Coinsurance

 

Coinsurance Agreement dated 5th December, 2014

Introduction

Pursuant to the opening up of the insurance sector in India, Co-insurance Agreements dated 26th February 2002, 14th March 2008 and 20th February 2009, as framed by the General Insurance Council, recording in writing the various regulations governing the conduct of Co-insurers in the process of negotiations, collection of premium and its apportionment, assumption of risk, administration of Co-insurance business in general and settlement of claims as well as apportionment of such liability in particular, were entered into amongst the Non-life insurers in order to address the operational and procedural issues arising out of Co-insurance transactions.

With a view to address certain market issues and improve the operational framework, a new coinsurance agreement is being entered into amongst the existing IRDA-licensed non-life Insurers operating in Indian market as on today the 5th day of   December, 2014. In future, lf any additional Non-life Insurer is licensed by IRDA, such additional Non-life Insurer may agree to subscribe to and abide by this Co-insurance Agreement from the date of commencement of operation by such additional Non-life Insurer by affixing their signature at the bottom of this Agreement. This is subject to review by the General Insurance Council as may be necessary, keeping in mind the need to promote co-insurance business on healthy lines and mutual understanding among the insurers.

I.             Definitions:

a.      ‘Insuring Party’ or ‘coinsurers’ shall mean the participating insurers who have agreed to underwrite a share of risk proposed by the proposer and includes lead insurer and following coinsurer(s).

b.      ‘Lead Insurer’ shall mean the insurer out of the insuring party having agreed to underwrite the highest share of the risk to be covered or in event of two insurers having the equal share of the risk which is higher than the share of remaining insurers from the insuring party, insurer as appointed by the insured as lead insurer or as mutually agreed between the members of the insuring party.

c.       ‘Following coinsurer’ shall mean all the insurers, jointly and severally, forming part of the insuring party other than the lead insurer.

II.           Applicability of Co- Insurance Agreement:

It is agreed by and between all the insurers that the specialized insurance companies would not share the risk in lines of business other than for which they have been licensed by the authority under this coinsurance agreement.

This coinsurance agreement would be applicable only in cases where the policies are issued to other than individuals.

III.          Constitution:

Consortium of Insuring Party/Coinsurers:

The Consortium of insuring party/coinsurers shall contain a Lead Insurer and following coinsurers who will be named by the insured according to their choice. The Lead Insurer will finalize the terms and conditions applicable to the risk with the Insured in the form of an underwriting slip with a unique code and duly sign the same. The slip will be complete in all respects (as per annexure A) to be handed over to the Insured/Broker. The Insured/Broker will obtain the signatures of the following co-insurer for the share of business allotted to them and return the slip duly signed by the co-insurers to the lead Insurer before inception of the risk.

The sharing so specified shall not be changed during the term of the policy (other than at renewal of policy) unless there is a written understanding amongst the lead insurer, existing following coinsurer, new coinsurer and the insured.

Members of the insuring party/co-insurers shall severally agree and be liable towards the proportion of the risk as agreed and set on the policy issued by the lead insurer against name of such insurer.

Any extension of policy shall be deemed as a fresh renewal of the policy and the process followed for policy issuance shall be followed for extension of policy also including the underwriting slip.

IV.          Collection of Premium:

The lead Insurer shall negotiate and specify the provisional and/or the final premium payable subject to rules and regulation already in force and ensure collection of premium in full before assumption of risk as prescribed under Section 64VB of the Insurance Act and the corresponding insurance rules and any other rules as may be made/are applicable from time to time. The Lead Insurer to receive premium on behalf of all co-insurers and settle the premium within 21 days of receipt of premium. In the case of Bank Guarantee, the lead Insurer shall remit to the coinsurer/s their share of premium within 21 days from the date of receipt of premium under Bank Guarantee or invoking of Bank Guarantee, whichever is earlier. Failure on the part of Lead Insurer to remit the share of premium in time shall warrant an interest @ 10% p.a. after expiry of stipulated period of 21 days, until it is paid in full.

Notwithstanding the provision in general, any coinsurer of a particular business is at liberty to enter into arrangements between one or more Insurers to apportionment of their share of risk to utilize domestic capacity.    

