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KANPUR FINANCIAL INSTITUTIONS AND MARKETS TERM PAPER ON (INSURANCE SECTOR) SUBMITTED TO: SUBMITTED BY: Prof. SUDHANSHU PANDIYA MBA(FC) IInd SEM. GROUP 6 th SACHIN VERMA ANAMIKA MISHRA VIKAS VERMA

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Page 1: Insurance sector term paper

KANPUR

FINANCIAL INSTITUTIONS AND MARKETS

TERM PAPER ON

(INSURANCE SECTOR)

SUBMITTED TO: SUBMITTED BY:

Prof. SUDHANSHU PANDIYA MBA(FC) IInd SEM.

GROUP 6th

SACHIN VERMA

ANAMIKA MISHRA

VIKAS VERMA

JITENDRA KANAUJIA

PANKAJ SINGH

Page 2: Insurance sector term paper

*ACKNOWLEDGEMENT*

On the event of the completion of this project, we take the opportunity to express my deep sense

of gratitude toward all those people without whose guidance, inspiration and timely help this

project would have never seen the light of day. Any accomplishment requires the efforts of many

people and this project is no different.

We find great pleasure in expressing my project guide Professor Mr. SUDHANSHU PANDIYA

whose guidance and inspiration right from the conceptualization to the finishing stage proved to

be very essential and valuable in the completion of the project. We would also like to

acknowledge for their valuable time, data and information, which they have provided. This

played a key role in the project. Lastly, we would like to thank all my classmates and friends for

their valuable suggestions and guidance for the project work.

Page 3: Insurance sector term paper

CONTENTS

1. Introduction

2. Origin of insurance

3. Brief Overview of Insurance Industry

4. Concept of insurance

5. Insurance industry Classification

6.4Is of insurance services

7. Working of insurance

8. LIC

9. Investments of LIC in various Sectors

10. LIC products and plans

11. Major players of Life Insurance Companies

12. General Insurance Corporation

13. IRDA

14. Current trends in insurance sector

Page 4: Insurance sector term paper

INTRODUCTION

The Government of India (GoI) opened the insurance sector to private players on October 24.

2000, thusunraveling a new chapter in this field. This new policy of GOI is an outcome of

India’s policy of

liberalization and also the result of its obligation as a signatory to the WTO to conform to its

principles and guidelines relating to the reduction of barriers to trade in services. This epoch-

making decision has ushered in a new era that has transgressed four decades of complete control

by the public sector over the insurance sector (life insurance was nationalized in 1956 by

merging 245 private insurance companies to form the life Insurance Corporation Of India (LIC),

while general insurance was nationalized with the formation of general Insurance Corporation

(GIC) in 1972). This decision of the GOI has been accompanied by a set of laws and regulations

governing this domain. Accordingly the Insurance Regulatory and Development Authority Act

1999 (The IRDA Act) was enacted with the predominant aim of setting up an autonomous body

known as the Insurance Regulatory and Development Authority (the

IRDA) to regulate, promote and ensure orderly growth of the insurance industry. The influx of

new players in both life and non-life sectors has made the insurance market a consumers

paradise. All new players are striving to introduce innovative products. Where the old players

(LIC and GIC) have a first mover advantage and have a wide spread network, the new players

are banking on their innovative products and superior services to surge them ahead. It is too soon

to say which of the new players will succeed and which of them will perish. But the opening up

of the sector is a step that will be beneficial both to the insured as well as the insurer.

Page 5: Insurance sector term paper

ORIGIN OF INSURANCE

Whenever there is uncertainty there is risk. We do not have any control over uncertainties which

involves financial losses. The risk may be certain events like death, pension, retirement or

uncertain events like theft, fire, accident, etc. Insurance is a financial service for collecting the

savings of the public and providing them with risk coverage. It comes under service sector and

while marketing this service due care is taken in quality product and customer satisfaction. The

main function of the Insurance is to provide protection against the possible chances of generating

losses. The insurance sector in India has come a full circle from being an open competitive

market to nationalization and back to a liberalized market again. Tracing the developments in the

Indian insurance sector reveals the 360-degree turn witnessed over a period of almost two

centuries.

BRIEF HISTORY OF THE INSURANCE SECTOR

The business of life insurance in India in its existing form started in India in the year 1818 with

the establishment of the Oriental Life Insurance Company in Calcutta. Some of the important

milestones in the life insurance business in India are:

1912: The Indian Life Assurance Companies Act enacted as the first statute to regulate the life

insurance business.

