Introduction about Insurance sector in India

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• Life is full of risks. Man always
tries to reduce risk.
• Insurance may be described as a
social device to reduce or eliminate
risk of loss of life and property.
• Insurance cannot prevent the
occurrence of risk, but it provides
for the losses of risk.

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• It is a scheme which covers large
risk by paying small amount of
capital. Insurance is also means of
saving and investment.
• Insurance and Mutual Funds are
fundamentally difference in their
objectives.
• Objective of insurance is to minimise
the risk, while M.Fs are purely
investment gain vehicles.

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ROLE OF INSURANCE IN
ECONOMIC GROWTH
•Insurance frees industries
from the worries of
unforeseen losses &
uncertainties. Insurance
helps the process of the
country’s growth in various
ways:

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• 1. Insurance covers many economic
risks. It protects entrepreneurs
against the risk of damage to or loss
of the goods and other assets
(manufacturing, marketing, transport
& other related activities)
• This protection offers a kind of
stability to business.

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• 2. With the above system,
businessmen are able to take bold
decisions in enlarging their activity.
It plays a promotional role in nation-
building and also increasing of jobs
for the people.
• Again, there is Life Insurance, which
plays the most useful role in the lives
of individuals. Life Insurance offers
economic safety at reasonable cost
to millions of families in the county.

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• In a way, this helps the government
also as it lightens the government’
burden of providing social welfare to
affected families.
• Insurance companies collect
premium from policyholders and
invest this money in government
bonds, corporate securities and other
approved channels of investment.

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• In this way, insurance companies are
helpful in providing capital for new
ventures or expansion of old units.
Moreover, these funds are also used
for financing the infrastructure
projects with long gestation period.

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ORIGIN AND DEVELOPMENT
OF INSURANCE
• The concept of insurance is believed
to have emerged almost 4,500 years
age in the ancient land of Babylonia.
• The first insurance contract was
entered into by European maritime
nations in 1347 to accept marine
insurance as a practice.

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• The concept of insurance as we know
today took shape in 1688 at a place
called Lloyd’s Coffee House in London.
• This coffee house became so popular
that Lloyd’s became the one of the
first modern insurance companies by
the end of the eighteenth century.

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• Marine insurance companies came
into existence by the end of the
eighteenth century.
• The FIRST FIRE INSURANCE
COMPANY came into existence in
1967 known as the FIRE OFFICE.
• The oldest life insurance company in
existence today is the Society for the
Equitable Assurance of Lives and
Survivorship, known as “Old Equitable”
It was established in England in
1756.

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• The mortality tables were
constructed in the 17th century. The
first mortality table was constructed
by an astronomer Edmund Haley in
1963.
• This table provided a link between
the life insurance premium and
average lifespan based on statistical
laws of mortality and compound
interest.

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•In 1756, Joseph Dodson
reworked the table, linking
insurance premium rate to
age.

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HISTORY OF INSURANCE
IN INDIA
• Life Insurance in its modern form
came to India from England in 1818.
• The Oriental Life Insurance company
was the fist insurance company to be
set up in India to help the widows of
the European Community. They
treated Indian lives as subnormal
and charged an extra premium of 15
to 20%.

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• The first Indian insurance company, the
Bombay Mutual Life Assurance Society,
came into existence in 1870 to cover
Indian lives at normal rates.
• The first legislation regulating insurance,
the Life Insurance Companies Act, 1912,
was promulgated. (spread)
• The growth of life insurance was
witnessed during the first two decades of
the 20th century not only in terms of
number of companies but also in terms of
number of policies and sum assured.

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THE INDIAN
INSURANCE YEAR
BOOK WAS
PUBLISHED FOR THE
FIRST TIME IN 1914.

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LIFE INSURANCE
CORPORATION OF INDIA (LIC)
• The Life Insurance Corporation of
India was set up in 1956 to take over
245 life insurance companies.
• The nationalization of life insurance
was followed by general insurance in
1972.
• The GIC of India and its subsidiaries
were set up in 1973.

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• These nationalised companies
enjoyed monopoly for decades.
• Only 20% of the population insured
there was a vast potential untapped.
• In the process and to tap the
insurance sector as a source of long
term funds, the government decided
to introduce reforms in the insurance
sector.

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• In 1993 the government set up a
committee under the chairmanship of
R.N.MALHOTRA, the former insurance
secretary and the RBI Governor to
evaluate the Indian Insurance
Industry and recommend its future
directions.
• This committee submitted its report in
1994 and suggested the re-opening
up of the insurance sector to private
players.

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• This sector was finally thrown open
to the private sector in 2000.
• The Insurance Regulatory and
Development Authority (IRDA) set up
in 2000 as an autonomous insurance
regulator.

