1

The customer is the most important visitor in our premises.
He is not dependent on us. We depend on him.
He does not di...
2

The service sector's share has grown from 43.69 per cent in 1990-91 to 51.16
per cent in 1998-99. In contrast, the indu...
3
Sales and service are the two important wings of service industry like LIC,
ITI and the post office. If one of the wings...
4

(1.2) The Insurance Potential -- Future
India has an amorphous middle class of about 350-300 million people who
can aff...
5
To satisfy these myriad needs of products, insurance products will need to be
customized. Insurance today has emerged as...
6
This calls for a strong focus on training of the distribution force to act as
financial consultants and build a long las...
7

(1.3) Definitions

General Definition
In the words of John Magee, “Insurance is a plan by themselves which large number...
8

(1.4) Characteristics of Insurance

1. Sharing of risks
2. Cooperative device
3. Evaluation of risk
4. Payment on happe...
9

(1.5) Scope or Kinds of Insurance
Broadly, insurance may be classified into the following categories:
i.

Classificatio...
10
g) In addition to the above,Insurance policies are available against crime,
medical insurance, Bullock cart insurance, ...
11

Functions of Insurance

Primary Functions
1. Provide protection: - Insurance cannot check the happening of the risk, b...
12

Origin and Development of Insurance

Insurance in the modern form originated in the Mediterranean during 13/14th
centu...
13
It was the British, insurers who introduced general insurance in India, in its
modern form. The Britishers opened gener...
14
The first Indian Company named as Bombay Mutual Life Insurance Society
Ltd. was formed in Dec. 1870. By 1971, the total...
15
5. Miscellaneous Insurance

Due to the increasing demands of the time, different forms of insurance have been
developed...
16

Three Questions about Insurance Liberalization
The decision to allow private companies to sell insurance products in I...
17
Wherein even one insolvency can trigger panic among consumers leading to a
widespread and complete breakdown. This impl...
18
2) What should be the market structure?
In this section, we analyze the question whether there should be unlimited
priv...
19
Given these problems unbridled, competition among large number of firms is
considered detrimental for the insurance ind...
20
require insurers to frame transparent contracts. Consumers should not have to wake
up to unpleasant surprises, finding ...
21
The second area of IRA's activity concerns monitoring insurer behavior to ensure
fairness. It is especially here that I...
22
competition provides a scope for higher profits to the companies thereby
strengthening their solvency position.
After q...
23

Challenges/Opportunities
The study, "21st Century Demographics for the Life-Health Industry,
"delineates the following...
24
IRDA is formed as an authority to protect the interests of holders of insurance
policies, to regulate, promote and ensu...
25
When talking of banks we need to remember that there will be two regulating
bodies, IRDA and RBI. It is said that this ...
26
The capital adequacy ratio of the NBFC engaged in loan and investment
activities holding public deposits should be not ...
27
The esteemed Mr. Sharad Pawar is also forging a cooperative alliance to benefit
from the new regulations. It is the cas...
28
IRDA is going to allow three kinds of brokerage firms to operate in the Indian
insurance sector, Insurance, Re-insuranc...
29
-

Trained and experienced personal will be critical to the success of the
insurer.

-

An

internal

control

mechanis...
30
air of uncertainty in all the decision making process. Insurance as a sector requires
players who are strong financiall...
31
-

A more rationale approach to the investment criteria.

This is a very critical area as far as the government and the...
32
in our customized manner. This will only help the industry grow and so will the
society.
And last but not the least pat...
33
The second trap is the tendency to target the business of existing companies
rather than expanding the market. New play...
34
Similar problems apply to pensions. The lack of a comprehensive social
security system combined with a willingness to s...
35
pricing. Existing players can also profitably exploit these areas. Recognizing the
potential, in the past three years, ...
36
LIC has a clean monopoly over the market. As per LIC’s claims this monopoly will
remain for at least another five years...
37

Market Segmentation
The entire market is segmented into four categories:-

1.) Business Class
These are the customers ...
38
Like the laborers, even they are targeted mainly in the rural areas, but the difference is
that they own the particular...
39
The company LIC makes various promises to its customers through external
marketing. The way and means of marketing have...
40
various Executive, the Directors and the Zonal Managers undergo T & D at LIMRA,
Singapore
Consumers
The consumers/ buye...
41
which he can avail of the services. Or he can always contact the provider or the
agents through easy access and availab...
42
requirement of each customer every policy will have to be tailored to suit him,
and accordingly he will be able to avai...
43

The Flower of ‘Service’
The concept of the Flower of service has been compared in relation to the practices
of LIC. In...
44
-

Information

LIC has its own Information Centres in Santacruz (W.), Mumbai and Pune. By
dialing 6125555, one can fin...
45

The order taking mechanism is mainly by way of application forms. These forms
are made available through the agents or...
46

Grievance Handling Mechanism for Policy Holders
LIC has more than 8 lakh agents all over the country. They are the fir...
47
officers at the divisionalzonal and central offices in connection with the redressal of
their grievances.

There are Co...
48
rules also provide for the appointment of one or more persons as Ombudsman for
achieving the purpose of the said rules....
49
believed in while making the purchase was not misplaced. If he does not receive such
attention and expression of concer...
50
indicates what customer expects or the customer may be lost. When a grievance is
attended to quickly and seriously ther...
51
•

Healthy product line, competitive prices and excellent customer services
directed to customer satisfaction. Thanks t...
52
•

ASK IRDA has specified norms, which restricts life corpus to be invested in
hot scripts that could earn higher retur...
53
•

Time to refurnish – By G.N. Bajpai (chairman, LIC)
So many players are in the industry, which leads to better produc...
54
failure of one private player could shake out all the other private players in
the market.
•

Unstable inter-national a...
55
1. Industry all risk policies
2. Large projects risk cover
3. Risk beyond a floor level
4. Extended public and product ...
56
Personally and patriotically I feel Indian Insurance companies should cover
Indian Insurance business, we cannot insist...
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Emergence & trends general insurance

