What is insurance?The definition of insurance can be made from twopoints: Functional definition. Contractual definition.FUNCTIONAL DEFINITION Insurance is a co-operative device to spread theloss caused by a particular risk over a number ofpersons who are exposed to it and who agree toinsure themselves against the risk.
Contractual DefinitionIn the words of justice Tindall, “Insurance is acontract in which a sum of money is paid tothe assured as consideration of insurer’sincurring the risk of paying a large sum upona given contingency.”
LIFE INSURANCELife insurance is a written contractbetween the insured and the insurer,that provides for the payment of theinsured sum on the date of the maturityof the contract or on the unfortunatedeath of the insured, whichever occursearlier.
GENERAL INSURANCE General insurance or non-lifeinsurance policies, including automobileand homeowners policies, providepayments depending on the loss from aparticular financial event. Generalinsurance typically comprises anyinsurance that is not determined to belife insurance.
TYPES OF GENERAL INSURANCEHealth insuranceBusiness insuranceAutomobile insuranceFire insurance etc.
HEALTH INSURANCEJust like one looks to safeguardones wealth, these policies ensureguarding the insurers healthagainst any calamities that maycause long term harm to ones lifeand even hamper ones earningability for a lifetime. Someexamples of this type of policy aremediclaim policy, personalaccident, group accident, trafficaccident, etc.
Business InsuranceRisks of loss of profits/business, goods,plant and machinery are most profoundin case of business. Under this headthey cover the most widely usedpolicies that cover a business from anyloss of the above kind. Some of thesepolicies are burglary insurance,shopkeepers insurance, key-maninsurance, marine insurance, publicliability insurance, workmencompensation insurance, air transitinsurance, fidelity guarantee insuranceetc.
Automobile InsuranceAuto Policy is required to be taken tocover the risks that arise to theowner, vehicle and third party. Thisincludes the Compulsory VehiclePolicy (In India, by the Motor VehiclesAct, every car owner is required tocovered against Act risks) and theComprehensive Vehicle Policy.
FIRE INSURANCEThis policy is required to betaken to prevent any loss ofprofits / property fromincidental fire. Eg: fireinsurance and fireconsequential loss policy.
HISTORY OF INSURANCE IN INDIA04/19/13 12Phase Period IndustryPhase Ia. Life Insuranceb. General Insurance1818 to 1956(about 138 yrs)1850 to 1972(about 122 yrs)Many (245) private sector companies only,competitive market.Many (107) private sector companies only,competitive market.Phase IIa.Life Insuranceb.General Insurance1956 to 2000(about 44 yrs)1972 to 2000(about 28 yrs)Nationalization, public sector or Statemonopoly, only one company.Nationalization, public sector monopoly, onlyone company with its four subsidiaries.Phase IIILife Insurance andGeneral InsuranceAfter 2000Opened to the entry of private domestic andforeign companies, mixed sector of public andprivate sector units, oligopoly of public sectorcompanies (14 life insurance and 12 generalinsurance companies)
HISTORY OF INSURANCE IN INDIA contd..04/19/13 13-1818 First life insurance company “Oriental Life InsuranceCompany (in Calcutta).- 1850 First general insurance company “Tritan InsuranceCompany (in Calcutta)- Till 1956/1972 life and general insurance industry grown interms of number of companies (life 245 and General 107 withcomplete private sector ownership), the volume of premium,investible resources, and so on. And both type of insurancecompanies were competitive.- The insurance was regulated through the Insurance Act, 1938.- The picture changed after the Independence.
HISTORY OF INSURANCE IN INDIA contd..04/19/13 14- In 1956, 245 Indian and Foreign life insurers and providentsocieties were nationalized, and new single entity namely“LIC” was established by passing the LIC Act, 1956.- Similarly, in 1972, 107 general insurers were nationalizedthrough the passing of General Insurance Business(Nationalisation) Act, 1972.- The existing 107 insurers were amalgamated and grouped intoFive companies, viz., National Insurance Company (NIC),New India Assurance Company (NIAC), Oriental InsuranceCompany (OIC), United India Insurance Company (UIIC),and General Insurance Corporation (GIC).- Then insurance industry transformed into monopoly andOligopolistic state or public sector insurance industry in India.
