INSURANCE

INTRODUCTION

A social device to reduce or eliminate risk of loss to life and property. A collective bearing of risk Members of the community share the unavoidable risk Is also a means of savings and investment

A legal contract between 2 parties whereby one party called the insurer undertakes to pay a fixed amount of money on the happening of a particular event, which may be certain or uncertain. The other party called the insured pays in exchange a fixed sum known as premium. Insurer /Assurer / underwriter Insured / Assured Policy

ROLE OF INSURANCE IN ECONOMIC GROWTH

Covers many economic risks offers a kind of stability to business Increases the risk taking ability of businessmen and industrialists Life insurance reduces the governments burden of providing social welfare to affected families Utilisation of funds collected by way of premium
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PRINCIPLES OF INSURANCE

PRINCIPLE OF UTMOST GOOD FAITH PRINCIPLE OF INSURABLE INTEREST PRINCIPLE OF SUBROGATION (reinsurance) PRINCIPLE OF INDEMNITY (only to the extent of loss)

HISTORY AND DEVELOPMENT

Life insurance started in India by an English co. Oriental Life Insurance Co. in 1818 which used to cover Indian lives at sub-standard rates. Bombay Mutual Assurance Society Ltd. - 1st Indian co. incorporated in 1870 to cover Indian lives at standard rates. Sept. 1956, LIC was established by merging 170 life insurance cos and 75 Provident Fund societies (excluding postal life insurance (PLI) ). 1999 - insurance sector was set open for the private players. On 31.8.07 there were 16 cos. in insurance business in India.
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MALHOTRA COMMITTEE
STRUCTURE Govt. stake to be brought down to 50%. Govt. should take over the holdings of GIC and its subsidiaries - can act as independent cos. Greater operational freedom to all the players COPMETITION Private cos (min. paid up cap. Rs.1 bn) - allowed No co. should deal in both life and general insurance through a single entry. Foreign cos - collaboration with the domestic cos. Postal life insurance - allowed to operate in the rural market.
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REGULATORY BODY The insurance act should be changed An insurance regulatory body should be set up. Controller of insurance - be made independent INVESTMENT Mandatory investments of LIC Life Fund in G-Sec to be reduced from 75% to 50%. GIC not to hold more than 5% in any co. CUSTOMER SERVICE LIC - pay interest on delayed payments (>30 days) Insurance cos. must be encouraged to set up Unit linked pension plans Computerisation of operations and updating of technology
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INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY (IRDA)

Constituted as a regulator in April, 2000

OBJECTIVES OF IRDA Protection of policy holders interest Healthy growth of insurance market

DUTIES OF IRDA Issuing certificate of registration Protection of policyholders interest Specifying code of conduct Promoting efficiency Levying fees Controlling rates Regulating investment of insurance cos Regulating margin of solvency Supervising tariff advisory committee
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OPERATIONS OF IRDA Registration of insurance companies Registration fees Rs.50,000; renewal fee 0.20% of 1% of the gross premium or Rs.50,000 whichever is higher (p.a.) File and use procedure Recognised the Actuarial Society of India and Insurance Institute of India Insurance advertisement and disclosure regulations Rural and Social sector obligation Asset, liabilites & solvency margins
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Preparation of financial statements & auditors report Protection of policyholders interest Distribution of surplus Investment committee Self-regulatory mechanism Policy holders grievances redressal system Licensing of insurance agents

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REINSURANCE
The primary insurer transfers a part or all of the risk he has insured to the other insurer to reduce his own liability. BENEFITS OF REINSURANCE To increase the cos underwriting capacity To spread the risks with as many insurers as possible To obtain valuable advice & assistance To stabilize the profit by leveling out peak risk To provide protection against catastrophic losses To retire from business or class of businesses

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TERMS Ceding company Reinsurer Retention Cession

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TYPES OF REINSURANCE Facultative reinsurance reinsurer has the freedom to reject substandard risks, reinsurance of large individual risks Treaty reinsurance reinsurance of specific types of risks that are automatically ceded and accepted. Reinsurer is obliged to accept an agreed share of all reinsurance of the type defined in the contract. RINSURANCE TREATIES
Proportional Quota share Surplus share Non-Proportional Excess of loss Reinsurance pool
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INSURANCE INTERMEDIARIES