  1. 1. 1 The customer is the most important visitor in our premises. He is not dependent on us. We depend on him. He does not disturb our work. He is the purpose of it. He is not a stranger in our business. He is a part of it. We do not do him a favour when we serve him. He does us a favour by giving us an opportunity to do it. -- Mahatma Gandhi (1) Introduction The service sector accounts for more than half of India's GDP: 51.16 per cent in 1998-99. This sector has gained at the expense of both the agricultural and industrial sectors through the 1990s. The rise in the service sector's share in GDP marks a structural shift in the Indian economy and takes it closer to the fundamentals of a developed economy (in the developed economies, the industrial and service sectors contribute a major share in GDP while agriculture accounts for a relatively lower share). Emergence and trends of general insurance business in India
  2. 2. 2 The service sector's share has grown from 43.69 per cent in 1990-91 to 51.16 per cent in 1998-99. In contrast, the industrial sector's share in GDP has declined from 25.38 per cent to 22.01 per cent in 1990-91 and 1998-99 respectively. The agricultural sector's share has fallen from 30.93 per cent to 26.83 per cent in the respective years. Some economists caution that if the service sector bypasses the industrial sector, economic growth can be distorted. They say that service sector growth must be supported by proportionate growth of the industrial sector; otherwise the service sector grown will not be sustainable Within the services sector, the share of trade, hotels and restaurants increased from 12.52 per cent in 1990-91 to 15.68 per cent in 1998-99. The share of transport, storage and communications has grown from 5.26 per cent to 7.61 per cent in the years under reference. The share of construction has remained nearly the same during the period while that of financing, insurance, real estate and business services has risen from 10.22 per cent to 11.44 per cent. The fact that the service sector now accounts for more than half the GDP probably marks a watershed in the evolution of the Indian economy. Customer satisfaction predominates the success of an enterprise. In the service industry where intangibles are marketed, the importance of customer satisfaction is all the more significant. Service is said to be the sharpest edge of marketing strategy. Emergence and trends of general insurance business in India
  3. 3. 3 Sales and service are the two important wings of service industry like LIC, ITI and the post office. If one of the wings turns weak the organization cannot rise because the weaker wing will hamper its flight. Hence the emphasis should not be concentrated only on the sales but on service aspects too. Besides a supportive role in promoting sales effort, servicing influences the institutional image. Prompt and effective service boosts the morale of the sales force to present a bold form and hold their prospects. Service encompasses the service rendered to clients before, during, and after sales. A few examples of services are the Hotel industry, Airline industry, Insurance industry, Transportation industry, etc. Insurance may be described as a social device to reduce or eliminate risk of loss to life and property. Under the plan of insurance, a large number of people associate themselves by sharing risks attached to individuals. The risks, which can be insured against, include fire, the perils of sea, death and accidents and burglary. Any risk contingent upon these, may be insured against at a premium commensurate with the risk involved. Thus collective bearing of risk is insurance. Emergence and trends of general insurance business in India
  4. 4. 4 (1.2) The Insurance Potential -- Future India has an amorphous middle class of about 350-300 million people who can afford to buy life, health and other insurance products. Out of this only 22% have insurance and that too covers only 25% of their needs. The insurance market in India is therefore practically untapped. At present the size of insurance market in India is pegged at approximately US$ 92.5 billion. Of the total size of the market 80% is of life insurance and 20% of non-life insurance. According to estimates drawn by some international insurance consultants, the insurance market is likely to grow at an average rate of about 15% for the next five years. In anticipation of tapping the huge market, a number of insurance companies have set up their respective offices in India and tied up with various Indian companies. With the entry of competition, the market is witnessing a wide array of products from players whose numbers are set to grow. In such a scenario, the differentiators among the various players are the products, pricing and service. Today the Indian consumers are increasingly becoming more aware and are actively managing their financial affairs. Today, while boundaries between various financial products are blurring, people are increasingly looking not just at products, but at integrated financial solutions that can offer stability of returns along with total protection. Emergence and trends of general insurance business in India
  5. 5. 5 To satisfy these myriad needs of products, insurance products will need to be customized. Insurance today has emerged as an attractive and stable investment alternatively that offers total protection - Life, Health and Wealth. In terms of returns, insurance products today offer competitive returns ranging between 7% to 9%. Besides returns, what really increases the appeal of insurance is the benefit of life protection from insurance products along with health cover benefits. Consumers today also seek products that offering flexible options, preferring products with benefits unbundled and customizable to suit their diverse needs. While sales of traditional life insurance products like individual, whole life and term will remain popular, sale of new products like single premium, investment linked, retirement products, variable life and annuity products are also set to rise. Firms will need to constantly innovate in terms of product development to meet ever-changing consumer needs. However, product innovations are quickly and easily cloned. Pricing will also not vary significantly, with most product premiums hovering around a narrow band. In this competitive scenario, a key difference will be the customer experience that each insurance player can offer in terms of quality of advice on product choice, along with policy servicing and settlement of claims. Service should focus on enhancing the customer experience and maximizing customer convenience. Longterm growth in the business will greatly depend on the distribution network, where the emphasis must evolve from merely selling insurance to acting as financial advisors, helping customer's plan their finances depending on personal requirements. Emergence and trends of general insurance business in India
  6. 6. 6 This calls for a strong focus on training of the distribution force to act as financial consultants and build a long lasting relationship with the customer. This would help create sustainable competitive advantage not easily matched. The main reason why the leading insurance companies in the world and the leading corporate group in India have shown a keen interest in the insurance sector, is the vast potential for future business. Restricted, as the market has been, through the operations of the two monopolies (LIC and GIC), it is generally felt that the sector can grow exponentially if it is opened up. The decade 1987-97 has witnessed a compounded growth rate of marginally more than 10% in life insurance business. LIC predicts for itself that its business has potential to grow by 16.27% p.a. in a decade 1997-2007 (LIC, 1997). If we take a look at insurance coverage index for the age group of 20-59 years a considerable gap between India and other countries in Asia can be observed. In this scenario, naturally insurance companies see a vast potential. Emergence and trends of general insurance business in India
  7. 7. 7 (1.3) Definitions General Definition In the words of John Magee, “Insurance is a plan by themselves which large number of people associate and transfer to the shoulders of all, risks that attach to individuals.” Fundamental Definition In the words of D.S. Hansell, “Insurance accumulated contributions of all parties participating in the scheme.” Contractual Definition In the words of justice Tindall, “Insurance is a contract in which a sum of money is paid to the assured as consideration of insurer’s incurring the risk of paying a large sum upon a given contingency.” Emergence and trends of general insurance business in India
  8. 8. 8 (1.4) Characteristics of Insurance 1. Sharing of risks 2. Cooperative device 3. Evaluation of risk 4. Payment on happening of a special event 5. The amount of payment depends on the nature of losses incurred. 6. The success of insurance business depends on the large number of people insured against similar risk. 7. Insurance is a plan, which spreads the risk and losses of few people among a large number of people. 8. The insurance is a plan in which the insured transfers his risk on the insurer. 9. Insurance is a legal contract which is based upon certain principles of insurance which includes utmost good faith, insurable interest, contribution, indemnity, causes proxima, subrogation, etc. 10. The scope of insurance is much wider and extensive. Emergence and trends of general insurance business in India
  9. 9. 9 (1.5) Scope or Kinds of Insurance Broadly, insurance may be classified into the following categories: i. Classification on the basis of nature of insurance ii. Classification from business point of view iii. Classification from risk point of view I. On The Basis Of Nature Of Business On the basis of nature of business, insurance may be the following types: 1. Life insurance 2. Fire insurance 3. Marine insurance 4. Social Insurance, and 5. Miscellaneous insurance. a) Vehicle insurance on buses, trucks, motorcycles, etc. b) Personal accident insurance c) Burglary insurance - (against theft, dacoit etc.) d) Legal liability insurance (insurance whereby the assured is liable to pay the damages to property or to compensate the loss of personal injury or death. This is in the form of fidelity guarantee insurance, automobile insurance and machines etc.) e) Crop insurance (crops are insured against losses due to heavy rain and floods, cyclone, draughts, crop diseases, etc.) f) Cattle insurance - (insurance for indemnity against the loss of castles from various kinds of diseases) Emergence and trends of general insurance business in India
