Final Gic BB

T.Y.B.B.
I General Insurance Corporation of India
INTRODUCTION
The General Insurance Corporation of India (GIC), a public sector

enterprise was also the largest non-life insurance company and one of the
largest financial institutions in India. GIC used to sell non-life insurance
products and related services. In 2001, GIC reported a gross direct
premium income of Rs.107.72 billion. By April 2002, GIC had a net worth
of Rs.23 billion.
GIC had been operating through its four subsidiaries National Insurance
Company Limited, New India Assurance Company Limited, Oriental
Insurance Company Limited and United India Insurance Company Limited
till December 2000. GIC and its subsidiaries had a network of more than
4,208 offices in India and their customer interface included agents,
development officers and employees at its branch, divisional and regional
offices of its four subsidiaries. The company had a workforce of 85,000.
GIC also operated in the international markets in more than 30 countries,
either through branches or subsidiaries.
GIC offered a variety of non-life insurance policies in the fire, marine,

theft and other miscellaneous segments. It also offered health insurance
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T.Y.B.B.I General Insurance Corporation of India
through its Mediclaim policy. While some of the policies offered by GIC,
like motor insurance, were mandatory, others were designed exclusively
for specific segments for instance the rural insurance, which included
insurance cover for huts, cattle and livestock, hens and crops.
In November 2000, with the liberalization of the insurance industry, GIC

became a national reinsurer the official body for undertaking reinsurance
business for all private and government organizations in the insurance
industry. Many private players had entered the general insurance market,
which led to a significant increase in competition. Competition was
expected to be more intense in the non-life segment than the life segment,
as the term of the non-life policies was very short, and customers could
switch between companies.
Based on the recommendation of the consultants Price Waterhouse

Coopers and MP Chitale all the subsidiaries of GIC were restructured in
December 2000, as independent insurance companies. At the same time,
the General Insurance Public Sector Association was formed to deal with
the common issues related to the four subsidiaries. After the restructuring
New India Assurance Company, one of the four subsidiaries of GIC,
became Indias largest non-life insurer.
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Mission and Values of GIC
Mission
To provide need-based and low cost general insurance covers to the
rural population keeping in mind their low premium paying capacity
To administer a crop insurance scheme for the benefit of farmers.
To develop and introduce covers with social security benefits.
To develop marketing network throughout the country including areas
with low premium potential promote balanced regional development
irrespective of cost considerations and make the benefits of insurance
available to the masses.
To develop general insurance in the best interest of the community.
To provide financial security to individuals, trade and commerce by
offering insurance products and service of high quality at affordable
cost.
Values
Highest priority to customer needs
High standards of public conduct
Transparency in operations
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HISTORY OF GENERAL INSURANCE IN INDIA
The history of general insurance dates back to the industrial revolution in

the western countries and the growth of sea-faring trade and commerce
during the 17th century. The concept of general insurance came to India
during the British rule. General insurers from Britain and other countries
carry out the general insurance business.
In 1928, the Indian Insurance Companies Act was passed to enable the
government to collect statistical information about both life and non-life
insurance business transacted in India by Indian and foreign insurers
including provident insurance societies. In 1938, the Indian Insurance
Companies Act was consolidated and amended by the Insurance Act 1938
to protect the interests of the public.
The Insurance Act of 1938 was amended in 1950, which resulted in far-
reaching changes in the insurance sector. These included a statutory
requirement of equity capital for companies carrying on insurance
business, ceiling on share holdings in such companies, stricter control on
investments, submission of periodical returns relating to investments and
such other information to the controller. The controller could also call for
appointment of administrators and put a ceiling on expenses of
management and agency commission for mismanaged companies.
By early 1970s, there were about 100 Indian insurers carrying on the
general insurance business in India. Malpractice and mismanagement had
crept into the management of these companies. Some insurance companies
either liquidated, or cheated the policyholders. There were complaints of
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falsification and denial of claims, interlocking of funds and other

malpractices by many insurance companies.
To protect public funds, the government started considering nationalization

of the insurance industry. In 1971, as a prelude to the nationalization of the
general insurance industry, the GOI took over the management of all
private general insurance companies. The main objective of this
nationalization was to channelize the insurance funds for the benefit of the
community at large.
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ORGANIZATIONAL STRUCTURE
GIC was a holding company, separate from its subsidiary

companies. It was responsible for broad policy matters that could
affect the general insurance industry in India. The company did not
offer any direct insurance policies except the aviation insurance
policies of Air India, Indian Airlines, Hindustan Aeronautics and
Crop insurance. From the reinsurance business, GIC received 20%
of all direct business written in India by its subsidiaries. Apart from
the four subsidiaries, GIC set up the GIC Asset Management
Company to manage the GIC Mutual Fund, GIC Housing Finance,
and Export Credit Guarantee Corporation.
The four subsidiaries underwrote all types of general insurance

directly as well as through reinsurance in India. They also operated
in the international market. All the companies were autonomous, and
had their own Boards of Directors and management teams.
Figure I: Organizational Structure of GICs Subsidiaries
Head Office

Regional Office

Divisional Office

Branch Office
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The head offices of the subsidiaries were responsible for the

planning direction and control of Indian and foreign business. They
also took care of final accounts, investment, reinsurance and other
specialist functions. Their regional offices were located in the
metros and controlled the divisional and branch offices in their
jurisdiction. Divisional offices were responsible for the
developmental operation of the divisional offices included
appointment of inspectors and agents, marketing, planning and
procurement of business. The administrative operations of these
offices included issue of policies, settlement of claims, maintenance
of accounts and general administration.
The functions of the branch offices were the same functions as those
of divisional offices. However, they were not empowered to appoint
inspectors and settle claims except claims regarding the motor
damage, cattle claims and other claims with certain limits. In
addition, the branch offices were responsible for the development of
issuing of receipts, cover notes and policies.
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ROLE & FUNCTIONS OF GIC
The role and functions of General Insurance Corporation can be divided

into two parts for the convenience of study.
I. Statutory Roles and Functions.
II Roles and Functions relating to Business
I. Statutory Roles and Functions: Statutory Functions are stated

under Section 18 of the General Insurance (Nationalisation) Act, 1972;
under which the Corporation can undertake any activity in the field of
general insurance like personal accident insurance, crop insurance, aviation
insurance etc. The Corporation provides for:
(1) Consultancy in the operation of the insurance business and

determination of high standards;
(2) Necessary advice to subsidiary companies to provide

efficient services to policy holders;
(3)Necessary advice in the matters of controlling the expenses

of the subsidiaries
(4) Advice the subsidiaries in the matters of investments of

funds; and
(5) Issues directions for effective conduct of business of the

subsidiaries.
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II. Business related roles and functions:
The functions of the GIC in the matters relating to insurance business

and its expansion are as follows:
1. The development and regulation of general insurance

business
2. To bring uniformity in the functioning of subsidiaries.
3. Developing new policies keeping in view of the needs of
Agriculture, trade and industry
4. Geographical expansion of insurance business.
5. To do publicity among the people about the uses and
advantages of general insurance.
6. To manage the insurance business on high business
principles.
7. To make available and insurance services to lower and
backward categories of people.
8. To develop and encourage non-traditional insurances like
agricultural crops, livestock, etc.
9. To determine and implement reasonable rate of premium.
10.To develop better relationship between the GIC and its
subsidiary companies.
11.To reconsider the existing rate of premiums.
12.To settle the claims of policies efficiently and with full
satisfaction.
13.To increase the employment opportunity in the area of
general insurance.
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ROLE AND FUNCTIONS OF SUBSIDIARY COMPANIES
All the four subsidiary companies functions under the management,

leadership and control of the GIC, as follows:
(1) To carry on the general insurance business on the basis of the

provisions laid down in the memorandum of association, articles
of association and the rules prescribed by the Central
Government
(2) To operate of the basis of set business principles and the
directions issued by the GIC.
(3) Development and expansion of general insurance business on
public interest.
(4) To enter into the re-insurance contracts to protect their interest
under the rules of the GIC and the central government.
(5) Maximum expansion of business in foreign countries.
(6) To achieve new opportunities in insurance business by creating
healthy competition among subsidiaries.
Apart from offering general insurance through its four subsidiaries, GIC
also entered mutual fund and housing finance businesses. GIC, its
subsidiaries and banks/financial institutions promoted these businesses
jointly. The businesses included: -
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GICs four subsidiaries in India were:
NATIONAL INSURANCE COMPANY LIMITED
NICL, established in 1906, was involved in the general insurance

business. A private body managed the company until 1972, when it
was nationalized under the General Insurance Act. In the same year,
33 companies 22 foreign and 11 Indian were amalgamated with
NIC. The new entity became a subsidiary of GIC.
NICL was headquartered in Kolkata and had about 965 branch

offices with more than 20,000-trained workforce. It also operated in
countries like Nepal and Hong Kong. In 2000-01, NIC reported a
total volume of business worth Rs.19.0648 billion.
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NEW INDIA ASSURANCE COMPANY LIMITED
Set up by Sir Dorab Tata in October 1919 in Mumbai, NIACL was the
largest non-life insurer in India and also in the Afro-Asian region
excluding Japan. Within ten years of establishment, NIACL became leader
in the Indian insurance industry. It offered a wide range of insurance
products ranging from bullock cart insurance to satellite insurance. From
the very beginning, the company offered comprehensive policies like cash-
in-transit. All Risks insurance, Accountants indemnity and Profit
insurance. As a part of the nationalization drive in 1972, 23 other
companies were amalgamated with NIACL and made a subsidiary of GIC.
In 2001-02, the company recorded a business volume of Rs.26.68 billion.
According to the companys website, NIACL was the first to
Set up an Aviation Insurance Dept. in 1946

