Cover page credits: Mr.

Sagar Bangal, AM, NL Department, IRDAI

 LETTER OF TRANSMITTAL

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Working Group Report on Loss Prevention and Minimization Page 1 of 37
REPORT ON LOSS PREVENTION AND MINIMIZATION IN THE
GENERAL INSURANCE INDUSTRY

WORKING GROUP MEMBERS:

1. SMT. T.L. ALAMELU, MEMBER (NON-LIFE), IRDAI, CHAIR

2. SHRI.G. SRINIVASAN, DIRECTOR, NATIONAL INSURANCE ACADEMY, MEMBER

3. SHRI.KUNNEL PREM, CEO, INSURANCE INFORMATION BUREAU OF INDIA,

MEMBER

4. SHRI. M.NAGARAJA SARMA, SECRETARY GENERAL, GENERAL INSURANCE

COUNCIL, MEMBER

5. SHRI.C.S. AYYAPPAN, DEPUTY GENERAL MANAGER, THE NEW INDIA

ASSURANCE CO LTD, MEMBER

6. SHRI. GIRISH GANGADHARAN, SENIOR MANAGER, GIC RE, MEMBER

7. SHRI.THANGARAJU MALLAN, SENIOR VICE PRESIDENT, HDFC ERGO,

GENERAL INSURANCE COMPANY LIMITED, MEMBER

8. SHRI. A.V. RAMANAN, APPOINTED ACTUARY & SVP, MAX BUPA HEALTH
INSURANCE COMPANY LIMITED, MEMBER

9. SHRI.S.K. JAIN, VICE PRESIDENT, BROKERS ASSOCIATION OF INDIA, MEMBER

10. SMT.YEGNAPRIYA BHARATH, CHIEF GENERAL MANAGER (NON-LIFE), IRDAI,

MEMBER-CONVENER

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Working Group Report on Loss Prevention and Minimization Page 2 of 37
 CONTENTS

Chapter Page No

Chapter 1 Introduction 8

Chapter 2 International Experience 12

Chapter 3 Indian Experience 17

Chapter 4 Conceptualisation of an Organisation for Loss 20

Prevention & Mitigation
Chapter 5 Loss Prevention and Minimization in Property 23
Insurance
Chapter 6 Loss Prevention and Minimization in Motor 29
Insurance
Chapter 7 Summary of Key Recommendations 34

Appendices

Appendix 1 35
References
Appendix 2 36
Order constituting the Working Group on Loss Prevention
and Minimization in the General Insurance Industry

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 ACKNOWLEDGEMENTS

This report has been prepared with inputs from all the members of the Working
Group on Loss Prevention and Minimization in the General Insurance Industry, whose
contribution I acknowledge gratefully. I would like to thank Dr. Subhash C. Khuntia,
Chairman, IRDAI for giving me and the members of the Working Group the opportunity
to work on this very important area of the General Insurance Industry.

I must acknowledge the tremendous work done by the erstwhile Loss Prevention
Association (LPA) in the past whose work forms the genesis of many of the ideas
covered in this report. Similarly, the work done by the erstwhile Tariff Advisory
Committee (TAC) has given us immense insights into understanding the need for loss
prevention and minimization in risk assessment. My appreciation to my team in the
Non-life department for the logistics and assistance provided for the conduct of the
various meetings and in giving this report its final shape.

T.L. Alamelu
Chair,
Working Group on Loss Prevention
and Minimization in the General
Insurance Industry

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Working Group Report on Loss Prevention and Minimization Page 4 of 37
 ABBREVIATIONS
ABS Anti-lock Braking System
AI Artificial Intelligence
AMT Automatic Manual Transmission
BIS Bureau of India Standards
CAT Catastrophe
CFD Computational Fluid Dynamics
CFPS Certified Fire Protection Specialist
COPE Construction, Occupancy, Protection, Exposure
CVT Continuous Variable Transmission
DCT Dual-Clutch Transmission
DGCA Directorate General of Civil Aviation
DGFASLI Directorate General Factory Advice Service & Labour Institute
DOT Department of Transportation
EIOPA European Insurance and Occupational Pensions Authority
ESP Electronic Stability Program
EQ Earthquake
EWS Early Warning System
FPA Fire Protection Association
GPS Global Positioning System
HPR High Protected Risk
HSN Harmonized System of Nomenclature
IDV Insured Declared Value
IIBI Insurance Information Bureau of India
IIHS Insurance Institute for Highway Safety
III Insurance Institute of India
IIRM Institute of Insurance and Risk Management
IOT Internet of Things
IRDAI Insurance Regulatory and Development Authority of India
IRT Institute of Road Transport
KART Korea Automobile Insurance Repair Research and Training Centre
KSA Kingdom of Saudi Arabia
LPA Loss Prevention Association of India
LPC Loss Prevention Council
LPM Loss Prevention and Minimization
MoRTH Ministry of Road Transport and Highways
MPV Multi-Purpose Vehicle
NAIC National Association of Insurance Commissioners
NCAP New Car Assessment Program
NCB No Claim Bonus
NFPA National Fire Protection Association
NGO Non-Governmental Organisation
NIA National Insurance Academy
NIC National Industrial Classification
NTCC National Traffic Call Centre
NTSB National Transportation Safety Board

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PML Probable Maximum Loss
RISC Risk insight, Strategy & control authority
RTMC Act Road Traffic Management Corporation Act
RTO Regional Transport Office
SAMA Saudi Arabian Monetary Authority
SUV Sport Utility Vehicle
TAC Tariff Advisory Committee
UK United Kingdom

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 EXECUTIVE SUMMARY

Loss Prevention and Minimization are corollaries to insurance as a risk transfer

mechanism. While loss prevention seeks to avoid losses in the first place, loss
minimization seeks to mitigate it. Loss prevention and minimization activities are part
and parcel of what insurers do—it helps improve their claims experience. However,
industry-wide analyses of risks as well as knowledge sharing of the methodologies to
prevent and minimize losses will help build synergies and create greater awareness.
Collaboration with various agencies, Governmental and others is also the need of the
hour. Education and expertise are key to better loss prevention and minimization.

