economy - insurance

7/28/2019 ECONOMY - Insurance

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Who can make laws on Insurance?

Insurance is a subject listed in the Union list in the SeventhSchedule to the Constitution of India.

That means only Union Government can make laws oninsurance (a state Government cannot make law on this subject)

IRDA

Insurance Regulatory and Development Authority (IRDA) Created on the recommendations of the Malhotra Committee report Started in 2000, it is a statutory body (i.e. made through an Act of

parliament).

What are the functions of IRDA?

To run insurance businesss, a company has to register itself withIRDA.

IRDA regulates the insurance industry and protects the customers. IRDA has the power to frame regulations regarding Insurance

market (just like SEBI for Capital market) promotion of competition so as to enhance customer satisfaction

through increased consumer choice and lower premiums. (for example IRDA allowed Health Insurance Portability)

Organizational setup of IRDA

IRDA has a ten member team consisting of o 1 Chairmano 5 whole-time memberso 4 part-time members

All of them, appointed by the Government of India.

Insurance Ombudsman

was created by a Government of India in 1998

Functions of Insurance Ombudsman



Receive and consider complaints in respect of insurance from anyperson who has any problem against an insurer.

pass an award within 3 months after receiving complaint. Insurance companies are required to honour the awards passed by

an Insurance Ombudsman within three months. If the policy holder [customer] is not satisfied with the award of the

Ombudsman he can approach other venues like Consumer Forums and Courts of law for redressal of his grievances.

Selection of Ombudsman

Ombudsman are drawn from Insurance Industry, Civil Services andJudicial Services.

A committee comprising of Chairman, IRDA, Chairman, LIC,Chairman, GIC and a representative of the Central Governmentselect the Insurance Ombudsman.

There are twelve Ombudsman across the country allotting themdifferent geographical areas as their areas of jurisdiction.

An insurance Ombudsman is appointed for a term of three years or till the incumbent attains the age of sixty five years, whichever isearlier.

Re-appointment is not permitted.

What is premium?

To enjoy SAB TV, Zee TV, Star Movies, AXN, HBO etc. you’ve tomake regular payment to Dish TV/Tata Sky etc., we call it“subscription”.

Similarly to get insurance protection, you’ve to make regular payment to the insurance company, we call it “premium”.

Insurance Policies: Types

Two main types: General and Life

General Insurance

General Insurance = Every Insurance plan EXCEPT life insuranceplan



Name Sub categories

Personal Insurance

policies

medical insurance, accident, property and vehicle

insurance

Rural Insurancepolicies

protection against natural and climatic disasters for agriculture and rural businesses

IndustrialInsurance policies

coverage for project, construction, contracts, fire,equipment loss, theft, etc.

CommercialInsurance policies

protection against loss and damage of propertyduring transportation, transactions, marineinsurance etc.

Life Insurance Types

list is not exhastive.

Whole life plan

You pay the premium till you retire or till theterm of the policy.

Your family will get money ONLY after youdie.

You MUST DIE to get back the money.

Endowment

Insurance company collect premium form theinsured for the certain period of time like 15,20, 25, 30 years.

If you die within that term, the company willpay huge money to your family.

If you don’t die within that term, company willreturn the premium you paid + some interestor bonus on it.

So, you DONOT NEED TO DIE to get backthe money.



Term Plan

You keep paying premium for given period(5,10,20 etc. years)

If you die within that period, your family getshuge money.

But if you don’t die within that period, you willnot get a single penny from the company.

So, you MUST DIE to get back the money. Good part- Term Plans have cheaper

premium than other plans.

ULIP(Unit LinkedInsurance Policy)

You pay regular premium to the company. Company invests it in Debt and Equity

markets. [click Me to know more about Debt

and Equity Markets] The profit generated by this investment, will

be given to you no matter you die or not. Thus you get the benefit of risk cover as well

as the investment gains. You DONOT NEED TO DIE to get back the

money. They pay higher return than Endowment.

Nationalization of Insurance business

In 1972, Government of India passed of the General InsuranceBusiness (Nationalisation) Act,

With this Act, Government took control of all the private insurancecompanies of India and created 4 companies

National Insurance Company Ltd General Insurance.HQ: Kolkata

New India Assurance Company Ltd General InsuranceHQ: Mumbai

Oriental Insurance Company Ltd General InsuranceHQ: New Delhi

http://mrunal.org/2012/03/econ-debt-equity.html







United India Insurance Company Ltd. General InsuranceHQ: Chennai

Foreign Direct Investment in Insurance

up to 26% is allowed.Update: 49% allowed after Mamta Left theUPA alliance.

For example “Bajaj All ianz Life Insurance Company Limited ” is a joint venture between

o The Indian Company Bajaj (that scooter maker, has 74%stakes in this company.)

o The Foreign Company Allianz AG (German Company, has26% stakes in this company)

Similar arrangement was present in “Max New York Life Insurance

Company” But the New York Life sold its stakes and left the gamehence the new name of the company is Max Life InsuranceCompany. [You might have seen the ads on TV about its namechange.]

Reform in Insurance sector

Already Done by IRDA

If an Insurance company has been in business for 10 years, it canlaunch IPO. Mobility / Portability in Health Insurance= if you’re unhappy with

your Health (Medical) insurance company, you can change it.

Pending Reform

Mohan: I want to increase the FDI limit from 26% to 49%. Then moreforeign companies would come up = more products = lower premiums.

Mamatha: But I’m opposed to FDI in Retail, Insurance and Aviation.

Mohan: Ok I drop the idea sir-ji.

LIC

Life Insurance Corporation of India



100% owned by Government. Started in 1956 HQ: Mumbai Motto: “Yogakshemam Vahamyaham” (taken from Gita, meaning “I

carry what you require”.) Provides Life Insurance, Health Insurance

GIC- Reinsurer

Suppose LIC sells 1000 life insurance policies, each with a 1 crorepolicy limit (e.g. I, the customer pay Rs.10,000 premium every year and If I die my family should get 1 crore- that type of Policy).

Theoretically, the LIC could lose 1000 crores in a day, if everycustomer dies on the same day!

So to prevent itself from such a loss, LIC itself should take someinsurance from a third insurance company (GIC).

for example “I, the LIC Manager shall continue to pay the GIC 1lakh every month, and in return GIC insures that if my companyLIC has to pay more than 100 crores in policy claims within 1 week,then GIC will cover the cost.

So, This third party, General Insurance Corporation of India (GIC)= Reinsurer.

GIC is the ONLY Reinsurer in India.

Mock Questions for APFC, LIC AAO

Which of the following statements are correct?

1. IRDA is a statutory body.2. IRDA is made up of 1 chairman and 3 members.3. IRDA members are selected by RBI governor.4. Oriental Insurance LTD is the only Reinsurer in India.

5. Government owns only 51% in LIC.6. LIC’s motto is “Nabha Sparsha Diptam“ 7. Health insurance is a type of Life insurance.8. In ULIP policy, customer’s money in invested in Government

securities only.9. The premium of a Term plan is cheaper than Endowment plan.



10. Every Insurance Company has to appoint an InsuranceOmbudsman in its head office.

11. Currently, a foreign company can invest upto 49% in anIndian Insurance company.

12. IRDA has allowed portability in life insurance products from2011.

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