Indian InsuranceIntroduction:The Insurance sector in India governed by Insurance Act, 1938,the Life Insurance Corporation Act, 1956 and General InsuranceBusiness (Nationalisation) Act, 1972, Insurance Regulatory andDevelopment Authority (IRDA) Act, 1999 and other related Acts.With such a large population and the untapped market area ofthis population Insurance happens to be a very big opportunityin India. Today it stands as a business growing at the rate of 15-20 per cent annually. Together with banking services, it addsabout 7 per cent to the country’s GDP .In spite of all this growththe statistics of the penetration of the insurance in the country isvery poor. Nearly 80% of Indian populations are without Lifeinsurance cover and the Health insurance. This is an indicatorthat growth potential for the insurance sector is immense in India.It was due to this immense growth that the regulations wereintroduced in the insurance sector and in continuation“Malhotra Committee” was constituted by the government in1993 to examine the various aspects of the industry. The keyelement of the reform process was Participation of overseasinsurance companies with 26% capital. Creating a more efficient
and competitive financial system suitable for the requirements ofthe economy was the main idea behind this reform.Since then the insurance industry has gone through many seachanges .The competition LIC started facing from thesecompanies were threatening to the existence of LIC .since theliberalization of the industry the insurance industry has neverlooked back and today stand as the one of the most competitiveand exploring industry in India. The entry of the private playersand the increased use of the new distribution are in the limelighttoday. The use of new distribution techniques and the IT tools hasincreased the scope of the industry in the longer run.Meaning of Insurance: Insurance is a contract between two parties whereby oneparty called insurer undertakes in exchange for a fixed sum calledpremium, to pay the other party called insured a fixed amount ofmoney on the happening of certain event. Insurance indemnifiesassets and income. Every asset (living and non-living) has a valueand it generates income to its owner. The income has beencreated through the expenditure of effort, time and money. Every asset has expected lifetime during which it maydepreciate and at the end of life period it may not be useful, tillthen it is expected to function. Sometimes it may cease to existor may not be able to function partially or fully before theexpected life period due to accidental occurrences like burglary,
collisions, earthquakes, fire, flood, theft, etc. These types ofpossible occurrences are “risks”Future is uncertain; nobody knows what is going to happen? Itmay 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 orpartially. Insurance industry has both economic and socialpurpose and relevance Insurance business in India can be broadlydivided into two categories such as Life Insurance and GeneralInsurance of Non-life insurance.History of Insurance in India: Insurance has a long history in India. Life Insurance in itscurrent form was introduced in 1818 when Oriental Life InsuranceCompany began its operations in India. General Insurance washowever a comparatively late entrant in 1850 when TritonInsurance company set up its base in Kolkata. History ofInsurance 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. LifeInsurance Corporation of India was formed by consolidating theoperations of various insurance companies. General Insurancefollowed suit and was nationalized in 1973. General InsuranceCorporation of India was set up as the controlling body with NewIndia, United India, National and Oriental as its subsidiaries. Theprocess of opening up the insurance sector was initiated againstthe background of Economic Reform process which commencedfrom 1991.For this purpose Malhotra Committee was formed during thisyear who submitted their report in 1994 and Insurance RegulatoryDevelopment Act (IRDA) was passed in 1999. Resultantly IndianInsurance was opened for private companies and PrivateInsurance 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, whenOriental Life Insurance Company was incorporated at Calcutta.Thereafter, few other companies like Bombay Life AssuranceCompany, in 1823 and Triton Insurance Company, for GeneralInsurance, in 1850 were incorporated. Insurance Act was passedin 1928 but it was subsequently reviewed and comprehensivelegislation was enacted in 1938. The nationalisation of lifeinsurance business took place in 1956 when 245 Indian andForeign Insurance provident societies were first merged and thennationalized. It paved the way towards the establishment of LifeInsurance Corporation (LIC) and since then it has enjoyed amonopoly over the life insurance business in India. GeneralInsurance followed suit and in 1968, the insurance act wasamended to allow for social control over the general insurancebusiness. 