INDUSTRY PROFILE WHAT IS INSURANCE The business of insurance is related to the protection of the ECONOMIC VALUES OF ASSETS. Every asset has a value. The asset would have been created through the efforts of the owner. The asset would have been created through the efforts of the owner. The asset is valuable to the owner, because he expects to get some benefits form it. It is a benefit because it meets some of his needs. The benefit may be an income or in some other form. In the case of a factory or a cow, the product generated by it is sold and income is generated. In the case of a motor car, it provides comfort and convenience in transportation. There is no direct income. Both are assets and provide benefits. Every asset is expected to last for a certain period of time during which it will provide the benefits. After that, the benefit may not be available. There is a life-time for a machine in factory or a cow or a motor car. None of them will last for ever. The owner is aware of this and he can so manage his affairs that by the end of that period or life-time, a substitute is made available. Thus he makes sure that the benefit is not lost. However, the asset may get lost earlier. An accident or some other unfortunate event may destroy it or make it incapable of giving the benefits. An epidemic may
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INDUSTRY PROFILE
WHAT IS INSURANCE
The business of insurance is related to the protection of the ECONOMIC VALUES OF
ASSETS. Every asset has a value. The asset would have been created through the efforts of the
owner. The asset would have been created through the efforts of the owner. The asset is valuable
to the owner, because he expects to get some benefits form it. It is a benefit because it meets
some of his needs. The benefit may be an income or in some other form. In the case of a factory
or a cow, the product generated by it is sold and income is generated. In the case of a motor car,
it provides comfort and convenience in transportation. There is no direct income. Both are assets
and provide benefits.
Every asset is expected to last for a certain period of time during which it will provide the
benefits. After that, the benefit may not be available.
There is a life-time for a machine in factory or a cow or a motor car. None of them will last for
ever. The owner is aware of this and he can so manage his affairs that by the end of that period or
life-time, a substitute is made available. Thus he makes sure that the benefit is not lost. However,
the asset may get lost earlier. An accident or some other unfortunate event may destroy it or
make it incapable of giving the benefits. An epidemic may kill the cow suddenly. In that case,
the owner and those enjoying the benefits therefore, would be deprived of the benefits. The
planned substitute would not have been ready. There is an adverse or unpleasant situation.
Insurance is a mechanism that helps to reduce the effects of such adverse situations. It promises
to pay to the owner or beneficiary of the asset, a certain sum if the loss occurs.
Bharti – Axa Life Insurance
HISTORY OF INSURANCE
Insurance has been known to exist in some form or other since 3000 BC. The Chinese
traders, traveling treacherous river rapids would distribute their goods among several
vessels, so that the loss form any one vessel being lost, would be partial and shared, and
not total. The Babylonian traders would agree to pay additional sums to lenders, as the
price for writing off the loans, in case of the shipment being stolen. The inhabitants of
Rhodes adopted the principle of general average of ‘general average’, whereby, if goods
are shipped together, the owners would bear the losses in proportion, if loss occurs, due
to jettisoning during distress. {Captains of ships caught in storms, would throw away
some of the cargo to reduce the weight and restore balance. Such throwing away is called
jettisoning} The Greeks had started benevolent societies in the late 7 th century AD, to
take care of the funeral and families of members ho died. The great fire of London in
1666,in which more than 13000 house were lost, gave a boost to insurance and the first
fire insurance company, called the fire office, was started in 1680.
The origins of insurance business as in vogue at present, is traced to the Lloyd’s Coffee
House in London. Traders, who used to gather in the Lloyd’s coffee house in London,
agreed to share the losses to their goods while being carried by ships. The losses used to
occur because of pirates who robbed on the high seas of because of bad weather spoiling
the goods or sinking the ship. In India, insurance began in 1818 with life insurance being
transacted by an English company, the Oriental Life Insurance Co. in 1870 in Mumbai.
This was followed by the Bharat Insurance co. in 1896 in Delhi, the Empire of India in
1897 in Mumbai, The United India in Chennai, the National, the National Indian and
Hindustan Cooperative in Kolkata.
Later, were established the cooperative Assurance in Lahore, the Bombay Life (originally
called the swadeshi life), the India Mercantile, the new India and the Jupiter in Mumbai
and the Lakshmi in New Delhi. These were all Indian companies started as a result of the
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swadeshi movement in the early 1900s. By the year 1956, when life insurance business
was nationalized and the life Insurance Corporation of India (LIC) was formed on1st
September 1956, there were 170 companies and 75 provident fund societies transacting
life business in India. After the amendments to the relevant laws in 1999, the L.I.C. did
not have the exclusive privilege of doing life insurance business in India. By 31.8.2007,
sixteen new life insurers had been registered and were transacting life insurance business
in India.
