52571626 Indian Insurance

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Indian Insurance

Introduction:

The Insurance sector in India governed by Insurance Act, 1938,

the Life Insurance Corporation Act, 1956 and General Insurance

Business (Nationalisation) Act, 1972, Insurance Regulatory and

Development Authority (IRDA) Act, 1999 and other related Acts.

With such a large population and the untapped market area of

this population Insurance happens to be a very big opportunity

in India. Today it stands as a business growing at the rate of 15-

20 per cent annually. Together with banking services, it adds

about 7 per cent to the countrys GDP .In spite of all this growth

the statistics of the penetration of the insurance in the country is

very poor. Nearly 80% of Indian populations are without Life

insurance cover and the Health insurance. This is an indicator

that growth potential for the insurance sector is immense in India.

It was due to this immense growth that the regulations were

introduced in the insurance sector and in continuation

Malhotra Committeewas constituted by the government in

1993 to examine the various aspects of the industry. The key

element of the reform process was Participation of overseas

insurance companies with 26% capital. Creating a more efficient


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and competitive financial system suitable for the requirements of

the economy was the main idea behind this reform.

Since then the insurance industry has gone through many sea

changes .The competition LIC started facing from these

companies were threatening to the existence of LIC .since the

liberalization of the industry the insurance industry has never

looked back and today stand as the one of the most competitive

and exploring industry in India. The entry of the private players

and the increased use of the new distribution are in the limelighttoday. The use of new distribution techniques and the IT tools has

increased the scope of the industry in the longer run.

Meaning of Insurance:

Insurance is a contract between two parties whereby one

party called insurer undertakes in exchange for a fixed sum called

premium, to pay the other party called insured a fixed amount of

money on the happening of certain event. Insurance indemnifies

assets and income. Every asset (living and non-living) has a value

and it generates income to its owner. The income has been

created through the expenditure of effort, time and money.

Every asset has expected lifetime during which it may

depreciate and at the end of life period it may not be useful, till

then it is expected to function. Sometimes it may cease to exist

or may not be able to function partially or fully before the

expected life period due to accidental occurrences like burglary,


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collisions, earthquakes, fire, flood, theft, etc. These types of

possible occurrences are risks

Future is uncertain; nobody knows what is going to happen? It

may or may not? Insurance is the concept of risk management

the need to manage uncertainty on account of above stated risks.

Insurance is a way of financing these risks either fully or

partially. Insurance industry has both economic and social

purpose and relevance Insurance business in India can be broadly

divided into two categories such as Life Insurance and General

Insurance of Non-life insurance.

History of Insurance in India:

Insurance has a long history in India. Life Insurance in its

current form was introduced in 1818 when Oriental Life Insurance

Company began its operations in India. General Insurance washowever a comparatively late entrant in 1850 when Triton

Insurance company set up its base in Kolkata. History of

Insurance in India can be broadly bifurcated into three eras:

a) Pre Nationalisation,

b) Nationalisation and,

c) Post Nationalisation.


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Life Insurance was the first to be nationalized in 1956. Life

Insurance Corporation of India was formed by consolidating the

operations of various insurance companies. General Insurance

followed suit and was nationalized in 1973. General Insurance

Corporation of India was set up as the controlling body with New

India, United India, National and Oriental as its subsidiaries. The

process of opening up the insurance sector was initiated against

the background of Economic Reform process which commenced

from 1991.

For this purpose Malhotra Committee was formed during this

year who submitted their report in 1994 and Insurance Regulatory

Development Act (IRDA) was passed in 1999. Resultantly Indian

Insurance was opened for private companies and Private

Insurance Company effectively started operations from 2001.


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Characteristics of Insurance:

Sharing of risks

Cooperative device

Evaluation of risk

Payment on happening of a special event

The amount of payment depends on the nature of losses

incurred.


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INSURANCE SECTOR A PREVIEW:

The insurance sector in India dates back to 1818, when

Oriental Life Insurance Company was incorporated at Calcutta.

Thereafter, few other companies like Bombay Life Assurance

Company, in 1823 and Triton Insurance Company, for General

Insurance, in 1850 were incorporated. Insurance Act was passed

in 1928 but it was subsequently reviewed and comprehensive

legislation was enacted in 1938. The nationalisation of life

insurance business took place in 1956 when 245 Indian and

Foreign Insurance provident societies were first merged and then

nationalized. It paved the way towards the establishment of Life

Insurance Corporation (LIC) and since then it has enjoyed a

monopoly over the life insurance business in India. General

Insurance followed suit and in 1968, the insurance act was

amended to allow for social control over the general insurance

business. Subsequently in 1973, non-life insurance business was


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nationalised and the General Insurance Business (Nationalisation)

Act, 1972 was promulgated. The General Insurance Corporation

(GIC) in its present form was incorporated in

1972 and maintains a very strong hold over the non-life insurance

business in India. Due to concerns of

(a)Relatively low spread of insurance in the country.

(b) The efficient and quality functioning of the Public Sector

insurance companies

(c) The untapped potential for mobilizing long-term contractual

savings funds for infrastructure the (Congress) government set upan Insurance Reforms committee in April 1993.