AGENTS BROKERS BANCASSURANCE SURVEYORS AND LOSS ASSESSORS independent professionals who assess the loss or damage when a claim is notified under a policy issued THIRD PARTY ADMINISTRATORS middlemen in the healthcare delivery chain. Min. paid up capital and working capital Rs.1 cr. each. Fee based service.
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LIFE INSURANCE
Needs that can be satisfied Dying young Living too long Disability Care for children Wealth generation

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WHY LIFE INSURANCE

Tax benefit Retirement benefit Fixed return Safety & risk cover Compulsory savings Meeting with periodic financial needs Others

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PRODUCTS

Endowment Assurance - Most commonly sold - the assured benefits are payable either on the date of maturity or on death of the life insured, if earlier. Participating and non-participating. Assist in providing for the payment of a lump sum amount for a specific purpose, say, provision for retirement, meeting the needs of the child etc. Money Back Policies - Plans where the survival benefits are payable only at the end of the term period, plus they provide for periodic payments of partial survival benefits during the term of the policy so long as the policy holder is alive. Annuities - A series of periodic payments. The annuity provider (insurer) agrees to pay the purchaser of annuity (annuitant) a series of regular periodical payments for a fixed period or during someone's life time.
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Term Insurance - Term Insurance provides for life insurance protection for the selected term only. In case the person (whose life is insured) dies during the term, the benefits are payable under the policy and in case of his survival till the end of the selected term, the policy normally expires without any benefit becoming payable. Whole Life Policies - provide Life Insurance protection over one's lifetime - provides for payment of the assured amount upon the insured's death regardless of when it occurs. Can be either participating type or non-participating type. ULIP Group Insurance
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RIDERS

Additional benefits that a policy holder may buy and add to his policy. Options that allow the insured to enhance his insurance cover, qualitatively and quantitatively. Riders can be mixed and matched based on ones preferences for a small additional cost. As one size fits all approach does not apply to insurance it makes sense to cover risk based on factors that are unique to the insured. Simply put, these are add-on benefits attached to policies in case of eventualities. 5 basic plan and 7 riders, effectively provide 300 or more of the Options.
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TYPES OF RIDERS Increased death benefit Accident benefit Permanent disability benefits Premium waiver Critical illness Cover to meet surgical expense Guaranteed increase Cover to continue beyond maturity date Option to increase cover within specific limits. Option to cover spouse without medical.
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GENERAL INSURANCE

Insuring anything other than human life. Comprises of insurance of property against fire, burglary etc, personal insurance such as Accident and Health Insurance, and liability insurance which covers legal liabilities.

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HISTORY OF GENERAL INSURANCE

1. 2.

3.
4.

1st Indian co. to transact general insurance business was Indian Mercantile Insurance Company Limited in Bombay in 1907. 107 insurers including branches of foreign cos operating in India were amalgamated & grouped into 4 cos The National Insurance Company Limited, The New India Assurance Company Limited, The Oriental Insurance Company Limited, & The United India Assurance Company Limited
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DIFFERENCE
GENERAL INSURANCE 1. Uncertainty 2. Contract of indemnity 3. Monetary measurement 4. Annual contract LIFE INSURANCE Certainty Not a contract of indemnity Monetary measurement isnt possible Continuing contact

1. 2.

3.

4.

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TYPES
Fire Insurance 2. Motor Insurance 3. Marine Insurance Hull, Cargo 4. Miscellaneous Insurance: i. Personal Accident Insurance ii. Health Insurance for Individual iii. Kisan Agricultural Pumpset Insurance iv. Cattle and Livestock Insurance
1.

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CONTENTS OF A GENERAL INSURANCE POLICY

a. b. c. The names and addresses of the insured and of any banks or any other person having financial interest . Full description of property or interest insured; The location (s) of the property or interest insured under the policy; Period of insurance; Sums insured; Perils covered and not covered; Any franchise or deductible applicable; Premium payable and adjustments related to it,
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d. e. f. g. h.

i. j. k. l. m. n. o. p.

Policies, terms, conditions and warranties; Action to be taken by insured The obligation of insured and right of insurer Any special condition attaching to the policy; Provision for the cancellation of the policy; The address of the insurer to which all the communications should be sent; The details of the riders attaching to the main policy; Proforma of any communication the insurer may seek from the policyholders to serve the policy

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MICRO INSURANCE
Micro Insurance product is an insurance policy with a small sum insured and a very low premium. FUNCTIONS OF MICRO INSURANCE Risk identification and assessment Education and awareness Enrolment Controlling adverse selection and moral hazard

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THANK YOU

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