Life Insurance Corporation of India (LIC) was formed inSeptember 1956 by an Act of Parliament, LIC Act 1956 witha contribution of Rs. 50 million.The then Finance Minister Mr. C. D. Deshmukh whilepiloting the bill for nationalization outlined the objectives ofLIC thus: “To conduct the business with utmost economy withthe spirit of trusteeship; to charge premium no higher thanwarranted by strict actuarial considerations; to invest thefunds for obtaining maximum yield for the policy holdersconsistent with safety of capital; to render prompt andefficient service to policy holders thereby making Insurancewidely popular”.04/19/13 15
LIC OF INDIA contd…Presently the LIC has a network of seven zones; 100 divisions and2,048 branches, personnel exceed seven lakhs employees andover six lakhs agents.Vision: A trans-nationally competitive financial conglomerate ofsignificance to societies and Pride of India.Mission: To explore and enhance the quality of the life of peoplethrough financial security by providing products and services ofaspired attributes with competitive returns and by renderingresources for economic development.Values: Caring and Courtesy, Initiatives and Innovation, Integrityand Transparency, Quality and Returns, Participation andRelationship, and Trustworthiness and ReliabilityCulture: Agility (quickness), Adaptability, Collaboration,Commitment, Discipline, Empowerment, Sensitivity, andExcellence.04/19/13 16
LIC OF INDIA contd…Objectives Spread Life Insurance widely and in particular to the ruralareas. Maximise mobilization of people’s savings by makinginsurance-linked savings adequately attractive. Deployment of funds to the best of advantage of the investorsas well as the community as whole, keeping in view nationalpriorities and obligations of attractive return. Conduct of business at most economy and with the fullrealisation that the money belongs to the policyholders. Act as trustee of the insured public in their individual andcollective capacities.04/19/13 17
PRINCIPLES AND INVESTMENT POLICY OF LIC’s1. Security of funds, and2. Maximization of return of investment,04/19/13 18Investment Policy1. Central Govt. marketable securities being not less than 20%2. Loans to Housing Bank including above (1) being not less than 25%3. State Govt. securities including Govt. Guaranteed marketablesecurities, inclusive of (2) above being not less than 50%4. Socially oriented sectors including public sector, co-operative sectorhouse building by policyholders, own house scheme, inclusive of (3)above not less than 75%5. Private corporate sector, loans to policyholders for construction andacquisition of immovable property 25%
Jeevan Shree-IJeevan PramukhThe Money Back Policy-20 YearsThe Money Back Policy-25 YearsJeevan Surabhi-15 YearsJeevan Surabhi-20 YearsJeevan Surabhi-25 YearsBima Bachatjeevan Bharati-1
The Whole Life PolicyThe Whole Life Policy- Limited PaymentThe Whole Life Policy- Single PremiumJeevan AnandJeevan TarangTwo Year Temporary Assurance PolicyThe Convertible Term Assurance PolicyAnmol Jeevan-IAmulya Jeevan-I
PRIVATE SECTOR COMPANIES-Several leading private sector companies have entered in the fieldof insurance sector, both in life and non-life insurance.-There are several MNCs, in Joint Venture with Indian privatesector firms, have started operations in a big way.04/19/13 30Private Players in the Life Insurance BusinessRegd.No.Date ofRegd.Name of theCompanyWho Owns it (in percentage)101 23.10.00 HDFC Standard Life Standard Life, UK - 18 and HDFC – 82104 15.11.00 Max New York Life New York Life - 26 and Max India – 74105 24.11.00 ICICI Prudential Life Prudential, UK - 26 and ICICI Bank – 74107 10.01.01 Om Kotak Mahindra Old Maruthi, South Africa – 26 and KotakMahindra – 74109 31.01.01 Birla Sunlife Sun Life of Canada–26 and Birla Capital– 74110 12.02.01 Tata AIG AIG, US – 26 and Tatas – 74111 30.03.01 SBI Life Cardif SA, France – 26 and State Bank ofIndia – 74114 02.08.01 ING Vysya ING, Holland–26 and GMR Group, Hyd–54and ING Vysya Bank–20
Regd.No.Date ofRegd.Name of theCompanyWho Owns it (in percentage)116 03.08.01 Allianz Bajaj Allianz AG, Germany – 26 and Bajaj Auto – 74117 06.08.01 Metlife Metlife, US–26, Shapoorji Pallonji–30 and J&KBank–25121 03.01.02 AMP Sanmar AMP, Australia–26 and Sanmar Group,Chennai–74122 03.01.02 Aviva Aviva PLC, UK– 26 and Dabur Investments – 74*** *** Reliance Life*** *** Bharathi AXA127 06.02.04 Sahara IndiaInsurance128 07.11.05 Shriram LifeInsurancePrivate Players in the Life Insurance BusinessCURRENT SCENARIO contd….
