Indian Insurance
Introduction:
The Insurance sector inIndiagoverned 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 inIndia. 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 inIndia. It was due
to this immense growth that the regulations were introduced in the
insurance sector and in continuation MalhotraCommitteewas
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.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 risksFuture is uncertain; nobody knows
what is going to happen? It may or may not? Insurance is the
concept of risk management the need to manage uncertainty on
account of above stated risks.Insurance is a way of financing these
risks either fully or partially. Insurance industry has both
economic and social purpose and relevance Insurance business in
India can be broadly divided into two categories such as Life
Insurance and General Insurance of Non-life insurance.
History of Insurance in India:Insurance has a long history in
India. Life Insurance in its current form was introduced in 1818
when Oriental Life Insurance Company began its operations in India.
General Insurance 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. 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.
Characteristics of Insurance:
Sharing of risks
Cooperative device
Evaluation of risk
Payment on happening of a special event
The amount of payment depends on the nature of losses
incurred.
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.
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.
INDIVIDUAL LIFE INSURANCE COVERAGE INDEX, 2008.
COUNTRY NO. OF POLICIES PER 100 PERSONS Indonesia 2.0Philippines
5.6India 12.4Thailand 14.7Malaysia 35.5 Hong Kong 69.4 South Korea
70.5Taiwan 75.2Singapore 112.6 Japan 198.
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
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 objections are:
(a) That there is no major untapped potential in insurance
business in India;
(b) That there would be massive retrenchment and job losses due
to computerization and modernization; and
(c) That private and foreign firms would indulge in reckless
profiteering and skim the urban cream market, and ignore the rural
areas. But all these fears are unfounded. The real reason behind
the protests is that the dismantling of government monopoly would
provide a benchmark to evaluate the governments insurance
services.
CHRONOLOGICAL DEVELOPMENT OF INSURANCE SECTOR: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.
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.
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
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 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, the Insurance Regulatory and Development
Authority (IRDA) was constituted as an autonomous body to regulate
and develop the insurance industry. The IRDA was incorporated as a
statutory body in April, 2000. The key objectives of the IRDA
include promotion of competition so as to enhance customer
satisfaction through increased consumer choice and lower premiums,
while ensuring the financial security of the insurance market. The
IRDA opened up the market in August 2000 with the invitation for
application for registrations. Foreign companies were allowed
ownership of up to 26%. The Authority has the power to frame
regulations under Section 114A of the Insurance Act, 1938 and has
from 2000 onwards framed various regulations ranging from
registration of companies for carrying on insurance business to
protection of policyholders interests.
In December, 2000, the subsidiaries of the General Insurance
Corporation of India were restructured as independent companies and
at the same time GIC was converted into a national re-insurer.
Parliament passed a bill de-linking the four subsidiaries from GIC
in July, 2002.Today there are 14 general insurance companies
including the ECGC and Agriculture Insurance Corporation of India
and 14 life insurance companies operating in the country. The
insurance sector is a one and is growing at a speedy rate of
15-20%. Together with banking services, insurance services add
about 7% to the countrys GDP. A well-developed and evolved
insurance sector is a boon for economic development as it provides
long- term funds for infrastructure development at the same time
strengthening the risk taking ability of the country.
Principles of Insurance:Principle of Utmost good faith.Principle
of Indemnity.Principle of Causa Proxima.Principle of Insurable
Interest.Doctrine of Subrogation.LIBERALISATION OF INSURANCE
SECTOR:
1990s saw the emergence of liberalisation. Liberalisation meant
lifting government controls, permits, licenses and allowing
competition to play its role in the economy. With respect to 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 of
Sri. Malhotra. The Committee submitted its report in 1994,
recommended, among after things, that the insurance sector in India
be thrown open to private sector. Government accepted the
recommendations and allowed private players to offer insurance
cover to Indian citizens.
WHY LIBERALISATION OF INSURANCE SECTOR?
To avoid monopolized (by the State run LIC and GICs) market.
Create awareness in urban areas about the needs and benefits of
insurance.
To reduce the yawning gap between the needs of customers and
products being offered by the state owned companies.
To mobilize funds from the economy for the infrastructure
development.
To provide multiple innovative products.
To provide better customers service from existing state owned
player
MALHOTRA COMMITTEE RECOMMENDATION:
Structure Government stake in the insurance Companies to be
brought down to 50 per cent.
Government should take over the holdings of GIC and its
subsidiaries, to act these as independent companies.
All insurance companies should be given greater freedom to
operate. No special dimension is given to government companies.
Increase of capital base of LIC and GIC up to Rs. 200 crores,
half retained by the government and the rest sold to the public at
large with suitable reservations for its employees.
Competition: Private Companies are allowed to enter insurance
industry with a minimum paid up capital of Rs. 1billion.
