Financial Cover

Background

During the early nineties, the traditional insurance covers provided by General Insurance Industry for the financial markets were found to be woefully inadequate. With the setting up of SEBI, it was felt that as in developed countries, insurance would play a vital role in the development of the financial market, in India and which would adequately address the needs and risks of this market segment. In this context, SEBI had approached GIC to examine the possibility of insuring such risks.

Oriental were the pioneers in the development of such speciallised covers. The best coverage internationally available were suitably modified to suit the Indian market conditions and typical insurance policies were devised for Stockbrokers Stock Exchange Clearing Houses, Custodians Depository and Registrar and Share Transfer Agents.

1. Stock Brokers Insurance

This policy covers the risks of stockbrokers against physical loss of securities and counterfeit securities, infidelity of the employees, Computer Crime and error and omissions. Underwriters had insured the following under this policy:

1. National Stock Exchange
2. Delhi Stock Exchange
3. OTC Exchange of India
4. Coimbatore Stock Exchange
5. Madras Stock Exchange

2. Default Cover For Stock Exchanges

This policy has been granted to National Stock Exchange and OTC Exchange of India to cover the risk of the Exchange/Broker against financial losses.

3. Depository Insurance

The Depositories Act, 1996 provides for conversion of paper securities into electronic securities which is in line with the modernisation of the sector. This reduces the risk associated with paper-based trading.

The First Depositories in India National Securities Deposition has been insured by Oriental Insurance against the risks or Errors and Omissions, Computer Crime and other physical risks on premises during transit.

4. Custodial Services Insurance:

This Insurance cover has been provided to ANZ Grindlays Bank, Deutsche Bank, covering the various risks of securities belonging to their clients on their premises.

5. Register/Share Transfer Agents Insurance

This cover is akin to the Custodial Services Insurance covering the risks of Errors and Omissions, Computer Crime, Physical Loss of Securities/ Cash and Indefility of Employees. This cover has been provided to IIT Corporate Services.

As the risks associated with these financial insurances are enormous, Oriental have reinsured these risks in the international market. Till date, under this segment, Oriental have accounted gross premium of about Rs. 38 crores.

Salient Features of Stock Brokers Indemnity Insurance
Scope of Cover
Section-1 : Legal Liability

Legal Liability for which the Assured shall become liable to third parties (including clients of the assured) caused by the Assured's inability to complete transactions due to:

Physical loss, destruction, theft or damage of Securities and Cash however, caused including wrongful abstraction or removal, or where the same have been lost, mislaid or accidentally destroyed anywhere in the world.

The securities which have been dealt in or handled by the assured in good faith being counterfeit, fraudulently altered, forged or having been lost or stolen anywhere in the world.

The assured having been deceived as to the identity of any person to the proposal of buying or selling or securities anywhere in the world.

Section-2 : Loss of Securities and/or Cash

Indemnity is afforded to the Assured under this section for losses sustained.

In the event of physical loss, destruction, theft of damage to securities, a Cash, however, caused, including wrongful abstraction, or removal or where the same have been lost mislaid or accidentally destroyed anywhere in the world.

Indemnity will be afforded to the Assured in respect of any loss or liability incurred by them in respect of any loss, destruction, theft or damage in Securities and cash.

Section-3 : Counterfeit Securities

Indemnity is afforded to the assured under this Section for losses sustained by the reason of the Assured having in good faith acted upon written instructions or advices or having received. Securities which are or become the property of the Assured which prove to be:

Counterfeit or

forged as to signature or

Fraudulently altered or

lost or stolen.

Mechanically reproduced facsimile signaturs shall be treated the same as handwritten signatures.

Section-4 : Infidelity of Employees

Indemnity is afforded to the Assured under this section for loss resulting solely and directly from dishonest or fraudulent acts by Employees of the Assured committed with the manifest intent to cause the Assured to sustain such loss or to obtain a financial gain for themselves wherever committed and whether committed alone or on collusion with others, including loss or securities and/or Cash through any such acts by Employees.

Section-5 : Computer Crime Indemnity

1. Fraudulent input relating to funds or securities by any person (e.g. a backer) made in:

the Assured's Computer System;

a service bureau's computer system;

an electronic fund transfer system;

a customer communication system; or

by telex, fax, and other electronic media.

2. Fraudulent programming by employees or any other person (e.g. backer).
3. Viruses arising from or in connection with dealing in securities.
4. Modification or destruction or data and programmes resulting in a fraudulent transactions.
5. Loss of data, media and communications due to unauthorised access activity.

Section-6 : Errors and Omissions

This part of the cover will indemnify the Assured against their legal liability to third parties to pay compensatory damages including claimants costs, for any claims, made against them against Negligence, Libel, Slander and injurious Falsehood Breach of Copyright and Dishonesty.

