Insurance Market

What is insurance?

• The definition of insurance can be made from two points: Functional definition. Contractual definition.

• FUNCTIONAL DEFINITION: Insurance is a co-operative device to spread the loss caused by a particular risk over a number of persons who are exposed to it and who agree to insure themselves against the risk.

• 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.”

TYPE OF INSURANCE

• LIFE INSURANCE Life insurance is a written contract between the insured and the insurer, that provides for the payment of the insured sum on the date of the maturity of the contract or on the unfortunate death of the insured, whichever occurs earlier.

• GENERAL INSURANCE General insurance or non-life insurance policies, including automobile and homeowners policies, provide payments depending on the loss from a particular financial event. General insurance typically comprises any insurance that is not determined to be life insurance .

• TYPES OF GENERAL INSURANCE Health insurance, Business insurance, Automobile insurance, Fire insurance etc.

• HEALTH INSURANCE: Just like one looks to safeguard ones wealth, these policies ensure guarding the insurer health against any calamities that may cause long term harm to ones life and even hamper ones earning ability for a lifetime. Some examples of this type of policy are mediclaim policy, personal accident, group accident, traffic accident, etc.

• Business Insurance: Risks of loss of profits/business, goods, plant and machinery are most profound in case of business. Under this head they cover the most widely used policies that cover a business from any loss of the above kind. Some of these policies are burglary insurance, shopkeepers insurance, key-man insurance, marine insurance, public liability insurance, workmen compensation insurance, air transit insurance, fidelity guarantee insurance etc.

• Automobile Insurance: Auto Policy is required to be taken to cover the risks that arise to the owner, vehicle and third party. This includes the Compulsory Vehicle Policy (In India, by the Motor Vehicles Act, every car owner is required to covered against Act risks) and the Comprehensive Vehicle Policy.

• FIRE INSURANCE: This policy is required to be taken to prevent any loss of profits / property from incidental fire. Ex. fire insurance and fire consequential loss policy.

• HISTORY OF INSURANCE IN INDIA: • Phase I- Life Insurance General Insurance 1818 to 1956

(about 138 yrs). Many (245) private sector companies only, competitive market.

• Phase II- Life Insurance General Insurance 1956 to 2000 (about 44 yrs). Nationalization, public sector or State monopoly i.e. Life Insurance and General Insurance.

• Phase III- After 2000 Opened to the entry of private domestic and foreign companies, mixed sector of public and private sector units, oligopoly of public sector companies (14 life insurance and 12 general insurance companies)

HISTORY OF INSURANCE IN INDIA

• 1818 First life insurance company “Oriental Life Insurance Company (in Calcutta). - 1850 First general insurance company “Tritan Insurance Company (in Calcutta) - Till 1956/1972 life and general insurance industry grown in terms of number of companies (life 245 and General 107 with complete private sector ownership), the volume of premium, investible resources, and so on. And both type of insurance companies were competitive. - The insurance was regulated through the Insurance Act, 1938. - The picture changed after the Independence.

• In 1956, 245 Indian and Foreign life insurers and provident societies were nationalized, and new single entity namely “LIC” was established by passing the LIC Act, 1956.

• Similarly, in 1972, 107 general insurers were nationalized through the passing of General Insurance Business (Nationalisation) Act, 1972. The existing 107 insurers were amalgamated and grouped into Five companies, viz., National Insurance Company (NIC), New India Assurance Company (NIAC), Oriental Insurance Company (OIC), United India Insurance Company (UIIC), and General Insurance Corporation (GIC). Then insurance industry transformed into monopoly and Oligopolistic state or public sector insurance industry in India.

• Life Insurance Corporation of India (LIC) was formed in September 1956 by an Act of Parliament, LIC Act 1956 with a contribution of Rs. 50 million. The then Finance Minister Mr. C. D. Deshmukh while piloting the bill for nationalization outlined the objectives of LIC thus : “To conduct the business with utmost economy with the spirit of trusteeship; to charge premium no higher than warranted by strict actuarial considerations; to invest the funds for obtaining maximum yield for the policy holders consistent with safety of capital; to render prompt and efficient service to policy holders thereby making Insurance widely popular”.

• Presently the LIC has a network of seven zones; 100 divisions and 2,048 branches, personnel exceed seven lakhs employees and over six lakhs agents.