1928: The Indian Insurance Companies Act enacted to enable the government to collect

statistical information about both life and non-life insurance businesses.

1938: Earlier legislation consolidated and amended to by the Insurance Act with the objective of

protecting the interests of the insuring public.

1956: 245 Indian and foreign insurers and provident societies taken over by the central

government and nationalized. LIC formed by an Act of Parliament, viz. LIC Act, 1956, with a

capital contribution of Rs. 5 crore from the Government of India. The General insurance business

in India, on the other hand, can trace its roots to the Triton Insurance Company Ltd., the first

general insurance company established in the year 1850 in Calcutta by the British.

Some of the important milestones in the general insurance business in India are:

Page 6: Insurance sector term paper

1907: The Indian Mercantile Insurance Ltd. set up, the first company to transact all classes of

general insurance business.

1957: General Insurance Council, a wing of the Insurance Association of India, frames a code of

conduct for ensuring fair conduct and sound business practices.

1968: The Insurance Act amended to regulate investments and set minimum solvency margins

and the Tariff Advisory Committee set up.

1972: The General Insurance Business (Nationalization) Act, 1972 nationalized the general

insurance business in India with effect from 1st January 1973. 107 insurers amalgamated and

grouped into four companies’ viz. the National Insurance Company Ltd., the New India

Assurance Company Ltd., the Oriental Insurance Company Ltd. And the United India Insurance

Company Ltd. GIC incorporated as a company.

INSURANCE SECTOR

The opening up of Insurance sector was a part of the on going liberalization in the financial

sector of India. The changing face of the financial sector and the entry of several companies in

the field of life and non life Insurance segment are one of the key results of these liberalization

efforts. Insurance business by way of generating premium income adds significantly to be the

GDP. Over the past three years, more than thirty companies have expressed interest in doing

business in India. The IRDA (Insurance Regulatory Development Authority) is the regulatory

authority, which looks over all related aspects of the insurance business. The provisions of the

IRDA bill acknowledge many issues related to insurance sector. The IRDA bill provides

guidance for three levels of players - Insurance Company, Insurance brokers and Insurance

agent. Life Insurance sector is one of the key areas where enormous business potential exists. In

India currently the life insurance premium as a percentage of GDP is 1.3 % against, 5.2 per cent

in the US.

General Insurance is another segment, which has been growing at a faster pace. But as per the

current comparative statistics, the general insurance premium has been lower than life insurance.

General Insurance premium as a percentage of GDP was a mere 0.5 'per cent in 1996. In the

General Insurance Business , General Insurance Corporation (GIC) and its four subsidiaries viz.

New India Insurance, Oriental Insurance, National Insurance and United India Insurance, are

Page 7: Insurance sector term paper

doing major business. The General Insurance Industry has been growing at a rate of 19 percent

per year.

The entry of several private insurance companies, particularly international insurance companies,

through joint ventures, will speed up the process of insurance mobilization. The competition will

unleash new schemes and benefits, which will give consumers a better Chance to save as well as

insure. The regulatory system in India is relatively new and takes some more time to make the

Insurance sector a perfectly competitive one. Insurance Regulatory Authority of India issued

regulations on 15 subjects which included appointed. Actuary, actuarial report, Insurance agents,

solvency margins, reinsurance registration of Insurers, and obligation of insurers to rural and

social sector, investment and accounting procedure. The reform in Insurance in India is guided

by factors like availability of a variety of products at a competitive price, improvement in the

quality of customer services etc. Also the employment opportunities in the Insurance sector wil1

increase as major players set their business plans in India. The policy of the government to open

up the financial sector and the Insurance sector is expected to bring greater FDI inflow into the

country. The increase in the investment limit in this vital sector has generated considerable

business interests among the foreign Insurance companies" Their entry wil1 certainly change the

Insurance sector considerably.

Page 8: Insurance sector term paper

THE CONCEPT OF INSURANCE

"Insurance is a contract between two parties whereby one party called insurer undertakes in

exchange for a fixed sum called premiums, to pay the other party called insured a fixed amount

of money on the happening of a certain event."

Insurance is a protection against financial loss arising on the happening of an unexpected event.

