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Insurance Awareness Capsule

History of life insurance

Insurance began as a way of reducing the risk to traders, as early as 2000 BC in

China and 1750 BC in Babylon. An early form of life insurance dates to Ancient Rome,
where burial clubs covered the cost of members funeral expenses and assisted
survivors financially.

What is life insurance?

Life insurance (or commonly life assurance, especially in the Commonwealth) is a

contract between an insured (insurance policy holder) and an insurer, where the insurer
promises to pay a designated beneficiary a sum of money in exchange for a premium,
upon the death of the insured person. Depending on the contract, other events such as
terminal illness or critical illness may also trigger payment. The policy holder typically
pays a premium, either regularly or as a lump sum. Life policies are legal contracts and
the terms of the contract describe the limitations of the insured events.

What are the main products of life insurance?

Whole life

Term

Life annuity

Endowment

Investment linked

Medical and health

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What is general insurance?

General insurance is basically an insurance policy that protects your against losses
and damages other than those covered by life insurance. The coverage period for most
general Insurance policies and plans in usually one year, whereby premiums are
normally paid on one-time basis.

What are the risks that are covered by general insurance?

Property loss (e.g. stolen car or burnt house)

Liability arising from damage caused by yourself to a third party

Accidental death or injury

What are the main products of general insurance?

Motor insurance

Fire/House owners/Householders insurance

Personal accident insurance

Medical and health insurance

Travel insurance

What are the major general insurance companies in India?

Public Sector

New India Assurance Company Limited

National Insurance Company Limited

The Oriental Insurance Company

United India Insurance Company

Agriculture Insurance Company of India

Private sector

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Bajaj Allianz General Insurance

ICICI Lombard General Insurance

IFFCO-Tokio General Insurance

Reliance General Insurance

Royal Sundaram Alliance Insurance

TATA AIG General Insurance

Cholamandalam General Insurance

HDFC Ergo

What is GIPSA?

After opening up of the insurance sector and de-linking from GIC in 2000, the four
General Insurance Companies, namely, National Insurance Company, New India
Assurance Company, Oriental Insurance Company, and United India Insurance
Company, are functioning independently. They have formed an association known
as General Insurers (Public Sector) Association of India (GIPSA) with headquarters
in Delhi.

The CMD of New India Assurance G Srinivasan is the chairperson of the GIPSA

Can a policy holder have both paper and electronic policies?

Policy holders can choose the form in which they want their policies issued, paper
or electronic. A policy can be bought or maintained in one form only either in electronic
form or paper but not in both. However, a policy holder can choose to keep some
policies in electronic form and other in paper form but he can use repository services
only for the electronic policies.

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Important terms

Actuary: A specialist in the mathematics of insurance who calculates rates,

reserves, dividends and other statistics

Annuity: An agreement by an insurer to make periodic payments which

continue during the survival of the annuitant(s) or for a specified period.

Claim: A demand made by the insured, or the insureds beneficiary, for

payment of the benefits as provided by the policy.

Coverage: It is the range of protection that you are provided under an

insurance policy.

Death Benefit: The limit of insurance or the amount of benefit that will be paid
in the event of the death of a covered person.

Deductible: The amount you have to pay out of pocket for expenses before
the insurance company will cover the remaining costs.

Endowment Insurance: Endowment insurance pays the sum assured upon

the death of the life insured during the policy terms or on survival to the end of
the policy term.

Exclusive: Things that are not covered under the policy

Indemnity: Restoration to the victim of a loss by payment, repair

or replacement.

Insurable Interest: Interest in property such that loss or destruction of

the property could cause a financial loss.

Insurance Settlement: A payment on an insurance claim. That is, when a valid

insurance claim is made, the insurer makes a payment to the policyholder.
This is call the insurance settlement.

Lapse: Termination of a policy due to failure to pay the required

renewal premium.

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Maturity value: It is the amount the insurance company has to pay you when
the policy matures. This would include the sum assured and the bonuses.

Paid-up value: If you stop paying the premiums, but do not withdraw the
money from your policy, the policy is referred to as paid-up.

Peril: It is the causes of the possible loss or damage.

Policy: Policy is the legal document issued by the insurance company

that outlines the general terms and conditions of the insurance.

Premium: It is the amount you need to pay to the insurance company.

Reinsurance: In effect, insurance that an insurance company buys for its own
protection. The risk of loss is spread so a disproportionately large loss under
a single policy doesnt fall on one company. Reinsurance enables an
insurance company to expand its expanding volume; secure catastrophe
protection against shock losses; and withdraw a specified time period.

Renewal: The automatic re-establishment of in-force status effected by

the payment of another premium.

