Insurance Industry Insurance Industry

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• Insurance is one of those things we tend to take for granted. It just seems to have always been there. The history of insurance is an interesting one, but the basic idea has always been the same.

• The Merriam-Webster Dictionary describes insurance as, “coverage by contract whereby one party undertakes to indemnify or guarantee another against loss by a specified contingency or peril.”

• So the basis of insurance is “guarantee against loss”.

Insurance historyInsurance history• Shipping/transportation insurance – the first guarantee

against loss• We look back in history at who first felt the need for a

guarantee against loss, and who gave them that guarantee. Way back in Babylonian times, around 2100 B.C., the Code of Hammurabi was the first basic insurance policy. This policy was paid by the traders in the form of a loan to guarantee the safe arrival of their goods by caravan. [ caravans faced the same kind of perils our transportation industry faces

today – like robbery, bad weather and breakdowns ]

• As history progressed, the needs for insurance increased. The Phoenicians and the Greeks wanted the same type of insurance with their seaborne commerce. The Romans were the first to have burial insurance – people joined burial clubs which paid funeral expenses to surviving family members.

Industry History / StatusIndustry History / Status• In medieval times, the guilds protected their members from loss by fire and

shipwreck, paid ransoms to pirates, and provided respectable burials as well as support in times of sickness and poverty.

• Then came the very first actual insurance contract, signed in Genoa in 1347. Policies were signed by individuals, either alone or in a group. They each wrote their name and the amount of risk they were willing to assume under the insurance proposal. That’s where the term underwriter came from.

• Underwriters play a big part in the insurance industry. They’re the ones who calculate the risk, based on statistics, and decide what the premiums will be. In 1693, the astronomer Edmond Halley created a basis for underwriting life insurance by developing the first mortality table. He combined the statistical laws of mortality and the principle of compound interest. However, this table used the same rate for all ages. In 1756, Joseph Dodson corrected this error and made it possible to scale the premium rate to age.

I N S U R A N C E

Industry History / StatusIndustry History / Status

• In 1688, the first insurance company was formed in London. It got its start at Lloyd’s Coffee House, a place where merchants, ship-owners, and underwriters met to transact their business. Lloyd’s grew into one of the first modern insurance companies, Lloyd’s of London.

• As commerce grew – so did the need for insurance• In the 17th and 18th centuries, British commerce was rapidly

growing. As commerce grew, risks increased. In a way, progress was actually working against the insurance industry – there were more and more ways of goods being damaged or lost, as goods were shipped greater distances and by more advanced methods. Therefore, there were higher payouts for claims.

I N S U R A N C E

Industry History / StatusIndustry History / Status

• The members of stock companies saw an opportunity for a profitable business here. They were chartered in the insurance business in England in 1720, and in 1735. The first American insurance company was founded in the British colony of Charleston, SC. In 1787 and 1794 respectively, the first fire insurance companies were formed in New York City and Philadelphia. The first American insurance corporation was sponsored by a church – the Presbyterian Synod of Philadelphia – for their ministers and their dependents. Then other needs for insurance were discovered and, in the 1830s, the practice of classifying risks was begun. Although there was religious prejudice against the practice of insurance by a church, after 1840 it declined and life insurance boomed.

I N S U R A N C E

Industry History / StatusIndustry History / Status• Preparing for large losses• The insurance companies had a rude awakening to this fact in

1835 when the New York fire struck. The losses were unexpectedly high and they had no reserves prepared for such a situation. As a result of this, Massachusetts lead the states in 1837 by passing a law that required insurance companies to maintain such reserves. The great Chicago fire in 1871 reiterated the need for these reserves, especially in large dense cities.

• Insurance companies had to work together to find a solution to the challenge of large losses. So they got together and devised a system called reinsurance whereby losses were distributed among many companies. This system is now commonly used in all types of insurance.