No company should deal in both Life and General Insurance
through a single entity.
Foreign insurance may be allowed to enter the industry by
floating an Indian company as joint venture with Indian
partner.
Postal Life Insurance should be allowed to operate in the rural
market. Only and one State Level Life Insurance Company should be
allowed to operate in each State.
Regulatory Body: Establishment of a strong and effective
insurance regulatory body in the form of a statutory autonomous
board on the lines of SEBI.
Controller of Insurance to be made independent Investments
Mandatory Investments of LIC Life Fund in government 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 in insurance industry
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 inIndiatoday 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 likeIndiawith 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.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.
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 eyeingIndiafor 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 inMauritius,Fiji,UK,Sri
Lanka,and Nepaland will soon start operations inSaudi 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.
Development of Insurance in India.
Types of Insurance Life Insurance General Insurance Fire
Insurance Marine Insurance
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. Term Insurance Policy Whole Life
Policy Endowment Policy Money Back Policy Annuities And Pension
Term Insurance Policy: A term insurance policy is a pure risk
cover for a specified period of time. What this means is that the
sum assured is payable only if the policyholder dies within the
policy term. For instance, if a person buys Rs 2 lakh policy for
15-years, his family is entitled to the money if he dies within
that 15-year period. What if he survives the 15-year period? Well,
then he is not entitled to any payment; the insurance company keeps
the entire premium paid during the 15-year period. So, there is no
element of savings or investment in such a policy. It is a 100 per
cent risk cover. It simply means that a person pays a certain
premium to protect his family against his sudden death. He forfeits
the amount if he outlives the period of the policy. This explains
why the Term Insurance Policy comes at the lowest cost.Whole Life
policy: As the name suggests, a Whole Life Policy is an insurance
cover against death, irrespective of when it happens. Under this
plan, the policyholder pays regular premiums until his death,
following which the money is handed over to his family.This policy,
however, fails to address the additional needs of the insured
during his post-retirement years. It doesn't take into account a
person's increasing needs either. Endowment Policy:Combining risk
cover with financial savings, endowment policies is the most
popular policies in the world of life insurance. In an Endowment
Policy, the sum assured is payable even if the insured survives the
policy term. If the insured dies during the tenure of the policy,
the insurance firm has to pay the sum assured just as any other
pure risk cover. A pure endowment policy is also a form of
financial saving, whereby if the person covered remains alive
beyond the tenure of the policy, he gets back the sum assured with
some other investment benefits.Money Back Policy: These policies
are structured to provide sums required as anticipated expenses
(marriage, education, etc) over a stipulated period of time. With
inflation becoming a big issue, companies have realized that
sometimes the money value of the policy is eroded. That is why
with-profit policies are also being introduced to offset some of
the losses incurred on account of inflation.
A portion of the sum assured is payable at regular intervals. On
survival the remainder of the sum assured is payable. In case of
death, the full sum assured is payable to the insured. The premium
is payable for a particular period of time.Annuities and
Pensions:In an annuity, the insurer agrees to pay the insured a
stipulated sum of money periodically. The purpose of an annuity is
to protect against risk as well as provide money in the form of
pension at regular intervals. Over the years, insurers have added
various features to basic insurance policies in order to address
specific needs of a cross section of people.
General InsuranceInsurance 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 of insurance 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.
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.
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
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: 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. Comprehensive policy: This all-in-one policy
indemnifies for loss arising out of fire, burglary, theft and third
party risks. The policyholder may also get paid for the loss of
profits incurred due to fire till the time the business remains
shut.
Valued policy: This policy is a departure from the standard
contract of indemnity. The amount of indemnity is fixed and the
actual loss is not taken into consideration.
Floating policy: This policy is subject to the average clause.
The extent of coverage expands to different properties belonging to
the policyholder under the same contract and one premium. The
policy may also provide protection to goods kept at two different
stores.
Replacement or Re-instatement policy: This policy is subject to
the re-instatement clause, which requires the insurance company to
pay for replacing the damaged property. So, instead of giving out
cash, the insurer can re-instate the property as an alternative
option.
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 costofmarine insuranceis 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 helpcan 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
inocean bills of lading-the contract between the shipper and the
carrier,limit the liability of the shipping company for such
losses. In orderto recover losses from the carrier, the exporter
must be able to provewant of due diligence,in other words, the
shipping company was negligent. It is difficultfor an exporter to
prove at what point damage or loss occurred. However, amarine
insurance policy is often arranged on awarehouse-to-warehousebasis.