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INSURANCE
REGULATORY
AND
DEVELOPMENT
AUTHORITY
(IRDA)

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• The IRDA was constituted as an
autonomous body to regulate and
develop the business of insurance
and reinsurance in India.
• The authority was constituted on 19th
April, 2000 vide GOI notification
No.277.
• The regulator was initially known as
the Insurance Regulatory Authority
but subsequently changed as IRDA

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IRDA COMMITTEE
• The IRDA has a chairman and 4 full-time
and 4 part-time members.
• It is constituted the Insurance Advisory
Committee and in consultation with this
committee has brought out 17 regulations.
• In this committee a leading consumer
activist, representatives of consumers,
industry, insurance agents, women’s
organizations, and other interest groups
will be a part.

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Mr. Vijayan IRDA chief
As per the section 4 of IRDA Act' 1999, Insurance Regulatory and
Development Authority (IRDA, which was constituted by an act of
parliament) specify the composition of Authority. IRDA member
body consisting of:
A Chairman,-(T.S. Vijayan)
Four whole-time members,-(R.K. Nair,M. Ram Prasad,S. Roy
Chowdhary,D.D. Singh)
Four part-time members,-(Anup Wadhawan,S.B. Mathur,Prof.
V.K.Gupta,CA. Subodh Kr. Agarwal)
All members are appointed by the Government of India.

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• It has also formed a Consumer
Advisory Committee and a Surveyor
and Loss Assessors Committee.
• It has a panel of eligible chartered
accountants to carry out
investigations, inspections, etc.,

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objectives and role of IRDA
The objectives are twofold:
1. Policy holder protection
2. Healthy growth of the insurance
market.
The role of IRDA:
1. Regulatory
• Regulations
• Guidelines

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2. Developmental and Promotional:
– Facilitating the growth of the market.
– Integrating insurance market with
domestic financial services market.
– Synchronizing Indian insurance market
with global insurance market.

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DUTIES, POWER AND
FUNCTIONS OF IRDA
• Section 14 of the IRDA Act., 1999,
lays down the duties, powers and
functions of the IRDA.
• Issuing to the applicant a certificate
of registration, renew, modify,
withdraw, suspend or cancel such
registration.

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• Protection of the interests of the
policy holders in matters concerning
assigning of policy, nomination by
policy holders, settlement of
insurance claim, surrender value of
policy and other terms and
conditions of contracts of insurance.

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• Specifying requisite qualifications,
code of conduct and practical training
for intermediary or insurance
intermediaries and agents.
• Specifying the code of conduct for
surveyors and loss assessors.
• Promoting efficiency in the conduct
of insurance business.

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• Levying fees and other charges for
carrying out the purposes of this act.
• Regulating investment of funds by
insurance companies.
• Regulating maintenance of marginof
solvency.
• Adjudication (settlement) of disputes
between insurers and intermediaries
or insurance intermediaries.

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• Supervising the functioning of the
Tariff Advisory Committee.
• Specifying the % of life insurance
business and general insurance
business to be undertaken by the
insurer in the rural or social sector.

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Specified % of business to be done by
an Insurer in the Rural Sector
• Every insurer, who carries an insurance
business after the commencement of the
IRDA act, 1999, is required to ensure that
the following obligations are undertaken
during the first 5 financial years:
• In respect of a Life Insurer:
– 5% in the first financial year
– 7% in the second financial year
– 10% in the 3rd financial year
– 12% in the 4th financial year
– 15% in the 5th financial year of total policies
written direct in the year.

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• In respect of General Insurer:
– 2% in the first financial year
– 3% in the second financial year
– 5% thereafter, of total gross premium
income written direct in that year.

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• Social sector:
– 5,000 lives in the first financial year.
– 7,500 lives in the second financial
years.
– 10,000 lives in the 3rd financial year
– 15,000 lives in the 4th financial year
– 20,000 lives in the fifth year.
The IRDA issued directions with regard to
the obligations for the year 2005-06

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• In respect of life insurers, 18% of
the total policies written direct shall
be in the rural sector.
• In respect of the non-life insurers,
5% of the total gross premium
income written shall be in the rural
sector.
• In respect of all insurers, 25,000 new
lives shall be covered in the social
sector and the policies should be in-
force on 31st March of the year.

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Maintenance of books of accounts
• The insurance companies and
intermediaries are required to
maintain their books of accounts
and submit returns to the IRDA as
per the regulations prescribed in
the following:
1. Preparation of Financial Statements
and Auditor’s report of insurance
companies regulation, 2000.

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• Assets, liabilities and solvency
margin of insurers regulations, 2000.
• Investment regulations, 2000 and
investment (amendment)
regulations, 2001.

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GENERAL INSURANCE
CORPORATION OF INDIA (GIC)
• The GOI nationalised the general
insurance business in 1972.
• 107 insurers, including branches of
foreign companies operating in India,
were amalgamated and grouped in
to FOUR COMPANIES.