Section-7 : Legal Costs

The policy is also extended to cover cost and expenses incurred for investigation, defence or settlement of any claim incurred with the prior consent of the underwriter.

Important Exclusions Relating to Section 1 to Section 4

Underwriters shall not be liable for:

a. Shortage of cash due to errors or omissions.
b. Loss of cash entrusted to any person other than assured or any employee of the assured.
c. Loss of cash being currency notes and coins due to fraud and dishonesty of any employee of the assured unless such loss is discovered within 72 hours (holidays excluded) of its occurrence.

a. Loss attributable to loss of market or delay on the part of the assured.
Consequential loss whatsoever saved to the extent that Underwriters agree hereunder to indemnity the assured against legal liability to third parties.
Further, no claims for contingent loss on the basis of future business loss during the pendency, of processing of claims or otherwise or non substitution

Any claim or loss arising from or contributed to by any dishonest, fraudulent, criminal or malicious act or omission of any employee of the assured or their predecessors in business save to the extent that such coverage is provided under Section-4.

Any claim or loss arising from or contributed by any person seeking indemnity under this. But who commits or is concerned in the commission of any fraudulent or dishonest act or ommission.

Death or bodily injury to any person or physical loss of or damage to any goods or other tangible property of any kind whatsoever.

The insolvency of the assured

Fines, penalties, punitive or exemplary damages

An act giving rise to legal liability to a shareholder as a shareholder.

Any transactions by the Assured for or on behalf of any Employee of the Assured.

Any event occurring prior to the Date specified in the policy.

The knowing failure of the assured to comply with the previsions of any statute, including any regulations made thereunder, or with any laws, regulations or requirement laid down by any statutory or supervisory body or agency, whether government or otherwise.

Any loss to any person or body sustained in consequence of any direction, by any regulatory or supervisory body, whether governmental or otherwise, which loss would not have been sustained in the absence of such direction

Conclusion Relating to Section-6 : (Errors and Omissions)

Cover of the policy does not indemnify the assured in respect of any claim or liability arising or contributed by:

any dishonest, fraudulent, criminal or malicious act or omissions of any employees of the assured or their predecessos in business save to the extent that such coverge is provided under insuring clause 4.

death or bodily injury to any person or physical loss of or a damage to any goods or other tangible property, documents or securities of any kind whatsoever.

financial and/or investment advice, representation or forecasts given by the assured or by any employees on their behalf in respect on investments which fail to perform in accordance with the same, save to the extent that such coverage is provided for in insuring clause 1 or 4.

the insolvency of the assured.

fines, penalties, punitive or exemplary damages.

an act giving rise to legal liability to a shareholder as a shareholder.

any transaction by the assured for or on behalf of any employee of the assured.

Libel or slander claims made by any current employee of the assured against the assured or against any other employee of the assured.

any event occurring prior to the Retroactive Date or dates specified in the policy.

the knowing failure of the assured to comply with the provisions of any statute, including any regulations made thereunder or with any laws, regulations or requirements laid down by any regulatory or supervisory body or agency, whether government or otherwise, save to the extent that such coverage is provided under insuring clause 4.

Depository and Depository Participants Indemnity Insurance
Scope of Cover
Section One : Infidelity of Employees Only
Insuring Clause

Indemnity is afforded to the assured to the assured under this section for loss resulting solely and directly by one or more dishonest or fraudulent acts of any employees, wherever committed and whether committed alone or in collusion with any other person, including loss of property through any such acts of any such employee.
Any sum of money, which but for the fraud or dishonesty of an employee would become payable to the employee, shall be deducted from the amount of loss, before a claim is made under this indemnity by the assured.

Section Two : Other Perils Excluding Infidelity of Employees

Indemnity is afforded to the assured in respect of direct financial loss sustained by the assured or liability incurred by them t third parties in the following manner:

Insuring Clause-1 : On Premises:

By reason of property being lost through theft, larceny, burglary, robbery, false pretenses, holdup or mysterious unexplainable disappearance or being damaged, destroyed or misplaced, howsoever or by whosoever caused, whilst such property is in or upon any premises wherever situated.

Insuring Clause - 2 : In Transit

By reason of:

Property, other than securities being lost or damaged from any cause while in transit anywhere in the custody of any employee, or of any reason or persons acting as messenger, except while in mail or with a carrier for hire other than armoured motor vehicle company.

Securities being lost or damaged from any cause while in transit anywhere in the custody of any employees, or any person or persons acting as a messenger with a carrier for hire.

Special Conditions:

Transit shall be deemed to commence from the time the transporting person or persons receive(s) the property from or on behalf of the assured and shal be deemed to end immediately upon delivery to the designated recipient or its agent.