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 in1972 and maintains a very strong hold over the non-life insurancebusiness in India. Due to concerns of(a)Relatively low spread of insurance in the country.(b) The efficient and quality functioning of the Public Sectorinsurance companies(c) The untapped potential for mobilizing long-term contractualsavings funds for infrastructure the (Congress) government set upan Insurance Reforms committee in April 1993.How big is the insurance market?Insurance is an Rs.400 billion business in India, and together withbanking services adds about 7% to India’s GDP. Gross premiumcollection is about 2% of GDP and has been growing by 15-20%per annum. India also has the highest number of life insurancepolicies in force in the world, and total investible funds with theLIC are almost 8% of GDP. Yet more than three-fourths of India’sinsurable 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 thevast insurance potential and to mobilize long-term savings weneed reforms which include revitalizing and restructuring of the
public sector companies, and opening up the sector to privateplayers. A statutory body needs to be made to regulate themarket and promote a healthy market structure. InsuranceRegulatory Authority (IRA) is one such body, which checks onthese tendencies.INDIVIDUAL LIFE INSURANCE COVERAGE INDEX,2008.COUNTRY NO. OF POLICIES PER 100PERSONSIndonesia 2.0Philippines 5.6India 12.4Thailand 14.7Malaysia 35.5
Hong Kong 69.4South Korea 70.5Taiwan 75.2Singapore 112.6Japan 198.BOTTLENECKS – GOVERNMENT / RBI REGULATIONS:The IRDA bill proposes tough solvency margins for privateinsurance firms, a 26% cap on foreign equity and a minimumcapital of Rs.100 crores for life and general insurers and Rs. 200crores for reinsurance firms. Section 27A of the Insurance Actstipulates that LIC is required to invest 75% of its accretionsthrough a controlled fund in mandated government securities. LICmay invest the remaining 25% in private corporate sector,construction, and acquisition of immovable assets besides
sanctioning of loans to policyholders. These stipulations imposedon the insurance companies had resulted in lack of flexibility inthe optimisation of risk and profit portfolio. If this inflexibilitycontinues, the insurance companies will have very little leverageto earn more on their investments and they might not be able tooffer as flexible products as offered abroad. The governmentmight provide more autonomy to insurance companies byallowing them to invest 50 % of their funds as per their owndiscretions. Recently RBI has issued stiff guidelines, which haddealt a severe blow to the plans of banks and financial institutionsto enter the insurance sector. It says that non-performing assets(NPA) levels of the prospective players will have to be 1% pointlower than the industry average (presently 7.5%). RBI has alsostipulated that all prospective entrants need to have a net worthof Rs. 500 crores. These guidelines have made it virtuallyimpossible for many banks to get into the insurance business.Also banks and FI’s who are planning to enter the business cannotfloat subsidiaries for insurance. RBI has taken too much caution tomake sure that the new sector does not experience the kind ofups and downs that the non-bank financial sector hasexperienced in the recent past.They had to rethink about these guidelines if India’s strong banksand financial institutions have to enter the new business. Theinsurance employees’ union is offering stiff resistance to anyprivate entry.Their objections are:
(a) That there is no major untapped potential in insurancebusiness in India;(b) That there would be massive retrenchment and job losses dueto computerization and modernization; and(c) That private and foreign firms would indulge in recklessprofiteering and skim the ‘urban cream’ market, and ignore therural areas. But all these fears are unfounded. The real reason behind the protests is that the dismantlingof government monopoly would provide a benchmark to evaluatethe government’s insurance services.CHRONOLOGICAL DEVELOPMENT OF INSURANCESECTOR:
•1818 - Establishment of British firm Oriental Life InsuranceCompany in Calcutta•1823 - Establishment of Bombay Life Assurance Company•1912 - The Indian Life Assurance Companies Act 1912 (Firststatutory measure to regulate Life Insurance business)•1938 – The Act 1928 was consolidated and amended by theInsurance Act with effective control over the activities of insurers•1950 – The Act was amended resulting in far reaching changesin the insurance sector, including, a statutory requirement ofequity capital for companies carrying on life insurance business,ceiling on share holdings in such companies, strict control oninvestments, submission of periodical returns relating toinvestments and such other information to the controller.•1956 – 154 Indian insurers, 16 foreign insurers and 75 providentsocieties were carrying on life insurance business in India mostlyconcentrated in Urban Areas.
