Insurance and Financial Marketing Awareness | LIC ADO Main 2019

Table of Contents
Financial and Insurance Market Awareness ................................................................................................................................................ 2
Indian Financial Market ........................................................................................................................................................................................ 2
Capital Market and Government ....................................................................................................................................................................... 2
Money Market ........................................................................................................................................................................................................... 4
Stock Market and Bond Market ......................................................................................................................................................................... 5
The Role of Money Markets in the Financial System (in India) ........................................................................................................... 5
Derivatives Markets and Private Investing .................................................................................................................................................. 7
Study of the Foreign Exchange Interbank Market ..................................................................................................................................... 8
Primary Markets and Secondary Markets...................................................................................................................................................10
Brexit ..........................................................................................................................................................................................................................11
Mutual Funds ..........................................................................................................................................................................................................12
Role of Discount and Finance House of India ............................................................................................................................................14
Project Financing (in India) ..............................................................................................................................................................................14
Insurance Industry ...............................................................................................................................................................................................15
Regulatory Agencies .............................................................................................................................................................................................16
Establishment of FSDC ........................................................................................................................................................................................20
International Financial Organization ............................................................................................................................................................21
Introduction of Insurance ..................................................................................................................................................................................23
History of Life Insurance ....................................................................................................................................................................................24
History of General Insurance ............................................................................................................................................................................25
Know About IRDAI ................................................................................................................................................................................................25
Types of Insurance ................................................................................................................................................................................................26
Indian Insurance Market ....................................................................................................................................................................................27
ULIP Unit Linked Insurance Plan (ULIP) .....................................................................................................................................................28
Public Sector Insurance Companies ..............................................................................................................................................................29
Private Sector Insurance Companies ............................................................................................................................................................30
Glossary of Insurance Terms ............................................................................................................................................................................30
Abbreviation Related to Insurance Industry .............................................................................................................................................33
Employee State Insurance Scheme ................................................................................................................................................................33
Schemes Related to Insurance (PMFBY, PMJJBY, PMSBY etc.) ...........................................................................................................34
Other Important Topics Related to Insurance Awareness ...................................................................................................................35
Insurance Ombudsman .......................................................................................................................................................................................35
Bancassurance ........................................................................................................................................................................................................36
Current Insurance Schemes ..............................................................................................................................................................................37

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 Insurance and Financial Marketing Awareness | LIC ADO Main 2019
Financial and Insurance Market Awareness
Indian Financial Market
We are fully aware that business units have to raise short-
term as well as long-term funds to meet their working and
fixed capital requirements from time to time. This
necessitates not only the ready availability of such funds but
also a transmission mechanism with the help of which the
providers of funds (investors/lenders) can interact with the
borrowers/users (business units) and transfer the funds to
them as and when required. This aspect is taken care of by
the financial markets which provide a place where or a
system through which, the transfer of funds by
investors/lenders to the business units is adequately
facilitated.
Main functions of Financial Market:-
(a) It provides facilities for interaction between the investors
and the borrowers.
(b) It provides pricing information resulting from the
interaction between buyers and sellers in the market when
they trade the financial assets.
(c) It provides security to dealings in financial assets.
(d) It ensures liquidity by providing a mechanism for an
investor to sell the financial assets.
(e) It ensures low cost of transactions and information.
Types of Financial Market
A financial market consists of two major segments:
(a) Money Market and
(b) Capital Market
A money market is a component of financial market where
short-term borrowing can be issued. This market includes
assets that deal with short-term borrowing, lending, buying
and selling. A capital market is a component of a financial
market that allows long-term trading of debt and equity-
backed securities.
Capital Market and Government
The capital market is a market for financial investments
that are direct or indirect claims to capital. The capital
market comprises the complex of institutions and
mechanism through which intermediate term funds and long
term funds are pooled and made available to business,
government and individuals.
The Capital market facilitates mobilization of savings of
individuals and pools them into reservoir of capital which
can be used for the economic development of a country.
An efficient capital market is essential for raising capital by
the corporate sector of the economy and for the protection of
the interest of investors in corporate securities. The capital
market has two interdependent and inseparable
segments, the primary market and secondary market.
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Primary Market
The primary market provides the channel for sale of new
securities. The issuer of securities sells the securities in the
primary market to raise funds for investment and/or to
discharge. In other words, the market wherein resources are
mobilized by companies through issue of new securities is
called the primary market. These resources are required for
new projects as well as for existing projects with a view to
expansion, modernization, diversification and Upgradation.
The issue of securities by companies can take place in any of
the following methods:-
(a) Initial public offer (securities issued for the first time to
the public by the company
(b) Further issue of capital
(c) Rights issue to the existing shareholder (on their
renunciation, the shares can be sold by the company to
others also)
(d) Offer of securities under reservation/ firm allotment
basis to-
I. foreign partners and collaborators,
II. mutual funds
III. merchant bankers
IV. banks and institutions
V. non-resident Indians and overseas corporate bodies
VI. Employees
(e) Offer to public
(f) Bonus Issue.
The primary market is of great significance to the economy
of a country. It is through the primary market that funds flow
for productive purposes from investors to entrepreneurs.
The latter use the funds for creating new products and
rendering services to customers in India and abroad. The
strength of the economy of a country is gauged by the
activities of the Stock exchanges. The primary market creates
and offers the merchandise for the
Secondary Market.
Secondary Market
Secondary market refers to a market where securities are
traded after being initially offered to the public in the
primary market and/or listed on the Stock Exchange.
Majority of the trading is done in the secondary market.
Secondary market comprises of equity markets and the debt
markets. The secondary market enables participants who
hold securities to adjust their holdings in response to
changes in their assessment of risk and return. They also sell
securities for cash to meet their liquidity needs. The
secondary market has further two components, namely
the over-the-counter (OTC) market and the exchange-
traded market. OTC is different from the market place
provided by the Over The Counter Exchange of India Limited.
OTC markets are essentially informal markets where trades
are negotiated. Most of the trades in government securities
are in the OTC market. All the spot trades where securities
are traded for immediate delivery and payment take place in
the OTC market. The exchanges do not provide facility for
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 Insurance and Financial Marketing Awareness | LIC ADO Main 2019
spot trades in a strict sense. Closest to spot market is the
cash market where settlement takes place after some time.
Trades taking place over a trading cycle, i.e. a day under
rolling settlement, are settled together after a certain time.
Trades executed on the leading exchange are cleared and
settled by a clearing corporation which provides novation
and settlement guarantee.
A variant of secondary market is the forward market,
where securities are traded for future delivery and payment.
Pure forward is outside the formal market. The versions of
forward in formal market are futures and options. In futures
market, standardised securities are traded for future
delivery and settlement. These futures can be on a basket of
securities like an index or an individual security. In case of
options, securities are traded for conditional future delivery.
There are two types of options–a put option permits the
owner to sell a security to the writer of options at a
predetermined price while a call
option permits the owner to purchase a security from the
writer of the option at a predetermined price. These options
can also be on individual stocks or basket of stocks like
index. Two exchanges, namely NSE and the Bombay Stock
Exchange, (BSE) provide trading of derivatives of
securities.
The instruments traded (media of exchange) in the
capital market are:
1. Debt Instruments
A debt instrument is used by either companies or
governments to generate funds for capital-intensive projects.
It can obtained either through the primary or secondary
market. The relationship in this form of instrument
ownership is that of a borrower – creditor and thus, does not
necessarily imply ownership in the business of the borrower.
When the instrument is issued by:
The Central Government, it is called a Sovereign Bond;
A state government it is called a State Bond;
A local government, it is called a Municipal Bond; and
A corporate body (Company), it is called a Debenture,
Industrial Loan or Corporate Bond
2. Equities (also called Common Stock)
This instrument is issued by companies only and can also be
obtained either in the primary market or the secondary
market. Investment in this form of business translates to
ownership of the business as the contract stands in
perpetuity unless sold to another investor in the secondary
market. The investor therefore possesses certain rights and
privileges (such as to vote and hold position) in the
company. Whereas the investor in debts may be entitled to
interest which must be paid, the equity holder receives
dividends which may or may not be declared.
3. Preference Shares
This instrument is issued by corporate bodies and the
investors rank second (after bond holders) on the scale of
preference when a company goes under. The instrument
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possesses the characteristics of equity in the sense that when
the authorised share capital and paid up capital are being
calculated, they are added to equity capital to arrive at the
total. Preference shares can also be treated as a debt
instrument as they do not confer voting rights on its holders
and have a dividend payment that is structured like interest
(coupon) paid for bonds issues.
Preference shares may be:
Irredeemable, convertible: in this case, upon maturity of
the instrument, the principal sum being returned to the
investor is converted to equities even though dividends
(interest) had earlier been paid.
Irredeemable, non-convertible: here, the holder can only
sell his holding in the secondary market as the contract will
always be rolled over upon maturity. The instrument will
also not be converted to equities.
Redeemable: here the principal sum is repaid at the end of a
specified period. In this case it is treated strictly as a debt
instrument.
Note: interest may be cumulative, flexible or fixed depending
on the agreement in the Trust Deed.
4. Derivatives
These are instruments that derive from other securities,
which are referred to as underlying assets (as the derivative
is derived from them). The price, riskiness and function of
the derivative depend on the underlying assets since
whatever affects the underlying asset must affect the
derivative. The derivative might be an asset, index or even
situation. Derivatives are mostly common in developed
economies.
Some examples of derivatives are:
 Mortgage-Backed Securities (MBS)
 Asset-Backed Securities (ABS)
 Futures
 Options
 Swaps
 Rights
 Exchange Traded Funds or commodities
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 Insurance and Financial Marketing Awareness | LIC ADO Main 2019
Money Market Discount Pricing – Another important characteristic feature
Money market basically refers to a section of the financial
market where financial instruments with high liquidity
and short-term maturities are traded. Money market has
become a component of the financial market for buying and
selling of securities of short-term maturities, of one year or
less, such as treasury bills and commercial papers. Over-
the-counter trading is done in the money market and it is a
wholesale process. It is used by the participants as a way of
borrowing and lending for the short term.
It has certain risks which investors should be aware of, one
of them being default on securities such as commercial
papers. Money market consists of various financial
institutions and dealers, who seek to borrow or loan
securities. It is the best source to invest in liquid assets. The
money market is an unregulated and informal market and
not structured like the capital markets, where things are
organised in a formal way. Money market gives lesser
return to investors who invest in it but provides a variety of
products. Withdrawing money from the money market is
easier. Money markets are different from capital markets as
they are for a shorter period of time while capital markets
are used for longer time periods.