Insurance companies collect premiums to provide for this protection. A loss is paid out of the

premiums collected from the insuring public and the Insurance Companies act as trustees to the

amount collected. For Example, in a Life Policy, by paying a premium to the Insurer, the family

of the insured person receives a fixed compensation on the death of the insured. Similarly, in a

car insurance, in the event of the car meeting with an accident, the insured receives the

compensation to the extent of damage. It is a system by which the losses suffered by a few are

spread over many, exposed to similar risks. Insurance is a mechanism for transferring risk and

reducing risk by having a large number of individuals who share in the financial losses of the

group. Risk inhibitsaction and is highly subjective on an individual basis. Insurance objectifies

risk. People trade the possibility of financial loss for the relative certainty of the premium paid

and reimbursement for loss. Insurance frees people to take action even in the face of possible

financial loss. Thus, insurance provides utility even if no loss ever occurs.

Some people believe insurance is similar to gambling or opening a savings account. Neither is

true. When you place a bet, you create a risk and you have the chance of losing all or making

more than your wager. Insurance companies write policies for pure not speculative risks and

indemnify you when you have a covered loss. In the insurance industry, the word "indemnify"

means you cannot be put in a better position than you were before the loss. The definition of

insurance can be made from two points:

Functional definition.

Contractual definition.

Page 9: Insurance sector term paper

FUNCTIONAL DEFINITION

Insurance is a co-operative device to spread the loss caused by a particular risk over a number of

persons who are exposed to it and who agree to insure themselves against the risk.

GENERAL DEFINITION

Insurance has been defined to be that in which a sum of money as a premium is paid in

consideration of the insurer’s incurring the risk of paying a large sum upon a given contingency.

In the words of John Magee, “Insurance is a plan by themselves which large number of people

associate and transfer to the shoulders of all, risks that attach to individuals.”

FUNDAMENTAL DEFINITION

In the words of D.S. Hansell, “Insurance accumulated contributions of all parties participating in

the scheme.”

CONTRACTUAL DEFINITION

In the words of justice Tindall, “Insurance is a contract in which a sum of money is paid to the

assured as consideration of insurer’s incurring the risk of paying a large sum upon a given

contingency.”

Page 10: Insurance sector term paper

BASIC INSURANCE TERMINOLOGIES

Insured

The person known as the policyholder, a person with insurance coverage.

Insurer

A company licensed to transact the business of insurance and issue insurance policies.

Policy

It's the written contract between an insurance company and its insured. It defines what the

company agrees to cover for what period of time and describes the obligations and

responsibilities of the insured.

Premium

It's the amount of money a policyholder pays for insurance protection.

Claim

It's the notice to the insurance company that under the terms of a policy, a loss maybe covered.

Indemnity

Legal principle that specifies an insured should not collect more than the actual cash value of a

loss but should be restored to approximately the same financial position as existed before the

loss.

Agent

A licensed person or organization who sells insurance and represents the insurance company to

the policyholder.

Broker

An organization or person paid by the policy holder to look for insurance on their behalf.

Deductible

It's the amount of the loss which the insured is responsible to pay before the insurance company

pays the benefits.

Page 11: Insurance sector term paper

Expiration Date

This is the date on which the policy ends.

Grace Period

A period (usually 30 or 31 days) following each insurance premium due date, other than the first

due date, during which an overdue premium may be paid. All provisions of the policy remain in

force throughout this period.

Limit

It's the maximum amount paid by the insurance company under the terms of a policy.

Underwriting

The process of classifying applicants for insurance by identifying characteristics such as age,

gender, health, occupation and hobbies. People with similar characteristics are grouped together

and are charged a premium based on the group's level of risk.

Page 12: Insurance sector term paper

INSURANCE INDUSTRY CLASSIFICATION

Insurance has been classified into:

Life Insurance

General Insurance or Non-Life insurance

LIFE INSURANCE

Life insurance is a written contract between the insured and the insurer, that provides for the

payment of the insured sum on the date of the maturity of the contract or on the unfortunate

death of the insured, whichever occurs earlier.

NON LIFE INSURANCE

General insurance or non-life insurance policies, including automobile and homeowners

policies, provide payments depending on the loss from a particular financial event. General

insurance typically comprises any insurance that is not determined to be life insurance.

Page 13: Insurance sector term paper

There are various broad categories of non-life or general Insurance as follows:

HEALTH INSURANCE:

Just like one looks to safeguard ones wealth, these policies ensure guarding the insurer's health

against any calamities that may cause long term harm to one’s life and even hamper ones earning

ability for a

lifetime. Some examples of this type of policy are mediclaim policy, personal accident, group

accident, traffic accident, etc.

