INTERNSHIP REPORT ON

EFU LIFE INSURANCE

ABBOTTABAD

Submitted by: Usman Ahmed Abbasi

Roll# 802

Supervised by: Sardar Muhammad Arshad

Government College of Management Sciences Abbottabad

SESSION
2013-2015

INTERNSHIP REPORT ON
EFU LIFE INSURANCE
ABBOTTABAD
Submitted by: Usman Ahmed Abbasi
Roll# 802
Supervised by: Sardar Muhammad Arshad
This internship report is submitted in partial fulfillment of the
requirements for the degree of Master of Commerce awarded by
the Hazara University,
Mansehra

Government College of Management Sciences Abbottabad

SESSION

2013-2015Government Postgraduate College of Management

Sciences
Abbottabad

Approval Sheet

Approval Committee

1. External Examiner
Mr. _____________________________________________ Signature_______________

2. Supervisor
Sardar Muhammad Arshad

Signature_______________

Designation: Assistant Professor

3. Head of Department
Mr.Mushtaq Ahmed
Designation: Associate Professor

Signature _______________

DEDICATION

I would like to thank my lovely parents and teachers for giving me this opportunity to get this
degree and supporting me in all my student life. Their support enables me to accomplish my
M.COM degree. I dedicate this report to my ever-loving parents and my teachers, specifically
to my loving father.

ABSTRACT
In the early 30s of the 20th century, under the inspiration of the Quaid-e-Azam Mohammad
Ali Jinnah, there began to appear signs of economic renaissance of the Muslims of India.
Shipping, Airline, Banking and Insurance companies made their debut.
In 1932, Mr. Ghulam Mohammad, a far sighted man, established Eastern Federal Union
Insurance Company (EFU) with financial assistance from the Aga Khan III and the Nawab of
Bhopal. Mr. Abdur Rehman Siddiqui became the founder chairman. The company was
originally registered at Kolkata and operated in India (undivided) and Burma.
In 1947, on the birth of Pakistan, EFU found a new home in a new country. In Pakistan, EFU
rapidly established itself as a progressive and innovative insurer. It gave the emerging
insurance industry the leadership, the manpower and the drive needed to grow in a situation
where at one time, three-fourths of insurance was held by foreign companies.
By 1961, EFU had become the flag bearer of Pakistan's insurance industry on the world
stage, and the largest life company in Afro-Asian countries (excluding Japan) under the
leadership of Mr. Roshen Ali Bhimjee. It remained so until 1972 when Life Assurance
business in Pakistan was nationalized. Thereafter EFU operated solely as a General Insurance
Company, and was subsequently renamed EFU General Insurance Limited. Now EFU
General is the second largest non-life insurance company in the country and the mother
company of other insurance organizations of EFU Group.
In June 1990 the Government of Pakistan decided to allow Life Assurance business in private
sector also. On 18 November 1992, EFU Life was granted a license to carry on life assurance
business. It started operations immediately with Group Life products and in March 1994
launched its Individual Life products. EFU entered the field of life assurance with the focus
on the changing needs of the population. The company is committed to provide its
policyholders with solutions to the problems of today's complex and rapidly changing
financial environment by introducing innovative, and modern products.

Contents
Chapter 1............................................................................................................... 1
HISTORY OF INSURANCE........................................................................................ 1
1.1 WHAT INSURANCE IS ?.................................................................................. 1
1.2 TERMS RELATING INSURANCE.......................................................................2
1.3 CLASSES OF INSURANCE.............................................................................. 4
1.4 GENERAL INSURANCE................................................................................... 5
1.5LIFE ASSURANCE............................................................................................ 6
Chapter 2............................................................................................................... 8
HISTORY OF EFU.................................................................................................... 8
2.1 CORPORATE PROFILE.................................................................................... 9
2.2 BOARD OF DIRECTORS............................................................................... 11
2.3 MANAGEMENT............................................................................................ 12
2.4 VISION STATEMENT..................................................................................... 13
2.5 MISSION STATEMENT.................................................................................. 13
Chapter 3 Departments of EFU............................................................................ 16
3.1 UNDERWRITING DEPARTMENT....................................................................16
3.2 CLAIMS DEPARTMENT................................................................................. 23
3.3 HUMAN RESOURCE DEPARTMENT...............................................................32
3.4 ACCOUNTS DEPARTMENT............................................................................34
3.5 REINSURANCE DEPARTMENT.......................................................................36
3.6 MARKETING................................................................................................ 37
Chapter 4............................................................................................................. 39
FINANCIAL ANALYSIS............................................................................................ 39
4.1 VERTICAL ANALYSIS OF PROFIT AND LOSS ACCOUNT.................................39
4.3 Analysis of Profit & Loss Account................................................................40
4.4 VERTICAL ANALYSIS OF BALANCE SHEET....................................................42
4.5 HORIZONTAL ANALYSIS OF BALANCE SHEET...............................................43
4.6 Analysis of Balance Sheet...........................................................................44
4.7 Ratio Analysis............................................................................................. 44
Chapter 5............................................................................................................. 46
Conclusion & Recommendation...........................................................................46
References........................................................................................................... 48

ACKNOWLEDGEMENTS
Allah Almighty is worthy of all acknowledgments, whose grace has no limits and who gave
me the strength and will to complete this report.
I have no words to express my heartiest sense of gratitude to my supervisor, Sardar
Muhammad Arshad for his supervision, contribution, intellectual guidance, constructive
suggestion, valuable time, patience, and wise comments to make this report possible.
I highly appreciate the help and cooperation of the Branch manager of EFU Abbottabad for
his support and collaboration.
The finally yet importantly, I would feel incomplete without thanking to my parents who
always pray for my brilliant success and bright future.

Usman Ahmed Abbasi

LIST OF ABBREVIATIONS

BOD

Board of Directors

D.D

Demand Draft

EBIT

Earning Before Income Tax

EPS

Earning per share

EVP

Executive vice president

I.T

Information technology

L/C

letter of credit

M/T

Mail Transfer

MIS

Management Information system

PLS

Profit and loss saving

SBP

State bank of Pakistan

SEVP

Senior executive vice president

SVP

Senior vice president

SWOT

Strength Weaknesses Opportunities Threat

SS

Specimen signature

VP

Vice president

EXECUTIVE SUMMARY
In some sense we can say that insurance appears simultaneously with the appearance of
human society. We know of two types of economies in human societies: natural or nonmonetary economies (using barter and trade with no centralized nor standardized set of
financial instruments) and more modern monetary economies (with markets, currency,
financial instruments and so on). The former is more primitive and the insurance in such
economies entails agreements of mutual aid. If one family's house is destroyed the
neighbours are committed to help rebuild. Granaries housed another primitive form of
insurance to indemnify against famines. Often informal or formally intrinsic to local religious
customs, this type of insurance has survived to the present day in some countries where
modern money economy with its financial instruments is not widespread.
In the late 1680s, Edward Lloyd opened a coffee house that became a popular haunt of ship
owners, merchants, and ships' captains, and thereby a reliable source of the latest shipping
news. It became the meeting place for parties wishing to insure cargoes and ships, and those
willing to underwrite such ventures. Today, Lloyd's of London remains the leading market
(note that it is an insurance market rather than a company) for marine and other specialist
types of insurance, but it operates rather differently than the more familiar kinds of insurance.
Insurance as we know it today can be traced to the Great Fire of London, which in 1666
devoured more than 13,000 houses. The devastating effects of the fire converted the
development of insurance "from a matter of convenience into one of urgency, a change of
opinion reflected in Sir Christopher Wren's inclusion of a site for 'the Insurance Office' in his
new plan for London in 1667."A number of attempted fire insurance schemes came to
nothing, but in 1681 Nicholas Barbon, and eleven associates, established England's first fire
insurance company, the 'Insurance Office for Houses', at the back of the Royal Exchange.
Initially, 5,000 homes were insured by Barbon's Insurance Office.