I N S U R A N C E

Industry History / StatusIndustry History / Status• Insurance really gets organized• Now the insurance industry was growing to huge proportions. The

companies, although competitors, worked together to create productive systems that could be used throughout the industry. They needed to keep up with the requirements of the increasing amount of laws governing insurance. For example, the Workmen’s Compensation Act of 1897 in Britain required employers to insure their employees against industrial mishaps. This also fostered what we know today as public liability insurance, which came strongly into play when the automobile arrived on the scene.

• In the 19th century, many societies were founded to insure the life and health of their members. Fraternal orders were created to provide low-cost insurance strictly for their members. Today, many of these fraternal orders and labor organizations still exist. Most employers offer group insurance policies for their employees, providing them with life insurance, sickness and accident benefits, and pensions.

I N S U R A N C E

Industry History / StatusIndustry History / Status• Now insurance was the accepted thing to do. Everybody needed to protect

themselves against the many risks in life. Farmers wanted crop insurance. People wanted deposit insurance at their banks. Travelers wanted travel insurance. Everybody turned to insurance companies to give them peace of mind. And really, isn’t that what insurance is – the paying of a premium to protect against some form of loss.

• So now you know the history of insurance, you can better understand why your insurance company conducts their business as they do.

• Source • Article by Gareth Marples

I N S U R A N C E

Insurance in IndiaInsurance in India• Indian Insurance Sector History Insurance in

India has its history dating back until 1818, when Oriental Life Insurance Company was started by Anita Bhavsar in Kolkata to cater to the needs of European community.

• . The history of general insurance business in India can be traced back to Triton Insurance Company Ltd. (the first general insurance company) which was formed in the year 1850 in Kolkata by the British.

History of Insurance in India can be History of Insurance in India can be broadly bifurcated in three eras:broadly bifurcated in three eras:

• Nationalization

• Post Nationalization

• Pre Nationalization

PRE NATIONALIZATION ERAPRE NATIONALIZATION ERA

• The pre-independence era in India saw discrimination between the lives of foreigners (English) and Indians with higher premiums being charged for the latter

..• In 1870, Bombay Mutual Life Assurance

Society became the first Indian insurer

• Important milestones in the Indian life insurance business 1912: The Indian Life Assurance Companies Act came into force for regulating the life insurance business.

..• Important milestones in the Indian general

insurance business 1907: The Indian Mercantile Insurance Ltd. was set up which was the first company of its type to transact all general insurance business. 1957: General Insurance Council, an arm of the Insurance Association of India, framed a code of conduct for guaranteeing fair conduct and sound business patterns. 1968:

..• 1928: The Indian Insurance Companies

Act was enacted for enabling the government to collect statistical information on both life and non-life insurance businesses. 1938: The earlier legislation consolidated the Insurance Act with the aim of safeguarding the interests of the insuring public

NATIONALIZATION ERANATIONALIZATION ERA

• 1956: 245 Indian and foreign insurers and provident societies were taken over by the central government and they got nationalized. LIC was formed by an Act of Parliament, viz. LIC Act, 1956. It started off with a capital of Rs. 5 crore and that too from the Government of India.

• 1972: The General Insurance Business (Nationalization) Act, 1972 nationalized the general insurance business in India. It was with effect from 1st January 1973. 107 insurers integrated and grouped into four companies viz.

• The Oriental Insurance Company Limited • The New India Assurance Company Limited • National Insurance Company Limited • United India Insurance Company Limited.

• GIC was incorporated as a company.

POST NATIONALIZATION ERAPOST NATIONALIZATION ERA

• In the background of economic reforms process commenced from 1991:

• Malhotra committee was formed in 1991 who submitted their report in 1994.. IRDA Act was passed in 1999. Indian Insurance Market was opened for private companies, which were effective started operations from 2001.

• INSURANCE BUSINEES:• Insurance business is divided into four

classes :• 1) Life Insurance 2) Fire Insurance 3)

Marine Insurance and 4) Miscellaneous Insurance.