In the past, the Loss Prevention Association of India (LPA) has rendered yeoman’s
service to the general insurance industry in the area of loss prevention and
minimization. The Tariff Advisory Committee (TAC) has had its share of contribution.
There are various Government initiatives as well as those of other agencies which are
currently in vogue. But it needs a separate body which can offer a platform to stitch
them all together for the common benefit of the stakeholders concerned. The Working
Group felt that IRDAI is perfectly positioned to set up such a body under its aegis,
given its powers under Section 14 (1) (f) of IRDA Act, 1999. IRDAI can play a key role
in bringing the various agencies together on a common platform.

The body, as envisaged, would not be one directly involved in any commercial
activity but would work to promote safety and loss prevention that helps, individuals,
businesses, insurers and society in general. Ideally the body would be slim,
technologically enabled and employ competent technical and other personnel. Apart
from education, research and creating the right awareness through training, seminars
etc, the body ought to be involved in activities such as setting standards and
benchmarks, conducting post loss studies, giving risk improvement suggestions in a
generic manner, collaborate with bodies such as IIBI for the required analyses of
relevant data, carry out forensic studies and build capacity in these areas. Knowledge
sharing being one of the primary objectives, the body should publish reports on studies
carried out by it and be actively involved in dissemination through various digital
means.

This report covers Property and Motor Insurance areas specifically. The scope for
loss prevention and minimization is unlimited and covers each and every segment of
insurance, be it health, cyber or any other area. The idea of this report and the
recommendations made herein are to revive this very important aspect of general
insurance functioning that pre-supposes a symbiotic relationship amongst the various
stakeholders. The current pandemic situation has taught us many a lesson—the need
to work together, share knowledge, prevent and minimise losses and suffering for
better functioning through joint efforts, all of which will augur well for the economy and
the lives of our billions.

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 Chapter 1
Introduction

1. Background

1.1 Loss Prevention and Minimization are important aspects of loss control in General
Insurance. Insurance is a risk transfer mechanism and loss prevention and loss
minimization are corollaries to it. While loss prevention seeks to avoid losses in
the first place, loss minimization seeks to mitigate it. These activities are relevant
for each of the categories of general insurance, albeit in different ways. It would be
in the common interest of both the insurer and the insured to ensure that losses
are prevented in the first place and should losses occur, it is necessary for the
insured to take immediate steps to minimize it.

1.2 Not only are loss prevention and minimization important in reducing financial
losses for the insured or insurer but also crucial for protection of lives and property
in general. The right education and creation of awareness would play a major role.
Loss prevention and mitigation also mean lower insurance premiums in the long
run for the policyholder, besides protection for the economy.

2. Loss Control both a science and art

2.1 Rising loss ratios (as a result of increasing losses and shrinking premium) in
general insurance can destabilize the industry unless the right interventions are
carried out in a timely manner by all relevant stakeholders.

2.2 The function of loss control is not an academic or a macro level exercise but calls
for detailed examination and analysis based on a scientific approach; it is a science
because it calls for scientific knowledge to diagnose the underlying causes of
losses and develop solutions using appropriate scientific knowledge which can be
repeated in similar situations.

2.3 Loss prevention is an art as well because there is always a human element to a
loss which needs to be effectively understood and managed. “There is sufficient
evidence to indicate that loss prevention can be influenced through human
intervention during the life cycle of a risk” commented Roger Cottell, Managing
Director with Zurich Engineering in Great Britain.

2.4 An essential component of any loss prevention programme will deal with the
human factor in reducing risks. This human element manifests in the form of
contributory factors like the kind of management, human emotions and behaviour,
social setting, training, operating conditions of health and hygiene etc.
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2.5 Human safety is addressed by many government and private bodies like
DGFASLI, Regional Labour Institutes, factory inspectors and also companies
employ safety officers, welfare officers to ensure human safety and establish
protocols for handling machinery with emphasis on safety of the people working
on them.

3. Varied segments and varied risks in General Insurance

3.1 There are several areas in general insurance, each of which will require a different
approach when it comes to loss prevention and minimization. For example, in Fire
Insurance, loss prevention could mean good industrial housekeeping and training
of the workers in the use of fire-fighting appliances so that they swing into action
in the event of a fire occurring. In Marine Insurance, supervision of loading and
unloading of cargo has helped prevent many a loss. Similarly, immediate steps to
contain leakage of a tanker as a result of an accident has helped minimize the loss
of contents of the tanker. When it comes to Motor Third Party Insurance, public
awareness on the provision of the mandatory Third Party Liability insurance and
of their rights and responsibilities is crucial. This awareness itself will see a drop in
losses!

3.2 A vital area in motor insurance is road safety. Measures to improve road safety
would go a long way in reducing motor and personal accident losses for insurance
companies. MoRTH (Ministry of Road Transport and Highways) has been taking
various measures and has introduced certain initiatives. The Hon’ble Supreme
Court too has constituted a committee to look into various aspects of road safety
(SC Committee on Road Safety). The insurance industry is a key player in
implementing the same.

3.3 The insurance landscape is fast changing and is pervading into new areas which
bring with them their vulnerabilities—cyber risk for example.

4. Role of General Insurers

4.1 It is the constant endeavour of insurers to disseminate knowledge and information

on the ways and means of preventing and minimizing loss. These could be through
both formal and informal means. Indeed, loss prevention and minimization
activities are part and parcel of what the insurers do, as it helps improve their
claims experience in various ways. Starting from risk assessment to payment of
claims under a policy, insurers seek to take steps to prevent and minimize losses.
They take the help of experts to carry out risk assessment wherever required and
suggest risk improvements. They also educate their customers regarding loss
prevention and minimization. At the point of claim, the surveyor has an important
role to play in mitigating losses.
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4.2 Even while all these activities take place in the normal functioning of an insurer,
there is lack of industry-wide analyses of risks. Education and creation of
awareness of the need for and the methodologies for preventing and minimizing
losses at a macro level are also wanting. Knowledge sharing of experience relating
to loss prevention and minimization rarely happens. Insurers tend to restrict
themselves to the education of their clients through risk inspections and client
seminars.

5. Property loss control solution transcending time and geography

5.1 Property insurers who are likely to be equipped with big data on property loss may
be in the right position to analyse this data and get a cue on the causes of losses
and arrive at the likely solutions. However, this is easier said than done because it
involves a multi-disciplinary approach, calls for research facilities and requires
collaboration with industry and academia.

5.2 The existing loss control practices of the insurers are incidental to the primary
function of underwriting. Needless to state reducing the frequency and severity of
losses would benefit both insurers and insureds, as the overall burning cost and
consequently the premium rate would come down.