  10. 10. 10 g) In addition to the above,Insurance policies are available against crime, medical insurance, Bullock cart insurance, jewelry insurance, cycle rickshaw insurance, radio-T.V. insurance, etc. II. Classification from Business Point of View From business point insurance can be classified into two broad categories: 1. Life insurance; and 2. General Insurance General insurance business refers to fire, marine, and miscellaneous insurance business whether carried on singly or in combination with one or more of them but does not include capital redemption business and annuity certain business. III. Classification from Risk Point of View From risk point of view, insurance can be classified into four categories: 1. Personal insurance 2. Property insurance 3. Liability insurance 4. Fidelity guarantee insurance Emergence and trends of general insurance business in India
  11. 11. 11 Functions of Insurance Primary Functions 1. Provide protection: - Insurance cannot check the happening of the risk, but can provide for the losses of risk. 2. Collective bearing of risk: - Insurance is a device to share the financial losses of few among many others. 3. Assessment of risk: - Insurance determine the probable volume of risk by evaluating various factors that give rise to risk 4. Provide certainty: - Insurance is a device, which helps to change from uncertainty to certainty. Secondary Functions 1. Prevention of losses: - Insurance cautions businessman and individuals to adopt suitable device to prevent unfortunate consequences of risk by observing safety instructions. 2. Small capital to cover large risks: - Insurance relives the businessman from security investment, by paying small amount of insurance against larger risks and uncertainty. 3. Contributes towards development of larger industries. Emergence and trends of general insurance business in India
  12. 12. 12 Origin and Development of Insurance Insurance in the modern form originated in the Mediterranean during 13/14th century. The earliest references to insurance have been found in Babylonia, the Greeks and the Romans. The use of insurance appeared in the account of North Italian merchant banks who then dominated the international trade in Europe at that time. Marine insurance is the oldest form of insurance followed by life insurance and fire insurance. The patterns that have been used in England followed in other countries also in these kinds of insurance. The origin and growth of Marine Insurance, life Insurance, Fire Insurance and miscellaneous insurance are given below: 1. Marine Insurance The oldest and the earliest records of marine policy relates to a Mediterranean voyage in 1347. In the year 1400, a book written by a merchant of Florence, indicates premium rates charged for the shipments by sea from London to Pisa. Marine Insurance spread from Italy to trading routes in other countries of Europe. Marine Insurance in India There is evidence that marine insurance was practiced in India some three thousand years ago. In earlier days travelers by sea and land were exposed to risk of losing their vessels and merchandise because of piracy on the open seas. Moreland has maintained that the practice of insurance was quite common during the rule of Akbar to Aurangzeb, but the nature and coverage of insurance in this period is not well known. Emergence and trends of general insurance business in India
  13. 13. 13 It was the British, insurers who introduced general insurance in India, in its modern form. The Britishers opened general insurance in India around the year 1700. The first company, known as the Sun Insurance Office Ltd. was set up in Calcutta in the year 1710. This followed by several insurance companies of different parts of the world, in the field of marine insurance. In 1972, the government of India nationalized the general insurance business by forming GIC. 3. Life Insurance The early developments of life insurance were closely linked with that of marine insurance. The first insurers of life were the marine insurance underwriters who started issuing life insurance policies on the life of master and crew of the ship, and the merchants. The early insurance contracts took the nature of policies for a short period only. The underwriters issued annuities and pension for a fixed period or for life to provide relief to widows on the death of their husbands. The first life insurance policy was issued on 18th June 1583, on the life of William Gibbons for a period of 12 months. Life Insurance in India The British companies started life insurance business in India, by issuing policies exclusively on the lives of European soldiers and civilians. They sometimes issued policies on the lives of Indian’s by charging extra. Different insurance companies like Bombay Insurance Company LTD. (1793) and Oriental Life Assurance Company (1818) was formed to issue life assurance policies in India. Gradually, Emergence and trends of general insurance business in India
  14. 14. 14 The first Indian Company named as Bombay Mutual Life Insurance Society Ltd. was formed in Dec. 1870. By 1971, the total numbers of companies working in India were 15, out of which 7 were Indian and the remaining were British companies. After several changes have been made for the period from 1930 to 1938, the Government of India passed Insurance Act, 1938. The act still applies to all kinds of insurance business by instituting necessary amendments from time to time. 4. Fire Insurance Fire insurance has its origin in Germany where it was introduced in municipalities for providing compensation to owners of the property, in return for an annual contribution, based on the rent of those premises. The fire insurance in its present form started after the most disastrous fire in human history known as the 'Great Fire' in London, which had destroyed several buildings. It drew the attention of the public and the first fire insurance commercially transacted in 1667. The Industrial Revolution (1720-1850) gave much impetus to fire insurance. The Nineteenth century marked the development of fire insurance. Fire Insurance in India In India, fire insurance was started during the British regime. The oldest of these companies include the Sun Insurance Office, Calcutta (1710), London Assurance and Royal Exchange Assurance (1720), Phoenix Assurance Company (1782), etc. Emergence and trends of general insurance business in India
  15. 15. 15 5. Miscellaneous Insurance Due to the increasing demands of the time, different forms of insurance have been developed. Industrial Revolution of 19th century had facilitated the development of accidental insurance, theft and dacoit, fidelity insurance, etc. In 20th century, many types of social insurance started operating, viz., unemployment insurance, crop insurance, cattle insurance, etc. Emergence and trends of general insurance business in India
  16. 16. 16 Three Questions about Insurance Liberalization The decision to allow private companies to sell insurance products in India rests with the lawmakers in Parliament. Opening up the insurance sector requires crossing at least two legislative hurdles. These are the passage of the Insurance Regulatory Authority (IRA) Bill, which will make IRA a statutory regulatory body, and amending the LIC and GIC Acts, which will end their respective monopolies. In 1994 the government appointed a committee on insurance sector reforms (which is known as the Malhotra Committee) which recommended that insurance business be opened up to private players and laid down several guidelines for orchestrating the transition. In particular, we do not address many other related questions such as whether foreign (and not just private) players should be allowed, what cap should there be on foreign equity ownership, whether banks and other financial institutions should be allowed to operate in the insurance business, whether firms should be allowed to sell both life and non-life insurance, and so on. The three questions that we address are: 1) Why allow entry to private players? The choice between public and private might amount to choosing between the lesser of two evils. An insurance contract is a "promise to pay" contingent on a specified event. In the case of insurance and banking, smooth functioning of business depends heavily on the continuation of the trust and confidence that people place on the solvency of these financial institutions. Insurance products are of little value to consumers if they cannot trust the company to keep its promise. Furthermore, banking and insurance sectors are vulnerable to the "bank run" syndrome, Emergence and trends of general insurance business in India
  17. 17. 17 Wherein even one insolvency can trigger panic among consumers leading to a widespread and complete breakdown. This implies the need for a public regulator, and not public provision of insurance. Indeed in India, insurance was in the private sector for a long time prior to independence. The Life Insurance Corporation of India (LIC) was formed in 1956, when the Government of India brought together over two hundred odd private life insurers and provident societies, under one nationalized monopoly corporation, in the wake of several bankruptcies and malpractice’s'. Another important justification for Nationalization was to raise the much-needed funds for rapid industrialization and self-reliance in heavy industries, especially since the country had chosen the path of state planning for development. Insurance provided the means to mobilize household savings on a large scale. LIC's stated mission was of mobilizing savings for the development of the country and also conducting business in the spirit of : 1. A comprehensive historical account of Life insurance business in India and LIC in particular is provided in LIC (1970) and LIC (1991) respectively. 2. This latter emphasis on trusteeship was relevant then, in light of major insolvencies and fraudulent practices of so many private insurance companies prior to 1956. Emergence and trends of general insurance business in India