• Life Insurers transact  life insurance business;

• General Insurers transact the rest

• The total number of general insurers registered with IRDA has gone up to 22

• The total number of life insurers registered with the Insurance Regulatory Development Authority (IRDA) has gone up to 23.

• Major Life Insurance Private companies.• HDFC Standard Life Insurance Company • Max New York Life Insurance Co. Ltd. • ICICI Prudential Life Insurance Company • Kotak Mahindra Old Mutual Life Insurance • Birla Sun Life Insurance Company Ltd.

Tata AIG Life Insurance Company Ltd. • SBI Life Insurance Company Limited

• ING Vysya Life Insurance Company • Bajaj Allianz Life Insurance Company • Metlife India Insurance Company Ltd. • Reliance Life Insurance Company Limited.•  Aviva Life Insurance Co. India Ltd.

• Sahara India Insurance Company Ltd • Etc.

Major General Insurance Private Major General Insurance Private companies.companies.

• Royal Sundaram Alliance Insurance Co.• Reliance General Insurance Company • IFFCO Tokio General Insurance Co. Ltd• TATA AIG General Insurance Company• Bajaj Allianz General Insurance Company • ICICI Lombard General Insurance Company • Cholamandalam General Insurance Company • Export Credit Guarantee Corporation Ltd. • HDFC-Chubb General Insurance Co. Ltd. • Apollo Munich Health Insurance Company Limited • Future Generali India Insurance Company Limited • Universal Sompo General Insurance Company Ltd. • Shriram General Insurance Company Limited, • Bharti Axa General Insurance Company Ltd. • Raheja QBE General Insurance Co. Ltd • etc

..• Flexibility

• No. of Funds

• Fund Returns

• Transparency

• A ‘ best in class’ organization shall be the one which provided the best in all or some of the above parameters

• Premium Charged

Typical Parameters of Insurance Typical Parameters of Insurance Industry.Industry.

Typical parameters of insurance Typical parameters of insurance industryindustry

• Spread Life and General Insurance widely

particular to the rural areas and to socially

and economically backward class.

. Provide financial cover against death at

a reasonable cost and indemnify the loss

in case of general insurance.

. Maximise mobilisation of people’s savings

by making insurance linked savings attractive.

• Conduct insurance business with utmost

• Economy and with the full realisation that

• The money belongs to the policy holders.

• Act as a trustee of the insured.

• Meet the various life insurance and general insurance needs of the community that would arise in the changing social and economic environment.

• Competitive price of insurance product as prescribed by the IRDA.

• PROVIDE HASSLE FREE INSURANCE COVER TO INSURABLE LIFE AND OBJECTS.

• INFORM THE INSURED TIME TO TIME FOR RENEWAL PREMIUM TO MINIMISE THE LAPSATATION.

• FRIENDLY POLICY SERVICE TO INSURED• ACCURATE AND SPEEDY CLAIM DISBURSEMENT• EXIBIT THE OUTSTANDING CLAIM LIABILITIES IN

THE ANNUAL ACCOUNTS PROPERLY.

• LIC was formed by an Act of Parliament.

• A Successful scam free journey of 53 glorious years

• LIC is the largest insurer in the world with more than 24 cr. policies, thus becoming the 5th largest nation in the world in itself

• LIC – Largest pension provider in India

• Presence in every nook & corner of the country.

The Organisation We RepresentThe Organisation We Represent

A few facts

HOW WE ARE ‘THE BEST’

• LIC was formed by an Act of Parliament.• A Successful scam free journey of 53

glorious years• LIC is the largest insurer in the world with

more than 24 cr. policies, thus becoming the 5th largest nation in the world in itself

• LIC – Largest pension provider in India• Presence in every nook & corner of the

country.