6. Need for collaboration

6.1 There is a need to collaborate with the Government and Government agencies
and various other agencies/authorities such as the National Disaster Management
Authority, Central Building Research Institute, Central Road Research Institute,
Indian Institute of Packaging etc.

6.2 Within the insurance orbit, collaboration is necessary with the Insurance
Information Bureau of India (IIBI), which is the primary data repository for the
insurance industry and educational bodies such as Institute of Insurance and Risk
Management (IIRM), National Insurance Academy (NIA), Insurance Institute of
India (III) etc, which are into academics and general training.

7. Education and Expertise are key

7.1 Education is a key component in loss prevention and mitigation. Simple messages
such as safety measures against fire during Diwali or following the rules while
driving need to be communicated effectively to the general public. Education
relating to loss prevention and safety can be carried out through various media—
print such as publication of booklets, brochures etc. electronic (audio and video),

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Working Group Report on Loss Prevention and Minimization Page 10 of 37
 melas and other appropriate channels in rural areas, seminars and webinars on
loss prevention and so on.

7.2 Apart from research and education, there is also a need to encourage and develop
expertise in and make available professional consultancy services in loss
prevention and loss mitigation. Today, this expertise comes from scattered
sources with exposure and expertise behind it being limited to an individual’s
experience or an organisation’s, in specific areas alone.

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 Chapter 2
International Experience

1. Loss prevention a high priority globally

1.1 Loss Prevention is a high priority of developed and developing nations through
Education, Training, Legal Provisions and use of Technology to conserve
resources. For instance, Loss prevention and mitigation in Motor Insurance is
measured through Reduced Accidents/Deaths in Highway Collisions, Pile-up
accidents in adverse weather and Avoidance of Frauds. Minimising carbon foot
prints through emission control is the primary focus of all nations even as they try
to move to becoming a more ethical society.

2. South Africa

2.1 The National Traffic Call Centre (NTCC) of South Africa was established to
report about bad drivers, unsafe vehicles, overloading, corruption in Vehicle
testing stations and so on.

2.1 The RTMC Act, 1999 of South Africa has been passed to develop the quality
and safety of road transport. They have the functional duty of training of traffic
personnel, carrying out infrastructure safety audits, carrying out accident
investigations, communicating to and educating the public about road safety
aspects. The concept of Arrive Alive plays an important role in all such activities
using digital technology. South Africa has compulsory Motor Insurance and the
Prudential Authority of South Africa (Insurance Regulator) actively coordinates
on Loss Control with the help of Government Agencies.

3. USA

3.1 USA follows State-wise Insurance Regulations. However, the National

Association of Insurance Commissioners (NAIC) plays the role of a coordinating
agency.
3.2 Loss prevention and control is a continuous process using technology such as
telematics for monitoring driver behaviour etc. using specialised agencies.
3.3 There are two organizations in USA, namely NFPA and FM Global both of
which play a vital role in property loss prevention not only in USA but also in
other parts of the world.

3.4 NFPA- National Fire Protection Association

3.4.1 The NFPA is an international non-profit organization with over 50000

members, devoted to eliminating death, injury, property and economic loss due to
fire, electrical and related hazards.

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 3.4.2 NFPA delivers information and knowledge through more than 300
consensus codes and standards, research, training, education, outreach and
advocacy, conferences and publications. NFPA, widely known as codes and
standards organization, is the backbone of loss control.

3.4.3 The codes and standards are designed to minimize the risk and effects of
fire by establishing criteria for building, processing, design, service, and
installation around the world.

3.4.4 There are more than 250 technical committees comprising of approximately
9,000 volunteers which review public inputs and vote on the revisions in a process
that is accredited by the American National Standards Institute. NFPA
provides free online access to its codes and standards.
3.5 FM Global

3.5.1 FM Global is an American company in United States with offices worldwide

with 1800 engineers on roll, that specializes in loss prevention services, primarily
to large corporations throughout the world in the Highly Protected Risk (HPR)
property insurance market sector. The FM data sheet published by FM Global
provides the standards and codes for various occupancies for property loss
prevention.

3.5.2 The FM Global Research Campus is one of the most sophisticated centres
with an eye on advancing the science of property loss prevention. Its four
laboratories focus on fire technology, natural hazards, electrical hazards, and
hydraulics, and run experiments that develop understanding around the risk via
experiments.

3.5.3 It’s services include predictive analytics, claims, cyber risk assessment,
business risk consulting, supply chain risk management, appraisal as well as other
key services and standards
3.6 NTSB- National Transportation Safety Board

3.6.1 The U.S. Department of Transportation (DOT) established the NTSB as an

independent agency. The NTSB, which has no authority to regulate, fund, or be
directly involved in the operation of any mode of transportation, conducts
investigations and makes recommendations from an objective viewpoint.

3.6.2 Since 1967, the NTSB has investigated into accidents in the aviation,
highway, marine, pipeline, and railroad modes, as well as accidents related to the
transportation of hazardous materials. The agency embarked on a major initiative
to increase employee technical skills and make their investigative expertise more
widely available to the transportation community by establishing the NTSB
Academy.

3.6.3 Since its inception, the NTSB has investigated into more than 1,32,000
aviation accidents and thousands of surface transportation accidents. It has
around 400 employees on call, 24 hours a day, 365 days a year. NTSB
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 investigators travel throughout the country and to every corner of the world to
investigate significant accidents and develop factual records and safety
recommendations with one aim—to ensure that such accidents never happen
again.

3.6.4 Because the NTSB has no formal authority to regulate the transportation
industry, their effectiveness depends on their reputation for conducting thorough,
accurate, and independent investigations and on producing timely, well-
considered recommendations to enhance transportation safety.

4. Australia

4.1 The State Insurance Regulatory Authority of New South Wales

(sira.nsw.gov.au) plays an important role in detection of frauds and loss
prevention. The approach is to conduct training and have knowledge sharing
continuously.

5. Europe

5.1 The ETSC-European Transport Safety Council:(etsc.eu), a non-profit

organisation funded by European Union, apart from Public and Private Sector
participation, is concentrating on reduction in transport crashes and casualties in
Europe. The European Insurance and Occupational Pensions Authority (EIOPA)
plays a guiding role through research papers and engagement of stakeholders
including European Union on Accident Prevention and Control through legal
provision. The current legal basis for vehicle monitoring in member states is
Directive 2014/45 of European Union from April 2014 and implemented
effectively.