Important Objectives Served By a Money Market-
 The money market doesn’t only help in the storage of
short-term surplus funds but also helps in lowering
short term deficits.
 They help the central bank in regulating liquidity in the
economy.
 Money markets help short-term fund users to fulfill their
needs at reasonable costs.
 The money market helps in the development of the
capital market, trade and industry.
 To help design effective monetary policies.
 To facilitate streamlined functioning of commercial
banks.
What Are Money Market Instruments?
Money Market Instruments are simply the instruments or
tools which can help one operate in the money market. These
instruments serve a dual purpose of not only allowing
borrowers meet their short-term requirements but also
provide easy liquidity to lenders. Some of the common
money market instruments include Banker’s Acceptance,
Treasury Bills, Repurchase Agreements, Certificate of
Deposits and Commercial Papers.
Money market instruments allow governments, financial
organizations and businesses to finance their short-term
cash requirements. Some of the notable characteristics of
money market instruments are as follows.
Liquidity – Money market instruments are highly liquid
because they are fixed-income securities which carry short
maturity periods of a year or less.
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of money market instruments is that they are issued at a
discount on their face value.
Types of Money Market Instruments-
 Treasury Bills (T-Bills)
 Certificate of Deposits (CDs)
 Commercial Papers (CPs)
 Repurchase Agreements (Repo)
 Banker's Acceptance (BA)
 Bill of Exchange
Treasury Bills (T-Bills)
Issued by the Central Government, Treasury Bills are
known to be one of the safest money market instruments
available. However, treasury bills carry zero risk. i.e. are zero
risk instruments. Therefore, the returns one gets on them
are not attractive. Treasury bills come with different
maturity periods like 3-month, 6-month and 1 year and
are circulated by primary and secondary markets.
Treasury bills are issued by the Central government at a
lesser price than their face value. The interest earned by the
buyer will be the difference of the maturity value of the
instrument and the buying price of the bill, which is decided
with the help of bidding done via auctions. Currently, there
are 3 types of treasury bills issued by the Government of
India via auctions, which are 91-day, 182-day and 364-
day treasury bills.
Certificate of Deposits (CDs)
A Certificate of Deposit or CD, functions as a deposit receipt
for money which is deposited with a financial organization
or bank. However, a Certificate of Deposit is different from a
Fixed Deposit Receipt in two aspects. The first aspect of
difference is that a CD is only issued for a larger sum of
money. Secondly, a Certificate of Deposit is freely negotiable.
First announced in 1989 by RBI, Certificate of Deposits have
become a preferred investment choice for organizations in
terms of short-term surplus investment as they carry low
risk while providing interest rates which are higher than
those provided by Treasury bills and term deposits.
Certificate of Deposits are also relatively liquid, which is an
added advantage, especially for issuing banks. Like treasury
bills, CDs are also issued at a discounted price and their
tenor ranges between a span of 7 days up to 1 year.
However, banks issue Certificates of Deposits for durations
ranging from 3 months, 6 months and 12 months. They
can be issued to individuals (except minors), trusts,
companies, corporations, associations, funds, non-resident
Indians, etc.
Commercial Papers (CPs)
Commercial Papers are can be compared to an unsecured
short-term promissory note which is issued by highly
rated companies with the purpose of raising capital to meet
requirements directly from the market. CPs usually feature a
fixed maturity period which can range anywhere from 1 day
up to 270 days. Highly popular in countries like Japan, UK,
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 Insurance and Financial Marketing Awareness | LIC ADO Main 2019
USA, Australia and many others, Commercial Papers
promise higher returns as compared to treasury bills and are
automatically not as secure in comparison. Commercial
papers are actively traded in secondary market.
Repurchase Agreements (Repo)
Repurchase Agreements, also known as Reverse Repo or
simply as Repo, loans of a short duration which are agreed
upon by buyers and sellers for the purpose of selling and
repurchasing. These transactions can only be carried out
between RBI approved parties Repo/Reverse Repo
transactions can be done only between the parties
approved by RBI. Transactions are only permitted between
securities approved by the RBI like treasury bills, central
or state government securities, corporate bonds and PSU
bonds.
Banker's Acceptance (BA)
A banker's acceptance (BA) is a short-term debt
instrument issued by a company that is guaranteed by a
commercial bank. Banker's acceptances are issued as part of
a commercial transaction. These instruments are similar to
T-bills, are frequently used in money market funds and are
traded at a discount from face value on the secondary
market, which can be an advantage because the banker's
acceptance does not need to be held until it matures.
Banker's acceptances vary in amount according to the size of
the commercial transaction. The date of maturity typically
ranges between 30 and 180 days from the date of issue,
which generally classifies the banker's acceptance as a short-
term negotiable instrument. To create a banker’s acceptance,
the drawer must meet the eligibility requirements as set
forth by the banking institution that serves as the backer
in the transaction.
Bill of Exchange
A bill of exchange is a written order used primarily in
international trade that binds one party to pay a fixed sum
of money to another party on demand or at a
predetermined date. Bills of exchange are similar to checks
and promissory notes—they can be drawn by individuals or
banks and are generally transferable by endorsements. A bill
of exchange transaction involves up to three parties. The
drawee is the party that pays the sum specified by the bill
of exchange. The payee is the one who receives that sum. The
drawer is the party that obliges the drawee to pay the
payee. The drawer and the payee are the same entity unless
the drawer transfers the bill of exchange to a third-party
payee.
Stock Market and Bond Market
Stock Market
When you buy stock, you are buying a percentage share of
the underlying company, so if you own some shares of
General Electric, you are a fractional owner of the
General Electric Company. Common stock represents
ownership or equity in a company. The market prices of
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stocks fluctuate according to each company's financial
performance and the outlook for its future performance.
Bond Market
When you buy a bond you are loaning money to the
underlying company. Ownership of a bond puts you in the
position of being a creditor. A bond pays a fixed interest
payment every six months, which is why it is called a fixed
income investment, and these credit instruments with short
maturities under one year are called money market
investments. Individual bond prices move according to the
credit quality of the underlying company. If the company
loses a lot of money and has trouble paying its bills, the bond
market will require a higher interest rate return on
investment, which means the bond price will decline.
Key Differences between the Bond and Stock Markets
The differences between the bond and stock markets lie in
the manner in which the different products are sold and the
risk involved in dealing with each market. One major
difference is that the stock market has central places or
exchanges where stocks are bought and sold, while the bond
market does not have a central trading place; bonds are sold
mainly over the counter (OTC). The other key difference
between the stock and bond market is the risk involved in
investing in each.
Stock Exchange
A stock exchange is a marketplace where securities, such as
stocks and bonds, are bought and sold. Bonds are typically
traded Over-the-Counter (OTC), but some corporate bonds
can be traded in stock exchanges. Stock exchanges allow
companies to raise capital and investors to make informed
decisions using real-time price information. Exchanges can
be a physical location or an electronic trading platform.
Though people are typically familiar with the image of the
trading floor, many exchanges now use electronic trading.
Purpose of Stock Exchanges-
Stock exchanges act as an agent for the economy by
facilitating trade and disseminating information. Below are
some of the ways exchanges contribute:
1. Raising Capital
2. Corporate Governance
3. Economic Efficiency
The Role of Money Markets in the Financial
System (in India)
Like in any market, certain goods are traded in the money
market too. The good that is bought and sold in the money
market is money or near-money financial assets. The
money market is a market for short-term money and
financial assets that are close substitutes for money.
Financial assets of long-term maturity is very much the
domain of the investors of the capital market where these
long- term securities are traded. ‘Short-term’ in the Indian
context means generally a period up to one year. The term
‘close substitutes for money’ means any finan­cial asset
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 Insurance and Financial Marketing Awareness | LIC ADO Main 2019
which can be quickly converted into money with minimum
transaction/conversion cost.
The broad objectives of the money market are to
provide:
(a) An equilibrating mechanism for evening out short-term
deficits and surpluses,
(b) A focal point for central bank intervention for influencing
liquidity of the economy, and
(c) An access to the users of short-term money to meet their
requirements at reasonable price.
The short-term money market in India consists of markets
for inter-bank call and short notice money, treasury bills,
commercial bills, commercial papers, certificates of
deposit and inter-bank partici-pations. What is significant is
that all these markets are closely inter-linked. The major
participants in the money market are the commercial banks,
finan-cial institutions, corporations and individuals.
The larger the number of participants, greater will be the
depth of the market. Unlike the stock market where trading
is done on the floor of the stock exchange, trading in the
money market is conducted over tele-phone followed by
written confirmation from both the borrower and the lender.
The Indian Financial Sector cannot be understood without an
excursion into the various committees, commissions,
working groups which were constituted from time to time in
order to support the progress of financial system.
The various committees and commissions are a product
of the decision making process. Once the need for financial
sector reform was recognised, the government or the
Reserve Bank of India typically set up a committee that
included experts, public servants and sometimes
representatives from the corporate sector to spell out a
reform roadmap. The aim clearly is to make the membership
of the committees as broad based as possible, though
membership has never included politicians. These
committees are given a clear mandate and a timeframe in
which to submit their reports. Sometimes the views and
opinions of the members are very diverse. It is not
uncommon for a report to have a rather long, and
occasionally more than one, note of dissent by members.
Once a report is submitted, it is subject to extensive debate,
then some of the recommendations of the report are
accepted. This leads to a fragmentation of policymaking in
the sense that each committee is asked to work out
possible solutions to a specific policy problem.
The Committee to Review the Working of the Monetary
System (1985). The initial stimulus to ameliorate the
financial sector came with the submission of two influential
committee reports to the Reserve Bank of India - The
Chakravarty Committee in 1985. This is referred to as the
Chakravarty Committee. The committee was appointed by
the Reserve Bank in December 1982, under the
chairmanship of Sukhamoy Chakravarty to examine the
working of the monetary system in India. The Chairman was
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helped by a team of distinguished experts such as
M.P.Chitale, R.K. Hazari, F.A. Mehta and C. Rangarajan and an
able research staff.
The terms of reference were comprehensive comprising:
(a) Critical review of the structure and operation of the
monetary system in the context of the basic objectives of
planned development.
(b) Assessment of the interaction between monetary policy
and public debt management in so far as they have a bearing
on the effectiveness of monetary policy.
(c) Evaluation of the various instruments of monetary and
credit policy in terms of their impact on the credit system
and on the economy.
Narasimham Committee-I
In the year 1991, the Government of India appointed a
Committee to review the financial system under the
chairmanship of M. Narasimham. The Purpose of the
committee was to review the Financial System and aspects
relating to the structure, organizations and functioning of the
financial system. The main recommendations of the
Committee are:
 Phasing reduction of Statutory Liquidity Ratio (SLR) to
25 per cent over a period of five years.