  18. 18. 18 2) What should be the market structure? In this section, we analyze the question whether there should be unlimited private entry insurance markets or whether only a few players are allowed to operate. This question hinges around the issue of "adverse selection" described below. Individuals buying an insurance contract pay a price (called the "premium") to the insurance company and the insurance company in turn provides compensation if a specified event occurs. By making such contractual arrangements with a large number of individuals and organizations the insurance company can spread the risk. This gives insurance its "social" character in the sense that it entails pooling of individual risks. The price of insurance i.e., the premium is based on average risk. This premium is too high for people who perceive themselves to be in a low risk category. If the insurer cannot accurately determine the risk category of every customer and prices insurance on the basis of average risk, he stands to lose all the low risk customers. This in turn increases the average risk, which means premium have to be revised upwards, which in turn drives away even more customers and so on. This is known as the problem of "adverse selection". Adverse selection problem arises when a seller of insurance cannot distinguish between the buyer's type i.e., whether the buyer is a low risk or a high type. In the extreme case, it may lead to the complete breakdown of insurance market. Another phenomenon, the problem of "moral hazard" in selling insurance, arises when the unobservable action of buyer aggravates the risk for which insurance is bought. For example, when an insured car driver exercises less caution in driving, compared to how he would have driven in the absence of insurance, it exemplifies moral hazard. Emergence and trends of general insurance business in India
  19. 19. 19 Given these problems unbridled, competition among large number of firms is considered detrimental for the insurance industry. Furthermore, even the limited competition in insurance needs to be regulated. Insurance companies can differentiate among various risk types if there is a wide difference in risk profile of the buyers insuring against the strong insurers. It also called for keeping life insurance separate from the general insurance. It suggested the regulation of insurance intermediaries by IRA and the introduction of brokers for better ‘professionalisation'. 3) The Role of IRA (a) the protection of consumers' interest, (b) to ensure financial soundness of the insurance industry and (c) To ensure healthy growth of the insurance market. These objectives must be achieved with minimum government involvement and cost. IRA's functioning can be financed by levying a small fee on the premium income of the insurers thus putting zero cost on the government and giving itself autonomy. Protection of Customer Interests IRA's first brief is to protect consumer interests. This means ensuring proper disclosure, keeping prices affordable but also insisting on some mandatory products, and most importantly making sure that consumers get paid by insurers. Ensuring proper disclosure is called Disclosure Regulation. Insurance contracts are basically contingency agreements. They can be full of inscrutable jargon and escape clauses. An average consumer is likely to be confused by them. IRA must Emergence and trends of general insurance business in India
  20. 20. 20 require insurers to frame transparent contracts. Consumers should not have to wake up to unpleasant surprises, finding that certain contingencies are not covered. The IRA also has to ensure that prices of products stay reasonable and certain mandatory products are sold. The job of keeping prices reasonable is relatively easy, since competition among insurers will not allow any one company to charge exorbitant rates. The danger often is that prices may be too low and might take the insurer dangerously close to bankruptcy. As for mandatory products, those that involve common and well-known risks, certain standardization can be enforced. Furthermore, IRA can insist that for such products the prices also be standardized. From the consumer's point of view the most important function of IRA is ensuring claim settlement. Quick settlement without unnecessary litigation should be the norm. For example, in motor vehicle insurance, adopting no-fault principle can speed up many settlements. Currently, LIC in India has a claims settlement ratio of 97%, an impressive number by any standards. However, it hides the fact that this settlement is plagued by long delays, which reduce the value of settlement itself. If consumers have a complaint against an insurer they can go to a body formed by association of insurers. The decision of such a body would be binding on the insurers, but not on the complainant. If complainants are not satisfied, they can go to court. Some countries such as Singapore have such a system in place. This system offers a first and quicker choice of settling out of court. IRA can encourage the insurers to have such a grievance redressal mechanism. This system can serve the function of adjudication, arbitration and conciliation. Emergence and trends of general insurance business in India
  21. 21. 21 The second area of IRA's activity concerns monitoring insurer behavior to ensure fairness. It is especially here that IRA's choice of being a bloodhound or a watchdog would have different implications. We think that an initial tough stance should give way to a more forbearing and prudential approach in regulating insurance firms. When the industry has a few firms there is some chance of collusion. IRA must be alert to collusive tendencies and make sure that prices charged remain reasonable. However, some cooperation among the insurance companies could be considered desirable. This is especially in lines where claim experience of any one company is not sufficient to make accurate forecasts. Collusion among companies on information sharing and rate setting is considered "fair'. IRA must have severe penalties in case of fraud or mismanagement. Since insurance business involves managing trust money, in some countries the appointment of senior managers and "key personnel" has to be approved by the insurance regulatory agency. Ensuring Solvency of Insurers There are basically four ways of ensuring enough solvencies. First is the policy of a price floor. Second is the restriction on capital and reserves, i.e., on what kind of investments and speculative activities firms can make. Third is putting in place entry barriers to restrict the number of competitors. Fourth is the creation of an industry financed guarantee fund to bail out firms hit by unexpectedly high liabilities. Entry restrictions of the IRA are implemented through a licensing requirement, which involves capital adequacy among other things. Since there are economies of scale and scope in insurance operations it might be better to have only a few large firms. There is however no magic number regarding the optimal number of firms. Restricting Emergence and trends of general insurance business in India
  22. 22. 22 competition provides a scope for higher profits to the companies thereby strengthening their solvency position. After qualifying, the entrants are continuously subjected to restrictions on reserves and investments, which ensure ongoing solvency. Additionally, a guarantee fund, created by mandatory contributions from all insurance companies is used to bail out any insurance company, which might be in financial trouble. This guarantee fund does not imply that firms can charge whatever they wish to their consumers. All insurance companies would have an incentive to monitor the activities of their rival peer firms. This is because insolvency of any insurance company would entail a price, which all the insurance companies would have to shoulder. Peer review of accounts can also be institutionalized. IRA can have several ways for early detection of a potential insolvency. For example, in the USA there is an Insurance Regulatory Information System (IRIS) that regularly computes certain key financial ratios from financial statements of firms. If some of these ratios fall outside given limits the company is asked to take corrective action. Insolvency can also arise out of reinsurers abandoning insurance companies in the lurch, as witnessed in the USA in 1980's. Reinsurance is a bigger business dominated by large international reinsurers. Such litigation between reinsurer and insurance companies involves cross boundary legalities and can drag on for years. IRA must evolve a set of operational guidelines to deal with reinsurance matters. Emergence and trends of general insurance business in India
  23. 23. 23 Challenges/Opportunities The study, "21st Century Demographics for the Life-Health Industry, "delineates the following challenges and opportunities: Population around the world is aging; number of people in the old age bracket is growing continuously. As the population ages products such as annuities, IRAs and defined contribution retirement plans have enormous growth potential. The changing composition of households from traditional family units to single households also presents untapped markets with real needs for life, health and retirement products. Growing income inequality means that insurers should find a way to market cost-effectively to all economic sectors, particularly the middle class, who run the risk of being abandoned by insurers chasing the wealthy. Insurers must recognize that small businesses now make up a growing portion of the world economy, presenting a huge opportunity for growth in this market. The opening up of this sector has been long standing and with the passing of The Insurance Regulatory and Development Authority - IRDA bill a significant step has been taken. Emergence and trends of general insurance business in India