Rider: It is an optional feature that can be added to a policy. You will have
to pay an additional premium to avail this benefit.

Subrogation: It is the right for an insurer to pursue a third party that caused an
insurance loss to the insured. This is done as a means of recovering the
amount of the claim paid to the insured for the loss.

Sum assured: It is the amount of money an insurance policy guarantees to

pay before any bonuses are added. In other words, sum assured is the
guaranteed amount you will receive. Halfway through the policy, you might
want to discontinue it and take whatever money is due to you.

Surrender value: This is the amount payable at the end of specified

duration. These amounts are fixed and predetermined.

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Term insurance: It is the most traditional life insurance policy wherein the
insured gets death benefit if any contingency happens within the policy term.
The insured is, however, not entitled to receive any survival benefit if he
outlives the policy term.

Underwriting: The process of selection risks for insurance and determining in

what amounts and on what terms the insurance company will accept. Unlike
a term insurance cover, if you live, an amount will be paid to you on maturity
of the plan.

List of Important Insurances Companies and their Head with Taglines:

Sno Company Tagline Heads

1. Life Insurance Corporation Yogakshemam S.K.Roy
of India (LIC) Vahamyaham
2. Max Life Insurance Aapke Sachhe Advisor Rajesh Sud
Company Limited
3. New India Assurance Indias premier general G. Srinivasan
Company Limited insurance company
4. SBI Life Insurance With Us, Youre Sure Arijit Basu
Company Limited
5. United India Insurance Rest Assured with Us Milind A Kharat
Company Limited
6. Oriental Insurance Prithvi, Agni, Jal, Akash, AK Saxena
Company Limited Sabki Suraksha Hamare
Paas
7. Kotak Mahindra Old Mutual Faidey ka Insurance Gaurang Shah
Life Insurance Limited
8. Apollo Munich Health We know Healthcare Anthony Jacob and
Insurance Chairman- Prathap C
Reddy)

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9. Future General Life Ek Shagun Zindagi Ke G N Bajpai and CEO-

Insurance Naam Munish Sharda

10. Aviva India Life Insurance Kal par Control T R Ramachandaran

11. Tata AIA Life Insurance You click, we cover Ishaat Hussain
Company Limited
12. ICICI Prudential Life Zimmedari ka humsafar Sandeep Bakshi
Insurance Company
Limited
13. HDFC Standard life Sar utha Ke Jiyo Amitabh Chaudhary,
Insurance Company Vibha Padalkar
Limited
14. Bajaj Allianz Life Insurance Jiyo Befiqar Anuj Agarwal
Company Limited
15. Birla Sun Life Insurance Muskurate Raho Pankaj Razdan
Company Limited
16. Max Bupa Health Insurance Your Health First Anuroop Singh
17. Exide Life Insurance India Adding Life to Insurance Rajan Raheja and CEO-
Company (Earlier Known Kshitij Jain
as ING Vysya Life
Insurance India Company)
18. PNB MetLife India Have you met life today? Tarun Chugh)
Insurance Company
Limited

List of Important Insurance Abbreviations

Sno Abbreviations Full Forms

1. ACF Auto-Correlation Function
2. AD Authorized Dealer

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3. ADB Asian Development Bank

4. ADR American Depository Receipt
5. AFS Annual Financial Statement
6. AGM Annual General Meeting
7. ASSOCHAM Associated Chambers of Commerce and Industry of India
8. AMFL Association of Mutual Funds in India
9. ALM Asset Liability Management
10. ATM Automated Teller Machine
11. BIS Bank for International Settlements
12. Bop Balance of Payments
13. BSCS Basel Committee on Banking Supervision
14. BSR Basic Statistical Returns
15. BSE Bombay Stock Exchange
16. CAD Capital Account Deficit
17. CAG Controller and Auditor General of India
18. CAR Cash Adequacy Ratio
19. CBS Core Banking Solution
20. CCEA Comprehensive Economic Cooperation Agreement
21. CDBS Committee of Direction on Banking Statistics
22. CEPA Comprehensive Economic Partnership Management
23. CFRA Combined Finance and Revenue Accounts
24. CGRA Currency and Gold Revaluation Account
25. CIBIL Credit Information Bureau (India) Limited
26. CII Confederation of Indian Industries
27. CPI Consumer Price Index
28. CRR Cash Reserve Ration
29. DICGC Deposit Insurance and Credit Guarantee Corporation of India
30. DTAA Double Taxation Avoidance Agreement
31. ECB External Commercial Borrowings
32. ECS Electronic Clearing Scheme

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33. EEFC Exchange Earners Foreign Currency