Chapter 1
HISTORY OF INSURANCE
In some sense we can say that insurance appears simultaneously with the appearance of
human society. We know of two types of economies in human societies: natural or nonmonetary economies (using barter and trade with no centralized nor standardized set of
financial instruments) and more modern monetary economies (with markets, currency,
financial instruments and so on). The former is more primitive and the insurance in such
economies entails agreements of mutual aid. If one family's house is destroyed the
neighbours are committed to help rebuild. Granaries housed another primitive form of
insurance to indemnify against famines. Often informal or formally intrinsic to local religious
customs, this type of insurance has survived to the present day in some countries where
modern money economy with its financial instruments is not widespread.
In the late 1680s, Edward Lloyd opened a coffee house that became a popular haunt of ship
owners, merchants, and ships' captains, and thereby a reliable source of the latest shipping
news. It became the meeting place for parties wishing to insure cargoes and ships, and those
willing to underwrite such ventures. Today, Lloyd's of London remains the leading market
(note that it is an insurance market rather than a company) for marine and other specialist
types of insurance, but it operates rather differently than the more familiar kinds of insurance.
Insurance as we know it today can be traced to the Great Fire of London, which in 1666
devoured more than 13,000 houses. The devastating effects of the fire converted the
development of insurance "from a matter of convenience into one of urgency, a change of
opinion reflected in Sir Christopher Wren's inclusion of a site for 'the Insurance Office' in his
new plan for London in 1667."A number of attempted fire insurance schemes came to
nothing, but in 1681 Nicholas Barbon, and eleven associates, established England's first fire
insurance company, the 'Insurance Office for Houses', at the back of the Royal Exchange.
Initially, 5,000 homes were insured by Barbon's Insurance Office.

1.1 WHAT INSURANCE IS ?

A promise of compensation for specific potential future losses in exchange for a periodic
payment. Insurance is designed to protect the financial well-being of an individual, company
or other entity in the case of unexpected loss. Some forms of insurance are required by law,
Page | 1

while others are optional. Agreeing to the terms of an insurance policy creates a contract
between the insured and the insurer. In exchange for payments from the insured (called
premiums), the insurer agrees to pay the policy holder a sum of money upon the occurrence
of a specific event. In most cases, the policy holder pays part of the loss (called the
deductible), and the insurer pays the rest. Examples include car insurance, health insurance,
disability insurance, life insurance, and business insurance.
The transaction involves the insured assuming a guaranteed and known relatively small loss
in the form of payment to the insurer in exchange for the insurer's promise to compensate
(indemnify) the insured in the case of a financial (personal) loss. The insured receives a
contract, called the insurance policy, which details the conditions and circumstances under
which the insured will be financially compensated.

1.2 TERMS RELATING INSURANCE

SUM ASSURED
An amount payable to the assured (agreed in advance),at an agreed time.
LIMIT OF INDEMNITY
An amount payable to the insured,commencerating with his loss or damage subject to the
maximum limit agreed in advance.
INTERMIDIARY/BROKER
A person or firm who arranges a cover with the Insurer/Assurer on behalf of the
Insued/Asssured,in consideration of a commision,payable by the Insurer/Assurer.
POLICY
Policy is a document which shows that a contract has been made between the
Insurer/Assurer and Insured/Assured. It is not called a contract in itself.
PROPOSAL FORM
Through Proposal Form Insured/Assured presents various type of information to the
Insurer/Assurer for obtaining a cover for risk. There is other method adopted in the market
also to present the risk such as representation by the agent/broker or surveys in case of
complex nature of general insurance rieks.
Page | 2

PREMIUM
An amount paid by the insured/assured in consideration of accepting the risk by the
insurer/assurer.
Premium includes, pure premium, commission paid to the agent/broker, administrative
expenses and profit.
UNDERWRITER
Underwriter is a person working in an insurance company, who evaluate the risk presented
by the insured/assured as to whether to accept or reject the risk and if it is accepted on what
premium and terms and conditions.
CLAIMS MANAGER
Claims manager is called the watch dog of the funds of the policy holders being managed
by the insurance company. Incase of claim he has to assess whether the claim is payable
under the terms and conditions of the policy or not and if payable what should be the
quantum of the claim.
ARBITRATOR
Arbitrator is a person who resolve dispute if arising between the insurer/assurer and
insured/assured .Its decision is final and binding under the law.
RE-INSURANCE COMPANY
A company from where insurer/assurer seeks cover over and above the amount which he
can bear in case of claims as per resources available with him.
CLAIM
An occasion which on trigging the operative clause of the policy,is notified by the
insured/assured to the insurer/assurer for payment of agreed sum assured or indemnity
according to loss sustained.

Page | 3

ABSOLUTE LIABILITY
A legal doctrine causing one party always to be responsible for payment of damage claims,
regardless of circumstances causing the loss. This doctrine has been applied to those using
explosive or keeping dangerous animals as pets.
ACTUARY
An insurance company mathematician, who complies statistics of losses, develops
insurance rates calculates dividends, and evaluates the financial standing of insurance
company.
CAPTIVE INSURANCE
An insurance company operated by a main company or group of companies, to insure its
own risks. A part of self insurance plan.
CASH VALUE
The saving feature associated with permanent life insurance. The result of a initial period
when premium payments exceed mortality and other charges.
INSURABLE INTEREST
The ability to demonstrate that the insured event is capable of causing a financialloss to the
person owing the insurance. To collect from a property insurance contract, the insurable
interest must be demonstrated at the time of the loss. In life insurance the insurable interest
must exist when the policy is begun.

1.3 CLASSES OF INSURANCE

The insurance is mainly divided in following two major classes of business.

L
I
G
n
e
i
s
n
f
u
e
r
a
A
n
l
s
c
s
e
I
u
n
r
s
a
u
n
r
c
a
e
n
c
e

Page | 4

1.4 GENERAL INSURANCE

General insurance or non-life insurance policies, including automobile and homeowners
policies, provide payments depending on the loss from a particular financial event. General
insurance typically comprises any insurance that is not determined to be life insurance
General insurance means managing risk against financial loss arising due to fire, marine or
miscellaneous events as a result of contingencies, which may or may not occur.

General

Insurance means to Cover the risk of the financial loss from any natural calamities viz.
Flood, Fire, Earthquake, Burglary, etc.. i.e. the events which are beyond the control of the
owner of the goods for the things having insurable interest with the utmost good faith by
declaring the facts about the circumstances and the products by paying the stipulated sum , a
premium and not having a motive of making profit from the insurance contract.
Some of the General Rules:
1. Mis-description : The insurance policy shall be void and all the premiums paid by
insured may be forfeited by the insurance company in the event of mis-presentation or
mis-declaration and/or non-disclosure of any material facts.

2. Reasonable care : The insured shall take all reasonable steps to safeguard the
property insured against any loss or damage. Insured shall exercise reasonable care
that only competent employees are employed and shall take all reasonable precautions
to prevent all accidents and shall comply with all statuary or other regulations .
3. Fraud : : If any claim under the policy may be in any respect fraudulent or if any
fraudulent means or device are used by the insured or any one acting on the insureds
behalf to obtain any benefit under the insurance policy, all the benefits under the
insurance policy may be forfeited.

Page | 5

1.5LIFE ASSURANCE
Life assurance is a contract between the policy holder and the insurer, where the insurer
promises to pay a designated beneficiary a sum of money (the "benefits") upon the death of
the insured person. Depending on the contract, other events such as terminal illness or critical
illness may also trigger payment. In return, the policy holder agrees to pay a stipulated
amount (the "premium") at regular intervals or in lump sums. In some countries, death
expenses such as funerals are included in the premium; however, in the United States the
predominant form simply specifies a lump sum to be paid on the insured's demise.
The value for the policy owner is the 'peace of mind' in knowing that the death of the insured
person or if he lives too long, or if he becomes disabled, will not result in financial hardship.
Life policies are legal contracts and the terms of the contract describe the limitations of the
insured events. Specific exclusions are often written into the contract to limit the liability of
the insurer; common examples are claims relating to suicide, fraud, war, riot and civil
commotion.

ORIGION OF LIFE ASSURANCE

Risk protection has been a primary goal of humans and institutions throughout history.
Protecting against risk is what insurance is all about.
Life insurance came about a little later in ancient Rome, where burial clubs were formed to
cover the funeral expenses of its members, as well as help survivors monetarily. With Rome's
fall, around 450 A.D., most of the concepts of insurance were abandoned, but aspects of it did
continue through the Middle Ages, particularly with merchant and artisan guilds. These
provided forms of member insurance covering risks like fire, flood, theft, disability, death,
and even imprisonment.
During the feudal period, early forms of insurance ebbed with the decline of travel and longdistance trade. But during the 14th to 16th centuries, transportation, commerce, and
insurance would again reemerge.
And similar to ancient Rome, burial societies were formed in the Buddhist period to help
families build houses, and to protect widows and children.

Page | 6

However, it was after 1840 that life insurance really took off in a big way. The trigger:
reducing opposition from religious groups.

LIFE-BASED CONTRACTS
Life-based contracts tend to fall into two major categories:
Protection policies designed to provide a benefit in the event of specified event, typically a
lump sum payment. A common form of this design is term insurance.
Investment policies where the main objective is to facilitate the growth of capital by
regular or single premiums. Common forms (in the US) are whole life, universal life and
variable life policies.