•1956 – January 19, the management of life insurance businessof 245 Indian and Foreign insurers and provident fund societies,then operating in India, was taken over by the CentralGovernment. By an Act of Parliament, viz., LIC Act 1956, with acapital contribution of Rs.50 million, Life Insurance Corporation(LIC) was formed in September 1956.•1971 – Management of Non-Life insurers was taken over by theCentral Government as a prelude to nationalization•1972 – General insurance was urban-centric, catering mainly tothe needs of organized trade and Industry. 107 insurers includingbranches of foreign companies operating in the country wereamalgamated and grouped into four companies, viz., The NationalInsurance Company Ltd., The Oriental Insurance Company Ltd.,The New India Assurance Company Ltd., and The United IndiaInsurance Company Ltd.•1973 – Watershed in the history of General Insurance Businessin India. The General Insurance Business was nationalized witheffect from January 1, 1973 by the General Insurance Business(Nationalisation) Act, 1972.
•1993 – First Step to Liberalisation. In April 1993 MalhotraCommittee formed to recommend measures to deregulate IndianInsurance 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 resourcesthat could be re-distributed in times of calamities such as fire,floods, epidemics and famine. This was probably a pre-cursor tomodern day insurance. Ancient Indian history has preserved theearliest traces of insurance in the form of marine trade loans andcarriers’ contracts. In 1818 saw the advent of life insurancebusiness in India with the establishment of the Oriental LifeInsurance Company in Calcutta. This Company however failed in1834. In 1829, the Madras Equitable had begun transacting lifeinsurance business in the Madras Presidency. 1870 saw theenactment of the British Insurance Act and in the last threedecades of the nineteenth century, the Bombay Mutual (1871),Oriental (1874) and Empire of India (1897) were started in theBombay Residency. This era, however, was dominated by foreigninsurance offices which did good business in India, namely AlbertLife Assurance, Royal Insurance, Liverpool and London GlobeInsurance and the Indian offices were up for hard competitionfrom the foreign companies. In 1914, the Government of Indiastarted publishing returns of Insurance Companies in India. The
Indian Life Assurance Companies Act, 1912 was the first statutorymeasure to regulate life business. In 1928, the Indian InsuranceCompanies Act was enacted to enable the Government to collectstatistical information about both life and non-life businesstransacted in India by Indian and foreign insurers includingprovident insurance societies.In 1938, with a view to protecting the interest of the Insurancepublic, the earlier legislation was consolidated and amended bythe Insurance Act, 1938 with comprehensive provisions foreffective control over the activities of insurers. The InsuranceAmendment Act of 1950 abolished Principal Agencies. However,there were a large number of insurance companies and the levelof competition was high. There were also allegations of unfairtrade practices. The Government of India, therefore, decided tonationalize insurance business. An Ordinance was issued on 19thJanuary, 1956 nationalizing the Life Insurance sector and LifeInsurance Corporation came into existence in the same year. The history of general insurance dates back to the IndustrialRevolution in the west and the consequent growth of sea-faringtrade and commerce in the 17th century. It came to India as alegacy of British occupation. In 1907, the Indian MercantileInsurance Ltd was set up. This was the first company to transactall classes of general insurance business. In 1957 saw theformation of the General Insurance Council, a wing of the
Insurance Association of India. The General Insurance Councilframed a code of conduct for ensuring fair conduct and soundbusiness practices. In 1968, the Insurance Act was amended toregulate investments and set minimum solvency margins. TheTariff Advisory Committee was also set up then. In 1972 with thepassing of the General Insurance Business (Nationalization) Act,general insurance business was nationalized with effect from 1stJanuary, 1973. The General Insurance Corporation of India wasincorporated as a company in 1971 and it commence business onJanuary 1sst 1973.This millennium has seen insurance come a full circle in a journeyextending to nearly 200 years. The process of re-opening of thesector had begun in the early 1990s and the last decade andmore has seen it been opened up substantially.In 1993, the Government set up a committee under thechairmanship of RN Malhotra, former Governor of RBI, to proposerecommendations for reforms in the insurance sector. Theobjective was to complement the reforms initiated in the financialsector. The committee submitted its report in 1994 wherein,among other things, it recommended that the private sector bepermitted to enter the insurance industry. They stated thatforeign companies be allowed to enter by floating Indiancompanies, preferably a joint venture with Indian partners.
