Industry Profile

Introduction If we consider the evolution of mankind, he has been in search of securities like security for food, security for shelter, and security for his life. Protecting ones asset has been a continuous search for both individuals and group of people. When they felt insecurities for their life as well as their assets, they made savings for the protection of their family, to avoid risk This continued in the case of vehicles, houses etc. Life being the most precious of the productive assets similarly needed to be protected. Insurance does not prevent the loss that occurs. It cannot prevent, sinking of a ship due to storm or even death of a person. Insurance means being covered or protected against any hazards of life. It is a financial agreement that binds two people to certain obligations which is known as Policy. One who buys insurance/ gets insurance coverage is the policy holder or insured and the one who sells the policy is the insurer. Insurance can be defined in simple terms as Money when you live, Money when you dont, Money for emergency. History of Insurance in India When insurance came to India, the business was tightly regulated and concentrated in the hands of public sectors. But with the passage of IRDA act in 1999 India abounded public sector exclusivity in the insurance industry in favor of market-driven competition. This shift has brought about major changes to the industry. The inauguration of a new era of insurance development has seen the entry of international insurers, the proliferation of innovative products and distribution channels, and the raising of supervisory standards. The business of life insurance in India in its existing form started in India in the year 1818 with the establishment of the Oriental Life Insurance Company in Calcutta. Year Milestones in the life insurance business in India

1912 1928 1938 1956

The Indian Life Assurance Companies Act enacted as the first statute to regulate the life insurance business The Indian Insurance Companies Act enacted to enable the government to collect statistical information about both life and non-life insurance businesses Earlier legislation consolidated and amended to by the Insurance Act with the objective of protecting the interests of the insuring public. 245 Indian and foreign insurers and provident societies taken over by the central government and nationalised. LIC formed by an Act of Parliament, viz. LIC Act, 1956, with a capital contribution of Rs. 5 crore from the Government of India.

The General insurance business in India, on the other hand, can trace its roots to the Triton Insurance Company Ltd., the first general insurance company established in the year 1850 in Calcutta by the British Year Milestones in the general insurance business in India

1907 1957

1968 1972

The Indian Mercantile Insurance Ltd. set up, the first company to transact all classes of general insurance business General Insurance Council, a wing of the Insurance Association of India, frames a code of conduct for ensuring fair conduct and sound business practices The Insurance Act amended to regulate investments and set minimum solvency margins and the Tariff Advisory Committee set up. The General Insurance Business (Nationalisation) Act, 1972 nationalised the general insurance business in India with effect from 1st January 1973. 107 insurers amalgamated and grouped into four companies viz. the National Insurance Company Ltd., the New India Assurance Company Ltd., the Oriental Insurance Company Ltd. and the United India Insurance Company Ltd. GIC incorporated as a company.

New age insurance companies are embarking on new concepts and more cost effective way of transacting business. The idea is clear to cater to the maximum business at the least cost. While nationalized insurance companies have done a commendable job in extending volume of the business opening up of insurance sector to private players was a necessity in the context of liberalization of financial sector. If traditional infrastructural and semi-public goods industries such as banking, airlines, telecom, power etc. have significant private sector presence, continuing state monopoly in provision of insurance was indefensible and therefore, the privatization of insurance has been done as discussed earlier. Its impact has to be seen in the form of creating various opportunities and challenges. Opportunities Privatization of Insurance eliminated the monopolistic business of Life Insurance Corporation of India. It helps to introduce new range of products which covered wide range of risks.

It resulted in better customer services and help improve the variety and price of insurance products. The entry of new player has speed up the spread of both life and general insurance. It will increase the insurance penetration and measure of density. Entry of private players will ensure the mobilization of funds that can be utilized for the purpose of infrastructure development. The participation of commercial banks into insurance business helped to mobilization of funds from the rural areas because of the availability of vast branches of the banks. Most important not the least tremendous employment opportunities were created in the field of insurance which is a burning problem of the presence day today issues.

Role of Insurance in Economic Development Insurance provides long term capital for investment in the development of economic infrastructure. The basic reason which prompted the Indian Government to nationalize the life insurance business in 1956 was to provide long-term capital to finance the Five year plans.Even today, when the government has opened the economy to multiple players in the field of insurance, the objective is to get a lot of long-term investment to build roads, generate power, transport and other infrastructural facilities for the fast growth of the economy. Life Insurance Corporation of India alone as on 31.3.2000 has invested almost 1.5 lakh crores of rupees in the furtherance of the Indian economy. More than half of it has gone directly to be invested in state and central Government securities and the balance for such nation building activities like electricity boards, housing, water supply, transport etc.The investment in the corporate sector is a mind boggling 28000 crores. If this one life insurance company could do, think of the expectation from the scores of the life and general insurance companies which are going to dot the economic horizon of the country. The growth of services, banking and insurance, improved to 9.9 per cent in 2010-11 from 9.2 per cent in 2009-2010. Impact of Budget 2012 in Insurance Industry All regular-premium life insurance policies issued after April 1, except pension plans, will have to offer a protection cover of at least 10 times the annual premium. Otherwise, they will not be eligible for tax benefits under section 80C and 10 (10D).While 80C allows a deduction on life insurance premium up to Rs 1 lakh, Section 10 (10D) exempts maturity proceeds from tax. Until now, the mandated cover was five times the annual premium.Both unit-

linked insurance plans (Ulips) and endowment plans will be affected due to this change. However, most term plans will fulfill the new requirement. "This is a welcome move as it will ensure a minimum life cover to the policyholders. The new requirement will ensure that they have some protection over a longer period of time. The other tinkering include change in definition of sum assured, lowering the age of senior citizens to claim tax breaks on health insurance premium, extra Rs 5,000 on preventive health care and so on Clearly, the government is nudging individuals to buy pure life or protection policies (term plans, in other words) than the more popular insurance-cum-investment plans such as Ulips and endowment. Since a bigger chunk of the premium will go towards mortality charges due to the mandatory higher life cover, the devotees of Ulips and endowment plans would be left with relatively small amount for investment. A person not looking for a pure protection cover need not buy a life policy at all. Instead, if their objective is wealth-creation, they can direct their funds to instruments like public provident fund, tax-free infra bonds and highly-rated nonconvertible debentures (NCDs), advises Suresh Sadagopan, certified financial planner, Ladder7 Financial Advisories. In terms of equity, depending on their risk appetite, they can invest either directly in stocks or through mutual funds. Based on their risk-taking ability they can choose from large-, mid- and small-cap funds.