your doors for two months, this
8
COMMERCIAL INSURANCE insurance would reimburse you for salaries,
taxes, rents, and net profits that would have been earned during
the two-month period. vii. Ordinance or Law Insurance:
Ordinance or law insurance covers the costs associated with
having to demolish and rebuild to code when your building has been
partially destroyed (usually 50 percent). For example, your
three-story building is 100 years old. A flood destroys the
basement and first two stories. Because more than 50 percent of
your building has to be rebuilt, a local ordinance requires that
the building be completely demolished and rebuilt according to
current building codes. Property insurance covers only the
replacement value, not the upgrade. viii.Tenant's Insurance:
Commercial leases often require tenants to carry a certain amount
of insurance. A renter's commercial policy covers damages to
improvements you make to your rental space and damages to the
building caused by the negligence of your employees. ix. Crime
Insurance:
Crime insurance covers theft, burglary, and robbery of money,
securities, stock, and fixtures from employees and outsiders. x.
Fidelity Bonds:
A Bond company covers losses due to a bonded employee's theft of
business propertyand money.
9
COMMERCIAL INSURANCE
2.2 LIABILITY INSURANCE:This commercial insurance provides
coverage for injuries caused by a business concern or the
individual business owner to third parties as a result of which the
person or another business concern so affected may sue either the
business concern or the individual business owner for personal
injuries or property damages. This kind of a commercial insurance
policy makes payments towards the insurance claimed by the policy
holder for the cost of defending and resolving the law suit brought
against him or her. In contrast, a general commercial liability
insurance policy will only provide coverage to the policy holder
for the common risks such as customer injuries on the premises of
the business concern. Liability insurance is a part of the general
insurance system of risk financing. With increased globalization
the need for liability insurance is gaining importance. Be it
manufacturing unit or a service industry, every industry segment is
exposed to liability claims. With increased awareness of ones
rights, the number of such claims has increased many folds over the
years. With Globalization such types of claims, has crossed the
geographical limits. Apart from the huge outgo in such types of
claims, a huge amount is spent on the litigation process, thereby
crippling the companys financials. As such it becomes all the more
vital to be properly equipped to fight such unwelcome situations.
Liability insurance is designed to offer specific protection
against third party claims, i.e., payment is not typically made to
the insured, but rather to someone suffering loss who is not a
party to the insurance contract. In general, damage caused
intentionally and contractual liabilities are not covered under
liability insurance policies. When a claim is made, the insurance
carrier has the right to defend the insured. If someone sues for
10
COMMERCIAL INSURANCE personal injuries or property damage, the
cost of defending and resolving the suit would be covered by the
liability insurance policy. A general liability policy will covers
common risks, including customer injuries on company premises. More
specialized varieties of liability insurance include:
i. Errors and Omissions Insurance: Errors and omissions ("E
& O") insurance covers inadvertent mistakes or failures that
cause injury to a third party. The act must actually be an
inadvertent error, and not merely poor judgment or intentional
acts. Legal liability cover for the liability claims by third
parties, on account of the bodily injury or property damage arising
out of services offered or which should have been offered by the
Insured as a part of their profession. The policy is ideal for all
those engaged in service industry, including medical practitioners,
architects, engineers, software firms etc. For example, an E &
O policy would cover damages arising from an insurance agent
failing to file policy applications, or a notary forgetting to fill
out notarizations properly. ii. Malpractice Insurance: It generally
covers the payments which may arise out of a professionals defense
costs and/or any judgment or settlement in case the concerned
insured professional causes injury to a third party by conducting
below par. These kind of professional liability insurances are
issued to doctors, dentists, accountants, real estate agents,
architects, and all professionals. Malpractice insurance, or
professional liability insurance, pays for losses resulting from
injuries to third parties when a professional's conduct falls below
the profession's standard of care. For example, if a doctor makes a
mistake that other doctors of his specialty would not have made,
his patient might sue him. A malpractice policy will pay his
defense costs and any judgment or settlement. Malpractice insurance
is available for doctors, dentists, accountants, real estate
agents, architects, and other professionals.
11
COMMERCIAL INSURANCE iii. Automobile Insurance: Commercial
Automobile Insurance provides insurance coverage for the vehicles
used for the purposes of conducting business and also to make
payments towards the persons who may be injured by the same.
Vehicle insurance (also known as auto insurance, car insurance, or
motor insurance) is insurance purchased for cars, trucks, and other
vehicles. Its primary use is to provide protection against losses
incurred as a result of traffic accidents and against liability
that could be incurred in an accident. Commercial automobile
policies cover the cars, vans, trucks and trailers used in your
business. The coverage will reimburse you if your vehicles are
damaged or stolen or if the driver injures a person or property.
iv. Directors' and Officers' Liability Insurance : It provides
insurance coverage in order to make payments towards the legal
cases that may be filed against the directors and officers
belonging to corporations and nonprofit organizations.
2.3 WORKERS' COMPENSATION INSURANCE:The Policy covers
liabilities falling on the employers for death or injury sustained
by his employees who falls in the category of `workman as defined
in the Workmen Compensation Act. The Policy covers statutory
liability as well as liabilities arising under Common Law. The
employees not falling under the definition of `workman can be
covered under the Common Law. The Policy primarily includes the
liabilities towards the employees, whilst on work. Medical expenses
can also be covered at the Insureds options. The premium depends on
the annual wages disbursed to the employees and the type of work
the employee is engaged in. Workers' compensation insurance covers
you for an employee's on-the-job injuries. Businesses with
employees are required by various state laws to carry some type of
workers' compensation insurance. In most cases, workers'
compensation laws prohibit the employee from bringing a negligence
lawsuit against an employer for work-related injuries.Most
employers purchase workers compensation insurance plans from
insurance companies specifically designed to provide workers
compensation insurance benefits. In some countries, these are
mandatory, with the exception of a few jurisdictions that allow
larger companies to insure themselves. Smaller 12
COMMERCIAL INSURANCE companies, however, such as those with just
a handful of employees, need not purchase such plans. The goal of
workers compensation insurance is to get the injured employee back
on his feet and working again as quickly as possible without
causing the employer unnecessary hardship or loss of business.
2.4 OTHER TYPES OF COMMERCIAL INSURANCE: I. Agriculture
Insurance:Agricultural Insurance provides the farmers insurance
coverage and financial help in time of their needs. India is a land
of agriculture and a vast majority of people depends on this
profession. Agriculture in India is vulnerable to many kinds of
damages which are caused by natural calamities like flood,
excessive rain and hail-storming, diseases and pests which play
havoc on the crops. Agricultural insurance schemes provide the
farmers financial support in case they are caught in any undesired
situation which proves fatal to their crops. Agricultural Insurance
in India mainly covers the agricultural lands which are spread over
rainsoaked areas. The farmers in India having their lands in the
flood and rain affected regions often bear the brunt of the nature.
The agricultural lands are washed away by excessive rain causing
flood which damages crops. Sometimes, crops are attacked by pests
or they die of diseases. These types of sticky situations often
prove very fatal for the farmers. To save the farmers from these
kinds of difficult situations, there are several agricultural
insurance companies in India. These companies compensate the losses
of the farmers done by any natural calamity. Besides, Crop
Insurance schemes in India also encourage the farmers for
implementing progressive farming techniques through the usage of
technologically rich agricultural apparatus and high value in-puts.