The History of Insurance in India
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.
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Life Insurance a Basic Need
Life insurance is a contract providing for payment of a sum of money to the person assured or,
failing him, to the person entitled to receive the same, on the happening of certain event.
A family is generally dependent for its food, clothing and shelter on the income brought in at
regular intervals by the bread winner of the family. So long as the he lives and the income is
received steadily, that family is secure; but should death suddenly intervene the family may be
left in a very difficult situation and sometimes, in stark poverty.
Uncertainty of death is inherent in human life. It is this uncertainty that is risk, which gives rise
to the necessity for some form of protection against the financial loss arising from death;
insurance substitutes this uncertainty by certainty.
Few Advantages of Life Insurance.
1. It is superior to an ordinary savings plans:
This is so because unlike other saving plans, it affords full protection against risk of death. In
case of death, the full sum assured is made available under a life assurance policy; whereas under
other savings schemes the total accumulated savings alone will be available. The latter will be
considerably less than the sum assured, if death occurs during early years.
2. Insurance encourages and forces thrift:
A savings deposit can be too easily withdrawn. Many may not be able to resist the temptation of
using the balance for some less worthy purpose. On the other hand, the payment of life insurance
premiums becomes a habit and comes to be viewed wit the same seriousness as the payment of
interest on a mortgage. Thus insurance, in effect brings about compulsory saving.
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3. Easy settlement and protection against creditors:
The life assured can name a person or persons to whom the policy moneys would be payable in
the event of his death. The proceeds of a life insurance policy can be protected against.The
claims of the creditors of the life assured by effecting a valid assignment of the policy. A married
women’s property act policy constitutes a trust in favor of the wife and children and no separate
assignment is necessary. The beneficiaries are fully protected from creditors except to the extent
of any interest in the policy retained by the assured.
.
4. Administering the legacy for beneficiaries:
It often happens that a provision which a husband or father has made through insurance is
quickly lost through speculative or unwise investment or by unnecessary expenditure on
luxuries. These contingencies can be provided against in the case of insurance. The policyholder
can arrange that in the in the event of his death the beneficiary should receive, instead of a single
sum (a). payment of the net claim amount by equal installments over a specified period of years,
or (b).payment of the claim amount by smaller monthly installments over the selected period
followed by a lump sum at the end thereof.
5. Ready marketability and suitability for quick borrowings:
After an initial period, if the policy holder finds himself unable to continue payment of premiums
he can surrender the policy for a cash sum. Alternatively he can tide over a temporary difficulty
by taking loan on the sole security of the policy without delay. Further a life insurance policy is
sometimes acceptable as security for a commercial loan.
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6. Tax relief:
For computing income tax (especially in India the Indian income tax act) follows deduction from
income tax payable, a certain percentage of a portion of the taxable income of individuals which
is diverted to payment of insurance premiums. When this tax relief is taken into account it will
be found that the assured is n effect paying a lower premium for his insurance.
How Insurance Works
The mechanism of insurance is very simple. People who are exposed to the same risks come
together and agree that, if any one of the members suffers a loss, the others will share the loss
and make good to the person who lost. All people who send goods by ship are exposed to the
same risk related to water damage, ship sinking, piracy, etc. those owning factories are not
exposed to these risks, but they are exposed to different kinds of risks like, fire, hailstorms,
earthquakes, lightening, burglary, etc. like this, different kinds of risks can be identified and
separate groups, made including those exposed to such risks. By this method, the risk is spread
among the community and the likely big impact on one is reduced to smaller manageable
impacts on all.
If a Jumbo Jet with more than 350 passenger’s crashes, the loss would run into several crores of
rupees. No airline would be able to bear such a loss. It is unlikely that many Jumbo Jets will
crash at the same time. If 100 airline companies flying Jumbo Jets, come together into an
insurance pool, whenever one of the jumbo jets in the pool crashes, the loss to be borne by each
airline would come down to a few lakhs of rupees. Thus, insurance is a business ‘sharing’.
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Role of Insurance in Economic Development
For economic development, investments are necessary. Investments are made out of
savings. A life insurance company is a major instrument for the mobilization of savings
of people, particularly from the middle and lower income groups. These savings are
channeled into investments for economic growth.
An insurance company’s strength lies in the fact that huge amounts come by way of
premiums. Every premium represents a risk that is covered by that premium. In effect,
therefore, these vast amounts represent pooling of risks. The funds are collected and held
in trust for the benefit of the policyholders.