How big is the insurance market?

Insurance is an Rs.400 billion business in India, and together with

banking services adds about 7% to Indias GDP. Gross premium

collection is about 2% of GDP and has been growing by 15-20%

per annum. India also has the highest number of life insurance

policies in force in the world, and total investible funds with the

LIC are almost 8% of GDP. Yet more than three-fourths of Indias

insurable population has no life insurance or pension cover.

Health insurance of any kind is negligible and other forms of non-

life insurance are much below international standards. To tap the

vast insurance potential and to mobilize long-term savings we

need reforms which include revitalizing and restructuring of the


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public sector companies, and opening up the sector to private

players. A statutory body needs to be made to regulate the

market and promote a healthy market structure. Insurance

Regulatory Authority (IRA) is one such body, which checks on

these tendencies.

INDIVIDUAL LIFE INSURANCE COVERAGE INDEX,

2008.

COUNTRY NO. OF POLICIES PER 100

PERSONS

Indonesia 2.0

Philippines 5.6

India 12.4

Thailand

Malaysia 35.5


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Hong Kong 69.4

South Korea 70.5

Taiwan

Singapore 112.6

Japan

BOTTLENECKS GOVERNMENT / RBI REGULATIONS:

The IRDA bill proposes tough solvency margins for private

insurance firms, a 26% cap on foreign equity and a minimum

capital of Rs.100 crores for life and general insurers and Rs. 200

crores for reinsurance firms. Section 27A of the Insurance Act

stipulates that LIC is required to invest 75% of its accretions

through a controlled fund in mandated government securities. LIC

may invest the remaining 25% in private corporate sector,

construction, and acquisition of immovable assets besides


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sanctioning of loans to policyholders. These stipulations imposed

on the insurance companies had resulted in lack of flexibility in

the optimisation of risk and profit portfolio. If this inflexibility

continues, the insurance companies will have very little leverage

to earn more on their investments and they might not be able to

offer as flexible products as offered abroad. The government

might provide more autonomy to insurance companies by

allowing them to invest 50 % of their funds as per their own

discretions. Recently RBI has issued stiff guidelines, which had

dealt a severe blow to the plans of banks and financial institutionsto enter the insurance sector. It says that non-performing assets

(NPA) levels of the prospective players will have to be 1% point

lower than the industry average (presently 7.5%). RBI has also

stipulated that all prospective entrants need to have a net worth

of Rs. 500 crores. These guidelines have made it virtually

impossible for many banks to get into the insurance business.

Also banks and FIs who are planning to enter the business cannot

float subsidiaries for insurance. RBI has taken too much caution to

make sure that the new sector does not experience the kind of

ups and downs that the non-bank financial sector has

experienced in the recent past.

They had to rethink about these guidelines if Indias strong banks

and financial institutions have to enter the new business. The

insurance employees union is offering stiff resistance to any

private entry.

Their objectionsare:


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(a) That there is no major untapped potential in insurance

business in India;

(b) That there would be massive retrenchment and job losses due

to computerization and modernization; and

(c) That private and foreign firms would indulge in reckless

profiteering and skim the urban cream market, and ignore the

rural areas. But all these fears are unfounded.The real reason behind the protests is that the dismantling

of government monopoly would provide a benchmark to evaluate

the governments insurance services.

CHRONOLOGICAL DEVELOPMENT OF INSURANCE

SECTOR:


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1818 - Establishment of British firm Oriental Life Insurance

Company in Calcutta

1823 - Establishment of Bombay Life Assurance Company

1912 - The Indian Life Assurance Companies Act 1912 (First

statutory measure to regulate Life Insurance business)

1938 The Act 1928 was consolidated and amended by the

Insurance Act with effective control over the activities of insurers

1950 The Act was amended resulting in far reaching changes

in the insurance sector, including, a statutory requirement ofequity capital for companies carrying on life insurance business,

ceiling on share holdings in such companies, strict control on

investments, submission of periodical returns relating to

investments and such other information to the controller.

1956 154 Indian insurers, 16 foreign insurers and 75 provident

societies were carrying on life insurance business in India mostly

concentrated in Urban Areas.


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1956 January 19, the management of life insurance business

of 245 Indian and Foreign insurers and provident fund societies,

then operating in India, was taken over by the Central

Government. By an Act of Parliament, viz., LIC Act 1956, with a

capital contribution of Rs.50 million, Life Insurance Corporation

(LIC) was formed in September 1956.

1971 Management of Non-Life insurers was taken over by the

Central Government as a prelude to nationalization

1972 General insurance was urban-centric, catering mainly to

the needs of organized trade and Industry. 107 insurers including

branches of foreign companies operating in the country were

amalgamated and grouped into four companies, viz., The National

Insurance Company Ltd., The Oriental Insurance Company Ltd.,

The New India Assurance Company Ltd., and The United India

Insurance Company Ltd.

1973 Watershed in the history of General Insurance Business

in India. The General Insurance Business was nationalized with

effect from January 1, 1973 by the General Insurance Business

(Nationalisation) Act, 1972.