INSURANCE VS ASSURANCE
The specific uses of the terms "insurance" and "assurance" are sometimes confused. In
general, in jurisdictions where both terms are used, "insurance" refers to providing cover for
an event that might happen (fire, theft, flood, etc.), while "assurance" is the provision of
cover for an event that is certain to happen. In the PAKISTAN both forms of coverage are
called "insurance", principally due to many companies offering both types of policy, and
rather than refer to themselves using both insurance and assurance titles, they instead use just
one.

Page | 7

Chapter 2
HISTORY OF EFU
In the early 30s of the 20th century, under the inspiration of the Quaid-e-Azam Mohammad
Ali Jinnah, there began to appear signs of economic renaissance of the Muslims of India.
Shipping, Airline, Banking and Insurance companies made their debut.
In 1932, Mr. Ghulam Mohammad, a far sighted man, established Eastern Federal Union
Insurance Company (EFU) with financial assistance from the Aga Khan III and the Nawab of
Bhopal. Mr. Abdur Rehman Siddiqui became the founder chairman. The company was
originally registered at Kolkata and operated in India (undivided) and Burma.
In 1947, on the birth of Pakistan, EFU found a new home in a new country. In Pakistan, EFU
rapidly established itself as a progressive and innovative insurer. It gave the emerging
insurance industry the leadership, the manpower and the drive needed to grow in a situation
where at one time, three-fourths of insurance was held by foreign companies.
By 1961, EFU had become the flag bearer of Pakistan's insurance industry on the world
stage, and the largest life company in Afro-Asian countries (excluding Japan) under the
leadership of Mr. Roshen Ali Bhimjee. It remained so until 1972 when Life Assurance
business in Pakistan was nationalized. Thereafter EFU operated solely as a General Insurance
Company, and was subsequently renamed EFU General Insurance Limited. Now EFU
General is the second largest non-life insurance company in the country and the mother
company of other insurance organizations of EFU Group.
In June 1990 the Government of Pakistan decided to allow Life Assurance business in private
sector also. On 18 November 1992, EFU Life was granted a license to carry on life assurance
business. It started operations immediately with Group Life products and in March 1994
launched its Individual Life products. EFU entered the field of life assurance with the focus
on the changing needs of the population. The company is committed to provide its
policyholders with solutions to the problems of today's complex and rapidly changing
financial environment by introducing innovative, and modern products.

Page | 8

In March 2000, Allianz Aktiengesellschaft (Allianz AG), a global leader in the insurance
industry with an active presence in 70 markets across 5 continents and EFU Group signed a
joint venture to form a new company for providing health insurance cover to the people of
Pakistan. Allianz EFU Health Insurance Limited, approved by the Government of Pakistan, is
the first specialized health insurance provider in the country and aims to play a pivotal role in
developing the health insurance market in Pakistan.
Traditionally the EFU name has become synonymous with progressiveness and prompt claim
settlement and now the EFU being the largest insurance group provides a full range of
general, life and health insurance services.
EFU is the leading insurance group in Pakistan providing a full range of insurance services.
This includes life, health and general insurance. A pillar of EFU's strength lies in its close and
long-term (over 50 years) relationship with its main reinsurer, Munich Re of Germany, one of
the largest reinsurance companies in the world.

2.1 CORPORATE PROFILE

The Company was incorporated on September 2, 1932 and is engaged in non-life
insurance business comprising of Property, Marine/Aviation, Motor and other
Miscellaneous products.
The shares of the company are quoted on Karachi and Lahore Stock Exchanges of
Pakistan.
The Principal place of business is located at EFU House, M.A. Jinnah Road, Karachi,
Pakistan.
The company operates through 61 branches in Pakistan.
EFU is one of the few Pakistani organizations run totally by professional management
and highly motivated field force.
Policies accepted by all institutions in the country.
Rating: Insurer Financial Strength AA, Outlook: Stable (Rating Agency: JCR-VIS).
Client-base comprises of many leading business houses and multinational companies.

Page | 9

 A unique feature of EFU is a voluntary review mechanism by professionals of

international repute. The independent reviews by these professionals enable the
company to keep abreast of international changes in the industry as well as ensure that
management adopts the best international practices.
Another pillar of EFU's strength is its very close and long-term relationship with its
reinsurers.
EFU gave the emerging insurance industry the leadership, the manpower and the
drive needed to grow in a situation where at one time, three-fourths of insurance was
held by foreign companies.
The company has also taken the initiative to transform its Enterprise Information
System with an end to end solution comprising Oracle's latest technological software
and hardware as part of the infrastructure solution to meet Company's projected
Online Transaction Processing needs, keeping in view both the present requirements
and future needs such as Data Warehouse, business intelligence and Customer
Relationship Management System.

Page | 10

2.2 BOARD OF DIRECTORS

Page | 11

2.3 MANAGEMENT
Managing Director
Hasanali Abdullah, F.C.A.

Senior Deputy Managing Director

Mahmood Lotia, A.C.I.I.

Deputy Managing Director

Qamber Hamid, LL.B., LL.M.

Senior Executive Directors

Abdul Rehman Khandia, A.C.I.I.
Jaffer Dossa
Khurram Ali Khan, B.E.
Malik Akbar Awan
Muhammad Iqbal Lodhia
Nudrat Ali
S. M. Haider, M.Sc.
S. Salman Rashid
Shaukat Saeed Ahmed

Executive Directors

Page | 12

Ali Safdar
Altaf Qamruddin Gokal, F.C.A.
K.M. Anwar Pasha
Syed Kamran Rashid
Syed Rizwan Hussain

2.4 VISION STATEMENT

Our vision is to be the first choice company for our customers, shareholders and employees.
To achieve this we will be driven by an obsession to be better than the best in a continuous
journey, not a destination.
At EFU first choice means a sustained commitment to meet and exceed stakeholder
expectations. A will to go the Extra Mile to delight our customers with products and
services that exceed their expectations

2.5 MISSION STATEMENT

We will manage our affairs through modern technology, collective wisdom and
institutionalized leadership. We will be a respected, cultured and an educated company with a
strong market position. Together with our customers, reinsurers and employees we will
achieve world class quality standards through continuous quality improvement. Achieve zero
defects in everything we do.
We will do good business, with good clients and of the highest integrity. We will not
compromise our principles and we will like to be known as a responsible corporate citizen
aware of our obligation to the Government and the society we serve.

Page | 13

COMPANY INFORMATION

Page | 14

Chairman
Saifuddin N. Zoomkawala

Managing Director & Chief Executive

Hasanali Abdullah

Directors
Rafique R. Bhimjee
Sultan Ahmad
Abdul Rehman Haji Habib
Jahangir Siddiqui
Muneer R. Bhimjee
Taher G. Sachak
Chief Financial Officer & Corporate Secretary
Altaf Qamruddin Gokal, F.C.A.
Legal Advisor
Mohammad Ali Sayeed
Audit Committee
Muneer R. Bhimjee
Taher G. Sachak
Abdul Rehman Haji Habib
Rating Agency: JCR-VIS
Insurer Financial Strength Rating: AA
Outlook: Stable
Registered Office
11/4, Shahrah-e-Pehlavi, Peshawar.
Main Offices
EFU House
M. A. Jinnah Road, Karachi.
Co-operative Insurance Building
23, Shahrah-e-Quaid-e-Azam, Lahore.

Page | 15

Page | 16

Chapter 3 Departments of EFU

3.1 UNDERWRITING DEPARTMENT
Insurance underwriters evaluate the risk and exposures of potential clients. They decide how
much coverage the client should receive, how much they should pay for it, or whether even to
accept the risk and insure them. Underwriting involves measuring risk exposure and
determining the premium that needs to be charged to insure that risk. The function of the
underwriter is to acquireor to "write"business that will make the insurance company
money, and to protect the company's book of business from risks that they feel will make a
loss. In simple terms, it is the process of issuing insurance policies.
Each insurance company has its own set of underwriting guidelines to help the underwriter
determine whether or not the company should accept the risk. The information used to
evaluate the risk of an applicant for insurance will depend on the type of coverage involved.
For example, in underwriting automobile coverage, an individual's driving record is critical.
As part of the underwriting process for life or health insurance, medical underwriting may be
used to examine the applicant's health status (other factors may be considered as well, such as
age & occupation). The factors that insurers use to classify risks should be objective, clearly
related to the likely cost of providing coverage, practical to administer, consistent with
applicable law, and designed to protect the long-term viability of the insurance program.
The underwriters may either decline the risk or may provide a quotation in which the
premiums have been loaded or in which various exclusions have been stipulated, which
restrict the circumstances under which a claim would be paid. Depending on the type of
insurance product (line of business), insurance companies use automated underwriting
systems to encode these rules, and reduce the amount of manual work in processing
quotations and policy issuance. This is especially the case for certain simpler life or personal
lines (auto, homeowners) insurance.
MAJOR UNDERWRITING FUNCTIONS
One of the most important functions of the underwriter is creating a policy that will be
beneficial to both the customer and the insurance company. The underwriter must weigh the
risks of insuring a particular customer. Then, the rates will be established which a customer
Page | 17

pays in return for the insurance company agreeing to cover these risks. The underwriter must
create a policy that is suitable to the customer yet not too liberal as to expose the insurance
company to excessive claims.
Insurance underwriters use computers as an integral part of the policy writing process. When
a customer submits an application for insurance, the underwriter is able to use smart
systems to make a decision on the application. The smart systems are able to analyze the
risk associated with a customer and recommend acceptance or denial of the application. Also,
the smart systems are able to provide an acceptable rate based on the risk of the customer.
This allows the underwriter to create a policy that provides the customer with the right
amount of coverage while not exposing the insurance company to any

unnecessary risk.

