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IRDA Seminar on proposed De-tariffing programme in Non-Life Insurance

07/09/2012. A. K. Paul. 2. Rating in Marine (Hull and Cargo) Insurance Portfolio. PastPresentFuture. 07/09/2012. A. K. Paul. 3. History of Marine Insurance. AncientRichnessVarietyInterest. 07/09/2012. A. K. Paul. 4. . Role of Marine Insurance. Overseas and internal tradeLinked with banking and

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IRDA Seminar on proposed De-tariffing programme in Non-Life Insurance

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    1. 07/09/2012 A. K. Paul 1 IRDA Seminar on proposed De-tariffing programme in Non-Life Insurance 13th to 14th March, 2006 Hotel Taj Krishna Hyderabad

    2. 07/09/2012 A. K. Paul 2 Rating in Marine (Hull and Cargo) Insurance Portfolio Past Present Future

    3. 07/09/2012 A. K. Paul 3 History of Marine Insurance Ancient Richness Variety Interest

    4. 07/09/2012 A. K. Paul 4 Role of Marine Insurance Overseas and internal trade Linked with banking and shipping Ship-owners / merchants not legally bound to insure Hardly any choice, due to modern methods of financing

    5. 07/09/2012 A. K. Paul 5 Categories of Marine Insurance Cargo Hull

    6. 07/09/2012 A. K. Paul 6 Peculiarities of Marine Underwriting Insure any commodity that can be moved from one place to another

    7. 07/09/2012 A. K. Paul 7 Knowledge required by Marine Underwriter All types of cargo Susceptibility of cargo Conditions at various places Packing

    8. 07/09/2012 A. K. Paul 8 Ability of Marine Underwriter Decide and tell at a glance Terms of cover Rate of premium

    9. 07/09/2012 A. K. Paul 9 Importance of information Unlikely to complete Proposal Forms Elicit as much relevant information Correct assessment of risk Decide upon rates Decide upon terms of cover

    10. 07/09/2012 A. K. Paul 10 Pooling of knowledge Marine Cargo Underwriters are individualists Little desire to pool their knowledge In fact, active resistance against such objective

    11. 07/09/2012 A. K. Paul 11 Reason for resistance Varied nature of cargo Varying terms of cover Varied individual experience International nature of transaction

    12. 07/09/2012 A. K. Paul 12 Challenges of Cargo Underwriting Very competitive Compelled to accept risks at very thin rates Yet ensure profitability

    13. 07/09/2012 A. K. Paul 13 Rating factors Basis of valuation Physical properties / sensitivities Condition and packaging Residual value Normal and expected losses Recoveries from carriers

    14. 07/09/2012 A. K. Paul 14 Rating factors (continued) Modes of transportation – pre and post ocean Duration of cover Length Route Transshipment Port conditions / facilities Inland transits

    15. 07/09/2012 A. K. Paul 15 Rating factors (continued) Physical environment enroute / destination Seasons Storage conditions Socio-economic environment Past claims experience Conditions of insurance / deductibles

    16. 07/09/2012 A. K. Paul 16 Hulls As per English practice Air-borne crafts Water-borne crafts

    17. 07/09/2012 A. K. Paul 17 Subject matter of Hull Insurance Air-borne crafts with their machinery – Aviation Hull Insurance Water-borne crafts with their machinery – Marine Hull Insurance

    18. 07/09/2012 A. K. Paul 18 Reasons for separation Different trading environment Ever-increasing sophistication

    19. 07/09/2012 A. K. Paul 19 Basis of Marine Hull Policy Time Voyage

    20. 07/09/2012 A. K. Paul 20 Marine Hull categories for rating / underwriting Major ocean-going fleets Inland vessels Fishing vessels Ocean-going sailing vessels Fixed jetties and pontoons

    21. 07/09/2012 A. K. Paul 21 Marine Hull categories for rating / underwriting (continued) Builders’ risk Ship-repairers’ liability Port crafts Offshore properties / activities

    22. 07/09/2012 A. K. Paul 22 Factors for rating Hull risks Physical features Type of construction Age / repair cost Size Class

    23. 07/09/2012 A. K. Paul 23 Factors for rating Hull risks (continued) Physical features (continued) Value Overall Per ton Country of registration Flag of convenience Nature of cargo carried

    24. 07/09/2012 A. K. Paul 24 Factors for rating Hull risks (continued) Physical features (continued) Engine power / Navigational equipment Area of operation (Trading zone) Climatic conditions (Lay-up periods) Purpose for which the vessel is engaged

    25. 07/09/2012 A. K. Paul 25 Factors for rating Hull risks (continued) Ownership / management quality Experience Loss / claims record Financial stability Size of fleet Moral hazard Type of crew engaged Unduly high insured value

    26. 07/09/2012 A. K. Paul 26 Factors for rating Hull risks (continued) Conditions of insurance, including quantum of deductible

    27. 07/09/2012 A. K. Paul 27 To make profitable Hull Insurance portfolio Specialised class of business Demands extreme underwriting caution To be handled by technical experts Judicious selection of risks