Handle the Hull Insurance requirements of the Indian Shipping
Fleet
Establish its own Training School
Introduce the concept of Model Offices training
Create technical departments in Engineering insurance
Offer Satellite insurance
NIACLs network was comprised of 26 regional offices, 397 divisional

offices and 688 branch offices. It had a 32% market share in the Indian
general insurance market in 2001. Eventually, NIACL expanded globally
and operated in about 20 countries.
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ORIENTAL INSURANCE COMPANY LIMITED
OICL WAS ESTABLISHED IN 1947 IN New Delhi. It operated through a

network of 21 regional offices, 311 divisional offices and 635 branch
offices set us across the country. Its overseas branches were located in
Nepal, Kuwait and Dubai. The company was into general insurance
business including rural insurance covers. It specialized in special
insurance covers for large projects including power, steel, chemical and
petrochemical plants. In 2000-01, OICL reported a total volume of
business worth Rs.18.4923 billion. According to the company website,
OICL was the first to: -
Have underwritten the biggest Grass Root Refinery Project.
Reliance Jamnagar refinery.
Have issued a Package Policy under mega risk to PSU Oil giants.
Have issued Advance Loss of Profits policy in India.
Have issued Directors & Officers liability policy in India.
Introduce Kidnap & Ransom cover in India.
Have issued Stock Brokers and Stock Exchange custodial services
policy in India
Have issued tailor-made cover for Cellular Communication
systems.
Have front office computerization drive in India.
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The companys policies were popular. Some of its popular policies

included electronic equipment insurance policy, group Mediclaim policy,
householders insurance policy, individual Mediclaim, Janata Personal
Accident, Kissan Package Insurance, motor cycle policy B, Nagrik
Suraksha, Office Umbrella, Overseas Mediclaim Business and Holiday,
Overseas Mediclaim Employment and Study, personal accident policies
(like individual, private car policy B) and shopkeepers insurance.
UNITED INDIA INSURANCE COMPANY LIMITED
UIICL was the second largest non-life insurance company in India. It

focused on Fire, Marine, Motor and Miscellaneous insurance segments. It
operated in India through 723 branches, 368 divisional offices, 24 regional
offices and had employed more than 21,000 employees. The companys
total volume of business stood at Rs.20.4332 billion.
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Nationalization of General Insurance
After the independence, the government of India decided to establish

a Socialistic Pattern of Society, by all round development of the
economy. It was then felt the need of nationalization of public utility
services. As a first step in this process, the government nationalized
the Life Insurance business in the country in 1956. After the
nationalization of life insurance, the question of nationalization of
general insurance was raised by the public. However, in the early
years of independence, nationalization of general insurance was not
felt necessary by the government due to certain reasons.
At that time (in 1960s) the total insurance fund with the Indian
insurance companies engaged in general insurance was limited to a
tune of Rs.60 crore only. Out of which Rs.10 crore were invested in
the government securities. The government, therefore, did not find
the need for nationalization of general insurance business. In 1968,
major amendments have been made in the Life Insurance Act, under
which the Controller of Insurance was given wider powers for
control and regulation of insurance business in the country.
The government wanted to secure the interest of the investors

adequately. Therefore, on May 13, 1971, through an Ordinance
insured by President of India, the government decided to nationalize
the 112 general insurance companies operating in the country at that
time. Out of these companies, 67 were Indian companies and the
remaining 45 were foreign companies. All these companies were
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engaged in fire, marine and miscellaneous insurance business in the

country.
The General Insurance (Nationalization) Act, 1972 came into force

with effect from January 1, 1973.This Act contains 7 chapters and
39 sections. This Act is applicable to the whole of India.
The General Insurance Corporation was established under the

provisions of the General Insurance (Nationalization) Act 1972. This
Corporation is incorporated under the provisions of Companies Act,
1956 with an authorized capital of Rs.75 crore. Its registered office
is situated in Mumbai. It is a Holding Company, which has four
Subsidiary Companies, namely:-
1. The National Insurance Company Ltd., Kolkata.

2. The New India Insurance Company Ltd., Mumbai.
3. The Orient Insurance Company Ltd., New Delhi.
4. United India Insurance Company Ltd., Chennai.
The network of offices of the four subsidiary companies as on 31 st

March, 1999, stood at 83 Regional Offices, 1,241 Divisional Offices
and 2,842 Branch Offices. The company-wise position of network of
offices is given in the Table below:-
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Organizational set up of Subsidiaries as on March 31, 2010
Company Regional Divisional Branch

Offices Offices Offices
(Figures National 20 263 673 in
(19) (254) (681)
New India 23 366 738
(21) (352) (788)
Oriental 18 278 675
(18) (274) (680)
United 22 334 756
India (22) (322) (777)
Total 83 1241 2842
(80) (1202) (2926)
parentheses indicate the number as on March 31,1998)
Source: Annual Report of GIC for the year 1998-99.
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ASSETS OF GIC
Particulars 2010 2011

Investments 82,41 ,797 36,69,24 ,795
Loans 33,736 59,53,935
Fixed Assets 10,084 4,48,945
Cash and Bank 10,68,420 4,75,66,041
Balances
Advances and Other 17,15,561 7,63,76,758
Assets
Deferred Tax Asset 341 15,160
Total Assets 49,72,85, 635 1,11,69,938
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THE PRE-LIBERALIZATION ERA
GIC was set up as a holding company in 1972 as per the General

Insurance Act 1972, under which the general insurance industry in
India was nationalized. Before nationalization, the general insurance
business in India was more urban-centric and served only organized
trade and industry. Therefore, GIC was established with a mission to
offer need-based insurance to the rural population (Refer Table 1)
At the time of nationalization, there were 107 Indian and foreign

insurers offering general insurance products. These companies were
merged and grouped into four companies including National
Insurance Company Limited (NICL), New India Assurance
Company Limited (NIACL), Oriental Insurance Company Limited
(OICL), and United India Insurance Company Limited (UIICL). The
companies were subsidiaries of GIC.
GIC was set up and registered as a holding company with the four
subsidiaries, under the Insurance Act 1938, in accordance with the
provisions of the General Insurance Business (Nationalization) Act,
1972. GIC was fully owned by the government of India (GOI), that is,
its entire paid-up capital was subscribed by the GOI. GIC, in turn, fully
owned the paid-up capital of its four subsidiaries. The four subsidiaries
operated all over the country, competed with each other, and offered all
types of general insurance.
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THE POST LIBERALIZATION YEARS
In 1999, the IRDA Bill was passed by the Parliament, and the
insurance industry was opened for private players with equity
participation of foreign companies limited to 26%. By 2000, a
numbers of private players entered the general insurance market
through joint ventures with leading foreign players.
This resulted in increased competition and GIC was forced to make

several changes in its organizational structure and business
strategies.
In January 2000, GIC took initiatives to deal with competition that

had resulted from the deregulation of the insurance industry. The
global consultancy firm Price Waterhouse Coopers (PWC) and a
chartered accountancy firm, MP Chitale, were appointed to
restructure the GIC and its subsidiaries.
The restructuring plan was focused on customer satisfaction; cost

control, optimum utilization of manpower and business growth. As
a part of the move, GIC also planned to offer employee incentives if
the pre-determined level of customer satisfaction was achieved.
GIC also focused on new areas in health and crop insurance

segments apart from return-linked insurance products. It appointed
management consultant KPMG Peat Marwick to conduct a survey
to study whether the setting up a management service company
(MSC) for health insurance would be worthwhile.
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The consultant was also responsible for managing the health care
products and selection of third party administrators for co-
ordination between the doctors, clinics, hospitals and medical
shops.
Another important step in the restructuring plan was the companys

entry into savings linked insurance product (SLIP) segment. The
MSC was supposed to handle the marketing and processing of
SLIPs. The new product offered medium-term cover for personal
accidents and also returned an assured sum on its maturity.
In November 2000, the government made GIC the national

reinsurer. As per this regulation, all the insurance companies in
India, including the new private players, had to reinsure at least
20% of their business with GIC. Following this change, the aviation
and crop insurance businesses of GIC were transferred to its
subsidiaries.
The Indian Airlines account was transferred to Oriental Insurance

and the Air India account was transferred to New India Assurance.
The government decided to set up a new company to handle the

crop insurance business.
After GIC became the national reinsurer, the Finance Ministry

ordered the four subsidiaries to form an association and jointly deal
with functions like personnel, investment and reinsurance. The lead
to the formation of GIPSA.
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INSURANCE REGULATORY & DEVELOPMENT

AUTHORITY (IRDA)
Composition of Authority under IRDA Act, 1999
Section 4 of the IRDA Act 1999: - Insurance Regulatory and