  24. 24. 24 IRDA is formed as an authority to protect the interests of holders of insurance policies, to regulate, promote and ensure orderly growth of insurance industry and for matters connected therewith or incidental thereto. With the Insurance Regulatory and Development Act, the focus shifted to the following: • The Insurance Regulatory and Development Authority (IRDA) should give priority to health insurance while issuing certificates of registration; • Policyholders' funds will be invested in the social sector and infrastructure. The percentage may be specified by the IRDA and such regulations will apply to all insurers operating in the country; • Insurers will be expected to undertake a certain percentage of business in the rural or social sector and provide policies to persons residing in rural areas, workers in the unorganized and informal economically back; • In case the insurers fail to meet the social sector obligation a fine of Rs.2.5 mn would be imposed the first time. Subsequent failures would result in cancellation of licences. • Bank Assurance In the developed nations of USA and UK, banks account for 20% and 19% of all insurance products sold. This figure is 50% for France. This shows the extent of scope that Bank assurance. Emergence and trends of general insurance business in India
  25. 25. 25 When talking of banks we need to remember that there will be two regulating bodies, IRDA and RBI. It is said that this is the reason for the slow reaction of the banks towards this sector. However there are the NBFCs that are also in the foray. However, the non-banking finance companies (NBFCs) planning to enter the insurance sector will be subjected to stringent performance and net worth parameters set by the Reserve Bank of India. The RBI regulations come in light of the fact that most banks are looking at their NBFC outfits for foraying into insurance sector. Some NBFCs are planning seriously to enter into memorandum of understanding with foreign insurance companies. In a set of draft guidelines issued to all scheduled commercial banks (SCBs) and select financial institutions (FIs), the central bank had laid out parameters that need to be met as of March 31, 2000: • A minimum net worth of Rs 5 bn; • A minimum capital requirement of Rs.1 bn,(this is mandatory for any player in the sector, including banks) • A minimum capital adequacy ratio of 10 per cent • Entry through a joint venture • A net profit record for last three years; • Net non-performing assets (NPAs) that "are reasonable"and • A good track record in the case of subsidiaries as well. For NBFCs, the other eligibility criteria for joint venture participant will be: Emergence and trends of general insurance business in India
  26. 26. 26 The capital adequacy ratio of the NBFC engaged in loan and investment activities holding public deposits should be not less than 15 per cent and for other NBFCs at 12 per cent; and the level of non-performing assets should be not more than 5 per cent of the total outstanding leased/hire purchase assets and advances taken together. In India, when one talks of banks, the largely influential and effective, Cooperatives cannot be far behind. Their hand in the success of banking in rural and other non-urban areas cannot be by any means, underestimated. The coming chapter takes a look at their plans and their strengths vis-à-vis their foray in the insurance market. • Cooperatives The cooperative banks in the nation cover over 65% of the rural population and have over 0.453-mn cooperative societies cover all the villages. These cooperatives cover what the insurance sector needs to be targeted at - The mass of the rural Indian population. However, the norms laid down for entry in the insurance sector immediately washed away this sectors hope to get in this line of business. However, after representations to IRDA, it was allowed to enter into the health sector for a start. In fact the cooperatives will be better equipped and willing to bring the insurance products to the rural Indians and educate them on the benefits of insurance and help mobilize funds from them, which can be effectively used for long-term national benefits. In fact, one of the largest cooperatives in Singapore, NTUC INCOME, is working in the Emergence and trends of general insurance business in India
  27. 27. 27 The esteemed Mr. Sharad Pawar is also forging a cooperative alliance to benefit from the new regulations. It is the cash rich Maharashtra Cooperative that the politician is trying to get into this sector. The cooperative is planning to apply for a national cooperative licence so that it can be a national cooperative insurance player. Non profit organisations are also likely to help tap that class of people that would have otherwise been neglected by the new players. While groups like SEWA are tying up with new players to let them meet their targets of social and rural sector, similarly other groups are likely to tie-up too, to use their knowledge and database of people. • Agents / Brokers: The guidelines governing are expected by end of October 2000, but what is known so far is that the agents in insurance business will now be allowed to sell atleast the products of three life or three non-life insurance companies. Mr. Rangachary has said that a minimum capital of Rs 2.5 mn would be required for undertaking brokerage in life and general insurance products, and Rs 12.5 mn for taking up a composite agency. IRDA also proposes to reduce the level of income paid to brokers/agents of life and general insurance business. Currently they receive 17.5% of the premium payable on the policy. The regulator feels that these levels are quite high and they need to be brought down to more internationally realistic levels considering the new insurance environment. Emergence and trends of general insurance business in India
  28. 28. 28 IRDA is going to allow three kinds of brokerage firms to operate in the Indian insurance sector, Insurance, Re-insurance and Composite. It is going to allow a minor foreign equity stake in them with a cap of 49%. Composite brokers are the ones who can sell Life & General insurance products and reinsurance products also. The capital requirement for the broking firm will be Rs.2.5 mn. The IRDA is also likely to cap the brokerage commissions to 15%. • Channels of Distribution The distribution network of banks is what a lot of players are interested in. Initially, SBI was asking a premium for it to be partnering with any insurer on the sole premise that the bank commands a network that is unparalleled in the banking industry in India today. Similarly other banks are becoming insurers to leverage their network of branches, in joint ventures with foreign players who have the expertise in the insurance sector. Marketing alliances with people/companies having a physical presence is a good distribution strategy too. The online world is not going to be left behind. A number of sites have started offering policies online. What needs to be borne in mind is that no matter what channel one may use, the following factors will be critical in deciding the success or failure of the venture: - Initial setup cost - High margin to agents/brokers Emergence and trends of general insurance business in India
  29. 29. 29 - Trained and experienced personal will be critical to the success of the insurer. - An internal control mechanism to keep tab on expenses. • Likely Factor Of Success In the now open sector on insurance, the following is what I feel will determine the success of the company in particular and the industry in general: - A change in the attitude of the population Indians have always been wary of employing their hard-earned money in a venture that will pay them on their death. Insurance has always been used as a Tax saving tool. No more, no less. It is upto the insurers to educate the people to secure/insure their future against any unknown calamity and make a shield around their families and businesses. - An open and transparent environment created under the IRDA. The reason for this being on the top of our understanding is that when ever we have seen any sector open up in India there are always grey areas and unsure policies. These are not exactly what any player, be it Indian or foreign, looks for. It creates an Emergence and trends of general insurance business in India
  30. 30. 30 air of uncertainty in all the decision making process. Insurance as a sector requires players who are strong financially and are willing to wait for returns. Their confidence can be bolstered only if there is an open and a transparent policy guidelines. This will also help the consumers feel safe that the regulatory is an active one and cares to do everything possible to keep things under control and help the insurance environment grow maturely. - A well-established distribution network. To cater to the largest democracy in the world is by no means a cakewalk. Insurance profits are directly related to number of insured and this is in turn related to the reach. The case in example is of the State Bank of India. The joint ventures announced have a flavour of network being a critical decider. This is so because as per the guidelines 15% of the policies written by the 5th financial year will have to come from the rural area. The banks are the only ones who have that reach. - Trained professionals to build and sell the product. It is said that the insurance agent is the best salesman in the world. He makes you pay, regularly, an amount promising to pay back only on your death. Thus the players will require an excellent sales team to sell their products in the now competitive environment. The importance can be seen from the fact that a lot of LIC/GIC personal is being poached by the new players. Emergence and trends of general insurance business in India