    28. 07/09/2012 A. K. Paul 28 Risk information Completed Proposal Form necessary in all cases

    29. 07/09/2012 A. K. Paul 29 Terms of Insurance for vessel / fleet Varying from TLO / CTLO to ALL RISKS As per Standard Hull Clause

    30. 07/09/2012 A. K. Paul 30 Extent of cover Ocean-going vessels Full conditions Coastal / inland crafts Limited cover

    31. 07/09/2012 A. K. Paul 31 Hull premium Rate per cent of Sum Insured Components Total loss Other than total loss

    32. 07/09/2012 A. K. Paul 32 Payment of Hull premium Hull Insurance effected for 12 months 4 quarterly installments Full annual premium payable if Total Loss

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    38. 07/09/2012 A. K. Paul 38 Total Loss Trends By number, by tonnage, as %age of world fleet:- Downward trend Despite the losses of 2002, overall improvement in recent years. Trend arrested in 2002 The most influential factors:- Age & weather

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    46. 07/09/2012 A. K. Paul 46 Partial Loss Trends Machinery / Engine Room Damage Highest frequency Highest overall cost to Underwriter’s book All age and vessel types Underwrite – Loss Prevention & Risk Assessment Do we consider engine types enough? Are we happy with class surveys of engines? Should we be covering machinery at all? Should there be a (25%) coinsurance for machinery? An allowance for betterment in respect of older tonnage?

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    48. 07/09/2012 A. K. Paul 48 Market Results Worldwide Acute Results 6 – 8 years of appalling losses Implications Capital withdrawal Collapse of hull insurance market Dramatically reduced choice for shipowners Remedy Increase rates urgently

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    50. 07/09/2012 A. K. Paul 50 Casualty, Shipping & Underwriting Statistics Marine Hull Insurance Market still losing money internationally Shipping world is relatively unchanged Greater exposure Rating wholly inadequate Capital withdrawal imminent Brave underwriting required Shipowners can afford to pay for healthy market Urgent action required now for Market survival

    51. 07/09/2012 A. K. Paul 51 Underwriting Pattern Of Marine Risks

    52. 07/09/2012 A. K. Paul 52 International Scenario Largely Non-Tariff Throughout The World – Basically Governed By Demand And Supply.

    53. 07/09/2012 A. K. Paul 53 Hull The Flat Hull Market Has Seen Little Improvement In Terms Of Profitability For Hull Insurers – Thus Few New Entrants. Claims Front – Cost Impact Is Affecting Those Insurers Writing Large Lines. High Risk Construction Risks Being Tackled By Good Risk Management.

    54. 07/09/2012 A. K. Paul 54 Cargo Fierce Competition Has Led To A Debilitating Slump In Cargo Premiums.

    55. 07/09/2012 A. K. Paul 55 Indian Scenario

    56. 07/09/2012 A. K. Paul 56 Past In India, Marine Cargo Business Used To Be Fully Tariffed Till A Few Years Ago. But, In Course Of Time, All The Tariffs For Different Cargo Risks / Commodities Have Been Gradually Dismantled Completely – Including War Risks And Strikes, Riot And Civil Commotion Risks. Hull Tariff Has Also Been Withdrawn Recently.

    57. 07/09/2012 A. K. Paul 57 Present Market Is Extremely Soft, Driven By Intense Competition. Even Adverse Claims Experience Is Not Reflected In The Renewal Terms – Fear Of Loss Of Fire And Engineering Businesses, Which Are Still Profitable Portfolio. This Practice Needs To Be Deprecated.

    58. 07/09/2012 A. K. Paul 58 Future The Two Profitable Portfolio – Fire And Engineering - To Be Detariffed In January, 2007 – Likely To Result In Lower Premium Incomes. Thus, The Subsidy Lent To The Marine Business By Such Profitable Portfolio Should Reduce.

    59. 07/09/2012 A. K. Paul 59 Marine Insurance Underwriting Being Truly Experience-Based, Each Insurer Will Need To Define Its Underwriting Philosophy And Develop Its Own Database.

    60. 07/09/2012 A. K. Paul 60 Hopefully,Adventurous Acceptances Will End And The Volatile Marine Market Will Attain Balance. Ultimately, The Sense, Intuition And Imagination Of The Marine Underwriter Will Prevail.

    61. 07/09/2012 A. K. Paul 61 IRDA, In Its Developmental Role For The Betterment Of The Industry – Should Guide The Insurers, Providing Meaningful Statistics (Internal And International) On The Behaviour Of Various Risks And Underwriting Results Of Individual Portfolio.

    62. 07/09/2012 A. K. Paul 62 “The Key To Successful Underwriting Is To Ask When You Have Doubts. The Worst Thing You Can Do When You Smell A Fish Is To Use Deodorant. Use Your Nose Instead, And Search Until You Have Found And Eliminated The Bad Smell From Your Book.”

    63. 07/09/2012 A. K. Paul 63 Thank you

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