An insurance underwriter deals closely with customers on a daily basis so it is very important
to be able to build relationships and clearly explain all policy details. Also, an underwriter
must be able to analyze information and be able to make decisions very quickly. Since change
constantly occurs in both business and personal situations, the underwriter must be flexible
and able to adapt policies to meet the needs of the customer.

THE UNDERWRITING PROCESS

The actual process by which risks are underwritten will vary from one class of business to
another and will also depend on an insurers general approach. What we can do is to look at
underwriting in a general sense in relation to personal insurances, life assurance and
commercial insurances.
PERSONAL INSURANCE
The underwriting of personal insurances is relatively straightforward. The main source of
information abut a risk will come from the proposal form and if there is anything else which
an individual underwriter may want, he would write to the proposer. A large volume of
proposal forms for various classes of personal insurance will be dealt with by branch offices
of insures. Much of the work will be mechanical in nature and the vast bulk will be processed
with little difficultly
In many cases the underwriting is delegated to some other person, quite outside the insurance
company. This is the case for example in travel insurance where the policy is sold by a travel
Page | 18

agent or airline. A proposal form is completed by the proposer and the policy issued almost
immediately from a pad of policies. Possibly with an upper monetary limit on the sum
insured. Underwriting in these cases is almost a matter of making sure that a completely
undesirable proposer is not allowed cover. There will be little discrimination among those
cases which are accepted and he brooked or other agent will have little or no flexibility in
pricing.
COMMERCIAL INSURANCE
The underwriting of commercial business insurances is a much more complicated and
involved task. Commercial insurance ranges form small shops and factories to large
multinational corporations with operations in many countries throughout the world. The
degree of complexity of the underwriting will obviously vary with sheer size of the risk but
certain basic principles are still recognizable.
The underwriter has to evaluate the hazard associated with the risk which is being proposed.
In small cases he may be able to do this from reading a proposal form and corresponding with
the proposer. It may be that a local inspector asked to call and see the shop or factory. In large
cases this is simply impossible. For one thing the details of a risk could not be confined to a
proposal from. There is just too much information to condense on to a form no matter how
large the form may be.
This is where the broker may help. As we mentioned earlier, the broker in these large cases
will be in a position to prepare the case for the underwriter. This may mean site inspections
by the broker and the preparation of the plans and reports on the relevant aspects of the risk.
This documentation, which may be extremely extensive, is then passed to the underwriter and
negotiation can commerce on the terms, conditions, cover and price.
RISK SURVEYS
Even where a broker is involved (and certainly when there is no broker). The underwriter will
involve a surveyor. This risk surveyor is the person who acts as the eyes and ears of the
underwriter, many companies employ specialist surveyors in the different areas of risk such
as fire, security, liability, business interruption and so on.
The surveyor will eventually prepare a report for the underwriter and in the case of many
property risks will also draw plan. The report will cover a number of features, including.

Page | 19

 A full description of the risk. This may include the plan of the premises in the case of
property risk, the process being carried out at the premises, details of the insured etc.
An assessment of the level of risk. This will take into account all the relevant hazard
factors, both moral and physical, and provide the underwriter with some idea of the
degree of risk which he is being asked to accept. The surveyor will also be able to
comment on surrounding property as in the case of fire insurance, for example, this
may have an impact on the level of risk.
A measure of maximum probable loss (MPL). This MPL, or estimated maximum loss
(EML) as is known by some, is the maximum that the surveyor believes will be the
subject of a loss.
This is simple to illustrate in the case of fire insurance. Say there is a building which has a
value of 300,000. It is one building with no divisions and if a fire starts in one area it is likely
to spread throughout the entire property. The MPL in such a case could be 300,000, in order
words, in the worst situation; the whole building could be destroyed. Imagine, now, that the
building has been divided into three equal sized sections.
The wall which creates the section at the left of the building is a fire wall. This wall means
that it is most unlikely that fire would spread through either way. The other dividing wall has
a door in it and the likelihood is that any fire would spread between these two sections. Each
section has the same value, let us say, and the conclusion would have to be that the MPL is
200,000. In the worst case the fire would start in one of the sections at the right of the
building and then spread through the dividing wall to the other. The section separated y the
fire wall would the saved.
This MPL calculation takes no account of any good features which may be present. The
underwriter must then consider the impact of good features and may reduce the MPL. In a
fire risk the underwriter may take account of fire lighting apparatus of various kinds such as
automatic sprinkles.
One point the surveyor would have to remember is that MPL, he has just calculated is only
for fire damage. The building could, for example, be in the flight path for a major airport and
run the risks of being destroyed by aircraft.
Dividing walls would be little calculating MPL is to give the underwriter an idea of the
maximum which is likely to be lost.
Page | 20

 Recommendations on loss prevention. The surveyor will also make known to the
insured what steps should be taken to protect the risk. In a few cases these
recommendations will be in the form of requirements which the insured must
implement if cover is to be granted.
The surveyors view on the adequacy of the insurance being requested. In all of this
the responsibility for ensuring that the cover is adequate, rests with the insured. He
may seek advice from a broker or other expert but at the end of the day he will have to
satisfy himself that the insurance are adequate.
Adequacy, in the case of many classes of insurance will mean the sum insured. This will be
true for many classes of property insurance. In the case of liability insurance there is of
course no sum insured, but a limit of indemnity. Adequacy in thee cases will mean a limit of
indemnity large enough to cater for the expected claims. The adequacy of cover is an
extremely important issue and the underwriter will want to ensure, as far as is possible. That
the insured is not under insuring the risk.
Assuming that the risk is acceptable in all matters relating to the level of hazard, the decision
as to how much of a risk can be accepted is, in part, dependent on the financial capacity of
the insurer. The insurer may have some limit on how much of a particular type of risk it
wants to accept in any year. Questions relating to the financial capacity of the insurer, lead us
into the area of reinsurance.
PREMIUMS
So far we have looked at the role of the underwriter, the underwriter process itself and the
part played by reinsurance. These have examined, in their different ways, the way in which
risks are accepted insurers and the financial steps which insurers take to protect themselves.
We have two final aspects the insurance transaction to examine. The first, which business of
pricing and paying for the insurance service and the second is the making of claims.
The last task of the underwriter, as we listed them, was to calculate a suitable premium. The
premium which an insured pays represents that insureds contribution to the common pool.
This contribution must be fair and must reflect the degree of hazard which that insured brings
to the pool. In other words the premium must be sufficient to:
Cover Expected claims

Page | 21

The insurer is in a position to estimate the level of claims which it expects. It is not
possible to say exactly how much is to be paid out in claims but because of the
numbers involved the insurer can make a reasonably accurate assessment of the likely
loss costs. At the very minimum the premium must be sufficient to meet these
expected claims.
Reserve for outstanding claims
Not all claims will be settled during the year for which the premium has been paid and
hence the premium must take into account those claims still to be settled at the end of
the year. This is particularly true in the case of claims involving personal injury. They
can take several years to settle and the insurer must bear them in mind when
calculating the premium.
Contingent reserve
The insurer must also take into account the fact that there can be contingencies,
beyond their control, which may involve a liability to meet claims at some time in the
future. Insurers do this by making reserves.
Meet all expenses
The insurer has a number of operational expenses to meet in the running of the
business. These include:

salaries to staff;

office costs of all forms

advertising;

Commission.