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1993 First Step to Liberalisation. In April 1993 Malhotra

Committee formed to recommend measures to deregulate Indian

Insurance Sector, and submitted its report in January 1994.

Ancient Indian History:

It finds mention in the writings of Manu ( Manusmrithi ),

Yagnavalkya (Dharmasastra ) and Kautilya

( Arthasastra ). The writings talk in terms of pooling of resources

that could be re-distributed in times of calamities such as fire,

floods, epidemics and famine. This was probably a pre-cursor tomodern day insurance. Ancient Indian history has preserved the

earliest traces of insurance in the form of marine trade loans and

carriers contracts. In 1818 saw the advent of life insurance

business in India with the establishment of the Oriental Life

Insurance Company in Calcutta. This Company however failed in

1834. In 1829, the Madras Equitable had begun transacting life

insurance business in the Madras Presidency. 1870 saw the

enactment of the British Insurance Act and in the last three

decades of the nineteenth century, the Bombay Mutual (1871),

Oriental (1874) and Empire of India (1897) were started in the

Bombay Residency. This era, however, was dominated by foreign

insurance offices which did good business in India, namely Albert

Life Assurance, Royal Insurance, Liverpool and London Globe

Insurance and the Indian offices were up for hard competition

from the foreign companies. In 1914, the Government of India

started publishing returns of Insurance Companies in India. The


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Indian Life Assurance Companies Act, 1912 was the first statutory

measure to regulate life business. In 1928, the Indian Insurance

Companies Act was enacted to enable the Government to collect

statistical information about both life and non-life business

transacted in India by Indian and foreign insurers including

provident insurance societies.

In 1938, with a view to protecting the interest of the Insurance

public, the earlier legislation was consolidated and amended by

the Insurance Act, 1938 with comprehensive provisions for

effective control over the activities of insurers. The Insurance

Amendment Act of 1950 abolished Principal Agencies. However,

there were a large number of insurance companies and the level

of competition was high. There were also allegations of unfair

trade practices. The Government of India, therefore, decided to

nationalize insurance business. An Ordinance was issued on 19th

January, 1956 nationalizing the Life Insurance sector and Life

Insurance Corporation came into existence in the same year.

The history of general insurance dates back to the Industrial

Revolution in the west and the consequent growth of sea-faring

trade and commerce in the 17th century. It came to India as a

legacy of British occupation. In 1907, the Indian Mercantile

Insurance Ltd was set up. This was the first company to transact

all classes of general insurance business. In 1957 saw the

formation of the General Insurance Council, a wing of the


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Insurance Association of India. The General Insurance Council

framed a code of conduct for ensuring fair conduct and sound

business practices. In 1968, the Insurance Act was amended to

regulate investments and set minimum solvency margins. The

Tariff Advisory Committee was also set up then. In 1972 with the

passing of the General Insurance Business (Nationalization) Act,

general insurance business was nationalized with effect from 1st

January, 1973. The General Insurance Corporation of India was

incorporated as a company in 1971 and it commence business on

January 1sst 1973.

This millennium has seen insurance come a full circle in a journey

extending to nearly 200 years. The process of re-opening of the

sector had begun in the early 1990s and the last decade and

more has seen it been opened up substantially.

In 1993, the Government set up a committee under the

chairmanship of RN Malhotra, former Governor of RBI, to propose

recommendations for reforms in the insurance sector. The

objective was to complement the reforms initiated in the financial

sector. The committee submitted its report in 1994 wherein,

among other things, it recommended that the private sector be

permitted to enter the insurance industry. They stated that

foreign companies be allowed to enter by floating Indian

companies, preferably a joint venture with Indian partners.


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Following the recommendations of the Malhotra Committee

report, in 1999, the Insurance Regulatory and Development

Authority (IRDA) was constituted as an autonomous body to

regulate and develop the insurance industry. The IRDA was

incorporated as a statutory body in April, 2000. The key

objectives of the IRDA include promotion of competition so as to

enhance customer satisfaction through increased consumer

choice and lower premiums, while ensuring the financial security

of the insurance market. The IRDA opened up the market in

August 2000 with the invitation for application for registrations.Foreign companies were allowed ownership of up to 26%. The

Authority has the power to frame regulations under Section 114A

of the Insurance Act, 1938 and has from 2000 onwards framed

various regulations ranging from registration of companies for

carrying on insurance business to protection of policyholders

interests.

In December, 2000, the subsidiaries of the General

Insurance Corporation of India were restructured as independent

companies and at the same time GIC was converted into a

national re-insurer. Parliament passed a bill de-linking the four

subsidiaries from GIC in July, 2002.Today there are 14 general

insurance companies including the ECGC and Agriculture

Insurance Corporation of India and 14 life insurance companies

operating in the country.


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The insurance sector is a one and is growing at a speedy rate of

15-20%. Together with banking services, insurance services add

about 7% to the countrys GDP. A well-developed and evolved

insurance sector is a boon for economic development as it

provides long- term funds for infrastructure development at the

same time strengthening the risk taking ability of the country.

Principles of Insurance:

Principle of Utmost good faith.

Principle of Indemnity.

