Principles of Life insurance

1. Principles of Life Insurance
Life insurance operates on some basic principles common to
many individuals.
Dr.Amitabh Mishra, Principles of Life
Insurance

2. Followings are the principles of life insurance
Principles of
life insurance
Principle of
Insurable Interest
Principle of
Utmost Good Faith
Principle of
Large number
Principle of
Proximate Cause
Principle of
Warranties
Principle of
Transfer of Risk
Dr.Amitabh Mishra, Principles of Life
Insurance

3. 1. Principle of Insurable Interest
 Insurable interest is the pecuniary interest.
 An insurable interest is an object which, if damaged or destroyed,
would result in financial hardship for the policyholder.
 Insurable interest arises out of the pecuniary relationship that
exists between the policy-holder and the life assured so that the
former stands to loose by the death of the latter and/or continues
to gain by his survival.
 The loss should be monetary or financial. Mere emotion and
expectation do not constitute insurable interest.
Dr.Amitabh Mishra, Principles of Life
Insurance

4.  Insurable interest in life insurance may be divided into
two categories:
Dr.Amitabh Mishra, Principles of Life
Insurance
Insurable Interest
Own life Others life
Proof is not required Proof is required
Business Relation Family Relation

5. II. Principle of Utmost Good Faith
 Life insurance requires that the principle of utmost good, faith should be
preserved by both the parties.
 Utmost good faith can be defined as “a positive duty to disclose
accurately & fully all facts material to the risk being proposed whether
requested or not”.
 The principle of utmost good faith says that:
◦ The parties, insured and insurer must be of the same mind at the time
of contract (because only then the risk may be correctly ascertained).
◦ They must make full and true disclosure of the facts material to the
risk.
 Material facts are age, income, occupation, health, habits, residence, family history and
plan of insurance. Dr.Amitabh Mishra, Principles of Life
Insurance

6. III. Principle of Large Numbers
 Insurance companies must use a large sample size of the
population (insured people) to predict death rates.
 Probabilities for life insurance are represented in a mortality
table.
 While no one single person's death can be predicted, the law
of large numbers allows insurers to predict death rates by
looking at a large group of people.
 A large sample size means that a probability can be predicted
as a percentage of the population.
Dr.Amitabh Mishra, Principles of Life
Insurance

7. IV. Principle of Proximate Cause
 The efficient or effective cause which causes the loss is called
proximate cause.
 It looks for the reason behind the loss. If the cause of loss (peril) is
insured, the insurer will pay; otherwise the insurer will not
compensate.
 In life insurance the doctrine of Causa Proxima (Proximate
Cause) is not applicable because the insurer is bound to
pay the amount of insurance whatever may be the reason of death.
It may be natural or unnatural.
Dr.Amitabh Mishra, Principles of Life
Insurance

8. V. Principle ofWarranties
 A warranty in an insurance policy is a promise by the insured party that
statements affecting the validity of the contract are true.
 And, if any statement is untrue, the contract shall be null and void and the
premium paid by him may be forfeited by the insurer.
 Warranties may be informative and promissory.
 The proposal is expected to disclose:
“All the material facts to the best of his knowledge and belief”
Dr.Amitabh Mishra, Principles of Life
Insurance

9. VI.Transfer of Risk
 The transfer of risk is essential to life insurance.
 Insured do not retain the risk of death in life insurance
policy. Instead, this risk is spread out among all
policyholders that the insurer does business with.
 All customers of the insurance company contribute money
to the general account. This money is invested, and then
claims are paid out when an individual from the group
dies.
Dr.Amitabh Mishra, Principles of Life
Insurance

10. RecentTrends in
Life Insurance
1. Digitization
2. E-Insurance Account
3. Evolution of Alternative channels of Distribution
4. Evolution ofTechnology for Customer Acquisition, Retention and Managing Data
Dr.Amitabh Mishra, Principles of Life
Insurance

11. Digitization
 Online policies picking up in a big way – Term policies are
becoming popular.
 Web Aggregators are essentially insurance portals that help
you compare products, and enable purchase by directing you to
the insurer or the insurer to you.
◦ Policy Bazaar, Easy Policy etc.
Dr.Amitabh Mishra, Principles of Life
Insurance

12.  Usage of Tablets for demonstrating customers with ease under
various scenarios – with various returns and charge structures
become very easy.
 Form filling has become a less painful exercise and anywhere any
time insurance through mobile applications has also become
popular.
 Comparing products of various Insurers has become easy and
faster.
 Premium payments made online –
◦ Instant Payment through online portals have revolutionized the premium
collection process.
◦ IVRS, online mobile applications etc. have also become popular premium
payment methods
Dr.Amitabh Mishra, Principles of Life
Insurance

13. E-Insurance Account (eIA)
 E-Insurance Account hold all insurance policies in
electronic form by opening a single e-insurance account
with an Insurance repository.
 IRDA has granted the Certificate of Registration to the
following four entities to act as 'Insurance Repositories' that
are authorized to open e-Insurance Accounts.
◦ NSDL Database Management Limited
◦ Central Insurance Repository Limited
◦ Karvy Insurance Repository Limited
◦ CAMS Repository Services Limited
Dr.Amitabh Mishra, Principles of Life
Insurance