34. EFSF European Financial Stability Facility
35. EXIM Export-Import Bank of India
36. FCA Foreign Currency Assets
37. FCNRA Foreign Currency Non-resident Account
38. FDI Foreign Direct Investment
39. FERA Foreign Exchange Regulation Act
40. FICCI Federation of Indian Chambers of Commerce and Industry
41. FII Foreign Institutional Investor
42. FIMMDA Fixed Income Money Markets and Derivatives Association
43. FINO Financial Inclusion Network Operation
44. FIPB Foreign Investment Promotion Board
45. FPI Foreign Portfolio Investment
46. FSDC Financial Security and Development Council
47. FSLRC Financial Sector Legislative Reforms Commission
48. FTA Free Trade Agreement
49. GDP Gross Domestic Product
50. GDR Global Depository Receipt
51. GFD Gross Fiscal Deficit
52. GIRO Government Internal Revenue Order
53. GAAR General Anti Avoidance Rule
54. HDFC Housing Development Finance Corporation
55. SLR Statutory Liquidity Ratio
56. ICICI Industrial Credit and Investment Corporation of India
57. IDBI Industrial Development Bank of India
58. IMF International Monetary Fund
59. IPO Initial Public Offering
60. LAF Liquidity Adjustment Facility
61. LIBOR London Inter Bank Offered Rate
62. MIBOR Mumbai Inter- Bank Offer Rate

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63. NABARD National Bank for Agricultural and Rural Development

64. NASSCOM National Association of Software and Services Companies
65. NBFC Non- Banking and Finance companies
66. NEFT National Electronic Funds Transfer System
67. NSE National Stock Exchange
68. NPA Non Performing Assets
69. OMO Open Market Operations
70. RTGS Real Time Gross Settlement System
71. SCC Selective Credit Control
72. SHGs Self Help Groups
73. SEBI Securities and Exchange Board of India
74. SIDBI Small Industries and Development Bank of India
75. WPI Wholesale Price Index

Points to remember

1818 saw the advent of life insurance business in India with the
establishment of the Oriental Life Insurance Company in Calcutta. This
Company however failed in 1834.

An Ordinance was issued on 19 Jan, 1956 nationalising the Life Insurance

sector and Life Insurance Corporation came into existence in the same
year. The LIC absorbed 245 Indian and foreign insurers in all.

General Insurance in India has its roots in the establishment of Triton

Insurance Company Ltd in the year 1850 in Calcutta by the British. Established
in 1907, the Indian Mercantile Insurance was the first company to transact all
classes of general insurance business

Formed in 1957, the General Insurance Council framed a code of conduct for
ensuring fair conduct and sound business practices.

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The Export Credit Guarantee Corporation of India (ECGC) was established

on 30 July 1957 with an objective to provide insurance cover in respect of
risks in export trade.

With the passing of the General Insurance Business (Nationalisation) Act,

general insurance business was nationalized with effect from 1 Jan, 1973,
107 insurers were amalgamated and grouped into four companies: National
Insurance Company, the New India Assurance Company, the Oriental
Insurance Company and the United India Insurance Company.

The General Insurance Corporation (GIC) of India was incorporated as a

company in 1971 and it commenced business on 1 Jan 1973.

In 1933, the Government set up a committee under the chairmanship of RN

Malhotra, former Governor of RBI, to propose recommendations for reforms in
the insurance sector, which, among other things, recommended that the
private sector be permitted to enter the insurance industry.

Following the recommendations of the Malhotra Committee report, in 1999, the

Insurance Regulatory and Development Authority (IRDA) was constituted as an
autonomous body to regulate and develop the insurance industry.

The IRDA was incorporated as a statutory body in April 2000.

The IRDA opened up the market in August 2000 and foreign companies
were allowed ownership of up to 26 per cent.

The Authority has the power to frame regulations under Sections 114A of
the Insurance Act, 1938 and has from 2000 onwards framed various
regulations ranging from registration of companies for carrying on insurance
business to protection of policyholders interests.

In December 2000, the subsidiaries of the General Insurance Corporation of

India were restructured as independent companies and at the same time GIC

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was converted into a national re-insurer. Parliament passed a bill de-linking the
four subsidiaries from GIC in July, 2002.

Today there are 28 general Insurance companies, including the ECGC

and Agriculture Insurance Corporation of India and 24 life insurance
companies operating in the country.

The insurance sector is growing at a speedy rate of 15-20 per cent.

Together with banking services, insurance services add about 7 per cent to
the countrys GDP.

The total business of all four public sector non-life insurance companies put
together, which was at Rs. 42,000 cr in 2013-14 is expected to cross Rs. 1
lakh cr by 2020.

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