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 policyrelieves the
exporter of the burden of proving when or where any loss actually
occurred. If, someone else'sgoods are damaged or destroyed during
the voyage and in order to save the ship, then the exporter may be
called upon to pay part of the cost. This is known asgeneral
average. Here, the pointthat is being made is that the exporter's
goods may be held in the foreign port until such a claim is
settled.By havingmarine insurance,including general average
coverage, the exporter avoids the risk of such a delay.Scope of
Cover:It covers transit of goods:1. By Sea. (All ocean voyages and
inland water ways.)2. Send by post or parcels3. Bay
rail/road/Air.Basis of sum Insured:Marine Insurance policies are
issued on agreed value bases and should be based on invoice and
covering incidental expenses.What are the types of Coverage
offered?The following are the type of covers available: All
Overseas Transits are subjected to Institute Cargo Clauses, given
by Lloyds Underwriter and Technical Committee, London.
The brief coverage is: (*Can be bought back.)RisksInstitute
Cargo Clauses
(Proximate Cause) A (All risk Cover) B (Wider Cover) C (Basic
Cover)
Stranding , Grounding, Sinking or CapsizingYesYesYes
Overturning or Derailment of Land ConveyanceYesYesYes
Collision of Ship or Craft with another Ship or
CraftYesYesYes
Contact of Ship, Craft or Conveyance with anything other
thanShip or Craft (excludes Water but not Ice)YesYesYes
Discharge of Cargo at Port of DistressYesYesYes
Loss overboard during Loading/Discharge (total loss
only).N/AYesNo
Fire or ExplosionYesYesYes
Malicious DamageYesNo*No*
Theft/ PilferageYesNoNo
General Average SacrificeYesYesYes
JettisonYesYesYes
Washing Overboard (deck cargo)YesYesNo
War RisksNo*No*No*
Seawater entering Ship, Craft, Hold,Conveyance Container Lift
Van or Place of StorageYesYesNo
River or Lake Water entering sameYesYesNo
Underwriting of Life InsuranceMeaning 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.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 lifeUnderwriting 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 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.
ReinsuranceMeaningThe 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 Reinsurance1) To limit liability on
specific risks2) To stabilise loss experience3) To protect against
catastrophe 4) To increase capacity. Types of ReinsuranceTreaty
reinsuranceThis method is defined to cover an entire category of
risk or line of business in advance. It is obligatory and binding
in nature for both the reinsured and reinsurers. So as long as a
risk meets all the conditions as given in the reinsurance contract,
acceptance of that risk by the insurer is automatic. Reinsurance by
this method creates capacity for insurers. Capacity + Coverage of
all perils with adequate limits + confidence on security of
reinsurers + continuity of reinsurance after a loss.Facultative
reinsuranceThis 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 the amount 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. Such a contract is written per
risk, per occurrence or as an aggregate loss.Reinsurers always try
to attach a global spread of risks. Hence there are tie-ups with
global reinsurers. When reinsurers are in the global market they
are not excessively affected by local market bad losses and are
capable of meeting liabilities.
Advantages of ReinsuranceIn 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.
List of Life Insurance Players in IndiaAviva Life Insurance y
Bajaj AllianzBirla Sun Life InsuranceHDFC Standard Life
InsuranceICICI PrudentialKotak Life InsuranceLife Insurance
Corporation of IndiaMax New York LifeReliance Life InsuranceSahara
India Life InsuranceSBI Life InsuranceShriram Life Insurance Co
Ltd.
List of General Insurance Players in IndiaNational Insurance
Company LimitedOriental Insurance Company LimitedUnited India
Insurance Company LimitedBajaj Allianz General Insurance Co.
LimitedICICI Lombard General Insurance Co. Ltd.IFFCO-Tokio General
Insurance Co. Ltd.Reliance General Insurance Co. LimitedRoyal
Sundaram Alliance Insurance Co. Ltd.TATAAIG General Insurance Co.
LimitedExport Credit Guarantee CorporationHDFC Chubb General
Insurance Co. Ltd.
The questions and its answers which are submitted below, is
being asked to the agent of Life Insurance Company and few other
questions are asked to around 10 people who are directly or
indirectly affiliated with insurance business.Questioners:1) Do you
have any past experience in Insurance Business?
Figure: 1.1As 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.2) From
how many years you are being employed in this organization?
Figure 1.23) How is the Environment of your work place?
Figure 1.34) Does Management listen to employees?
Figure 1.45) What do you look for a new company when you
join?
Figure 1.56) Have you ever faced a problem in your
organization?
Figure 1.67) Is your organization flexible, with respect to your
family responsibilities?
Figure 1.78) Are you satisfied with the training and development
of employees?
Figure 1.89) Are you satisfied with organizations Culture and
Politics?
Figure 1.910) Do you feel stressed out in your job?
Figure 1.1011) How much are you satisfied with your job?
Figure 1.1112) What according to you are the factors which
motivate employ to retain in life insurance companies?
Figure 1.12.1
Figure 1.12.2Conclusion:
Biblography