14.  Benefits of an eIA:
◦ No more physical policy documents/ completely paperless
◦ View and manage all life insurance policies under a single account
◦ Single KYC done for e-insurance account instead of each policy –
reduces the paper work.
◦ Changes in contact details get auto updated in all your policies across
all life insurers
◦ Opening eIA is free
◦ A customer buying policy online, pays insurance premium online,
gets receipt online and also gets credit of insurance policy
account online and the claims are settled by direct transfer of funds
to the account of the nominee/Policyholder.Dr.Amitabh Mishra, Principles of Life
Insurance

15. Evolution of Alternative channels of
Distribution
1. Individual agency channel/Agents was the only
mode of distribution in LIC days (more than currently
20 lakh).
◦ Direct Marketing is a popular channel for reaching customers and
generating leads or selling through a telephone.
Dr.Amitabh Mishra, Principles of Life
Insurance

16. II. Corporate Agency system: Corporate entities
represent an insurance company and sell its policies.
◦ It was introduced in 2002 with IRDAI framing regulations (currently more than
428).
◦ Usually they are engaged in a particular business and sell insurance policies to
their existing customers based on the situation.
◦ When a bank becomes the corporate agent of an insurance company it is
referred to as a bancassurance arrangement or partnership.
Dr.Amitabh Mishra, Principles of Life
Insurance
S.N Corporate Agent Insurer
1 State Bank of India SBI LIFE INSURANCE COMPANY LIMITED
2 ICICI BANK LIMITED ICICI PRUDENTIAL LIFE INSURANCE
3 HDFC BANK LTD HDFC STANDARD LIFE INSURANCE CO LTD
4 4CITIBANK N.A ROYAL SUNDARAM ALLIANCE INSURANCE CO LTD
5 SIDBI BANK IDBI-FORTIS LIFE INSURANCE CO. LTD
6 Peerless Developers Limited IFFCO-TOKIO GENERAL INSURANCE CO. LTD.

17. III. Insurance Broking model allowed the entity to be a
distributor for multiple insurers (currently more than 370).
◦ An insurance broker sells, solicits, or negotiates insurance for
compensation
Dr.Amitabh Mishra, Principles of Life
Insurance
S.N Insurance Broking Firms
1 Aditya Birla Insurance Brokers Ltd.
2 Alliance Ins. Brokers Pvt. Ltd.
3 IIFL Insurance Brokers Limited
4 Muthoot Insurance Brokers Pvt. Ltd
5 Policywow Insurance Broking Private Limited

18.  Micro Insurance Agent channel to procure New
Business from rural and remote rural areas. (currently
more than 27,041)
◦ Micro insurance agents are appointed by and acting for an insurer, for
distribution of micro insurance products (and only those
products).
◦ Microinsurance is insurance with low premiums and low caps/
coverage.
◦ Example:
 Term life insurance
 Death insurance, disability insurance, and
 Insurance for natural disasters.
 Health insurance,
 Crop insurance and livestock/cattle insurance,
 Theft or fire insurance,
Dr.Amitabh Mishra, Principles of Life
Insurance

19.  Web Aggregators are online operators who provide choice of
products to customers online (currently more than16).
 Insurance Marketing Firms (IMF): The IRDA has allowed for
the registration of insurance marketing firms, so that
entrepreneurs and insurance agents can start their own
insurance distribution company. (currently more than 81)
 As per the Registration of Insurance Marketing Firm Regulations,
2015, an
“Insurance Marketing Firm is defined as an entity registered by the
IRDA to solicit or procure insurance products, to undertake
insurance service activities and to distribute other financial
products”.
Dr.Amitabh Mishra, Principles of Life
Insurance

20.  An Insurance Marketing Firm perform following functions:
 Procure Insurance Products:
◦ Procure insurance products of two Life, two General and two Health Insurance
companies at any point of time.
 Provide Insurance Servicing Activities:
◦ Undertake back office activities of insurers
◦ Undertake survey and loss assessment work
◦ Perform any other insurance related activity permitted by the IRDA from time
to time.
 Marketing of other financial products, namely:
◦ Mutual funds
◦ Pension products
◦ Banking/ financial products of banks/ NBFC regulated by RBI;
◦ Non-insurance products offered by Department of Posts, Government of India;
◦ Any other financial product or activity permitted by the IRDA from time to
time.
Dr.Amitabh Mishra, Principles of Life
Insurance

21.  Common Service Centers (CSC): Encourage Rural
Entrepreneurship to take insurance to the remote areas through Village
Level Entrepreneurs (VLE). (currently more than 5373).
 CSCs are the service delivery points enabled with Information and
Communication Technology (ICT) for the delivery of various public and
private services to rural citizens of India.
 CSC is one of the programs of Government of India under the Digital
India Program.
 The government services delivered through the network of CSCs include
services in the area of:
◦ Education,agriculture, health,
◦ Utility payments
◦ Banking, Insurance, financial services etc.
Dr.Amitabh Mishra, Principles of Life
Insurance

22. Evolution of Technology for Customer
Acquisition, Retention and Managing Data
 Increased use of software as a Service (SAS)
 Increased interest in Business Process Management in the Cloud
(Cloud computing as a new technology application in life insurance)
 Leveraging big data and analytics based solutions using service
providers –
◦ Customer analytics, claims analytics etc. – which is fast catching up in
India as well – Insurance companies use data analytics to study customer
segments, choice preferences –especially in reinstating the lapsed policies
Dr.Amitabh Mishra, Principles of Life
Insurance

23. Insurance companies providing online
direct-to-consumer applications
 There is big money in cutting out the middleman in the insurance process, aka, the
agents.
 Companies are creating advanced AI calculations to approve applications
immediately.
Dr.Amitabh Mishra, Principles of Life
Insurance