6. Asia
6.1 There are specialized bodies like KART (Korea Automobile Insurance Repair
Research and Training Centre) in South Korea floated by the insurance industry
to lay down repair costs and to crash tests various vehicles and rate them based
on the economic loss they cause to the insurance industry. This body also
imparts training to insurance company officials and loss adjusters to enhance
their technical know-how and also advises about methods to deal with the
various losses. They also publish standard rate charts for various parts and
repair costs for all make and models of cars being used in South Korea.

7. United Kingdom

7.1 There are many property loss control bodies like the Fire Protection Association
- FPA UK (formerly LPC-Loss Prevention Council) - which is committed to “an
Engineering approach for property loss control and cost-effective loss
prevention program”.
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 7.2 The RISC Authority (Risk Insight, Strategy and Control Authority), administered
by FPA, is an annually funded research organization supported by a significant
group of UK insurers that conducts research in support of the development and
dissemination of best practice on the protection of property and business.

7.3 The RISC Authority carries out the following in UK.

i. Stakeholder engagement (seminars, webinars, undertake research in specific

class of occupancies for property protection)
ii. Standards representation- (Represent insurers in safety standard/codes
development committees /testing etc. BIS/NBC like we had TAC/LPA in India
but we have no equivalent body now)
iii. Information gathering and data analytics (for specific purpose of loss control)
iv. Creation of data and loss case study repository (risk survey reports, videos,
photos and summary reports of post loss study)
v. Carrying out research and Testing facility in the area of loss control
vi. Production of best-practice guides
vii. Development of loss control tool kits (both conventional check lists and digital
tools utilizing IOT, drones, AI, Analytics etc.)
viii. Dissemination of knowledge and information- (web portal and professional
journals and bulk messaging)
ix. Synergizing – creating a win- win atmosphere for stakeholders

8. Saudi Arabia

8.1 It is understood that the Saudi Arabian Monetary Authority (SAMA) has drawn
up a detailed Risk Control Policy and procedures to be followed by insurers. They
have drawn up their property regulations by adopting NFPA (National Fire
Protection Standards).

8.2 As part of their guidelines, Fire Safety Certification is a must. The Kingdom of
Saudi Arabia (KSA) Fire and Safety Regulation permits must be updated in the risk
survey report. They have established and published minimum standards of the risk
survey reports to be followed by the insurers.

8.3 SAMA stipulates the Sum Insured limits for mandatory surveys by risk
engineers; low sum insured and low hazard cases are permitted to be surveyed by
any trained staff of the insurance company and need not be by risk engineer.

8.4 They have established periodicity of re-surveys and the survey report must be
less than 3 years old at the quotation date. Where the most recent survey report is
more than a year old, and contains recommendations to mitigate insured risks, the
insurance Company must obtain a follow-up report on the actions taken by the
insured.

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 8.5 If critical and high priority recommendations made in the most recent survey
report have not been acted upon for more than a year after the report was
produced, no insurance cover may be offered. If there are any low priority
recommendations that have not been actioned more than a year after the report
was produced, the Company must collect additional premium or impose exclusions,
or additional deductibles, as may be appropriate, relating to these points.

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 Chapter 3
The Indian Experience

1. Loss Prevention Association of India (LPA)

In the past, Loss Prevention Association of India has played a leading role in imparting
knowledge and sensitising the industry as well as the public on matters concerning
road accidents etc. This included seminars for various target groups on subjects such
as road safety, safe driving etc, till it ceased to exist due to administrative reasons.
2. Government initiatives

2.1 Now, the Government of India through the Ministry of Road Transport and
Highways (MoRTH) plays an active role on Road Safety, especially Blind Spots and
shares the information with the general public. State Governments also take an active
part in regulating road transport through training institutions like the Institute of Road
Transport (IRT), Chennai, training the drivers of State Transport Buses and Heavy
Vehicles. However, the accidents on Highways continue to contribute to 55% of Road
Accidents and need to be prevented through a focussed approach.

2.2 An analytical setup like IIBI to unearth motor insurance frauds, educational
institutions like Insurance Institute of India, College of Insurance and National
Insurance Academy, Pune’s initiatives on training of insurance professionals both from
India and abroad are commendable but the horizon of loss prevention is vast.

2.3 In Motor for instance, various Automobile Associations also play an active role.
These associations operate on subscription basis and provide training and create
awareness about safe driving skills. Membership of these Associations earn discount
on Own Damage Premium for the Vehicle Owners.

2.4 Loss prevention and minimization takes on a new dimension as the nature of
motor risk moves from driver enabled vehicles to technology driven vehicles being
manoeuvred through computer programming. The present approach and outlook on
motor risk coupled with loss prevention will undergo a radical change in the days to
come. It needs an institutional set up to analyse and educate the users appropriately.

2.5 This change will lead to digitalisation taking over from human monitoring and
Artificial Intelligence controlled loss prevention and mitigation using HSN (Harmonised
system of nomenclature) of parts. However, the scope for human intervention to
prevent and minimize the loss is still available.

2.6 There is no national agency in our country on property loss control or accident
investigation which closely works with the insurance companies or vice versa except
for a few government departments like inspectorate of factories , boiler inspectors,
the police authorities, DGCA , RTOs, Bureau of Indian standards, fire brigade etc all
of whom work within their contours with no symbiotic relationship.

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3. Current practices in loss control by insurers

3.1 Property loss prevention and loss minimization practices are not common or
uniform across insurers and range from no special effort other than basic checks
during underwriting to very focused efforts with dedicated loss control team or
departments engaging specialist. As per the current practices amongst insurers in
India, loss control is seen, by and large, as incidental to underwriting and business
growth. Attention to loss control must happen through three fronts – prudent
underwriting / risk selection based on risk inspection, prudent claims management and
prudent risk management (Investigation and fraud control).

3.2 Loss prevented (or avoided) by an insurer is not necessarily a loss prevented for
the industry. There is certainly a need for an industry-wide solution here.

3.3 Risk inspection practices include in-house independent surveys by the risk
engineers in some of the insurance companies, whose reports become the basis of
underwriting. These reports provide risk assessment based on COPE features of a
risk, and risk improvement suggestions and PML assessment. While on the other end
of the spectrum there are some insurers with no dedicated risk engineering
department.