The Organisation We The Organisation We RepresentRepresent

GROWING LIFE FUNDGROWING LIFE FUND

FINANCIAL LIFE FUND YEAR IN CRORES

2008-09 Rs.807317.43 2007-08 Rs.686616.00 2006-07 Rs.460806.00 2005-06 Rs.463147.00

MARKET SHAREMARKET SHARE

• LIC’s Market share in Business as on 31.03.2010 is 73.89%, which has improved further from 71.95% as at 31.03.2009.

• That means 21 companies together have been able to take away only around 26% market share even after 10 years of opening up of sector.

OTHER PARAMETERS 1/04/08 TO 31/03/2009OTHER PARAMETERS 1/04/08 TO 31/03/2009(In crores)(In crores)

• 1. Total Income Rs. 2,00,280.65• 2. Total Premium Income Rs. 1,57,186.55• 3. Total Policy Payments Rs. 53,250.37• 4. Total Life Fund ( as at 31.03.09 ) Rs. 8,07,317.43• 5. Total Assets ( as at 31.03.09 ) Rs. 8,73,551.35

OPERATING EXPENSESOPERATING EXPENSES

• (AS A %AGE TO GROSS PREMIUM INCOME):

Year LIC PRIVATE INSURERS

2008-09 5.55% 23.34%

2009-10 5.54% 24.01%

Source: IRDA Annual Report 2007-08

• .

ZINDAGI KE SATH BHIZINDAGI KE SATH BHIZINDAGI KE BAAD BHIZINDAGI KE BAAD BHI

claims settlementclaims settlement

0%

20%

40%

60%

80%

100%

Pending 0.11 9.66

Repudiated 0.01 5.75

Paid 99.88 84.43

LICPvt.Insurer

LIC’s VALUATION SURPLUSLIC’s VALUATION SURPLUS

2007-08 16590.14 CR

2008-09 19675.23 CR

2009-10 20019.17 CR

since 2000, LIC increased its since 2000, LIC increased its revenues by 385% and revenues by 385% and

valuation surplus byvaluation surplus by194%. 194%.

At the same time, At the same time, it has reduced key costs it has reduced key costs

operating expenses by 42% and operating expenses by 42% and payroll by 61% payroll by 61%

• .

With revenues of US$ 43834 With revenues of US$ 43834 million, LIC is the 8th largest million, LIC is the 8th largest life-insurance company in thelife-insurance company in the

world, and bigger than 325 world, and bigger than 325 companies of the Fortune 500 companies of the Fortune 500

list. (Table 1). Its assets of USDlist. (Table 1). Its assets of USD192.49 billion exceed GDP’s 192.49 billion exceed GDP’s

(IMF, 2009) of over 75% (IMF, 2009) of over 75% countries of the world.countries of the world.

Accumulated Losses 2008-09Accumulated Losses 2008-09Pvt.Insurer 2006-07

(in cr.)2007-08 (in cr.)

% increase in losses in 1 yr.

ICICI Pru -649 -1395 114%

Birla Sun Life -140 -445 117%

HDFC Std. -126 -244 96%

Max New York -60 -257 328%

Reliance Life -315 -768 143%

Bajaj Allianz -72 -297 312%

Tata AIG -72 -339 370%

AVIVA -132 -202 53%

SBI Life* +37 +34 Profit reduced

.

LIC “a nation builder”LIC “a nation builder”

• Our Contribution towards Various Five Year Plans• Plan Year Contributions (cr)• II 1956-1961 184• III 1961-1966 285• IV 1969-1974 1530• V 1974-1979 2942• VI 1980-1985 7140• VII 1985-1990 12969• VIII 1992-1997 56097• IX 1997-2002 170929• X 2002-2007 394779 • XI 2007-2009 (Contd.) 218510

• .