 Progressive reduction in Cash Reserve Ratio (CRR).
 Phasing out of directed credit programmes and
redefinition of the priority sector.
 Adoption of uniform accounting practices in regard to
income recognition, asset classification and provisioning
against bad and doubtful debts.
 Setting up of Asset Reconstruction Fund (ARF) to take
over from banks a portion of their bad and doubtful
advances at a discount.
 Deregulation of interest rates.
Stipulation of minimum capital adequacy ratio of 4 per cent
to risk weighted assets by March 1993, 8 per cent by March
1996, and 8 per cent by those banks, having international
operations by March 1994.
Narasimham Committee-II
The creation of a strong and efficient financial system,
functionally diverse and geographically widespread was
the objective that has inspired the process of financial sector
reforms since 1992, as part of the broader programme of
structural economic reforms. The reform measures taken
in this area have followed the recommendations of the
Committee on Financial System-1 which reported in
November 1991. That report was conceived as a holistic
exercise. Since the submission of the Report, several
measures have been instituted in line with its
recommendations. The Committee made several
recommendations relating to the financial sector, on Capital
Adequacy, Investment, Asset Quality, NPA Management,
Directed Credit, Prudential Norms, Structural Issues, and
Systems and methods in banks.
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 Insurance and Financial Marketing Awareness | LIC ADO Main 2019
Committee on Capital Account Convertibility- SS  They are bilateral contracts and hence exposed to
Tarapore Committee (1997)- counter-party risk.
 Each contract is custom designed, and hence is unique in
RBI appointed a Committee on capital account convertibility terms of contract size, expiration date and the asset type
headed by S.S.Tarapore, Deputy Governor of RBI, in the year and quality.
1997, to review the international experience in relation to  The contract price is generally not available in public
capital account convertibility, recommended measures for domain.
achieving capital account convertibility, to specify the  The contract has to be settled by delivery of the asset on
sequence and time frame for such measures and to suggest expiration date.
domestic policy measures and changes in the institutional  In case the party wishes to reverse the contract, it has to
framework. The Committee has recommended a phased compulsorily go to the same counter party, which being
implementation of capital account convertibility over a in a monopoly situation can command the price it wants.
three-year period. The Committee also recommended
reduction of fiscal deficit, inflation rate, CRR obligation, Futures
NPA level of Banks and more stringent capital adequacy Futures are exchange-traded contracts to sell or buy
ratios. The liberalized policies and arrangements to facilitate financial instruments or physical commodities for a future
higher level of inflow and outflow of capital were the other delivery at an agreed price. There is an agreement to buy or
important recommendations. sell a specified quantity of financial instrument commodity in
a designated future month at a price agreed upon by the
Role of Government in Financial System- buyer and seller. To make trading possible, BSE specifies
Money Markets are a significant source of funding state and certain standardized features of the contract.
local governments for public projects such as airports,
bridges, road, water and sewage. Difference between Forward Contracts and Futures
Contracts-
Role of Credit Institution in Financial System- Basis Futures Forwards
Credit institutions use the money market funds as cash Traded on
management tools that provide a high degree of liquidity and Nature Over the Counter
organized exchange
stability at a low cost. Money market are attractive for the
Contract
institutions because they are high quality assets, Standardized Customized
Terms
diversification of funds and economies of scale.
Liquidity More liquid Less liquid
Role of Central Bank in Financial System- Margin Requires margin
Not required
Payments payments
It is responsible for maintaining financial sovereignty and Follows daily
economic stability of a country, especially in underdeveloped Settlement At the end of the period.
settlement
countries. The central bank does not deal with the general Contract can be reversed
public directly. It performs its functions with the help of Can be reversed
only with the same
commercial banks. The central bank is accountable for with any
Squaring off Counter-party with
protecting the financial stability and economic development member of the
whom it was entered
of a country. Apart from this, the central bank also plays a Exchange.
into.
significant part in avoiding the cyclical fluctuations by
controlling money supply in the market. A central bank Swaps
should primarily be the “lender of last resort.” A swap is an agreement between two parties to exchange
cash flows on a determined date or in many cases multiple
dates. Typically, one party agrees to pay a fixed rate while
Derivatives Markets and Private Investing the other party pays a floating rate. For example, when
trading commodities the first party, an airline company
A derivative is an instrument whose value is derived from relying of kerosene, agrees to pay a fixed price for a pre-
the value of one or more underlying, which can be determined quantity of this commodity. The other party, a
commodities, precious metals, currency, bonds, stocks, bank, agrees to pay the sport price for the commodity.
stocks indices, etc. Four most common examples of Hereby the airline company is insured of a price it will pay
derivative instruments are Forwards, Futures, Options for its commodity. A rise in the price of the commodity is in
and Swaps. this case paid by the bank. Should the price fall the difference
will be paid to the bank.
Forward Contracts
A forward contract is a customized contract between two Options
parties, where settlement takes place on a specific date in Options are a form of derivatives, which gives holders the
future at a price agreed today. The main features of forward right, but not the obligation to buy or sell an underlying asset
contracts are:- at a pre-determined price, somewhere in the future. When
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 Insurance and Financial Marketing Awareness | LIC ADO Main 2019
you take an option to buy an asset it is called a ‘call’ and
when you obtain the right to sell an asset it is called a ‘put’.
To determine whether it is profitable to exercise an option,
the current market price (spot price) and the price in the
option (strike price) need to be compared. By comparing
both prices, a choice can be made to either exercise the
option or let it expire. When exercising an option there are
three positions on which the holder can find themselves. The
first is in the money (ITM), where the strike price is more
favorable than the spot price and thus it will be
advantageous to exercise the option. The second is at the
money (ATM) in which the strike and spot price are equal
and so no advantage can be gained. The third is out the
money (OTM), where the strike price is higher than the spot
price.
This has three key requisites to invest:
Demat account: This is the account which stores your
securities in electronic format. It is unique to every investor
and trader.
Trading account: This is the account through which you
conduct trades. The account number can be considered your
identity in the markets. This makes the trade unique to you.
It is linked to the demat account, and thus ensures that YOUR
shares go to your demat account.
Margin maintenance: This pre-requisite is unique to
derivatives trading. While many in the cash segment too use
margins to conduct trades, this is predominantly used in the
derivatives segment.
Study of the Foreign Exchange Interbank
Market
Globally, operations in the foreign exchange market
started in a major way after the breakdown of the Bretton
Woods system in 1971, which also marked the beginning of
floating exchange rate regimes in several countries. Over the
years, the foreign exchange market has emerged as the
largest market in the world. The decade of the 1990s
witnessed a perceptible policy shift in many emerging
markets towards reorientation of their financial markets in
terms of new products and instruments, development of
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institutional and market infrastructure and realignment of
regulatory structure consistent with the liberalised
operational framework. The changing contours were
mirrored in a rapid expansion of foreign exchange market in
terms of participants, transaction volumes, decline in
transaction costs and more efficient mechanisms of risk
transfer.
The origin of the foreign exchange market in India could be
traced to the year 1978 when banks in India were
permitted to undertake intra-day trade in foreign
exchange. However, it was in the 1990s that the Indian
foreign exchange market witnessed far reaching changes
along with the shifts in the currency regime in India. The
exchange rate of the rupee, that was pegged earlier was
floated partially in March 1992 and fully in March 1993
following the recommendations of the Report of the High
Level Committee on Balance of Payments (Chairman: Dr.
C. Rangarajan). The unification of the exchange rate was
instrumental in developing a market-determined exchange
rate of the rupee and an important step in the progress
towards current account convertibility, which was achieved
in August 1994.
A further impetus to the development of the foreign
exchange market in India was provided with the setting up of
an Expert Group on Foreign Exchange Markets in India
(Chairman: Shri O.P. Sodhani), which submitted its report
in June 1995. The Group made several recommendations
for deepening and widening of the Indian foreign exchange
market. Consequently, beginning from January 1996, wide-
ranging reforms have been undertaken in the Indian foreign
exchange market. After almost a decade, an Internal
Technical Group on the Foreign Exchange Market (2005)
was constituted to undertake a comprehensive review of the
measures initiated by the Reserve Bank and identify areas
for further liberalisation or relaxation of restrictions in a
medium-term framework.
The momentous developments over the past few years are
reflected in the enhanced risk-bearing capacity of banks
along with rising foreign exchange trading volumes and finer
margins. The foreign exchange market has acquired
depth (Reddy, 2005). The conditions in the foreign
exchange market have also generally remained orderly
(Reddy, 2006). While it is not possible for any country to
remain completely unaffected by developments in
international markets, India was able to keep the spillover
effect of the Asian crisis to a minimum through constant
monitoring and timely action, including recourse to strong
monetary measures, when necessary, to prevent emergence
of self fulfilling speculative activities (Mohan, 2006).
Against the above background, this chapter attempts to
analyse the role of the central bank in developing the foreign
exchange market. Section I provides a brief review of
different exchange rate regimes being followed in emerging
market economies (EMEs). Section II traces the evolution of
India’s foreign exchange market in line with the shifts in
India’s exchange rate policies in the post independence
period from the pegged to the market determined regime.
Various regulatory and policy initiatives taken by the
Reserve Bank and the Government of India for developing
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 Insurance and Financial Marketing Awareness | LIC ADO Main 2019
the foreign exchange market in the market determined set
up have also been highlighted. Section III presents a
detailed overview of the current foreign exchange market
structure in India. It also analyses the available market
infrastructure in terms of market players, trading platform,
instruments and settlement mechanisms. Section IV
assesses the performance of the Indian foreign exchange
market in terms of liquidity and efficiency. The increase in
turnover in both onshore and offshore markets is highlighted
in this section. Empirical exercises have also been attempted
to assess the behavior of forward premier, bid-ask spreads
and market turnover. Having delineated the market profile,
Section V then discusses the journey of the Indian foreign
exchange market since the early 1990s, especially through
periods of volatility and its management by the authorities.
As central bank intervention has been an important element
of managing volatility in the foreign exchange market, its
need and effectiveness in a market determined exchange
rate and open capital regime has been examined in Section
VI. Section VII makes certain suggestions with a view to
further deepening the foreign exchange market so that it can
meet the challenges of an integrated world. Section VIII
sums up the discussions.
Measures Initiated to Develop the Foreign Exchange
Market in India
Institutional Framework
The Foreign Exchange Regulation Act (FERA), 1973 was
replaced by the market friendly Foreign Exchange
Management Act (FEMA), 1999. The Reserve Bank
delegated powers to authorised dealers (ADs) to release
foreign exchange for a variety of purposes. In pursuance of
the Sodhani Committee’s recommendations, the Clearing
Corporation of India Limited (CCIL) was set up in 2001.