  31. 31. 31 - A more rationale approach to the investment criteria. This is a very critical area as far as the government and the players are concerned. The government as fixed up the investment pattern for the players to meet its social obligations. The players feel that the compulsion is unjust and will affect their return on investments. One may wonder then why is it that I have listed it as success factor. The reason, my dear, is that it is in the larger interests of the society. The more the people insured, the better the revenues, followed by better security, followed by better morale and productivity. On a national level the criteria's ensure that the money does not go out of the nation. We also need to bear in mind that the insurers are here not for charity but for profits. So their interest are also to be kept in mind. - Encouragement of newer and better products and letting the hackneyed ones die out. This will itself ensure the market grows. And that every class/society gets a product that best suits them. - A stringent accounting practice to prevent failures amongst the insurers. Every insurer will have the hard-earned money of the masses. Any failure of the insurer on account of unwarranted profligacy will cost the nation in general and the insured in particular. To prevent any underhand workings of the insurer and to prevent them from going bust, a stringent accounting practice is imperative. - A level playing field at all stages of development in the sector for all the players. An unbiased environment is where the best comes out of the players. Their real strength shines through. This is the beauty of capitalism that we are trying to achieve Emergence and trends of general insurance business in India
  32. 32. 32 in our customized manner. This will only help the industry grow and so will the society. And last but not the least patience amongst the players and consumers to wait for the pot of gold at the end of the rainbow. A potential for profit: untapped opportunities will be vital for new entrants to choose their product and service offerings carefully. In doing so they must consider two possible pitfalls. First, when estimating the potential of the Indian insurance market it is tempting to look at macro-economic variables such as the ratio of premium to GDP which is indeed comparatively low in India. For example, India’s life insurance premium as a percentage of GDP is 1.3 per cent against 5.2 per cent in the US, 6.5 per cent in the UK or 8 per cent in South Korea. Given India’s large population, the number of potential buyers of insurance is certainly attractive. Emergence and trends of general insurance business in India
  33. 33. 33 The second trap is the tendency to target the business of existing companies rather than expanding the market. New players find it easier to try to capture existing customers by offering better service or other advantages. Yet, the benefits of this strategy are likely to be limited. For example, 50 per cent of the current demand for general insurance comes from the corporate segment. We do expect that after the market opens up, companies will move between insurers as they shop around for the best rates, products and service. Nevertheless, we anticipate that the corporate segment as a whole will not be a big growth area for new entrants. This is because penetration is already good, companies receive good service because of their size and rates are tariff-governed. In both volumes and profitability therefore, the scope for expansion is modest. A better approach may be to examine specific niches where demand can be met or stimulated. In our view new entrants would be best served by a micro-level approach on two fronts. First, they should target specific niches which are currently served poorly or not at all. Life insurance products provide a good example. They compete with investment and savings options like mutual funds. It is imperative that they should offer comparable returns and flexibility. For instance, pure protection products like term assurance account for up to 20 per cent of policies sold in developed countries. In India, the figure is less than one percent because policies are inflexible. Besides, no Indian life assurance product is linked to non-traditional investment avenues such as stock market indices. Therefore, returns are lower than those on other savings instruments. Emergence and trends of general insurance business in India
  34. 34. 34 Similar problems apply to pensions. The lack of a comprehensive social security system combined with a willingness to save means that Indian demand for pension products will be large. However, current penetration is poor. By March 1998, LIC’s pension premium was only Rs. one billion. Making pension products into attractive saving instruments would require only simple innovations already common in other markets. For example, their returns might be tied to index-linked funds or a specific basket of equities. Buyers could be allowed to switch funds before the annuities begin and to invest different amounts at different times. Health insurance is another segment with great potential because existing Indian products are insufficient. By the end of 1998, GIC’s Mediclaim scheme covered only 2.5 million people. Indian products do not cover disability arising out of illness or disability for over 100 weeks due to accident. Neither do they cover a potential loss of earnings through disability. The second prong of a new insurer’s strategy could be to stimulate demand in areas that are currently not served at all. For example, Indian general insurance focuses on the manufacturing segment. However, the services sector is taking a large and growing share of India’s GDP (an estimated 48 per cent in 1998-99). This offers expansion opportunities. For example, revenue from remote processing activities in information technology is estimated at USD 50 billion in the next ten years. Insurers could respond with various liability covers. Potential buyers for most of this insurance lie in the middle class. New insurers must segment the market carefully to arrive at appropriate products and Emergence and trends of general insurance business in India
  35. 35. 35 pricing. Existing players can also profitably exploit these areas. Recognizing the potential, in the past three years, the nationalized insurers have already begun to target niches like pensions, women or children. • Customer Groups The various customer groups can be categorized in the following manner:1. Direct Customer The direct customer is the owner of the insurance policy. It is under his name that the policy has been approved. He may not be the final beneficiary of the service provided. In case of corporate insurance, services like pensions, group incentives are enjoyed by the respective individual. 2. Indirect Customer The indirect customers are the family members or the persons for whom the protection of the insurance cover has been taken. For example, the insurance policy taken by an earning class person for insuring the future of his family incase of any unforeseen events. The future benefits are enjoyed by the family members, which are the indirect customers. 3. Regulator The insurance business is regulated by the IRDA (Insurance Regulatory and Development Authority) as per the new economic reforms. 4. Competitors Emergence and trends of general insurance business in India
  36. 36. 36 LIC has a clean monopoly over the market. As per LIC’s claims this monopoly will remain for at least another five years as the gestation period for the new entrants to become potent players is also expected to be the same. But there are threats from the new and emerging private sector. The various competitors for LIC in the private sector are ICICI Prudential, HDFC Standard, TATA AIG, Birla Sun Life Insurance and many others. 5. Internal Customers The employees of LIC are the internal customers. The details regarding their hierarchy are designation have been covered in the ‘people mix’. Emergence and trends of general insurance business in India
  37. 37. 37 Market Segmentation The entire market is segmented into four categories:- 1.) Business Class These are the customers which are self-employed. They are targeted with policies relating to the upper end of the market. 2.) Service (Earning) Class These are the customers which belong to the limited salaried income class. They are mainly targeted with policies of social security considering their limited income and future situation is taken into consideration. These policies serve as a protection to the families of the salaried income man in case of any unexpected death. 3.) Agricultural Laborers The laborers are those who work on the farm. They don’t own that particular holding. They are mainly serviced in the rural areas of the country. The policies targeted are the one’s which fall under the lower end of the segment, giving a sense of protection to the needy/poor worker in case of any unforeseen events. 4.) Farmers Emergence and trends of general insurance business in India
  38. 38. 38 Like the laborers, even they are targeted mainly in the rural areas, but the difference is that they own the particular land holding. They are further divided into the small, marginal and large holdings. Again they are targeted with various plans as per their purchasing power. Services Marketing Triangle The concept of services marketing triangle in comparison of LIC is as follows:- COMPANY-LIC Internal Marketing External Marketing Interactive Marketing CONSUMERSPOLICY HOLDERS PROVIDER-AGENTS The above diagram explains the services triangle with its three constituents, namely, the company, the provider and the consumer. Each can be explained in the following manner:Company Emergence and trends of general insurance business in India