Following the recommendations of the Malhotra Committeereport, in 1999, the Insurance Regulatory and DevelopmentAuthority (IRDA) was constituted as an autonomous body toregulate and develop the insurance industry. The IRDA wasincorporated as a statutory body in April, 2000. The keyobjectives of the IRDA include promotion of competition so as toenhance customer satisfaction through increased consumerchoice and lower premiums, while ensuring the financial securityof the insurance market. The IRDA opened up the market inAugust 2000 with the invitation for application for registrations.Foreign companies were allowed ownership of up to 26%. TheAuthority has the power to frame regulations under Section 114Aof the Insurance Act, 1938 and has from 2000 onwards framedvarious regulations ranging from registration of companies forcarrying on insurance business to protection of policyholders’interests. In December, 2000, the subsidiaries of the GeneralInsurance Corporation of India were restructured as independentcompanies and at the same time GIC was converted into anational re-insurer. Parliament passed a bill de-linking the foursubsidiaries from GIC in July, 2002.Today there are 14 generalinsurance companies including the ECGC and AgricultureInsurance Corporation of India and 14 life insurance companiesoperating in the country.
The insurance sector is a one and is growing at a speedy rate of15-20%. Together with banking services, insurance services addabout 7% to the country’s GDP. A well-developed and evolvedinsurance sector is a boon for economic development as itprovides long- term funds for infrastructure development at thesame 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 meantlifting government controls, permits, licenses and allowingcompetition to play its role in the economy. With respect to theinsurance business, liberalisation means allowing privateenterprises, including MNCs, to operate in the area that washitherto monopolised by the Government of India.
•As a first step towards allowing private sector entry,Government of India appointed a committee under thechairmanship of Sri. Malhotra. The Committee submitted itsreport in 1994, recommended, among after things, that theinsurance sector in India be thrown open to private sector.Government accepted the recommendations and allowed privateplayers 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 benefitsof insurance.
•To reduce the yawning gap between the needs of customers andproducts being offered by the state owned companies.•To mobilize funds from the economy for the infrastructuredevelopment.•To provide multiple innovative products.•To provide better customers’ service from existing state ownedplayerMALHOTRA COMMITTEE RECOMMENDATION:Structure•Government stake in the insurance Companies to be broughtdown to 50 per cent.
•Government should take over the holdings of GIC and itssubsidiaries, to act these as independent companies.•All insurance companies should be given greater freedom tooperate. No special dimension is given to governmentcompanies.•Increase of capital base of LIC and GIC up to Rs. 200 crores, halfretained by the government and the rest sold to the public atlarge with suitable reservations for its employees.Competition:•Private Companies are allowed to enter insurance industry witha minimum paid up capital of Rs. 1billion.
•No company should deal in both Life and General Insurancethrough a single entity.•Foreign insurance may be allowed to enter the industry byfloating an Indian company as joint venture with Indian partner.•Postal Life Insurance should be allowed to operate in the ruralmarket. Only and one State Level Life Insurance Company shouldbe allowed to operate in each State.Regulatory Body:•Establishment of a strong and effective insurance regulatorybody in the form of a statutory autonomous board on the lines ofSEBI.•Controller of Insurance to be made independent Investments•Mandatory Investments of LIC Life Fund in government securitiesto be reduced from 75 per cent to 50 per cent.