Development Authority (IRDA), which was constituted by an Act of the
Parliament, specifies the Authoritys composition. The Authority is a ten-
member team consisting of a Chairman, five whole-time members and four
part-time members, all appointed by the government of India.
Duties, Powers and Functions of IRDA

Section 14 of the 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: -
Issue to the applicant a certificate of registration, renew,

modify, withdraw, suspend or cancel such registration;
Protection of the interests of the policy holders in matters
concerning assigning of policy, nomination by policyholders,
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insurable interest, settlement of insurance claim, surrender

value of policy and other terms and conditions of contracts of
insurance;
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 conducting insurance business;
Promoting and regulating professional organizations
connected with the insurance and re-insurance business;
Levying fees and other charges for carrying out the purposes
of this Act;
Calling for information from, undertaking inspection of,
conducting inquiries and investigations;
Including audit of the insurers, intermediaries, insurance
intermediaries and other organizations connected with the
insurance business;
Control and regulation of the rates, advantages, terms and
conditions that may be offered by insurers in respect of
general insurance business not so controlled and regulated by
the Tariff Advisory Committee under section 64U of the
Insurance Act, 1938 (4 of 1938);
Specifying the form and manner in which nooks of account
shall be maintained and statement of accounts shall be
rendered by insurers and other insurance intermediaries;
Regulating investment of funds by insurance companies;
Regulating maintenance of margin of solvency;
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Adjudication of disputes between insurers and intermediaries

or insurance intermediaries;
Supervising the functioning of the Tariff Advisory
Committee;
Specifying the percentage of premium income of the insurer
to finance schemes for promoting and regulating professional
organizations referred to in clause (f);
Specifying the percentage of life insurance business and
general insurance business to be undertaken by the insurer in
the rural sector and
Exercising such other powers as may be prescribed.
GIC ASSEST MANAGEMENT COMPANY LIMITED
GIC Asset Management Company Limited (GICAMC) was set up by GIC

and its subsidiaries in 1993. The company was established with the
primary objective of managing the operations and investments of GICMF.
While GIC and its subsidiaries held 49.5% equity stakes in GICAMC. SC
Management Company, an affiliate of Soros Fund Management. GIC
Housing Finance held US, held 40% stakes and the remaining 10.5%.
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GIC MUTUAL FUND
Set up in 1990, GIC Mutual Fund (GICMF) was sponsored by GIC and its
four subsidiaries. It was formed as a Trust in accordance with the
provisions of the Indian Trusts Act 1882. The trust had launched 15
domestic schemes. Some of its products included GIC Balanced Fund.
DMAT, Growth + Plus II, Fortune, GIC Liquid Fund. GIC Debt Fund,
and GIC Gilt Fund (Refer Table II and Table III)
Table II: GICMF Open-Ended Funds
Name of NAV as on Launch Date Face

Mutual 14.10.2002 Value
Fund of
Schemes Units
GIC 9.19 December 1992. Converted to 10
Balanced open-ended from 31st March
Fund 2000.
DMAT 7.15 26th March 1999. Ongoing sales 10
and repurchases from 1st
September 1999
Growth Plus 9.64 27th January 1994. Converted to 10
II open-ended from 23rd April, 1998
Fortune 6.20 2nd December, 1994 10
th
GIC Liquid 10.48 8 January 2002. Re-opened for 10
Fund transactions from 21st January,
2002
GIC Debt 10.27 --- 10
Fund
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GIC Gilt 10.21 --- 10

Fund
Table III: GICMF Closed-Ended Funds
Particulars GIC Growth Plus GIC Tax GIC Tax

savers Growth saver95
Plan
st
Date of March 31 , 1993 March 31st, March 31st,
Allotment 1994 1995
Repurchased April 1st, 1996 April 1st, 1997 April 1st, 1998
on
Redemption March 31st, 2003 April 1st, 2004 April 1st, 2005
GIC HOUSING FINANCE
GIC Housing Finance (GICHF) was set up in 1989 as GIC Griha Vitta,
jointly by GIC, GICs subsidiaries, Unit Trust of India (UTI), Industrial
Finance Corporation of India (IFCL) and State Bank of India (SBI). The
company was involved in giving loans to individuals as well as to builders
and developers for construction of houses or flats for residential purposes.
Some of its popular schemes included GIC Apna Ghar Yojna (Our Home
Scheme) and Construction Finance Schemes. Upto 2001, GICHF operated
through 10 branches in India and reported sales worth Rs.917.20 million
(Refer Table IV and V
Table IV: GICHF: Income Statement
Particulars Year End-Mar

2001 (in Rs. in
26
million)
Sales 917.20
Other Income 0.90
Operating 756.40
Profit
Interest 684.90
Depreciation 7.20
Net Profit 43.30
Table V: GICHF: Other Financial Information
Particulars Year End. Mar

2001 (Rs. in
million)
Equity Capital 179.70
Reserves & 648.60
Surplus
Long Term 1330.20
Debt
Short Term 4612.90
Debt
Cash 126.90
RECONSTRUCTION OF GIC
The management consultants appointed by GIC laid down four options for
its organizational restructuring:-
Merge all the four companies or form two companies, with

one exclusively conducting corporate business.
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Follow the Malhotra Committee recommendations by

delinking the four subsidiaries from GIC and give them
operational independence.
Allow equity crossholdings among the four subsidiaries and
Entrust one geographical region to each of the four outfits.
The government also planned to raise GICs share capital from Rs.1.07
billion to Rs.2 billion and also raised the capital base of each subsidiary
Rs.1 billion. It also wanted to divest 50% of the equity stakes of GIC and
its subsidiaries to the public including the employees and the subsidiaries.
In September 2001, GOI finalized the restructuring plan for GIC. Instead
of merging all the subsidiaries, GOI decided to delink GIC and its
subsidiaries. Originally, the management consultants had favoured the
merger of all the companies in view of increasing competition. However,
the GOI felt that merger would take a long time to reap the desired benefits
due to which the companies might lose their business. Therefore, GOI
decided that the subsidiaries should operate as independent public sector
insurance companies.
In November 2001, the Finance Ministry decided to introduce a Bill in the
Parliament for restructuring the nationalized insurance company. The Bill
proposed amendments in the General Insurance Business (Nationalization)
Act.1972, to delink GIC and its subsidiaries. In December 2001, the
subsidiaries were delinked from GIC through a government notification.
The Bill was formally passed by the Parliament in March 2002;
Consequently, the four subsidiaries functioned as independent entities,
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which place them in a level playing field with the private insurance
companies. In June 2002, GIC proposed to transfer its equity stake in the
four subsidiaries to the government at book value.
In June 2002, GIC also bought back its 40% stake in GIC Mutual Fund
from the US- based Soros Chattarjee Management (SCM) at Re 1 per
share. A top official of GIC said, The Re 1 offered to SCM for the buy
back was just a token amount. While the total cost of SCMs investment
in GIC Mutual Fund was estimated at Rs.80 million the buy back was
priced at Rs 8 million.
PRIVATE PLAYERS IN THE INDIAN GENERAL

INSURANCE MARKET
1. Tata AIG: - The Tata Group began its activities in 1878, with
trading and manufacturing of textiles. Later on, the group forayed
into businesses like steel, electricity, locomotives, automobiles,
financial services, hotels and information technology. By 2002, it
emerged as Indias largest conglomerate with over 80 diversified
companies. By 2000-01, its total turnover was Rs.4, 12,906 million
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and the value of its assets under it was Rs.4, 47,341 million. The
American International Group is a leading US-based international
and financial services organization and the largest underwriter of
commercial and industrial insurance in the US. It operated in more
than 130 countries of the world. AIGs global businesses also
included financial services and asset management, real estate
investment management, and retirement savings products.
2. Bajaj Allianz General Insurance: - The Bajaj Group was founded

in 1926, with Bajaj Auto being the flagship of the group. It is the
largest two-and three-wheeler manufacturer in India and the fourth
largest in the world. The group has also entered into various
businesses such as herbal healthcare, automobiles, electrical, auto
finance, and engineering. By 2002, it had a turnover of Rs.80
billion. Allinaz AG is one of the largest global insurers, operating in
more than 70 countries and has about 700 subsidiaries. The group
was present in over 18markets in Asia Pacific region.
3. IFFCO-Tokio General Insurance: - The Indian Farmers Fertilizer

Co-operative Ltd. (IFFCO) was formed in 1967 as a multi-unit co-
operative society involved in the production and distribution of
fertilizers. Japan-based Tokyo Marine and Fire Insurance was the
countrys leading property and casualty insurer. It was also the
second largest P&C company and fifth largest insurance company in
the world. Other promoters of the company included Krishak Bharti
Co-operative Ltd. (KRIBHCO) and Indian Potash. The equity
capital for this joint venture was Rs.1 billion, with IFFCO holding
49%, Tokyo 26%, KRIBHCO 20% and Indian Potash 5%. IFFCO
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Tokyo was headquartered in New Delhi with branch offices in about