To further the participatory process in a more holistic
manner by taking into account all segments of the financial
markets, the ambit of the Technical Advisory Committee
(TAC) on Money and Securities Markets set up by the
Reserve Bank in 1999 was expanded in 2004 to include
foreign exchange markets and the Committee was
rechristened as TAC on Money, Government Securities and
Foreign Exchange Markets.
Increase in Instruments in the Foreign Exchange Market-
The rupee-foreign currency swap market was allowed.
Additional hedging instruments such as foreign currency-
rupee options, cross-currency options, interest rate swaps
(IRS) and currency swaps, caps/collars and forward rate
agreements (FRAs) were introduced.
Liberalisation Measures-
Authorised dealers were permitted to initiate trading
positions, borrow and invest in overseas market, subject to
certain specifications and ratification by respective banks’
Boards. Banks were also permitted to-
(i) fix net overnight position limits and gap limits (with the
Reserve Bank formally approving the limits);
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(ii) determine the interest rates (subject to a ceiling) and
maturity period of FCNR(B) deposits with exemption of
inter-bank borrowings from statutory preemptions and
(iii) Use derivative products for asset liability management.
 Participants in the foreign exchange market, including
exporters, Indians investing abroad, and FIIs were
permitted to avail forward cover and enter into swap
transactions without any limit, subject to genuine
underlying exposure.
 FIIs and NRIs were permitted to trade in exchange
traded derivative contracts, subject to certain
conditions.
Foreign Exchange Derivative Instruments in India
Foreign Exchange Forwards-
Authorised Dealers (ADs) (Category-I) are permitted to
issue forward contracts to persons resident in India with
crystallised foreign currency/foreign interest rate exposure
and based on past performance/actual import-export
turnover, as permitted by the Reserve Bank and to persons
resident outside India with genuine currency exposure to the
rupee, as permitted by the Reserve Bank. The residents in
India generally hedge crystallised foreign currency/foreign
interest rate exposure or transform exposure from one
currency to another permitted currency. Residents outside
India enter into such contracts to hedge or transform
permitted foreign currency exposure to the rupee, as
permitted by the Reserve Bank.
Foreign Currency Rupee Swap-
A person resident in India who has a long-term foreign
currency or rupee liability is permitted to enter into such a
swap transaction with ADs (Category-I) to hedge or
transform exposure in foreign currency/foreign interest rate
to rupee/rupee interest rate.
Foreign Currency Rupee Options-
ADs (Category-I) approved by the Reserve Bank and ADs
(Category-I) who are not market makers are allowed to sell
foreign currency rupee options to their customers on a back-
to-back basis, provided they have a capital to riskweighted
assets ratio (CRAR) of 9 per cent or above. These options are
used by customers who have genuine foreign currency
exposures, as permitted by the Reserve Bank and by ADs
(Category-I) for the purpose of hedging trading books and
balance sheet exposures.
Cross-Currency Options-
ADs (Category-I) are permitted to issue cross-currency
options to a person resident in India with crystallised foreign
currency exposure, as permitted by the Reserve Bank. The
clients use this instrument to hedge or transform foreign
currency exposure arising out of current account
transactions. ADs use this instrument to cover the risks
arising out of market-making in foreign currency rupee
options as well as cross currency options, as permitted by
the Reserve Bank.
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 Insurance and Financial Marketing Awareness | LIC ADO Main 2019
Cross-Currency Swaps-
Entities with borrowings in foreign currency under external
commercial borrowing (ECB) are permitted to use cross
currency swaps for transformation of and/or hedging
foreign currency and interest rate risks. Use of this product
in a structured product not conforming to the specific
purposes is not permitted.
Primary Markets and Secondary Markets
The financial market is a world where new securities are
issued to the public regularly of varied financial products
and services, tailored to the need of every individual from all
income brackets. These financial products are bought and
sold in the capital market, which is divided into the
Primary Market vs Secondary Market. This is both distinct
terms. The primary market refers to the market where
securities are created, while the secondary market is one in
which they are traded among investors.
The primary market is where securities are created. It’s
in this market that firms float new stocks and bonds to the
public for the first time. An initial public offering (IPO) is
an example of a primary market. An IPO occurs when a
private company issues stock to the public for the first time.
Various types of issues made by the corporation are a Public
issue, Offer for Sale, Right Issue, Bonus Issue, Issue of
IDR, etc. The company who brings the IPO is known as the
issuer, and the process is regarded as a public issue. The
process includes many investment banks and underwriters
through which the shares, debentures, and bonds can
directly be sold to the investors.
Counter where trading is done without using the platform of
the stock exchange.
For example- if you go to buy Amazon (AMZN) stock, you
are dealing only with another investor who owns shares in
Amazon. Amazon is not directly involved with the
transaction.
While primary market offers avenues for selling new
securities to the investors, the secondary market is the
market dealing in securities that are already issued by the
company. Before investing your money in financial assets
like shares, debenture, commodities, etc, one should know
the difference between the Primary Market and Secondary
Market, to better utilize savings.
Difference between the primary market and the
secondary market-
In the primary market, securities are offered to public for
subscription for the purpose of raising capital or fund.
Secondary market is an equity trading avenue in which
already existing/pre- issued securities are traded amongst
investors. Secondary market could be either auction or
dealer market. While stock exchange is the part of an auction
market, Over-the-Counter (OTC) is a part of the dealer
market.
SEBI Role in the Secondary Market-
The SEBI is the regulatory authority established under
Section 3 of SEBI Act 1992 to protect the interests of the
investors in securities and to promote the development of,
and to regulate, the securities market and for matters
connected therewith and incidental thereto.

For example- company ABC Ltd hires four underwriting Departments of SEBI regulating trading in the secondary
firms to determine the financial details of its IPO. The market-
underwriters detail that the issue price of the stock will be Sl. Name of the
Major Activities
Rs 20. Investors can then buy the IPO at this price directly No. Department
from the issuing company. This is the first opportunity that Registration, supervision,
investors have to contribute capital to a company through compliance
the purchase of its stock. A company’s equity capital is Market monitoring and inspections of
comprised of the funds generated by the sale of stock on the Intermediaries all market
primary market. Registration and intermediaries in respect of all
1.
Supervision segments of
The secondary market is commonly referred to as the Department the markets viz. equity, equity
stock market. The securities are firstly offered in the (MIRSD) derivatives,
primary market to the general public for the subscription debt and debt-related
where a company receives money from the investors and the derivatives.
investors get the securities; thereafter they are listed on the Formulating new policies and
stock exchange for the purpose of trading. This includes the supervising
Bombay Stock Exchange (BSE), NSE, NASDAQ and all the functioning and operations
major exchanges around the world. The defining (except
characteristic of the secondary market is that investor’s relating to derivatives) of
trade among themselves. In this market existing shares, Market Regulation
2. securities
debentures, bonds, options, commercial papers, Department (MRD)
exchanges, their subsidiaries,
treasury bills, etc. of the corporates are traded amongst and market
investors. The secondary market can either be an auction institutions such as Clearing
market where trading of securities is done through the stock and
exchange or a dealer market, popularly known as Over the settlement organizations and

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 Insurance and Financial Marketing Awareness | LIC ADO Main 2019
Depositories
(Collectively referred to as Government securities (G-Secs): These are sovereign
‘Market SROs) (credit risk-free) coupon bearing instruments which are
Supervising trading at issued by the Reserve Bank of India on behalf of Government
derivatives of India, in lieu of the Central Government's market
Derivatives and New borrowing programme. These securities have a fixed coupon
segments of stock exchanges,
Products that is paid on specific dates on halfyearly basis. These
3. introducing
Departments securities are available in wide range of maturity dates, from
new products to be traded, and
(DNPD) short dated (less than one year) to long dated (up to twenty
consequent
policy changes years).

Debentures: Bonds issued by a company bearing a fixed rate

Products dealt in the secondary markets-
of interest usually payable half yearly on specific dates and
Equity: The ownership interest in a company of holders of
principal amount repayable on particular date on
its common and preferred stock. The various kinds of equity
redemption of the debentures. Debentures are normally
shares are as follows:-
secured/charged against the asset of the company in favour
Equity Shares: An equity share, commonly referred to as
of debenture holder.
ordinary share also represents the form of fractional
Bond: A negotiable certificate evidencing indebtedness. It is
ownership in which a shareholder, as a fractional owner,
normally unsecured. A debt security is generally issued by a
undertakes the maximum entrepreneurial risk associated
company, municipality or government agency. A bond
with a business venture. The holders of such shares are
investor lends money to the issuer and in exchange, the
members of the company and have voting rights. Rights
issuer promises to repay the loan amount on a specified
Issue / Rights Shares: The issue of new securities to existing
maturity date. The issuer usually pays the bond holder
shareholders at a ratio to those already held.
periodic interest payments over the life of the loan. The
various types of Bonds are as follows-
Bonus Shares: Shares issued by the companies to their
shareholders free of cost by capitalization of accumulated
Ø Zero Coupon Bond: Bond issued at a discount and repaid
reserves from the profits earned in the earlier years.
at a face value. No periodic interest is paid. The difference
between the issue price and redemption price represents the
Preferred Stock / Preference shares: Owners of these
return to the holder. The buyer of these bonds receives only
kinds of shares are entitled to a fixed dividend or dividend
one payment, at the maturity of the bond.
calculated at a fixed rate to be paid regularly before dividend
can be paid in respect of equity share. They also enjoy
Ø Convertible Bond: A bond giving the investor the option
priority over the equity shareholders in payment of surplus.
to convert the bond into equity at a fixed conversion price.
But in the event of liquidation, their claims rank below the
claims of the company’s creditors, bondholders/debenture
Commercial Paper: A short term promise to repay a fixed
holders.
amount that is placed on the market either directly or
through a specialized intermediary. It is usually issued by
Cumulative Preference Shares: A type of preference shares
companies with a high credit standing in the form of a
on which dividend accumulates if remains unpaid. All
promissory note redeemable at par to the holder on maturity
arrears of preference dividend have to be paid out before
and therefore, doesn’t require any guarantee. Commercial
paying dividend on equity shares. Cumulative Convertible
paper is a money market instrument issued normally for
Preference Shares: A type of preference shares where the
tenure of 90 days.
dividend payable on the same accumulates, if not paid. After
Treasury Bills: Short-term (up to 91 days) bearer discount
a specified date, these shares will be converted into equity
security issued by the Government as a means of financing
capital of the company.
its cash requirements.