•GIC and its subsidiaries are not to hold more than five per centin any company (the current holdings to be brought down to thislevel over a period of timeCustomer Service:•LIC should pay interest on delays in payments beyond 30 days.•Insurance companies must be encouraged to set up unit linkedpension plans.•Computerisation of operations and updating of technology to becarried out in insurance industryInsurance Market - Present status:
The insurance sector was opened up for private participation fouryears ago. For years now, the private players are active in theliberalized environment. The insurance market have witnesseddynamic changes which includes presence of a fairly largenumber of insurers both life and non-life segment. Most of theprivate insurance companies have formed joint venturepartnering well recognized foreign players across the globe.There are now 29 insurance companies operating in the Indianmarket – 14 private life insurers, 9 private non-life insurers and 6public sector companies. With many more joint ventures, theinsurance industry in India today stands at a crossroads ascompetition intensifies and companies prepare survival strategiesin a de terrified scenario. There is pressure from both within thecountry and outside on the Government to increase the foreigndirect investment (FDI) limit from the current 26% to 49%, whichwould help JV partners to bring in funds for expansion. Less than10 % of Indians above the age of 60 receive pensions. The healthinsurance sector has tremendous growth potential, and as itmatures and new players enter, product innovation andenhancement will increase.State continues to dominate: There may be room for manymore players in a large underinsured market like India with apopulation of over one billion. But the reality is that the intensecompetition in the last five years has made it difficult for new
entrants to keep pace with the leaders and thereby failing tomake any impact in the market.Also as the private sector controls over 26.18% of the lifeinsurance market and over 26.53% of the non-life market, thepublic sector companies still call the shots. The country’s largestlife insurer, Life Insurance Corporation of India (LIC), had a shareof 74.82% in new business premium income. Similarly, the fourpublic-sector non-life insurers – New India Assurance, NationalInsurance, Oriental Insurance and United India Insurance – had acombined market share of 73.47% .ICICI Prudential Life InsuranceCompany continues to lead the private sector with a 7.26%market share in terms of fresh premium, whereas ICICI LombardGeneral Insurance Company is the leader among the private non-life players with a 8.11% market share. ICICI Lombard has focusedon growing the market for general insurance products andincreasing penetration within existing customers through productinnovation and distribution.Reaching Out To Customers: No doubt, the customer profile inthe insurance industry is changing with the introduction of largenumber of divergent intermediaries such as brokers, andcorporate agents. The industry now deals with customers whoknow what they want and when, and are more demanding interms of better service and speedier responses. With the industryall set to move to a de terrified regime by 2007, there will be
considerable improvement in customer service levels, productinnovation and newer standards of underwriting.Intense Competition: In a de terrified environment, competitionwill manifest itself in prices, products, underwriting criteria,innovative sales methods and creditworthiness. Insurancecompanies with each other to capture market share throughbetter pricing and client segmentation. The battle has so far beenfought in the big urban cities, but in the next few years, increasedcompetition will drive insurers to rural and semi-urban markets.Global Standards: While the world is eyeing India for growthand expansion, Indian companies are becoming increasinglyworld class. Take the case of LIC, which has set its sight onbecoming a major global player following an Rs280-croreinvestment from the Indian government. The company nowoperates in Mauritius, Fiji, UK, Sri Lanka, and Nepal and will soonstart operations in Saudi Arabia. It also plans to venture into theAfrican and Asia-Pacific regions.With life insurance premiums being just 2.5% of GDP and generalinsurance premiums being 0.65% of GDP, the opportunities in theIndian market place is immense. The next five years will bechallenging but those that can build scale and market share willsurvive 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 theinsurer, where the insurer agrees to pay a designated beneficiarya sum of money upon the occurrence of the insured individuals orindividuals death or other event, such as terminal illness orcritical illness. In return, the policy owner agrees to pay astipulated amount at regular intervals or in lump sums.Need for Life Insurance:A life insurance policy assures complete peace of mind as itprepares the family to face any financial crisis in case of untimelydemise of the insured person. Life insurance also serves as a taxsaving mechanism, and hence play a crucial role in the process ofone’s financial planning to secure the future of the survivors.Types