Agricultural Insurance schemes in India are looked after by
Agriculture Insurance Company of India Limited (AIC) which has been
formed by the Government of India. The national 13
COMMERCIAL INSURANCE corporation of agricultural insurance was
set up in the larger interest of the farmers. Agriculture Insurance
Company of India Limited (AIC) promotes 5 other organizations, each
of them having individual percentage of share holdings. India is an
agrarian society with 75% of the population depending on it, for
their livelihood. Agriculture or crop insurance has assumed
importance with large scale damage caused due to pest attacks, crop
diseases and vagaries of weather. The objective is to provide
insurance coverage and financial support to the farmers in the
event of failure of any of the notified crop as a result of natural
calamities, pests & diseases. The list of crops being covered
for insurance differs from state to state. Generally quite a few
Kharif and Rabi season crops are covered. These crops are insured
at the community/block/gram panchayat levels. Agriculture insurance
schemes are of immense help to farmers, providing them with
financial security. Calculation of Agriculture Insurance
Amount/Premium: The amount of premium depends on a number of
factors like size of land of the farmer, his financial standing,
number of crops being insured and the sum insured. Agriculture
Insurance Claim Procedure: Farmers can claim from the banks by
submitting a claim form. The claim representative will analyze the
extent of damage caused to the crops. Based on the report of the
surveyor, the claim is given to farmers within a month. Documents
Required for Agriculture Insurance Claim: 1. The farmer must
approach the designated branch / PACS and submit the proposal form
in the prescribed format. 2. The farmer must provide documentary
evidence in regard to the possession of cultivable land (copy of
the pass book and extract. 3. Land revenue receipt should be
enclosed 4. The farmer must furnish area sown confirmation
certificate, if required. List of Some of Insurance Companies
Offering Agriculture Insurance: Agriculture Insurance Co. of India
- Varsha Bima United India Insurance Co. - Rural Policies
14
COMMERCIAL INSURANCE
II.Fire Insurance:Fire Insurance is governed by All India Fire
Tariff effective from 31.3.2001 issued by Tariff Advisory
Committee, a Statutory Body. It is a commercial policy covering
building, offices, machinery, contents and personal belongings of
the office. It mitigates the risk of loss of customers arising from
fire breakout. The insured should take all possible steps to
minimize the loss. What are the risks covered under fire insurance?
Fire insurance business in India is governed by the All India Fire
Tariff that lays down the terms of coverage, the premium rates and
the conditions of the Fire Policy. The fire insurance policy has
been renamed as Standard Fire and Special Perils Policy. The risks
covered are as follows: Fire: Destruction or damage to the property
insured by its own fermentation, natural heating or spontaneous
combustion or its undergoing any heating or drying process cannot
be treated as damage due to fire. For e.g., paints or chemicals in
a factory undergoing heat treatment and consequently damaged by
fire is not covered. Further, burning of property insured by order
of any Public Authority is excluded from the scope of cover.
Lightning: Lightning may result in fire damage or other types of
damage, such as a roof broken by a falling chimney struck by
lightning or cracks in a building due to a lightning strike. Both
fire and other types of damages caused by lightning are covered by
the policy. Explosion/ Implosion: Explosion is defined as a sudden,
violent burst with a loud report. An explosion is caused inside a
vessel when the pressure within the vessel exceeds the atmospheric
pressure acting externally on its surface. An explosion may cause
fire damage or concussion damage. Implosion means bursting inward
or collapse. This takes place when the external pressure exceeds
the internal pressure. This policy, however, does not cover
destruction or damage caused 15
COMMERCIAL INSURANCE to the boilers (other than domestic
boilers), economizers or other vessels in which steam is generated
and machinery or apparatus subject to centrifugal force by its own
explosion/ implosion. These risks can be covered in a Boiler &
Pressure Plant Insurance Policy, which is specially designed to
handle these risks. Bush Fire: This covers damage caused by
burning, whether accidental or otherwise, of bush and jungles and
the clearing of lands by fire, but excluding destruction or damage
caused by Forest Fire. Calculation of Fire Insurance
Amount/Premium: The market value of the property is considered
while insuring the sum. The amount of premium depends on a number
of factors and individual policies of different insurers. Fire
Insurance Claim Procedure: Individuals/corporates must inform
insurer as early as possible, in no case later than 24 hours.
Provide relevant information to the surveyor/claim representative
appointed by the insurer. The surveyor then analyzes the extent/
value of loss or damage. The claim process takes anywhere between
one to three weeks. Documents Required for Fire Insurance Claim: 1.
True copy of the policy along with schedule. 2. Report of fire
brigade. 3. Claim Form 4. Photographs 5. Past claims experience
List of Some of Insurance Companies Offering Fire Insurance: ICICI
Lombard - Fire and Special Perils Policy (Material Damage) United
India Insurance Co. - Standard Fire and Special Perils Policy
III.Industrial Insurance:
16
COMMERCIAL INSURANCE
Industrial insurance is a comprehensive policy covering a gamut
of products. This is a specially designed policy covering any kind
of loss or damage caused to the products it covers. This policy is
a Comprehensive Package Policy which covers almost all risks and
perils, which a large industry may face during its operation. This
policy covers Buildings, Machinery, Furniture, Fixtures, Fitting
& electrical installations on Reinstatement value, while the
stock is covered on market value basis. Underinsurance on each item
of the schedule will be ignored if it does not exceed 15% of sum
insured. Policy also covers equipments and machinery sent for
repairs outside the premises for a period of 60 days. Transit risk
inside the compound of an industry is also covered. Covered Risks:
Bursting and overflowing of water tanks, apparatus and pipes,
Deterioration of stocks due to power failure following damage to
premises of public power stations and electric service feeders (for
Cold Storages), Forest fire, Leakage and Contamination cover,
Spoilage Material Damage cover, Sprinkler leakage cover,
Subterranean fire, Spontaneous and Landslide cover, Burglary (other
than Larceny), Machinery Breakdown/Boiler explosion/Electronic
Equipment, Business Interruption following fire, Business
Interruption following Machinery Breakdown.
Major Exclusions: Damage to the property caused by faulty or
defective design materials or workmanship, inherent vice, wear and
tear etc. Interruption of water supply, gas, electricity or fuel
systems. Collapse or cracking of the building. Willful act or gross
negligence. War, Invasion, mutiny, rebellion, 17
COMMERCIAL INSURANCE revolution etc. Damage direct or indirect
by nuclear weapons material and contamination by radioactivity.
Calculation of Industrial Insurance Amount/Premium: The sum insured
is generally equal to the market value of the equipment/machinery
being insured. The insured amount also includes cost of
installation, duty, taxes, freight etc. If the amount insured is
less than the market price, then the claims are paid
proportionately. Industrial Insurance Claim Process: Insured should
inform the insurer's office by phone, letter or fax. Necessary
steps should be taken to minimise the loss. Obtain estimate of
repair from repairer of your choice. The claim process takes
anywhere between one to three weeks. Submit this repair estimate
and claim form to the surveyor deputed by the insurance company.
After getting clearance from the surveyor, proceed for repairing
machine or ordering for replacement. Submit actual bills of
repair/replacement with proof of payment to the surveyor The claim
process. Documents Required for Industrial Insurance Claim Process:
1. Copy of FIR 2. List of loss/damage of stock/equipment 3. Claim
Form List of Some of Insurance Companies Offering Industrial
Insurance: ICICI Lombard - Industrial Plan United India Insurance
Co. - Industrial Plant & Machinery Policy The New India
Assurance Co. - Industrial Products
IV.Marine Insurance:Since time immemorial, merchants engaged in
maritime commerce have explored ways to ensure the security
essential for the transportation of their 18
COMMERCIAL INSURANCE merchandise. The onslaught of the perils of
the sea has always threatened the safe passage of goods across the
seas and frontiers. Respite from this burden of trade was only
possible through mutual aid and assistance. Traders pooled together
a fund that could be utilised in the contingency of their partner.
Thus became the foundation of what today is popularly known as
Marine Cargo Insurance. Marine Insurance is the oldest form of
insurance in the world. In the olden days, London as the centre of
the British Empire, had the greatest share of the world's trading
and commercial activities and it was here that marine insurance
principally developed. Marine insurance falls under commercial
insurance. The policy is taken to reduce business risks. It caters
to small scale business organizations to large corporates. Policy
does not cover loss or damage due to willful misconduct, ordinary
leakage, improper packing, delay, war, strike, riot and civil
commotion. Different types of Marine Insurance are available: 1.
Marine import transit insurance 2. Marine export transit insurance
3. Marine inland transit insurance 4. Marine insurance claim
procedure Calculation of Marine Insurance Amount/Premium: Amount of
premium depends on factors like nature of cargo, scope of cover,
packing, mode of conveyance, distance and past claims experience.
Premium can be paid on a monthly/quarterly/half-yearly/yearly
basis.