The premium collected from each insured must be sufficient in aggregate to cover
these costs of operating.
PROVISION FOR PROFIT
Finally, the insurer must ensure that there is provision for a reasonable profit. The majorities
of insurers are answerable to shareholders and must provide a reasonable return on the
investment which these shareholders have made in the company. In the case of mutual
Page | 22

companies, the members will still be looking for a reasonable surplus being made in order to
meet the objectives of the mutual.
Arriving at the premium, however, is not simply a matter of calculating the correct premium
by a mathematical formula. A number of important commercial considerations must also be
borne in mind. These will include:
Inflation
The insurer must be aware of the changing value of money. Claims will be met
tomorrow, out of premium received today. The implication of this is that the cost of
settling a claim may rise, not due to any increase in the magnitude of the claim itself
Interest rates
We have already seen that insurers are major investors of funds. These funds generate
substantial investment income upon which insurers depend. Variability in interest
rates has also to be taken into account in premium calculations.
Exchange rates
We have also seen that a substantial volume of premium income is derived from
outside of the United Kingdom. Whenever there is movement of money across
national borders, there is the added problem of exchange rate risk. The insurer has to
take account of this risk and the cost of managing it has to recover through the
premium which insureds pay.
Competition
The final commercial factor is that of competition. The insurer is not alone in the
market place and increasingly there is strong competition. Charging too high a
premium may result in the loss of business but charging too little mean running at a
loss. This is a difficult tightrope along which insures must walk.

Page | 23

3.2 CLAIMS DEPARTMENT

Once the client has insurance, the rest is easy, right? Unfortunately , not. Insurance is
different than most other products that a client will purchase. The client gets nothing. At least,
the client gets nothing physical except a piece of paper. The insurance industry trains new
employees by telling them that the insured, your client, has purchased a promise and it is the
employees job to make sure that the insured gets what is promised.
What is actually promised? The insurance company promises to pay all covered first party
claims in a timely manner and to defend and indemnify all third party cases. The insurance
company promises to act with the utmost good faith towards their insured. But, this really
only happens once - when the insured has a claim. Claims adjusters have a saying: We are
the only contact with an insured after they buy the policy, and then its only because
something bad happened. In order to help your client through this bad experience, you need
to know what is available to your client.
The size of the loss is one factor in determining what needs to be done. On a small loss, the
client can probably handle it without assistance. Anything under a few thousand dollars,
maybe even up to $10,000, the client should be able to resolve with the insurance adjuster,
and, with some insurance companies, possibly even the insurance agent. Of course, company
should be prepared to offer assistance if the matter is not quickly resolved.
First party losses such as theft, fire and vandalism may require some assistance. There are a
variety of sources available for clients. The first line of defense should be the attorney who
has helped the client so far. If you have been involved with the client in choosing insurance
products than you have familiarity with the policy, the agent, and can best assist the client.
You may act as a liaison between the client and the insurance company. Just as on a smaller
loss, you may provide documents. You should also be present if the client is asked to give a
statement or a statement under oath.
However, if the loss is larger, more complicated or requires some specialized knowledge,
than you need to bring in some true experts. The ABA Journal can be a resource to find
experts. If you cannot find an expert in these sources, go to your list of attorneys who
specialize in insurance coverage and see if they have some contacts - or find an insurance

Page | 24

adjuster turned attorneys. If none of these sources work for you or the client, and the client
needs someone, you may need to contact a public adjuster.
As with any recommendation, due diligence should be completed on the public adjuster. One
or more of these sources should be able to help your client avoid a less than full recovery on a
first party insurance claim.
On third party losses, the use of counsel becomes more important. If the client is involved in
an automobile accident, has a slip and fall on the premises, or another third party case, the
quick involvement of counsel can make all the difference. Sometimes clients do not want to
report a claim to the insurance company. However, you can advise them of the importance of
timely reporting and make sure that the claim is timely and accurately reported, as is required
by the insurance company. (Failure to report a claim timely may result in a denial of
coverage.) Company can also direct any investigation, in conjunction with the insurance
adjuster, and thus preserve attorney work product privileges that may be applicable. But,
more importantly, you can protect your clients interest from start to finish.
Once companys client suffers a third party loss, there is a chance of litigation. Even if
company is not a litigator, company may want to bring in a litigator to help companys client.
While most insurance policies provide that the insurance company elects counsel, not all
policies do. If companys clients policy allows the client to choose counsel, then quickly
bringing in trial counsel experienced in litigation will allow trial counsel to be involved every
step of the way and potentially save time and money. If the policy allows the insurer to
choose counsel, then the client may still have someone looking out for their interests especially important in consent to settle policy. Additionally, in consent to settle policies,
someone will need to advise the insured whether they should give consent to settle. Further, a
conflict of interest may develop with the insurer or the client may not understand the process.
All of these situations present an opportunity for company to provide counseling and insight
to companys client. These add value to companys service.
FACTORS OF EFFECTIVE CLAIM MANAGEMENT
Following are the factors that may effect to attract the customer for further business if
adopted.

Page | 25

 Claims reporting
Receipt of claims by the company
Claims files and procedures
Fraud detection and prevention
Claims assessment
Claim processing
Complaints and dispute settlement
Supervision of claims-related services
Market practices
CLAIMS REPORTING
The insurance company writes insurance policies in easily understandable language. Policies
spell out what is covered and what is not covered. If necessary, plain language explanations
could be an addendum to the legal language.The insurance company draws the attention of
the policyholder /claimant/ beneficiary both when he/she signs a policy (for policyholders
only) and when he/she reports a loss on his/her duties related to claim reporting which
include:
To try to minimize losses;
To report claims in a timely fashion;
To co-operate in the investigation by providing the company with all relevant
information and, in Particular, copies of official documents regarding the damage
(accident, loss, etc.);
To authorize the company to handle necessary inspections and assess the extent of the
damage prior to any repairs or replacement;
Page | 26

 To ensure that the claims reporting phase proceeds as smoothly as possible, the
insurance company sends to the policyholder/claimant/beneficiary within a reasonable
period of time (beginning from when the loss is reported):
An appropriate claim form (when the loss reporting is made in writing) for the type of
policy -prepared either by an individual insurance company or at the national level by
companies or the supervisory authorities together with instructions and useful
information on how to comply with the terms of the policy and the legitimate
requirements of the company
The information necessary to help them to report the claim.
RECEIPT OF CLAIMS BY THE COMPANY
The insurance company or broker must be contacted as soon as possible on happening
of event of claim.
Insurer must should send acknowledgement to make insured known that his
notification is received by the company.
If there is any delay insured must be made informed of it.
Insurer must ask for the documents required in settling the claims.
Company should inform the insured about his right of subrogation if insured is not
known to.
CLAIMS FILES AND PROCEDURES
Once a claim has been filed and, when applicable, after any additional documents that are
required to process the claim have been received, the file established by a company contains
the following documents.

Intimation letter
Claim form duly filled and signed by insured
Claim filing number
Policy number;
Page | 27

 Name of the policyholder/claimant/beneficiary;

Summary sheet showing development / review of the claim;
Type of insurance concerned;
Opening date of the file;
Date of loss;
Reporting date;
Description of the claim;
Information on claimants;
Assessment date;
Electronic and/or paper copy of the adjustors and investigators reports where
applicable;
Identity of the adjuster;
Estimated cost of damage;
Dates and amounts of payments;
Date of denial, if applicable;
Name of intermediary, if applicable;
Date of file closure;
Documents recording contacts with the policyholder/claimant/beneficiary
FRAUD DETECTION AND PREVENTION
Insurance fraud has existed ever since the beginning of insurance as a commercial enterprise.
Fraudulent claims account for a significant portion of all claims received by insurers, and cost
billions of dollars annually. Types of insurance fraud are very diverse, and occur in all areas
of insurance. Insurance crimes also range in severity, from slightly exaggerating claims to
deliberately causing accidents or damage. Fraudulent activities also affect the lives of
innocent people, both directly through accidental or purposeful injury or damage, and
Page | 28

indirectly as these crimes cause insurance premiums to be higher. Insurance fraud poses a
very significant problem, and governments and other organizations are making efforts to
deter such activities.
The chief motive in all insurance crimes is financial profit. Insurance contracts provide
both the insured and the insurer with opportunities for exploitation. One reason that this
opportunity arises is in the case of over-insurance, when the amount insured is greater than
the actual value of the property insured. This condition can be very difficult to avoid,
especially since an insurance provider might sometimes encourage it in order to obtain
greater profits. This allows fraudsters to make profits by destroying their property because the
payment they receive from their insurers is of greater value than the property they destroy.
Insurance companies are also susceptible to fraud because false insurance claims can be made
to appear like ordinary claims. This allows fraudsters to file claims for damages that never
occurred, and so obtain payment with little or no initial cost.
Types of Fradulent Claims
Fraudulent claims can be one of two types. They can be otherwise legitimate claims that are
exaggerated or built up, or they can be false claims in which the damages claimed never
actually occurred. Once a built up claim is identified, insurance companies usually try to
negotiate the claim down to the appropriate amount. Suspicious claims can also be submitted
to special investigative units, or SIUs, for further investigation. These units generally
consist of experienced claims adjusters with special training in investigating fraudulent
claims. These investigators look for certain symptoms associated with fraudulent claims, or
otherwise look for evidence of falsification of some kind. This evidence can then be used to
deny payment of the claims or to prosecute fraudsters if the violation is serious enough.
Detection of Fradulent Claims
The detection of insurance fraud generally occurs in two steps. The first step is to identify
suspicious claims that have a higher possibility of being fraudulent. This can be done by
Computerized Statistical analysis or by referrals from Claims Adjusters or insurance
agents. Additionally, the public can provide tips to insurance companies, law enforcement
and other organizations regarding suspected, observed, or admitted insurance fraud
perpetrated by other individuals. Regardless of the source, the next step is to refer these
claims to investigators for further analysis.
Page | 29