of life insurance policies:Most of the products offered by Indian life insurers are developedand structured around these "basic" policies and are usually anextension 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 theinsured during his post-retirement years. It doesnt take intoaccount a persons increasing needs either.Endowment Policy:Combining risk cover with financial savings, endowment policiesis 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 ofGeneral Insurance. General Insurance comprises of insurance ofproperty against fire, burglary etc, personal insurance such asAccident and Health Insurance, and liability insurance whichcovers legal liabilities. There are also other covers such as Errorsand Omissions insurance for professionals, credit insurance etc.The non-life companies also offer policies covering machineryagainst breakdown, there are policies that cover the hull of shipsand so on. A Marine Cargo policy covers goods in transit includingby sea, air and road. Further, insurance of motor vehicles againstdamages and theft forms a major chunk of non-life insurancebusiness.In respect of insurance of property, it is important that thecover is taken for the actual value of the property to avoid being
imposed a penalty should there be a claim. Where a property isundervalued for the purposes of insurance, the insured will haveto bear a ratable proportion of the loss. For instance if the valueof a property is Rs.150 and it is insured for Rs.100/-, in the eventof a loss to the extent of say Rs.100/-, the maximum claimamount payable would be Rs.50.Personal insurance covers include policies for Accident, Healthetc. Products offering Personal Accident cover are benefit policies.Health insurance covers offered by non-life insurers are mainlyhospitalization covers either on reimbursement or cashless basis.The cashless service is offered through Third Party Administratorswho have arrangements with various service providers.Accident and health insurance policies are available forindividuals as well as groups. A group could be a group ofemployees of an organization or holders of credit cards or depositholders in a bank etc. Normally when a group is covered, insurersoffer group discounts.Liability insurance covers such as Motor Third Party LiabilityInsurance, Workmen’s Compensation Policy etc offer coveragainst legal liabilities that may arise under the respectivestatutes— Motor Vehicles Act, The Workmen’s Compensation Actetc. Some of the covers such as the foregoing (Motor Third Party
and Workmen’s Compensation policy ) are compulsory bystatute. Liability Insurance not compulsory by statute is alsogaining popularity these days. Many industries insure againstPublic liability. There are liability covers available for Products aswell.There are general insurance products that are in the nature ofpackage policies offering a combination of the covers mentionedabove. For instance, there are package policies available forhouseholders, shop keepers and also for professionals such asdoctors, chartered accountants etc. Apart from offering standardcovers, insurers also offer customized or tailor-made ones.Suitable general Insurance covers are necessary for every family.It is important to protect one’s property, which one might haveacquired from one’s hard earned income. A loss or damage toone’s property can leave one shattered. Losses created bycatastrophes such as the tsunami, earthquakes, cyclones etchave left many homeless and penniless. Such losses can bedevastating but insurance could help mitigate them. Property canbe covered, so also the people against Personal Accident. AHealth Insurance policy can provide financial relief to a person
undergoing medical treatment whether due to a disease or aninjury.Industries also need to protect themselves by obtaining insurancecovers to protect their building, machinery, stocks etc. They needto cover their liabilities as well. Financiers insist on insurance. So,most industries or businesses that are financed by banks andother institutions do obtain covers. But are they obtaining theright covers? And are they insuring adequately are questions thatneed to be given some thought. Also organizations or industriesthat are self-financed should ensure that they are protected byinsurance.Most general insurance covers are annual contracts. However,there are few products that are long-term. It is important forproposers to read and understand the terms and conditions of apolicy before they enter into an insurance contract. The proposalform needs to be filled in completely and correctly by a proposerto ensure that the cover is adequate and the right oneFire Insurance:A fire insurance policy involves an insurance company agreeing topay a certain amount equivalent to the estimated loss caused by