• Vision: A trans-nationally competitive financial conglomerate of significance to societies and Pride of India. Mission: To explore and enhance the quality of the life of people through financial security by providing products and services of aspired attributes with competitive returns and by rendering resources for economic development.

• Values: Caring and Courtesy, Initiatives and Innovation, Integrity and Transparency, Quality and Returns, Participation and Relationship, and Trustworthiness and Reliability Culture: Agility (quickness), Adaptability, Collaboration, Commitment, Discipline, Empowerment, Sensitivity, and Excellence.

• Objectives: Spread Life Insurance widely and in particular to the rural areas. Maximise mobilization of people’s savings by making insurance-linked savings adequately attractive. Deployment of funds to the best of advantage of the investors as well as the community as whole, keeping in view national priorities and obligations of attractive return. Conduct of business at most economy and with the full realisation that the money belongs to the policyholders. Act as trustee of the insured public in their individual and collective capacities.

PRINCIPLES AND INVESTMENT POLICY OF LIC

• PRINCIPLES AND INVESTMENT POLICY OF LIC’s Security of funds, and Maximization of return of investment, marketable securities being not less than 20% Loans to Housing Bank including above (1) being not less than 25% State Govt. securities including Govt. Guaranteed marketable securities, inclusive of (2) above being not less than 50% Socially oriented sectors including public sector, co-operative sector house building by policyholders, own house scheme, inclusive of (3) above not less than 75% Private corporate sector, loans to policyholders for construction and acquisition of immovable property 25%

LIC Products & Plans• Jeevan Anurag Komal Jeevan CDA Endowment Vesting at 21 Marriage Endowment Or

Educational Annuity Plan CDA Endowment Vesting 18 Jeevan Kishore Jeevan Chhaya Child Career Plan Child Future Plan Child Fortune Plus

• Jeevan Aadhar Jeevan Vishwas The Endowment Assurance Policy The Endowment Assurance Policy-Limited Payment Jeevan Mitra(Double Cover Endowment Plan) Jeevan Mitra(Triple Cover Endowment Plan) Jeevan Anand New Janaraksha Plan Jeevan Amrit

• Jeevan Shree-I Jeevan Pramukh The Money Back Policy-20 Years The Money Back Policy-25 Years Jeevan Surabhi-15 Years Jeevan Surabhi-20 Years Jeevan Surabhi-25 Years Bima Bachat jeevan Bharati-1

• The Whole Life Policy The Whole Life Policy- Limited Payment The Whole Life Policy- Single Premium Jeevan Anand Jeevan Tarang Two Year Temporary Assurance Policy The Convertible Term Assurance Policy Anmol Jeevan-I Amulya Jeevan-I

• Jeevan Saathi Plus Jeevan Saathi Jeevan Nidhi Jeevan Akshay-VI New Jeevan Dhara-I New Jeevan Suraksha-I

• Wealth Plus Market Plus I Profit Plus Money Plus-I Child Fortune Plus Jeevan Saathi Plus

MAJOR PLAYERS• PRIVATE SECTOR COMPANIES Several leading private sector companies

have entered in the field of insurance sector, both in life and non-life insurance. There are several MNCs, in Joint Venture with Indian private sector firms, have started operations in a big way.

• Private Players in the Life Insurance Business Regd. • No. Date of Regd. Name of the Company Who Owns it (in percentage)• 101 23.10.00 HDFC Standard Life Standard Life, UK - 18 and HDFC – 82 • 104 15.11.00 Max New York Life New York Life - 26 and Max India – 74 • 105 24.11.00 ICICI Prudential Life Prudential, UK - 26 and ICICI Bank – 74• 107 10.01.01 Om Kotak Mahindra Old Maruthi, South Africa – 26 and

Kotak Mahindra – 74 • 109 31.01.01 Birla Sunlife Sun Life of Canada–26 and Birla Capital– 74 • 110 12.02.01 Tata AIG AIG, US – 26 and Tatas – 74 • 111 30.03.01 SBI Life Cardif SA, France – 26 and State Bank of India – 74 • 114 02.08.01 ING Vysya ING, Holland–26 and GMR Group, Hyd–54 and ING

Vysya Bank–20

• 116 03.08.01 Allianz Bajaj Allianz AG, Germany – 26 and Bajaj Auto – 74

• 117 06.08.01 Metlife Metlife, US–26, Shapoorji Pallonji–30 and J&K Bank–25

• 121 03.01.02 AMP Sanmar AMP, Australia–26 and Sanmar Group, Chennai–74

• 122 03.01.02 Aviva Aviva PLC, UK– 26 and Dabur Investments – 74 *** ***

• Reliance Life *** *** Bharathi AXA • 127 06.02.04 Sahara India Insurance • 128 07.11.05 Shriram Life Insurance

MARKET SHARE

• Growing at the rate of 15-20% annually 75% population has no insurance Adds 7% to country’s GDP LIC market share come down to 75% and private insurers increased over 24% Annuity or pension product have over 33% of market Unity linked insurance scheme have monopoly

• GENERAL INSURANCE CORPORATION (GIC) Prior nationalization there were 68 Indian insurers (including LIC) and 45 non-Indian insurers did the business. In Nov. 1972, the general insurance business was nationalized by the General Insurance Business (Nationalized), Act 1972 (GIBNA) and vested in the hand of the GIC and its four subsidiaries viz. 1. National Insurance Co. Ltd., 2. New India Assurance Co. Ltd., 3. Oriental Fire and General Insurance Co. Ltd., and 4. United India Insurance Co. Ltd. GIC was incorporated as a holding company in 1992. General Insurance Business is completely owned by the government. The paid up capital of GIC was fully subscribed by the Government and of four subsidiaries. It was controlled by a single organization with four subsidiaries.

• GIC’s four subsidiaries: 1. National Insurance Co. Ltd., 2. New India Assurance Co. Ltd., 3. Oriental Fire and General Insurance Co. Ltd., and 4. United India Insurance Co. Ltd. The Govt of India took over Control, supervision, and policy making is with GIC. The premium income for GIC comes mainly through the obligatory reinsurance premium on a quota share basis from subsidiaries on their direct business in India (almost 20% of subsidiaries business come to GIC).

• TYPES AND STRUCTURE OF BUSINESS General insurance policies are not financial claims. There is no guarantee of renewal of policy on the same terms or on any terms. The contract is short-term contract. The general insurance companies do not collect savings. Policy claims are unpredictable. Assets are held in relatively liquid form. GIC meets the requirements of industrial, manufacturing, commercial, services, household, and agricultural sectors through wide rage of 115 products, granting insurance coverage. GIC has been promoting insurance cover in the field of livestock, poultry, sericulture, horticulture, pump sets, and personal accidents.

• PRINCIPLES AND INVESTMENT POLICY GIC Central Govt. securities being not less than 20% State Govt. securities and other government guaranteed securities, including (1) above, being not less than 30% Loans to HUDCO/DDA/GIC-HF and to state govts. For housing and fire fighting equipment, not less than 15% Market sector not more than 55%

IR D A

• IRDA’S MISSION To protect the interests of the policyholders, to regulate, promote and ensure orderly growth of the insurance industry and for matters connected therewith or incidental thereto. Composition of Authority under IRDA Act, 1999 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. The Authority is a ten member team consisting of a. Chairman; b. five whole-time members; c. four part-time members, (all appointed by the Government of India)

• Duties, Powers and Functions of IRDA

• Section 14 of IRDA Act, 1999 lays down the duties, powers and functions of IRDA. 1. Subject to the provisions of this Act and any other law for the time being in force, the Authority shall have the duty to regulate, promote and ensure orderly growth of the insurance business and re-insurance business. 2. Without prejudice to the generality of the provisions contained in sub-section (1), the powers and functions of the Authority shall include:

• a. issue to the applicant a certificate of registration, renew, modify, withdraw, suspend or cancel such registration

Duties, Powers and Functions of IRDA

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

• c. specifying requisite qualifications, code of conduct and practical training for intermediary or insurance intermediaries and agents;

• d. specifying the code of conduct for surveyors and loss assessors;

• e. promoting efficiency in the conduct of insurance business

Duties, Powers and Functions of IRDA

• F. specifying the form and manner in which books of account shall be maintained and statement of accounts shall be rendered by insurers and other insurance intermediaries;

• g. regulating investment of funds by insurance companies; • h. regulating maintenance of margin of solvency; • I. adjudication of disputes between insurers and

intermediaries or insurance intermediaries; • j. supervising the functioning of the Tariff Advisory

Committee;

CONCLUSION

• Growth of Indian economy is an investment driven growth Opens a wide variety of investment avenues Companies help to gain knowledge of products and services Achieve a better standard for near future life

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