Marine Insurance Claim Procedure: In case of loss/damage in
transit, a monetary claim should be lodged with the carrier within
the time limit to protect recovery rights Appointment of surveyor
or claim representative in agreement with the insurer to determine
the nature, cause and extent of loss/damage The surveyor informs
the insurer of the approximate value of loss incurred Documents
Required for Marine Insurance Claim: 19
COMMERCIAL INSURANCE 1. Original Invoice & packing List - if
forming part of Invoice 2. Document of declaration of consignment
3. Damage Certificate from the carrier List of Some of Insurance
Companies Offering Marine Insurance: ICICI Lombard - Marine Import
Transit Insurance Policy United India Insurance Co. - Marine Cargo
The New India Assurance Co. - Marine Cargo Policy.
V.Shop Insurance:Shop Insurance is specially designed to meet
the needs of small shopkeepers. For any retailer, the shop is not
only an asset but also is his/her main source of income. Retailers
shudder to think about anything that could go wrong with their
premises. But calamities do happen and it is very important for
20
COMMERCIAL INSURANCE them to safeguard their premises. The
shopkeeper insurance policy is specifically designed to cover all
the risks and contingencies faced by small or medium-sized shop
owners. It provides protection for the property and the interests
of the insured (and their partners) in the business venture. As a
shop owner, once you buy a shop insurance policy, the insurer
agrees to cover you for losses incurred in natural and manmade
calamities. The sum insured depends on the value of your shop and
the value of the contents of the shop. The value of the shop is
calculated on the basis of the estimated cost of rebuilding it
completely. The contents of the shop are assessed according to
their value at the time of purchasing the shop insurance policy.
The valuation would also include electrical and mechanical
appliances in the shop. It is a comprehensive insurance, catering
to different insurance needs of shopkeepers. One policy per shop is
generally given by insurers. It covers damage/ loss to shop due to
fire, burglary, riot, strike, loss of money in transit, fraud
committed by client's employees etc. The policy is meant for shops
only, hence restaurants and tea /coffee shops cannot be insured
under this insurance policy. Covered Risks : The coverage provides
for damage to the building against fire and its associated perils
due to natural or man-made calamities. Natural calamities include
fire, lightning, earthquake, fire, landslide and rockslide damage,
floods, inundations, storms, tempests, typhoons, hurricanes,
tornados, or cyclones. Man-made calamities include explosion of gas
in domestic appliances, bursting and overflowing tanks or pipes,
damage caused by aircrafts, riots, strikes, malicious or terrorist
acts, and impact damage. Exclusions : Insurance companies are
selective about the risk covers they offer in shopkeepers'
insurance policies. For instance, some may charge an additional
price for cover against terrorist activities. Others may enforce
deductibles that expect you to pay a portion of the claim amount.
Loss, destruction or damage caused by: War, invasion, foreign enemy
hostilities, war-like operations, civil war, mutiny, civil
commotion Nuclear activity Pollution or contamination. Calculation
of Shop Insurance Amount/Premium: 21
COMMERCIAL INSURANCE The shop is generally insured on a market
value basis less the depreciation cost. Articles in the shop are
insured on cost price. Premium amount may vary from insurer to
insurer and the number of sections a person is availing under the
policy. Discount in premium is sometimes given by companies
depending upon the number of sections opted for by the insured.
Premium can be paid on a monthly/quarterly/half yearly/ yearly
basis. Shop Insurance Claim Procedure: Take necessary steps to
minimize the loss/damage. Report the claim to insurer. A surveyor
appointed by the company will analyze the damage /loss incurred.
The claim process takes anywhere between 7-21 days. Documents
Required for Shop Insurance Claim: 1. Copy of FIR in case of theft
2. List of articles loss/damage 3. Proof of ownership of shop 4.
Claim form List of Some of Insurance Companies Offering Shop
Insurance: ICICI Lombard - Shop Cover The New India Assurance Co. -
Policy Package For Shop United India Insurance Co. - Protection
Against Damage of Shop Bajaj Allianz - Shop/ Showroom Insurance
22
COMMERCIAL INSURANCE
CHAPTER 3 PARTICIPANTS OF COMMERCIAL INSURANCE3.1 INSURANCE
PROVIDERS:The providers of commercial insurance are extraordinarily
diverse. They vary in size, specialty and role in the industry.
Insurance Companies: Insurance companies can be categorized in many
ways. One is by the size of their policyholder surplus or capital.
The larger the policyholder surplus the more risk they can assume.
The smallest companies have less than $1 million in surplus and the
largest more than $2 billion. Most fall into the $250 million and
under policyholder surplus category. Insurers can also be divided
according to premiums, which are roughly equivalent to revenues.
The largest have premiums in excess of $10 billion. Most commercial
insurers are stock companies owned by their stockholders, but some
are mutual, which are owned by their policyholders, and a few are
reciprocal insurance exchanges. Reciprocals are an old form of
insurance entity where members or subscribers provide insurance to
one another; share profits, losses and expenses; elect a board; and
appoint an attorney-in-fact, which may be an individual or a
corporation, to manage the operation. An insurance company may be a
single entity or a holding company with subsidiaries. Subsidiaries
may be organized to operate in a single state, sell different
insurance products from the parent organization or cater to a
nonstandard market. Some parent companies are domiciled outside the
United States and some insurers have non-insurance related parents.
Large commercial insurers generally operate in most states and some
have global operations. Smaller or specialized insurers may focus
on a specific geographical area or specific states. With so many
different kinds of businesses seeking insurance, its not surprising
that insurers tend to specialize. Specialization facilitates the
accumulation of expertise. In addition, insurance works best where
an insurer has a large number of policyholders with similar
exposures to loss. The more policyholders of the same type there
are, the better the insurer is
23
COMMERCIAL INSURANCE able to predict losses for that type and
price the coverage accurately, according to a mathematical premise
known as the law of large numbers. The law of large numbers works
best for personal lines insurers with thousands of similar auto and
homeowners policies and in commercial lines for small Main Street
type businesses. These smaller firms tend to be similar in size and
loss exposures and are generally covered by a standard policy known
as a Business Owners policy. By contrast, larger firms vary widely
in their exposure to loss. Nevertheless, many commercial insurers
concentrate on certain types of businesses or insurance coverages
or both. They may target firms in the energy or transportation
fields, for example, building contractors or financial services
institutions. They may be specialists in directors and officers
liability insurance, medical malpractice liability insurance,
surety bonds, crop insurance or workers compensation, sometimes
covering other incidental risks as well. Many personal lines
insurance companies offer commercial insurance but generally only
to typically small, low-risk, kinds of businesses and many
commercial insurance companies offer personal lines insurance as
well as life insurance and other Financial services products.
Commercial insurers that have been licensed or admitted to do
business in a state by the state insurance department are generally
willing to cover most business risks. (The term risk in the
insurance industry can mean a peril insured against, such as the
risk of fire, and also the entity insured.) However, some risks are
hard to place in the standard market because they dont meet
licensed companies underwriting criteria. Among the most difficult
to place are: unusual or unique risks that are hard to price if the
insurance industry has no prior experience with them, such as
tattoo and body piercing shops when they first began to appear;
risky or substandard risks, such as fire coverage for a business
with a prior history of fires; businesses whose operations are very
complex, such as an offshore oil rig; and exposures that require
higher limits than most companies are willing, or able under
regulatory guidelines, to provide. (To safeguard an insurers
financial stability in the event of a total loss, insurers cannot
devote more than a certain amount of their underwriting capacity to
insure any one risk.) In such cases, part of the risk may be
insured in the standard market and the remainder, or excess in the
surplus lines market.
24
COMMERCIAL INSURANCE Surplus Lines: The surplus lines market, a
group of highly specialized insurers that includes Lloyds of London
exists to assume risks that licensed companies decline to insure or
will only insure at a very high price, with many exclusions or with
a very high deductible. To be eligible to seek coverage in the
surplus lines market, a diligent effort must have been made to
place insurance with an admitted company, usually defined by a
certain number of declinations or rejections by licensed insurers,
typically three to five. Many states provide an export list of
risks that can be insured in the surplus lines which obviates the
diligent search requirement. The terms applied to the surplus lines
market - non-admitted, unlicensed and unauthorized - do not mean
that surplus lines companies are barred from selling insurance in a
state or are unregulated. They are just less regulated. Each state
has surplus lines regulations and each surplus lines company is
overseen for solvency by its home state. More than half of the
states maintain a list of eligible surplus lines companies and some
a list of those that are not eligible to do business in that state.