Participating Preference Share: The right of certain
preference shareholders to participate in profits after a Brexit
specified fixed dividend contracted for is paid. Participation What is Brexit?
right is linked with the quantum of dividend paid on the It is a word that is used as a shorthand way of saying the UK
equity shares over and above a particular specified level. leaving the EU - merging the words Britain and exit to get
Brexit, in the same way as a possible Greek exit from the
Security Receipts: Security receipt means a receipt or other euro was dubbed Grexit in the past.
security, issued by a securitisation company or
reconstruction company to any qualified institutional buyer Why is Britain leaving the European Union?
pursuant to a scheme, evidencing the purchase or acquisition A referendum - a vote in which everyone (or nearly
by the holder thereof, of an undivided right, title or interest everyone) of voting age can take part - was held on 23rd
in the financial asset involved in securitisation. June 2016 to decide whether the UK should leave or remain
in the European Union. Leave won by 51.90% to 48.10%.
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 Insurance and Financial Marketing Awareness | LIC ADO Main 2019
The referendum turnout was 71.80% with more than 30
million people voting.
What was the breakdown across the UK?
England voted for Brexit by 53.40% to 46.60%. Wales also
voted for Brexit with Leave getting 52.50% of the vote and
Remain 47.50%. Scotland and Northern Ireland both
backed staying in the EU. Scotland backed Remain by 62%
to 38%, while 55.80% in Northern Ireland voted Remain and
44.20% Leave.
Know about European Union?
The European Union - often known as the EU- is an economic
and political partnership involving 28 European countries.
It began after World War Two to foster economic co-
operation, with the idea that countries which trade together
were more likely to avoid going to war with each other.
It has since grown to become a "single market" allowing
goods and people to move around, basically as if the member
states were one country. It has its own currency, the euro,
which is used by 19 of the member countries, its own
parliament and it now sets rules in a wide range of areas -
including on the environment, transport, consumer rights
and even things such as mobile phone charges.
Brexit Effect on the Indian Economy-
Britain's exit from the European Union took the world by
surprise. Experts describe this event as a ‘once in a lifetime’
which will haunt the economies across the globe for years to
come. Like every other economy, our stock markets too
suffered the effects of Brexit.
Effect of Global Economic changes on the Indian
Economy: -
India is one of the most lucrative markets for foreign
investors and, hence, we attract attention globally. So, any
major change across the globe, be it political or economic, is
bound to have an impact on India too. Britain always
provided a gateway to the European Union. Many Indian
businesses have their offices in Britain so they can avail
benefits and continue to remain a part of the EU. But with
Brexit, this benefit will be taken away and may result in
companies relocating their business set ups to other places.
Which are the Sectors which will be affected by Brexit?
Automobile, Pharma and IT might be the most affected.
NASSCOM has predicted that the effect of Brexit will be felt
on the $108 Billion Indian IT sector in the short term.
Leading Indian IT firms have not commented on it as since
there is a possibility of renegotiations for all the ongoing
projects because of the devaluation in the value of pound.
These things can be covered up in the next few years
wherein alternate arrangements can be placed between the
countries. In the automobile industry, Brexit may lead to
reduction in sales and companies that derive good revenues
of profits from Britain could get hurt majorly.
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Effect on Education sector/students & Travel-
Britain is one of the most sought after education destination
for Indians. Before Brexit, British universities were forced
to offer scholarships and subsidies to the citizens of the UK
and EU. Brexit frees up funds for the other students and
more Indian students might be able to get scholarships.
Reduction in pound value will reduce travelling cost to the
UK and will make it a good travel destination.
Mutual Funds
What is Mutual Fund?
Mutual fund is a mechanism for pooling money by issuing
units to the investors and investing funds in securities in
accordance with objectives as disclosed in offer document.
Investments in securities are spread across a wide cross-
section of industries and sectors and thus the risk is
diversified because all stocks may not move in the same
direction in the same proportion at the same time.
Mutual funds issue units to the investors in accordance with
quantum of money invested by them. Investors of mutual
funds are known as unit holders. The profits or losses are
shared by investors in proportion to their investments.
Mutual funds normally come out with a number of schemes
which are launched from time to time with different
investment objectives. A mutual fund is required to be
registered with Securities and Exchange Board of India
(SEBI) before it can collect funds from the public.
What is the history of Mutual Funds in India and role of
SEBI in mutual funds industry?
Unit Trust of India was the first mutual fund set up in India
in the year 1963. In late 1980s, Government allowed public
sector banks and institutions to set up mutual funds. In the
year 1992, Securities and Exchange Board of India (SEBI)
Act was passed. The objectives of SEBI are– to protect the
interest of investors in securities and to promote the
development of and to regulate the securities market.
As far as mutual funds are concerned, SEBI formulates
policies, regulates and supervises mutual funds to
protect the interest of the investors. SEBI notified
regulations for mutual funds in 1993. Thereafter, mutual
funds sponsored by private sector entities were allowed to
enter the capital market. The regulations were fully revised
in 1996 and have been amended thereafter from time to
time. SEBI has also issued guidelines through circulars to
mutual funds from time to time to protect the interests of
investors. All mutual funds whether promoted by public
sector or private sector entities including those promoted by
foreign entities are governed by the same set of Regulations.
There is no distinction in regulatory requirements for these
mutual funds and all are subject to monitoring and
inspections by SEBI.
How is a mutual fund set up?
A mutual fund is set up in the form of a trust, which has
sponsor, trustees, Asset Management Company (AMC)
and custodian. The trust is established by a sponsor or
more than one sponsor who is like promoter of a company.
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The trustees of the mutual fund hold its property for the
benefit of the unit holders. AMC approved by SEBI manages
the funds by making investments in various types of
securities. Custodian, who is required to be registered with
SEBI, holds the securities of various schemes of the fund in
its custody. The trustees are vested with the general power
of superintendence and direction over AMC. They monitor
the performance and compliance of SEBI Regulations by
the mutual fund.
SEBI Regulations require that at least two-thirds of the
directors of trustee company or board of trustees must be
independent i.e. they should not be associated with the
sponsors. Also, 50% of the directors of AMC must be
independent. All mutual funds are required to be registered
with SEBI before they launch any scheme.
What is Net Asset Value (NAV) of a scheme?
The performance of a particular scheme of a mutual fund is
denoted by Net Asset Value (NAV). Mutual funds invest the
money collected from investors in securities markets. In
simple words, NAV is the market value of the securities held
by the scheme. Since market value of securities changes
every day, NAV of a scheme also varies on day to day basis.
The NAV per unit is the market value of securities of a
scheme divided by the total number of units of the scheme
on any particular date.
For example- If the market value of securities of a mutual
fund scheme is INR 200 lakh and the mutual fund has issued
10 lakh units of INR 10 each to the investors, then the NAV
per unit of the fund is INR 20 (i.e.200 lakh/10 lakh). NAV is
required to be disclosed by the mutual funds on a daily basis.
Different Types of Mutual Fund schemes?
Schemes according to Maturity Period:
A mutual fund scheme can be classified into open-ended
scheme or close-ended scheme depending on its maturity
period.
Open-ended Fund/Scheme:
An open-ended fund or scheme is one that is available for
subscription and repurchase on a continuous basis. These
schemes do not have a fixed maturity period. Investors can
conveniently buy and sell units at Net Asset Value (NAV) per
unit which is declared on a daily basis. The key feature of
open-end schemes is liquidity.
Close-ended Fund/Scheme:
A close-ended fund or scheme has a stipulated maturity
period e.g. 3-5 years. The fund is open for subscription only
during a specified period at the time of launch of the scheme.
Investors can invest in the scheme at the time of the new
fund offer and thereafter they can buy or sell the units of the
scheme on the stock exchanges where the units are listed. In
order to provide an exit route to the investors, some close-
ended funds give an option of selling back the units to the
mutual fund through periodic repurchase at NAV related
prices. SEBI Regulations stipulate that at least one of the two
exit routes is provided to the investor i.e. either repurchase
facility or through listing on stock exchanges.
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Schemes according to Investment Objective:
A scheme can also be classified as growth scheme, income
scheme or balanced scheme considering its investment
objective. Such schemes may be open-ended or close-ended
schemes as described earlier. Such schemes may be
classified mainly as follows:
Growth/Equity Oriented Scheme
The aim of growth funds is to provide capital appreciation
over the medium to long- term. Such schemes normally
invest a major part of their corpus in equities. Such funds
have comparatively high risks. These schemes provide
different options to the investors like dividend option,
growth, etc. and the investors may choose an option
depending on their preferences. The investors must indicate
the option in the application form. The mutual funds also
allow the investors to change the options at a later date.
Growth schemes are good for investors having a long-term
outlook seeking appreciation over a period of time.
Income/Debt Oriented Scheme
The aim of income funds is to provide regular and steady
income to investors. Such schemes generally invest in fixed
income securities such as bonds, corporate debentures,
Government securities and money market instruments. Such
funds are less risky compared to equity schemes. However,
opportunities of capital appreciation are also limited in such
funds. The NAVs of such funds are affected because of change
in interest rates in the country. If the interest rates fall, NAVs
of such funds are likely to increase in the short run and vice
versa. However, long term investors may not bother about
these fluctuations.
Balanced/Hybrid Scheme
The aim of balanced schemes is to provide both growth and
regular income as such schemes invest both in equities and
fixed income securities in the proportion indicated in their
offer documents. These are appropriate for investors looking
for moderate growth. They generally invest 40-60% in
equity and debt instruments. These funds are also affected
because of fluctuations in share prices in the stock markets.
However, NAVs of such funds are likely to be less volatile
compared to pure equity funds.
Money Market or Liquid Schemes
These schemes are also income schemes and their aim is to
provide easy liquidity, preservation of capital and moderate
income. These schemes invest exclusively in short-term
instruments such as treasury bills, certificates of deposit,
commercial paper and inter-bank call money, government
securities, etc. Returns on these schemes fluctuate much less
compared with other funds. These funds are appropriate for
corporate and individual investors as a means to park their
surplus funds for short periods.
Gilt Funds
These funds invest exclusively in government securities.
Government securities have no default risk. NAVs of these
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 Insurance and Financial Marketing Awareness | LIC ADO Main 2019
schemes also fluctuate due to change in interest rates and
other economic factors as is the case with income or debt
oriented schemes.
Index Funds
Index Funds replicate the portfolio of a particular index such
as the BSE Sensitive index (Sensex), NSE 50 index (Nifty), etc.