Principle of Causa Proxima.

Principle of Insurable Interest.

Doctrine of Subrogation.

LIBERALISATION OF INSURANCE SECTOR:

1990s saw the emergence of liberalisation. Liberalisation meant

lifting government controls, permits, licenses and allowing

competition to play its role in the economy. With respect to theinsurance business, liberalisation means allowing private

enterprises, including MNCs, to operate in the area that was

hitherto monopolised by the Government of India.


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As a first step towards allowing private sector entry,

Government of India appointed a committee under the

chairmanship of Sri. Malhotra. The Committee submitted its

report in 1994, recommended, among after things, that the

insurance sector in India be thrown open to private sector.

Government accepted the recommendations and allowed private

players to offer insurance cover to Indian citizens.

WHY LIBERALISATION OF INSURANCE SECTOR?

To avoid monopolized (by the State run LIC and GICs) market.

Create awareness in urban areas about the needs and benefits

of insurance.


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To reduce the yawning gap between the needs of customers and

products being offered by the state owned companies.

To mobilize funds from the economy for the infrastructure

development.

To provide multiple innovative products.

To provide better customers service from existing state owned

player

MALHOTRA COMMITTEE RECOMMENDATION:

Structure

Government stake in the insurance Companies to be brought

down to 50 per cent.


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Government should take over the holdings of GIC and its

subsidiaries, to act these as independent companies.

All insurance companies should be given greater freedom to

operate. No special dimension is given to government

companies.

Increase of capital base of LIC and GIC up to Rs. 200 crores, half

retained by the government and the rest sold to the public at

large with suitable reservations for its employees.

Competition :

Private Companies are allowed to enter insurance industry with

a minimum paid up capital of Rs. 1billion.


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No company should deal in both Life and General Insurance

through a single entity.

Foreign insurance may be allowed to enter the industry by

floating an Indian company as joint venture with Indian partner.

Postal Life Insurance should be allowed to operate in the rural

market. Only and one State Level Life Insurance Company should

be allowed to operate in each State.

Regulatory Body :

Establishment of a strong and effective insurance regulatory

body in the form of a statutory autonomous board on the lines of

SEBI.

Controller of Insurance to be made independent Investments

Mandatory Investments of LIC Life Fund in government securitiesto be reduced from 75 per cent to 50 per cent.


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GIC and its subsidiaries are not to hold more than five per cent

in any company (the current holdings to be brought down to this

level over a period of time

Customer Service :

LIC should pay interest on delays in payments beyond 30 days.

Insurance companies must be encouraged to set up unit linkedpension plans.

Computerisation of operations and updating of technology to be

carried out in insurance industry

Insurance Market - Present status:


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The insurance sector was opened up for private participation four

years ago. For years now, the private players are active in the

liberalized environment. The insurance market have witnessed

dynamic changes which includes presence of a fairly large

number of insurers both life and non-life segment. Most of the

private insurance companies have formed joint venture

partnering well recognized foreign players across the globe.

There are now 29 insurance companies operating in the Indian

market 14 private life insurers, 9 private non-life insurers and 6

public sector companies. With many more joint ventures, the

insurance industry in India today stands at a crossroads as

competition intensifies and companies prepare survival strategies

in a de terrified scenario. There is pressure from both within the

country and outside on the Government to increase the foreign

direct investment (FDI) limit from the current 26% to 49%, which

would help JV partners to bring in funds for expansion. Less than10 % of Indians above the age of 60 receive pensions. The health

insurance sector has tremendous growth potential, and as it

matures and new players enter, product innovation and

enhancement will increase.

State c ontinue s to dominate: There may be room for manymore players in a large underinsured market like India with a

population of over one billion. But the reality is that the intense

competition in the last five years has made it difficult for new


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entrants to keep pace with the leaders and thereby failing to

make any impact in the market.

Also as the private sector controls over 26.18% of the life

insurance market and over 26.53% of the non-life market, the

public sector companies still call the shots. The countrys largest

life insurer, Life Insurance Corporation of India (LIC), had a share

of 74.82% in new business premium income. Similarly, the four

public-sector non-life insurers New India Assurance, National

Insurance, Oriental Insurance and United India Insurance had a

combined market share of 73.47% .ICICI Prudential Life Insurance

Company continues to lead the private sector with a 7.26%

market share in terms of fresh premium, whereas ICICI Lombard

General Insurance Company is the leader among the private non-

life players with a 8.11% market share. ICICI Lombard has focused

on growing the market for general insurance products and

increasing penetration within existing customers through productinnovation and distribution.

Reaching Out To Customers : No doubt, the customer profile in

the insurance industry is changing with the introduction of large

number of divergent intermediaries such as brokers, and

corporate agents. The industry now deals with customers whoknow what they want and when, and are more demanding in

terms of better service and speedier responses. With the industry

all set to move to a de terrified regime by 2007, there will be


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considerable improvement in customer service levels, product

innovation and newer standards of underwriting.

Intense Competition : In a de terrified environment, competition

will manifest itself in prices, products, underwriting criteria,

innovative sales methods and creditworthiness. Insurance

companies with each other to capture market share through

better pricing and client segmentation. The battle has so far been

fought in the big urban cities, but in the next few years, increased

competition will drive insurers to rural and semi-urban markets.