AUTOMOBILE INSURANCE:

Auto Policy is required to be taken to cover the risks that arise to the owner, vehicle and third

party. This includes the Compulsory Vehicle Policy (In India, by the Motor Vehicles Act, every

car owner is required

to covered against Act risks) and the Comprehensive Vehicle Policy.

FIRE INSURANCE:

This policy is required to be taken to prevent any loss of profits property from incidental fire.

Eg: fire insurance and fire consequential loss policy.

Page 14: Insurance sector term paper

4 I’S OF INSURANCE SERVICE

The 4 I’s refers to the different dimensions/ characteristics of any service. Unlike pure product,

services have its own characteristics and its related problems. So the service provider needs to

deal with these problems accordingly. The service provider has to design different strategies

according the varying feature of the service. These 4 I’s not only represent the characteristics of

different services but also the problems and advantages attached to it.

These 4 I’s can be broadly classified as:

• Intangibility

• Inconsistency

• Inseparability

• Inventory

INTANGIBILITY:

Insurance is a guarantee against risk and neither the risk nor the guarantee is tangible. Hence,

insurance rightly come under services, which are intangible. Efforts have been made by the

insurance companies to make insurance tangible to some extent by including letters and forms.

INCONSISTENCY

Service quality is often inconsistent. This is because service personnel have different capabilities,

which vary in performance from day to day. This problem of inconsistency in service quality can

be reduced through standardization, training and mechanization.

INSEPARABILITY

Services are produced and consumed simultaneously. Consumers cannot and do not separate the

deliverer of the service from the service itself. Interaction between consumer and the service

provider varies based on whether consumer must be physically present to receive the service.

Page 15: Insurance sector term paper

INVENTORY

No inventory can be maintained for services. Inventory carrying costs are more subjective and

lead to idle production capacity. When the service is available but there is no demand, cost rises

as, cost of paying the people and overhead remains constant even though the people are not

required to provide services due to lack of demand. In the insurance sector however, commission

is paid to the agents on each policy that they sell. Hence, not much inventory cost is wasted on

idle inventory. As the cost of agents is directly proportionate to the policy sold.

WORKING OF INSURANCE

Page 16: Insurance sector term paper

MAJOR PLAYERS OF LIFE INSURANCE COMPANIES

Sl. No. Insurers Foreign Partners Regn.

No.

Date of

Registration

Year of

Operation

1. HDFC Standard Life

Insurance Co. Ltd.

Standard Life

Assurance, UK

101 23.10.2000 2000-01

2. Max New York Life

Insurance Co. Ltd.

New York Life,

USA

104 15.11.2000 2000-01

3. ICICI-Prudential Life

Insurance Co. Ltd.

Prudential , UK 105 24.11.2000 2000-01

4. Om Kotak Life

Insurance Co. Ltd.

Old Mutual, South

Africa

107 10.01.2001 2001-02

5. Birla Sun Life

Insurance Co. Ltd.

Sun Life, Canada 109 31.01.2001 2000-01

6. Tata-AIG Life

Insurance Co. Ltd.

American

International

Assurance Co.,

USA

110 12.02.2001 2000-01

7. SBI Life Insurance

Co. Ltd.

BNP Paribas

Assurance SA,

France

111 29.03.2001 2001-02

8. ING Vysya Life

Insurance Co. Ltd.

ING Insurance

International B.V.,

Netherlands

114 02.08.2001 2001-02

Page 17: Insurance sector term paper

Sl. No. Insurers Foreign Partners Regn.

No.

Date of

Registration

Year of

Operation

9. Allianz Bajaj Life

Insurance Co. Ltd.

Allianz, Germany 116 03.08.2001 2001-02

10. Metlife India

Insurance Co. Ltd.

Metlife

International

Holdings Ltd.,

USA

117 06.08.2001 2001-02

11. Reliance Life

Insurance Co. Ltd.

(Earlier AMP

Sanmar Life

Insurance Co. from

3.1.2002 to

29.9.2005)

--- 121 03.01.2002 2001-02

12. AVIVA Aviva International

Holdings Ltd., UK

122 14.05.2002 2002-03

13. Sahara Life Insurance

Co. Ltd.

--- 127 06.02.2004 2004-05

14. Shriram Life

Insurance Co. Ltd.

Sanlam, South

Africa

128 17.11.2005 2005-06

15. Bharti AXA Life

Insurance Co. Ltd.