20 cities.
4. Reliance General Insurance: - Reliance Group was Indias largest

business house with a net worth of US $ 4,889 million as in the year
2000, and with an investor base of more than 5 million. Reliance
Group was also present in the textile, LPG, cellular phones and other
retail and commercial businesses. Reliance Industries Ltd. was the
countrys largest private sector player and a major player in the
Indian petrochemical industry. It planned to enter the insurance
market with Rs.3 billion through its financial arm. Reliance Capital
Ltd. With Reliance Group as the lead investor. The company
planned to consult international insurance consultants to bring in the
best practices in the insurance business.
5. Royal Sundaram General Insurance: - Established in 1954 with a

paid-up capital of Rs.0.02 million, Sundarm Finance Ltd. Was
primarily involved in financially assisting road transport operators
for acquiring commercial vehicles under hire purchase schemes. The
company had become a leader in the industry and then it also got
involved in equipment leasing in 1981. Royal & Sun Alliance of UK
was one of the worlds largest leading insurance companies. The Sun
was established in 1710, Alliance in 1824 and Royal in 1845. The
groups international expansion began in the 18th century when it
into Europe and in the US and Canada in the 19th century. The joint
31
venture, Royal Sundaram General Insurance was established in

March 2001 in Chennai with two regional offices in Mumbai and
New Delhi.
6. ICICI-Lombard: - ICICI bank was the largest private sector bank

in India with an asset base worth more than Rs.1000 billion. It
offered various financial services to individuals and companies,
which included deposits accounts, commercial banking, mortgages,
car loans, personal loans and other banking services. It had a
customer base of more than 5 million and 5 million bondholders
across the country. It had around 400 branches, 120 retail centers,
1005 ATMs and by March 2002 it posted profit worth Rs. 2.5
billion. The Canada based company Lombard Canada Ltd; a
subsidiary of Fairfax Financial Holdings Ltd. was a leading
insurance management company offering insurance management
services to Lombard Groups commercial, personal and specialized
insurance companies. The joint venture ICICI-Lombard General
Insurance Co. was established with a start up capital of Rs.1 billion.
ICICI held 74% stake and Lombard 26% stake in the joint venture.
The company planned to sell policies to the corporate clients of
ICICI. It also planned to sell property insurance for ICICI home loan
seekers and auto insurance for ICICI car loan seekers.
7. Cholamandalam General Insurance Company: - This was set up

by the Chennai based Murugappa Group with a total equity base of
Rs.1.05 billion. Tube Investments of India Ltd. the flagship
company of Murugappa Group held 74% stake with the remaining
26% held by Cholamandalam investments and other group concerns.
32
Cholamandalam General Insurance was the second private player in

India to start operating individually without a foreign partner.
Reliance being the first one.
33
PRODUCTS & SERVICES
General insurance may be described as a way to reduce or eliminate risk of

loss to property. The risks covered by general insurance included fire, the
perils of the sea, death and accidents and burglary. Any risk arising from
these may be insured against at a premium that commensurate with the risk
involved. Thus, insurance is collective bearing of risk; GIC offered a
variety of general insurance products.
General insurance was categorized as:
1) Fire Insurance
Fire insurance was designed to provide financial protection against loss or

damage of property due to fire and other perils specified in the policy. It
was offered for building or a flat: furniture fixtures and other contents, and
loss of profit that is consequential loss, GICs fire insurance policy was a
comprehensive one, called Standard Fire and Special Perils Policy, which
covered many risks apart from those pertaining to fire accidents. The
policy covered loss due to lightning, aircraft damage, and losses due to
terrorist attacks, earthquake, riots, strikes, malicious damage, floods and
landslides. Fire insurance could be taken only by the owner of the
premises to be insured. A tenant was not eligible to insure rented premises.
However, the tenant had the option of insuring the contents of the
premises. The premium was based on the value of property being insured.
The rate of premium for fire insurance was categorized as non-hazardous

and categories I, II and III. Non-hazardous goods had the lowest rate of
premium, which is followed by category I, II and III type of goods.
34
2) Marine Insurance
Marine insurance included cargo and hull insurance. Cargo insurance

offered coverage for loss of damage of goods in transit by rail, sea or air
and articles sent by post: export and import shipments by ocean-going
vessel of all types: and coastal shipments by inland vessels or country
craft. Hull insurance covered ships including hull, machinery, etc.
This policy covered the cargo in transit against marine perils. Marine
perils, also known as perils of the sea, mean the perils consequent from or
incidental to the navigation of the sea or the perils of the seas, such as fire,
war perils, troubles caused by pirates, rovers, thieves, jettisons8, barratry9
and any other perils.
3) Motor Insurance
Motor insurance was offered for different types of cars, trucks, two-
wheelers, three-wheelers, motor rickshaws, taxis and buses. Two types of
motor insurance-Third party and Comprehensive-were compulsory for all
vehicles in India as per the Motor Vehicles Act 1988. The third party
insurance insured only the party/parties other than the owner, in case of an
accident. The comprehensive policy covered the owner as well as the third
party involved.
The pricing of premium for motor vehicles depended on the value of the
vehicle and the place where a vehicle was registered. For instance, in
Mumbai, where claim rate was higher than other cities, the policy premium
was higher. The pricing of premium for Heavy Commercial Vehicles
35
(HCV) depended on the value of the vehicle and the gross laden weight10.
In this category, the driver was insured along with the vehicle. A premium
of Rs.15 was charged for the driver. For all sorts of vehicles insured, the
policy was not valid if the insured vehicle was given for hire, as a reward
given to winners in vehicles racing, speed reliability trails and speed
testing.
4) Personal Accident Insurance
Personal accident policy covered life of an individual in the case of an

accident. This comprehensive policy comprehensively covered death,
permanent disability and loss of limbs and eyesight. In addition, the policy
also offered a stipulated amount to the policyholder depending upon the
principal amount that the policyholder was insured for, in case of his
inability to live a normal life.
5) Health Insurance
Health insurance policies reimbursed expenses incurred due to

hospitalization/domiciliary hospitalization because of some for
illness/disease suffered or accidental injury during the term of the policy.
There were also policies offered for periods of overseas travel and
employment.
6) Liability Insurance
The Compulsory Public Liability policy was designed under the Public
Liability Insurance Act, 1991, that imposed no-fault liability11 on the
36
policyholder. The amount payable as relief was Rs.25, 000 per person for
a fatal accident, Rs.25, 000 per person for permanent total disability,
appropriate amount based on the percentage of disablement in case of
permanent partial disability, and Rs.12, 500 as medical expenses and
Rs.6, 000 for damage of property.
7) Engineering Insurance
Under the category, Contractors All Risks (CAR) policy was offered,
which was designed to protect the interest of civil engineering contractors,
constructing building, bridges, tunnels and others. The policy covered
losses caused by fire, lightening, explosion, flood inundation, windstorms
(of any kind), earthquakes, landslides, theft and burglary, accidental
damage, bad workmanship and other perils. GIC also offered the Erection
All Risks policy that insured the erection of electrical plants and
machinery, equipment and structures that did not involve any civil
engineering work, with the same coverage options as the CAR policy.
Also called the Storage-cum-Erection policy, it covered third party liability
too.
There were many other polices in the engineering insurance category
including marine-cum-erection policy, machinery breakdown policy, boiler
and pressure plant policy, machinery loss or profits policy, advance loss of
profits policy, deterioration or stock policy, and electronic equipment
policy.
8) Miscellaneous Insurance
This category of insurance included burglary theft, workmens

compensation, fidelity guarantee, cancer, Comprehensive Package Policy
37
for jewelry, television sets, Video Cassette Recorders (VCR), furniture,

bankers blanket policies, blood stock (horse) insurance, pet dog insurance,
sports insurance, special contingency policy, oil and energy risk insurance,
satellite insurance, etc.
Property insurance covered land buildings and the contents of the building.
Though there were several types of property insurance packages, property
was usually insured against fire and burglary. Burglary insurance covered
all losses caused by a raised from burglary committed within a premise.
However, a policyholder could claim insurance only if there was a forced
entry12 into the premises. In this case, too, the policy had no limitations
and it was the prerogative of the insured to decide upon the value of the
insurance cover.
NON-TRADITIONAL / RURAL
The policies for rural areas included insurance covers for crops, water
pumps for agriculture, huts, cattle and other livestock.
38
In the kharif season of 1985, the central government introduced the Crop
Insurance Scheme through the GIC. The scheme was offered in 15 states
and two union territories. The central and state governments, the ration of
which was 2:1, shared the premium and claims. The policies were sold
through 11 Crop Insurance Cells at state governments and monitored the
implementation of the scheme.
Crop Insurance Comprehensive Crop Insurance Scheme
The GIC is implementing the Comprehensive Crop Insurance Scheme on

behalf of the Govt. of India since Kharif 1985.In the States where the
scheme is implemented, those State Govts. Are also acting as co-insurers
under the scheme. The premium and claims are shared between Govt. of
India and the State Govts. In the ratio of 2:1. The Scheme is based on an
area approach covering farmers availing crop loans in selected areas for
selected crops. During the year 52.90 lakh farmers and 9.05 lakh farmers
were covered for a sum insured of Rs.2,444.15 crore and Rs.467.08 crore
in Kharif 1998 season and Rabbi 1998-99 season, respectively. The
premium income for the above period was Rs.38.29 crore and Rs.8.06
crore for Kharif and Rabbi seasons, respectively.
The Government of India introduced Experimental Crop Insurance Scheme