V.           Commission/Remuneration to Insurance Agents/Brokers/Intermediaries or Insurance            Intermediaries:

The Lead Insurer shall settle the commission/remuneration to insurance Agent/Broker/Intermediary or Insurance intermediary concerned, if any, in full, as instructed by the insured, and recover the share of coinsurers by effecting net settlement. In case of involvement of more than one Insurance Agent/Broker/Intermediary or Insurance Intermediary, the Lead Insurer will pass on to the Co-Insurer/s their share of premium on a gross basis, in the same proportion as the coinsurance share agreed between them, and the Co-insurer would be responsible for settlement of commission/brokerage to their agent/broker/intermediary.

VI.          Service-Tax:

The lead Insurer shall be responsible for collection of Service Tax applicable on the 100% premium and for the remittance of the same to the Govt. and also for submission of necessary statutory returns.

VII.         Administration of Business

Policy documentation and servicing

a.      The Lead insurer shall be fully responsible for documentation of the business.

b.      The lead insurer shall issue the policy and all the related endorsements within the stipulated timelines as per IRDA requirement as applicable and the copy thereof shall be provided to all the following coinsurers within a time period of fifteen days from such issuance.

c.       Any endorsement made subsequent to the issue of the policy shall be strictly in accordance with law and practice governing the business in question and adjustment of premiums, if any, shall be as per coinsurance clause and Clause IV above.

d.      In the event any money becoming payable to the insured on account of refund of premium liable to be paid by the Lead Insurer to the client in cases where provisional premium was originally levied and collected or on account of cancellation of policy or under any circumstances, the same will be paid by the co-insurer/s for their respective share within 21 days from the date of receipt of request from the Lead insurer with copies of supporting documentary evidence. Failure to reimburse such share shall  render the defaulting co-insurer/s liable for payment of interest @ 10% per annum after expiry of stipulated period of 21 days, until it is paid in full.

e.      The Lead insurer shall be entitled to collect and the coinsurer/s shall be liable to pay 1% of the total premium, of their respective share of premium or as otherwise mutually agreed to, towards administrative expenses to be incurred by the leader throughout the currency of the policy. This will be recovered at the first instance from and out of the premium earned and only the balance premium will be apportioned. It shall be the responsibility of the Lead insurer to ensure deduction of TDS/Payment of service tax on these to the tax Authorities.

VIII.       Claims Handling

a.      In the event of a loss, the Insured/broker will intimate the loss to the leader with a copy to the following co-insurer as per co-insurance clause.

b.      The lead insurer shall appoint the surveyor and decide the admissibility of the claim and its payment and the coinsurers shall abide by the decision of the Lead insurer.

c.       The lead insurer shall immediately share the details of the loss with all following Co-insurers as per the standard format prescribed in Annexure ‘B’ to this agreement.

d.      The claim amount and all claim related expenses including appointment of surveyors, investigators and other related expenses, if any, will be paid by the Lead Insurers at the first instance and recovered from the coinsurer/s in terms of the Underwriting Slip agreed. The responsibility for effecting TDS on these payments shall be upon the Lead Insurer and the necessary credit shall be obtained from the following coinsurers.

e.      Following payment of claim and claim related expenses by the lead Insurer on behalf of the participating Insurers, each of the Co-insurers shall remit their share of claim amount and claim related expenses to the lead Insurer within a maximum period of 21 days from the date of demand made by the Lead Insurer. Failure to reimburse such share shall render the defaulting Co-Insurer liable for payment of penalty @ 10 % per annum after expiry of stipulated period of 21 days, until it is paid in full.

f.        In case of loss exceeding 25 lacs the Lead Insurer shall provide to the co-insurer/s and the co-insurer/s  shall be entitled to receive from the Lead Insurer supporting documents for the claim prior to reimbursing the Lead Insurer its/ their share of the claim.

g.      In the event, a claim amount to be paid is for more than Rs.5 Crores, the Lead Insurer can immediately demand from the following co-insurers, a cash call of their respective share of the claim amount and the Co-insurers shall pay the Lead Insurer the said amount before remittance to the Insured.

h.      The Lead insurer shall take all reasonable steps to recover the loss from other parties who are liable for the loss and shall be at liberty to incur necessary expenditure, which shall be recoverable by the Lead Insurer from the recovery, if any, made. In the event of expenses being in excess of recovery or no recovery, the balance payable to the coinsurers or recoverable from the coinsurers will also be apportioned proportionately amongst the coinsurers.