Global Standards : While the world is eyeing India for growth

and expansion, Indian companies are becoming increasingly

world class. Take the case of LIC, which has set its sight on

becoming a major global player following an Rs280-crore

investment from the Indian government. The company now

operates in Mauritius, Fiji, UK, Sri Lanka, and Nepal and will soon

start operations in Saudi Arabia. It also plans to venture into the

African and Asia-Pacific regions.

With life insurance premiums being just 2.5% of GDP and general

insurance premiums being 0.65% of GDP, the opportunities in the

Indian market place is immense. The next five years will be

challenging but those that can build scale and market share will

survive and prosper.


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Development of Insurance in India.


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Types of Insurance

Life Insurance

General Insurance

Fire Insurance

Marine Insurance


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Life Insurance:

Life insurance is a contract between the policy owner and the

insurer, where the insurer agrees to pay a designated beneficiary

a sum of money upon the occurrence of the insured individual's or

individuals' death or other event, such as terminal illness or

critical illness. In return, the policy owner agrees to pay a

stipulated amount at regular intervals or in lump sums.

Need for Life Insurance:

A life insurance policy assures complete peace of mind as it

prepares the family to face any financial crisis in case of untimelydemise of the insured person. Life insurance also serves as a tax

saving mechanism, and hence play a crucial role in the process of

ones financial planning to secure the future of the survivors.

Types of life insurance policies:

Most of the products offered by Indian life insurers are developed

and structured around these "basic" policies and are usually an

extension or a combination of these policies.

Term Insurance Policy

Whole Life Policy


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Endowment Policy

Money Back Policy

Annuities And Pension

Term Insurance Policy:

A term insurance policy is a pure risk cover for a specified

period of time. What this means is that the sum assured is

payable only if the policyholder dies within the policy

term. For instance, if a person buys Rs 2 lakh policy for

15-years, his family is entitled to the money if he dies

within that 15-year period.

What if he survives the 15-year period? Well, then he is

not entitled to any payment; the insurance company

keeps the entire premium paid during the 15-year period.

So, there is no element of savings or investment in such a

policy. It is a 100 per cent risk cover. It simply means that

a person pays a certain premium to protect his family

against his sudden death. He forfeits the amount if he

outlives the period of the policy. This explains why the

Term Insurance Policy comes at the lowest cost.

Whole Life policy:

As the name suggests, a Whole Life Policy is an insurance

cover against death, irrespective of when it happens.


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Under this plan, the policyholder pays regular premiums

until his death, following which the money is handed over to

his family.

This policy, however, fails to address the additional needs of the

insured during his post-retirement years. It doesn't take into

account a person's increasing needs either.

Endowment Policy:

Combining risk cover with financial savings, endowment policies

is the most popular policies in the world of life insurance.

In an Endowment Policy, the sum assured is payable even if

the insured survives the policy term.

If the insured dies during the tenure of the policy, the

insurance firm has to pay the sum assured just as any other

pure risk cover.

A pure endowment policy is also a form of financial saving,whereby if the person covered remains alive beyond the

tenure of the policy, he gets back the sum assured with

some other investment benefits.

Money Back Policy:

These policies are structured to provide sums required as

anticipated expenses (marriage, education, etc) over a

stipulated period of time. With inflation becoming a big

issue, companies have realized that sometimes the money

value of the policy is eroded. That is why with-profit policies


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are also being introduced to offset some of the losses

incurred on account of inflation.

A portion of the sum assured is payable at regular intervals.

On survival the remainder of the sum assured is payable.

In case of death, the full sum assured is payable to the

insured.

The premium is payable for a particular period of time.

Annuities and Pensions:

In an annuity, the insurer agrees to pay the insured a

stipulated sum of money periodically. The purpose of an

annuity is to protect against risk as well as provide money in

the form of pension at regular intervals. Over the years,

insurers have added various features to basic insurance

policies in order to address specific needs of a cross sectionof people.


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General Insurance

Insurance other than Life Insurance falls under the category of

General Insurance. General Insurance comprises of insurance of

property against fire, burglary etc, personal insurance such as

Accident and Health Insurance, and liability insurance which

covers legal liabilities. There are also other covers such as Errors

and Omissions insurance for professionals, credit insurance etc.

The non-life companies also offer policies covering machinery

against breakdown, there are policies that cover the hull of ships

and so on. A Marine Cargo policy covers goods in transit including

by sea, air and road. Further, insurance of motor vehicles against

damages and theft forms a major chunk of non-life insurance

business.

In respect ofinsurance of property, it is important that the

cover is taken for the actual value of the property to avoid being


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imposed a penalty should there be a claim. Where a property is

undervalued for the purposes of insurance, the insured will have

to bear a ratable proportion of the loss. For instance if the value

of a property is Rs.150 and it is insured for Rs.100/-, in the event

of a loss to the extent of say Rs.100/-, the maximum claim

amount payable would be Rs.50.

