Indian General Insurance

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The presentation focuses on price de-regulation and the resultant change in value chain of the industry & Further Developments. It also includes the effect of insurance cycle on underwriting margin in a free market country like United States.

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Indian General Insurance

  1. 1. IMPACT OF DETARIFFICATION OF INDIAN GENERAL INSURANCE MARKET<br />BY<br />PRASANNA R<br />THANKS TO<br />PROJECT GUIDE: Dr. VIKAS GUPTA<br />ORGANIZATION: WADHAWAN HOLDINGS PRIVATE LTD<br />Last Updated: Aug’08<br />
  2. 2. OUTLINE<br /><ul><li>INDIAN GENERAL INSURANCE
  3. 3. DETARIFFICATION PLAN
  4. 4. GENERAL INSURANCE VALUE CHAIN
  5. 5. PORTER’S FIVE FORCE ANALYSIS
  6. 6. INSURANCE CYCLE AND ITS CAUSES
  7. 7. FUTURE DEVELOPMENTS
  8. 8. INTERNATIONAL DEVELOPMENTS</li></ul>Presentation done to Wadhawan Holdings Private Limited <br />
  9. 9. INDIAN GENERAL INSURANCE MARKET<br />
  10. 10. GENERAL INUSRANCE IN INDIA<br />Colonial Era<br />Nationalization<br />Liberalization<br />Economy Nationalization begins<br />Economy Liberalization begins<br />Private Companies Licensed<br />India’s first general insurance company – Triton established<br />Corporate Agency Regulations<br />Insurance Act passed<br />Malhotra Committee Report<br />Nationalization of General Insurance<br />Insurance Broker Regulations<br />IRDA Act<br />1850 1938 1947 1972 1991 1994 99 00 01 02 <br /> 1907 1950 1956 1968 1994 J08 A08 <br />Partial Price Detariffication <br />Nationalization of Life Insurance<br />Complete Price Detariffication <br />Indigenous – Indian Mercantile Insurance Company Limited established<br />Tariff committee replaced by TAC<br />Product Detariffication <br />Tariff committee was set up<br />Detariffication<br />Presentation done to Wadhawan Holdings Private Limited <br />
  11. 11. AVIATION<br />AVIATION<br />AVIATION<br />Detariffed<br />LIABILITY<br />LIABILITY<br />LIABILITY<br />Tariffed<br />PA & HEALTH<br />PA & HEALTH<br />PA & HEALTH<br />PRODUCT DETARIFFICATION<br />MARINECARGO<br />MARINE CARGO<br />MARINE CARGO<br />MARINE HULL<br />MARINE HULL<br />MARINE HULL<br />FIRE<br />FIRE<br />FIRE<br />ENGINEERING<br />ENGINEERING<br />ENGINEERING<br />MOTOR OD<br />MOTOR OD<br />MOTOR OD<br />MOTOR TP<br />MOTOR TP<br />MOTOR TP<br />DETARIFFICATION PLAN<br />COMPLETE PRICE DETARIFFICATION<br /> 1994 APRIL 2005 JAN 2007 JAN 2008 APRIL 2008<br />Presentation done to Wadhawan Holdings Private Limited <br />
  12. 12. Back Office Outsourcing<br />ICT Manufacturers<br />INDUSTRY STAKEHOLDERS<br />IRDA<br />Institute of Actuaries of India<br />TAC<br />Actuaries<br />Internet<br />General Insurance Council<br />Insurance Ombudsmen<br />Tele Marketing<br />Insurer<br />Correspondence<br />IndianPartner<br />Referrals<br />HR<br />Agency Force<br />Retail Customers<br />ForeignPartner<br />Brokers<br />GIC<br />Bancassurance<br />Underwriter’s Forum<br />Mallassurance<br />Reinsurance Brokers<br />Corporate Customers<br />One stop shops<br />Retail Agents<br />Insurance Institute of India<br />Reinsurance<br />MI Agents<br />Presentation done to Wadhawan Holdings Private Limited <br />