(ECIS) during Rabbi 1997-98 season in 14 Districts and 5 States. The
Scheme was withdrawn after implementation for one season. The
performance of the Scheme during Rabbi 1997-98 season was as under:
Farmers covered 4,78,175 sum insured Rs.16,893.71 lac. Insurance

Premium Rs.285.72 lac and claims reported Rs.3,978.26 lac.
39
Further, the Government of India has introduced National Agricultural

Insurance Scheme (NAIS) w.e.f. Rabbi 1999-2000 season and the existing
Comprehensive Crop Insurance Scheme stands withdrawn from Rabbi
1999-2000 season. Some of the main features of the Scheme are as under:-
1 The Scheme covers all farmers (both loanee and non-loanee)

2 In addition to crops covered under the existing CCIS (Food
crops & Oil Seeds). Annual Commercial/Annual Horticulture
Crops (Sugarcane, Potato and Cotton) are also covered.
3 The premium rates are rationalized for food crops and
oilseeds. For Annual Commercial/Annual Horticultural Crops,
actuarial premium rates would be charged.
4 The sum-insured limit is increased from Rs.10,000 per farmer
(as under the existing CCIS) to the Value of 150 percent of
average yield of the crop.
5 In case of localized calamities, loss assessment shall be on
individual basis.
6 Non-loan farmers can submit their proposals directly to GIC
for insurance cover. To begin with, it will be experimented in
limited areas.
Rural Insurance:-
The Rural and Non-Traditional Insurance Business has registered an
impressive growth during the year 1998-99. As against premium of
Rs.338.16 crore in 1997-98, premium written has arisen to Rs.457.98 crore
40
with the growth rate at 34.43 per cent. The performance of

Cattle/Livestock and Poultry Insurance Business was satisfactory with a
growth rate of 15.04 per cent and 29.97 per cent respectively, whereas
growth under Janta Personal Accident was 73.28 per cent. The following
new policies and review of existing policies were undertaken during the
year:
1. The JPA/GAP Insurance and Farmers Package Insurance policies are

brought under the Market Agreement w.e.f. 15th January, and 1st Feb.
respectively.
2. Major changes have been made in the JPA policy viz. (a) sum
assured is restricted to Rs.1,00,000, (b) Long Term and Group
Discounts taken together are not to exceed 60 per cent, Long
Term Policy can be issued for a maximum period of 5 years, and (d)
Group discount is available only to the listed groups.
3. A new Central Sector Scheme on Cattle insurance has been devised

for poor people living below Poverty Line, who are not covered
under any Governmental Scheme on subsidized premium rate. The
scheme will be implemented in 8 selected districts by the New India
Assurance Company Ltd.
4. A new Aquaculture Insurance Policy has been devised and it is

Brought under Market Agreement with effect from 1st January
SOME OF THE POPULAR PRODUCTS OF GIC
Mediclaim
41
The Mediclaim policy covered people for medical expenses for a minimum
policy amount of Rs. 15,000 and a maximum amount of Rs. 0.3 million.
Mediclaim policy was of two types including the individual policy and the
corporate policy. The individual policy was offered to either individuals or
to a family as a whole. The corporate policy was offered to corporates to
insure all their employees less than one scheme.
Overseas Mediclaim Insurance
This policy offered medical reimbursement in foreign currency. Many

countries across the world had made it mandatory to have medical cover
before entering their territories and therefore, this policy gained popularity.
It covered expenses relating to the physicians fees, hospital expenses,
local emergency, medical transportation and medical services; dental
treatment for immediate relief (limited expenses); emergency medical
evacuation expenses, as ordered by a physician, in case of critical illness or
injury, up to nearest suitable Medicare center, medical evacuation
including transportation and medical care en route, to insured persons
place of residence in India. In case of the insured persons death, the policy
reimbursed the expenses incurred in preparing and transporting his remains
to India or for burial or cremation in the local area.
GIC also launched some new products in the late 1990s. It offered
personal insurance products with a savings feature, which were exclusively
offered by the Life Insurance Corporation of India (LIC). The products
were launched in consultation with foreign insurance companies like
Mitsui Marine and Fire Insurance Company and Tokyo Marine of Japan.
42
These products were offered with a medium maturity of ten years, unlike
the LIC products offered with a maturity period of twenty years.
Videsh Yatra Mitra policy
Launched in January 1998, Videsh Yatra Mitra policy was another special
policy in the miscellaneous insurance category. It offered indemnity for
medical expenses during the period of overseas travel. There were two
types of Videsh Yatra Mitra policy one that offered benefits up to
US$2,50,000 for worldwide travel excluding the US and Canada and the
other offering benefits up to US $ 5,00,000 for worldwide travel including
the US and Canada.
Apart from medical coverage, the policy also offered coverage for personal
accident up to US $ 25,000; loss of personal baggage up to US $ 1,000;
delayed baggage up to US $ 100 and personal liability up to US$2,00,000.
The advantage of the policy was that the premium amount was only 14%
more than that of the overseas Mediclaim policy, and the medical benefits
increased by about five times along with some supplementary benefits.
Bhagyashree Child Welfare Policy
In October 1998, GIC launched the Bhagyashree Child Welfare Policy,

which offered coverage to a girl child in the age group of 0-18 years,
whose parents were not aged above 60 years. The scheme aimed at
offering cover to one girl child in a family who had lost either the father or
the mother or both in an accident. An amount of Rs. 25,000 was deposited
by GIC in the name of the girl child with a financial institution. The
43
financial institution made annual disbursements (Refer Table VII) from the
deposit amount for the benefit of the girl child to the living parent or to the
nominated guardian, till she reached the age of 18 years. The balance
amount to her credit was disbursed on her attaining the age of 18 years.
Bhagyashree Child Welfare Policy: Annual Disbursements by

the Financial Institution
Age of the Amount of Payable to

Child Compensation
1-5 years Rs. 1200 per Surviving parent or guardian looking
annum after the child.
6-11 years -do- Surviving parent or guardian provided
the child is admitted to school and
expenditure is incurred on her
education.
12-17 Rs. 2400 per Surviving parent or guardian provided
annum the child is admitted to school and
expenditure is incurred on her
education.
18 years Balance amount To the girl child
Raj Rajeshwari Mahila Kalyan Yojana
In October 1998, the Raj Rajeshwari Mahila Kalyan Yojana was

introduced, that offered security to women in the age group of 10 to 75
44
years irrespective of their occupation. For a premium of Rs. 15 per annum,

the policy offered a cover of Rs. 25,000 for permanent total disablement of
the insured women. The policy also offered a cover of Rs. 25,000 for the
death of her husband. In case of the death of an unmarried woman, the
policy offered a cover of Rs. 25,000 payable to her nominee/legal heir.
Jald Rahat Yojana
GICs subsidiaries introduced the Jald Rahat Yojana quick payment of

compensation to road accident victims. Under the scheme, a claimant was
not required to go to the Motor Accident Claims Tribunal for claiming
compensation; he could directly approach concerned insurance company.
Non-fatal injury claims involving accident victims of 18 years and above
were taken up. The scheme was initially introduced in Ahmedabad,
Mumbai, Bangalore, Calcutta, Delhi, Kochi, Chennai and Pune.
GIC sold intangible products, whose delivery was contingent in nature.

Therefore, the pricing of the products also had some unique features, as the
actual claims cost was known only later and not at the time of sale. The
premium was fixed on the basis of past experiences that were reviewed
periodically. Pricing of general insurance products was based on claims
cost, business acquisition cost, management expenses and margins for
fluctuations in claims experience and reasonable profit.
The Farmers Package Insurance
Property/Contingency Risks Sum Insured

Dwelling hut/house Fire, lighting, natural perils, Rs. 5000
45
and contents impact damage, riot, strike (dwelling)

malicious damage Rs. 1000
(contents)
Cattle (indigenous Death (accident/disease) 2 cattle heads @
permanent total disablement, Rs. 2000 each
breeding/calving risk
Agricultural pump set Fire, theft, machinery 100% of market
(up to 5 HP) breakdown value
Bullock cart Death/permanent disability Rs. 2000 (2
of animal due to accident, bullocks)
damage to cart, third party Rs. 1000 (cart)
liability, personal accident to
the driver.
Gramin personal Death/permanent total Rs. 6000 each
accident (insured and disablement
spouse)
The Tribal Package Insurance
Property/Contingency Risks Sum Insured

Huts/Dwelling/cottage Fire, lighting, riot, strike, Rs. 2000
industry sheds malicious damage, natural
perils, aircraft damage, etc.
Contents -do- Rs. 1000
46
Personal accident Death/permanent total Rs. 10,000

disablement/partial
disablement/loss of limbs
Hospitalization/domiciliary Accidents and major disease, Maximum
hospitalization renal diseases, Rs. 4000 per
cerebral/vascular strokes, person per
coronary hearts diseases, period of
bypass surgery, TB, tumors cover
etc.
47
Reinsurance Programme for Indian Business:

The main thrust of the Reinsurance Programme of the Industry has been to
maximize retention of premiums within the country consistent with
securing the best protection with good securities at optimum cost.
Considering the increase in net worth and growth in premium volume, the
Indian market retention has been increased for all classes. To protect this
increased retention, additional excess of loss protection has been arranged
for property and marine classes. The overall cost of the excess of loss
protection has been arranged at a reduced cost as compared to 1997-98.
Swift Division:
Way back in 1991, Foreign Inward Facultative and Non-Reciprocal treaty
acceptances were centralized at GIC through Swift Division on behalf of
the four companies and GIC with the objective of ensuring reasonable
limits of acceptances. During the year under review, treaty business of the
Division generated accounted premium net of retrocession of Rs.203.31
crore as against Rs.183.92 crore in the previous year. After accounting for
paid claims and other deductions, the Division has produced a surplus of
Rs.13.3 crore. Outstanding loss provision for the year has increased form
Rs.174.3 crore to Rs.225.7 crore due to losses like Hurricane Georges,
Indonesian Riots, Bangladesh Floods and other risk losses. This has led to
a deficit of Rs.37.3 crore for the market.
Facultative business has resulted in premium income of Rs.1.99 crore

during the year as against Rs.2.05 crore in the previous year. Net profit
after all deductions and provision for outstanding losses amounted to
Rs.1.49 crore. Both treaty and facultative business accepted by SWIFT are
being equally shared between GIC and subsidiaries.
48
Foreign Operations:
Corporation and subsidiary companies operate through branches or
agencies or associate/subsidiary companies in 31 countries as listed below:
List of Foreign Countries in which the Corporation or a
Subsidiary company is operating
A. Directly
1. Australia 10. Nepal
2. Bahrain 11. Netherlands Antilles
3. Canada 12. Oman
4. Fiji 13. Philippines
5. France 14. Saudi Arabia
6. Hong Kong 15. Thailand
7. Japan 16. United Arab Emirates
8. Kuwait 17. United Kingdom
9. Mauritius
B. Through Subsidiary Companies and Associated Companies
1. Antigua 8. Liberia
2. Barbados 9. Malaysia
3. Dominica 10 Nigeria
4. Guyana 11 Sierra Leone

5. Ghana 12 St. Lucia
6. Jordan 13 Singapore
7. Kenya 14. Trinidad & Tobago
49
During the year ended 31st March 1999, direct overseas operations of the
four subsidiary companies produced a gross premium of Rs. 427.49 crore
as against Rs.382.95 crore in the previous year. Branch net premium
income was Rs.383.89 crore as compared to Rs.343.04 crore in the
previous year. The branch net claims during the year amounted to
Rs.293.28 crore (76.4% of net premium)
Grievance Cell
Customer Grievance Cells in the Regional Offices/Field Offices of the four

companies are working well and as per reports received, 81.43 % of the
grievances have been cleared. The Grievance Cell at GIC monitors the
grievance cases received directly by GIC and also those pending with
companies. The GIC Grievance Cell also monitors the complaints received
from the Ministry of Finance, Members of Parliament, Cabinet Secretariat,
Directorate of Public Grievances as also from Consumer Guidance Society
and/or Registered Organisations, Consumer Disputes Redressal
Forums/Commissions and sees to it that complaints are dealt with
expeditiously.
Customer Services: Lok Adalat:

The movement of Lok Adalat for settlement of Motor Third Party Claims
has been institutionalized and the same has been in existence for almost 14
years. The General Insurance Industry puts in alround efforts to ensure
maximum settlement of claims in this forum. During the year of report,
industry participated in 1,287 Lok Adalats, settled 48,016 claims disbursed
Rs.286.55 crore by way of compensation.
50
THE INDIAN GENERAL INSURANCE INDUSTRY IN PRIVATE

SECTOR
In the 1970s, the general insurance industry was nationalized in

order to increase the penetration of insurance in the country and
make it available to the lower segments of the society, particularly
the rural population. However, even after 40 years of
nationalization, only 25% of the insurable population was covered
by insurance. This was one of major reasons that lead the GOI to
liberate this sector, so that private players could work towards
extending the reach and coverage of insurance across the country.
In the early 1990s, there was a major shift in the governments

macro economic policy due to two developments the end of the
Cold War and collapse of Communism. The concept that market
dynamics should be the decisive factor in economic matters was
gaining wide acceptance. The government controlled price regimes
were increasingly being perceived negatively, which resulted in
liberalization of the governments economic policies. Another major
development was Indias entry in to the World Trade Organization
(WTO), which resulted in increased foreign commitments of the
country. This led to the opening up of sectors like telecom,
insurance and power for private participation.
The governments decision to allow private players to enter into the

insurance market in India faced stiff opposition from both political
parties and employees of state insurance companies. Finally, after
prolonged debates and discussions, the insurance sector was
51
liberalized in 1999, with the passing of Insurance Regulatory and

Development Authority (IRDA) Bill. IRDA was the regulatory
authority for the insurance sector in India. It had the powers to grant
licenses to foreign players to operate in India, and formulated
operational rules and regulations for the functioning of insurance
companies.
According to IRDA guidelines, foreign players were permitted to

enter India in partnership ventures with an equity stake restricted to
26%. In spite of the regulation, many foreign players entered into
partnership with Indian companies to start operations in India.
According to IRDA regulations, banks were allowed to enter the
insurance sector on the condition that their capital adequacy ratio
should be around 9%. Many analysts felt that, due to this rule, none
of the public sector banks, except SBI, could enter insurance sector.
From early 2000 onwards, IRDA started granting licenses to the

private players for offering general insurance services. Royal
Sundaram, a joint venture of Sundaram Finance and Royal & Sun
Alliance, was the first company to enter the liberalized Indian
insurance industry. By July 2002, there were seven private players
in the industry; most of them formed as joint ventures with foreign
players.
52
Marketing
GIC did not seem to have formulated any concrete marketing

strategies until the government of India had announced the
liberalization of the Indian insurance industry. Since the company
enjoyed a monopoly status in the market, it did not focus on
marketing. Moreover, as some of the general insurance policies
were mandatory, the company did not need to market them. GIC did
not seem to focus on providing better service to the policyholder
also.
In the pre-liberalization era most of the agents and development

officers were more interested in getting more customers and there
were many complaints about poor customer service. The primary
reason was that therein incentives depended only one new business
generated and not on customer satisfaction. However, after the
liberalization of the insurance industry, competition in the sector
intensified, forcing GIC and its subsidiaries to focus more on
marketing initiative and improving customer satisfaction.
The Insurance Advertisements and Disclosure Regulations Act,

2000, governed the advertisements of GIC and its subsidiaries. As
per the regulation, an insurance advertisement is any communication
related to a policy that would intend to result in the sale of a policy
or its solicitation by the public. It included all forms of printed and
published materials, or any material using the print and/or electronic
media. The companies could advertise through newspapers,
53
magazines and sales talk; billboards, hoarding, panels; radio,

television, website, e-mail, portals; representations by
intermediaries; leaflets; descriptive literature/circular; sales aid
flyers; telephone solicitations; business cards; videos; and faxes.
NIACL, the largest non-life insurer, was the first company to come
up with advertising campaigns in the print and other media. The
company also introduced innovative insurance policies at frequent
intervals, particularly for the weaker sections of the society. The
company introduced these policies after analyzing peoples
requirements through carefully designed market surveys, and
through prolonged discussions with marketing team, the Chamber of
Commerce, all the state governments and also the customers.
NIACL also took some steps to improve the quality of service. It
installed touch screen computers for easy accessibility of policy
particulars, conducted market surveys to identify customer needs
and also added services like risk management and risk inspection.
UIICL also took some major marketing initiatives with many private
players entering the market. It allocated Rs.100 million for brand
promotion. The company also planned an aggressive marketing
drive for penetrating into the rural and personal line of insurance
segments. V. Jagannathan, chairman, UIICL, said the campaign is
aimed at settling all non-suit claims instantly in any of our offices.
The idea is to drive home the point that customer is the be al and et
al for us. However, claims which are disputed in the courts of law
will not come under the purview of the campaign.
54
In February 2002, in a move to further penetrate smaller towns and

rural markets, UHCL announced plans to set up single-man offices
in semi-urban areas. It also announced plans to set up andagents
grievance cell to solve its agents problems.
In August 2002, UHCL appointed five companies as Third party

Administrators (TPAs) 13 for its Mediclaim policies. This enabled
Mediclaim policyholders to avail the benefits of cashless
settlements in hospitals from September 1,2002 onwards. Prior to
the introduction of this facility, the policyholders had to settle their
hospital bills first and claim it from the insurance company later.
The five TPAs selected by the UHCL included Med Save Health
Care of New Delhi, Family Health Plan promoted by the Apollo
Group, Hyderabad. Medicare TPA Services (India) Pvt. Ltd. of
Collate, ICAN Health Services Pvt. Ltd. Pune and Paramount Health
Services (Pvt.) Ltd., Mumbai.
In July 2002, UHCL came up with an ad campaign on a hoarding.