Personal insurance covers include policies for Accident, Health

etc. Products offering Personal Accident cover are benefit policies.

Health insurance covers offered by non-life insurers are mainly

hospitalization covers either on reimbursement or cashless basis.

The cashless service is offered through Third Party Administrators

who have arrangements with various service providers.

Accident and health insurance policies are available for

individuals as well as groups. A group could be a group ofemployees of an organization or holders of credit cards or deposit

holders in a bank etc. Normally when a group is covered, insurers

offer group discounts.

Liability insurance covers such as Motor Third Party Liability

Insurance, Workmens Compensation Policy etc offer cover

against legal liabilities that may arise under the respective

statutes Motor Vehicles Act, The Workmens Compensation Act

etc. Some of the covers such as the foregoing (Motor Third Party


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and Workmens Compensation policy ) are compulsory by

statute. Liability Insurance not compulsory by statute is also

gaining popularity these days. Many industries insure against

Public liability. There are liability covers available for Products as

well.

There are general insurance products that are in the nature of

package policies offering a combination of the covers mentioned

above. For instance, there are package policies available for

householders, shop keepers and also for professionals such as

doctors, chartered accountants etc. Apart from offering standard

covers, insurers also offer customized or tailor-made ones.

Suitable general Insurance covers are necessary for every family.

It is important to protect ones property, which one might have

acquired from ones hard earned income. A loss or damage to

ones property can leave one shattered. Losses created by

catastrophes such as the tsunami, earthquakes, cyclones etchave left many homeless and penniless. Such losses can be

devastating but insurance could help mitigate them. Property can

be covered, so also the people against Personal Accident. A

Health Insurance policy can provide financial relief to a person


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undergoing medical treatment whether due to a disease or an

injury.

Industries also need to protect themselves by obtaining insurance

covers to protect their building, machinery, stocks etc. They need

to cover their liabilities as well. Financiers insist on insurance. So,

most industries or businesses that are financed by banks and

other institutions do obtain covers. But are they obtaining the

right covers? And are they insuring adequately are questions that

need to be given some thought. Also organizations or industries

that are self-financed should ensure that they are protected by

insurance.

Most general insurance covers are annual contracts. However,

there are few products that are long-term. It is important for

proposers to read and understand the terms and conditions of apolicy before they enter into an insurance contract. The proposal

form needs to be filled in completely and correctly by a proposer

to ensure that the cover is adequate and the right one

Fire Insurance:

A fire insurance policy involves an insurance company agreeing to

pay a certain amount equivalent to the estimated loss caused by


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fire to the insured, within the time specified in the contract. The

indemnity is subject to change depending upon the policy. One

should confirm with the insurer about the types of risks covered,

since one cannot insure the property against all types of risks of

fire.

Need for Fire Insurance:

Fire insurance is important because a disaster can occur at any

time. There could be many factors behind a fire, for example

arson, natural elements, faulty wiring, etc. Some facts that stressthe importance of fire insurance include:

Fire contributes to the maximum number of deaths occurring in

America due to natural disasters.

Eight out of ten fire deaths take place at home. A residential fire

takes place after every 77 seconds. The major reason for a

residential fire is unattended cooking.

Types of Fire Insurance:

Specific Policy:

The insurer is liable to pay a set amount lesser than the

propertys real value. In this policy, the propertys actual

value is not considered to determine the indemnity. The

average clause, which requires the insured to bear the loss

to some extent, does not play a role in this policy. In case


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the insurer inserts the clause, the policy will be known as an

average policy.

Comprehensive policy:

This all-in-one policy indemnifies for loss arising out of fire,

burglary, theft and third party risks. The policyholder may

also get paid for the loss of profits incurred due to fire till the

time the business remains shut.

Valued policy:

This policy is a departure from the standard contract ofindemnity. The amount of indemnity is fixed and the actual

loss is not taken into consideration.

Floating policy:

This policy is subject to the average clause. The extent of

coverage expands to different properties belonging to the

policyholder under the same contract and one premium. The

policy may also provide protection to goods kept at two

different stores.

Replacement or Re-instatement policy:

This policy is subject to the re-instatement clause, which

requires the insurance company to pay for replacing the

damaged property. So, instead of giving out cash, the

insurer can re-instate the property as an alternative option.


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Marine Insurance:

Meaning:

Business today knows no boundaries. We have an access to

products and services across borders as countries continue to

globalise. However the farther our goods travel the more risk they

are exposed to. Thats why Bajaj Allianz brings to you the marine

cargo insurance cover, which compensates losses of goods in

transit.

Need for Marine Insurance:

The cost of marine insurance is quite small compared with the

cost of the goods shipped and the freight charges involved.