In addition, depending on the state, the surplus lines agent or
broker, who must be licensed, is responsible for checking the
eligibility of the company. In a number of states, surplus lines
companies are also monitored by surplus lines organizations, known
as Stamping Offices, which, among their many functions, assist
their states department of insurance in the regulation and
oversight of surplus lines insurers. They also evaluate insurers
for eligibility to do business in the state and review insurance
policies obtained by surplus lines agents or brokers for their
clients. The amount of business insured in the surplus lines market
has grown over the years but also tends to fluctuate, depending on
the insurance cycle. Not surprisingly, surplus lines companies
thrive in hard markets when certain kinds of coverage those are
available in soft markets from standard insurers, such as nursing
home insurance, may be more difficult to obtain. (In the insurance
industry, in a hard market the price of coverage increases and
insurers are more selective about the risks they assume because
capital and, hence, underwriting capacity is limited.) During the
most recent hard market, growth in surplus lines premium far
exceeded growth in the property/casualty insurance industry as a
whole. In 2003, when the hard market was reaching its peak, surplus
lines premiums represented about 13 percent of the commercial lines
market, according to A.M. Best, a rating agency. Surplus lines
represented only about 6 percent of the commercial lines market in
1993 and less than 4 percent in 1983. In 2003 surplus 25
COMMERCIAL INSURANCE lines premiums grew 28 percent from the
previous year, following an extraordinary 62 percent jump in 2002.
By contrast, growth for the total property/casualty insurance
industry was 12 percent and 14 percent in 2003 and 2002,
respectively. The Residual Market: Businesses that cannot obtain
insurance in the standard market may have another choice, depending
on the type of insurance they need, where they are located and why
they have been rejected for coverage. If they are looking for
property coverage and are considered high risks because of
conditions beyond their control, they may be eligible for insurance
under state-run programs known collectively as the residual,
involuntary or shared market because all property insurers doing
business in the state share in the premiums and losses. In
addition, since auto liability insurance is mandatory in all
states, all 51 jurisdictions provide auto insurance programs for
businesses that have difficulty obtaining auto insurance in the
standard market. Most are assigned risk plans, where all auto
insurers in the state are assigned residual market applicants on a
rotating basis according to their market share. A few states have
somewhat different arrangements to ensure that nobody has to drive
without liability insurance.
Workers compensation insurance is also available from the
residual market. The mechanism used to handle the workers
compensation residual market varies from state to state. In the six
states with a monopolistic state workers compensation fund, where
the state provides workers compensation insurance to all employers,
all businesses are insured through that fund. In most states with a
competitive state fund (an entity that competes for business with
private insurers), the fund accepts all risks rejected by the
voluntary market, thus eliminating the need for assigned risk
plans. In states without a competitive fund, insurers may be
assigned applicants based on their market share and service those
employers as they would employers that came to them through the
voluntary market, through a system known as direct assignment. They
may also participate in the residual market through a pooling
arrangement in which all participating workers compensation
insurers share the premiums and the losses.
3.2 REINSURERS:26
COMMERCIAL INSURANCE Just as businesses are able to transfer
risk to insurers, known as primary insurers in the insurance
community, insurers are able to transfer or cede some of the risk
they assume in insuring businesses to other insurance companies,
known as reinsurers. By transferring some of the risk primary
insurers reduce their liability for losses, which allows them to
write more insurance. Some insurers are heavily reinsured, others
are not. Reinsurers reimburse primary insurers for losses,
according to the terms of the reinsurance contract, either on a
shared or proportional basis, with the primar y insurer and
reinsurer sharing both the losses and the premiums collected from
the commercial policyholder, or on an excess-of-loss basis, with
the reinsurer assuming losses above a certain level for a fee.
Reinsurers also spread the risk they have assumed as a result of
the reinsurance transaction by selling off slices and layers of
risk to other reinsurers all over the world. Reinsurance is an
international business. Six countries were represented among the 10
top global reinsurers in 2003. The top two are German and Swiss,
each with more than twice the premium volume of the next two, which
are U.S. companies.
3.3 DISTRIBUTORS:Distribution At the retail level, commercial
insurance is distributed by insurance agents and brokers who work
for organizations that are part of the distribution system,
insurance agencies and brokers. Recently, however, the lines
between agencies and brokers have become blurred. Traditionally,
agents have represented the insurance company and brokers have
represented the client. Agents and brokers are known as producers.
Agents may be captive agents selling policies written by a single
insurer, the agents employer, or an independent agent selling
policies from a number of different insurers. Independent insurance
agencies have a larger portion of the commercial lines business
than captive agencies -- about two-thirds. For personal lines, the
ratio is reversed. It is the brokers responsibility to seek out
appropriate insurance coverages for the client and obtain the best
overall price, terms and conditions. Brokers are most often
associated with large or complex commercial lines risks. Brokers
may also become wholesalers who act as intermediaries between
retail brokers or agents and insurance company underwriters. To be
able to transact business with surplus lines 27
COMMERCIAL INSURANCE insurers, wholesale brokers must be
licensed as surplus lines brokers in the state where the
policyholder or the risk to be insured is located. Wholesale
brokers may also work with other wholesale brokers in the London
Market, or elsewhere to secure coverage. Wholesale brokers may also
be managing general agents, who are given authority by insurers to
underwrite and bind insurance -- provide temporary coverage until
an insurance policy can be issued. Managing general agents, who
have a close relationship with the insurance companies they work
with, may also handle claims and even help in the placement of
reinsurance contracts. Managing general agents may also arrange
so-called program business which is specialty insurance for
homogeneous groups of policyholders, such as members of a specific
industry. These programs, often offered and endorsed by trade
associations, may provide coverage at lower prices. As insurers
seek out niche products, programs are increasingly available to a
wide range of businesses and organizations from bed and breakfast
inns to churches. Programs may also provide specially tailored
liability insurance for professionals, such as vocational or
physical rehabilitation specialists who work part or full time out
of a home office. To be successful, a program must generate a
sufficient volume of premium and the risks within each program must
be relatively homogeneous. Compensation Insurance company
employees, whether they work for standard, surplus lines or
reinsurance companies, are compensated the same way that employees
in other industries are compensated, with bonuses and other
incentives in many companies for outstanding contributions to the
organization. Producers and others in the retail and wholesale
distribution system are compensated in a variety of ways. Captive
insurance agents are compensated by their insurance company
employers, while independent agents are compensated by the insurers
with whom they have placed business. Independent agent commissions
may be calculated based on the business received, and percentages
may differ among insurers and for different types of coverage.
Independent agents may also receive contingent commissions, not
unlike incentives provided in other industries to their sales
force, for a high volume of business or business that was
especially profitable. 28
COMMERCIAL INSURANCE
Brokers may receive compensation from several sources: fees paid
by their policyholder clients; commissions paid by the insurer with
whom business is placed, calculated as a percentage of premium
charged; and contingent commissions paid by insurers based on the
profitability and/or volume of the business. Some of the largest
commercial lines brokers have recently discontinued the practice of
using contingent commissions as incentives. Since the broker
represents the client not the insurer, the existence of commissions
paid by the insurer must be disclosed to the client. Managing
general agents are compensated entirely by the insurer, often based
on the outcome of the business generated.
3.4 RISK MANAGERS:Risk management deals with loss exposures --
circumstances that exist inside or outside a companys operations
that have the potential to cause a loss. A major incident such as a
fire or explosion at a manufacturing plant or hurricane force winds
that lift the roof off the building could shut down operations. On
the liability side, a lawsuit, if successful, could jeopardize a
companys financial well-being. Large companies generally employ
risk managers to manage the risk of loss. It is the risk managers
responsibility to anticipate, evaluate and minimize the adverse
impact of all possible losses. Strategies for controlling losses
include avoidance -- avoiding the activity that could produce a
loss altogether if the activity, product or service cant be
modified; loss control techniques, such as limiting access to
warehouses to reduce the incidence of theft; and transferring the
financial consequences of potential losses to an insurance company.
