INSURANCE SECTOR IN INDIA

BY:ABRITY BHATTACHARYA

ROLL NO. - 01

DEFINITON

• A contract in which an insurer promises to provide a compensation for specific potential future losses to insured in exchange for a periodic payment. Insurance is designed to protect the financial well-being of an individual, company or other entity who has agreed upon that contract in the case of unexpected loss which is covered in that contract.

• It is one of the best form of investment that is stable as long as the premiums are paid.

• Benefit to be gained during claiming by insured or his/her nominee is called "face value" and the premiums that need to be paid should surpass its value.

HISTORY

• Formal insurance business was started by British in India during 19th century.

• In 1818, first British firm, Oriental Life Insurance company was formed in Calcutta. Then many British company formed throughout India.

• At 1871, Mutual Life Assurance Society was formed at Bombay of Indian origin, charged normal rates for Indian lives.

• First General Insurance company of British origin, Triton Insurance Company Ltd. Established in Calcutta (1850).

• Mercantile Insurance Company Ltd. : First Indian general insurance to be set up by Indians. Established at Bombay(1907).

POLICIES AND LAWS

• Indian Life Assurance Act, 1912.

• The Insurance Act, 1938.

• Series of amendments: 1950, 1968……, 1999 and in 2008 till now.

• On 19th January 1956, management of 250 Indian and foreign Life insurers and provident society taken over by government.

• Nationalization of Life Insurance business in India: September 1st, 1956.

• Management of non-life insurance businesses were taken over by Indian Govt. on 13th May 1971.

• By General Insurance Business (nationalization) Act, 1972: This business was nationalized with effect from January 1, 1973.

HOW INSURANCE BUSINESS WORKS ?• Risk management to offer policies to segment of

customer to which they suit most and have lower rate of payouts.

• Coverage selection and rejection.• Insurance companies do 3 things with Premium

collected from customers.– Pool the money.– Meet operational costs.– Invest in safer investments.

• Underwriting profit and loss.• Float: Investing premium in safe Govt. bonds, real

estates etc.

HOW PREMIUMS ARE DETERMINED

• Basically are dependent on two trends: the frequency of claims (how many) and the severity (cost) of each claim.

• Insurer research for two questions then only launch any new policy premium for a given segment of customers:– How likely is it in general terms that someone will need

to make a claim?– Is the person who wants to take out a policy a bigger or

smaller risk than the ‘average’ policyholder?

INSURANCE COMPANY’S CORE VALUES

Ethical & legal behavior

Customer focus

Positive attitude

Employee development

Team work

Speedy responsiveness

Innovation

Profitability

Continuous process improvement

Principles of insurance

1. Principle of Indemnity2. Principle of Insurable interest3. Principle of Utmost good faith4. Principle of Contribution5. Principle of Subrogation6. Principle of Proximate cause

1. Principle of Indemnity

• This means the insured cannot make a profit from an insurance claim i.e. The value of loss occurred due to the incident is not compensated back completely.

• For example if you have a four year motorcar and it is damaged, the insurance company will only give you the current value not the value when it was new.

2. Principle of insurable Interest

• The insured must have an insurable interest in the subject matter of insurance, i.e. he/she must be benefited by its safety or be prejudiced by its loss.

• For example you can insure your own home , but not your friend’s home.

• In the same way you can take out Assurance on your wife’s life, but not that of your neighbour.

3. Principle of utmost good faith

• The insured and the insurer are bound with good faith, honesty and fairness.

• To have transparency in policy coverage as well as degree of risk, law compels disclosure of information between parties.

• For examples:– If the loss occurs, they will check the facts and if in-accurate

details have been given they will not pay damages to incurred.– If the policy terms does not satisfy the customer they will not

take that policy as insurance.

4. Principle of Contribution

• One can insure the same propriety item with more than one insurance company, the insured can’t demand more than total loss from all companies put together

• In sample words there is no advantage insuring the same risk with two companies.

• Example:– If a man losses his watch during holiday and has its risk cover under

household policy and also has a travel policy from some other company then both companies will share the claim amount but not more than indemnity.

5. Principle of Subrogation

• Insurance company has the legal right to claim compensation from any other party that caused the accident.

• The policy conditions provide such subrogation rights before the claim is paid but recovery from third party can only be received after claim is paid.

• For example :– An electric goods business man lost some property due to faulty

toaster and claims for compensation from an insurance company. He will not be allowed to complain and claim compensation from the manufacturer instead insurance company will do on his behalf and will get the compensation from manufacturer after it pays off claim to the business man.

6. Principle of Proximate cause

• The damage to the prosperity can take place due to many causes, the insurer company will look first cause of damage or the original cause of damage.

• If the original peril is cored in policy then only claim is paid. If not then rejected.

• Example:– A man keep his furniture outside during a fire in his house and

the furniture gets rotten due to rain then inspection will be done by insurer whether-• Rainfall began just after the fire or after some time of

extinguishing it (then main peril is fire).• Or, due to keeping it for long outside even after fire was

extinguished and in between rain damaged it (claim would not be entertained).

PORTER’S FIVE FORCES MODEL ANALYSIS

1. Threat of New Entrants. The average entrepreneur can't come along and start a large insurance company.

2. Power of Suppliers. The suppliers of capital might not pose a big threat, but the threat of bargaining by suppliers of human capital is a matter of concern as they have more options.

3. Power of Buyers. Large corporate clients have a lot more bargaining power with insurance companies than individuals.

4. Availability of Substitutes. There are plenty of substitutes in the insurance industry. Most large insurance companies offer similar suites of services.

5. Competitive Rivalry. The insurance industry is becoming highly competitive. The difference between one insurance company and another is usually not that great.

MAJOR TWO TYPES OF INSURANCE 1) Life insurance:

Own life. Family/Household insurance Group insurance. Medical insurance Disability insurance

2) General insurance: Automobile & truck Insurance Marine insurance. Travel insurance Property insurance etc.

MAIN DIFFERENCE B/W LIFE INSURANCE & GENERAL INSURANCE

• Life is very long-term in nature — life insurance can cover risks over many decades.

• General insurance cover risks usually for a shorter period, such as one year.

LIFE INSURANCE

• On periodic basis premium is paid by insured.

• If the insured die within that time period, The nominee get a specified amount of money.

There are two types of life insurance:i. Term life insurance.ii. Whole life insurance.

i Term Life Insurance

• The most basic one.• Least expensive. • Open ended.

• For example:• You buy coverage for a certain period of time, such as 10, 15, 20 or

30 years.• If you die before the term is over, your nominee gets the benefit.• If you live beyond the term, the policy expires. • Further coverage can be obtained with different payments or

conditions.

ii Whole Life Insurance

• This type of policy never expires.

• As long as premiums are paid, it remains in force.

• Premiums are usually based on your age.

• You'll pay the same amount of premium for the rest of your life. (Start young and the less expensive the premiums will be).

MARKET TREND FOR LIFE INSURANCE

Here the List of Top 10 Life Insurance Companies in India during 2013.

1. Life Insurance Corporation of India(LIC)2. ICICI Prudential Life Insurance3. Reliance Life Insurance4. Bajaj Allianz Life Insurance5. Birla Sunlife Insurance6. SBI Life Insurance7. Max Life Insurance8. HDFC Standard Life Insurance9. Tata AIG Life Insurance10. ING Vysya Life Insurance

GENERAL INSURANCE

• It provides protection against risks to property and health.

• It include specialized forms of insurance such as: – Home insurance. – Automobile insurance– Marine insurance– Health insurance– Travel insurance etc.

i Home insurance

It is determined by :

– Where you live (Location).– Size of your home. – Structure of your home. – Property.– The extent of your protective devices, such as alarms.

ii Automobile insurance

Motor insurance is determined by:– Your living place.– Type of vehicle. – Your job. – Age.

Young drivers pay high premiums because statistics show that they’re involved in more crashes than older drivers.

iii Marine insurance

It’s two major form of transportation coverage are: 1) Ocean marine: It cover all losses to the ship & cargo while port or at sea.2) Inland marine: It provide coverage to transportation of goods by rail, truck,

airplane and water ways.

iv Health insurance

• Health insurance is insurance against the risk of incurring medical expenses among individuals.

• It depends on the risk of claim identified by:– Health condition of insured during taking policy.– The job he/she does.– The degree of risk in environment around him/her.

v Travel insurance

• For limited time of period. • It include personal accident, medical expenses, loss of Luggage. • The amount of premium is determined by tour area and time duration.• Annual trivial policy is also available.

MARKET TREND FOR GENERALINSURANCE IN INDIA

• Fiscal year 2012-2013.

• During Q2 of FY 2013-2014.

REGULATORY HIERARCHY • Insurance Regulatory and Development Authority (IRDA)

Established in 1999 under the IRDA Act Responsible for regulating, promoting and ensuring orderly growth of the insurance and re-insurance business in India

Ministry of Finance (Government of India) Insurance Regulatory and Development Authority

(IRDA) Life Insurance (24 players)

Public (1)

Private (23)

Non-Life Insurance (27 players)

Public(6)

Private (21)

Re-insurance (1 player)

Public (1)

ADVANTAGES OF INSURANCE TO ENSURED

• Income guaranteed through annuities (fixed sum of money each year).

• Dividends enable growth.

• Risk guard.

• Tax benefits.

• Mortgage recovery.

DISADVANTAGES OF INSURANCE TO INSURED

• Inconsistent premiums.

• Insufficient funds.

• Expiration of term insurance.

• Language of premium.