AXA Holdings,

France

130 14.07.2006 2006-07

Page 18: Insurance sector term paper

Sl. No. Insurers Foreign Partners Regn.

No.

Date of

Registration

Year of

Operation

16. Future Generali India

Life Insurance

Company Ltd.

Generali, Italy 133 04.09.2007 2007-08

17. IDBI Fortis Life

Insurance Company

Ltd.

Fortis, Netherlands 135 19.12.2007 2007-08

18. Canara HSBC OBC

Life Insurance

Company Ltd.

HSBC, UK 136 08.05.2008 2008-09

19. AegonReligare Life

Insurance Company

Ltd.

Religare,

Netherlands

138 27.06.2008 2008-09

20. DLF Pramerica Life

Insurance Co. Ltd.

Prudential of

America, USA

140 27.06.2008 2008-09

21. Star Union Dai-ichi Dai-ichi Mutual

Life Insurance,

Japan

142 26.12.2008 2008-09

22. IndiaFirst life

insurance company

Legal & General

Middle East

Limited, UK

143 05.11.2009 2009-10

23. Life Insurance

Corporation of India

--- 512 01.09.1956 1956-57

Page 19: Insurance sector term paper

LIC OF INDIA

Life Insurance Corporation of India (LIC) was formed in September 1956 by an Act of

Parliament, LIC Act 1956 with a contribution of Rs. 50 million.

The then Finance Minister Mr. C. D. Deshmukh while piloting the bill for nationalization

outlined the objectives of LIC thus:

“To conduct the business with utmost economy with the spirit of trusteeship; to charge

premium no higher than warranted by strict actuarial considerations; to invest the funds

for obtaining maximum yield for the policy holders consistent with safety of capital; to

render prompt and efficient service to policy holders thereby making Insurance widely

popular”.

Presently the LIC has a network of seven zones; 100 divisions and 2,048 branches, personnel

exceed seven lakhs employees and over six lakhs agents.

Vision: A trans-nationally competitive financial conglomerate of significance to societies and

Pride of India.

Mission: To explore and enhance the quality of the life of people through financial security by

providing products and services of aspired attributes with competitive returns and by

rendering resources for economic development.

Values: Caring and Courtesy, Initiatives and Innovation, Integrity and Transparency, Quality

and Returns, Participation and Relationship, and Trustworthiness and Reliability

Culture: Agility (quickness), Adaptability, Collaboration, Commitment, Discipline,

Empowerment, Sensitivity, and Excellence.

Page 20: Insurance sector term paper

OBJECTIVES

• Spread Life Insurance widely and in particular to the rural areas.

• Maximise mobilization of people’s savings by making insurance-linked savings

adequately attractive.

• Deployment of funds to the best of advantage of the investors as well as the

community as whole, keeping in view national priorities and obligations of

attractive return.

• Conduct of business at most economy and with the full realisation that the money

belongs to the policyholders.

• Act as trustee of the insured public in their individual and collective capacities.

• Meet the various life insurance needs of the community that would arise in the

changing social and economic environment.

• Involve all people working in the Corporation to the best of their capability in

furthering the interests of public by providing efficient service with courtesy.

• Promote amongst all agents and employees of the Corporation a sense of

participation, pride and job satisfaction through discharge of their duties with

dedication towards achievement of Corporate Objectives.

PRINCIPLES AND INVESTMENT POLICY OF LIC’s

Security of funds, and

Maximization of return of investment,

INVESTMENT POLICY

1. Central Govt. marketable securities being not less than 20%

2. Loans to Housing Bank including above (1) being not less than 25%

Page 21: Insurance sector term paper

3. State Govt. securities including Govt. Guaranteed marketable securities, inclusive of

(2) above being not less than 50%

4. Socially oriented sectors including public sector, co-operative sector house building

by policyholders, own house scheme, inclusive of (3) above not less than 75%

5. Private corporate sector, loans to policyholders for construction and acquisition of

immovable property 25%

Page 22: Insurance sector term paper

Lic product & plans

Page 23: Insurance sector term paper

NON-LIFE INSURANCE COMPANIES IN INDIA

Insurers Foreign Partners Regn.

No.

Date of

Registration

Year of

Operation

1. Royal Sundaram

Alliance Insurance

Royal Sun Alliance,

UK

102 23.10.2000 2000-01

2. Reliance General --- 103 23.10.2000 2000-01

Page 24: Insurance sector term paper

Insurance Co.

