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.