4. Survey by private surveyors/brokers

4.1 Some insurers also engage loss surveyors like the erstwhile TAC /LPA engineers
as well as other chartered engineers to get the risk surveyed on ad hoc basis.

4.2 Sometimes risk survey reports are provided by the insurance brokers – either
carried out by their in-house engineers or the survey report received from one
insurance company on the risk is circulated to other insurance companies.

4.3 Again, there are Joint Surveys conducted by groups of risk engineers of various
companies / underwriters and sales members wherein the group is taken around the
risk. But this exercise may sometimes result in poor quality surveys because of
distraction due to many people crowding and lack of quality discussions. Many man-
days could be wasted on one exercise!

4.4 The main expected outcome of the risk survey report is a clear risk analysis and
PML to enable sound underwriting and risk improvement recommendations, if any, to
improve the quality of risk. The quality of survey report also widely varies depending
upon the quality of the risk engineer, co-operation of the client and broker, duration of
survey, scope of survey, planning and scheduling of survey, independent survey or
joint survey, availability of plant engineers, availability of data, over loading the
engineer because of seasonality of surveys (crowding in last quarter) etc. There may
be insurers with high risk appetite who possibly conduct no surveys.
4.5 Every risk survey report invariably contains risk improvement recommendations
based on assorted codes and best practices of own and others. Such
recommendations are classified based on cost benefit, criticality and on physical

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Working Group Report on Loss Prevention and Minimization Page 18 of 37
 improvement which involve expenditure for implementation, or a safety process
improvement with no or minimal cost to the insured.

4.6 In spite of such good efforts by the insurers to control losses, the compliance rate
is poor as many suggestions remain on paper or repeatedly find place in subsequent
surveys but are not implemented. There could be many reasons for this – for
instance compelling a client may make him move to another insurer or suggestions
needing heavy capital investment or a cost-benefit analysis being not encouraging
or being impractical.

4.7 The cumulative effect of such ineffective practices is that the losses would
continue to rise. The insurance industry has to find a way to improve the risk survey
practice and compliance rate of at least some of the critical recommendations;
Though there is no easy solution for this, one possibility could be a loading of
premium for poor risks or application of a warranty in the policy that critical
suggestions made need to be complied with.

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Working Group Report on Loss Prevention and Minimization Page 19 of 37
 Chapter 4
Conceptualisation of an Organisation for Loss Prevention and
Minimization

1. Need for a full-time body

1.1 It is important for the relevant stakeholders to get together on a common platform
in order to achieve the common objectives of loss prevention and minimization for the
industry as a whole. The Regulator and the Industry have the primary role here.

1.2 The Working Group recommends setting up a Section 8 Company with the
objective of promoting Safety and Loss prevention. The Company should focus on
creating an environment of safety and loss prevention among industries, businesses,
insurers and society. It should be funded by IRDAI and the General Insurance
Companies.

1.3 The Company should not be directly involved in commercial activities like Risk
Inspection, Risk Management, Tracing of Cargo, Cargo Supervision, Route Surveys,
Project Monitoring or setting up motor garages etc. These activities should be left to
private business units. These private business units need to be accredited by this
institution.

1.4 The recommended body could advise insurers on the framework for encouraging
focus on improving safety and loss prevention in their organisations through a system
of benefits and penalties in premium rates and terms and conditions of insurance
policies.
1.5 It should employ competent technical personnel and should ideally be a slim
organisation. It should be technologically enabled and have regional presence
wherever required.
2. Activities to be performed by the body

2.1. To start with the body can work in the areas of Property (including Cargo) and
Motor lines of insurance businesses. While these points are covered in more detail in
the subsequent chapters, this body should broadly be dedicated to the following types
of activities:
3. Property (Illustrative)

a) Setting and reviewing codes and benchmarks in collaboration with various

industry associations.
b) Reviewing building codes for EQ resistant constructions
c) Developing and reviewing a map on flood prone risks and EQ Zones in India.
d) Setting standards for firefighting systems
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 e) Studying property losses in India and across the world and give advisories to
industry and insurers.
f) Developing safety films, posters, leaflets and provide to industry and insurers.

g) Organising seminars, workshops on safety and loss prevention for different

industries and insurers.
h) Collaborating with fire services for better firefighting operations
i) Promoting mutual aid schemes

j) Collaborating with National and State disaster bodies during catastrophes for
better loss prevention.

k) Collaborating with IIBI to collect and build segment-wise / occupancy-wise loss

data (with geo code) and analyse and publish types / patterns of losses
including severity, root cause etc and suggest suitable loss prevention and
mitigation techniques.
4. Cargo (Illustrative)
a) Advising industries on packaging and transportation
b) Developing and reviewing HSN codes for transportation of hazardous cargo

c) Developing films and literature on cargo safety including cargo handling at

ports.
d) Organising training for better cargo handling to ports, carriers, and railways
5. Motor (Illustrative)
a) Mapping high exposure accident spots across the country
b) Collaborating with police and insurers for road safety campaigns
c) Organising safe driving training programmes
d) Organising programmes for school students on road safety
e) Collaborating with vehicle manufacturers on better safety aspects in vehicles
f) Collaborating with insurers and police to reduce stolen vehicles and quick
recovery of and disposal of stolen vehicles.

g) Collecting, collating and analysing data on loss experience and making

suggestions for loss prevention and mitigation.

6. Others (Illustrative)

a) Focussing on research in all areas of safety and loss prevention in collaboration

with various educational and research institutions
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 b) Carrying nationwide TV, radio and media campaigns on safety and loss
prevention
c) Instilling a culture of safety and loss prevention in young minds by introducing
appropriate programmes in schools.

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 Chapter 5
Loss Prevention and Minimization in Property Insurance
1. Adopt /develop standards and codes for loss control

1.1 Loss minimization standards and regulations (like BIS/NBC/TAC/NFPA/FM/RISC

codes) form the back bone of loss control, and hence the same are to be adopted and
formalized by the loss prevention body for the purpose of loss control. The TAC codes
are found preserved in IIBI website under the resources section and the same can be
updated and revived i.e. own, customize, develop and publish /spread the property
loss control regulations and best practices for the industry to follow. The availability of
such codes would be essential for qualitative risk rating or ranking and bench mark
the risks.

1.2 It is also necessary to maintain liaison with insurance companies, fire advisors to
state governments, factory inspectorate and advisory services, electricity boards,
Petroleum and explosive safety organization, Bureau of Indian standards etc. to review
the existing regulations in the light of experience and to suggest modifications of
regulations. Also this body must encourage unification of regulations on the same
subject by various organizations.