The hoarding read, UI the cover fielder in Lagaan. Our role in
Asmirs14 hit film was to back it up with insurance, UHCL had
offered different types of covers at all stages of the production of the
film like losses due to the death of artists, increase in artists
expenses due to the postponement of schedules, and losses caused
by fire etc. The company announced new types of covers in this line
of insurance to deal with the increasing competition.
GIC also aimed at improving customer relationships by taking steps

to quicken reinsurance acceptances and settlement of claims. It also
55
concentrated on major customer center parameters like promptness

in issuing of documents and settlement of claims. It also entered
into collaboration with the India Institute of Technology, Guwahati,
to re-orient and re-design its computerized network.
In October 2002, NICL announced its plans to enter into agreements

with banks in order to sell its insurance products. It entered into an
agreement with the Indian Overseas Bank and had talks with other
commercial banks to sell personal line of insurance products. With a
focused marketing approach, the company expected to garner a
premium income of Rs.27 billion in the next financial year. It
launched a new personal line product called Sampoorna Surakshaa
(complete protection), including cover for personal accident,
damage caused to residential building, personal damages, a modified
Mediclaim, personal computer and a private car/motorized two-
wheeler package and professional indemnity. It was initially aimed
at employees in various state departments.
56
HUMAN RESOURCES
GICs employees were grouped as Class I, II, III and IV. The officers
were the Class I employees, development officers were the Class II
employees and supervisory staff were the Class III employees, and
subordinate staff were the Class IV employees. In 1997, a new wage
revision policy was proposed and two new practices were introduced
12% wage hike for all and concept of Productivity Linked Lump
sum Incentive (PLLI). Prior to the implementation of this wage
revision policy, the wages for the employees were revised in
accordance with the wage revision for the banking industry.
GIC, being a public sector company, analysts felt that its officials
were not free to take decisions and to function freely. The employee
unions were also reported to be strong Over-staffing was reportedly
a major problem faced by GIC and its subsidiaries. At the same
time, there was a shortage of qualified risk assessors. The lack of
technically qualified assessors led to underwriting losses. It was also
reported that entrusting responsibility to people was not done
rationally with high and unrealistic targets set for obtaining business.
Which led to low accountability of employees.
With competition in the market increasing, the premium income of

public insurance companies was expected to reduce by 30%.In
November 2001, the GOI announced that about 14,000 development
officers of GIC and its subsidiaries across the country might be
retrenched, based on the recommendations of GIPSA. In NIAC
alone, about 4000 development officers were to be retrenched. The
57
company planned a VRS. Which was initially meant for Class II

officers. The scheme was planned to be extended to Class III
employees, if it was successful with the Class II employees.
GIC felt that Class II officers (Development Officers) should be laid

off, as their services were not needed in the liberalized insurance
industry. Prior to privatization, these officers were responsible for
increasing the companies business by acting as intermediaries. The
private insurance companies, did not have any development officers,
instead, they were making use of insurance agents, who secured
business for different insurance com companies and received
commissions or brokerage in return. The public insurance
companies decided to follow this course of private players.
In February 2002, all the clerical unions of the general insurance

companies rejected the proposal for the VRS. Commenting on the
proposed VRS, M. Karthikeyan, the General Secretary of the GIC
Employees Union said, GIPSAs move is suicidal and repressive
and it disregards the long-term financial implications on the
industry. In addition, excluding one segment of employees from the
purview of the scheme is discriminatory.
58
FINANCE
In 2010, GIC and its subsidiaries reported a total loss of Rs. 17.22
billion as compared to the loss of Rs. 12.14 billion in 2000 and Rs.
6.87 billion in 2009. The net premium from fire insurance business
stood at Rs. 21.50 billion compared to Rs. 24.04 billion in 2000.
The net premium from the marine insurance business stood at Rs.
8.28 billion as against Rs. 8.46 billion in 2000.
The motor insurance business reaped a total premium amounting to

Rs. 33.62 billion in 2001 and Rs. 23.17 billion in 2000. The theft
insurance business earned a premium amounting to Rs. 6.88 billion
in 2001 as against Rs. 6.49 billion in 2000. Premium from other
miscellaneous insurance business stood at Rs. 38.62 billion in 2010
as compared to Rs. 37.33 billion in 2009.
In 2001, GICs profit from its fire, marine and theft insurance
business of GIC stood at Rs. 4.93 billion. However, the motor and
other miscellaneous insurance operations of the company suffered
huge losses at Rs. 22.15 billion. This resulted in the losses for all
the insurance companies, as it happened in the previous two years.
This huge loss was attributed to losses in third-party claims relating

to motor insurance business and miscellaneous insurance business.
The loss suffered by these businesses was attributed to the
substantially low premiums collected, as compared to the claims
paid out. In 2009-2010, the total income from motor insurance
stood at Rs. 35.53 billion Rs. 33.62 billion of net premiums from
motor insurance and Rs. 1.91 billion of commission earned through
59
its insurance business. In comparison, the total expenditure,

including claims paid and other expenses, stood at Rs. 52.39 billion.
This resulted in a total loss of Rs. 16.85 billion in the motor
insurance business.
GICs investments in foreign operations, as on March 31, 2010,

amounted to Rs. 757.9 billion in the form of total paid-up capital in
three wholly owned subsidiaries including Indian International
Insurance Pte. Ltd. In Singapore. The New India Assurance
Company (Sierra Leone) Limited and the New India Assurance
Company (Trinidad and Tobago) Limited. In addition, GIC also
operated in 17 other countries through 45 branches.
GIC had reported losses from its international operations for three
consecutive years. In 2008-09, GIC reported a loss of Rs. 618.2
million and Rs. 452.25 million during 1999-2000. The loss
increased sharply to Rs. 1188.5 million during 2009-2010.
The losses incurred by GIC in the insurance related business were

counterbalanced by the income derived by GIC and its subsidiaries
through investment GIC derided Rs. 22.78 billion in 2008-09, Rs.
24.92 billion in 2009-2010 and Rs. 26.96 billion in 2010-11. GIC
also received dividends of Rs. 650 million from three of its
subsidiaries at the rate of 20-25%.
GICs investible funds had come down from 23.32 billion in 1998-
99 Rs. 18.43 billion in 2010-11. The decrease in investible funds
was attributed to the reduction in fire insurance premium, increased
claims payments, week economic conditions, fall in interest rates
and higher incidence of non-performing assets.
60
SOCIAL RESPONSIBILITY
The provision of social security was a responsibility of the State, as

per the Schedule 7 of the Constitution of India. The laws passed by
the State to serve the purpose included the use of insurance
compulsory or voluntary as a security tool. The Employees State
Insurance was one such scheme, which took care of the expenses
incurred due to sickness, disablement, maternity and death, for the
benefit of industrial employees and their families, insurers played an
important role in the social security schemes sponsored by the GOI.
The Insurance Act, 1938, made it mandatory for insurance

companies to offer a percentage of business to the people in the rural
sector. They had to offer insurance to workers in the unorganized
sectors, economically backward classes of the society and other
categories listed by the IRDA. To pursue the above rules, the IRDA,
issued the Obligations of Insurance to Rural or Social Sectors
Regulations 2000 in 2000.
All the rural insurance schemes operated on a commercial basis and

were designed to offer social security to the rural population. GIC
started special insurance schemes at subsidized premium rates to
offer covers for livestock like cattle, sheet, goad and animals like
silkworms and honeybees. It also offered covers for plantation and
horticultural crops like rubber and grapes, property like agricultural
pump sets; poultry; and offered aquaculture insurance for
shrimp/prawns. It also offered insurance for failed wells, salt works,
cycle rickshaws, animal driven carts etc.
61
GIC also offered the personal accident policy in rural areas with a
premium of Rs.5 per policy. Known as the Gramin Personal
Accident Policy, the sum insured was fixed at Rs.10, 000 for death,
loss of two eyes/two limbs and/or permanent total disablement. GIC
also offered insurance for dwelling huts that were constructed with
financial aid from banks or co-operatives or government institutions.
Under the Insurance Act, GIC was also obliged to offer insurance to
the social sector. However, GIC and its subsidiaries offered services
without the statutory obligations, in collaboration with the
government of India. In 1985, the GOI introduced the Personal
Accident Social Security Scheme (PASS) for the benefit of poor
families. GIC and its subsidiaries were responsible for the regulation
of the scheme.
In 1989, the government of India launched the Solatium Fund-1989,

to provide compensation to the victims of hit and run motor
accidents. The general insurance industry and the central and state
governments jointly contributed to the fund. The scheme required
GIC to nominate offices of its subsidiaries in each district for
settlement of claims within six months from the date of accident and
it was also responsible for the functioning of these offices.
In June 1999, GIC launched the Rashtriya Krishi Bima Yojana

(National Agricultural Insurance Scheme) to offer insurance
coverage and financial support to farmers when the crops failed due
to some natural calamity, pests or diseases.
62
General insurance industry records 24.1% growth