3. IFFCO-TOKIO

General Insurance Co.

TOKIO Marine

Asia Pte. Ltd, Japan

106 04.12.2000 2000-01

4. TATA AIG General

Insurance Co. Ltd.

American

International Group,

Inc. (AIG). USA

108 22.01.2001 2000-01

5. Bajaj Allianz General

Insurance Co.

Allianz, Germany 113 02.05.2001 2001-02

6. Cholamandalam MS

General Insurance Co.

Mitsui Sumitomo,

Japan

123 15.07.2002 2002-03

7. ICICI Lombard

General Insurance Co.

Fairfax through its

affiliates, Canada

115 03.08.2001 2001-02

8. HDFC ERGO General

Insurance Co. (Earlier

HDFC General

Insurance Co. from

27.9.2000 to 5.4.2008)

ERGO, Germany 125 27.09.2000 2002-03

9. Star Health & Allied

Insurance Company

Limited

Individual

Promoters, UAE

129 16.03.2006 2006-07

10. Apollo DKV Insurance

Company Ltd.

DKV, Germany 131 03.08.2007 2007-08

11. Future Generali India

Assurance Company

Ltd.

ParticipatieMaatsch

apijGraafsschap

Holland NV,

132 04.09.2007 2007-08

Page 25: Insurance sector term paper

Netherlands

(“Generali”)

Universal Sompo

General Insurance

Company Ltd.

Sompo, Japan 134 16.11.2007 2007-08

12. Shriram General

Insurance Company

Ltd.

Sanlam, South

Africa

137 08.05.2008 2008-09

13. Bharti AXA General

Insurance Company

Ltd.

AXA Holdings,

France

139 27.06.2008 2008-09

14. Raheja QBE General

Insurance Company

Ltd.

QBE, Australia 141 11.12.2008 2008-09

15. New India Assurance

Co. Ltd.

---

16. National Insurance Co.

Ltd.

---

17. The Oriental Insurance

Co. Ltd.

---

18. United India Insurance

Co. Ltd.

---

19. Export Credit ---

Page 26: Insurance sector term paper

Guarantee Corporation

Ltd.

20. Agriculture Insurance

Co. of India Ltd.

---

Page 27: Insurance sector term paper

LIC PRODUCTS contd…

Page 28: Insurance sector term paper
Page 29: Insurance sector term paper

TOTAL INVESTMENT OF LIC IN INFRASTRUCTURE

Page 30: Insurance sector term paper

TOTAL INVESTMENT OF LIC IN VARIOUS SECTORS

Page 31: Insurance sector term paper

GENERAL INSURANCE CORPORATION OF INDIA (GIC)

The General Insurance business in India was nationalized with effect from 1.1.1973 by the

General Insurance Business (Nationalization) Act, 1972 and a Government company known as

General Insurance Corporation of India was formed. 107 Indian and foreign insurers which were

operating in the country prior to nationalization, were grouped into four operating companies

namely

1. National Insurance Company Ltd.

2. Oriental Insurance Company Ltd.

3. New India Assurance Company Ltd.

4. United India Insurance Company Ltd.

The Government of India subscribed to the capital of GIC. GIC, in turn, subscribed to the capital

of the above four companies. All the four companies are government companies registered under

the Companies Act.

All the above four subsidiaries of GIC operate all over the country competing with one another

and underwriting various classes of general insurance business except for aviation insurance of

national airlines and crop insurance which is handled by the GIC

GIC and its subsidiaries have representation either directly or through branches in 18 countries

and through associate/ locally incorporated subsidiaries in 14 other countries. A subsidiary

company of GIC India International Pvt. Ltd. is operating in Singapore and their joint venture

company, Kenindia Assurance Company Ltd. in Kenya. On the whole, the foreign operations of

the general insurance industry have been profitable.

GIC was converted into India's national reinsurer from December, 2000 and all the subsidiaries

working under the GIC umbrella were restructured as independent insurance companies. Indian

Parliament has cleared a Bill on July 30,2002 delinking the four subsidiaries from GIC. A

separate Bill has been approved by Parliament to allow brokers, cooperatives and intermediaries

in the sector.

Page 32: Insurance sector term paper

Currently insurance companies- both private and public has to cede 20 percent of its reinsurance

with GIC. GIC is planning to increase reinsurance premium by 20 percent which works out at

Rs. 3000 cr. GIC is actively considering entry into overseas markets including West Asia, South-

east Asia and SAARC region.