fire to the insured, within the time specified in the contract. Theindemnity is subject to change depending upon the policy. Oneshould confirm with the insurer about the types of risks covered,since one cannot insure the property against all types of risks offire.Need for Fire Insurance:Fire insurance is important because a disaster can occur at anytime. There could be many factors behind a fire, for examplearson, natural elements, faulty wiring, etc. Some facts that stressthe importance of fire insurance include:Fire contributes to the maximum number of deaths occurring inAmerica due to natural disasters.Eight out of ten fire deaths take place at home. A residential firetakes place after every 77 seconds. The major reason for aresidential fire is unattended cooking.Types of Fire Insurance: • Specific Policy: The insurer is liable to pay a set amount lesser than the property’s real value. In this policy, the property’s 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 toproducts and services across borders as countries continue toglobalise. However the farther our goods travel the more risk theyare exposed to. That’s why Bajaj Allianz brings to you the marinecargo insurance cover, which compensates losses of goods intransit.Need for Marine Insurance:The cost of marine insurance is quite small compared with thecost of the goods shipped and the freight charges involved.Therefore, the benefit of the marine insurance, in terms offinancial reimbursement if disaster strikes, is usually well worththe cost. Not much help can be expected from the shippingcompany for the exporter, if the goods are damaged or lost, evenwhile in its care. Various statutes, plus the printed clausesin ocean bills of lading - the contract between the shipper and thecarrier, limit the liability of the shipping company for such losses.In order to recover losses from the carrier, the exporter must beable to prove want of due diligence, in other words, the shippingcompany was negligent. It is difficult for an exporter to prove atwhat point damage or loss occurred. However, a marine
insurance policy is often arranged on a warehouse-to-warehouse basis. In other words, the risk of financial loss fromdamage or loss occurring during inland transit in the exportingcountry and abroad as well as during ocean shipment. Such apolicy relieves the exporter of the burden of proving when orwhere any loss actually occurred. If, someone elses goods aredamaged or destroyed during the voyage and in order to save theship, then the exporter may be called upon to pay part of thecost. This is known as general average. Here, the point that isbeing made is that the exporters goods may be held in theforeign port until such a claim is settled. By having marineinsurance, including general average coverage, the exporteravoids 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 andshould be based on invoice and covering incidental expenses.What are the types of Coverage offered?The following are the type of covers available: All OverseasTransits are subjected to Institute Cargo Clauses, given by LloydsUnderwriter and Technical Committee, London.
The brief coverage is: (*Can be bought back.) Risks Institute Cargo Clauses B C A (Wider (Basic (Proximate Cause) (All Cover) Cover) risk Cover) Stranding , Grounding, Sinking or Yes Yes Yes Capsizing Overturning or Derailment of Land Yes Yes Yes Conveyance Collision of Ship or Craft with another Yes Yes Yes Ship or Craft Contact of Ship, Craft or Conveyance Yes Yes Yes with anything other than Ship or Craft (excludes Water but not Ice) Discharge of Cargo at Port of Distress Yes Yes Yes Loss overboard during N/A Yes No Loading/Discharge (total loss only). Fire or Explosion Yes Yes Yes Malicious Damage Yes No* No* Theft/ Pilferage Yes No No General Average Sacrifice Yes Yes Yes Jettison Yes Yes Yes Washing Overboard (deck cargo) Yes Yes No War Risks No* No* No* Seawater entering Ship, Craft, Hold, Yes Yes No Conveyance Container Lift Van or Place of Storage River or Lake Water entering same Yes Yes No
Underwriting of Life InsuranceMeaning of Underwriting:Underwriting is the insurance function that is responsible forassessing and classifying the degree of risk a proposed insured orgroup represents and making a decision concerning coverage ofthat risk.Objectives of Underwriting: A)Product Equitable to Customer The underwriter should fairly assess the risk in a proposal and fix the premium justifiable to the consumer. B)Deliverable to the Customer Consumers 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 company’s expectations. C)Financially Feasible to the insurance Company The 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) ofInsurance Act 1938, which reads as follows:“life insurance business” means the business of effectingcontracts of insurance upon human life, including any contractwhereby the payment of money is assured on death (exceptdeath by accident only) or the happening of any contingencydependent on human life and any contract which is subject topayment of premium for a term dependent on human life andshall be deemed to include - the granting of(A) Disability and double or triple indemnity accident benefits, ifso provided in the contract of insurance(B) Annuities upon human lifeUnderwriting of Non-Life Insurance:The underwriting of commercial, business insurances is a muchmore complicated and involved task. Commercial insurancesrange from small shops and factories to large multinationalcorporations, with operations in many countries throughout theworld. The degree of complexity of the underwriting requiredwould obviously vary with the sheer size of the risk, but certainbasic principles are fundamental.