Acknowledgement earned Acknowledgement earned • 1. Reader’s Digest Trusted Brand Award

(Platinum) 2009 .• 2. Brand Equity’s “Most Trusted Brands 2009” -Top

in Insurance Category.• 3. Declared “ Superbrand 2009” by Business

Superbrand India .• 4. Loyalty Award ,2009 from Loyalty Summit

2009 .• 5. CNBC Awaaz Consumer Award, 2008.• 6. NDTV Profit Business Leadership Award, 2008.• 7. Asia Brand Congress Brand Leadership Award,

2008.

LIC is the largest IT users LIC is the largest IT users – 8. IT USER 2008 NASSCOM Award.– 9. Golden Peacock Innovative Product

Award,2008.– 10. “Best Corporate Film Award” ( Silver) in

INDY’s Awards 2008 .– 11 .“Best House Magazine Award” ( Silver) in

INDY’s Awards,2008 .– 12. No.1 among “India’s Top 50 Service Brand”

in Pitch/IMRB International Survey .– 13. Customer & Brand Loyalty Award 2008 in

the Life Insurance category from– Indiatimes Mindscape.

INFORMATION TECHNOLOGY IN LICINFORMATION TECHNOLOGY IN LIC

Having been one of the very first and largest users of I.T. in terms of hardware and inhouse

developed software, LIC of India has adapted its existing technologies and

• embraced new emerging technologies to meet the changing needs of its clients :-

• 1) All the job processes of Branch Offices have been computerized.

• 2) All 2048 Branch Offices are now connected through the Wide Area Network.

Customer-centric initiatives:Customer-centric initiatives:

• Customer-centric initiatives:• * Portal for our customers has been set up. This portal

will be a single outlet• for an array of services. These services include policy

status, bonus• calculation, loan quotation, list of lapsed policies along

with revival• quotation, premium calendar, change of address,• doctor locator, agent locator, premium payment gateway,

etc.• * Enterprise Document Management System to make

LIC a paperless office• is already underway.

• PREMIUM PAYMENT THROUGH ALTERNATE CHANNELS

• Payment channels where policy is required to be registered in the data base at

• LIC, & Receipt sent by post :

• centers. Total places where ECS can be offered as per RBI is 64. Through ECS

• premium can be collected for ULIP and Health Insurance policies also.

• 2. Electronic Bill Presentation and Payment (EBPP) : Premium can be paid

• through various Banks like Citi Bank, HDFC, ICICI, Federal Bank, Corporation

• Bank, Axis Bank and through Service Providers – Bill Desk and Tech Process

• which cover almost all other banks throughout the country. Premium can be paid

• 1. Electronic Clearance System(ECS) : This facility is presently available at 53

• through Credit Card also availing this facility.• 3. ATM : Available with two banks Corporation Bank and Axis Bank.

Through• EBPP & ATM Premium can be collected for in force policies only

which are NOT• with Monthly /Salary Saving Scheme mode or under ULIP or Health

Insurance• plan.

Payment channels through Online Data Storage , Valid Payment channels through Online Data Storage , Valid Receipt issued instantly:Receipt issued instantly:

• 4. Portal Payment Gateway: Online premium payment on LIC Website, www.licindia.

• in with the help of Net Banking Facility of 33 major Banks. Premium can be• paid for ULIP policies excluding Health Insurance plan, since w.e.f 01/06/2009.• 5. APOnline : It is a joint venture between the AP State Government and Tata

Consultancy• Services. There 250 franchises in the twin cities and more than 1,000• franchises across the state. This mode of payment was started from 03/12/2007..• 6. MPOnline : MPOnline is a joint venture between the Madhya Pradesh State

Government• and Tata Consultancy Services. This mode of payment was started from• 20/06/2008. It has more than 300 franchises across the state with a presence in• almost every mandal. Premium collection in cash only.• 7. Suvidhaa Infoserve Pvt. Ltd. (SIPL) :Premium collection through SIPL

started• from 24/07/2008. It has more than 3000 collection center across the country at

present.