Once a decision has been made to purchase insurance, the risk
manager selects an appropriate agent or broker to solicit bids. In
the process, the risk manager must supply the broker with all the
necessary information about the company that commercial lines
underwriters might need to evaluate the risk. The risk manager is
also responsible for all other aspects of implementing the
insurance contract, from handling claims as a representative of the
company to dealing with adjustments to loss sensitive programs,
Where the company decides to retain some of the risk itself rather
than buy insurance, the risk manager may hire actuaries to
determine appropriate
29
COMMERCIAL INSURANCE loss reserves, a claims adjustment service
to manage claims and legal experts to deal with litigation. The
risk manager generally reports to the companys chief financial
officer. In a large organization, there is generally a risk
management department. In small companies, the risk management
function may be handled by the treasurer or owner of the
business.
3.5 RATING AGENCIES:Rating agenciesprivate firms that evaluate
insurance companies financial strengthplay an important part in the
insurance marketplace. The ratings issued by these agencies
represent their opinions of an insurers' financial condition and
its ability to meet its obligations to policyholders. Rating
downgrades are watched closely and can significantly affect an
insurer's ability to attract and retain business. Among the factors
they consider are: 1. Company earnings over a period of years to
assess stability and sources of profits and control over expenses
2. Capital adequacy and operating leverage (Capital is the cushion
that allows a company to keep its commitments even if the value of
its assets falls or its liabilities increase.) 3. Investment
performance and investment risk management 4. The strength of an
insurers reinsurance program (an important cushion in the event of
a catastrophe.) 5. Managements ability, experience and
integrity.
CHAPTER 4 COMPANY OPERATIONS30
COMMERCIAL INSURANCE
4.1 COMMERCIAL UNDERWRITING :Insurance companies protect
businesses from financial loss by assuming billions of dollars in
risks each year. It is the underwriters responsibility to evaluate
a businesss risk of loss and decide whether to insure the business
and if so, at what price. Evaluating risks involves considerable
research. Information on applications is often supplemented with
reports from loss control consultants, medical reports, information
from data vendors, and actuarial studies. For example a factorys
application may require an engineering survey, a fire hazard survey
or other investigations. The Internet has greatly enhanced the
resources available to underwriters doing research on a business.
Based on its research, the underwriting department may require the
applicant to make changes to improve safety, or decide not to
provide coverage. Technology plays an important role in an
underwriters job. In addition to using the Internet for research,
underwriters use specialized computer applications to manage risks
more efficiently and accurately. Depending on the nature of the
risk and the complexity of the insurance policy, these systems
automatically analyze and rate insurance applications, recommend
acceptance or denial of the risk, and adjust the premium rate in
accordance with the risk. The greater the risk and complexity of an
operation, the more likely that the policy will be specifically
tailored to meet the policyholders needs. In making all these
decisions, underwriters serve as the main link between the
insurance company and the insurance broker or agent. Underwriters
also work closely with claims personnel. For example, information
from claims adjusters, such as a businesss failure to take certain
loss control measures, might affect the underwriters decision to
offer coverage in the future. Many insurance companies employ field
underwriters and claims specialists who are assigned to agents in
specific localities, giving underwriters first hand knowledge of a
companys business and geographic environment. These field
underwriters often work closely with loss control specialists who
help evaluate a company. Most property/casualty underwriters
specialize in either commercial or personal lines. In cases where
insurance companies provide insurance through a single package
policy, covering 31
COMMERCIAL INSURANCE various types of risks, the underwriter
must be familiar with different lines of insurance and different
types of risks.
4.2 CLAIMS:When an insured business suffers a covered loss, it
submits a claim seeking compensation. Insurance claims departments
handle a wide variety of claims for property damage, liability, and
bodily injury. Their main role is to investigate the claims,
negotiate settlements, and authorize payments to claimants. They
must determine whether the customers insurance policy covers the
loss and how much of the loss should be paid to the claimant,
depending on deductibles or retentions, co-payments and other
risking sharing provisions in the policy. . Insurance company
claims adjusters plan and schedule the work required to process a
claim that would follow a loss, for example, an accident at
processing plant or damage to a business property caused by a
hurricane. They investigate claims by interviewing the claimant and
witnesses, consulting police and hospital records, and inspecting
property damage to determine the extent of the insurers liability.
Adjusters may also consult with accountants, architects,
construction workers, engineers, lawyers, physicians and other
experts. Most claims are easily settled. When claims are contested,
adjusters will work with attorneys and expert witnesses to defend
the insurers position. When adjusters or examiners suspect fraud,
they refer the claim to an investigator specially trained to detect
and investigate fraud. New technology making use of the Internet,
digital cameras and sophisticated software have greatly speeded the
claims handling process, and improved the quality of adjusters
estimates. High tech advances have also made it easier for
policyholders to submit claims. Customers at many insurers, for
example, can submit claims directly to claims professionals via an
Internet reporting tool. Prompt reporting allows the insurer to
respond quickly to a claim, ensuring that appropriate steps, such
as medical attention or securing a building, are taken as soon as
possible.
4.3 LOSS CONTROL:Loss control activities aimed at preventing or
reducing the size of losses due to accidents and theft have been
integral to the insurance industry as far back as 1752 when
Benjamin Franklin, 32
COMMERCIAL INSURANCE founder of the first U.S. fire insurance
company, launched a fire safety campaign to teach property owners
how to recognize and remove fire hazards. Insurance companies,
agencies and brokerage firms may provide safety inspection and
engineering services as part of the services they offer to
industrial and business clients. The insurers safety engineer or
loss control expert may also be called on by an underwriter to
perform a safety audit before an insurance policy is written. Loss
control produces widespread benefits. For instance, a loss control
professional's recommendations for controlling fire hazards in a
particular factory benefit not only the factory owners, but also
protect the financial security of employees and their families by
enhancing worker safety. In addition, owners and occupants of
adjoining buildings are protected from spreading fires. Businesses,
having avoided ruin by fire, continue to contribute taxes and other
benefits to their community. Some insurance companies have
established extensive loss control departments to help their
clients control losses. For example, one large industrial insurer
has established a multimillion dollar research facility to provide
its insurance clients and building supply manufacturers with
information about how materialsranging from power turbine housings
to applesauceburn, and how to reduce fire losses. Other companies
provide an array of online risk management tools, such as using the
Internet to access extensive loss control libraries that can help
customers minimize financial losses. The insurance industry also
funds loss control organizations to promote product safety. One
such organization, Underwriters Laboratories, now operates
independently. Calculation of Commercial Insurance Amount/Premium:
Insurance companies keep quite a few factors in mind while
calculating the premium amount to be paid by the client. Nature of
business, size of the organization, number of employees, the type
of industry, the organization is a part of, annual turnover of
business etc. The premium is paid on a monthly/quarterly/half
yearly/ yearly basis, as the case may be. Companies also provide
with instant commercial insurance quotes for the ease of their
customers. Commercial Insurance Claim Procedure: 33
COMMERCIAL INSURANCE The insurer needs to submit all the
original documents of the commercial in the case of any financial
or non financial loss. The surveyor calculates the approximate
value of the loss so incurred. Based on the report submitted by the
surveyor, insurance companies pay the amount of loss incurred. The
claims are generally cleared from 7-21 days. Documents Required for
Commercial Insurance Claim: 1. Claim Form 2. List of things or
items lost or damaged 3. Proof of ownership of business List of
Some of Insurance Companies Offering Commercial Insurance: Bajaj
Allianz - Corporate Insurance ICICI Lombard Commercial Insurance
The New India Assurance Co. Commercial Products United India
Insurance Co. - Business Policies
CHAPTER 5 STANDARDS FOR CANCELLATION, RENEWAL AND NONRENEWAL OF
COMMERCIAL INSURANCE POLICIESAre There Specific Rules on Commercial
Insurance Cancellation and Non-renewal?