These schemes invest in the securities in the same weightage
comprising of an index. NAVs of such schemes would rise or
fall in accordance with the rise or fall in the index, though not
exactly by the same percentage due to some factors known
as “tracking error” in technical terms. Necessary disclosures
in this regard are made in the offer document of the mutual
fund scheme.
Role of Discount and Finance House of India
Role of Discount and Finance House of India (DFHI)-
Pursuant to the Vaghul Working Group recommendation
for setting up an institution to provide enhanced liquidity to
the money market instruments, the RBI set up the Dis-count
and Finance House of India (DFHI) jointly with public
sector banks and the all-India financial institutions.
DFHI was incorporated in March 1988 and it commenced
operation in April 1988. The main objective of this money
market institution is to facilitate smoothening of the short-
term liquid-ity imbalances by developing an active
secondary market for the money market instruments. Its
authorized capital is Rs. 250 crores.
DFHI participates in transactions in all the market segments,
it borrows and lends in the call, notice and term money
market, purchases and sells treasury bills sold at
auctions, commercial bills, CDs and CPs. DFHI quotes its
daily bid (buying) and offer (selling) rates for money market
instruments to develop an active secondary market for all
these.
Treasury bills are not bought back by the RBI before
maturity. Similarly, except at the fortnightly auctions these
cannot be purchased from the RBI. DFHI fills this gap by
buying and selling these bills in the secondary market. The
pres-ence of DFHI in the secondary market has facili-tated
corporate entities and other bodies to invest their short-
term surpluses and to en cash them when necessary. The RBI
extends reliance limit to the DFHI against the collateral of
treasury bills and against the holdings of bills of exchange
with a view to impart-ing liquidity to various money market
instruments.
The enhancement of such limits from time to time enabled
the DFHI to provide higher and higher levels of liquidity in
the period of stringency wit-nessed in the money market. In
the aftermath of the irregularities in transac-tions in money
and securities markets which emerged in 1992, there was a
reduction in overall trading volumes in almost all segments
of the money market.
The DFHI’s business turnover in certain seg­ments viz.
treasury bills and commercial bills con-tinues to remain
subdued even during 1993-94. The easy conditions
prevailing in the call money mar-ket discouraged secondary
market transactions in the treasury bills. Both the 91 days
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and 364 days treasury bills are becoming preferred
instruments in the money market.
SBI DFHI-
SBI DFHI Limited is a Primary Dealer, an institution created
by RBI to support the book building process in Primary
Auctions of Government securities and provide necessary
depth and liquidity to the Secondary market in Government
Securities.
SBI DFHI are a subsidiary of State Bank of India with
impeccable lineage, created out of the amalgamation in 2004
of the two leading players in the domestic Money and Debt
Markets, the RBI promoted Discount & Finance House of
India (DFHI) and SBI Gilts Ltd., a subsidiary of India’s
largest commercial bank. It is a market leader in the Primary
Dealer segment of the domestic debt market, with a Net
Worth of Rs. 891.38 crore (as on 31st March 2018) and a
presence in all major financial centres of the country. It
posted an impressive total turnover of Rs. 4,73,155 crore in
Government Securities/SDL and Rs. 63,007 crore in Treasury
Bills respectively for the financial year 2017-18.
As Primary Dealers, we trade in Fixed Income Securities
(Treasury Bills, Government securities, State Development
Loans, Non SLR Bonds, and Corporate Bonds) and Short
Term Money Market instruments (Certificates of Deposit,
Commercial Paper, Inter-Corporate Deposits, Call & Notice
Money Deposits). We are active in retailing of Government
Securities, including small lots. We also actively participate
in the domestic interest rate derivatives and equities/equity
futures markets.
SBI DFHI Limited obtained a SEBI registered Investment
Adviser licence in October 2016. The launch of the advisory
services happened in March 2017. Our advisory services is
being offered to institutional investors such as co-operative
banks, pension and provident fund trusts etc.
The Company is led by a team of experienced professionals,
backed by strong research capabilities and driven by core-
values. The affairs of the Company are managed by the MD &
CEO, an official of the rank of a Chief General Manager in SBI,
under the overall supervision and guidance of a Board of
Directors chaired by the Chairman of SBI and comprising of
reputed market professionals and academicians of eminence.
Project Financing (in India)
Project Finance is one of the key focus areas in today’s
world because of continuous growth and expansion of the
industries at a rapid rate. Project finance is a centuries-old
form of financing high-risk, development-oriented
projects. Project finance is the long-term financing of
infrastructure and industrial projects based upon non-
recourse or limited alternative of financial structure where
project debt and equity used to finance the project are paid
back from the cash flow engendered by the project.
They are most ordinarily non-recourse loans, which are
fortified by the project assets and paid entirely from project
cash flow, rather than from the general assets or
creditworthiness of the project sponsors, a decision in part
braced by financial modeling.
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Methods of Project Financing-
A survey said that 90% of respondents identified money
as the greatest obstacle to implementation of any
project. The various sources of finance can be broadly
divided into two categories, viz. equity capital and debt
capital (borrowed capital). The combination of equity and
debt should be judiciously chosen, and it will vary according
to the nature of the project. The project manager can choose
any one or a combination of two or more of these methods to
finance the project.
 Share capital – equity capital and preference capital.
 Term loan
 Debenture capital
 Commercial banks
 Bills discounting
Some more types of financing available are-
Seed Capital- In consonance with the Government policy
which boosts a new class of entrepreneurs and also aims
wider spreading of ownership and control of manufacturing
units, a distinct scheme to complement the resource of an
entrepreneur has been presented by the Government.
Assistance in this scheme is accessible in the nature of seed
capital which is generally given by way of long term interest
free loan. Seed capital aid is provided to small as well as
medium scale units promoted by eligible entrepreneurs.
Government subsidies- Subsidies drawn-out by the Central
as well as State Government form a very significant type of
funds presented to a company for implementing its project.
Subsidies may be available in the nature of absolute cash
grant or long-term interest free loan. In fact, while settling
the means of finance, Government subsidy forms an key
source having a vital bearing on the putting into practice of
many a projects.
Financing stage-
(a) Arrangement of equity/debt/loan.
(b) Negotiation and Syndication of the same.
(c) Documentation and checking all the rules and regulations
or policies relating to the starting of the project.
(d) Payment.
Post Financing-
(a) Monitoring and review of project from time to time. The
project manager must keep a check on the proper working of
the project.
(b) Project closure – It is ending the project
(c) Repayment and monitoring
The amount taken in the form of loan, equity and debt must
be repaid back and proper monitoring and control of the
project must be carried.
Insurance Industry
Introduction- The insurance industry of India consists of 57
insurance companies of which 24 are in life insurance
business and 33 are non-life insurers. Among the life
insurers, Life Insurance Corporation (LIC) is the sole public
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sector company. Apart from that, among the non-life
insurers there are six public sector insurers. In addition to
these, there is sole national re-insurer, namely, General
Insurance Corporation of India (GIC Re). Other stakeholders
in Indian Insurance market include agents (individual and
corporate), brokers, surveyors and third party
administrators servicing health insurance claims.
Market Size- Government's policy of insuring the uninsured
has gradually pushed insurance penetration in the country
and proliferation of insurance schemes.
Gross premiums written in India reached Rs 5.53 trillion
(US$ 94.48 billion) in FY18, with Rs 4.58 trillion (US$ 71.1
billion) from life insurance and Rs 1.51 trillion (US$ 23.38
billion) from non-life insurance. Overall insurance
penetration (premiums as % of GDP) in India reached 3.69
per cent in 2017 from 2.71 per cent in 2001.
In FY19 (up to October 2018), premium from new life
insurance business increased 3.66 per cent year-on-year to
Rs 1.09 trillion (US$ 15.46 billion). In FY19 (up to October
2018), gross direct premiums of non-life insurers reached Rs
962.05 billion (US$ 13.71 billion), showing a year-on-year
growth rate of 12.40 per cent.
Investments and Recent Developments-
The following are some of the major investments and
developments in the Indian insurance sector.
 As of November 2018, HDFC Ergo is in advanced talks to
acquire Apollo Munich Health Insurance at a valuation of
around Rs 2,600 crore (US$ 370.05 million).
 In October 2018, Indian e-commerce major Flipkart
entered the insurance space in partnership with Bajaj
Allianz to offer mobile insurance.
 In August 2018, a consortium of WestBridge Capital,
billionaire investor Mr Rakesh Jhunjunwala announced
that it would acquire India’s largest health insurer Star
Health and Allied Insurance in a deal estimated at
around US$ 1 billion.
 In September 2018, HDFC Ergo launched ‘E@Secure’ a
cyber insurance policy for individuals.
 Insurance sector companies in India raised around Rs
434.3 billion (US$ 6.7 billion) through public issues in
2017.
 In 2017, insurance sector in India saw 10 merger and
acquisition (M&A) deals worth US$ 903 million.
 India's leading bourse Bombay Stock Exchange (BSE)
will set up a joint venture with Ebix Inc to build a robust
insurance distribution network in the country through a
new distribution exchange platform.
Government Initiatives-
The Government of India has taken a number of initiatives
to boost the insurance industry. Some of them are as
follows:
In September 2018, National Health Protection Scheme was
launched under Ayushman Bharat to provide coverage of up
to Rs 500,000 (US$ 7,723) to more than 100 million
vulnerable families. The scheme is expected to increase
penetration of health insurance in India from 34 per cent to
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50 per cent. Over 47.9 million famers were benefitted under
Pradhan Mantri Fasal Bima Yojana (PMFBY) in 2017-18.
The Insurance Regulatory and Development Authority of
India (IRDAI) plans to issue redesigned initial public offering
(IPO) guidelines for insurance companies in India, which are
to looking to divest equity through the IPO route. IRDAI has
allowed insurers to invest up to 10 per cent in additional tier
1 (AT1) bonds that are issued by banks to augment their tier
1 capital, in order to expand the pool of eligible investors for
the banks.
Road Ahead-
The future looks promising for the life insurance industry
with several changes in regulatory framework which will
lead to further change in the way the industry conducts its
business and engages with its customers. The overall
insurance industry is expected to reach US$ 280 billion by
2020. Life insurance industry in the country is expected
grow by 12-15 per cent annually for the next three to five
years. Demographic factors such as growing middle class,
young insurable population and growing awareness of the
need for protection and retirement planning will support the
growth of Indian life insurance.
Regulatory Agencies
Regulatory Agency- A regulatory agency is a public
authority or government agency responsible for exercising
autonomous authority over some area of human activity in a
regulatory or supervisory capacity. An independent
regulatory agency is a regulatory agency that is independent
from other branches or arms of the government.