Due to the sheer number of claims submitted each day, it would be far too expensive for
insurance companies to have employees check each claim for symptoms of fraud. Instead,
many companies use computers and statistical analysis to identify suspicious claims for
further investigation. There are two main types of statistical analysis tools used: Supervised
And Unsupervised. In both cases, suspicious claims are identified by comparing data about
the claim to expected values. The main difference between the two methods is how the
expected values are derived.
Supervised Method
Expected values are obtained by analyzing records of both fraudulent and non-fraudulent
claims. This method has some drawbacks as it requires absolutely certainty that those claims
analyzed are actually either fraudulent or non-fraudulent, and because it can only be used to
detect types of fraud that have been committed and identified before.
Unsupervised Method
Unsupervised methods of statistical detection, on the other hand, involve detecting claims
that are abnormal. Both claims adjusters and computers can also be trained to identify red
flags, or symptoms that in the past have often been associated with fraudulent claims.
Statistical detection does not prove that claims are fraudulent; it merely identifies suspicious
claims that need to be investigated further.

CLAIMS ASSESSMENT
When any claim is presented to insurer,Following points are taken into accoount:

Any method of taking into account specific factors such as depreciation, discounting
or negligence on the part of the victim is clearly outlined in the claim file.
Any loss evaluation methods used by the company are reasonable and coherent.
The insurance company uses internal methods for assessing claim values based on the
applicable law of the jurisdiction.
Companies that use claims adjusters or intermediaries will need to ascertain their
competence qualifications. Moreover, if these claims adjusters/intermediaries were to
Page | 30

commit any errors or misappropriation of funds affecting their policyholders,

claimants or beneficiaries within the framework of the contract2 with the insurance
company, the latter would be held responsible. Consequently, companies may decide
to limit the scope of action of claims adjusters and intermediaries (for example, by
setting ceilings on the number of claims they can handle).

Companies

notify

policyholders/claimants/beneficiaries

whenever

they

use

independent claims adjusters or intermediaries.

When the damage is assessed through a written estimate made on behalf of the insurer, the
insurer sends the policyholder/claimant/beneficiary a copy of the document used to set the
amount of compensation.
CLAIM PROCESSING
Claims handeling procedures are in written form and each member or at least one member is
provided with that written regulations or procedures so that manuals could be consulted at
time when required. Otherwise the staff is also qualified. Internal Audit is also conducted
either by Internal auditors appointed or by the employees themselves as one employee checks
the work of consecutive employee., this helps to save the cost of internal auditor and the
effeiciency is also achieved.
The Company keeps claimants informed of the progress during the claims process. The
company provides information on when payments, repairs or replacements are expected to be
made, and, if necessary, explains why additional time is required. When the company decides
to call on outside parties (i.e. loss adjusters, solicitors, surveyors, etc), it informs claimants of
this fact, gives the reasons for this decision and explains the role that these outside parties
will play in processing the claim. When a final payment or offer of settlement is made, the
company explains to claimants what the payment or settlement is for and the basis used for
the settlement. The insurance company documents their claim files in order to be able to
address questions that may arise concerning the handling and payment of the claim.
If the claim is denied, the insurance company states explicitly to the claimant the policy
provision, conditions or exclusion on which the denial is based. If the amount offered is
different from the amount claimed, the insurance company explains the reason for this to the
Page | 31

claimant. When the insurance company is not responsible for meeting all or any part of the
claim, it notifies the claimant of this fact and explains why.

COMPLAINTS AND DISPUTE SETTLEMENT

When the claimant files a complaint, the company:
Acknowledges receipt of the complaint within a reasonable period of time;
Provides claimants with explanations on how their complaints will be handled and on
the procedures to be followed;
Provides information to claimants on internal and external dispute settlement
procedures;
Processes complaints promptly and fairly;
Keeps claimants regularly informed of how their complaints are progressing;
Provides a final response in writing within a reasonable period of time.
If the claimant is dissatisfied with the final response that he/she has been sent by the
company, he/she can activate an internal appeals process. He/she can also appeal to
the dispute settlement procedures available outside the company (for example, the
handling of complaints by the supervisory authorities). In case of a dispute, the
claimant should be informed by the company of the existence of these appeal
procedures.

SUPERVISION OF CLAIMS-RELATED SERVICES

The insurance supervisory authorities may conduct examinations on claims management
services especially where problems are suspected.
In these cases, the following elements are taken into account:

Page | 32

 Possible access to non-confidential claims data for all open and closed files within a
specified time frame (e.g. for the current year and the two preceding years);
Maintenance of sufficient and appropriate information on claims files;
Use of the appropriate type of claim form for the type of insurance;
Proper qualification of the claims departments employees based inter alia on the
applicable insurance code;
Valuation of claims payments according to company procedures;
Appropriate tracking of the nature and number of complaints related to claim
management process;
Monitoring of the proportion of claims that result in litigation;
Compliance with procedures for combating fraud and money laundering;
Regular internal audit practices on claims files;
Appropriate internal claims procedure manuals;
Proper procedure for coding and statistical reporting of losses;
Performance in terms of the speed of claim settlements

3.3 HUMAN RESOURCE DEPARTMENT

Employees are the most important asset of any organization. The future of the firm depends
on the performance of its employees. The role of a human resource manager is pivotal in
managing the expectations and performance of the employees. Read on to know more about
human resource manager's job description, human resource manager's duties, and the
requirements of a human resource manager.
Human resource management refers to the coherent and strategic approach to understand the
needs of the people working in a firm. Undoubtedly, the growth of a firm is totally based on
the individual and the collective efforts of its workers. Human resource management evolved
as a serious discipline in the business world when it was understood that employees are not
Page | 33

mere business units, like machines and automobiles. Instead, they are a valuable human
manpower and have personal, emotional, and financial needs. When it was realized that
human beings are not unidimensional entities, human resource management was developed to
cultivate a positive work culture in the organization, motivate employees, streamline the
recruitment process, and provide employee training.
The penalties for not being correctly staffed are costly. Understaffing loses the business
economies of scale and specialization, orders, customers and profits. Overstaffing is wasteful
and expensive, if sustained, and it is costly to eliminate because of modern legislation in
respect of redundancy payments, consultation, minimum periods of notice, etc.
Very importantly, overstaffing reduces the competitive efficiency of the business. Staffing
level planning requires that an assessment of present and future needs of the organization be
compared with present resources and future predicted resources. Appropriate steps then be
planned to bring demand and supply into balance.
Thus the first step is to take a 'satellite picture' of the existing workforce profile (numbers,
skills, ages, flexibility, sex, experience, forecast capabilities, character, potential, etc. of
existing employees) and then to adjust this for 1, 3 and 10 years ahead by amendments for
normal turnover, planned staff movements, retirements, etc, in line with the business plan for
the corresponding time frames.
The result should be a series of crude supply situations as would be the outcome of present
planning if left unmodified. (This, clearly, requires a great deal of information accretion,
classification and statistical analysis as a subsidiary aspect of personnel management.)
What future demands will be is only influenced in part by the forecast of the personnel
manager, whose main task may well, is to scrutinize and modify the crude predictions of
other managers. Future staffing needs will derive from:
Sales and production forecasts
The effects of technological change on task needs
Variations in the efficiency, productivity, flexibility of labor as a result of training,
work study, organizational change, new motivations, etc.