1.3 The body can promote observance of minimum standards in fire- fighting, safety
equipment, electrical equipment and organize setting up of efficient testing facilities

1.4 The loss control body must participate in such code development bodies –
nationally and internationally, as LPA and TAC did have such a role in the past.
2. Risk inspection by Surveyors /Risk Engineers

2.1 Development of an expert body cannot happen overnight and needs to be

developed over a period of time. It is recommended that the requisite core talent and
manpower for the loss control function be hired from the relevant domain or class of
occupancy of high exposure risk and be blended with experienced risk engineers and
loss control professionals from the insurance industry. Pure domain experts may have
limitations when it comes to knowledge relating to loss control. On the other hand, just
being risk engineers could mean limited domain knowledge. Hence the need to
develop specialist engineers on loss control. There is a need to blend, create and
cultivate a talent pool which would gain acceptance and credibility by the stake
holders.

2.2. A central repository of all Risk Inspection Reports (insured-wise) should be

created with access being provided to insurers after masking information that might
involve confidentiality, as a knowledge-sharing initiative.

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3. Conducting post loss studies

3.1 The proposed loss control body should conduct post loss surveys for large losses
exceeding a set value and share the detailed report with root cause analysis and
suggested measures to help prevent or mitigate such losses in future.

4. Suggestions relating to risk improvements

4.1 The effectiveness of loss control of property risk would depend upon the ‘quality’
of risk improvement suggestions made by the inspecting engineer and the kind of
‘response’ received from the insured and insurer to such recommendations for loss
control. In spite of good efforts by the insurers to control losses, the compliance rate
is poor as many suggestions remain on paper or repeatedly find place in subsequent
surveys but not implemented to.

4.2 Poor risks need to be identified by a risk score / risk survey and mandated to be
differentiated suitably from good risk to enforce compliance of risk improvement
suggestions. Desired outcomes ought to be set out and/or benchmarks laid down, so
that compliance may be ensured through proper insertion of warranties and other
conditions precedent to liability, whilst the risk is being underwritten as well as through
periodical audits.
5. Collaboration with IIBI on loss data

5.1 Building up the relevant database is critical for the loss control function to be
effective and IIBI can play a critical role here. The database created needs to be
studied, analysed and interpreted by the people who understand occupancy exposure
who should seek validation from the stakeholders and then connect the findings with
the loss control effort. Greater the granularity of loss data collected the better.

5.2 The loss control body together with IIBI must collect and build segment wise /
occupancy wise loss data (with geo code) and present a snapshot view of type /
pattern of losses along with information on root causes, severity of loss & applicable
loss prevention and mitigation techniques learnt from the loss and applied for avoiding
reoccurrence.
6. Forensic studies
6.1 The loss control body should also build capabilities relating to forensic studies.
7. Conduct safety audit and safety training

7.1 The body ought to undertake safety management exercises and conduct periodic
training on safety audit for businesses; it must help organise training for fire officers
and fire men for company fire brigades as well as on economic rehabilitation after a
major loss

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8. Cargo Loss prevention

8.1 The body should involve itself in loss minimization activities in major ports like
supervision of cargo discharge, follow up of safety clearance, safe guarding of cargo
and tracing of missing cargo.

8.2 It should provide expert advice on transport of special cargo and supervision of
loading and unloading activities as well as tracking transits.

8.3 It can take up study of security systems in industrial and storage premises devise
model security systems, organize and provide training for security staff.

8.4 Liaison with Indian Institute of Packaging and conduct of packaging audits is
another area the body can deal with.

8.5 Inspection of the Infrastructure at rail sidings and stations and suggesting measures
like control of theft, wet losses etc. are also some of the possibilities. Some cargoes
like cement / fertilizers are mainly transported through rail.

8.7 A very important area is “Asset tracking by GPS “and chip mounting on cargos and
cargo trucks.

8.8 Integration of GSTN and online Way Bill databases would help tracking
consignments and reduce claim settlement TAT, which an effective loss minimization
measure.

8.9 Collaborating with Meteorological agencies for sending pre-emptive safety

advisories before/during inclement weather.

8.10 Implementation of internationally accepted HSN codes to standardise cargo

categorisation.

9. Effectiveness to be measured

9.1 The quality of the activities of the loss control body, its function and performance
are to be reviewed and measured by appropriate metrics like customer feedback, loss
ratio / burning cost improvements etc. The loss control body must aim to bring down
burning cost segment-wise, occupancy-wise etc. These are important parameters to
study its effectiveness.
9.2 The body must build capabilities and excel in its sphere of activity.
10. Current practices in risk survey and loss control

10.1 Property loss prevention and minimization practices are not common or uniform
across insurers. The quality of survey report and consequently the quality of loss
control widely varies among the insurers depending upon the quality of the risk
engineer, co-operation of the client and broker, limitation of duration of survey such as
the planning and scheduling of survey, availability of data at site, overloading,
seasonality of surveys and so on.

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10.2 There are again Joint Surveys conducted by groups of risk engineers of various
companies / underwriters and sales members where in the group is taken around the
risk to make out whatever they can make out in such group movement.

10.3 Also, some insurers engage loss surveyors, e.g. erstwhile TAC /LPA engineers
and other chartered engineers to get the risk surveyed if they deem it fit or mandatory
to get the survey done and if in-house risk engineers are not available.
11. Survey report format and PML working to be standardized

11.1 For the same COPE (Construction, Occupancy, Protection and Exposure)
information, many surveys are conducted and reports issued in various report formats
which leads to inconsistencies in the reports and findings. Therefore, it is
recommended that standard report formats for the’ risk survey report’ and common
methodology for PML working and risk scoring may be established.
12. Build loss data and risk profile data

12.1.A database of industrial property risks in the country (around 25000 cases of
above Rs. 50 Cr Sum Insured for high hazards) can be built from various sources
utilizing geo code/unique property ID as the location-wise, occupancy-wise property
identifier. The risk can be mapped to NIC (National Industrial Classification) code
across the general insurance industry and the risk survey report can capture this code
which can be shared with IIBI or the loss control body.