Financial Regulatory Bodies in India- the Financial System
in India is regulated by independent regulators in the field of
Banking, Insurance, Capital Market, Commodities Market and
pension funds. However, Government of India plays a
significant role in controlling the financial system in India
and influences the roles of such regulators at least to some
extent. The following are major financial regulatory bodies in
India:
1. Reserve Bank of India (RBI)
Sector: Banking & Finance, Monetary Policy
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2. Securities and Exchange Board of India (SEBI)
Sector: Securities (Stock) & Capital Market
3. Insurance Regulatory and Development Authority of
India (IRDAI)
Sector: Insurance
4. Pension Fund Regulatory & Development Authority
(PFRDA)
Sector: Pension
5. National Bank for Agriculture and Rural Development
(NABARD)
Sector: Financing Rural Development
6. Small Industries Development Bank of India (SIDBI)
Sector: Financing Micro, Small and Medium-Scale
Enterprises
7. National Housing Bank (NHB)
Sector: Financing Housing
8. Financial Stability and Development Council (FSDC)
Sector: Financial Sector Development
9. Food Safety and Standards Authority of India (FSSAI)
Sector: Food
10. Bureau of Indian Standards (BIS)
Sector: Standards & Certification
11. Association of Mutual Funds (AMFI)
Sector: Mutual Funds
12. National Association of Software and Service
Companies (NASSCOM)
Sector: IT
13. Federation of Indian Chambers of Commerce &
Industry (FICCI)
Sector: Commerce & Industry
14. Confederation of Indian Industry (CII)
Sector: Industry
1. Reserve Bank of India
The Reserve Bank of India (RBI) is India's central banking
institution, which controls the issuance and supply of the
Indian rupee. Until the Monetary Policy Committee was
established in 2016, it also controlled monetary policy in
India. It commenced its operations on 1 April 1935 in
accordance with the Reserve Bank of India Act, 1934. The
original share capital was divided into shares of 100 each
fully paid, which were initially owned entirely by private
shareholders. Following India's independence on 15 August
1947, the RBI was nationalised on 1 January 1949.
Governor: Shaktikanta Das, Headquarters: Mumbai.
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2. Securities and Exchange Board of India
The Securities and Exchange Board of India was established
on 12th April 1992 in accordance with the provisions of the
Securities and Exchange Board of India Act, 1992. The
Preamble of the Securities and Exchange Board of India
describes the basic functions of the Securities and Exchange
Board of India.
Headquarters: Mumbai, Chairperson: Ajay Tyagi.
3. Insurance Regulatory and Development Authority of
India
IRDAI regulate the Indian insurance industry to protect the
interests of the policyholders and work for the orderly
growth of the industry. Insurance Regulatory and
Development Authority (IRDA) set up as autonomous body
under the IRDA Act, 1999.
Headquarters: Hyderabad, Chairperson: Subhash
Chandra Khuntia.
4. Pension Fund Regulatory & Development Authority
PFRDA was established by Government of India on 23rd
August, 2003. The Government has, through an executive
order dated 10th October 2003, mandated PFRDA to act as a
regulator for the pension sector. The mandate of PFRDA is
development and regulation of pension sector in India.
The National Pension System reflects Government’s effort to
find sustainable solutions to the problem of providing
adequate retirement income. As a first step towards
instituting pensionary reforms, Government of India moved
from a defined benefit pension to a defined contribution
based pension system by making it mandatory for its new
recruits (except armed forces) with effect from 1st January,
2004. Since 1st April, 2008, the pension contributions of
Central Government employees covered by the National
Pension System (NPS) are being invested by professional
Pension Fund Managers in line with investment guidelines of
Government applicable to non-Government Provident Funds.
Headquarters: New Delhi, Agency executive: Hemant G
Contractor (Chairman)
5. National Bank for Agriculture and Rural Development
The importance of institutional credit in boosting rural
economy has been clear to the Government of India right
from its early stages of planning. Therefore, the Reserve
Bank of India (RBI) at the insistence of the Government of
India, constituted a Committee to Review the Arrangements
For Institutional Credit for Agriculture and Rural
Development (CRAFICARD) to look into these very critical
aspects. The Committee was formed on 30 March 1979,
under the Chairmanship of Shri B. Sivaraman, former
member of Planning Commission, Government of India.
The Committee’s interim report, submitted on 28 November
1979, outlined the need for a new organisational device for
providing undivided attention, forceful direction and pointed
focus to credit related issues linked with rural development.
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Its recommendation was formation of a unique development
financial institution which would address these aspirations
and formation of National Bank for Agriculture and Rural
Development (NABARD) was approved by the Parliament
through Act 61 of 1981.
NABARD came into existence on 12 July 1982 by
transferring the agricultural credit functions of RBI and
refinance functions of the then Agricultural Refinance and
Development Corporation (ARDC). It was dedicated to the
service of the nation by the late Prime Minister Smt. Indira
Gandhi on 05 November 1982. Set up with an initial capital
of Rs.100 crore, its’ paid up capital stood at Rs.10,580 crore
as on 31 March 2018. Consequent to the revision in the
composition of share capital between Government of India
and RBI, NABARD today is fully owned by Government of
India.
Headquarters: Mumbai, Agency executive: Harsh Kumar
Bhanwala (Chairman)
6. Small Industries Development Bank of India
Small Industries Development Bank of India (SIDBI) set up
on 2nd April 1990 under an Act of Indian Parliament, acts as
the Principal Financial Institution for Promotion, Financing
and Development of the Micro, Small and Medium Enterprise
(MSME) sector as well as for co-ordination of functions of
institutions engaged in similar activities.
Headquarters: Lucknow, Agency executive: Mohammad
Mustafa, (Chairman and Managing Director).
7. National Housing Bank
The Sub-Group on Housing Finance for the Seventh Five
Year Plan (1985-90) identified the non-availability of long-
term finance to individual households on any significant
scale as a major lacuna impeding progress of the housing
sector and recommended the setting up of a national level
institution. The Committee of Secretaries considered’ the
recommendation and set up the High Level Group under the
Chairmanship of Dr. C. Rangarajan, the then Deputy
Governor, RBI to examine the proposal and recommended
the setting up of National Housing Bank as an autonomous
housing finance institution. The recommendations of the
High Level Group were accepted by the Government of India.
The Hon’ble Prime Minister of India, while presenting the
Union Budget for 1987-88 on February 28, 1987 announced
the decision to establish the National Housing Bank (NHB) as
an apex level institution for housing finance. Following that,
the National Housing Bank Bill (91 of 1987) providing the
legislative framework for the establishment of NHB was
passed by Parliament in the winter session of 1987 and with
the assent of the Hon’ble President of India on December 23,
1987, became an Act of Parliament. The National Housing
Policy, 1988 envisaged the setting up of NHB as the Apex
level institution for housing. In pursuance of the above, NHB
was set up on July 9, 1988 under the National Housing
Bank Act, 1987. Reserve Bank of India contributed the entire
paid-up capital.
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The Head Office of NHB is at New Delhi, SK Hota is
Managing Director of NHB.
8. Financial Stability and Development Council
The Financial Stability and Development Council (FSDC) has
been constituted vide GOI notification dated 30th December,
2010. The Council is chaired by the Union Finance Minister
and its members are Governor, Reserve Bank of India;
Finance Secretary and/or Secretary, Department of
Economic Affairs; Secretary, Department of Financial
Services; Chief Economic Adviser, Ministry of Finance;
Chairman, Securities and Exchange Board of India; Chairman,
Insurance Regulatory and Development Authority and
Chairman, Pension Fund Regulatory and Development
Authority. The Council deals, inter-alia, with issues relating
to financial stability, financial sector development, inter–
regulatory coordination, financial literacy, financial inclusion
and macro prudential supervision of the economy including
the functioning of large financial conglomerates. No funds
are separately allocated to the Council for undertaking its
activities.
The Council and its Sub-Committee (chaired by Governor,
Reserve Bank of India) deliberate on agenda items proposed
by any of the members of the Council which broadly include
matters relating to financial stability, inter-regulatory
coordination, and financial sector development. The
Council/Sub-committee deliberates on these issues and
suggests taking appropriate steps, as required.
9. Food Safety and Standards Authority of India
The Food Safety and Standards Authority of India (FSSAI)
has been established under Food Safety and Standards , 2006
which consolidates various acts & orders that have hitherto
handled food related issues in various Ministries and
Departments. FSSAI has been created for laying down
science based standards for articles of food and to regulate
their manufacture, storage, distribution, sale and import to
ensure availability of safe and wholesome food for human
consumption.
Highlights of the Food Safety and Standard Act, 2006
Various central Acts like Prevention of Food Adulteration
Act, 1954 ,Fruit Products Order, 1955, Meat Food Products
Order,1973, Vegetable Oil Products (Control) Order, 1947,
Edible Oils Packaging (Regulation) Order 1988, Solvent
Extracted Oil, De- Oiled Meal and Edible Flour (Control)
Order, 1967, Milk and Milk Products Order, 1992 etc will be
repealed after commencement of FSS Act, 2006.
The Act also aims to establish a single reference point for all
matters relating to food safety and standards, by moving
from multi- level, multi- departmental control to a single line
of command. To this effect, the Act establishes an
independent statutory Authority – the Food Safety and
Standards Authority of India with head office at Delhi. Food
Safety and Standards Authority of India (FSSAI) and the State
Food Safety Authorities shall enforce various provisions of
the Act.
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Establishment of the Authority
Ministry of Health & Family Welfare, Government of India is
the Administrative Ministry for the implementation of FSSAI.
The Chairperson and Chief Executive Officer of Food Safety
and Standards Authority of India (FSSAI) have already been
appointed by Government of India. The Chairperson is in the
rank of Secretary to Government of India.
FSSAI has been mandated by the FSS Act, 2006 for
performing the following functions:
 Framing of Regulations to lay down the Standards and
guidelines in relation to articles of food and specifying
appropriate system of enforcing various standards thus
notified.
 Laying down mechanisms and guidelines for
accreditation of certification bodies engaged in
certification of food safety management system for food
businesses.
 Laying down procedure and guidelines for accreditation
of laboratories and notification of the accredited
laboratories.
 To provide scientific advice and technical support to
Central Government and State Governments in the
matters of framing the policy and rules in areas which
have a direct or indirect bearing of food safety and
nutrition.
 Collect and collate data regarding food consumption,
incidence and prevalence of biological risk,
contaminants in food, residues of various, contaminants
in foods products, identification of emerging risks and
introduction of rapid alert system.
 Creating an information network across the country so
that the public, consumers, Panchayats etc receive rapid,
reliable and objective information about food safety and
issues of concern.