  39. 39. 39 The company LIC makes various promises to its customers through external marketing. The way and means of marketing have already been covered in the marketing mix. Provider The LIC agents and the Development Officers act as the front-line staff and they are in direct contact with the potential or existing customers. They are the ones who keep or satisfy the promises made by the company. The marketing of insurance basically comes under concept selling. The LIC agents are thus given various incentives, rewards, commissions and all the necessary training required. As regards incentive, they receive PLI (Productivity Linked Incentive) which is based on the increase in premium amount and the sums assured by the agent. They are also given extra commissions in case of policies which are of high value. There are normal promotions for any good work done on a regular basis. The LIC agents, generally, work under the training and guidance of their respective Development Officers. But as per a new rule, the applicant has to under preliminary training from the Insurance Institute of India which is recognized by LIC like IFSERT, Pune and the other one in Hyderabad. Then he applies and gets a licence to practice business. He also undergoes a test from LIC and after passing this test, he works under the training of the Development Officer. Apart from the above, there are MDP (Management Development Centre) which is for the Managers and other executives above them and the DTC (Development Training Centre) which is for the Development Officers. The Emergence and trends of general insurance business in India
  40. 40. 40 various Executive, the Directors and the Zonal Managers undergo T & D at LIMRA, Singapore Consumers The consumers/ buyers are the policy holder. Apart from the routine life insurance policies, LIC also deals in Housing Finance, Mutual Funds, Pension and Group Insurance as its allied business activities. Thus the range of consumers is far and wide. Analyzing the Service 1. Categorizing the Service Process. The two parameters used in this are:• Nature of the act: - it is intangible, because one cannot physically see the result, which occurs after the performance of the service in this case. • Recipient of the service: - here it is the information that is given to the customer that is in process. Any action that is done by the provider is not directed towards the body, mind or any good. Hence we can say that it is an informationprocessing because it is the information that will decide whether the customer will avail of the service or not. 2. Methods of Service Delivery The two parameters used in this are:• Availability of service outlets: - here the customer has a choice of going to the closest branch or local office. That is there are a number of outlets or offices from Emergence and trends of general insurance business in India
  41. 41. 41 which he can avail of the services. Or he can always contact the provider or the agents through easy access and availability. Hence multiple set of outlets. 3. Nature of Demand for the Service - Related to its Supply. The two parameters used in this are:• Extent to which supply is limited: - in this case there are very few times when there is peak demand. At such times the demand can be usually be met without a major delay. Thus the supply is enough to meet the sudden spurt in demand. • Extent of demand fluctuation overtime: -it is very narrow. This means that the rise in demand is not that wide that it cannot be managed. A narrow demand fluctuation occurs. 4. Attributes of the Service Experience The two parameters used in this are:• Extent to which people are part of the service: - as customer involvement is very high we can say that they form an important part of the service. Based on the Emergence and trends of general insurance business in India
  42. 42. 42 requirement of each customer every policy will have to be tailored to suit him, and accordingly he will be able to avail of certain policies and not all. • Extent to which equipment are part of the service: - as it relies more on the people, it is not that dependant on technology. Hence we can say that it is low on this parameter. This is because technology is not that extensively used in this industry as it still follows the traditional distribution channels. 5. Relationship with Customers The two parameters used in this are:• Nature of service delivery: - as a customer once takes a policy, he has to keep in touch with the insurer for payment of premium, maturity date etc. Hence it is an on-going process, so we can say that there is continuous service delivery. • Type of relationship between customer and provider: - only a customer who has taken a policy can avail of the facilities provided by the insurer. That means that there is the existence of the relationship between them, due to the formation of a membership relationship that exists between them. Emergence and trends of general insurance business in India
  43. 43. 43 The Flower of ‘Service’ The concept of the Flower of service has been compared in relation to the practices of LIC. In the following lines, the various petals which surround the core product of LIC have been briefly explained. • Core Product Apart from primarily servicing life insurance policies, LIC is also engaged in businesses relating to Housing Finance, Mutual Funds, Pension and Group Insurance, and Social Security. • Supplementary Services The various supplementary services which fall under various categories are explained as follows:- Emergence and trends of general insurance business in India
  44. 44. 44 - Information LIC has its own Information Centres in Santacruz (W.), Mumbai and Pune. By dialing 6125555, one can find out any information regarding any policies, plans, operations or any information relating to LIC. The other number 6187655 gives the individual policy holder, information about his policy as regards premium, duration, and any other information relating specifically to his policy. The Pune number is 5536161. LIC has its official website, www.licindia.com, which gives all the information regarding their products, services and all the information about LIC’s operations. LIC also has an in-built ‘plan suggestor’ on its website, which automatically processes the information supplied by the potential customer and the respective policy is suggested. - Consultation LIC’s mainly provides consultancy services through its information centre, its website, and its agents which work on a personalized basis and offer advices relating to various plans and policies. - Order-taking As far as order-taking is concerned, LIC has its personnel categorized as Agents, Development Officers, Assistant Branch Manager, Branch Manager and various other executives in the top management. The order is taken depending on the amount/value of the service. Policies ranging from 8-10 lakhs are serviced by the agents, and then ones between one lakh to five lakhs are serviced by the Development Officer. There are also the Sales Manager, Senior Divisional Manager which have their own range of policy servicing. The Sales Manager is in charge of policies which are priced above Rs. 1 Crore. Emergence and trends of general insurance business in India
  45. 45. 45 The order taking mechanism is mainly by way of application forms. These forms are made available through the agents or they can also be downloaded from the website. The various forms belong to various age categories like the ‘Form No. 300’ which is a proposal for insurance on own life, the ‘Form No. 360’ is for policy duration of 10 years or more and various other forms. The potential policy holder has to pay the initial premium amount and then undergo a medical examination of various cardiological, pathological and radiological tests. After such physical examinations are successfully completed, the plan or proposal is transacted. - Billing The policy holder has to pay the premium amount in fixed durations as per the agreement. LIC sends reminders to the policy holders by way of post to inform the policy holder regarding various details like amount, due date, policy under which it belongs, etc. - Payment A policy holder can make the payment of the premium amount in the following ways:1. He can send the cheques directly to branch, 2. There are rural banks which have tie-ups with LIC, 3. The payment can be done through www.billjunction.com, 4. The payer can send a draft or a standing order to the bank. Emergence and trends of general insurance business in India
  46. 46. 46 Grievance Handling Mechanism for Policy Holders LIC has more than 8 lakh agents all over the country. They are the first and nearest points of contact for policy holders for redressal of their grievances with regard to the policies taken by them. Their agents are well trained and assist the policy holds in most areas of policy servicing. However, to take care of the problems which agents find difficult to solve. Grievance redressal officers have been appointed at the branch, zonal and central offices. In the branch, the branch manager is the designated Grievance Redressal Officer. The marketing managers at these Regional and Divisional offices are other designated officers. These officers set aside 2 hours on every Monday to hear the grievances of the policy holders, without any prior appointments. There are also free telephone lines provided to the policy holders at Mumbai for calling the designated Emergence and trends of general insurance business in India
  47. 47. 47 officers at the divisionalzonal and central offices in connection with the redressal of their grievances. There are Complaint cells at the divisional offices and complaint sections at the zonal offices and central office for attending to complaints from policy holders. Claim Review Committee has been appointed at all the zonal offices and at all the central offices for considering the appeals against repudiation of liability under some claims for suppression of facts material to the assessment to the risk. The divisional offices, while repudiation liability also inform the claimant that if heshe is not satisfied with the decision the he/she may approach this review committee. This committee at the zonal offices has the benefit of the presence of a retired igh court/district kudge besides 3 senior officers from the zonal offices. The intention of the corporation in inducting such retired judges is to ensure not only greater transparency in operations but also to ensure that an independent judicial opinion maybe available so that the decision can stand by any court of law. The Zonal Review committee will receive all appeals irrespective of the claim amount and review them. Their decision up to net claim of 2 lakh Rs will be final. However, claimants with net claim amounts exceeding 2 lak and not satisfied with the decision of the Zonal Claims Review committee at the central office and commended it. Besides, the central government in exercise of powers conferred by the sub section1 of the section 114 of the Insurance Act, 1938 have been pleased to frame the Redressal of Public Grievances rules, 1998 vide notification dated 11-1-98. These rules seek to resolve complaints relating to settlement of claims etc., in repect of insurance companies in a cost-effective, efficient and impartial manner. These Emergence and trends of general insurance business in India