Therefore, the benefit of the marine insurance, in terms of

financial reimbursement if disaster strikes, is usually well worth

the cost. Not much help can be expected from the shipping

company for the exporter, if the goods are damaged or lost, even

while in its care. Various statutes, plus the printed clauses

in ocean bills of lading - the contract between the shipper and the

carrier, limit the liability of the shipping company for such losses.In order to recover losses from the carrier, the exporter must be

able to prove want of due diligence, in other words, the shipping

company was negligent. It is difficult for an exporter to prove at

what point damage or loss occurred. However, a marine
http://www.malaysiaexports.com/inex13.4.freight.forwarder.htmhttp://www.malaysiaexports.com/inex13.4.freight.forwarder.htm


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insurance policy is often arranged on a warehouse-to-

warehouse basis. In other words, the risk of financial loss from

damage or loss occurring during inland transit in the exporting

country and abroad as well as during ocean shipment. Such a

policy relieves the exporter of the burden of proving when or

where any loss actually occurred. If, someone else's goods are

damaged or destroyed during the voyage and in order to save the

ship, then the exporter may be called upon to pay part of the

cost. This is known as general average. Here, the point that is

being made is that the exporter's goods may be held in theforeign port until such a claim is settled. By having marine

insurance, including general average coverage, the exporter

avoids the risk of such a delay.

Scope of Cover:

It covers transit of goods:

1. By Sea. (All ocean voyages and inland water ways.)

2. Send by post or parcels

3. Bay rail/road/Air.

Basis of sum Insured:

Marine Insurance policies are issued on agreed value bases and

should be based on invoice and covering incidental expenses.

What are the types of Coverage offered?

The following are the type of covers available: All Overseas

Transits are subjected to Institute Cargo Clauses, given by Lloyds

Underwriter and Technical Committee, London.


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The brief coverage is: (*Can be bought back.)

Risks Institute Cargo Clauses

(Proximate Cause)

A

(All

risk Cover)

B

(Wider

Cover)

C

(Basic

Cover)

Stranding , Grounding, Sinking or

Capsizing

Yes Yes Yes

Overturning or Derailment of Land

Conveyance

Yes Yes Yes

Collision of Ship or Craft with another

Ship or Craft

Yes Yes Yes

Contact of Ship, Craft or Conveyance

with anything other than

Ship or Craft (excludes Water but not

Ice)

Yes Yes Yes

Discharge of Cargo at Port of Distress Yes Yes Yes

Loss overboard during

Loading/Discharge (total loss only).

N/A Yes No

Fire or Explosion Yes Yes Yes

Malicious Damage Yes No* No*

Theft/ Pilferage Yes No No

General Average Sacrifice Yes Yes Yes

Jettison Yes Yes Yes

Washing Overboard (deck cargo) Yes Yes No

War Risks No* No* No*

Seawater entering Ship, Craft, Hold,

Conveyance Container Lift Van or Place

of Storage

Yes Yes No

River or Lake Water entering same Yes Yes No


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Underwriting of Life Insurance

Meaning of Underwriting:

Underwriting is the insurance function that is responsible forassessing and classifying the degree of risk a proposed insured or

group represents and making a decision concerning coverage of

that risk.

Objectives of Underwriting:

A)Product Equitable to Customer

The underwriter should fairly assess the risk in a proposaland fix the premium justifiable to the consumer.

B)Deliverable to the Customer

Consumers are the final authority for buying the products. If

the marketers are not able to sell so that the product

becomes undeliverable, the onus is on the underwriters to

carry an introspection of the various factors that caused

differences between the consumers and companys

expectations.

C)Financially Feasible to the insurance Company

The insurers are not in the business of charity. The

underwriting benefit must be reflected by the financial

statements. Although, the underwriters are not directly

involved in the pricing of insurance products, yet their


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contribution is as vital as that of actuaries, because they

operationalise the business of risk.

Underwriting of Life Insurance:

In India, Life Insurance Business is defined under Section 2(11) of

Insurance Act 1938, which reads as follows:

life insurance business means the business of effecting

contracts of insurance upon human life, including any contract

whereby the payment of money is assured on death (except

death by accident only) or the happening of any contingency

dependent on human life and any contract which is subject to

payment of premium for a term dependent on human life and

shall be deemed to include - the granting of

(A) Disability and double or triple indemnity accident benefits, if

so provided in the contract of insurance

(B) Annuities upon human life

Underwriting of Non-Life Insurance:

The underwriting of commercial, business insurances is a much

more complicated and involved task. Commercial insurances

range from small shops and factories to large multinational

corporations, with operations in many countries throughout the

world. The degree of complexity of the underwriting required

would obviously vary with the sheer size of the risk, but certain

basic principles are fundamental.


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The essence of the task is that the underwriter has to evaluate

the hazard associated with the risk, which is being proposed. In

small cases he may be able to do this from reading a proposal

form and corresponding with the sponsor. It may be that a local

inspector is asked to call and see the shop or factory for himself.

In large cases this is simply impossible. Detail of the risk could not

be confined to a proposal form since there is just too much

information to condense, no matter how large the form may be.

The insurance companies may take the help of brokers in these

cases. The broker in these cases will be in a position to preparethe case for the underwriter. This may mean site inspections by

the broker and the preparation of plans and reports on the

relevant aspects of the risk. This documentation, which may be

extremely extensive, is then passed to the underwriter and

negotiation can commence on the terms, conditions, cover and

price.


