CLAIMS PROVISION AT DIVISIONAL OFFICES

The outstanding liability at the year-end is determined at the divisions/branches where the liability originates for outstanding claims. Thereafter, based on the total consolidated figure for all the divisions/branches, the Head Office considers a further provision in respect of outstanding claims. Every division prepares a claims statement in the format given on the next page. To cover the possibility of errors in judgement in estimation or in cases of under-estimation of liability (where full details are not available) as also for the possibility of liability not being considered for claims incurred but not reported due to the nature of risks being such (e.g., where communication is made after a considerable time lag or after the cut-off date for preparation of final accounts) the company at its head office makes an additional provision over and above that made by Divisions/Branches on the Divisional Auditors’ Reports. Such liability is presently being cushioned to the extent of 5.5% in respect of Fire, Marine and Miscellaneous business (excluding motor, engineering, aviation, hull and credit guarantee) and 10.5% for motor and engineering business. In view of the above, total of outstanding claims comprises the estimated liability recorded at the Divisions/Branches and the further provision made on this account at head office. This provision is subject to the amount to be adjusted for re-insurances, which are dealt with at head office.

FUNCTIONAL DIVISIONS AND BOOKS OF ACCOUNTS MAINTAINED THEREIN

Considering the nature and spread of the general insurance business, the four subsidiaries of the General Insurance Corporation operate through their Head Offices, Regional/Area Offices, Divisions and Branches attached thereto. The most important part of the business operations comprises the issuance of policies for risks assumed and to indemnify the insured for losses to the extent covered by such policies. In financial terms these operations get translated into— (a) the receipt/recording of premium income; and (b) the recording and settlement of claims for losses. The business operations stated above are essentially confined to the divisional offices and the branches attached to these divisions. The accounting for these operations in these offices involve recording of premium income and provisions and payments in respect of claims under policies. Transactions related to operations at the branches are communicated for accountingthereof at the divisions. Generally, separate bank accounts are maintained for premium collections and for disbursement of expenditure. Normally, collections are transmitted to the relevant controlling office and the concerned account is not normally operated upon for expenditure etc. The branches of the divisions submit adequate information and evidence of transactions relating to their operations. The returns from the branches will include all transactions by way of documents relating to premium received, claims provisions and payments and operation of bank accounts. The following books of account/records are normally maintained at a divisional office : (i) Cash Receipt Book. (ii) Cash Disbursement Book. (iii) Dishonoured Cheque Register. (iv) State Cheque Register. (v) Daily Cash Balance Book. (vi) Claims Disbursement Book. (vii) Premium Register. (viii) Bank Transfer Journal. (ix) Journal. (x) Summary Books for incorporation of Branch Returns (Cash Receipt Statements, Cash Disbursement Statements and Premium Register after these are duly checked). (xi) General Ledger. (xii) Sub-Ledgers. (xiii) Register for Analysis of Management Expenses. (xiv) Cash Receipts, Cash Disbursement Vouchers and Journal Vouchers. (xv) Remittances Received Register. (xvi) Salvage Register. (xvii) Claims Recovery Register. (xviii)Stationary Register. (xix) Trunk Call Register.(xx) Assets Register. (xxi) Policy Stamp Register. (xxii) Excess/Shortage Register. (xxiii)Co-insurers Register. Other major areas of accounting involve accounting for investments, reinsurance and other administrative matters which are dealt with at the Head Office.

LIQUIDITY NORMS

Banking companies have to maintain sufficient liquid assets in the normal course of business. In order to safeguard the interest of depositors and to prevent banks from overextending their resources, liquidity norms have been settled and given statutory recognition. Every banking company has to maintain in cash, gold or unencumbered approved securities, an amount not less than 25% of its demand and time liabilities in India. However, this percentage is changed by the Reserve Bank of India from time to time considering the general economic conditions. This is in addition to the average daily balance which a scheduled bank is required to maintain under Section 42 of the Reserve Bank of India Act and in case of other banking companies, the cash reserve required to be maintained under Section 18 of the Banking Regulation Act.

LICENSING OF BANKING COMPANIES

A banking company can function in India if it holds a licence issued by the Reserve Bank of India in that behalf. Before granting any licence, the Reserve Bank may require to be satisfied by an inspection of the books of the company or otherwise that the following conditions are fulfilled : (a) That the company is or will be in a position to pay its present or future depositors in full as their claims accrue; (b) That the affairs of the company are not being conducted or are not likely to be conducted in a manner detrimental to the interest of its present or future depositors; (c) That the general character of the proposed management of the company will not be prejudicial to the public interest of its present or future depositors; (d) That the company has adequate capital structure and earning prospects; (e) That the public interest will be served by the grant of a licence to the company to carry on banking business in India. (f) That having regard to the banking facilities available in the proposed principal area of banks already in existince in the area and other relevant factors, the grant of the licence would not be prejudicial to the operation and consolidation of the banking system consistent with monetary stability and economic growth. Similarly, prior permission of the Reserve Bank of India is necessary to open a new place of business in India or to change the existing place of business situated in India. Also, no bank-ing company incorporated in India can open a place of business outside India or change the existing place of business without prior permission of the Reserve Bank of India.