The essence of the task is that the underwriter has to evaluatethe hazard associated with the risk, which is being proposed. Insmall cases he may be able to do this from reading a proposalform and corresponding with the sponsor. It may be that a localinspector is asked to call and see the shop or factory for himself.In large cases this is simply impossible. Detail of the risk could notbe confined to a proposal form since there is just too muchinformation to condense, no matter how large the form may be.The insurance companies may take the help of brokers in thesecases. The broker in these cases will be in a position to preparethe case for the underwriter. This may mean site inspections bythe broker and the preparation of plans and reports on therelevant aspects of the risk. This documentation, which may beextremely extensive, is then passed to the underwriter andnegotiation can commence on the terms, conditions, cover andprice.
ReinsuranceMeaningThe practice of insurers transferring portions of risk portfolios toother parties by some form of agreement in order to reduce thelikelihood of having to pay a large obligation resulting from aninsurance claim. The intent of reinsurance is for an insurancecompany to reduce the risks associated with underwritten policiesby 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 catastrophe4) To increase capacity.Types of ReinsuranceTreaty reinsurance
This method is defined to cover an entire category of risk or lineof business in advance. It is obligatory and binding in nature forboth the reinsured and reinsurers. So as long as a risk meets allthe conditions as given in the reinsurance contract, acceptance ofthat risk by the insurer is automatic. Reinsurance by this methodcreates capacity for insurers.Capacity + Coverage of all perils with adequate limits +confidence on security of reinsurers + continuity of reinsuranceafter a loss.Facultative reinsuranceThis is for the reinsurance of current single risk and options areopen for both the reinsured and reinsurers. In a facultativecontract relationship, the reinsurer retains the faculty or power toeither accept or reject each individual risk offered to it by theinsurer.No matter what kind of reinsurance contract it is, the risksbetween the insurer and the reinsurer can be shared on aproportional or (also known as excess of loss) basis. In aproportional agreement the reinsurer pays for losses in the sameproportion 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 aclaim arises, the reinsurer pays nothing unless the claim amount
is greater than the attachment point. Such a contract is writtenper risk, per occurrence or as an aggregate loss.Reinsurers always try to attach a global spread of risks. Hencethere are tie-ups with global reinsurers. When reinsurers are inthe global market they are not excessively affected by localmarket bad losses and are capable of meeting liabilities.Advantages of ReinsuranceIn a highly volatile market it may sometimes be hard to correctlyprice new products because of inadequate information. Incorrectpricing could lead to unanticipated claims that the insurancecompany cannot meet. If there were not reinsurance theinsurance company would have to settle these claims out of itsown capital therefore reinsurance helps to protect the solvency ofthe insurance company.Reinsurance enables the insurer to take up large claims andexpand capacity In India; regulations restrict the insurer fromrisking 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 asuccessful reinsurer. The reinsurer can provide important
underwriting training and skill development and share expertisegained from other countries. Since the success of the reinsurer islinked to the profits of the insurance company, it is in the bestinterest of the reinsurer to measure that the company is sound.The reinsurer can contribute to designing the product, pricing andmarketing new products. It can also offer back office support suchas 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 Insurance
Sahara 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. Limited
Export Credit Guarantee CorporationHDFC Chubb General Insurance Co. Ltd.The questions and its answers which are submitted below, isbeing asked to the agent of Life Insurance Company and fewother questions are asked to around 10 people who are directly orindirectly 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 veryfast pace around 15% of people working in insurance are skilledenough to tackle the issues; whereas there is a new age group
who has joined the but lacks experience, the not interested arethose who lack education.2) From how many years you are being employed in thisorganization?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 familyresponsibilities?
Figure 1.78) Are you satisfied with the training and development ofemployees?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 employto retain in life insurance companies?Figure 1.12.1