The management of insurance companies is required to keep this aspect in mind and
make all its decisions in ways that benefit the community. This applies also to its
investments. This is why successful insurance companies would not be found investing in
speculative ventures. Their investments benefit the society at large.
The system of insurance provides numerous direct and indirect benefits to the individual
and his family as well as to industry and commerce and to the community and the nation
as a whole. Those who insure, both individuals and corporate, are directly benefited
because they are protected from the consequences of the loss that may be caused by the
accident or fortuitous event. Insurance, thus, in a sense protects the capital in industry and
releases the capital for further expansion and development of business and industry.
The every existence of risk that is, uncertainty concerning the future, is a severe
handicaps in economic activities. Insurance removes the fear, worry and anxiety
associated with this future uncertainty and thus encourages free investment of capital in
business enterprises and promotes efficient use of existing resources.
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Thus insurance encourages commercial and industrial development and there by
contributes to a vigorous economy and increased national productivity.
Present day organization of industry, commerce and trade depend entirely on insurance
for their operation, banks and financial institutions lend money to industrial and
commercial undertakings only on the basis of the collateral security of insurance. No
bank or financial institution would advance loans on property unless it is insured against
loss or damage by insurable perils.
Insurers are closely associated with several agencies and institutions engaged in fire loss
prevention, cargo loss prevention, cargo loss prevention, industrial safety and road safety.
Before acceptance of a risk, insurers arrange survey and inspection of the property to be
insured, by qualified engineers and other experts.
The object of these surveys is not only to assess the risk for rating purposes but also to
suggest and recommend to the insured, various improvements in the risk, which will
attract lower rates of premium and what is more important , reduce the loss potential. For
example, burglary surveyors make recommendation in regard to security measures such
as better locking system, appointment of Watchman, etc. Engineering surveys play a
most useful part in accident prevention as valuable technical advice is provided in respect
of plant and machinery.
Insurance ranks with export trade, shipping and banking services as earner of foreign
exchange to the country. It helps to earn foreign exchange and represent invisible exports.
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List of Insurance Companies Listed in Different Years
List of Life Insurance Companies
S.No. Registration
Number Date of Reg. Name of the Company
1 101 23.10.2000 HDFC Standard Life Insurance Company Ltd.
2 104 15.11.2000 Max New York Life Insurance Co. Ltd.
3 105 24.11.2000 ICICI Prudential Life Insurance Company Ltd.
4 107 10.01.2001 Kotak Mahindra Old Mutual Life Insurance Limited
5 109 31.01.2001 Birla Sun Life Insurance Company Ltd.
6 110 12.02.2001 Tata AIG Life Insurance Company Ltd.
7 111 30.03.2001 SBI Life Insurance Company Limited .
8 114 02.08.2001 ING Vysya Life Insurance Company Private Limited
9 116 03.08.2001 Bajaj Allianz Life Insurance Company Limited
10 117 06.08.2001 Metlife India Insurance Company Ltd.
11 133 04.09.2007 Future Generali India Life Insurance Company Limited
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12 135 19.12.2007 IDBI Fortis Life Insurance Company Ltd.
13 102 23.10.2000 Royal Sundaram Alliance Insurance Company Limited
14 103 23.10.2000 Reliance General Insurance Company Limited.
15 106 04.12.2000 IFFCO Tokio General Insurance Co. Ltd
16 108 22.01.2001 TATA AIG General Insurance Company Ltd.
17 113 02.05.2001 Bajaj Allianz General Insurance Company Limited
18 115 03.08.2001 ICICI Lombard General Insurance Company Limited.
19 131 03.08.2007 Apollo DKV Insurance Company Limited
20 132 04.09.2007 Future Generali India Insurance Company Limited
21 134 16.11.2007 Universal Sompo General Insurance Company Ltd.
22 121 03.01.2002 Reliance Life Insurance company Ltd.
23 122 14.05.2002 Aviva Life Insurance Co. India Pvt. Ltd.
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24 127 06.02.2004 Sahara India Insurance Company Ltd.
25 128 17.11.2005 Shriram Life Insurance Company Ltd.
26 130 14.07.2006 Bharti AXA Life Insurance Company Ltd.
27 133 04.09.2007 Future general Indai life Insurance Co.Ltd
28 135 19.12.2007 IDBI Fortis Life Insurance Company Ltd.
29 136 08.05.2008 Canara HSBC Oriental Bank of Commerce Life
Insurance Company Ltd.
30 138 27.06.2008 Aegon Religare Life Insurance Company Ltd.
31 140 27.06.2008 DLF Pramerica Life Insurance Company Ltd.
List of General Insurance Companies
1 123 15.07.2002 Cholamandalam General Insurance Company Ltd.