34
COMMERCIAL INSURANCE Commercial insurance companies must follow
the rules set out in the insurance code regarding commercial
insurance cancellation and non-renewal. There are separate
insurance code sections covering cancellation and non-renewal for
workers compensation, auto, ocean marine, surplus line, reinsurance
policies, and other commercial insurance lines. 1. These standards
apply to all lines of commercial property and casualty insurance.
2. Any policy may be cancelled at any time for fraud, material
misrepresentation or non-payment of premium by mailing a 10-day
notice of cancellation to the insured. Insurers should conduct
their initial underwriting during the first 90 days in which a
policy is in force. A new policy may be cancelled for any reason
not prohibited under current law by mailing 30days' notice of
Cancellation (10 days for fraud, material misrepresentation or
non-payment of premium) to the insured before the policy has been
in effect 90 days.
3. After a policy has been in effect more than 90 days,
cancellation should be based only on certain Specified reasons.
After a new policy has been in effect for more than 90 days, and at
any time during the period of renewal policy, an insurer will
cancel only for the following reasons, with the indicated amount of
notice: (a) Non-payment of premium, fraud or material
misrepresentation -- 10 days. (b) Change in the risk which
substantially increases any hazard insured against, except to the
extent that the insurer should reasonably have foreseen the change
or contemplated the risk in writing the contract -- 30 days. (c)
Failure of the insured to comply with reasonable safety
recommendations -- 20 days. An insurer may exempt itself from these
restrictions on mid-term cancellation by filing a notice with the
Insurance Commissioner that compliance with these restrictions
would cause it to suffer significant financial impairment
jeopardizing its solvency. 4. Notice of non-renewal should be
mailed at least 45 days in advance. An insurer may non-renew a
policy by mailing to the insured at least 45 days in advance of
expiration a notice of its intent not to renew. In the
35
COMMERCIAL INSURANCE case of a continuous policy or a policy for
a term of more than one year, an insurer may refuse to extend the
policy by mailing notice to the insured at least 45 days in advance
of the anniversary date of the policy. 5. Renewals should be sent
to insured sufficiently in advance of expiration to allow an
opportunity to seek alternative coverage. (a) Continuous policies
and policies written for a term of more than one year. If an
insurer elects to continue a policy past its anniversary date, the
insurer shall endeavor to have the insured receive the extension or
a firm quotation for the extension period at least 30 days before
the anniversary date of the policy. If the extension or quotation
is not received 30 days in advance, the insured will have the
option to continue coverage for up to 30 days from the date of
receipt, so long as the insured pays the premium for the extended
period of coverage in advance. The premium for the 30-dayextension
will be computed pro-rata based upon the rates, credits, and debits
which applied to the policy during the period prior to the
anniversary date. (b) Annual term policies. The insurer shall
endeavor to provide the insured with a renewal policy or firm
quotation at least 30 days prior to expiration. Otherwise, the
insured will have the option to continue coverage for up to 30 days
from the date the renewal or quotation is received, so long as the
insured pays the premium for the extended 30-day period of coverage
in advance, with the premium being computed pro-rata based upon the
rates, credits and debits which apply to the expiring policy.
CHAPTER 6 COMMERCIAL INSURANCE AGENTThe Commercial Insurance
Agent is a professional who assists a business owner in making one
of the most important investments in the form of Commercial
Insurance in order to protect his or her business from the
potential losses that may be caused by unexpected and unfortunate
circumstances. A Commercial Insurance Agent (or a business
insurance agent) provides valuable advise to business owners
regarding the most profitable Commercial Insurance policies which
not only 36
COMMERCIAL INSURANCE protect the businesses against such things
as theft, property damage, and liability but also provide coverage
for businesses against all sorts of interruptions and employee
injuries. The business owner should never run his or her business
without commercial insurance as that would subject the specific
business to the perils of losing money and property simultaneously
in cases of fateful events which can never be predicted in advance.
It may also happen that a particular business owner commits his or
her individual cash and/or property to unforeseen danger by not
securing sufficient commercial insurance. In such cases the
business owners desperately require the advice of a dependable
Commercial Insurance Agent who insists the business owners to
subscribe to the most suitable Commercial Insurance policy
available. Commercial Insurance Agents are reliable insurance
agents who specialize in commercial insurance policies that enable
all kind of business concerns to run and progress freely without
constraints. Commercially insured business concerns can operate and
grow freely without the fear of any kind of danger that might
hamper its existence. All business owners are advised to select
their personal Commercial Insurance Agent only after talking with
as many as licensed and knowledgeable Commercial Insurance Agents
as possible. The Commercial Insurance Agent that the business owner
has decided upon should be capable of discussing different types of
commercial insurance policies with him or her and thereby assist
the business owner in selecting the most suitable Commercial
Insurance policy that fulfills all or most of the individual
requirements of the business owner.
CHAPTER 7 COMMERCIAL INSURANCE COVERAGES7.1 Commercial Property
Coverage :Property Insurance is any type of insurance that
indemnifies an insured party who suffers a financial loss because
property has been damaged or destroyed. Property is considered to
be any item that has a value. Property can be classified as real
property or personal property. Real property is land and the
attachments to the land, such as buildings. Personal Property is
all property that is not real property. The Building and Personal
Property coverage form is the form 37
COMMERCIAL INSURANCE used to insure almost all types of
commercial property. The insuring agreement in the Building and
Personal Property coverage form promises to pay for direct physical
loss or damage to covered property at the premises described in the
policy when caused by or resulting from a covered cause of loss.
The following is a brief outline of coverages and how they are used
within the Commercial Building and Personal Property coverage
form.
7.2 Buildings and Business Personal Property:Coverage for the
building includes the building and structures, completed additions
to covered buildings, outdoor fixtures, permanently installed
fixtures, machinery and equipment. The building material used to
maintain and service the insured's premises is also insured.
Business Personal Property owned by the insured and used in the
insured's business is covered for direct loss or damage. The
coverage includes furniture and fixtures, stock, and several other
similar business property items when not specifically excluded from
coverage. The policy is also designed to protect the insured
against loss or damage to the personal property of others while in
the insured's care, custody or control.
7.3 Coverage Extensions and Additional Coverage:In addition to
the limits stated in the Building and Personal Property coverage
form, the policy has a coverage extensions section and an
additional coverages section. The coverage extensions section
provides limited coverage for newly acquired or constructed
property, property of others, certain outdoor property, and the
cost to research and reconstruct information on destroyed records.
When coverage is placed on the all risk form, two additional
extensions are added for property in transit and coverage for
certain repair costs related to damage caused by water. The two
additional extensions are covered by certain perils only. The
additional coverage section provides coverage for indirect losses
that result from a direct loss. The coverage applies to removal of
debris, preservation of property, fire department service charges
and pollutant cleanup and removal. The coverage extensions and the
additional coverages have limitations and are subject to certain
conditions. Limit of Insurance The most the insurer will pay for
loss or damage in any one occurrence is the limit of insurance
stated in the policy declarations. Deductible 38
COMMERCIAL INSURANCE The standard deductible is $250. However,
other deductible amounts are available and the deductible applies
only once per loss. Causes of Loss The term peril is used when
discussing losses. A peril is a cause of loss. Basic property
insurance policies are written to cover the perils of fire,
lightning, explosion, windstorm, hail, smoke, aircraft or vehicle
damage, riot or civil commotion, vandalism, sprinkler leakage,
sinkhole collapse, and volcanic action. Other property insurance
policies, often referred to as the broad form policy, add coverages
for water damage, weight of snow, ice or sleet, breakage of glass
and coverage for falling objects. The broadest coverage is the
special form, which is best known as the all risk form. All risk
covers all causes of loss, except those specifically excluded from
coverage. It is possible for a commercial property policy to have
more than one cause of loss form. Replacement Cost and Actual Cash
Value Property can be valued in several different ways. Insurance
companies commonly use two approaches to determine value, which
also determines how a loss will be paid; the replacement cost
method and the actual cash value method. Insurers consider
replacement cost of a property item to be the cost to replace it
with new property of like kind. Actual cash value is replacement
cost, minus the accumulated depreciation for age and condition.
