Indian Insurance

8/3/2019 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 and competitive financial system suitable for the requirements of the

economy was the main idea behind this reform.


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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 limelight today. 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,

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.


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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 was however 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.

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.


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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:

y Sharing of risks

y Cooperative device

y Evaluation of risk

y Payment on happening of a special event

y 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 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 up an Insurance Reforms committee

in April 1993.


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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

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.


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INDIVIDUAL LIFE INSURANCECOVERAGE INDEX, 2008.

COUNTRY NO. OF POLICIES PER 100 PERSONS

Indonesia 2.0

Philippines 5.6

India 12.4

Thailand 14.7

Malaysia 35.5

Hong Kong 69.4

South Korea 70.5

Taiwan 75.2

Singapore 112.6

Japan 198.


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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 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 institutions to

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


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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:

(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.


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CHRONOLOGICAL DEVELOPMENTOF INSURANCE SECTOR:

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 of equity 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.


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1956 154 Indian insurers, 16 foreign insurers and 75 provident societies were

carrying on life insurance business in India mostly concentrated in Urban Areas.

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 to modern 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 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


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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 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


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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.

Following the recommendations of the Malhotra Committee report, in 1999, theInsurance 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


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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.

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 ofSubrogation.


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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 the insurance business, liberalisation means

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

hitherto monopolised by the Government of India.

As a first step towards allowing private sector entry, Government of India

appointed a committee under the chairmanship ofSri. 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.


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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.

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


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MALHOTRA COMMITTEE RECOMMENDATION:

Structure

Government stake in the insurance Companies to be brought down to 50 per

cent.

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.


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Competition:

Private Companies are allowed to enter insurance industry with a minimum paid

up capital of Rs. 1billion.

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 ofSEBI.

Controller of Insurance to be made independent Investments


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Mandatory Investments of LIC Life Fund in government securities to be reduced

from 75 per cent to 50 per cent.

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 linked pension plans.

Computerisation of operations and updating of technology to be carried out ininsurance industry


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Insurance Market - Present status:

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 than 10 % 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 continues to dominate: There may be room for many more 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 entrants to keep pace with the leaders and thereby failing to make any

impact in the market.


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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 product innovation 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 who know 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 considerable improvement in

customer service levels, product innovation and newer standards of underwriting.


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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

y Life Insurancey General Insurancey Fire Insurancey 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 untimely demise 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.

y Term Insurance Policyy Whole Life Policyy Endowment Policyy Money Back Policyy Annuities And Pension


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Term Insurance Policy:

y A term insurance policy is a pure risk cover for a specified period oftime. What this means is that the sum assured is payable only if thepolicyholder 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.

y What if he survives the 15-year period? Well, then he is not entitled toany payment; the insurance company keeps the entire premium paid

during the 15-year period.

y So, there is no element of savings or investment in such a policy. It is a100 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:

y As the name suggests, a Whole Life Policy is an insurance cover againstdeath, irrespective of when it happens.

y 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.


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Endowment Policy:

Combining risk cover with financial savings, endowment policies is the most

popular policies in the world of life insurance.

y In an Endowment Policy, the sum assured is payable even if the insuredsurvives the policy term.

y If the insured dies during the tenure of the policy, the insurance firm has topay the sum assured just as any other pure risk cover.

y A pure endowment policy is also a form of financial saving, whereby if theperson covered remains alive beyond the tenure of the policy, he gets back

the sum assured with some other investment benefits.

Money Back Policy:

y These policies are structured to provide sums required as anticipatedexpenses (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 are also

being introduced to offset some of the losses incurred on account of

inflation.

y A portion of the sum assured is payable at regular intervals. On survival theremainder of the sum assured is payable.

y In case of death, the full sum assured is payable to the insured.y The premium is payable for a particular period of time.


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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 section of 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 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.


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Accident and health insurance policies are available for individuals as well as

groups. A group could be a group of employees 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 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.


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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 etc have 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

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 a policy 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


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Fire Insurance:

A fire insurance policy involves an insurance company agreeing to pay a certain

amount equivalent to the estimated loss caused by 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 stress the 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:

y 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 the

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


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y 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.

y Valued policy:This policy is a departure from the standard contract of indemnity. The

amount of indemnity is fixed and the actual loss is not taken into

consideration.

y 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.

y 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 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


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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 the foreign 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 ofCover:

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 ofCoverage 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 ofShip or Craft with another Ship or

Craft

Yes Yes Yes

Contact ofShip, 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 for assessing 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 CustomerThe underwriter should fairly assess the risk in a proposal and fix the

premium justifiable to the consumer.

B) Deliverable to the CustomerConsumers 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 CompanyThe 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

contribution is as vital as that of actuaries, because they operationalise the

business of risk.


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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.

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


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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 prepare

the 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

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.


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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 is greater than the attachment point.S

uch acontract 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.


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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 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.


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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

Sahara India Life Insurance

SBI Life Insurance

Shriram Life Insurance Co Ltd.


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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

Export Credit Guarantee Corporation

HDFC Chubb General Insurance Co. Ltd.


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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 who has joined the but lacks experience, the

not interested are those who lack education.

Yes15%

No

40%

Not Interested

45%

Report


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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

Data

< 6 months

6 - 1 Year

1-3 Years

More than 4 Years

Ambience

Strongly Agree

Agree

Strongly Disagree

Disagree


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4) Does Management listen to employees?

Figure 1.4

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

Figure 1.5

Sales

Always

At Times

Never

New Prospect

Carrer Growth

Pay Package

Working Environment

Job Features


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

Figure 1.6

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

Figure 1.7

Problems

Hidden Targets

Office Locations

Internal Politics

Firm's Approach

Always Flexible

Much Flexible

Somewhat Flexible


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8) Are you satisfied with the training and development of employees?

Figure 1.8

9) Are you satisfied with organizations Culture and Politics?

Figure 1.9

Satisfaction

Very Satisfies

Satisified

Dissatisfied

Satisfaction Level

Agree

Disagree


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10) Do you feel stressed out in your job?

Figure 1.10

11) How much are you satisfied with your job?

Figure 1.11

Stress Levels

Stongly Agree

Agree

Strongly Disagree

Dissagree

Job Satisfaction Level

Satisfied

Dissatisfied


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

insurance companies?

Figure 1.12.1

Figure 1.12.2

Monetary Factors

Salary &

Compensation

Commission

Bonus

Non-Monetary Factors

Reward &

Recognisation

Leadership

Management


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Conclusion:


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Biblography

Documents

Indian Insurance