i.        In the event of a claim being repudiated, the Lead insurer shall take all steps necessary to defend any action initiated against the Insuring party and the coinsurer/s shall cooperate with Lead insurer in such action and shall be liable to share such expenses in the same proportion in which the business is shared,

j.        No Lead insurer shall make any ex-gratia settlement of any claim under any policy or circumstances without the written approval of the coinsurer/s. In the absence of approval by the coinsurers, such payment, if any, shall be wholly at the risk of the Lead insurer without any recourse to the coinsurers.

k.       The coinsurer/s shall honor all the demands made by the Lead insurer in accordance with letter and spirit of this agreement and any dispute or difference of opinion shall not relieve the defaulting coinsurer/s from interest liability unless so declared by a ruling given by a competent committee as provided under Clause XI below.

IX.          Claims under Dispute:

In case a claim is disputed by the insured and the dispute is referred by the insured to a judicial/quasi-judicial/regulatory body for arbitration, the Lead Insurer shall intimate to the Co-insurer about the proceedings as and when it is commenced and concluded.

X.           Reinsurance

Individual co-insurers to take care of their own re-insurance placements before they sign the underwriting slip unless agreed otherwise.

XI.          Dispute Resolution:

In the event of any breach of the terms and conditions of this coinsurance agreement, where one member of the coinsurance arrangement feels aggrieved by the action of another, the dispute shall be resolved in the following manner.

Level    1
Insurer which is aggrieved (first party) by the action of the other insurer (second party) should first raise the issue with the latter at the level of the operating office (Branch Office or Divisional Office) in the form of a written complaint. In case no response is received within 21 working days of lodging the complaint or the response received is not satisfactory, the first party can proceed to Level 2 of this escalation mechanism.

Level 2

Each insurer shall nominate a Nominated Coinsurance Officer (NCO) at their next higher office (Regional Office or Zonal Office) to handle all matters pertaining to co-insurance disputes. The first party shall make a representation to the NCO of the second party giving the background of the case. On receipt of such a complaint, the NCO should respond within a period of 14 working days from the receipt of the complaint. In case no response is received within 14 working days or the response received is not satisfactory, the first party can proceed to Level 3 of this escalation mechanism.

Level 3

Each insurer shall nominate a Nodal Officer (NO) at their Corporate Office to deal with all coinsurance related disputes. In case of any complaint not being resolved at Level 2, the first party can approach the NO of the second party with a copy thereof to the respective CEO's of the parties involved, whereby the latter shall resolve the matter within a period of 14 working days from receipt of complaint at his end. In case no response is received within the stipulated time or the response received is not satisfactory, the first party can proceed to Level 4 of this escalation mechanism.

Level 4

In the unlikely event of matter being not resolved at Level 3 of the escalation mechanism, the first party can make a representation to the General Insurance Council. The Council secretariat shall then write to the insurers concerned and try and resolve the matter. In case a consensual approach cannot solve the issue, the Council shall constitute a Committee of CEOs not including the ones which are party to the dispute and the decision of the committee shall be final and binding on all parties concerned.

The Coinsurance Committee would be formed consisting of 5 members ie. Chairman Cum Managing Directors of 2 public sector units, CEOs of 2 private sector units and one more member who may be either Chairman or Secretary General of Council, will be added whenever required to make the number odd.

If any of the member companies are a party to the co insurance dispute, such a member will be replaced.

XII.        Penalty:

In the event of the ruling of the committee not being complied with, the defaulting Lead insurer or coinsurer/s shall face proceedings deterrent in nature, such as, fine, expulsion from coinsurance business, including recommendations by the General Insurance Council to the IRDA to de-license such insurer/s at default.

XIII.       The format in which the information related to sharing of premium and settlement of claim is required to be shared is provided in Annexure C and D. The statements should be shared within 30 days of the expiring month in which the transactions have occurred and settlements should be completed within the next 30 days.

XIV.      The format in which the information related to Outstanding Claims Provisions is required to be shared on Quarterly basis is as per Annexure E.

XV.        Net settlement of Co-insurance balances on overall company business will not be done. Net settlement will be done only on the accounts pertaining to the same office unless otherwise agreed between the companies involved.

XVI.      General Insurance Council would try to introduce a mechanism to facilitate settlement for faster reconciliation of outstanding co-insurance balances on quarterly basis.

This agreement supersedes all Co-insurance Agreements entered into between the non-life insurers  earlier.