7.4 Commercial General Liability Coverage:The Commercial General
Liability Policy provides the insurance protection needed to pay
damages for bodily injury or property damages for which the insured
is legally responsible. The policy provides coverage for liability
arising from personal injury and advertising injury. Coverage for
medical expense is also provided. The policy also covers accidents
occurring on the premises or away from the premises. Coverage is
provided for injury or damages arising out of goods or products
made or sold by the named insured. The insured is the named insured
and the employees of the named insured. However, several
individuals and organizations, other than the named insured, may be
covered, depending upon certain circumstances specified in the
policy. In addition to the limits, the policy provides supplemental
payments for attorney fees, court costs and other expenses
associated with a claim or the defense of a liability suit. There
are two commercial general liability coverage forms available, the
occurrence form and the claims-made form. Both forms are somewhat
identical in the coverages offered. The main 39
COMMERCIAL INSURANCE difference is in the way claims are handled
under the two forms. The occurrence form covers bodily injury or
property damage claims that occur during the policy term,
regardless of when the claim is reported. The claims-made policy
form only covers claims made against the insured during the policy
term. A claim made after the policy expires is not covered by a
claims-made policy unless the claim is covered by an extended
reporting period. The claims-made policy will only have the
extended reporting period. The following terms reflect both forms.
General Aggregate The General Aggregate Limit is the most money the
insurer will pay under certain coverage for all claims occurring
during the policy term. Premises/Operations Coverage is provided
for damages arising out of ownership or occupancy of the insured
premises when not maintained in a reasonable manner. This also
covers damages arising out of operations performed by the insured
business. Products/Completed Operations Products coverage is
provided for damages arising out of products manufactured, sold,
handled or distributed by the insured. Completed Operations covers
damages occurring after operations have been completed or
abandoned, or after an item is installed or built and released for
it's intended purpose. Medical Expense Limit Medical payments
coverage pays medical expenses resulting from bodily injury caused
by an accident on premises owned or rented by the insured, or
locations next to such property, or when caused by the insured's
operations. These payments are made without regard to the liability
of the insured. Fire Damage Limit The fire damage limit provides
coverage for fire damage caused by negligence on the part of the
insured to premises rented to the named insured. If a fire occurs
because of negligence of the insured and causes damage to property
not rented to the insured, coverage would be provided under the
occurrence limit. Personal Injury Personal Injury means injury
other than bodily injury. Coverage is provided for injury resulting
from offenses such as false arrest, malicious prosecution,
detention or imprisonment, the
40
COMMERCIAL INSURANCE wrongful entry into, wrongful eviction from
and other acts of invasion, or rights of private occupancy of a
room. Coverage for libel and slander is also provided in the
policy. Advertising Injury This coverage pays for damages done in
the course of oral or written advertisement that disparages, libels
or slanders a person's or organization's goods, products or
services. Coverage for these offenses is provided under advertising
injury coverage only if they occur during the course of advertising
the named insured's own goods, products or services.
7.5 Commercial Automobile Coverage:Liability Coverage The
liability coverage of the commercial auto policy provides
protection against legal liability arising out of the ownership,
maintenance, or use of any insured automobile. The insuring
agreement agrees to pay damages for bodily injury or property
damage for which the insured is legally responsible because of an
automobile accident resulting from the ownership, maintenance, or
use of a covered auto. The insuring agreement also states that in
addition to the payment of damages for which the insured is legally
liable for, the insurer also agrees to defend the insured for all
legal defense cost. The defense cost is in addition to the policy
limits. Medical Payments Coverage The insuring agreement states
that the insurer will pay all reasonable and necessary medical and
funeral expenses incurred by an insured because of bodily injury
caused by an accident. The insured is the named insured, the
insured's employees and guests, and any other person occupying a
covered auto. These payments are made without regard to fault.
Uninsured/Underinsured Motorist Coverage Uninsured Motorist: This
insuring agreement pays for bodily injury to an insured who is
injured by an uninsured motorist, a hit-and-run driver, or a driver
whose insurer becomes insolvent. These benefits are paid under the
named insured's policy. Underinsured Motorist: This coverage is
added to supplement the Uninsured Motorist Coverage, the coverage
applies only when the other driver has liability limits at the time
of an accident, but the liability limits 41
COMMERCIAL INSURANCE carried may be insufficient to pay for
damages for which the driver is responsible. This is when the
insured's underinsured motorists coverage would apply and payment
for the difference could be made. The two coverages are mutually
exclusive and do not overlap or duplicate each other. Any
Automobile Coverage is provided for any auto, including autos owned
by the insured, autos the named insured hires or borrows from
others, and other non-owned autos used in the insured's business.
Owned Auto Coverage is provided for all autos owned by the named
insured. The owned auto symbol is used for liability insurance
only. Non-Owned Autos Coverage is provided only for autos not
owned, leased, hired, or borrowed by the named insured. Coverage
includes autos owned by the insured's employees or members of their
households, but only while used in the named insured's business or
personal affairs.
Hired Auto Coverage is provided only for autos leased, hired,
rented or borrowed for use in the named insured's business.
7.6 Physical Damage Coverage:Collision Coverage: This coverage
provides protection against loss or damage to a covered auto or a
non-owned auto resulting from the impact with another vehicle or
object. Collision losses are paid regardless of fault.
Comprehensive Coverage: Comprehensive coverage provides protection
against loss or damage to a covered auto resulting from loss other
than a collision or upset. This coverage also provides for
supplemental payments for transportation expenses in the event of
total theft of a covered auto or a non-owned auto. Coverage begins
forty-eight hours after the theft.
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COMMERCIAL INSURANCE
CHAPTER 8 Bottom of Form COMPANIES PROVIDING COMMERCIAL
INSURANCE8.1
ICICI Lombard General Insurance Company Limited is a joint
venture between ICICI Bank Limited and the US-based $26 billion
Fairfax Financial Holdings Limited. ICICI Bank is India's second
largest bank; while Fairfax Financial Holdings is a diversified
financial corporate engaged in general insurance, reinsurance,
insurance claims management and investment management. ICICI
Lombard General Insurance Company received regulatory approvals to
commence general insurance business in August 2001. ICICI Lombard
figures among top commercial insurance companies of India. The
company covers business products which include: 43
COMMERCIAL INSURANCE Fire Insurance Marine Insurance Industrial
Insurance Commercial Vehicles Corporate Insurance Credit Insurance
Liability Insurance Shop Insurance
8.2
Bajaj Allianz General Insurance Company Limited is a joint
venture between Bajaj Auto Limited and Allianz AG of Germany. Both
enjoy a reputation of expertise, stability and strength.
Incorporated on 19th September 2000 Bajaj Allianz General Insurance
Company received the Insurance Regulatory and Development Authority
(IRDA) certificate of Registration (R3) on May 2nd, 2001 to conduct
General Insurance business (including Health Insurance business) in
India. The Company has an authorized and paid up capital of Rs 110
crores. Bajaj Allianz is one of the leading commercial insurance
companies in India. It offers various commercial insurance plans
which include areas like: Aviation Project Insurance Marine Hull
Insurance Sports and Entertainment Insurance Employees Insurance
44
COMMERCIAL INSURANCE
Some of the highlights of the Employees Insurance Scheme of
Bajaj Alliance are as follows: Group Personal Insurance Group
Health Guard Group critical Illness Workmen's Compensation Group
Travel Insurance
8.3 T he New India Assurance Co.
Established by Sir Dorab Tata in 1919, New India is the first
fully Indian owned insurance company in India. New India was a
pioneer among the Indian Companies on various fronts, right from
insuring the first domestic airlines in 1946 to satellite insurance
in 1980. The latest addition to the list of firsts is the insurance
of the INSAT-2E. With a wide range of policies New India has become
one of the largest non-life insurance companies, not only in India,
but also in the Afro-Asian region. Largest number of Offices - In
India and Abroad Trained and technically qualified staff 1068 fully
computerised offices across India. "A-" (Excellent) rating by
A.M.Best & Co (Europe) First domestic company to be rated by an
International Rating Agency Rating based upon following factors:
Superior capital position Strong operating performance Strong
market position Only
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COMMERCIAL INSURANCE company to develop significant
International operations, long record of successful trading outside
India. First company to set up an Aviation Insurance Department in
1946. First company to handle the Hull Insurance requirements of
the Indian Shipping Fleet. First company to establish its own
Training School. First company to introduce the concept of 'Model
Office Training'. First company to create department in Engineering
insurance. Pioneer in Satellite insurance
8.4 United India InsuranceUnited India Insurance Company Limited
was incorporated as a Company on 18th February 1938. General
Insurance Business in India was nationalized in 1972. 12 Indian
Insurance Companies, 4 Cooperative Insurance Societies and Indian
operations of 5 Foreign Insurers, besides General Insurance
operations of southern region of Life Insurance Corporation of
India were merged with United India Insurance Company Limited.