Insuring Clause - 3 : De-materialised Forged and Fake Securities

By reason of the assured having in good faith and in the ordinary course of its business acted upon securities and/or Stock and Share Certificates which prove to be:

Counterfeit or

forged as to signature or

fraudulently altered, or

lost or stolen or

defective to the extent that the Assured and/or the nominee company is prevented from obtaining ownership or transferring ownership of such securities and/or Stock and Share Certificates due to a fraudulent non-disclosure.

Mechanically reproduced fascimile signatures shall be treated the same as handwritten signature.

Special Condition:

It is a condition precedent to cover under this Insuring Clause that such Securities and/or Stock and Share Certificates have been de-materialised and taken on record by the assured.

Special Definition:

The word 'Counterfeit' shall be deemed to mean a reproduction of an authentic security and/or Stock and Share Certificates as set forth above which is intended to receive and to be taken for the authentic original instrument.

Insuring Clause - 4 : Forged Transfer Instructions

By reason of the assured having acted upon any written instruction or advices purportedly received from the beneficial owner, or the pledgee, of the securities addressed to the assured which instructions or advices bear a forged signature or have been fraudulently altered.

Section Three : Electronic and Computer Crime

Indemnity is afforded to the Assured in respect of direct financial loss sustained by the assured or liability incurred by them to third parties on the assured's computer system in respect of its operations on the Depository in the following manner:

Insuring Clause-1 Computer Systems
Insuring Clause-2 Electronic Computer Instructions
Insuring Clause-3 Electronic Data and Media
Insuring Clause-4 Computer Virus
Insuring Clause-5 Electronic Communications
Insuring Clause-6 Electronic Transmissions
Insuring Clause-7 Electronic Securities
Insuring Clause-8 Forged Telefascimile
Insuring Clause-9 Voice Initiated Transfers

Professional Indemnity
Insuring Clause

This part subject to its terms exclusions, limitations and conditions provides indemnity to the assured in respect of the assured's legal liability to third parties for any third party claim which meets the following requirements:

Any third party claim must:

be for compensatory damages. Such indemnity to include claimants costs and the assured's approved defence costs and expenses; and

be first made against the assured during the policy period; and

be for financial loss caused by a negligent act, negligent error, negligent omission, dishonest act, libel or slander or copyright infringement on the part of an officer or employee of the assured; or

be for financial loss caused by documents, which are the property of or which are entrusted to the assured and which are supposed by them to be, or believed to be, in their possession or in the possession of any other party, having been destroyed, or damaged or lost or mislaid and which, after diligent search, cannot be found.

arise out of the ordinary couse of the provision by the assured of the services described in the Proposal Form and as laid down in the Depositories Act, 1996 and any statutory modifications and re-enactment thereof.

Custodial Services Insurance in India
Salient Features

Scope of Cover:

Section-1

This section indemnifies the insured against any loss or liability incurred by them anywhere in the world due to physical loss of securities and/or cash, loss due to reliance on counterfeit securities, forged cheques as well as computer crime.

Section - II

Under this section, the insured is protected against loss resulting form the dishonesty or fraudulent acts of his employees to obtain financial gains for themselves and which loss has occurred without him being aware of any such practice. Expenses incurred by the insured in investigating and ascertaining the extent of loss is payable to the insured with prior written approval of the insurers.

Special Conditions in respect of Section I and Section II

Maximum indemnity afforded to the insured in respect of each loss will be calculated by estimating the value of the security as at the mid-market price or value on the day of discovery of loss (excluding Sundays and Public Holidays).

Loss covered in the above sections will be settled in kind by the underwriters at the option of the insured the cost of replacing such securities determined at the market value at the time of such settlement or by agreement/arbitration if such value does not exist. The loss covers all costs necessarily incurred by the insured to replace such securities and also includes loss resulting from loss of subscription, conversion, redemption or deposit privileges.

The insured is protected against loss discovered during the policy period only.

Section - III Errors and Omissions

Legal liability to third parties to pay compensatory damages, including claimants costs notified to insurers during the period of insurance and which loss is not covered under Section I and Section II.

The loss incurred by the insured under the following clauses are indemnified:

Negligence of employees or breach of professional duty of the insured and/or his employees.

Libel , slander, and injurious falsehood in respect of written and/or oral matter.

Breach of copyright.

Dishonest or Fraudulent Act or omission of any employee.

The above protection is subject to:

The matter being brought to the immediate alteration of insurers.

Corrective action with prior approval of insurers or in strict accordance with the relevant rules of the Indian Regulatory Authority or any recognised stock exchange the liability does not exceed those which have arisen under Clauses 1 to 4.

Exclusions: