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Project Report on 'Profitability Analysis of various lines of business for a period of three years in Pune R.O'

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SIP report

  2. 2. STUDENT‘S DECLARATIONI hereby declare that the Project Report conducted at The New India Assurance Company Limited Under the guidance of Dr. G. P. Sudhakar Submitted in Partial fulfillment of the requirements for the Degree ofPOST GRADUATE DIPLOMA IN MANAGEMENT (AUTONOMOUS) TO M.S.RAMAIAH INSTITUTE OF MANAGEMENT is my original work and the same has not been submitted for the award of any other Degree/Diploma/Fellowship or other similar titles or prizes Place: Bangalore ANAND VINODKUMARDate: 11-08-2011 Reg. No 101203 2
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  4. 4. CERTIFICATE This is to certify that the Project Report at The New India Assurance submitted in partial fulfillment of the requirements for the award of the degree of POST GRADUATE DIPLOMA IN MANAGEMENT (AUTONOMOUS) TO M.S.RAMAIAH INSTITUTE OF MANAGEMENT Is a record of bonafide training carried out under my supervision and guidance and that no part of this report has been submitted for the award of any other degree/diploma/fellowship or similar titles or prizes.FACULTY GUIDESignature:Name: Dr.G.P.SudhakarQualifications: Seal of learning centre 4
  5. 5. ACKNOWLEDGEMENTI extend my special gratitude to our beloved Dean Dr.M.Chandrashekar &Academic Head Shri.V.Narayanan & Programme Head Mrs.JayashreeKowtal for inspiring me to take up this project.I wish to acknowledge my sincere gratitude and indebtedness to my projectguide Dr.G. P. Sudhakar of M.S. RAMAIAH INSTITUTE OFMANAGEMENT Bangalore for his valuable guidance and constructivesuggestions in the preparation of project report. ANAND VINODKUMAR 5
  6. 6. Table of ContentsEXECUTIVE SUMMARYCHAPTER I - INDUSTRY ANALYSIS Introduction to Insurance…………………………………………………………………...1 Evolution of General Insurance Industry in India………………………………………….1 Competition in the Industry……………………………………………………………..….2 The Potential of New Entrants in the Industry……………………………………………..3 The Power of Suppliers…….……………………………………………………………...4 The Power of Customers…………………………………………………………………...4 The Availability of Substitutes…………………………………………………………….5CHAPTER II - COMPANY ANALYSIS The New India Assurance Co. Ltd………………………………………………………...6 Marketing……………………………………………………………………………….….8 Customers………………………………………………………………………………...16 Competitor………………………………………………………………………………..18 Human Resources…………………………………………………………………………22 Operations…………………………………………………………………………………27 Finance……………………………………………………………………………………30 Organizational Hierarchy…………………………………………………………………31 Environment……………………………..………………………………………………..33 SWOT Analysis…………………………………….…………………………………….35CHAPTER III – DISCUSSION ON TRAINING Roles and Responsibilities………………………………………………………………38 Description of tasks handled…………………………………………………………….38 Contribution to the organization………………………………………………………...39CHAPTER IV – ANALYSIS OF RESEARCH Introduction…………………………………………………………………………….42 Research Design……………………………………………………………………..…42 Data Analysis and Interpretations………………………………………………………44 Findings…………………………………………………………………………………64 Recommendations………………………………………………………………………65 Conclusion………………………………………………………………………………67BIBLIOGRAPHYANNEXURE 6
  7. 7. EXECUTIVE SUMMARYThe rapid growth of the Indian middle class strata in terms of both size and wealth has resulted inthe tremendous growth of the Indian Insurance Industry over the past decade. They are nowplaying an increasingly important role in the financial services industry.Indias general insurance industry has witnessed a growth of 22% in premium income for thefiscal year ended on March 2011. The industry has collected a total of Rs 425.66 billion frompremiums in the last fiscal. According to an industry study conducted by the Federation of IndianChambers of Commerce and Industry (FICCI) and the US-based Boston Consulting Group, Indiawill be among the top 15 non-life insurance markets by 2020. Indian health insurance representsone the fastest growing and second largest non-life insurance segments in the country. As perestimates, health insurance gross premium is expected to grow at a CAGR of around 26% during2010-11 – 2013-14.This increasing market is creating considerable competition among Indian insurance companiesin an industry that 20 years ago was relatively small. There are twenty four companies vying formarket share at present. While the industry has come a long way over the past decade, the bigchallenge is profitability. The non-life insurance industry has cumulative underwriting losses ofnearly Rs.30,000 crore.In such a scenario, it is essential to maintain the market share as well as ensure sustainablegrowth. Over the past few years companies have run at losses with a view of gaining a footholdin the industry. However, this practice cannot go on for long. Underwriting profitability hasemerged as a buzzword. It is of paramount importance that companies focus on prudentunderwriting to ensure sustainability.The report is a compilation of all activities and observations carried out during the course of an 8week internship at The New India Assurance Co. Ltd.Chapter One focuses on the General Insurance Industry in India tracing its evolution and Porter‘sFive Force Analysis of the Indian General Insurance Industry.Chapter Two is a study of the New India Assurance Company with emphasis on their Products,Marketing activities, Customers, Finance, HR, Operations. It includes a SWOT analysis of thecompany.Chapter Three is a discussion on the training undergone and the tasks handled during the courseof the internship. It includes a survey to determine the awareness and needs of prospectivecustomers with regard to Health InsuranceChapter Four is a detailed study on the ―Profitability Analysis of various lines of business for thepast three years‖. The study of material facts is followed by observations and suggestions toimprove the profitability of the Company. 7
  8. 8. CHAPTER I - INDUSTRY ANALYSIS1.1 INTRODUCTION TO INSURANCE –Insurance may be defined as a contract between the insurer and insured under which insurerindemnifies the loss of the insured against the identified perils for which mutually agreed uponpremium has been paid by the insured. The contract lays down the time framework within whichthe losses will be met by the insurer.Insurance in its present form in India is there for almost a century. People know life insurancemore than non life insurance. General Insurance is more known by its motor insurance becausethird party motor insurance is compulsory. Life insurance is a tax saving, life and accidentalinsurance and investment. However, general insurance is purely insurance. This has been one ofthe major reasons for the relative unpopularity of General Insurance in India. However, the entryof new players, the consequent expansion of offices, new channels of distribution, increase innumber of tied agents along with increasing awareness and acceptance of insurance have allcontributed to the massive expansion of the insurance sector in the last few years.1.2 EVOLUTION OF GENERAL INSURANCE INDUSTRY IN INDIA – 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. General Insurance in India has its roots in the establishment of Triton Insurance Company Ltd., in the year 1850 in Calcutta by the British. In 1907, the Indian Mercantile Insurance Ltd, was set up. This was the first company to transact all classes of general insurance business. 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. However, insurance for mainly restricted to big business houses and the upper strata of society. With a view of spreading insurance to all sections of the society, the process of nationalization of insurance companies was undertaken. In 1972 with the passing of the General Insurance Business (Nationalization) Act, general insurance business was nationalized with effect from 1st January, 1973. 107 insurers were amalgamated and grouped into four companies, namely National Insurance Company Ltd., the New India Assurance Company Ltd., the Oriental Insurance Company Ltd and the United India Insurance Company Ltd. The General Insurance Corporation of India was incorporated as a company in 1971 and it commence business on January 1st 1973. Nationalization led to the rapid spread of offices across the country as well as development of new products such as Cattle Insurance, agriculture Pump Set Insurance etc aimed at the rural sector. This period also saw the hiring of many professionals such as veterinary doctors, legal experts, chartered accountants and H.R professionals as specialists. 8
  9. 9. Thus, nationalization led to more awareness and penetration of insurance to the semi- urban and rural areas. This millennium has seen insurance come a full circle in a journey extending to nearly 200 years. The process of opening up of the sector had begun in the early 1990s and the last decade or so has seen it being implemented in a substantial manner. 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 as a joint venture with Indian partners. Following the recommendations of the Malhotra Committee report, the Insurance Regulatory and Development Authority (IRDA) was constituted as an autonomous body to regulate and develop the insurance industry in 1999. 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 upto 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 board run 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, 2002.1.3 COMPETITION IN THE INDUSTRY- India with about 200 million middle class household shows a huge untapped potential for players in the insurance industry. Saturation of markets in many developed economies has made the Indian market even more attractive for global insurance majors. The insurance sector in India has come to a position of very high potential and competitiveness in the market. Today there are 24 general insurance companies including the ECGC and Agriculture Insurance Corporation of India. In a de-tariffed environment, competition will manifest itself in prices, products, underwriting criteria, innovative sales methods and creditworthiness. Insurance companies will vie with each other to capture market share through better pricing and client segmentation. The General Insurance Industry is an ultra competitive one. Since the products offered by each of the competitors is more or less the same, the companies are focusing more on customer service in order to gain a competitive advantage. The figures show that the four public sector companies together account for 59.14%. The biggest private player in the 9
  10. 10. General Insurance Sector is ICICI Lombard having a share of almost 9.5% followed by Bajaj Allianz which accounts for around 7.2%. The share of the public sector was 58.84% for the financial year 2008-2009. Thus, it has been more or less the same. However, with the increase in the disposable income of the public and the increased awareness, the growth of the private sector in the coming years is inevitable especially specialized institutions viz. Star Health and Allied Insurance, Apollo Munich and Max BUPA which cater solely to the health sector. There may be room for many more players in a large underinsured market like India with a population of over one billion. But the reality is that the intense competition in the last five years and the impact of the wider network of the public sector companies has made it difficult for new entrants to keep pace with the leaders and thereby struggling to make any impact in the market so far. 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. The private companies showed a growth of 22.49% over the past year while the public companies grew by 21.12%. The industry as a whole grew by 21.68%. When there are more competing insurance providers in the insurance industry the overall premium rates drop due to market compulsions. When premium rates drop significantly, the word spreads. Public demand for insurance increases with high correlation in regards to how affordable it is. When premium rates are very low people, who never would have otherwise, purchase insurance policies.1.4 THE POTENTIAL OF NEW ENTRANTS INTO THE INDUSTRY- The General Insurance has seen an annual growth of about 15% over the last 10 years and the industry is today at an inflection point and is poised to grow at a much faster pace due to the rapidly growing middle class/high income segment, robust demand for motor cars and two wheelers, huge potential in the health sector and the untapped segments such as personal lines of insurance market and liability insurance. In recent times, we have seen the advent of many new Insurance companies targeting this lucrative Indian market. The opening up of insurance sector has seen many overseas brands making a foray into the country‘s market mainly due to the lowered entry barriers. Many famous Indian business houses like Tata, Bharati, Bajaj have also entered into this somewhat virgin market along with their fancied foreign partners viz AIG, AXA and Allianz respectively. The new entrants are making huge investment in the market since there is potential for long term growth, market share and ultimately profit. Another threat for many insurance companies is financial services companies like Banks and NBFCs entering the market. For eg- SBI General Insurance. These entities use their existing customer base to market their products and gain a foothold into the insurance sector. 10
  11. 11. With the ongoing efforts to get the rural India financially included, there is a large opportunity to tap the semi-urban and rural markets which would be open for general insurance. However, the intense capital requirements and stringent norms are a potential stumbling block for new entrants.1.5 THE POWER OF SUPPLIERS- If an insurer were to renege on the written promise it has made, for any reason, then the claim of an insured can only be re-established in a court of law, based on full disclosure of facts and other evidences; and ofcourse, at considerable initial legal expense and delay to the insured. The delicate power balance that exists in a transaction to dictate performance compliance shifts in favour of an insurer, once the deal is struck between the insurer and the insured. A certain helplessness is felt by an insured to ensure an insurer‘s performance compliance. The main strength of suppliers lies in the fact that insurance products can be bundled on the spot for sale. There is no need for a manufacturing process or facility. There is nothing extra needed in designing a cover, by which an insurer can distinguish himself except for his financial strength and service reputation or capability to act smart and fast. With products being more or less the same in insurance market, customers will gravitate towards subjective criteria in purchasing the insurance cover. Studies show that in 9 out of 10 cases when choosing products that are similar in quality and price, customers will go for a company that has a better image in his mind. Thus, the image of a company plays a major role in generating business for the company. Its reputation is a valuable asset which is given as much attention as that given to products and services. This is where the PSUs score over the newly incorporated general insurance companies and why they continue to enjoy a majority of the market share. Also, unlike the normal market model, it is the not the customers but the suppliers who determine the price of the product.1.6 THE POWER OF CUSTOMERS – Insurance as they say is sold not bought. Hence, Consumers remain the most important centre of the insurance sector. The Customer profile has changed drastically in the last few years. The steady economic growth has ensured augmented banking and insurance services. The industry now deals with customers who have better buying power, know what they want and when, and are more demanding in terms of better service and speedier responses. People today don‘t want to accept the current value propositions, they want personalized interactions and they look for more and more features and add ons and better service. 11
  12. 12. The insurance companies today must meet the need of the hour for more and more personalized approach for handling the customer. Today managing the customer intelligently is very critical for the insurer especially in the very competitive environment. Companies need to apply different set of rules and treatment strategies to different customer segments. However, to personalize interactions, insurers are required to capture customer information in an integrated system. With the explosion of Website and greater access to direct product or policy information, there is a need to developing better techniques to give customers a truly personalized experience. Personalization helps organizations to reach their customers with more impact and to generate new revenue through cross selling and up selling activities. To ensure that the customers are receiving personalized information, many organizations are incorporating knowledge database-repositories of content that typically include a search engine and lets the customers locate the all document and information related to their queries of request for services. Customers can hereby use the knowledge database to manage their products or the company information, claim records, and history of the service inquiry. After the entry of the foreign players the industry is seeing a lot of competition and thus improvement of the customer service in the industry. Computerization of operations and updating of technology has become imperative in the current scenario. Foreign players are bringing in international best practices in service through use of latest technologies. Customers are offered unbundled products with a variety of benefits as riders from which they can choose. More customers are buying products and services based on their true needs. Large corporate clients like airlines and pharmaceutical companies etc have a lot more bargaining power with insurance companies since they pay millions of rupees a year in premiums. Insurance companies try extremely hard to get high-margin corporate clients.1.7 THE AVAILABILITY OF SUBSTITUTES- There are plenty of substitutes in the insurance industry. Most large insurance companies offer similar suites of services. Whether it is motor, personal line, commercial, health or fire insurance, chances are that there are competitors who can offer similar services. In some areas of insurance, however, the availability of substitutes is few and far between. For eg- Micro Insurance and Rural Insurance. Companies focusing on niche areas usually have a competitive advantage, but this advantage depends entirely on the size of the niche and on whether there are any barriers preventing other firms from entering. The new companies have also introduced many new products hitherto unknown to the Indian Insurance populace. New products and new companies have only expanded the choice of Indian consumers. 12
  13. 13. CHAPTER II - COMPANY ANALYSIS2.1 THE NEW INDIA ASSURANCE CO. LTD. –The New India Assurance Co. Ltd was incorporated on July 23rd, 1919. It was founded by SirDorab Tata. New India is the first fully Indian owned insurance company in India. Earlier it wasa subsidiary of the General Insurance Corporation of India (GIC). But as GIC became areinsurance company as according to IRDA Act 1999, all of its four primary insurancesubsidiaries (New India Assurance, United India Insurance, Oriental Insurance and NationalInsurance) got sovereignty.The New India Assurance Co. Ltd. is a leading global insurance group, with offices and branchesthroughout India and various countries abroad. It is the only Indian company which hassuccessfully managed to develop considerable International operations and an extensive recordfor successfully trading outside India. The company has its presence felt in nearly 27 countriesand accounts for more than 80% of the total overseas premium in India. The New India employs approximately 21000 employees, specialists and technically qualifiedpersonnel at all levels of management who are empowered to underwrite and settle claims ofhigh magnitude. Government of India is the principal shareholder of the company.With a wide range of policies New India has become one of the largest non-life insurancecompanies, not only in India, but also in the Afro-Asian region.The company aims to develop insurance business in the best interest of the society by providing 13
  14. 14. financial security to individuals, trade, commerce and other segments of the society with highquality services at an affordable cost.New India is a pioneer among the Indian Companies on various fronts, right from insuring thefirst domestic airlines to satellite insurance. Lately The New India Assurance Co. Ltd. hasinsured the INSAT-2E.New India Assurance was the first group to meet with the needs of the Indian Shipping Fleet, andthe initiators of engineering insurance and satellite insurances as well.The company was the first to build an Aviation Insurance Department, way back in 1946, tohandle the requirements related to insurance of the Indian Shipping Fleet, to establish its ownTraining School, to introduce the concept of Model Office Training, and to create a departmentin Engineering insurance.It was also the first Indian non-life company to cross Rupees 5000 Crores Gross Premium. Inorder to maintain being the first always the company aims at continuing the procedure ofproviding optimized services for individuals and organizations.New India has been rated "A-" (Excellent) by A.M.Best Co., making it the only Indian insurancecompany to have been rated by an international rating agency.The company is headed by Mr. M. Ramadoss, Chairman and Managing Director of the company.In the recent years it has succeeded in forging tie-ups with some of the leading public sectorbanks in India like State Bank of India (SBI), Central Bank of India, Corporation Bank andUnited Western Bank to increase its distribution network.Mission- To develop general insurance business in the best interest of the community. To provide financial security to individuals, trade, commerce and all other segments of the society by offering insurance products and services of high quality at affordable cost.Values- Highest priority to customer needs High Standards of Public Conduct Transparency in operations. 14
  15. 15. 2.2 MARKETING-Products-The company offers a wide portfolio of products which cater to a wide segment of people.They can be classified as follows-Personal- Pravasi Bhartiya Bima Yojana Policy Mediclaim Policy Family Floater Mediclaim Policy Janata Mediclaim Policy Senior Citizen Mediclaim Policy Personal Accident Policy Overseas Mediclaim Policy Householders Policy Motor Policy Money Insurance Rasta Apatti Kavach (Road Safety Insurance) Suhana Safar Policy TV/VCR/VCP Insurance Mobile/Cellular Phone Insurance Other Personal Insurance Group Mediclaim PolicyCommercial- Jewellers Block Policy Bankers Indemnity Policy Shopkeepers Policy Marine Cargo Policy Plate Glass Insurance Special Contingency Policy Neon Sign Insurance Multi Peril Policy for L.P.G. Dealers Fidelity Guarantee Insurance Policy Marine Hull Policy Aviation InsuranceLiability- Public Liability Policy Products Liability Policy Professional Indemnity Policy Directors and Officers Liability Policy Lift (Third Party) Insurance Employers Liability Policy Carriers Liability Insurance 15
  16. 16. Liability Insurance Act Policy Golfers Indemnity InsuranceIndustrial- Fire Policy Burglary Policy Machinery Breakdown Policy Electronics Equipment Policy Consequential Loss Policy Contractors All Risk Policy Marine cum Erection / Storage cum Erection Policy Advanced Loss of Profit / Delay in Startup Policy Contractor Plant and Machinery Policy Mega Package PoliciesSocial- Universal Health Insurance Scheme for BPL families Universal Health Insurance Scheme for APL families Jan Arogya Bima Policy Raj Rajeshwari Mahila Kalyan Yojana Bhagyashree Child Welfare Policy Janata Personal Accident Insurance Student Safety Insurance Ashrya Bima Yojana Rural InsuranceDistribution Network-Marketing is a predominant activity in the general insurance industry. The Insurance product isintangible and requires a considerable amount of explanation of the intricacies of variousproducts. This has necessitated the need for competent, motivated and professional marketingand distribution channels, in addition to direct selling, to communicate with a great number ofinsured and uninsured customers, with their marketing messages and to expand their currentmarkets in terms of number of customers and premium volumes across the expanse of a vastcountry like ours.As the customer segment consist of various heterogeneous individuals, corporate insured andother groups, with their own highly individualized insurance needs, the most effective way toreach them has proved to be a big challenge to the insurers.The distribution channel acts as the intermediary and as a personal go-between. It plays a crucialrole to build bridges of better understanding between the insurer and the insured.In order to spread the awareness of insurance and increase coverage to the far corners of thecountry, the opening up of the insurance sector has enlarged distribution from the earlier singlechannel system of tied agencies to a multiple channel setup comprising Corporate Agentsincluding Bancassurance, Brokers and referrals/introducers and Agents etc. In one sense, the 16
  17. 17. independent surveyors community too is a distribution channel legally recognized under theInsurance Act for claims‘ services of assessment and determining the policy liability.Corporate Agents is a concept introduced with a view of taking advantage of the presence of alarge number of entities with a sizeable client base, contacts and goodwill already operating inthe market with other activitiesWhile corporate insured do get attention from direct selling staff of an insurer, the individualinsured, whose numbers are larger but the premiums are relatively lower require other secondarydistribution channels.Despite, the emergence of new channels of distribution, agency channel remains the mainstay ofthe sector, still contributing a lion‘s share of the business being generated by the insurers. Duringthe year 2010-11, in terms of premium generated, more than 80% of the business is coming fromthe agency channel, around 3.8 % through brokers, around 0.54 % through corporate agents,around 3.3% through bancassurance in the Pune Region.IntermediariesAgentsThe agency system is pre-dominant as historically face to face contact was considered essentialin selling an Insurance product. Insurance agents are involved in the selling of one or more linesof insurance policies and products. An agent is required to undergo Practical training of 100hours and pass in an examination with 50% marks to be conducted by Insurance Institute ofIndia, Mumbai. New India has its own IRDA approved training centers to develop dedicatedagents.BrokersAs per notification dated 16th Oct 2002 and INSURANCE REGULATORY ANDDEVELOPMENT AUTHORITY (INSURANCE BROKERS) REGULATIONS, 2002, IRDAhas allowed brokers to act as an intermediary to sell insurance policies in India. Though it wasintroduced only in 203, it has made inroads into the world of corporate insurance. Brokers aregaining ascendancy as professionals, as more and more corporate insured are changing over tothem. Brokers traditionally weaken the bargaining powers of insurers because of equality inprofessional expertise between them and the premium clout of several customers backing theirpunch. However, with commercial interests guiding everyone involved, all negotiating battles arefought on the price front; and not on improving risk management practices of customers.Professionalism at the level of all selling efforts is lacking. The New India Assurance CompanyLtd. has enlisted more than 280 brokers. Some of the brokers operating in Pune are FIRSTPOLICY Insurance Advisors Pvt. Ltd, Chawla & Associates Insurance Services Pvt. Ltd, Life &General Associates Pvt. Ltd., Nipun Ins. Brokers Pvt. Ltd., Surekh Ins. Services Pvt. Ltd., UnitedRisk Ins. Broking Co. Pvt. Ltd., Vantage Ins. Services Pvt. Ltd.BancassuranceBancassurance means the sale of insurance products through a bank‘s distribution channels. Thismodel offers a seamless service of banking, life and non-life products. Bancassurance in India isdeveloping as an important channel for distribution to a growing class of customers. This is avery customer friendly channel. As per the current regulations, banks can either opt to become acorporate agent or a referral provider to an insurance company. The company has bancassurance 17
  18. 18. tie ups with the following banks-State Bank of India, Central Bank of India, Corporation Bankand United Western Bank to increase its distribution network.Third Party Administrators (TPA)The job of a TPA is to maintain databases of policy holders and issue them identity cards withunique identification numbers and handle all the post policy issues including claim settlements.In case of a claim, policy holder has to inform TPA. On informing the TPA, policy holder will bedirected to a hospital where the TPA has a tied up arrangement. However, policy holder willhave the option to join any other hospital of his choice, but in such case payment shall be onreimbursement basis. TPA issues an authorization letter to the hospital, for the treatment whereinthe TPA will pay for the treatment. TPA will be tracking the case of the insured at the hospitaland at the point of discharge; all the bills will be sent to TPA. TPA makes the payment to thehospital. TPA then sends all the documents necessary for consideration of claims, along withbills to the insurer and Insurer reimburses the TPA. New India has tied up with 18 TPAs vizMediassist India Pvt.Ltd., M D India Healthcare Services ( P ) Ltd., E Meditek SolutionsLtd., Heritage Health Service Pvt. Ltd., Universal Medi-Aid Services Ltd., Focus HealthcareMedicare TPA Services ( I ) Pvt.Ltd., Raksha TPA Pvt. Ltd., TTK Healthcare Services Pvt.Ltd.,East West Assist Pvt. Ltd., Alankit Health Care Limited, Health India, Good Health Plan Ltd.,Vipul Med Corp TPA Pvt. Ltd., Safeway Mediclaim Services Pvt. Ltd., Anmol Medicare Ltd.,Dedicated Healthcare Services (India)Ltd., Genins India Ltd.SurveyorsSurveyors play a crucial role between the Policy Holder (Insured) and the Policy issuer orUnderwriter or Insurer (Insurance Companies). Surveyor gives their expert report without anyprejudice to the Insurer (Insurance Company) with a recommendation specifying whetherindemnify or repudiate the claim lodged by the Insured.Following shows the channel wise distribution of premium over the past two years for thecompany – ( lakhs) Channel 2009-10 2010-11 Individual agents 342689 475259.46 Corporate Agents-Banks 32535 31333.68 Corporate Agents –Others 21467 32757.58 Brokers 62360 129323.4 Direct Business 144931 241063.74 Referral 268.61 436.22 Grand Total 604251 910174.08 18
  19. 19. 0.04 Individual agents Corporate Agents-Banks 23.98 Corporate Agents -Others Brokers 56.7110.32 Direct Business Referral3.55 5.38 2009-10 0.04 26.48 Individual agents Corporate Agents-Banks 52.21 Corporate Agents –Others Brokers Direct Business 14.20 Referral 3.6 2010 - 11 3.44 19
  20. 20. Pricing-A fundamental principle of insurance pricing is that if insurers are to sell coverage willingly,they must receive premiums that( 1) are sufficient to fund their expected claim costs and administrative costs and(2) provide an expected profit to compensate for the cost of obtaining the capital necessary tosupport the sale of coverage."[Harrington 1999]The pricing of insurance products starts from the pure premium calculation of the actuaries. Itincludes the amount needed to cover expected losses and loss adjustment expenses. It is thenloaded for operating expenses including sales commission and other marketing costs, taxes andthe cost of handling claims. This component varies from one line of business to another. The lawof large numbers principle works while pricing a product i.e determining the premium. Thepremium is based on rates. There are basically three recognized rating methods.Judgment rating is used when the risk proposed to be bought is so unusual that little or nostatistical information about similar risk is available. Each exposure is individually evaluated,and the rate is determined largely by the underwriters judgment. When the judgment rating isused, each premium is unique and is based on the opinion of the person making it.Class rates are the most common rate in insurance business. Insured risks are classified on thebasis of one or several important features and all that belong to the same class are subject to thesame rate per unit of exposure. The rate charged reflects the claims experience for the class as awhole. It is based on the assumption that future losses to insured will be determined largely bythe same set of factors.Merit rating is a modification of the class rating. It modifies the class rate of a particular classinsured based on individual loss experience.Promotion Strategy-The aim of the company is to design the products from customer feedback to suit their specificneeds. The company focuses on delivering outcome rather than merely products. The company isramping up its knowledge database and is focusing on the customer base with a view to buildinglong term relationships. The role of field personnel is imperative for the promotion of the variousinsurance covers and it is their responsibility to scout for these covers.Electronic media, outdoor media and print media were utilized for publicity purpose. Hoardingsand glow signs were placed at many major road junctions, highways, railway stations andairports. Advertisements were also displayed on transit media like buses, trains, baggage trolleysand barricades.Banner display at local events helped the company in brand building in rural areas.The company participates in fairs, exhibitions and road shows and also sponsors various socialgatherings, sports and cultural events.The company recently forayed into television and radio activities. The company also sponsoredthe Mumbai Indians IPL T-20 team which has given tremendous visibility to the customers of allages and various groups not only nationwide but also global-wise.The internet affords widespread access to a pool of new customers. Beyond the traditional meansof radio, print and television ads, the internet opens up the audience that insurers might reach.This dimension has to do with delivering a marketing message to more customers than before.Also the internet is an advertising vehicle. A website offers the insurer an opportunity to shape 20
  21. 21. and tailor its particular message to personal computer owners. The website financial ratings and statements, shows press releases and lists a range of product andservice offerings. It also showcases the newly developed products of the company. The cost ofadvertising on the internet on a per reader basis is much lower than television, radio and printadvertising. The website also provides toll free numbers of the customer care and details ofnearby offices and claims hubs etc. 21
  22. 22. Customer Service-The company believes in the following dictum- ―The customer is the most important visitor on our premises. He is not dependant on us. We are dependent on him. He is not an interruption in our work. He is the purpose of it. He is not an outsider in our business. He is a part of it. We are not doing him a favour by serving. He is doing us a favour by giving us an opportunity to do so.‖Thus, it is evident that the company lays utmost importance to customer service. Customerservices and grievance cells are well established at company‘s corporate offices and all RegionalOffices. ―May I Help You?‖ counters have been provided in all Regional Offices, DivisionalOffices and Branch Offices for customer service.In order to ensure better and efficient customer service, the company has decided to launch a tollfree number on an All India basis, catering to the needs of the existing as well as prospectiveclients.Current Market Structure-General Insurance Industry was under the complete control of the four Government Companiesfor nearly three decades. After much deliberation, the market was opened for competition fromDecember 2000. The government delinked the four public sector companies from holdingcompany GIC to operate as independent companies. The IRDA has issued licenses to a numberof private General Insurance Companies.List of General Insurance Companies operating in the market as on date – S.No Name of the Company Headquarters Bajaj Allianz General Insurance Pune 1. Co. Ltd. 2. ICICI Lombard General Mumbai Insurance Co. Ltd. 3. IFFCO Tokio General Insurance Gurgaon Co. Ltd. 4. National Insurance Co.Ltd. Kolkata 5. The New India Assurance Co. Mumbai Ltd. 6. The Oriental Insurance Co. Ltd. New Delhi 7. Reliance General Insurance Co. Mumbai Ltd. 8. Royal Sundaram Alliance Chennai Insurance Co. Ltd 9. Tata AIG General Insurance Co. Mumbai Ltd. 10. United India Insurance Co. Ltd. Chennai 11. Cholamandalam MS General Chennai Insurance Co. Ltd. 22
  23. 23. 12. HDFC ERGO General Insurance Mumbai Co. Ltd. 13. Export Credit Guarantee Mumbai Corporation of India Ltd. 14. Agriculture Insurance Co. of New Delhi India Ltd. 15. Star Health and Allied Insurance Company Limited Chennai 16. Apollo Munich Health Insurance Gurgaon Company Limited 17. Future Generali India Insurance Mumbai Company Limited 18. Universal Sompo General Mumbai Insurance Co. Ltd. 19 Shriram General Insurance Jaipur Company Limited 20 Bharti AXA General Insurance Bangalore Company Limited 21 Raheja QBE General Insurance Mumbai Company Limited 22 SBI General Insurance Company Mumbai Limited 23 Max Bupa Health Insurance New Delhi Company Ltd. 24 L&T General Insurance Mumbai Company Limited2.3 CUSTOMERS- Globalisation is helping to create wealth for more people around the world. This has spurred the demand for financial products. Newly prosperous people are seeking ways in investments and see their assets grow, as well as to protect those assets and ensure financial security for their families. The customer profile can be defined as follows-  Knowledgeable  Increasingly aware of the global scenario  Demanding  Expect value for money  Aware of their rights  Expect widest cover at lowest cost  Demand promptness be it in policy documents, claims or any other service.  Expect quality service. 23
  24. 24. Since, very individual is susceptible to risk; everyone is a customer or a potentialcustomer for the insurance industry.In selling an insurance cover, each individual customer is unique both in his specificinsurance needs and in his buying preferences.This uniqueness of each insured customer has put an enormous pressure on an insurer, interms of demonstrating its individualized insurance expertise of the marketing staff, thetime spent accessing and engaging its customers and the relative costs of doing them allto get the business.Marketing strategies will have specific focus based on the segment to which they arecatering to.The company caters to a large cross section of lower, middle and upper sections ofsociety.The customers are segmented along the following lines-CorporateSmall IndustriesNew VenturesCooperativesIndividual EntrepreneursRural UnitsPersonal Insurance LinesExtensive market survey is carried out to determine the needs of the people and specificpolicies are designed keeping in mind the needs of customers.The company offers various generic policies which cater to a large number of peoplesuch as, motor and basic fire policy.The company also offers policies for individuals belonging to specific professions. Foreg- Doctor‘s Protection Shield has been designed keeping in mind the various hazardsdoctors are exposed to.The Office Protection Shield (General) offers protection to various items generally foundin the offices. However, there are specific Office Protection Shield policies forprofessionals that provide professional indemnity for loss on material damage to propertyand/or death or bodily injury to third party whilst rendering professional services.Also, various tailor made policies are provided for organizations to cover theiremployees. For eg- Group Mediclaim policy offers cover to a minimum of 100employees subject to a minimum sum insured of Rs.1 lakh each. The premium in suchcases is determined by a number of factors pertaining to that organization alone such asage of the employees, the risk that they are subject to, the claims ratio over the previousyears etc.The rural consumer is now exhibiting an increasing propensity for insurance products. Aresearch conducted exhibited that the rural consumers are willing to dole out anythingbetween Rs 2,900 and Rs 3,500 as premium each year. 24
  25. 25. 2.4 COMPETITORS-Figure below shows the segment wise premium of the 21 General Insurance Companies as onMarch 2010. (All figures in Rs.crore). The New India Assurance Co. Ltd is the largest non-life insurerin India in terms of premium, having a market share of 17.27% with the gross premium underwrittenbeing 6013.44 crores as on 30th March 2010. The top four spots are occupied by the public sectorcompanies with United India Insurance being second (15.04%) followed by Oriental Insurance (13.55%)and National Insurance (13.27%). The biggest private player continues to be ICICI Lombard with amarket share of almost 9.5% followed by Bajaj Allianz with 7.23%. The biggest gainers in the last yearwere Bharti AXA followed by Universal Sompo which grew by a whopping 797% and 454%respectively. However, their market share continues to be less than 1%. The share of the PSUs was moreor less the same over the previous year. The market share New India Assurance Co. Ltd. has increasedto.17.62% and gross premium underwritten is 7070.22 crores as per the unaudited and provisional figuresavailable as on 30th March 2011. The specialized institutions managed to make a significant dent in thehealth sector with Star Health & Allied Insurance showing a growth of 92% and Apollo Munichshowing a growth of 134%.Sl Grand Market Insurer Fire Marine Motor Health OthersNo. Total Share(%) Royal 42.49 23.02 617.19 116.11 108.27 907.08 2.611 Sundaram 156.75 113.84 236.36 83.39 301.51 891.84 2.562 TATA-AIG 129.78 44.42 1,318.71 238.75 248.00 1,979.65 5.693 Reliance 202.38 135.12 849.01 164.22 288.83 1,639.56 4.714 IFFCO Tokio 270.06 146.57 1,379.16 911.81 587.47 3,295.06 9.465 ICICI Lombard 261.40 74.76 1,445.77 295.39 438.37 2,515.70 7.236 Bajaj Allianz 142.78 25.01 289.92 268.74 201.96 928.42 2.677 HDFC ERGO 47.77 42.39 450.10 149.51 95.08 784.85 2.258 Cholamandalam 42.38 15.50 210.40 69.32 49.11 386.72 1.119 Future Generali Universal 42.15 3.84 79.10 17.40 46.86 189.36 0.5410 Sompo 1.74 0.01 410.51 0.00 3.65 415.91 1.1911 Shriram 27.29 5.44 179.97 35.20 42.75 290.65 0.8312 Bharti Axa 0.16 0.02 0.17 0.00 1.60 1.94 0.0113 Raheja QBE 914.80 477.79 2,067.42 1,541.90 1,011.53 6,013.44 17.2714 New India 429.16 239.91 2,168.76 1,021.71 761.37 4,620.92 13.2715 National 25
  26. 26. 647.93 451.97 1,817.13 1,256.14 1,064.15 5,237.32 15.0416 United India 575.03 390.45 1,610.19 1,063.51 1,079.57 4,718.75 13.5517 Oriental 3,934.07 2,190.06 15,129.88 7,233.10 6,330.06 34,817.17 100.00 Grand Total 813.71 813.7118 ECGC Star Health & Allied 965.53 14.51 980.0419 Insurance 106.43 8.23 114.6620 Apollo MUNICH 0.13 0.00 0.1321 Max BUPATechnology-The company in an effort to beef up their operations and service delivery for customers, iscurrently implementing a robust IT delivery platform called — CWISS — Centralized Web-based Insurance System Solution. The IT platform project is being implemented by TCSFinancial Solutions(TCS BaNCS) at a cost of Rs.175 crore. This system has been brought in toreplace ―GENISYS‖ which was first implemented in late 1998, and has evolved over time.The CWISS system is expected to streamline the underwriting procedure and since it is a webbased system, it will allow for generating of reports and accessing other relevant documents incase of claims from anywhere in the country.CWISS is a functionally rich, Web Based, Flexible and User Friendly System for Insuranceoperations. This is an ideal product for an insurance service provider – be it an InsuranceCompany or an Intermediary. The high degree of parameterization and user-friendliness in thelines of Component Based Architecture has made CWISS an effective solution for the company.The Party component can maintain all stakeholders including Policyholder, Prospect, ThirdParties, Service Providers and Organization Structure. Comprehensive information can bemaintained in the Product Component for Covers, Risk Types, Rates, Loading and Discounts,Events and their Rules, Documents and Clauses. CWISS supports all Underwriting events viz.Quotation, Policy Issue, Endorsement, Renewal, Suspension, Cancellation, Reinstatement etc.using its Operation Rules. These Event Rules are externalized and hence enable Business Usersto change processing details. It also supports Claims Registration, Verification, Advance andSettlement. Reinsurance Component supports Outward and Inward functions. Accountingcomponent is integrated with Underwriting, Claims and Reinsurance Components in a seamlessfashion. Document Management, Diaries and an access & limit based Application Security areinfrastructure features that are available. Historical Data and comprehensive Audit Trail areavailable for all transactions.CWISS includes rolling out the core insurance applications for the various lines of business andOracle Financials for the complete accounting and financial package and also encompasses theperipheral applications including CRM with a Grievance Module and Call Centre, Customer‘sportal, Dealer‘s portal, Broker‘ and Agent‘s portal, Employee‘s portal, Business Intelligenceportal, Document Management Systems and various modules of an Integrated HRMS packagewith People Soft Payroll etc. CWISS has been linked to the main server at Thane in Maharashtra. 26
  27. 27. The value proposition of CWISS over GENISYS are- Ease of maintaining products Integration of Reinsurance and Accounting with other components which reduces inefficiency due to separate systems. The workflow in Underwriting and Claims components being configurable, it is easy to make necessary changes. Facilities of new properties on request in Underwriting and Claims ease the problems to adopt regulatory changes. Flexible, externalized Rating and Event Rules maintainable by Users reduce IT involvement in Business Rule Change. Flexibility is the key in all components of this solution. Role based Security, Authorization and Audit features ensure high level of Transaction and Data Security. Availability of Document Manager features let the User come up with new Document Templates within Short Time. It also allows the User to maintain all communications (received and sent) inside the system – this enhances the traceability. The following are a few screenshots of the CWISS system. 27
  28. 28. 28
  29. 29. 2.5 HUMAN RESOURCES-Executive DetailsM.Ramadoss Chairman cum Managing DirectorA.R.Sekar Director, Financial Advisor, General ManagerI.S.Phukela Director, General ManagerS.B.L.Gour General ManagerK Sanath Kumar General ManagerR K Deka General ManagerSadashiv Mishra General ManagerS Sethuraman General Manager 29
  30. 30. Virander Kumar General ManagerA R Prabhu Appointed ActuaryK V Pathak Chief Vigilance Officer, Deputy General ManagerV C Jain Company SecretaryArun Kumar Chanda Deputy General ManagerP Dutta Deputy General ManagerS Segar Deputy General ManagerRafi Ahmed Deputy General ManagerK Surya Rao Deputy General ManagerMita Bhattacharjee Deputy General ManagerAnil Kumar Deputy General ManagerAloke Narain Jha Deputy General ManagerK V Krishna Deputy General ManagerDinesh Waghela Deputy General ManagerC K Gola Deputy General ManagerDepartments-Sl.No Departments 1 Agency Perfomance Enhancement Programme 2 Agency, Class II Cell, IBD (Admn), Publicity, Marketing 3 Auto Tie-up 4 Aviation 5 Business Process Redesigning, R & D 6 Brokers, Bancassurance, Corp Agency 7 Central Accounts 8 Chief Liaison Officer, I.D.D. 30
  31. 31. 9 Corporate HRM- Class I, III & IV & Training10 Corporate Training College11 Credit Insurance Risk Office12 Estate and Establishment13 EWS, Legal, Library, MBS14 Fire15 Foreign Business16 Grievance Cell, Customer Service, R.I.D.17 Health18 Information Technology19 Investment20 Investment, Board Secretariat21 Legal O.D22 Legal TP23 Legal, CPI cell24 Marine Cargo25 Marine Hull26 Miscellaneous Accident Technical27 Motor Technical28 Performance Management System, De-tariffing Business29 Property Cell30 Reinsurance31 Reinsurance (Accounts)32 RID, Health Insurance33 Techno Marketing34 Vigilance 31
  32. 32. Employee Strength- Category Total number of Employees Function Class I 5941 Supervisory Class II 2547 Development Force Class III 9032 Clerical/Secretarial Class IV 2049 Sub staff/Drivers P. T. S. 389 Total 19558 Staff Position at Pune R.O- Officers Development Class III Class IV PTS Total(DGM+CRM+MGR+Dy.MGR+A.M+A.O) Officers Employees Employees 307 171 668 114 17 1277 Training- For Agents: In addition to their Corporate Training College (CTC), Mumbai, Zonal Training Centres (ZTC) at Kolkata and Chennai and 19 Regional Training centres (RTC) at Regional offices; the company have received accreditation for 23 other Agencies training centres in interior parts of the country. The training is for pre-licencing exam preparation and subsequent trainings for skill developments. For Staff: RTC and ZTC caters training to the employees under the zone/ regions, from time to time. ZTCs generally conduct trainings on special topics for which faculties are rare.College of Insurance (Under GIC ,Mumbai) also imparts training programmes for staff from Mumbai and Pune Regions only.On Management topics and specialized topics , there are external agencys training centers at various places throughout India. For Officers: RTC, ZTC & CTC make their yearly calendar for regular training, and special trainings on technological changes, departmental changes, for transfers and promotions. National Insurance Academy (NIA), Pune takes up specialized training programme on Insurance, IT, Law and Management topics. Officers are also nominated to various external institutions for training programmes/seminars and conferences. College of Insurance also caters to the needs of officers of Mumbai & Pune region. Being an International Company, the top executives and officers are nominated for overseas training, around 10 cases per year. 10 Computer Learning centres in large cities like Ahmedabad, Kanpur and Mumbai CTC etc have been created for Computer literacy training and specialized courses. The company has also initiated E- training, initially on Management courses with various outside agencies. 32
  33. 33. For SC/ST Staff:Special Training programmes in preparation for competitive examination are organized in allRegional Training Centres. Special training programmes and workshops in 2/3 batches per yearare also organized at all India level at some outside venues.Special attention is given to themwhile nominating for training at various Institutes. For TPAS / Brokers/ Surveyors / Advocates:Basing on the need to improve the productivity and professionalism and also to clear pendingcases in an effective way, special workshops are being organised under various Regional Offices. For Customers:All Regional offices organise various workshops / seminars for their existing and prospectiveclients throughout the year at various hired places. For Corporate Agents:The company has initiated pre-licensing agency training for Corporate bancassurance agents.For first hand information and soft skill in Insurance Underwriting 3 days training programmefor Bank officials were taken up at around 10 places throughout India. Centres Total no. of Programs Total no. of Participants National Ins.Academy, Pune 92 381 College of Insurance 1 2 External Institutes 15 25 Training Abroad 9 12 CTC 59 1036 Total 176 1456 33
  34. 34. 2.6 OPERATIONS –Underwriting and Claims Management are the two most important aspects of the functioning ofan insurance company. The other operations are Actuarial Analysis, Investment and Reinsurance.Out of any insurance contract, the customer has the followingexpectations:i. Adequate insurance coverage, which does not leave him high and dry in time ofneed, with right pricing.ii. Timely delivery of defect free policy documents with relevant endorsements /warranties / conditions / guidelines.iii. Should a claim happen, quick settlement to his satisfaction.Underwriting is the process of classifying the potential insureds into the appropriate riskclassification in order to charge the appropriate rate. An underwriter decides whether or not toinsure exposures on which applications for insurance are submitted. There are separateprocedures for group underwriting and individual underwriting.For any insurance contract to exist there has to be a proposal form. Any individual wishing totake an insurance policy has to first fill the proposal form. Different forms are available fordifferent types of policy. (See Annexure for a Motor Proposal form)The parties to the insurance contract are required to observe utmost good faith (Uberrimae fidei)by disclosing all material information. Examples of material information are type of constructionof building in case of fire insurance, type of packing goods and material used in case of marinecargo insurance, cubic capacity of vehicle in motor insurance, physical disabilities if any whiletaking a personal accident policy. This allows the insurer to decide for a)acceptance of risk b)fixing rate of premium c)terms and conditions of the contract. The proposal forms the basis forany contract and any non disclosure of material facts makes the contract voidable.In case of motor policies where there is a break in policy, a vehicle inspection is done. In case ofhigh risk proposals, technically qualified staff are enlisted to inspect the risk and provide anassessment on the basis of which the policy is underwritten. A medical examination is alsonecessary in case of Mediclaim policy for clients above the age of 45.Once the proposal is accepted by the competent authority, it is underwritten. The underwritersuse the proposal form to fill in the prescribed details in the CWISS system. The underwriter mustemploy sound judgment based on his or her years of experience to read beyond the basic factsand get a true picture of the applicant and his lifestyle in case of health policies. Of course, theunderwriter certainly cannot - and isnt expected to - foresee all possible circumstances. Theunderwriters primary function is to protect the insurance company insofar as is possible againstadverse selection (very poor risks) and those parties who may have fraudulent intent. Once theunderwriter determines that risk can be accepted, the next decision is to apply the properpremium rate. Premium rates are determined for classes of insured by the actuarial department.An underwriter‘s role is to decide which class is appropriate for each insured. The business ofinsurance inherently involves discrimination; otherwise, adverse selection would make insuranceunavailable. Once the premium is calculated, the draft is saved and then sent for collection.The client then has to pay the premium to the cashier who then generates a collection receipt andthe policy. The policy then becomes active. 34
  35. 35. RISK OFFER ACCEPTANCE PROPOSER INSURER JOB OF PAYING QUOTE PREMIUM PREMIUMActuarial analysis is a highly specialized mathematic analysis that deals with the financial andrisk aspects of insurance. Actuarial analysis takes past losses and projects them into the future todetermine the reserves an insurer needs to keep and the rates to charge. An actuary determinesproper rates and reserves, certifies financial statements, participates in product development, andassists in overall management planning. The rates or premiums for insurance are based first andforemost on the past experience of losses. Actuaries calculate the rates using various proceduresand techniques. The most modern techniques include sophisticated regression analysis and datamining tools. In essence, the actuary first has to estimate the expected claim payments.Investment income is a significant part of total income in most insurance companies. Thecompany invests in Government securities and Government guaranteed bonds includingTreasury Bills, Other Approved Securities, Debentures/Bonds, Infrastructure and Social Sectorprojects.Reinsurance is an arrangement by which an insurance company transfers all or a portion of itsrisk under a contract (or contracts) of insurance to another company. The company transferringrisk in a reinsurance arrangement is called the ceding insurer. The company taking over the riskin a reinsurance arrangement is the assuming reinsurer. In effect, the insurance company thatissued the policies is seeking protection from another insurer, the assuming reinsurer. Typically,the reinsurer assumes responsibility for part of the losses under an insurance contract; however,in some instances, the reinsurer assumes full responsibility for the original insurance contract.A ceding company (the primary insurer) uses reinsurance mainly to protect itself against lossesin individual cases beyond a specified sum (i.e., its retention limit), but competition and thedemands of its sales force may require issuance of policies of greater amounts. A company thatissued policies no larger than its retention would severely limit its opportunities in the market.Many insureds do not want to place their insurance with several companies, preferring to haveone policy with one company for each loss exposure. The national insurer is GIC 35
  36. 36. Claims settlement is the process of indemnifying the insured against any loss that he may havesuffered which come under the purview of his policy. As soon as a claim is reported, theinsurance company checks as to whether the cover is in force at the time of loss and whether theperil is covered under the policy. A surveyor is appointed who visits the spot, do the assessmentand submit the report. Insurance company examines the report, calls for relevant supportingdocuments. On receipt of survey report and documents, the same are examined. The claim file isprocessed and settlement is offered. Insurance claim flow process INTIMATE CLAIM SUBMIT CLAIM FORM WITH RELEVANT DOCUMENTS VERIFY COVERAGE ASSIGN SURVEYOR FOR ASSESSMENT SURVEYOR REPORT + DOCUMENTS ACCEPT CLAIM REPUDITE CLAIM ARCHIVE CLOSED 36
  37. 37. 2.7 FINANCE- (in %) Upto the Upto the Quarter QuarterSl.No. Particulars Ending 31st Ending 31st Mar.,2011 Mar.,2010 1 Gross Premium Growth Rate 15.87 9.97 2 Gross Premium to Shareholders Fund Ratio 34.70 30.77 3 Growth Rate of Shareholders Fund 2.75 56.53 4 Net Retention Ratio 87.44 84.55 5 Net Commission Ratio 9.02 9.35 Expense of Management to Gross Direct Premium 6 32.78 34.61 Ratio 7 Combined Ratio 104.97 108.66 8 Technical Reserves to Net Premium Ratio 177.84 177.29 9 Underwriting Balance Ratio -36.75 -28.64 10 Operationg Profit Ratio -17.68 -8.38 11 Liquid Assets to Liabilities Ratio 49.07 48.28 12 Net Earning Ratio -5.86 6.74 13 Return on Net Worth Ratio -1.78 1.75 Available Solvency Margin to Required Solvency 14 2.97 3.55 Margin RatioEquity Holding Pattern 1 (a) No. of shares 200000000 200000000 200000000 200000000 (b) Percentage of shareholding (Indian 2 100/0 100/0 100/0 100/0 / Foreign) ( c) %of Government holding (in case 3 100 100 100 100 of public sector insurance companies) (a) Basic and diluted EPS before extraordinary items (net of tax 4 -21.08 -21.08 20.23 20.23 expense) for the period (not to be annualized) (b) Basic and diluted EPS after extraordinary items (net of tax 5 -21.08 -21.08 20.23 20.23 expense) for the period (not to be annualized) 6 (iv) Book value per share (Rs) 348.71 348.71 371.51 371.51 37
  39. 39. Organization Structure-Domestic:The company has entered a phase of consolidation and restructuring of offices. The company hasconverted 59 offices as specialized offices to take care of bancassurance, brokers and auto tie-ups.As on 31st March 2010, the company has a network of 26 Regional Offices, 395 DivisionalOffices, 591 Branch Offices, 27 Direct Agent Branches and 23 Extension Counters totaling 1062offices.Foreign:The company operates through a network of 9 branches, 7 agencies, 4 associate companies and 3subsidiary company (including 1 fully owned subsidiary) in 23 countries.Office Hierarchy HEAD OFFICE REGIONAL OFFICE DIVISIONAL OFFICE BRANCH OFFICE 39
  40. 40. 2.9 ENVIRONMENT -Social Environment –Profit is not the first criterion of public sector units. Social welfare is the ultimate goal ofdevelopment of insurance sector. The government has devised a lot of social security measuresfor India‘s rural, socially backward classes of people. Prices of such products are reduced.Insurers are obliged to provide insurance to atleast 20000 lives each year. In case of generalinsurance, this obligation includes the insurance of crops ( Sec.32 B and 32C of InsuranceAct,1938 and the IRDA regulations 2000.) The government has also introduced various schemessuch as ‗Rashtriya Krishi Bima Yojana‘ to provide insurance coverage to farmers in case offailure of crops. ‗Solatium Scheme‘ for payment of compensation to victims of hit and runaccidents. In addition to this the company provides policies such as ‗Universal Health InsuranceScheme‘ and ‗Jan Arogya Bima Policy‘ at nominal rates to the less-privileged. In a democraticsetup, insurance companies are accountable to the public through 1.)Parliament 2.)Auditand3.)Annual reports as a social measure. Social responsibilities of insurance business Promoters/ Shareholders Surveyors, Consumer Lawyers, Insured Actuaries Insurance Suppliers Business Workers Insurers Reinsurers Managers TPAs 40
  41. 41. Legal Environment -The IRDA Act of 1999 was enacted with a view to regulate the Insurance Companiesirrespective of private and nationalized companies. Any insurance company is obliged to abideby the rules and follow the guidelines as prescribed by IRDA from time to time. These includethe IRDA Regulation 2000 on ‗Appointed Actuary‘ and the ‗Obligations of Insurance to RuralSocial sectors‘ which specifies that the company has to undertake certain obligations pertainingto the persons in Rural and Social Sectors in each financial year. ‗Assets, Liabilities andSolvency Margin of Insurance‘ also specifies that the insurer has to maintain a solvency marginas prescribed by IRDA. The ‗Investment Regulation‘ deals with type of investment in thefollowing segments – central government securities, state government securities and otherapproved securities. The Motor Vehicles Act 1988 specifies the third party liability arising out ofthe use of motor vehicles in a public place and compensation for the same.Political Environment -The Central Government being satisfied that it is necessary in the public interest to do so,exempts the taxes leviable for schemes such as Cattle Insurance under IRDP (Irrigated RuralDevelopment Program), Janata Personal Accident Scheme, Agriculture Pump Set Insurance andother such social welfare schemes.Economic Environment -Insurance is the result of various economic activities causing employment and is dependant onthe total net income, national economic and industrial development. On the other hand insurancealso has the responsibility to provide stability and security to economy and industry. Thecompany cannot behave with sole profit motives. Policies with less demand have become costlierto the insurer but due to social obligations, the pricing remains subsidized. The premiumcollected is not even sufficient to cover the cost of issuing the policies (stationery, man hoursinvolved, stamp duty) in case of certain schemes as such is operating at a loss ratio of above100%. An insurer is not permitted to invest in private limited companies. Insurer is also notpermitted to keep more than 10% of his assets in fixed and current deposit or both in one bankingcompany.Physical Environment –If one area is endemic to one peril (For eg – Kutch, Gujarat is prone to earthquakes, Khopoli,Maharashtra is prone to landslides) then to cover the insurance risk of that area, premium rateswill be higher than other areas.Technological Environment -The company introduced its first automated system ‗Genisys‘ in 1998. However, this was anrudimentary system and the spread of technology for insurance services such as underwriting andclaims management was slow. It was only recently that the company has entered into onlinetransaction of business. It is needless to say that the technology provides better quality,quickness, better space utilization and easier data storage. The spread of technology has alsohelped improve the customer service. 41
  42. 42. 2.10 SWOT ANALYSIS-Strengths-The Company is without doubt the largest non-life insurance company in India. It is the marketleader in terms of premium underwritten in the fire (23% market share), marine (22%),engineering (18%), health (21%) and liability (15%) sectors. The New India Assurance is apioneer non-life insurance company insuring all types of assets, belongings and lives of rural andsocial sector in the country. A leading market position gives a company a stronghold within theindustry.Financially the company is in a strong position with the profits after tax for the financial year2009-10 being Rs.404 crores, an increase of 80% from the previous year. The gross directpremium also recorded a good growth rate of 9.69% as against 4.39% growth registered during2008-09. Continued good investment performance enabled the company to earn an investmentincome of 2139 crores as against 1686 crores in the previous year.The company has an available solvency margin of 6621 crores while the required solvencymargin under IRDA regulations is 1429.33 crores. Its widespread network of 1062 offices across the country helps in its product distribution to allcorners of the country. The company has experienced and technically competent staff whounderstand the nuances of the insurance industry. Claim hubs have been created for centralizedclaim processing in all Regional Office centres. This has helped the company achieve a very highclaims settlement ratio. The company has been able to bring down the average claim settlementtime from 137 days in 2008-09 to 88 days in 2009-10. It has been able to reduce its Motor T.Plosses which are severely affecting the profitability of all insurance companies thanks largely tothe diligent efforts taken to settle as many claims promptly through Lok Adalats and conciliation.Large Corporate Regional Offices have helped provide dedicated service and organizationalfocus to corporate clients and government accountsWeakness-During the financial year 2009-10 the underwriting deficit has gone up by 255 crores mainly dueto increased operating expenses and adjustments for the previous year. In these times of intensecompetition where premium rates have bottomed out and companies are struggling for their verysurvival due to a high combined ratio, the employees fail to realize the importance of customerservice in not only retaining but also generating fresh premium. Customers are made to wait forservice and are sometimes shunted from one counter to another.Another major weakness is the treatment of agents who generate a majority of the premium forthe company. As per their own admission, they are treated worse than the sub staff and notaccorded the respect that they deserve from the employees. Also, there is a delay in payment ofthe Agent‘s fees which is effectively the salary of the Agents.The employees are not particularly well versed in the use of computers and in this day and age;this is a major drawback. Also the computer systems in use are outdated and infested withproblems. The connectivity of the system is quite poor causing inordinate delay to the customerswho are made to wait for no fault of theirs.The company recently implemented a new ERP package called CWISS. However, properplanning has not been done before implementing this change. The employees weren‘t adequatelytrained and a number of them are facing difficulties while working in the new system. Also, allthe existing policies have not been fully migrated to the new system. Hence, employees have to 42
