Concepts of Fidelity, Crop, Motor and Credit Insurance

Besides life, fire and marine insurance, several other useful branches of general insurance meet particular needs of business and society. The syllabus expects a basic understanding of four of them.

Fidelity insurance (fidelity guarantee insurance)

This is a contract in which the insurer agrees to compensate an employer for financial loss caused by the dishonesty, fraud, embezzlement or misappropriation of an employee who occupies a position of trust (a cashier, storekeeper or accountant). Its features:

• It protects the employer, not the employee, against loss from the dishonest acts of persons in whom money or goods are entrusted.
• The insurer, after paying the employer, can recover the amount from the guilty employee (a right of subrogation/recovery).
• It is widely taken by banks, businesses and offices where employees handle cash or valuable stock.

Crop insurance

This is a contract that protects a farmer against the loss of, or damage to, his crop caused by natural calamities beyond his control — drought, flood, excessive rain, pests, disease, hailstorm and the like. Its features:

• It gives the cultivator financial security so that a single bad season does not ruin him, and encourages him to invest in better farming.
• Because agriculture depends heavily on the monsoon and is vital to the country, crop insurance is largely promoted and supported by government schemes.
• The claim is usually settled with reference to the shortfall in yield of an area, rather than each individual field, to keep it practical over millions of farms.

Motor insurance

This is insurance of motor vehicles against loss or damage to the vehicle and against liability to third parties. Two kinds of cover exist:

• Third-party (liability) insurance — covers the owner's legal liability for injury, death or property damage caused to others by the vehicle. Under Indian law this cover is compulsory for every vehicle used in a public place.
• Comprehensive (package) insurance — covers third-party liability and damage to or theft of the insured's own vehicle. It is optional but widely taken.

Credit insurance

This is a contract in which the insurer protects a seller (creditor) against the risk of loss from a buyer's failure to pay for goods sold on credit — that is, against bad debts arising from a debtor's insolvency or protracted default. Its features:

• It gives a business the confidence to sell on credit and to expand, especially in trade where payment is delayed or the buyer is distant. …