• 8. Tick Business Solution Pvt. Ltd (TBS): it is an E-Commerce Co. engaged in offering

• citizen oriented services including collection of different bill. It has approx.• 2000 outlets across the country. Premium collection started from 04/09/2008.• Other Alternate Premium payment channels :• 9. Premium Point : Chairman/ZM Club Members satisfying certain conditions and• Chief Life Insurance Advisors have been empowered to collect premium from the• policyholders and issue receipts at their end. At the end of July 2009, LIC has• over 6000 such outlets and a policyholder can pay premium at any of those premium• points and obtain a valid receipt. An additional facility of receiving an SMS ob• the mobile number given by the policy holder has also been provided here.• 10. Senior Business Associates ( Life Plus ) : Besides performing their basic

duties• and obligations as Development Officers, among other functions , selected Senior• Business Associates are authorized to collect Renewal Premiums from all• policyholders.

• IVRS• IVRS is available in 43 major cities and in 15 centers IVRS is integrated with Info• center. The Info centers can be contacted from MTNL and BSNL phones by dialing• IVRS Universal Access Number: 1251 and exercising the relevant option to talk to• ICE’s. From other than MTNL & BSNL telephones, Info centers can be contacted by• dialing the direct telephone numbers also. A list of the IVRS centers is given below :• IVRS Centers:• Visakhapatnam, Vijay Wada, Cuttack, Patna, Asansol, Shilong, Ranchi, Hazaribagh,• Jammu, Shimla, Rajkot, Surat, Vadodara, Mysore, Dharwad, Kozhikode, Trivandrum,• Agra, Allahabad, Bareilly, Kanpur, Varanasi, Kota, Amritsar, Jalandar, Ludhiana,• Bhopal, Jabalpur, Gwalior, Meerut, Jodhpur, Coimbatore, Madurai, Salem,• Thanjavur, Pondicherry, Goa, Kolhapur, Nagpur, Nashik, Aurangabad, Gorakhpur• and Raipur.

• INFO CENTERS• With a view to help customers interact easily from place of their convenience, LIC• has set up INFO CENTERS in the following 15 places Delhi, Kolkata, Mumbai,• Ahmedabad, Pune, Hyderabad, Bangalore, Chennai, Chandigarh, Indore, Jaipur,• Guwahati, Ernakulam, Lucknow and Jamshedpur. The INFO CENTERS work from 8• AM to 8 PM from Monday to Friday and from 10 AM to 6 PM on Saturdays. INFO• CENTERS provide information on products, policy status, policy servicing, Telephone• Nos. and addresses of our Offices and any other information the customer would• want. The INFO CENTERS and IVRS have been integrated and can be accessed• through a Universal Access Number: 1251.

• Info Centre Direct telephone numbers:• Mumbai-26137545 Pune-25514248

Ahmedabad-25502150• Bangalore-22379230 Delhi-23762681 Kolkata-

23346688• Hyderabad-23437997 Chennai-28612871

Guwahati-2600564• Jaipur-2741299 Chandigargh-2700707

Jamshedpur-2320600• Ernakulam-2383883 Indore-2523513 Lucknow-

2612552

CLOSENESS WITH CLIENTSCLOSENESS WITH CLIENTS

• Turn over of officials in private life insurers is too high. While in LIC, the officials are quite stable and continue to serve the organization till superannuation.

• Private insurers follow centralized pattern of claim settlement from their Head Office. While in LIC, the units are empowered

And Above AllAnd Above All• Sovereign Guarantee (Section 37 of LIC of India

Act, 1956):– ‘The sums assured by all policies issued by the

Corporation including any bonuses declared in respect thereof and, subject to the provisions contained in Section 14 the amounts assured by all policies issued by any insurer the liabilities under which have vested in the Corporation under this Act, and all bonuses declared in respect thereof, whether before or after the appointed day, shall be guaranteed as to payment in cash by the Central Government.’

GOOD LUCK GOOD LUCK & & THANKSTHANKS

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