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INDIAN AND FOREIGN
INSURANCE COMPANIES
NIC
UIAC
AMALGAMATED
NIAC OIC
NOTE FOLLOWS:

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• The National Insurance Company
Limited (NIC).
• The New India Assurance Company
limited (NIAC).
• The Oriental Insurance Company
Limited (OIC).
• The United India Assurance Company
Limited (UIAC).

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• The head offices located at Calcutta,
Bombay, Delhi and Chennai.
• The GIC was incorporated as a
holding company of these four
general insurance companies in
November, 1972.

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The GIC was incorporated as a holding Company of the 4
General Insurance Companies in November, 1972.
GIC NIAC
UIAC
OIC
NIC

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• All the 4 companies are government
companies registered under the
companies act.
• The GIC commenced business on 1
January, 1973.
• The GIC was formed for the purpose of
superintending, controlling and carrying
on the business of general insurance.
• The GIC was expected to generate
competition among the 4 subsidiary
companies.

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FUNCTIONS OF GIC
• The carrying on of any part of
general insurance business as
deemed desirable.
• Aiding, assisting and advising the
companies in the matter of setting
up of standard of conduct and sound
practice in general insurance
business and in rendering efficient
customer service.

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• Advising the acquiring companies in
the matter of controlling the
expenses including he payment of
commission and other expenses.
• Issuing directions to acquiring
companies in relation to the conduct
of general insurance business.

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Mission of GIC
1. To provide need-based and low-cost
general insurance cover to the rural
population.
2. To administer a crop insurance scheme
for the benefits of farmers.
3. To develop and introduce covers with
social security benefits.
4. To develop a marketing network
throughout the country and to promote
balanced regional development and
make insurance available to the masses.

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• In November 2000, the govt. notified the
GIC of India as the “Indian Re-insurer” under
section 101A of the Insurance Act, 1938.
• Insurance companies spread their risk by
an arrangement with other underwriters
or reinsurance companies known as
reinsurers.
• The IRDA has prescribed that 20% of the
gross premium would have to be ceded
(surrender) compulsorily to GIC as a
reinsurer by all insurers.

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• GIC has diversified its operations to
provide life reinsurance during 2003-
04.
• A separate department has been set
up for this purpose.
• The GIC of is one of the largest
financial institutions in the country.
• The GIC organizational structure as
follows:

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BOARD OF DIRECTORS
HEADED BY Executives
Chairman
MANAGING DIRECTOR
General Manager (Reinsurance)
General Manager (HR,Office services, accounts)
General Managers (Investment, Life reinsurance)
Chief Vigilance Officer (Training, official language)
Financial advisors (Budget, Internal audit)

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DISTRIBUTION NET WORK
• The GIC has a high reach with a
strong distribution network which
consists of:
Regional offices Divisional offices
Branch offices
Agents

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REGIONAL HEAD OFFICE
• The regional head office undertakes
underwriting, reinsurance and
investment function.
• The regional offices look into the
administration and provide support
to divisional offices.

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DIVISIONAL OFFICES
• The divisional offices consist of
divisional managers and
development officers who also look
into the training and development of
agents.
• The divisional offices procure
business, underwrite neew business,
and settle claims.

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BRANCH OFFICES
• Under divisional offices there are
branch offices, which also procure
new business.
• The major incentive is on premium
collection and not on account
profitability.

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GIC functions under the following
major acts:
• The companies Act, 1956.
• The insurance Act,1938.
• The General Insurance Business
(Nationalisation) Act, 1972.
• The General Insurance Business
(Nationalisation) Amendment Act,
2002.
• The Insurance Regulatory and
Development Authority Act, 1999.

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OPERATIONS OF GIC
• It provides war cover, catastrophic
(disastrous) peril (danger) cover,
earthquake peril cover, marine
cover, protection for personal
accident and oil & energy business.
• The income of GIC comprises of
premium accepted under obligatory
cessions, premium on reinsurance
accepted from the international
market.

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• It will lend directly to the
infrastructure sector by investing in
bonds and securities instruments.
• GIC opened a full-fledged branch in
Dubai and representative offices in
London and Moscow as a step
towards increasing foreign insurance
business.

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• About 23% of the total inward business of
GIC is from the Middle East, 33% from
Asia, 14% each from Africa and West
Europe and 12% from East Europe.
• In order to concentrate exclusively on its
core business-reinsurance, GIC moved out
of the mutual fund business.
• GIC invests in units of UTI, equities of
private and public sector undertakings and
approved government securities.
• GIC is an active player in the secondary
market for shares and government
securities.

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CROP INSURANCE

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• GIC is the only entity in the country
to offer crop insurance with its
National Agricultural Insurance
Scheme (NAIS).
• The National Crop Insurance Scheme
aims at providing insurance coverage
and financial support to the farmers
in the event of natural calamities,
pests and diseases, besides
encouraging the farmers to adopt
progressive farming practices.

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•THE CROP INSURANCE
HAS COME UNDER THE
AGRICULTURE INSURANCE
COMPANY OF INDIA SINCE
OCTOBER, 2003.