  43. 43. use both the systems (GENISYS and CWISS) simultaneously which is a major hassle. Theunderwriters also face difficulties due to this.The HR policies in practice are out of date and not in sync with the current times. Profit linkedincentives are provided to all employees and hence, there is hardly any motivation for the peoplewho work hard and those who don‘t. The company is losing productive man hours due to theabsence of a mechanized attendance system. Since there is no individual accountability, thereseems to be a certain lethargy in the attitude of a majority of the employees. There is a certainlack of professionalism.In quite a few cases, premium has been accepted from the customer. However the policy has notbeen underwritten. This causes major issues in accounting and in the event of claims; the insurerfind themselves in a position where they are unable to register a claim.Opportunity-Insurance is a business of distress management and the process of claims management is thefinal moment of truth. The claims manager should be sensitive to the needs of the claimant.When it is obvious that the claim is legitimate, less importance should be laid on a slew offormalities and the intent should be on settling the claim swiftly. If the company follows thedictum of ―low on promise and high on delivery‖, it will lead to customer delight and result in along and lasting relationship between the insurer and the insured.Being the largest company, New India has the built-in strength and the capacity to underwrite bigbusinesses. The company has the potential to focus on huge projects such as large infrastructureprojects, mega power plants. We are seeing rapid development across the country with expresshighways, metro rails, international standard airports, port development, power plant projectscoming up across the country. These projects demand insurance cover of international standardand the company will do well to tap into this new market by providing tailor made all riskpackage policies.The auto industry is also growing at rapid pace. As motor policies are compulsory in India, thisportfolio can give incremental rise to the premium of the company.With rising awareness, all kinds of insurance especially health is now at the precipice of anexplosion. The penetration of insurance is hardly 3% of the population. This means there is apotential of market of over 97% of the population. The company is now facing losses in theHealth Sector and the major reason for this is the small spread of risk and the problem of anti-selection. Once this is sorted, this sector has the potential to be a source of immense profit for theorganization. Also an increase in the disposable income of individuals will give a boost to healthand other personal lines of insurance.The insurance industry is seeing a double digit growth every year and new talent should berecruited to take the business forward. The company needs to reinvent itself along the lines ofmany nationalized banks.If the company gains a more professional approach, it will help the company survive the intensecompetition.If every claim is attended to with compassion and enthusiasm and the claim settlement durationis brought down further, it will enhance the reputation of the company.The thrust on liability policies have not been much so far and not many people are aware of thesepolicies. There is tremendous potential if the company focuses on this untapped segment. 43
  44. 44. Threats-When the customers are not afforded the service that they demand; it is but natural that they willtend to go elsewhere. No doubt, this has been one of the major factors for the stupendous growthof private sector insurance companies that pride themselves on providing excellent customerservice. The company risk losing out on corporate clients who can provide crores of rupees inpremium due to a perceived lack of support from the insurer.If the management does nothing to ease the complaints of the Agents, they are likely to jumpship and switch over to the private sector.The non life insurance industry today faces its biggest challenge of mounting underwritinglosses. This has been primarily because of the lack of focus on prudent underwriting andeffective claims management. 44
  45. 45. CHAPTER III-DISCUSSION ON TRAINING3.1 ROLES AND RESPONSIBILITIES –During the initial phase of the internship, my role as an intern was to get acquainted with thevarious terms and concepts of the insurance industry. It was my responsibility to read up as muchon insurance and familiarize myself with the terms that are commonly used.This was followed by a study on the transition and prospects of the Indian Insurance Industry inorder to gain an understanding about the evolution of the insurance sector in India, the functionsof insurance, the growth of the sector, the principles of insurance, the current market structureetc. It was my responsibility to study the portfolio of products offered by the company, theircoverage, exclusions, premium calculations, features and claims procedure with special focus onfire, marine, motor and health policies. I also had to study the different distribution channels, theroles of these channels, their importance and their functioning. I was encouraged to interact withthe various intermediaries such as the Agents and the TPAs in order to gain an overall picture ofhow the insurance industry works right from procuring the business to the settlement of claims.I was also trained to use their ERP system called CWISS and get myself acquainted with itsentire functionality.3.2 DESCRIPTION OF TASKS HANDLED -Every Insurance company is required to disclose its annual business figures to the public. Hence,at the end of every financial year, every branch of the company is required to prepare and sendits statistics to the respective Regional Office where it is assimilated and ultimately sent to theHead Office.I assisted in preparing the statement of operating performance for the year ending March 2011 ofthe Divisonal Office. This included providing statistics of department wise details of premiumgenerated. The commission paid for each department, the commission as percentage to theoverall premium, the claims incurred in each department, the claims as a percentage of thepremium. This helps determine the claims ratio of each department, the underwritingsurplus/deficit and hence identify the most profitable lines of business. This also included ayearly review of department wise performance upto March 2011 to determine the accretionpercentage of the various lines of business.I also assisted in preparing the statement of settlement of claims which was to determine thedepartment wise claims disposal ratio and age wise settlement of claims in order to determine theclaim processing and settlement time.The most important task given to me was the underwriting of policies to reduce the burden onthe underwriters. I had the opportunity to work on various types of policies including motor,householder‘s policy, public liability insurance, and goat insurance. However the prime focuswas on health policies especially tailor made group policies which the company provides tovarious corporate after obtaining permission from the Head Office. Some of the clients includeNational Insurance Academy, Simmonds Marshall, MWH Resource Net Ltd, MillenniumEngineers and Contractors Pvt.Ltd. The following are a few screenshots of the underwritingprocess for Millennium Engineers and Contractors Pvt.Ltd. 45
  46. 46. 3.3 CONTRIBUTION TO THE ORGANIZATIONThe various statements of operating performance had to be sent to the Regional Office within astipulated period of time. I assisted in the preparation of these statements and helped meet thedeadline as set by the Head Office. Due to a huge number of pending policies, there was a severestrain on the underwriters. I was able to assist in underwriting a number of policies and updatingthe insured list of various group policies which is pretty time consuming and thus helped reducesome of the burden on the underwriters. I was able to update many such policies which had to bemigrated from the old ERP to the new system so that claims could be registered on thesepolicies. My research work provides an insight to the company regarding the performance oftheir various portfolios. The company may wish to implement some of the suggestions which canhelp improve the profitability of these portfolios.The following are a few screenshots of the ERP package that I used to update the Tailor MadeFloater Group Mediclaim policy of Millenium Engineers and Contractors Pvt. Ltd. 46
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