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Reinsurance

Meaning

The practice of insurers transferring portions of risk portfolios to

other parties by some form of agreement in order to reduce the

likelihood of having to pay a large obligation resulting from an

insurance claim. The intent of reinsurance is for an insurance

company to reduce the risks associated with underwritten policies

by spreading risks across alternative institutions. Also known as

"insurance for insurers" or "stop-loss insurance"

Objectives of Reinsurance

1) To limit liability on specific risks

2) To stabilise loss experience

3) To protect against catastrophe

4) To increase capacity.

Types of Reinsurance

Treaty reinsurance


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This method is defined to cover an entire category of risk or line

of business in advance. It is obligatory and binding in nature for

both the reinsured and reinsurers. So as long as a risk meets all

the conditions as given in the reinsurance contract, acceptance of

that risk by the insurer is automatic. Reinsurance by this method

creates capacity for insurers.

Capacity + Coverage of all perilswith adequate limits +

confidence on security of reinsurers + continuity of reinsurance

after a loss.

Facultative reinsurance

This is for the reinsurance of current single risk and options are

open for both the reinsured and reinsurers. In a facultative

contract relationship, the reinsurer retains the faculty or power to

either accept or reject each individual risk offered to it by the

insurer.

No matter what kind of reinsurance contract it is, the risks

between the insurer and the reinsurer can be shared on a

proportional or (also known as excess of loss) basis. In a

proportional agreement the reinsurer pays for losses in the same

proportion as theamount of premium it receives.

Such contracts can be on a quota or surplus share basis. In a non-

proportional agreement, an attachment point is fixed. When a

claim arises, the reinsurer pays nothing unless the claim amount


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is greater than the attachment point. Such a contract is written

per risk, per occurrence or as an aggregate loss.

Reinsurers always try to attach a global spread of risks. Hence

there are tie-ups with global reinsurers. When reinsurers are in

the global market they are not excessively affected by local

market bad losses and are capable of meeting liabilities.

Advantages of Reinsurance

In a highly volatile market it may sometimes be hard to correctly

price new products because of inadequate information. Incorrect

pricing could lead to unanticipated claims that the insurance

company cannot meet. If there were not reinsurance the

insurance company would have to settle these claims out of its

own capital therefore reinsurance helps to protect the solvency of

the insurance company.

Reinsurance enables the insurer to take up large claims and

expand capacity In India; regulations restrict the insurer from

risking more than 10 per cent of its surplus on any one risk.Reinsurance provides the insurer with ability to cover large,

individual risks and guarantees timely settlement of the claim.

An insurance company can benefit immensely by tying up with a

successful reinsurer. The reinsurer can provide important


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underwriting training and skill development and share expertise

gained from other countries. Since the success of the reinsurer is

linked to the profits of the insurance company, it is in the best

interest of the reinsurer to measure that the company is sound.

The reinsurer can contribute to designing the product, pricing and

marketing new products. It can also offer back office support such

as faster claims processing and automation of operations.

List of Life Insurance Players in India

Aviva Life Insurance y Bajaj Allianz

Birla Sun Life Insurance

HDFC Standard Life Insurance

ICICI Prudential

Kotak Life Insurance

Life Insurance Corporation of India

Max New York Life

Reliance Life Insurance


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Sahara India Life Insurance

SBI Life Insurance

Shriram Life Insurance Co Ltd.

List of General Insurance Players in India

National Insurance Company Limited

Oriental Insurance Company Limited

United India Insurance Company Limited

Bajaj Allianz General Insurance Co. Limited

ICICI Lombard General Insurance Co. Ltd.

IFFCO-Tokio General Insurance Co. Ltd.

Reliance General Insurance Co. Limited

Royal Sundaram Alliance Insurance Co. Ltd.

TATAAIG General Insurance Co. Limited


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Export Credit Guarantee Corporation

HDFC Chubb General Insurance Co. Ltd.

The questions and its answers which are submitted below, is

being asked to the agent of Life Insurance Company and few

other questions are asked to around 10 people who are directly or

indirectly affiliated with insurance business.

Questioners:

1) Do you have any past experience in Insurance Business?

Figure: 1.1

As per the diagram,

The Insurance business in India is flourishing these days, at very

fast pace around 15% of people working in insurance are skilled

enough to tackle the issues; whereas there is a new age group


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who has joined the but lacks experience, the not interested are

those who lack education.

2) From how many years you are being employed in this

organization?

Figure 1.2

3) How is the Environment of your work place?

Figure 1.3

4) Does Management listen to employees?

Figure 1.4

5) What do you look for a new company when you join?

Figure 1.5

6) Have you ever faced a problem in your organization?

Figure 1.6

7) Is your organization flexible, with respect to your family

responsibilities?


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Figure 1.7

8) Are you satisfied with the training and development ofemployees?

Figure 1.8

9) Are you satisfied with organizations Culture and Politics?

Figure 1.9

10) Do you feel stressed out in your job?

Figure 1.10

11) How much are you satisfied with your job?

Figure 1.11

12) What according to you are the factors which motivate employ

to retain in life insurance companies?

Figure 1.12.1


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Figure 1.12.2

Conclusion:


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Biblography

52571626 Indian Insurance

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Transcript of 52571626 Indian Insurance