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Thursday, December 1, 2011

Is Insurance Policy Wagering Contract - Kaun Banega Crorepati takes claim from National ?

The principle of Indemnity in Insurance ensures that no body recovers more than what was lost.  Insurance cannot be for gain.  Sec 6 of Marine Insurance Act 1963 -Avoidance of Wagering Contracts : states

(1)                        Every contract of marine insurance by way of wagering is void.
(2)                        A contract of marine insurance is deemed to be a wagering contract-
(a)where the assured has not an insurable interest as defined by this Act, and the contract is entered into with no expectation of acquiring such an interest; or
(b)where the policy is made "interest or no interest", or "without further proof of interest than the policy itself", or "without benefit of salvage to the insurer" , or subject to any other like term:
Provided that, where there is no possibility of salvage, a policy may be effected without benefit of salvage to the insurer".

Kaun Banega Crorepati [KBC] was a very popular game show based on UK’s ‘Who wants to be a Millionaire’.  Amitab Bachan characteristically added flavour to the Quiz show.  I had earlier posted one on Sushil Kumar of Bihar and the Qs posed to him on his way to winning the coveted 5 Crores.  He was not be alone [crorepati] – another one Bihar, this time from Patna, Anil Kumar Sinha soon followed him winning 1 crore.  The banker from Kolkatta came to close matching Sushil but chose to quite judiciously without trying to answer the Q worth 5 crore.   There was news of Amitabh’s delight on two contestants hitting the jackpot in the show !

One of the founding principles of insurance is the distinction from wager – thought there could be uncertainty, the contracting party is not to benefit.  Insurance is a contract of indemnity whereby Insurers agree to indemnify the Insured in respect of loss or damage caused by specified occurrences.  Thus if a loss occurs, the insured would be monetarily compensated but would not allowed to benefit out of the loss.
Wagering contracts are sort of promises to give money or its worth upon the occurrence of an uncertain event and here one of the parties could stand to benefit by the occurrence or non-occurrence of a specified event.  The essence of gaming and wagering is that one party is to win and the other to lose upon a future event, which at the time of the contract is of an uncertain nature-that is to say, if the event turns out one way A will lose but if it turns out the other way, he will win.

A wager is illegal at common law.  All wagering contracts are void by statute and money deposited with stakeholder is recoverable.  According to Section 29 in The Indian Contract Act, 1872 ‘Agreements, the meaning of which is not certain, or capable of being made certain, are void’

- the example cited is ‘ A agrees to sell to B ‘ – a hundred tons of oil – here there is nothing whatever to show what kind of oil was intended. The agreement is void for uncertainty. 

As I understand the Contract Act does not define what a wagering agreement is but in essence it is where one party is to win and other to lose upon a future event which at the time of contract is of an uncertain nature.   Section 30 of the Indian Contract Act 1872 declares wagering agreements as void. Agreements by way of wager are void; and no suit shall be brought for recovering anything alleged to be won on any wager, or entrusted to any person to abide by result of any game or other uncertain event on which any wager is made.

Insurance is not akin to Gambling.   Gambles take risks for profits and also stand to lose – Insurers seek to indemnify losses arising out of insured perils which are fortuitous.   In this background the newsitem in DNA India makes a very different reading.

the report as it appeared in  is reproduced  :  NIC gets it wrong

In an industry that thrives on high television rating points (TRPs) and endorsements, the game show KBC, also popularly known as Kaun Banega Crorepati Season 5, has inflows from an additional source. It earned close to Rs1 crore by taking an over- redemption policy with National Insurance Company (NIC). This policy, which forms a part of wagering insurance, includes commercial contracts of insurance or contracts which deal in futures and options. Some experts also define it as a gambling or betting activity.

KBC purchased this policy by paying a one-time premium of Rs7.5 crore to NIC, in anticipation that they would give out prize money worth Rs7 crore and more. NIC decided to cover their risk because they believed KBC 5 wouldn’t cross the Rs7 crore mark. KBC was confident of giving out prize money worth Rs7 crore and more, but it didn’t include the prize money given to the 10 invited celebrities, who took more than Rs1.2 crore worth of prize money. The contract also suggested that Rs7 crores of prize money that KBC gives away will include only sums of Rs50 lakh, Rs1 crore and Rs5 crore. Players taking home anything below these will not be included in the amount of Rs7 crore.   The wagering agreement between KBC and NIC said if the latter loses to KBC’s skepticism then in such a case, NIC would pay KBC a maximum sum assured of Rs9 crore as its upper limit. However, the amount claimed was Rs8.5 crore by KBC as the decision fell in their favour.

“Our prediction went wrong and hence, we will pay KBC around Rs8.5 crore. But, our loss is negligible as we recovered this amount by investing Rs7.5 crore for a long period,” said a senior official from NIC. KBC paid NIC Rs7.5 crore premium early this year, whereas NIC is likely to pay them claims before this year end. With this, NIC committed their entire loss was not more than Rs5-6 lakh because they got to invest Rs7.5 crore (premium paid by KBC before the show could start) in various instruments available in the market for a period of more than six months. With this, they recovered Rs8.5 crore (sum assured that they have to now pay to KBC.)

Such over redemption policies taken, come under the umbrella of wagering insurance. In other words, the amount of money made under such contracts or agreements are known as insurance. When asked about KBC’s quiz show being authentic, reliable and reality based, the official from NIC said, “We took the plunge because the game is trustworthy and not one of those which can be manipulated. Last year also nobody won Rs5 crore bonus amount, hence, we thought it was worth taking the risk in this season..”

Here, the risk taken for KBC was shared by NIC, United India Insurance (UII) and ICICI Lombard in the ratio of 60:20:20. However, NIC acted as lead insurer because they took 60% of risk exposure. KBC has won the bet, so ICICI Lombard and UIA will also have to pay the sum assured.  Since the entire premium was paid to NIC alone, it will pay the claim of Rs8.5 crore and recover amounts from UII and ICICI Lombard in stipulated ratios of 20:20.
The decade-old reality show, for the current season, opened with approximately 5.4 TVR (television viewer ratings) points and experienced its highest rating of 8 TVR points when Sushil Kumar won Rs5 crore which was the highest prize money set by KBC since season 4. Approximately 27 million people watched this show.

With regards – S. Sampathkumar.


  1. Wow, Fantastic Blog, it’s so helpful to me, and your blog is very good,

  2. NIC made a crap bet with a flawed model... It was easy for KBC to cheat out since the celebrities were given easy peasy questions and their payouts were in lieu of agency fees and helped in TV ratings !!

    For NIC to breakeven on this contract they would have had to HAVE INVESTED AND YIELDED 31.2% RETURN which is impossible with fixed income investing in india and that too by lousy fund managers...

    this deal reeks of corruption

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