12.2. The survey reports/data bank now available with the insurers can be given to the
loss control body or IIBI to create a risk profile database. Also the repository of such
reports can be used for the common good of the industry on a subscription basis. The
need for surveying risk by multiple insurers, multiple number of times can be
minimized. Integration of macro databases like ROC/MCA and MSME (Udyog Aadhar)
would improve the underwriting and claims management efficiency.

13. Promote mutual aid schemes among clients

13.1 Building upon synergies will be mutually beneficial for policyholders.

14. Marine Cargo related steps

14.1 Maintain liaison with the Government and port authorities, ship owners,
insurers, road transport authorities, BIS etc. to review existing regulations in the
light of experience and to suggest modifications of regulations. To encourage
unification of regulations on the same subject by various organizations.

14.2. Coordinate with police, port authorities and customs authorities to prevent theft,
pilferage and burglaries.

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15. Research activities and Knowledge Sharing

i. Providing advisory services to trade and industry on various aspects of fire

safety right from planning and construction stage up to setting up of safety
program in operation
ii. Supporting research by competent research institutes regarding
iii. Development of fire-fighting and protective equipment
iv. Development of fire resistant materials and clothing
v. Development of designs and constructions to minimize fire hazards, fire spread
and fire load
vi. Advising on human and medical aspects of fire safety
vii. Sponsoring research into fire hazards and related problems safety precautions
in new industrial process and in problem areas
viii. Publishing technical literature on fire hazards fire safety, recommend codes of
practice and results of work done in the field in other countries.
ix. Circulating Success Stories from/Best Practices adopted by the industry with
regard to loss prevention and mitigation.

16. Courses in Risk Engineering

16.1 There is no formal diploma or degree programme in the country that imparts
knowledge on property loss control. The subject of property loss prevention and
minimization is engineering oriented and a highly technical subject as the losses of
various industries are to be controlled and there is no one institute that passes on the
knowledge of all the occupancies and its risk exposure and applicable mitigation
measures. Therefore, it is recommended that academic institutions like NIA, IIRM etc
can be encouraged to offer one or two-year duration professional courses on risk
engineering in collaboration with the recommended body.

16.2 This course can be designed to familiarize students about major loss causing
occupancies, scenario build-up of losses, about applicable standards and codes-
national & international, loss control tools and methodologies, sponsorship for
certification courses in loss control like CFPS, CFFP, under NFPA etc.

17. Emerging risk and innovation in Loss control

17.1 The research and education team must innovate on solutions for emerging risks
and take digital initiatives and adopt frontier technology of the prevailing times to
evaluate risk and formulate suitable loss control methodologies (like currently Drones,
IOT, AI, machine learning, Mobility, CFD etc.).

17.2 Over a period of time the body must graduate to develop CAT modelling
accumulation monitoring and foresee future developments detrimental to the industry
and develop solutions

17.3 The education and research team must have continuous and frequent
engagement with stakeholders through online journals, web contents,

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webinars/seminars, onsite training, conductor and or sponsor loss prevention studies
& surveys, promote subscription services.

18. Infrastructure for the loss prevention institution

18.1 Undoubtedly developing excellent risk management /loss control expertise needs
the backing of state of the art infrastructure, research and training facilities, laboratory
and testing facilities on par with the globally known institutes like FPA/NFPA/FM.

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 Chapter 6
Loss prevention and Minimization in Motor Insurance
1.Motor Insurance products

1.1 At present, Motor Insurance in India is divided largely into Private and Commercial
Vehicles apart from Miscellaneous Type of vehicles. From the Coverage perspective,
the business is segmented as Damage to Insured Vehicle (Own Damage) and
Damage to Third parties as per Motor Vehicles Act.,
2. Role of Surveyors and Institutions in Loss Control

2.1 Surveyors and Investigators are important links in loss control and they contribute
to minimize fraud and control inflated claims. Average price data on repair of parts is
not available and OEM wise database would help to standardise the category-wise
labour rates.

2.2 The findings shared by surveyors need to be captured and analysed. Institutions
like IIBI contribute to fraud monitoring by analysing the data. However, this needs to
be supplemented by deep learning techniques by a focussed body to help minimize
losses.

3. Current practices followed by Insurance Industry in the area of Loss

Prevention and Loss Minimization in Motor Insurance

3.1 Currently, each insurer has its own approach to data analytics with limited data
being available in silos. IIBI has been providing Claims search functionality with wide
usage among industry, with hits crossing the 1 Crore mark in FY 19-20 helping in
substantial savings for the industry. However, enriching the claims data available in
the repository with better quality data as well as speedier submission will help the
industry further—there are still instances of dependence on the insureds’ declaration
to reckon NCB.

3.2 Telematics is yet to be popularised and many aspects, in particular data sharing
etc needs close attention. Initiatives through the Regulatory Sandbox mode on this
aspect by some insurers are yet to be completed.
3.3 A limited effort was made by a few General Insurers on block chain for sharing
NCB details. Synergy is triggered when data sharing happens from a reliable source
through analytics and enables the users to take informed decisions.
4. Loss Minimization efforts can be in the form of various measures

a) Quantifying the risks in terms of Safety Scores, Claim Propensity Models based
on the features of the vehicles especially the safety features etc
b) Developing a repository and sharing real time information to prevent frauds in
coordination with IIBI.
c) Education and creation of awareness.

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d) Identifying Uninsured Vehicles in coordination with IIBI and following it up with
State Enforcement Agencies towards ensuring that more vehicles are insured.
Running Awareness Programmes in co-ordination with the General Insurance
Council with the Ministry of Road Transport and Highways (MoRTH) and the
States to highlight the ill effects of Uninsured Vehicles on Accident Victims and
their dependants.
e) Social policing to arrest sale of spurious parts.
f) Linking motor insurance premium to traffic offences.

5. Direct and Indirect factors that could have a bearing on loss minimization in
motor insurance

Sl.No Direct Factors Indirect Factors

1 Risk Scoring Awareness campaigns
for loss prone zones &
periods
2 IDV master and listing of safety features of Training of Company
all models Personnel and
Surveyors
3 Fraud Prevention Mechanism
4 Common Repository for Declined
Proposals including inspection
photographs
5 Part pay outs for various models - Detailed
analysis of each part for each model based
on loss experience.
6 Hot-spotting of accidents based on
Frequency & Severity
7 Cost of repair for comparable garages by
geography

6.Adoption of Technology

The following technology enabled co-existence is needed through an institutional set-

up for the Industry.
6.1 Block Chain

6.1.1 Block chain integration of Insurance Companies, IRDAI, IIBI, Road Transport
Authority, Police Department and Ministry of Road Transport and Highways(MORTH)
will bring all the stakeholders on same page. Present day country-based cloud hosting
gives space to have such data. This will help in:

 Identifying Uninsured Vehicles.