TYPES AND STRUCTURE OF BUSINESS

General insurance policies are not financial claims.

There is no guarantee of renewal of policy on the same terms or on any terms.

The contract is short-term contract.

The general insurance companies do not collect savings.

Policy claims are unpredictable.

Assets are held in relatively liquid form.

GIC meets the requirements of industrial, manufacturing, commercial, services, household, and

agricultural sectors through wide range of 115 products, granting insurance coverage.

GIC has been promoting insurance cover in the field of livestock, poultry, sericulture,

horticulture, pump sets, and personal accidents.

Classification of General Insurance Business

Marine, (relatively less importance to India)

Fire, (Major business but its share is coming down) and

Miscellaneous(grown substantially) theft, loss, damage, etc.

Other Policies (non-traditional schemes)

Manages Comprehensive Crop Insurance Scheme introduced by the Central Govt. in 1985.

Page 33: Insurance sector term paper

INVESTMENT POLICY OF GIC

Central Govt. securities being not less than 20%

State Govt. securities and other government guaranteed securities, including (1) above, being not

less than 30%

Loans to HUDCO/DDA/GIC-HF and to state govts. For housing and firefighting equipment, not

less than15%

Market sector not more than 55%

Page 34: Insurance sector term paper

REGULATORY AUTHORITY

INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY

IRDA is formed as an authority to protect the interests of holders of insurance policies, to

regulate, promote and ensure orderly growth of the insurance industry. With the Insurance

Regulatory and Development Act, the focus shifted to the following:

The Insurance Regulatory and Development Authority (IRDA) should give priority to

health insurance while issuing certificates of registration

Policyholders' funds will be invested in the social sector and infrastructure. The

percentage may be specified by the IRDA and such regulations will apply to all insurers

operating in the country;

Insurers will be expected to undertake a certain percentage of business in the rural or

social sector and provide policies to persons residing in rural areas, workers in the

unorganized and informal economically back;

In case the insurers fail to meet the social sector obligation a fine of Rs.2.5 mn would be

imposed the first time. Subsequent failures would result in cancellation of licenses.

DUTIES, POWERS AND FUNCTIONS OF IRDA

The following are the powers and the functions of the IRDA are as follows:

(a)The IRDA issues, modifies, renews, suspends, withdraws and cancels all certificate of

registration for all parties that apply.

(b)They are also responsible for the protection of the interests of the policy holders in matters

concerning assigning of policy, nomination by policy holders, insurable interest, settlement of

insurance claim, surrender value of policy and other terms and conditions of contracts of

insurance.

Page 35: Insurance sector term paper

(c) The IRDA specifies requisite qualifications, code of conduct and practical training for

intermediary or insurance intermediaries and agents.

(d)It also specifies the code of conduct for surveyors and loss assessors.

(e)The IRDA has been given the responsibility of promoting efficiency in the conduct of

insurance business.

(f) It is in charge of promoting and regulating professional organizations connected with the

insurance and reinsurance business;

(g) It has been entrusted with the control of the Insurance sector by calling for information from,

undertaking inspection of, conducting inquires and investigations including audit of the insurers,

intermediaries, insurance intermediaries and other organizations connected with the insurance

business;

(h)It will also be responsible for the control and regulation of the rates, advantages, terms and

conditions that may be offered by insurers.

(i) The IRDA will specify the form and manner in which books of account shall be maintained

and statement of accounts shall be rendered by insurers and other insurance intermediaries.

(j) One of the most important functions is that of regulating investment of funds by insurance

companies and the maintenance of margin of solvency.

(k)The other function is that of adjudication of disputes between insurers and intermediaries or

insurance intermediaries.

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CURRENT TRENDS IN INSURANCE SECTOR

India's insurance sector is zooming to show an unprecedented progressive growth of more than

200% by the period of 2009-10. The Associated Chambers of Commerce and Industry of India

has clocked out the fact that during this period, private players in the industry will see a growth

of about 140 per cent, owing to the adoption of the aggressive marketing techniques in

comparison of the growth rate of 35 per cent-40 per cent achieved by the state owned insurance

companies. The chamber is expected to poise the business of insurance to reach at Rs.2000

billion in coming 2 years from the present level of Rs. 500 billion. With the result of adoption of

the intense marketing strategies by the private players, the declination has been witnessed in

respect of the share of the state owned insurance companies captured in the market. The market

share fallout has been noticed in context of such companies like GIC, LIC, which have come

down to nearly 70 per cent in the past 4-5 years from the 97 per cent. The experts have fore

casted the more severe competition in the insurance sector likely to be occurred in the near

future. Till recently, insurance sector was majority driven by the government sector players but

now many private sector multinational players have come into the picture. Like HDFC, ICICI,