Page | 34

 Changes in employment practices (e.g. use of subcontractors or agency staffs, hivingoff tasks, buying in, substitution, etc.)
Variations, which respond to new legislation, e.g. payroll taxes or their abolition, new
health and safety requirements
Changes in Government policies (investment incentives, regional or trade grants, etc.)
What should emerge from this 'blue sky gazing' is a 'thought out' and logical staffing demand
schedule for varying dates in the future which can then be compared with the crude supply
schedules. The comparisons will then indicate what steps must be taken to achieve a balance.
That, in turn, will involve the further planning of such recruitment, training, retraining, labor
reductions (early retirement/redundancy) or changes in workforce utilization as will bring
supply and demand into equilibrium, not just as a oneoff but as a continuing workforce
planning exercise the inputs to which will need constant varying to reflect 'actual' as against
predicted experience on the supply side and changes in production actually achieved as
against forecast on the demand side.
The dynamics of business have become more and more challenging in today's global

3.4 ACCOUNTS DEPARTMENT

We are living in a world where people need things from the day they are born to the day that
they die. Some of these 'needs' are physical needs, a need for goods of various sorts, food,
and clothing, shelter, and so on. Some of them are emotional 'wants', a need for education,
entertainment, or recreation. In satisfying such needs businessmen perform useful services to
their fellow beings. In return they expect to earn a reasonable reward for their efforts in the
form of profits.
"Cut your coat according to your cloth" -- so goes the saying. Even a king becomes a pauper,
if he fails to exercise economy in his expenditures. In other words, every individual will have
to plan his expenditure according to his income. Obviously the question arises -- why is this
planning necessary? The need for such planning arises as our wants or desires or needs for
goods and services are unlimited, while the means, i.e. the income with which to buy such
goods and services are limited. Where, however, goods and services are available free of cost,
i.e. gifts of nature, such as air, water (not in cities) etc., there is no question of economy. But

Page | 35

the necessity of economy is undeniable, where goods or services are not available free of cost
and their supply is limited.
A proper and fair planning of expenditures helps us to ensure proper use of our income. Of
course, it is true that making a proper planning cannot increase the quantity of goods or
money. But certainly we can ensure most economic use of goods or money at our disposal.
Most of us do maintain some kind of a written record of our income and expenditure. The
idea behind maintaining such record is to know the correct position regarding income and
expenditure. The need for keeping a record of income and expenditure in a clear and
systematic manner has given rise to the subject of 'book-keeping'.
Some individuals do not recognize the necessity of keeping accounts of their day-to-day
expenditures, since they spend their own income and are not required to account for it to
anybody else. But such an idea is wrong. A family,
However, small it may be, must exercise proper control over its expenditures so as to ensure
future security. A Family has two-fold responsibilities -- one is that of ensuring all (round
welfare of the family and the other is the social responsibility. Needless to say, money is the
most essential pre-request for ensuring peace and happiness of a family, which each and
every member desires. The quantum of money must be adequate in relation to the needs. But
mere adequacy of money will not do; one has to take care of its proper utilization. For this it
would be necessary to exercise economy and maintain proper books of account. On the other
hand each and every family must save a portion of its income for future contingencies. It is
possible to increase the amount of saving through proper management and effective control
of the family expenses. Through such saving the family helps materializing the economic
planning of the country.
It is all the more necessary for an organization or a concern to keep proper accounts. At the
end of the year the true result of the economic activities of a concern must be made available
otherwise it will not be possible to run the concern. In case of a business concern the profit or
loss at the end of a year must be ascertained, because, the amount of profit must be adequate
in relation to that of investment made in the business. If it is not so or if there is a loss, it is an
indication of some defects existing somewhere in the management of the business. All such
defects need to be detected and analyzed and appropriate measures taken for their
rectification. But it is only possible, if proper books of accounts are maintained in the
business concern. So, the importance of bookkeeping to a business is the same as that of fresh
Page | 36

air to a man to exist. Without bookkeeping records a business would meet death, though not
instantly, but in a short time.
Moreover, if proper books of accounts are not kept in a business, the amount of profit cannot
be ascertained and it will not be possible to distribute the profit among the owners of the
business. The income tax dues to the Government cannot also be paid. In the absence of
books of accounts misuse or defalcation of money will remain undetected. The owner and
other parties interested will not be able to have any information about the condition of the
business. For the same reason in the case of non-trading concerns like, schools, clubs,
colleges, universities, hospitals etc. the need for accounting is universally recognized.
Thus we see that the necessity of keeping accounts is not only confined to business concerns
but it is also useful for all classes and grades of people and organizations.
ACCOUNTS DEPARTMENT OF EFU INSURANCE
Accounts department of EFU insurance have divided its duties into different sections.
Cash Collection Section
Cash Disbursement Section
Salary Preparation Section
Budget Preparation Section
Agents Commission Section

3.5 REINSURANCE DEPARTMENT

This department is considered with distributing and shredding the risks admitted for
insurance by reinsuring all or a substantial part of such risks with re-insurers witnessed with
efficiency and power financial positions who may be companies specialized in reinsurance or
direct insurance companies accepting reinsurance operations and Lloyds bodies.
The reinsurance department grants the company an accommodating capacity enables it to
accept easily and quickly insurance operations with large amounts or risks which it could not
have accepted in the absence of the facilities granted to it through reinsurance and
subsequently maintaining the financial stability of the company in connection with the results
of its works.
Page | 37

There are two basic methods of reinsurance:

Facultative Reinsurance
In facultative reinsurance, the ceding company cedes and the reinsurer assumes all or part of
the risk assumed by a particular specified insurance policy. Facultative reinsurance is
negotiated separately for each insurance contract that is reinsured. Facultative reinsurance
normally is purchased by ceding companies for individual risks not covered by their
reinsurance treaties, for amounts in excess of the monetary limits of their reinsurance treaties
and for unusual risks. Underwriting expenses and, in particular, personnel costs, are higher
relative to premiums written on facultative business because each risk is individually
underwritten and administered. The ability to separately evaluate each risk reinsured,
however, increases the probability that the underwriter can price the contract to more
accurately reflect the risks involved.
Treaty Reinsurance
It is a method of reinsurance in which the insurer and the reinsurer formulate and execute a
reinsurance contract. The reinsurer then covers all the insurance policies coming within the
scope of that contract. The reinsurance contract may oblige the reinsurer to accept
reinsurance of all contracts within the scope (known as "obligatory" reinsurance), or it may
require the reinsurer to give the reinsurer the option to reinsure each such contract.

3.6 MARKETING
In the insurance business, you want to be perceived as a person who markets instead of one
who sells products. Individuals who believe their goal in life is to sell you something; in
many ways, these persons have greatly damaged the image of the insurance and financial
service industry. Building a protection portfolio for each client will cause you to stand out,
and separate you as an adviser from the average insurance product pusher.

Page | 38

Let's face it, one who is in the insurance business can appreciate the ups and downs of the
industry. Everything you do, in the name of the client not only impacts you, but everyone else
in the world of insurance. Every scandal or omission of the facts causes us all to suffer as
well as our clients. It is bad customer service when anyone misleads a present or potential
client. That jaded individual may drop their current insurance product, which leads to
financial ruin due to a premature death and leave his or her loved one with an income deficit.
When you market, you should be letting people know what services you have to offer. As a
person in the insurance industry, your job is to protect families from financial disaster. You
are supposed to make recommendations to clients who have holes in their insurance
portfolio. This idea that everyone needs the same life insurance or health insurance policy is
ludicrous. If you try to fit everyone with the same shoe or insurance policy, then you reduce
yourself to being a pushy salesperson. We have enough corruption in every industry;
however, the insurance industry is amongst the most important, and it should be treated with
respect. You could be the difference between a widow staying in her home or having to move
into an apartment.
Look beyond your wallet on your next insurance appointment. Think of your clients as your
mother and father, and we can all sleep better at night. The insurance industry needs to police
itself and get rid of any product pushers that may still be selling insurance. It is important that
the public not only purchases insurance, but has the right kind to fit their individual needs.
Insurers will often use insurance agents to initially market or underwrite their customers.
Agents can be captive, meaning they write only for one company, or independent, meaning
that they can issue policies from several companies. Commissions to agents represent a
significant portion of an insurance cost and insurers that sell policies directly via mass
marketing campaigns can offer lower prices. The existence and success of companies using
insurance agents (with higher prices) is likely due to improved and personalized service.