  13. 13. GENERAL INSURANCE INDUSTRY VALUE CHAIN<br />Reinsurer<br />Public Disclosure<br />Calculating Solvency <br />Risk assessment<br />Investing excess Premium<br />Risk and Premium sharing<br />Data Collection<br />Underwriting<br />Distribution of the products<br />Calculating premium<br />Calculating expected claims<br />Marketing the products<br />Designing product<br />End Customer<br />Investing excess premium<br />Identifying market<br /> need<br />Settlement of Claims<br />Investigating Claims<br />Claiming Loss<br />A GROUP 11 PRESENTATION<br />
  14. 14. PORTER’S FIVE FORCE & CHANNEL POWER<br />Presentation done to Wadhawan Holdings Private Limited <br />
  15. 15. INSURANCE CYCLE AND ANALYSING ITS CAUSES<br />
  16. 16. CLASSIC INSURANCE CYCLE<br />Presentation done to Wadhawan Holdings Private Limited <br />
  17. 17. Time Lag<br />Capital Constraints<br />Stock Market Performance<br />Catastrophic loss<br />Naïve Rate Making Process<br />Competitor driven pricing<br />Economic Growth<br />Interest Rate<br />CAUSES OF AN INSURANCE CYCLE<br />Presentation done to Wadhawan Holdings Private Limited <br />
  18. 18. INSURANCE CYCLE – UNITED STATES<br />.<br />R Value =-0.410<br />HUGO<br />ANDREW<br />NORTHRIDGE<br />SEPT 11<br />4 hurricanes<br />R Value =-0.307<br />Presentation done to Wadhawan Holdings Private Limited <br />
  19. 19. INSURANCE CYCLE – UNITED STATES<br />.<br />Presentation done to Wadhawan Holdings Private Limited <br />
  20. 20. GROWTH IN PREMIUM – UNITED STATES<br />.<br />ANDREW<br />NORTHRIDGE<br />SEPT 11<br />HUGO<br />4 hurricanes<br />Presentation done to Wadhawan Holdings Private Limited <br />
  21. 21. FUTURE DEVELOPMENTS AND GLOBAL PRACTICES<br />
  22. 22. FURTHER DEVELOPMENTS<br />LIBERALIZATION OF THE COMMISSION <br /><ul><li>Let the market decide the commission of agency, broker and other channels
  23. 23. Result in development of innovative channels – Mallassurance (Future Generali), Tele Marketing (TATA AIG) and One stop financial shop (Way2Wealth)
  24. 24. Policies at discount rate and Intermediate earning his own margin</li></ul>INCREASE OF FDI INFLOW<br /><ul><li>Insurers demand that the raise of FDI cap from 26 % to 49 %
  25. 25. WTO and countries like Japan, US are forcing to allow foreign players towards India’s commitment to GATS
  26. 26. Plans underway to raise FDI caps in sensitive areas like Defense Manufacturing (26 % to 49 %) and air cargo (49 % to 76 %)</li></ul>Presentation done to Wadhawan Holdings Private Limited <br />
  27. 27. FURTHER DEVELOPMENTS…<br />INTRODUCTION OF RETAIL AGENTS<br /><ul><li>Recommended by NM Govardhan Committee
  28. 28. Can sell products of all insurers
  29. 29. Cannot customize products unlike Brokers</li></ul>ESTABILISHMENT OF PREVENTION FUNDS<br /><ul><li>Training on Fire equipment
  30. 30. Promote healthy diet and importance of being fit
  31. 31. Prevent Automobile theft</li></ul>CATASTROPHE POOL<br /><ul><li>2007: India is one of the worst hit countries due to natural disaster
  32. 32. Govt. pays compensation due to lack of catastrophe cover
  33. 33. Govt. has urged IRDA to create a catastrophe pool on “no profit, no loss” basis </li></ul>Presentation done to Wadhawan Holdings Private Limited <br />
  34. 34. INTERNATIONAL DEVELOPMENTS…<br />PAYMENT GUARANTEE SCHEME<br /><ul><li>Competition and Price War Risk of insurer becoming insolvent
  35. 35. Payment can be guaranteed by enforcing the following:
  36. 36. Disclosure of solvency margin to the public while purchasing policies