Kotak, Mahindra and Birla Sunlife. Insurance sector has been characterized as the booming

sector of the Indian arena, which has shown the growth rate of more than 15 per cent to 20 per

cent. Insurance in India is put under the federal subject and is governed by the Insurance Act,

1938, the Life Insurance Corporation Act, 1956 and General Insurance Business(Nationalization)

Act, 1972, Insurance Regulatory and Development Authority(IRDA) Act, 1999 and by various

otheracts.

The roots of the insurance sector can be tracked down in the year 1818 in the formation of the

life insurance Corporation in Calcutta. The idea was to provide means to the English widows.

During that time different premiums were charged for the Indian and English people lives. In

1870, the Bombay Mutual Life Insurance Society started its insurance business and it charged

the same premium from all people irrespective of whether they were Indian or English. In the

year 1912, insurance regulation was started due to the passing of the Life Insurance Companies

Act and the Provident Fund Act. By the year of 1938, in India there were total 176 insurance

Page 37: Insurance sector term paper

companies. In the year of 1938, with the passing of Insurance Act, 1938 there was the

introduction of the first comprehensive legislation. It was passed with the aim of providing the

strict state control over the insurance business. After the independence, insurance sector in India

grew at a much higher pace. In the year 1956, Indian government combined together 245 Indian

and foreign insurers and the provident societies under the name of nationalized monopoly

corporation. It was the same period when the life insurance corporation (LIC)came into the

existence by the passing of the Act of Parliament and through the contribution of capital around

Rs. 5 crore. Till 1972, private sector has enjoyed somehow monopoly in the general insurance

sector. There were around 107 private companies in the field. With the effect of the General

Insurance Business (Nationalization) Act, 1972, the general insurance business got nationalized

in the India. Due to the amalgamation of 107 private insurance companies, 4 new companies, as

the subsidiaries of the General Insurance Company, came into effect- National Insurance

Company, New India Assurance Company, Oriental Insurance Company and United India

Insurance Company.

Page 38: Insurance sector term paper

CONCLUSION

The financial markets have continued to witness unprecedented liberalization, growth and

reforms over the last decade prompted by regulatory compulsions and a rapid integration

between domestic and global markets. And as a result, one has seen substantial growth in the

number of financial firms (insurance companies, mutual funds, brokerages, banks etc.) and in the

number and variety of financial products and services offered by them. As the need of the people

is changing so is changing the investment habits of the people and this has brought in a spate of

new products and schemes where people can invest. The concept of insurance as an investment

option has arrived where people first identify the varying needs of money then converts the

needs into specific amount of money and time required to achieve the objective of investments

plans. The objective of insurance as an investment is to ensure that investments are driven by

predetermined and well thought out investment plan and that the investments are suitable and

adequate to meet these plans. But for this the planner must understand the universe of

investments options. He/she must be well informed on the risk and return attributes of these

options.

In addition to the above, companies should also innovate to come up with better products that

would suit the Indian population and should also try to market and sell their products through

new channels of distribution that can be effective in selling their products to the masses. People

should identify their needs and then decide on the type of policy they want to invest in. insurance

is a good investment option for those people who do not know where to invest and who do not

want to the risk of capital erosion. But, people who are financially savvy can opt for term

insurance and invest the rest in other options that may give them higher returns.

Page 39: Insurance sector term paper

REFRENCES

Data on Indian Insurance from http://www.irdaindia.org

Profile of Indian Insurance Companies by IRDA.

Different statistics from http://www.rbi.org.in

Different Survey on Insurance sector conducted by IIRC.

Journals published by Insurance Regulatory & Development Authority.

Management of financial institutions by R.M. Srivastava

http://www.businesstoday.com

http://www.businessworld.com

http://www.economictimes.com

www.licindia.co.in

www.sbilife.co.in/

www.tata-aig-life.com

www.bharti-axalife.com/

www.hdfcinsurance.com/

www.reliancelife.co.in/

www.bajajallianz.com/

www.metlife.co.in/

www.birlasunlife.com/

http://www.finance.indiamart.com

http://www.indianindustry.com/trade-information/insurance-sector-growth.html