Page | 39

Chapter 4
FINANCIAL ANALYSIS
In Financial analysis topics that will be discussed are
Vertical Analysis of Balance Sheet and Profit & loss Account
Horizontal Analysis of Balance Sheet and Profit & loss Account
Ratio Analysis

4.1 VERTICAL ANALYSIS OF PROFIT AND LOSS ACCOUNT

2014
Profit & Loss Account

2013
%

Rupees
Net Premium Revenue
Net Claims
Change in Premium Deficiency Reserve
Management Expenses
Net commission
Investment Income/ (Loss)
Rental Income
Profit & deposit
Other Income
Share profit/(Loss) of Associates
Exchange Gain/(Loss)
General And Admin Expenses
Amount due from State life Insurance-Written off
Profit/(Loss) before tax
Taxation- net
Profit/(Loss) after tax

in 000
5846591
3941583
2129
1134685
656319
(357955)
83513
87232
38778
151114
4342
478662
(359763)
(53558)
(413321)

%
Rupees

100
67.42
0.04
19.41
11.23
(6.12)
1.43
1.49
0.66
2.58
0.07
8.19
(6.15)
(0.92)
(7.07)

in 000
5570211
39114444
54900
1076139
461193
673524
86079
93133
9068
295196
5935
428027
801443
(69114)
732299

100
70.22
0.99
19.32
8.28
12.09
1.55
1.67
0.16
5.30
0.11
7.68
14.39
(1.24)
13.15

Page | 40

4.2 HORIZONTAL ANALYSIS OF PROFIT AND LOSS ACCOUNT

Profit & Loss Account

Net Premium Revenue
Net Claims
Change in Premium Deficiency Reserve
Management Expenses
Net commission
Investment Income/ (Loss)
Rental Income
Profit & deposit
Other Income
Share profit/(Loss) of Associates
Exchange Gain/(Loss)
General And Admin Expenses
Amount due from State life Insurance-Written off
Profit/(Loss) before tax
Taxation- net
Profit/(Loss) after tax

(%)Increase
Difference
276380
30139
(52771)
58546
195126
(1031479)
(2566)
(5901)
29710
(144082)
(1593)
50635
(1161206)
15586
(1145620)

or Decrease
4.96
0.77
(96.12)
5.44
42.31
(153.15)
(2.98)
(6.34)
327.64
(48.81)
(26.84)
11.83
(144.89)
22.54
(156.44)

4.3 Analysis of Profit & Loss Account

The net premium of the year 2014 increased but on the other side net claims are also
increased by 0.77% and net commission is also increased by 5.44%, which causes the
decrease in overall income. But overall as I threw light on past Financial data of EFU
insurance it is better than previous years.
But when we throw light on Investment income, we see company was in deficit as compared
with previous year. They should work upon it or they should reduce their investment for
sometime up till the situation of the country becomes suitable for investors.
The profit before tax shown by EFU is far lesser than its previous year. It has shown an
decrease of 144.89% that is a great loss to the company. Company should take steps to get
back to its previous position.

Page | 41

2014
Balance Sheet

2013
%

Rupees

Rupees

Cash and

in 000
1 706 571

6.95

in 000
1 349 606

6.15

Bank Deposits
Loans to

3293

.001

2775

.001

Employees
investment
Investment

11663731
235703

47.53
0.96

12643728
242110

57.63
1.10

properties
Deferred

115012

0.47

33657

0.16

taxation
Other assets
Fixed assets
Total Assets
Total equity
Underwriting

10108274
709085
24541669
9591171
12707217

41.19
2.89
100
39.08
51.78

7121559
545475
21938950
10464492
9710098

32.46
2.49
100
47.70
44.26

provisions
Deferred

40847

0.17

24379

0.11

liabilities
Creditors and

1830011

7.45

1439213

6.56

accruals
Other

372423

1.52

300768

1.37

liabilities
Total equity

24541669

100

21938950

4.4 VERTICAL
ANALYSIS OF
BALANCE SHEET

100

and
Liabilities

Page | 42

Balance Sheet
Cash and Bank Deposits
Loans to Employees
Investment
Investment properties
Deferred taxation
Other assets
Fixed assets
Total Assets
Total equity
Underwriting provisions
Deferred liabilities
Creditors and accruals
Other liabilities
Total equity and Liabilities

4.5 HORIZONTAL

Increase

ANALYSIS OF

Difference

or

BALANCE SHEET

356965
518
(979997)
(6407)
81355
2986675
163610
2602719
(873321)
2997119
16108
390798
71655
2602719

Decrease
26.45
18.67
(7.75)
(2.65)
241.72
41.94
29.99
11.86
(8.35)
30.87
67.55
27.15
23.82
11.86

Page | 43

4.6 Analysis of Balance Sheet

Total assets of the company have increased with a percentage of 11.86, which is good sign.
But still this increase is lesser than the increase company has seen in previous years.
Putting a view on investment, that has reduced by the previous year. Thats why the
investment income of company is reduced comparing with previous years. And this reduction
has shown reduction in investment properties owned by EFU insurance.
If we put an eye on total equity, it shows people have taken their money back that has
reduced the equity amount of EFU. It may be for the fact foreign investment in Pakistani
industry has been reduced sine 4-5 years. That has affected each and every business sector of
Pakistan.

4.7 Ratio Analysis

Ratio Analysis is the basic tool of financial analysis and financial analysis itself is an
important part of any business planning process as SWOT (Strengths, Weaknesses,
Opportunities and Threats), being the basic tool of the strategic analysis plays a vital role in a
business planning process and no SWOT analysis would be complete without an analysis of
companies financial position. In this way Ratio Analysis is very important part of whole
business strategic planning.
Ratios that will be computed and compared are as follows:
Return on Assets
Return on Equity
Return on Capital Employed
Earning per Share
Cash Dividend
Bonus
Dividend yield
Payout Ratio
Ratios

2014

2013
Page | 44

Return on Assets (%)

(1.68)

(25.77)

Return on Equity (%)

(4.31)

(54.14)

Return on Capital Employed (%)

(3.75)

(53.86)

Earning per share Rs.

(3.31)

(43.77)

Cash dividend (%)

12.50

40.00

Bonus (%)

Nil

8.70

Dividend yield (%)

2.48

4.10

Payout Ratio (%)

(37.76)

68.28

4.8 Interpretations of Ratios

The Return on Equity has decreased in 2014 as compared to the last year because there has
been a decrease in the paid up capital of the company and the total equity has decreased so it
is a bad sign for the company.
The rising trend in Earning per Share shows that companys share price rises in stock
exchange which is a positive sign. Bonus has not been paid in 2014 which is not a good sign
for the investors, because investor can draw his investment back for this reason.
Dividend yield was also lesser in 2014 than 2013, which is not a good sign for both, for the
investor and the company. Cash dividend paid is also showing the same results, that the value
is decreased compared with last year.

Page | 45

Chapter 5
Conclusion & Recommendation
As it was my first experience to work in practical environment, I gained a lot. I learnt how to
sit in professional environment, it is all because of the people out there helped me a lot. From
all six weeks that I spent there I understand that the organization have very strong roots in
market. It should rightly be called as a giant of Insurance Market. Based on its financials I
can surely come to a decision that the solvency position of the company is very sound. But
current political position has affected it badly. EFU needs to Re-Gain its position.
After spending six weeks at different departments of the EFU, interacting with the
employees, getting their views, observing the organizational structure and design, I have
come up with the following suggestions that in my view, will definitely improve a few
weaknesses observed in the EFU by me.
FLEXIBLE POLICIES
The EFU should adopt flexible policies, especially in the areas of the recruitment,
promotions, evaluation of the employees otherwise the high turnover observed in the EFU
will continue to create problems for the EFU now and in the future. Because not being
satisfied many experienced employees will leave the Organization.
PERMANENT HIRING
The fresh hiring should be made permanent so that they are secured of their future. Further
the allowances and perquisites attached with the permanent jobs will also increase the
motivation level of the employees. As I observed there one hiring was made during my
internship, and that was the first hiring in last 5 years and the guy appointed was not
permanent. He was on Temporary basis.
JOB TRAINING PROGRAMS
The EFU should place emphasis on the organization of effective training and development
programs for its new as well as existing employees so that these are gradually updated
regarding the recent developments in the field of Insurance. As far as I observed the persons

Page | 46

employed there were not known to insurance as thoroughly as they should being an insurance
person.
PERQUISITES AND ALLOWANCES
The number of allowances and perquisites for the employees should be increased to ensure
that they put their body and soul in the jobs assigned to them. As far as I observed they were
not being awarded as they should. Their basic salary was very low.
ADOPTION OF EFFECTIVE TECHNOLOGY
The current Computer system used by the EFU is very effective in processing. But my view
is that their is further room for improvement. They should try to be best in technology to
compete in market.
DECENTRALIZATION
The higher authorities should form team-based management rather than centralized
management. It would result in improvement in uplifting the morale of the employees. They
will be more motivated and involved in all their operations resulting in overall effectiveness
of the organization.

Page | 47

References
I got help in formation of this project from following sources;
Course Books & Reading Material
And following websites:
www.efuinsurance.com
www.wikipedia.com
www.netmba.com

www.pakre.org.pk
www.sbp.org.pk
www.karobar.pk
www.businessrecorder.com

Page | 48