  48. 48. 48 rules also provide for the appointment of one or more persons as Ombudsman for achieving the purpose of the said rules. The Ombudsman under the rules may receive and consider:a) Grievances relating to any partial or toal repudiation of liability by any insurer. b) Any dispute in regard to premium Customer Service and Quality Between one insurer and another, the differentiating factor will be the in this experience of the customer. There is not much likelihood of much difference in the terms of the policy itself. There would be no difficulty in any insurer offering the same benefits as another insurer. Technology is not exclusive. Premiums could be different depending on the efficiency of management. But life insurance is seldom bought on the basis of the cheapest price. The experience during purchase, after purchase and at the time of the claim will make the difference. This experience is the result of the nature of customer service. In case of insurance, the experience after the purchase is the continued attention and concern shown to the customer, would reassure him that the promise he Emergence and trends of general insurance business in India
  49. 49. 49 believed in while making the purchase was not misplaced. If he does not receive such attention and expression of concern, he could start doubting the servicing-provider. Apart from the help in processing the claim when it occurs, post sales servicing would include regular reminders as to the customer’s obligation like payment of renewal, furnishing of data as may be required, compliance with warranties and so forth. Managements around the world have learnt that ‘satisfied customers’ are the only route for sustained growth in competitive environment. They are now striving to make customer increasingly happy. The opportunity to do so is not much in are available not much intangible components of products of products, but in intangible service components. Life Insurance, being a pure intangible, provides plenty of option. The quality of service is what customer says it is. He judges the organization by his experience. The judgement is influenced by the extent to which his presence and the needs are recognized. People get badly upset when they are not heard, when they are ignored or spoken to impotently, when their inquiries are treated irrelevant, when they are brusquely told to wait, etc. they feel good when someone listens to what they have to say, shows consideration for the problem and explains why something is done or not done. A grievance is a symptom that the quality is not perceived as satisfactory. A customer has a grievance when he does not get what he thinks he is entitled to. A grievance is to be taken seriously because it gives clues s to what is going wrong, it Emergence and trends of general insurance business in India
  50. 50. 50 indicates what customer expects or the customer may be lost. When a grievance is attended to quickly and seriously there is satisfaction, which, in turn, wipes out the adverse experience. SWOT Analysis After Understand the whole Insurance Sector, I have prepared SWOT Analysis of the Sector: Strengths • The industry is growing which is a sign of recovery of the economy leading to creation of a stable economy. It is one of the booming sectors. • Better living standards and quality of life. Low claim-high profit. • ASK Good returns on investment of life funds in avenues. Emergence and trends of general insurance business in India
  51. 51. 51 • Healthy product line, competitive prices and excellent customer services directed to customer satisfaction. Thanks to competition. • IRDA acting as a Watch Dog. • Technology will play a strategic role in providing a competitive edge- be it in aiding design and administration of products or building life long customer relationships. It will also help enhance service, ensure effective and efficient delivery system and also will lead to greater customization of products and greater transparency. For example, LIC has IVRS (Integrated Voice Response System) and also provides the facility of online premium payment through billjunction.com and timesmoney.com • Transparency of management by all existing players in terms of premium collected, invested, profit generated and distributed and the commission structure. • Only source of safe and high yield nowadays. Weaknesses • It requires huge initial investment. • The Indian companies, which have collaborated, with big foreign insurance companies are novice to this field. • Break even will be reached after 7 years of operations. • ASK No other intermediaries are allowed to sell insurance except agents. Emergence and trends of general insurance business in India
  52. 52. 52 • ASK IRDA has specified norms, which restricts life corpus to be invested in hot scripts that could earn higher returns and also add fuel to economic development. The 85% of the premium amount or the corpus must be invested in Government Securities which yields around ASK returns could be converted into 30 –35% if managed and churned well by allowing them to invest on stock and foreign markets. This norm would reduce the attractiveness of the insurance policies to the consumers, hereby, reducing the total demand for the insurance as a whole. Opportunities • Pie worth Rs. 32,000 crore is waiting to be grabbed by insurers. • India, no doubt, is a highly underinsured country, with penetrated level of only 1.3% of GDP as against 2.86% in Israel and 2.43% in Hong Kong. • Total Indian insurable population is around 32%, which is insured by 15 to 22% a year against industry growth of 17%. Emergence and trends of general insurance business in India
  53. 53. 53 • Time to refurnish – By G.N. Bajpai (chairman, LIC) So many players are in the industry, which leads to better product at best price and above all will increase the awareness of insurance by promotional activities. • Shift in customers’ perspective to see insurance as a risk management tool rather than a tax saving and saving tool. • Higher disposable income and low inflation rate Nuclear Families – the joint family system has strong roots ion the country. In the event of calamity, other members of the family come to rescue, especially with financial assistance. • “See rural sector 0 rural India which is more than 60%, see them as opportunity not as an obligation”, IRDA. • More penetration of insurance leads to more savings leading to more investment, which means more employment hence generating more income, which again means increased consumption and savings. All these leads to economic growth. • Due to new entrants insurance is coming out of its image of bureaucracy. It has touched new horizons thanks to competition. Threats • If IRDA allows brokers, banks and other intermediaries to sell inurance, it will be worst for agents who are not at all competitive in this growing phase. • To penetrate in the market very fast and to earn hefty commission company could have also problem of wrong underwriting and due to carelessness Emergence and trends of general insurance business in India
  54. 54. 54 failure of one private player could shake out all the other private players in the market. • Unstable inter-national and international conditions, clouds of war between two nations, terrorists attack, riots and other bio-wars lend huge devastation and companies should prepare itself for it. • As insurers claim their products as providing tax benefit. That would not be any longer the----. Mr. Sinha has already taken a first step to cancel out all the investment benefits on policies (both sections 80CC and 80D) by restructuring the slab set off perks benefits. Upton Rs. 1, 50,000 (20%) More than 1, 50,000 (10%) • Except LIC, which is known to invest all surplus to ---- economic development, other than LIC the problem with private players is that the “profit will be forayed in their countries which ----- our foreign exchange deficit to smaller extent but it is to be an arguable matter…IRDA is likely to come out with certain norms for profit redeployment. Recommendations There are a few insurances, which Indian Insurance companies do not provide. Hence some new product development is required in this sector. A few of the policies are, Emergence and trends of general insurance business in India
  55. 55. 55 1. Industry all risk policies 2. Large projects risk cover 3. Risk beyond a floor level 4. Extended public and product liability cover 5. Broking and captivities. 6. Alternative risk financing 7. Disability insurance 8. Antique insurance 9. Mega show insurance 10. Celebrity visits to the country. Conclusion Probably, India must be one of the lowest insured countries in the world i.e. 7 per cent. This scenario has to change. We should not only have 100 per cent insurance, but also 100 per cent social security. Emergence and trends of general insurance business in India
  56. 56. 56 Personally and patriotically I feel Indian Insurance companies should cover Indian Insurance business, we cannot insist on the same globally. So Indian Insurance companies have to be more customers friendly and sufficient so that we can compete with the best in the world. They need to improve their services and offer maximum customer satisfaction. Emergence and trends of general insurance business in India

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