  37. 37. Mandating the submission of business plan when solvency ratio decreases below 150 %
  38. 38. Allowing investment portfolio transfer and liquidity with another insurance company
  39. 39. Creation Policy Holder Protection Fund</li></ul>Presentation done to Wadhawan Holdings Private Limited <br />
  40. 40. INTERNATIONAL DEVELOPMENTS…<br />Insurance Contracts<br />Policyholder<br />Failed Insurance Company<br />POLICYHOLDERS PROTECTION FUND<br />Transfer of Insurance contracts<br />Claims Payment<br />Appointed/Substituted Insurance company<br />Transfer of Insurance contracts<br />Claims Payment<br />Financial Aid<br />Non-life Policyholders Protection Fund<br />Prior Contribution<br />Non Life Insurance Companies<br />(Compulsory Participation)<br />Presentation done to Wadhawan Holdings Private Limited <br />
  41. 41. INTERNATIONAL DEVELOPMENTS…<br /><ul><li>Solvency – having enough money to meet pecuniary liabilities.
  42. 42. The solvency capital approaches are</li></ul>1) Fixed ratio 3) Scenario based approach and<br /> 2) Risk based capital 4) Probabilistic approach (Solvency II)<br />SOLVENCY APPROACHES<br />SOLVENCY II<br /><ul><li>Initiated to improve harmonization of insurance companies in EU
  43. 43. Based on Three-pillar concept similar to Basel II
  44. 44. Introduces a two level structure – a strictly defined minimum and higher control level </li></ul>Quantitative Measures (SCR & MCR)<br />Qualitative Measures (Supervision)<br />Disclosure (Reporting to Supervisor & Stakeholders)<br />Presentation done to Wadhawan Holdings Private Limited <br />
  45. 45. INTERNATIONAL DEVELOPMENTS…<br /><ul><li>Securities, Banking and Insurance are converged to form a single regulatory body
  46. 46. In United States Glass-Steagall Act of 1933 was repealed
  47. 47. In European Union, Financial Supervisor Agency (FSA) was formed
  48. 48. In Japan, Financial Services Agency was formed as a part of Financial Big Bang revolution.
  49. 49. Financial organizations into Insurance : SBI, ICICI, Religare, Canara Bank, Oriental Bank of Commerce, HDFC, DLF, Andhra Bank, Bank of Baroda, Bank of India and Union Bank of India.
  50. 50. Evolution of one stop financial shops – Sivan securities (Way2wealth), equity bulls, Corporation Bank.
  51. 51. There should either be a effective co-ordination or creation of a single regulatory body to manage the situation </li></ul>CONVERGENCE<br />Presentation done to Wadhawan Holdings Private Limited <br />
  52. 52. REFERENCES<br /><ul><li>IRDA web site
  53. 53. Fact Books of General Insurance Association of Japan
  54. 54. Fact Books of Insurance Bureau of Canada
  55. 55. National Association of Insurance Commissioners Presentations
  56. 56. Craig Thorburn “On the Measurement of solvency of Insurance Companies”
  57. 57. Swiss Re site
  58. 58. TapenSinha “ The Indian Insurance Industry: Challenges and Prospects”
  59. 59. CAS Spring Meeting Presentation “ EU Solvency II – a non life perspective”
  60. 60. www.gicofindia.in
  61. 61. Joan Lamm-Tennant and Mary A. Weiss on “International Insurance cycle: Rational expectations /Institutional Interventions”
  62. 62. World bank database
  63. 63. J.P. Wieske on Actuarial Vs Underwriting</li></ul>Presentation done to Wadhawan Holdings Private Limited <br />
  64. 64. THANK YOU<br />

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