After nationalization United India has grown by leaps and bounds
and has 18300 work force spread across 1340 offices providing
insurance cover to more than 1 Crore policy holders. The Company
has variety of insurance products to provide insurance cover from
bullock carts to satellites. United India Insurance is one of the
leading insurance companies in India. The famous United India
Insurance Company Limited (UIIC) is often called united India
Insurance and it is also regarded as one of the four Public Sector
Insurance Companies in India. The main corporate office of this
insurance company is located at Chennai. The workforce of United
India Insurance includes some well-trained and professional
managers and engineering professionals. Besides these, the products
offered by United India Insurance are also great and profitable for
all. On 18th February, 1938, the united India Insurance Company
Limited was emerged as an insurance company and gained huge
popularity in the General Insurance business sector in India.
46
COMMERCIAL INSURANCE This company has 18300 work force including
total 1340 offices across the nation providing insurance policies
to the one crore policy holders. Commercial policies offered by
United India Insurance: Marine Insurance: It includes Cargo and
Hull insurance policies. Fire Insurance: It includes S.F.S.P. and
L.O.P. insurance policies. Industrial Insurance: It includes
I.A.R., C.P.M., B.P.P., and M.B. Insurance policies. Motor
insurance or Vehicle Insurance: It includes Motor - A insurance
policy. Liability Insurance: It includes Public, Product,
Profession and Workmen insurance policies.
List of non-life insurance companies operating in the market as
on date:NameBajaj Allianz General Insurance Co. Ltd. Cholamandalam
MS General Insurance Co. Ltd. HDFC Chubb General Insurance Co. Ltd.
ICICI Lombard General Insurance Co. Ltd. i IFFCO-Tokio General
Insurance Co. Ltd. National Insurance Co. Ltd. New India Assurance
Co. Ltd. Oriental Insurance Co. Ltd Reliance General Insurance Co.
Ltd Royal Sundaram Alliance General Insurance Co. Ltd. Tata AIG
General Insurance Co. Ltd.United India Insurance Co. Ltd.
ShareholdingPrivately Held Privately Held Privately Held
Privately Held Privately Held Public Sector Public Sector Public
Sector Privately Held Privately Held Privately HeldPublic
Sector
47
COMMERCIAL INSURANCE
CHAPTER 9 DO'S AND DON'TS: BUSINESS INSURANCEThe day you start a
business is the day we need commercial insurance. There is more to
purchasing commercial insurance than signing an application. By
following a few Dos and Don'ts we can make sure to purchase and
maintain the kind of insurance we need and can afford while
minimizing business risks and losses.
9.1 THE DOs:DO find an insurance agent who has some experience
with your type of business. DO shop around for the best price and
ask for written coverage recommendations from various agents --
they should be happy to provide you with one for no cost. DO take
notes while you are taking to various agents. DO check on insurer
solvency before purchasing a policy. The following publications
rate insurance companies for financial solvency: Bests Insurance
Reports Moody's Bank & Financial Manual Duff & Phelps
Standard & Poor's.
DO read any proposed policy carefully.
48
COMMERCIAL INSURANCE DO buy a policy that will cover the
replacement cost of the property. Actual current value coverage
could leave you with a significant lack of funds when you have to
replace your damaged property. DO consider purchasing "Building
Ordinance Coverage" if you do business in an older building. When
rebuilding you will most likely have to upgrade to comply with
various building codes and ordinances that didn't exist when the
building was constructed. DO consider purchasing a renter's
commercial policy if you lease your business space, even if your
lease doesn't require it. The owner's policy probably doesn't cover
damages resulting from the negligence of your employees. If you are
renting, DO make sure that there is a mutual waiver-of-subrogation
clause in your lease. This should keep the landlord's insurance
company from suing you to recover the money it has paid to the
landlord. DO confirm that your independent contractors carry their
own workers' compensation and liability insurance for their own
employees. If they get injured they may be considered your
employee, and if they injure one of your customers, your policy may
not cover it. DO keep a list of all of your business property both
at work and somewhere off the premises; you will need it for
comparison purposes if you suffer a loss. DO inform your agent of
changes to your business, so that your policy always provides
adequate coverage.
9.2 THE DONTs:DON'T hire an agent who wants to sell you a
package and refuses to tailor a policy to your needs. DON'T hide
unusual risks from your agent. The insurer could later claim that
you made misrepresentations and you probably won't get the kind of
coverage that you need. DON'T buy a policy that is significantly
lower in cost than all of the others -- the company could be
unstable or you may have received a quote that doesn't include
everything that you need. DON'T accept a policy without making sure
that it covers all of the risks of your business. DON'T underinsure
to get a reduced premium. If you do, you could end up covering
around 80 percent of your property replacement value because of a
co-insurance clause in your policy.
49
COMMERCIAL INSURANCE DON'T agree to buy an insurance policy that
covers the landlord's liability as well as your own, if you are
renting. This is usually considered unreasonable; try to negotiate
out of it. DON'T depend on your employee's automobile insurance
providing coverage for damages incurred while the employee is using
a personal vehicle for your business purposes. DON'T assume that
your theft policy will cover the personal equipment of your
employees. DON'T assume that your homeowner's policy will cover
business-related damages, if you run your business out of your
home. There may be exclusions for business-related property and
injuries in your homeowner's policy. DON'T exaggerate the extent of
your damages. You could be accused of engaging in insurance
fraud.
CHAPTER 10 COMMERCIAL INSURANCE PLANNING WORKSHEETTypes of
Insurance 1. General Liability Insurance 2. Product Liability
Insurance 3. Errors and Omissions Liability Insurance 4.
Malpractice Liability Insurance 5. Automotive Liability Insurance
6. Fire and Theft Insurance 7. Business Interruption Insurance 8.
Overhead Expense Insurance 9. Personal Disability 10. Key-Employee
Insurance 11. Shareholders or Partners Insurance 12. Credit
Extension Insurance 13. Term Life Insurance 14. Health Insurance
15. Group Insurance 16. Workers' Compensation Insurance 17.
Survivor-Income Life Insurance 18. Care, Custody and Control
Insurance 19. Consequential Losses Insurance 20. Boiler and
Machinery Insurance 21. Profit Insurance 22. Money and Securities
Insurance Required? (y/n) Best price after comparison Annual
Cost
50
COMMERCIAL INSURANCE 23. Glass Insurance 24. Electronic
Equipment Insurance 25. Power Interruption 26. Rain Insurance 27.
Temperature Damage Insurance 28. Transportation Insurance 29.
Fidelity Bonds 30. Title Insurance 31. Water Damage Insurance Total
Annual Cost
CHAPTER 11 COMMERCIAL INSURANCE FORMTop of Form
Phone Number(s) Email(s)
1
Address, State, Zip Type of Coverage: Current Insurance Company
Insurance Required from (Date)Selec t -->
,
,
Real Estate / Habitational Year Built Construction FireSprinkler
BuildingSelect --> NO
51
COMMERCIAL INSURANCE Amount Content Amount Property Ded Amount
Liability Limit Building Improvement s: Roofing Year Building
Improvement s: Wiring Year Ground Area NO. Of Floors
Select --> Select -->
Other Coverages and DetailsSubmit
52
COMMERCIAL INSURANCE
WEBLIOGRAPHY
http://www.surfindia.com/finance/shop-insurance.html
http://www.icicilombard.com/app/ilom-en/Businessproducts/Fire-Perils.aspx
http://www.bajajallianz.com/BagicCorp/index.jsp
53