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  Segregation of Vehicles basing on manufacturing details to comply with
Emission guidelines on renewal of Insurance.

6.1.2 The Loss Prevention Body can enable insurers to share further details of
exposure & claims through the use of new technology like Block chain for seamless
sharing to prevent frauds for e.g. Pre-Inspection photos, Pre-settlement claim details,
On spot settlement claim details in subsequent insurance etc.
6.1.3 It can help in integrating databases like Sarathi (driver), FASTAG (RFID)and
traffic violations.
6.2 Identify pain points with Data Analytics and Artificial Intelligence

6.2.1 Data Analytics and use of Artificial Intelligence for Motor Loss prevention can help
analyse the features of Vehicles and the behaviour of Users.
6.3 Telematics

6.3.1 This facility is useful to price and know claim related information speedily. This
analytical tool has good features to analyse the behaviour and price accordingly apart
from initial indication of accident.
6.3.2 The work of the loss prevention and minimization body should be two pronged.
One, to carry out a forensic study of the losses to understand the cause/effect and
laying down guidelines for prevention mechanism to avoid such losses in future. The
other would be to define the standards for the industry to follow, along with best
practices in the world that act as a guide.
7. Demographic Reach

7.1 This body should delve deep into understanding the cause and consequence of
large loss geographies, major Frauds, theft prone locations, Red flagged accident
zones like National and State Highways which contribute to 55% of accidents, chronic
claimants, etc.,
8. Best Practice Guidelines

8.1. There shall also be standard guidelines on the inspection of vehicles based on
the age and model, the acts to be or not be performed in the event of a loss,
precautions to be taken by the Insured and the best practices to be adopted in the
event of a loss or during a particular season where losses are common.
9. Standardisation of Repair Costs

9.1 The body can lay down guidelines on repair charges for parts for each model of
vehicle to bring standardisation across the industry and for the manufacturers to
adhere to as this will be done in consultation with all the stakeholders for a transparent
mechanism to be evolved.

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10. Co-ordination with all Stake Holders on Loss Prevention:
9.1 The body can work closely with the Ministry of Road Transport & Highways
(MORTH) for working on Road Safety standards to be adopted across all states and
can act as a coordinator between all stakeholders i.e. Government, Insurance
Companies, Vehicle Manufacturers, Road Safety experts, NGOs etc. It can also
actively participate in vehicle recall measures and other safety initiatives launched by
various stakeholders.
11. Educative publications
11.1 The body can publish literature pertaining to ways and measures to reduce
losses, minimize the severity of losses, identify and share best practices across
various industries and identify catastrophic losses and lay down benchmarks
pertaining to them.
12. Safety Mapping of Vehicles and Rating Factor Generation
12.1 The body could work on mapping the various safety features like:

Air bags (Front/Side impact) Pedestrian safety

Turbo ABS (anti-lock braking system)
Length of Vehicle ESP (electronic stability program)

Body type (Sedan/Hatch Speed Sensing for auto door lock

back/Compact/SUV /MPV etc)
Electric Vehicles EWS-early warning system
Automatic Type (AMT/CVT/DCT) Manual Transmission
Rear cameras and sensors Crash Test rating (NCAP, IIHS etc.)

12.2 A common standardised matrix (score) which may be developed by this body in
partnership with the General Insurance Council to incorporate the safety features of
each make and model being insured so that this score can also become one of the
rating factors in insurance.
13. Collaboration with Traffic Police for training curriculum

The body could collaborate with IIBI on sharing of traffic violations and arranging
education and training programmes for chronic violators. The body should also
collaborate with the state police in establishing training curriculum for the traffic
violators especially red light jumping and drunken driving offenders.
14. Garage Network Master

A Garage Network Master can be prepared for providing the average repair costs in
terms of repair of each part, average painting costs and average turnaround times for
each type of repair which can be accessed by the industry for ready comparison. The
repairers can be graded on the basis of their performance and low-ranking garage
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personnel can be involved in orientation and training activities to enhance their skills
and knowledge. Black listing of suspicious garages can be done by collaborating with
IIBI and the General Insurance Council.

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 Chapter 7

Summary of Key Recommendations

1) The Working Group recommends setting up a Section 8 Company with

the objective of promoting Safety and Loss Prevention.
2) The Company should be promoted by the IRDAI as well as the industry.
3) The Company should liaise with Government and other relevant
agencies to achieve its objectives.
4) The Company should not be directly involved in commercial activities
like risk inspection, specific risk management, tracing of cargo, cargo
supervision, route surveys, project monitoring etc—these activities
should be left to private business units. However, the Company should
capture experience and knowledge in a generic form for education and
dissemination.
5) The Company may also set standards and benchmarks for various
activities from the insurance perspective.
6) The Company should be technologically enabled.
7) The Company should collaborate with bodies such as Insurance
Information Bureau of India as well as with various academic
institutions, bodies dealing with insurance education and build
synergies.
8) The Company may start working on promoting safety and loss
prevention in the areas of Property Insurance and Motor Insurance to
begin with and can expand into all areas of general insurance as well
as Health insurance in the future.

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APPENDIX 1: REFERENCE

1. Fire protection association UK-https://www.thefpa.co.uk/\

2. RISC authority –UK -https://www.riscauthority.co.uk/

3. National Fire Protection Association USA- https://www.nfpa.org/

4. FM Global USA-https://www.fmglobal.com/

5. National Transportation Safety Board USA https://www.ntsb.gov/

6. Saudi Arabian Monetary Authority- http://www.sama.gov.sa/

7. Insurance Information Bureau of India - https://iib.gov.in/

8. Reference materials from Ex Loss Prevention Association members:

 25 Years of LPA Draft Booklet.ppt

 Activities of LPA

 The Insurance Regulatory Bill – Presented on16.03.1999

9. RCAR Working Group manual on Technical Criteria for the certification of

body replacement parts - www.rcar.org

10. Report on Road Accidents in India – 2018 by MoRTH (www.morth.nic.in)

11. Road Traffic Management Corporation Act 1999- Republic of South Africa

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APPENDIX 2: CONSTITUTION OF THE WORKING GROUP

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