•Growing at the rate of 15-20% annually•75% population has no insurance• Adds 7% to country’s GDP•LIC market share come down to 75% and private insurersincreased over 24%•Annuity or pension product have over 33% of market•Unity linked insurance scheme have monopoly
GENERAL INSURANCE CORPORATION (GIC) Prior nationalization there were 68 Indian insurers (includingLIC) and 45 non-Indian insurers did the business. In Nov. 1972, the general insurance business was nationalizedby the General Insurance Business (Nationalized), Act 1972(GIBNA) and vested in the hand of the GIC and its foursubsidiaries viz.1. National Insurance Co. Ltd.,2. New India Assurance Co. Ltd.,3. Oriental Fire and General Insurance Co. Ltd., and4. United India Insurance Co. Ltd. GIC was incorporated as a holding company in 1992. General Insurance Business is completely owned by thegovernment. The paid up capital of GIC was fully subscribed by theGovernment and of four subsidiaries. It was controlled by a single organization with four subsidiaries.04/19/13 34
G I C contd… GIC’s four subsidiaries:1. National Insurance Co. Ltd.,2. New India Assurance Co. Ltd.,3. Oriental Fire and General Insurance Co. Ltd., and4. United India Insurance Co. Ltd. The Govt of India took over Control, supervision, and policymaking is with GIC. The premium income for GIC comes mainly through theobligatory reinsurance premium on a quota share basis fromsubsidiaries on their direct business in India (almost 20% ofsubsidiaries business come to GIC).04/19/13 35
G I C contd…TYPES AND STRUCTURE OF BUSINESS- General insurance policies are not financial claims.- There is no guarantee of renewal of policy on the same terms oron 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 sectorsthrough wide rage of 115 products, granting insurance coverage.- GIC has been promoting insurance cover in the field oflivestock, poultry, sericulture, horticulture, pump sets, andpersonal accidents.04/19/13 36
PRINCIPLES AND INVESTMENT POLICY GIC1. Central Govt. securities being not less than 20%2. State Govt. securities and other government guaranteedsecurities, including (1) above, being not less than 30%3. Loans to HUDCO/DDA/GIC-HF and to state govts. Forhousing and fire fighting equipment, not less than 15%4. Market sector not more than 55%04/19/13 37
IRDA’S MISSIONTo protect the interests of the policyholders, to regulate,promote and ensure orderly growth of the insurance industryand for matters connected therewith or incidental thereto.04/19/13 39Composition of Authority under IRDA Act, 1999As per the section 4 of IRDA Act 1999, Insurance Regulatoryand Development Authority (IRDA, which was constituted byan act of parliament) specify the composition of Authority.The Authority is a ten member team consisting ofa. a Chairman;b. five whole-time members;c. four part-time members,(all appointed by the Government of India)
04/19/13 40Duties, Powers and Functions of IRDASection 14 of IRDA Act, 1999 lays down the duties, powersand functions of IRDA.1. Subject to the provisions of this Act and any other law for thetime being in force, the Authority shall have the duty toregulate, promote and ensure orderly growth of the insurancebusiness and re-insurance business.2. Without prejudice to the generality of the provisionscontained in sub-section (1), the powers and functions of theAuthority shall include:a. issue to the applicant a certificate of registration, renew,modify, withdraw, suspend or cancel such registration;
04/19/13 41Duties, Powers and Functions of IRDA contd…b. protection of the interests of the policy holders in mattersconcerning assigning of policy, nomination by policyholders, insurable interest, settlement of insurance claim,surrender value of policy and other terms and conditions ofcontracts of insurance;c. specifying requisite qualifications, code of conduct andpractical training for intermediary or insuranceintermediaries and agents;d. specifying the code of conduct for surveyors and lossassessors;e. promoting efficiency in the conduct of insurance business;
04/19/13 42Duties, Powers and Functions of IRDA contd…f. specifying the form and manner in which books of accountshall be maintained and statement of accounts shall berendered by insurers and other insurance intermediaries;g. regulating investment of funds by insurance companies;h. regulating maintenance of margin of solvency;i. adjudication of disputes between insurers andintermediaries or insurance intermediaries;j. supervising the functioning of the Tariff AdvisoryCommittee;
CONCLUSION Growth of Indian economy is an investmentdriven growth Opens a wide variety of investmentavenues Companies help to gain knowledge ofproducts and services Achieve a better standard for near futurelife