There is no requirement for proposal form in case of marine insurance. In U.K, the broker, under the instruction of the proposer, fills up a slip mentioning all the bare essentials needed for assessing the risk proposed. The clauses identifying the liabilities of the underwriter are also included in the slip.
In India the proposer himself has to approach the insurers. The General Insurance industry is capable of underwriting the entire risk, however big it may be, and reinsure any part of it. It had to be approached through agents licensed by the Controller of Insurance, the Govt. of India. Now of course the authority to issue licence lies with the IRDA. The IRDA also allowed private insurers to obtain licences for their agents. Brokers are introduced in Indian market.
COVER NOTES
A cover note is an evidence of insurance. It is as good as an insurance policy. A cover note is a temporary and limited agreement, sent prior to the completion of the proposal (preparation of the final policy document, pending some information to be filled in), or when the proposal is under consideration or the policy is being prepared for delivery. It usually serves as an interim cover, with the same terms and conditions that are generally issued for such proposals. It automatically expires at the end of the declared period. It also expires if the regular policy is issued or declined by the insurer.
Any claim arising during the period for which the cover note remains valid will be determined by the terms of the note and not by the terms of the policy subsequent to it. Where the insurer sends a temporary cover, inviting the renewal of the insurance on its expiry, it becomes enforceable if accepted by the insurer. Or else it remains as an offer waiting for an acceptance.
Some insurers charge a nominal fee for the issue of cover notes. In fact there will be a statement in the cover note that this is issued subject to the terms and conditions of insurance policy to be issued. This cover rate is different from the premium, which is the consideration for the Contract of Insurance.
Some of the circumstances when cover notes are issued are when negotiations for insurance are in progress and it is necessary to provide cover on a provisional basis or when the premises are being inspected for determining the actual rate applicable. The cover note is not stamped but represents the same insurance as that provided by the policy. The cover note is subject to the usual terms and conditions of the insurers policy for the class of insurance insured. It is also subject to any special clauses if applicable, e.g. Agreed Bank Clause, Declaration Clause etc
THE SLIP
The “Slip” is a document mentioning all the essential information needed for assessing the risk proposed. The clauses identifying the liabilities of the underwriter are also included in the slip. The insurance broker acting as the agent of the insured prepares the slip. The broker takes it to a leading underwriter and tries to get the best deal for this client. The underwriter agrees to the amount he is willing to cover and signifies his ascent on the slip by initialling it.
Unlike the cover note the slip serves as the acceptance to the proposal by the underwriter, and is binding on the underwriter for the issuance of a policy according to its terms.The slip should be correctly stamped under the Stamp Act. Under Sec. 23 of the Marine Insurance Act, 1963, the ‘slip’, ‘covering note’ or any other ‘customary memorandum of the contract’ can only be used for the purpose of reference, and showing when the offer was accepted. However, no action can be brought about on the basis of these documents. ‘The policy may be executed and issued either at the time when the contract is concluded or afterwards’, (Section 24). Section 88 of The Marine Insurance Act 1963 states that, ‘where there is a duly stamped policy, reference may be made, as heretofore to the slip or covering note, in any legal proceeding’. The corresponding British Act was passed in 1906. This practice is not followed in India. This is a British market practice.
CERTIFICATE OF INSURANCE
Many statutory authorities have need to verify the existence of an insurance policy in order to fulfill their duties such as issue of motor driving license, issuing a letter of credit to an international trader, or sanctioning a loan on hypothecation of goods. It is understood that there may be some delay in the issue of insurance policies. This it is hoped may not be the case in future with the advent of information technology and increasing computerization in trading and manufacturing enterprises.
The certificate of insurance will generally be printed and will both be dated and numbered. A certificate will not be valid unless it is signed by an authorized signatory of the insurance company. The certificate of insurance will mention brief details of the insured, the location and situation of property, the sum insured and the period of insurance. Some certificates do mention the premium even though in the majority of cases it is not mentioned. Common examples are Certificates of Insurance in Automobile Insurance, Marine Cargo Insurance and Fire Insurance.
In Group Personal Accident Insurance, which covers a large number of employees of a company, insurers have the practice not to issue policies to all the employees but to issue only individual certificates of insurance. Usually, the single policy that is issued is kept with the Employer.
CO-INSURANCE
Where the amount of insurance on large industrial complexes is substantial, it is possible for the insured to interest different insurers in the risk for varying proportions of acceptance, so that the total is covered. The practice is for each insurer to issue a policy with a specification or schedule giving a description of the property insured, with the “co-insurance clause” included therein.
Survey of the risk, rating, collection of premium and preparation of the specification is carried out by the “leading office”, that is the office carrying the largest share in the business.
Co-insurance in British circles means insuring part of the value at risks as agreed with the original insurer. All co-insurances are agreed upon prior to the issue of the original policy. The co-insurances in practice are dictated by business connections or for reducing the insurers’ commitments. Where different insurers have a history of association with subsidiaries, Co-insurance is generally made between them.
The co-insurers will be given a percentage of the original premium depending on their share of the sum insured and also bear a ratable share of loss where there is co-insurance. The names of co-insurers with the share of the sum insured will be mentioned in the original policy. This is called a collective co-insurance policy. Sometimes, co-insurers for their relative share of sum insured issue individual coinsurance policies. Methods by which co-insurance agreements are transacted can be summarised as follows:
Method I: Each insurer issues a separate policy for the proportion of interest insured. In the event of loss, each company’s liability is limited to such proportion of loss.
Method II: The specification of the property is attached to the policy issued by the leading office. The policy is signed by the leading office for its proportion of insurance and then signed by the other insurers for their respective shares of interest. This is called as a collective policy.
Method III: The leading office issues the policy and signs on behalf of the participating insurers. A clause called “collective clause” is incorporated in the policy.
A letter of authority is issued by the “participating insurers” to the “leading office” for the following:
Signing the policies, endorsements, and renewal receipts
Collection and adjustment of premium
Inspection of risk Settlement of standard claims.
After receipt of the premium or the payment of a claim is made, the leading office makes arrangements for payment to or recovery from the co-insurers of their proportion of the premiums and the claims as the case may be.
INSURANCE RENEWAL NOTICE
This is the notice sent by the insurer to the insured calling for renewal of the policy. This is a traditional formality. Although it is not obligatory on the part of insurers to intimate to the insured regarding the policy renewal date, yet as a matter of courtesy and healthy business practice, insurers generally send renewal notices.
This is normally sent at least a month before the expiry of the policy. This is not necessary but useful especially where there is competition. Many times the insureds do not renew the policy merely because they did not receive the renewal notice; then it becomes a matter of prestige.
Sometimes the insurers do not seek renewal where the loss experience is adverse. For renewal notices to be sent, there must be proper registration of all the risks. A renewal register is maintained based on copies of policies issued in an office, that is why, whenever a policy is cancelled a copy of the cancellation notice must be sent to the person or the section maintaining the renewal register. The renewal notice mentions the premium payable for renewal along with the breakup indicating loading and discounts as permissible.
The renewal notice incorporates all the relevant particulars of the policy such as the sum insured, the annual premium, etc. The insured is also advised in the note that he should intimate any material alteration in the risk, if any. In a motor renewal notice for example, the insured’s attention is
drawn to revise the sum insured (i.e. the insured declared value) in the light of current market values.
Lastly, the insured’s attention is also drawn to the statutory provision that no risk can be assumed unless the premium is paid in advance.
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