The general insurance industry has recorded a 24.1% increase in premium
collection at Rs 16,577.7 crore in the first eight months of the fiscal against Rs
13,350.1 crore during same period previous year, according to data compiled
by Insurance Regulatory and Development Authority (IRDA).
The market share of new players continued to stay at 35% in the current fiscal,
up from 26% last year. While 35% was contributed by the eight private players
and remaining 65% came from the four public sector players New India,
Oriental Insurance, National Insurance and United India.
ICICI Lombard grew premium collection by over 90% to Rs 2,078.6 crore in the
April-November period followed by Bajaj Allianz General Insurance, which saw
35.3% increase in premium income at Rs 1,158.8 crore.
Market leader New India grew business by 10% to Rs 3,337.1 crore in April-
November, the highest premium collection by any company during the period.
Clocking 13.6% growth, Oriental Insurance collected Rs 2,647.8 crore in
premium, while National Insurance witnessed a mere 5.06% growth in business
at Rs 2,311.6 crore during the period.
United India increased premium collection by 12.3% to Rs 2,093 crore. Among

the private players, Reliance General posted a record growth in premium of
419.53% at Rs 100.25 crore during the period under review
63
64
FUTURE OUTLOOK
Analysts felt that GICs future looked bleaker after the deregulation
of the insurance industry in India. Competition was tougher in the
general insurance segment, as compared to the life insurance
segment. In life insurance, customers were locked in for life or at
least for a minimum of 10 years. In general insurance, most of the
policies were mandatory and had to be renewed annually. With the
entry of private players and increasing competition, customers now
had more choices and they had become highly price sensitive. They
were not loyal to any specific company. Moreover, switching from
one company to another did not involve any cost or inconvenience.
In addition, building trust was not considered very important in this

segment. The general insurance policy was not devised as an
investment vehicle and the risk covered was limited to the term of
the policy. There were no long-term benefits involved in the policy.
Therefore, private companies could attract customers mostly by
offering lower premiums and some extra riders.
Some analysts felt that GIC certainly was in an advantageous

position, the most significant fact about it being its well-established
extensive infrastructure across the country. Its distribution network
was well developed, resulting in lower distribution costs in a highly
competitive industry. GIC was in the general insurance market for
more than 25 years and seemed to have built strong relationship with
its customers, which could be leveraged to maintain its sales. GICs
65
subsidiaries were familiar with the dynamics of competition.

Though the subsidiaries were not competing on price, they were
competing for customers and revenues. In addition, after the four
subsidiaries expanded across the country irrespective of the regions
they were established in, they started competing for market shares
too.
Analysts felt that GIC would retain at least 50% of the market
during 2000-10. The public sector company would need to plan
carefully to retain its penetration and expand its market. It might
prove to be difficult for the new entrants to plan the entry strategies
and market positioning to take away market share from the public
sector companies.
In April 2002, GIC and other public insurance companies announced

that they would form a pool to provide insurance cover to damages
caused due to terrorist attacks. The pool was started with a fund of
Rs.2 billion to which all insurance companies had contributed, the
major contributor being GIC and four public insurance companies.
GIC was responsible for the management of the pool.
As GIC was made the national reinsurer after GICs restructuring,

the company started focusing more on the reinsurance business. In
July 2002, GIC planned to reinsure a part of high-value risk of
celebrity insurance policies of LIC. LIC could underwrite risks for
any life policy up to a limit of Rs.4 million. For any life policies
higher than Rs.4 million, GIC planned to reinsure. Analysts said
that, though this move of GIC may start on a moderate scale, the
66
business might translate into a large one. For this purpose, GIC set
up a life insurance department. Three middle level executives from
LIC were appointed to develop the systems and procedures of the
new department.
In September 2002, GIC announced that it has chalked out a five-

year plan to achieve a net premium of about Rs.25 billion from
overseas markets. Currently, the company reported Rs.2 billion of
net premium earned from overseas markets. The high expectation of
overseas premium resulted from the terrorist attacks on the WTC in
the US and exit of some of the major insurers from the reinsurance
market like Royal and
Sun Alliance. Copenhagen Re and Assicurazioni Generali. To earn a
higher premium GIC was targeting the markets of Africa, the
SAARC countries, West Asia, the Far East, Europe, Russia,
Australia and New Zealand. It is planned to set up representative
offices in the Middle East (Dubai) and South East Asia (Singapore
or Labuan). As a part of the growth plan, GIC also aimed at forming
marketing, technical and R & D divisions.
Need for Accuracy in Pricing of Risks

The continual entry of new private players coupled with the intense
competition owing to the de-tariffication of the general insurance
sector has also resulted in strengthening the bargaining power of the
customers and development of customer centric insurance products.
While the customer has benefited on account of the detariffing, the
impact on the insurers has been less promising so far on account of
the price wars and the resultant underwriting losses. Thus, it is
67
apparent that without an accompanying development of systems to

ensure accurate pricing of risks, the profitability and the solvency
levels of the general insurance players would increasingly come
under pressure. Insurers will have to improve and consolidate their
processes for data mining and MIS for undertaking informed
underwriting risks. Adequate training of underwriters and the sales
staff for equipping them with the ability to respond to these new
changes in the market would also have to be initiated by the
insurance companies.
Challenges to Face in the Future
The current free pricing regime has set the backdrop for risk-based
pricing over the longer term. Gradually, the industry players are
expected to focus on franchise building (via improved client
servicing), cost competitiveness and product differentiation, which
in turn is likely to help them to face increased competition if and
when the industry is opened up further to foreign direct investment.
Most private players in the domestic general insurance business
would require capital infusion for future growth. With most of the
private entities being joint ventures, balancing the shareholding and
business objectives of the partners while infusing capital to sustain
growth is a challenge. This is further compounded by the weak
underwriting environment at present. Despite these challenges, the
long term outlook for the domestic general insurance industry
remains positive because the current low levels of insurance
penetration and the countrys long term economic growth potential.
68
Outlook Remains Positive
The general insurance industry has witnessed radical changes since

the opening of the market to private players in the year FY00. The
entry of private players invigorated the insurance industry, resulting
in strong premium growth; improved marketing focus along with
product innovations. The general insurance industry has been
growing at a little over 16% CAGR over the past three years. In a
growing economy, low insurance penetration in terms of premium
percentage to GDP, as well as increasing affordability on account of
higher disposable incomes and savings, increasing urbanisation and
increasing awareness, are some of the factors that would continue to
fuel growth of the general insurance sector in India
69
BIBLIOGRAPHY:-
WEBLIOGRAPHY
www.google.com
www.wikipedia.com
www.scribd.com
www.yahoo.com
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T.Y.B.B.

I General Insurance Corporation of India

The General Insurance Corporation of India (GIC), a public sector

GIC offered a variety of non-life insurance policies in the fire, marine,

In November 2000, with the liberalization of the insurance industry, GIC

Based on the recommendation of the consultants Price Waterhouse

Mission and Values of GIC

HISTORY OF GENERAL INSURANCE IN INDIA

The history of general insurance dates back to the industrial revolution in

falsification and denial of claims, interlocking of funds and other

To protect public funds, the government started considering nationalization

GIC was a holding company, separate from its subsidiary

The four subsidiaries underwrote all types of general insurance

Figure I: Organizational Structure of GICs Subsidiaries

The head offices of the subsidiaries were responsible for the

ROLE & FUNCTIONS OF GIC

The role and functions of General Insurance Corporation can be divided

I. Statutory Roles and Functions.

II Roles and Functions relating to Business

I. Statutory Roles and Functions: Statutory Functions are stated

(1) Consultancy in the operation of the insurance business and

(2) Necessary advice to subsidiary companies to provide

(3)Necessary advice in the matters of controlling the expenses

(4) Advice the subsidiaries in the matters of investments of

(5) Issues directions for effective conduct of business of the

II. Business related roles and functions:

The functions of the GIC in the matters relating to insurance business

1. The development and regulation of general insurance

ROLE AND FUNCTIONS OF SUBSIDIARY COMPANIES

All the four subsidiary companies functions under the management,

(1) To carry on the general insurance business on the basis of the

GICs four subsidiaries in India were:

NATIONAL INSURANCE COMPANY LIMITED

NICL, established in 1906, was involved in the general insurance

NICL was headquartered in Kolkata and had about 965 branch

NEW INDIA ASSURANCE COMPANY LIMITED

According to the companys website, NIACL was the first to

Set up an Aviation Insurance Dept. in 1946

NIACLs network was comprised of 26 regional offices, 397 divisional

ORIENTAL INSURANCE COMPANY LIMITED

OICL WAS ESTABLISHED IN 1947 IN New Delhi. It operated through a

The companys policies were popular. Some of its popular policies

UNITED INDIA INSURANCE COMPANY LIMITED

UIICL was the second largest non-life insurance company in India. It

Nationalization of General Insurance

After the independence, the government of India decided to establish

The government wanted to secure the interest of the investors

engaged in fire, marine and miscellaneous insurance business in the

The General Insurance (Nationalization) Act, 1972 came into force

The General Insurance Corporation was established under the

1. The National Insurance Company Ltd., Kolkata.

The network of offices of the four subsidiary companies as on 31 st

Organizational set up of Subsidiaries as on March 31, 2010

Company Regional Divisional Branch

Particulars 2010 2011

THE PRE-LIBERALIZATION ERA

GIC was set up as a holding company in 1972 as per the General

At the time of nationalization, there were 107 Indian and foreign

THE POST LIBERALIZATION YEARS

This resulted in increased competition and GIC was forced to make

In January 2000, GIC took initiatives to deal with competition that

The restructuring plan was focused on customer satisfaction; cost

GIC also focused on new areas in health and crop insurance