 Provide training programmes for persons who are
involved or intend to get involved in food businesses.
 Contribute to the development of international technical
standards for food, sanitary and phyto-sanitary
standards.
 Promote general awareness about food safety and food
standards.
Headquarters: New Delhi, Agency executive: Rita Teaotia
(Chairperson)
10. Bureau of Indian Standards
The Erstwhile Indian Standards Institution (now Bureau of
Indian Standards) was established in the year 1947 with the
objective of harmonious development of standardization
activity in India. The Bureau of Indian Standards (BIS) was
established under the BIS Act, 1986 for the harmonious
development of the activities of standardization, marking
and quality certification of goods and for matters connected
therewith or incidental thereto. A new Bureau of Indian
Standards Act, 2016 which was notified on 22nd March
2016, has been brought into force with effect from 12
October 2017 that reinforces the activities of BIS in respect
to standardization and certification of goods, articles,
processes, systems and services.
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Headquarters: New Delhi, Director General- Surina
Rajan.
11. Association of Mutual Funds in India
The Association of Mutual Funds in India (AMFI) is dedicated
to developing the Indian Mutual Fund Industry on
professional, healthy and ethical lines and to enhance and
maintain standards in all areas with a view to protecting and
promoting the interests of mutual funds and their unit
holders. AMFI,the association of SEBI registered mutual
funds in India of all the registered Asset Management
Companies, was incorporated on August 22, 1995, as a non-
profit organisation. As of now, all the 44 Asset Management
Companies that are registered with SEBI, are its members.
Headquarters: Mumbai, Chief Executive- NS Venkatesh.
12. National Association of Software and Service
Companies
NASSCOM, a not-for-profit industry association, is the apex
body for the 154 billion dollar IT BPM industry in India, an
industry that had made a phenomenal contribution to India's
GDP, exports, employment, infrastructure and global
visibility. Established in 1988 and ever since, NASSCOM’s
relentless pursuit has been to constantly support the IT BPM
industry, in the latter’s continued journey towards seeking
trust and respect from varied stakeholders, even as it
reorients itself time and again to remain innovative,without
ever losing its humane and friendly touch.
13. Federation of Indian Chambers of Commerce &
Industry
Established in 1927, FICCI is the largest and oldest apex
business organisation in India. Its history is closely
interwoven with India's struggle for independence, its
industrialization, and its emergence as one of the most
rapidly growing global economies. A non-government, not-
for-profit organisation, FICCI is the voice of India's business
and industry. From influencing policy to encouraging debate,
engaging with policy makers and civil society, FICCI
articulates the views and concerns of industry. It serves its
members from the Indian private and public corporate
sectors and multinational companies, drawing its strength
from diverse regional chambers of commerce and industry
across states, reaching out to over 2,50,000 companies.
FICCI provides a platform for networking and consensus
building within and across sectors and is the first port of call
for Indian industry, policy makers and the international
business community.
Headquarters: New Delhi, President- Sandip Somany
14. Confederation of Indian Industry
The Confederation of Indian Industry (CII) works to create
and sustain an environment conducive to the development of
India, partnering industry, Government, and civil society,
through advisory and consultative processes. CII is a non-
government, not-for-profit, industry-led and industry-
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managed organization, playing a proactive role in India's
development process. Founded in 1895, India's premier
business association has around 9000 members, from the
private as well as public sectors, including SMEs and MNCs,
and an indirect membership of over 300,000 enterprises
from around 265 national and regional sectoral industry
bodies.
CII charts change by working closely with Government on
policy issues, interfacing with thought leaders, and
enhancing efficiency, competitiveness and business
opportunities for industry through a range of specialized
services and strategic global linkages. It also provides a
platform for consensus-building and networking on key
issues. Extending its agenda beyond business, CII assists
industry to identify and execute corporate citizenship
programmes. Partnerships with civil society organizations
carry forward corporate initiatives for integrated and
inclusive development across diverse domains including
affirmative action, healthcare, education, livelihood, diversity
management, skill development, empowerment of women,
and water, to name a few.
International Financial Institutions
An international financial institution (IFI) is a financial
institution that has been established (or chartered) by more
than one country, and hence are subjects of international
law. Its owners or shareholders are generally national
governments, although other international institutions and
other organizations occasionally figure as shareholders. The
most prominent IFIs are creations of multiple nations,
although some bilateral financial institutions (created by two
countries) exist and are technically IFIs. The best known IFIs
were established after World War II to assist in the
reconstruction of Europe and provide mechanisms for
international cooperation in managing the global financial
system.
The following are usually classified as the main
International Financial Institutions:
1. World Bank
2. European Investment Bank (EIB)
3. Islamic Development Bank (IsDB)
4. Asian Development Bank (ADB)
5. European Bank for Reconstruction and Development
(EBRD)
6. New Development Bank (NDB)
7. Asian Infrastructure Investment Bank (AIIB)
8. International Monetary Fund (IMF)
9. International Bank for Reconstruction and
Development (IBRD)
10. International Finance Corporation (IFC)
11. International Development Association (IDA)
12. International Centre for Settlement of Investment
Disputes (ICSID)
13. Multilateral Investment Guarantee Agency (MIGA)
14. World Trade Organization (WTO)
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15. Organisation for Economic Co-operation and
Development (OECD)
16. International Labour Organization (ILO)
Financial Intermediaries
What is a Financial Intermediary-?
A financial intermediary is an entity that acts as the
middleman between two parties in a financial transaction,
such as a commercial bank, investment banks, mutual funds
and pension funds. Financial intermediaries offer a number
of benefits to the average consumer, including safety,
liquidity, and economies of scale involved in commercial
banking, investment banking and asset management.
Although in certain areas, such as investing, advances in
technology threaten to eliminate the financial intermediary,
disintermediation is much less of a threat in other areas of
finance, including banking and insurance.
Functions of Financial Intermediaries-
Financial intermediaries move funds from parties with
excess capital to parties needing funds. The process creates
efficient markets and lowers the cost of conducting business.
For example, a financial advisor connects with clients
through purchasing insurance, stocks, bonds, real estate and
other assets. Banks connect borrowers and lenders by
providing capital from other financial institutions and from
the Federal Reserve. Insurance companies collect premiums
for policies and provide policy benefits. A pension fund
collects funds on behalf of members and distributes
payments to pensioners.
Mutual Funds as Financial Intermediaries
Mutual funds provide active management of capital pooled
by shareholders. The fund manager connects with
shareholders through purchasing stock in companies he
anticipates may outperform the market. By doing so, the
manager provides shareholders with assets, companies with
capital and the market with liquidity.
Benefits of Financial Intermediaries
Through a financial intermediary, savers can pool their
funds, enabling them to make large investments, which in
turn benefits the entity in which they are investing. At the
same time, financial intermediaries pool risk by spreading
funds across a diverse range of investments and loans. Loans
benefit households and countries by enabling them to spend
more money than they have at the current time.
Financial intermediaries also provide the benefit of reducing
costs on several fronts. For instance, they have access to
economies of scale to expertly evaluate the credit profile of
potential borrowers and keep records and profiles cost-
effectively. Last, they reduce the costs of the many financial
transactions an individual investor would otherwise have to
make if the financial intermediary did not exist.
Examples of Financial Intermediaries-
 Insurance Companies- If you have a risky investment.
You might wish to insure, against the risk of default.
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Rather than trying to find a particular individual to
insure you, it is easier to go to an insurance company
who can offer insurance and help spread the risk of
default.
 Financial Advisers- A financial adviser doesn’t directly
lend or borrow for you. They can offer specialist advice
on your behalf. It saves you understanding all the
intricacies of the financial markets and spending time
looking for best investment.
 Credit Union- Credit unions are informal types of banks
which provide facilities for lending and depositing
within a particular community.
 Mutual funds/Investment trusts- These are mutual
investment schemes. These pool the small savings of
individual investors and enable a bigger investment
fund. Therefore, small investors can benefit from being
part of a larger investment trust. This enables small
investors to benefit from smaller commission rates
available to big purchases.
Establishment of FSDC
Financial Stability and Development Council (FSDC) is an
apex-level body constituted by the government of India. The
idea to create such a super regulatory body was first mooted
by the Raghuram Rajan Committee in 2008. Finally in
2010, the then Finance Minister of India, Pranab
Mukherjee, decided to set up such an autonomous body
dealing with macro prudential and financial regularities in
the entire financial sector of India. An apex-level FSDC is not
a statutory body. The recent global economic meltdown has
put pressure on governments and institutions across the
globe to regulate their economic assets. This council is seen
as India's initiative to be better conditioned to prevent such
incidents in future. The new body envisages to strengthen
and institutionalise the mechanism of maintaining financial
stability, financial sector development, inter-regulatory
coordination along with monitoring macro-prudential
regulation of economy. No funds are separately allocated to
the council for undertaking its activities.
Composition of the council
Chairperson: The Union Finance Minister of India
Members:
Governor Reserve Bank of India (RBl),
Finance Secretary and/ or Secretary, Department of
Economic Affairs (DEA),
Secretary, Department of Financial Services (DFS),
Secretary, Ministry of Corporate Affairs,
Secretary, Ministry of Electronics and Information
Technology,
Chief Economic Advisor, Ministry of Finance,
Chairman, Securities and Exchange Board of India (SEBI),
Chairman, Insurance Regulatory and Development Authority
(IRDA),
Chairman, Pension Fund Regulatory and Development
Authority (PFRDA),
Chairman, Insolvency and Bankruptcy Board of India (IBBI),
Additional Secretary, Ministry of Finance, DEA, will be the
Secretary of the Council.
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Financial Stability and Development Council
Financial sector regulation is a vital service for bringing
healthy and efficient financial system in the economy. There
are different regulators for various segments of financial
sectors, like the RBI for commercial banks and NBFCs,
SEBI for capital market etc.
At the same time, there should be coordination among these
financial sector regulators to ensure better efficiency as well
as for avoiding overlapping of functions. For this, the
Government has formed the Financial Stability and
Development Council in 2010, with the Finance Minister as
the Chairman. The immediate impulse for the establishment
of the FSDC was the tussle between SEBI and IRDAI on the
regulation of ULIPs.
Basically, the activity of the Council is to coordinate financial
and economic regulations through consultations of the heads
of the various regulatory organizations. The FSDC was
envisaged for performing two sets of core functions. First is
to perform as an apex level forum to strengthen and
institutionalize the mechanism for maintaining financial
stability. Second is for enhancing inter-regulatory
coordination and promoting financial sector development in
the country.
Function of the FSDC-
 It will focus on financial literacy and financial inclusion.
 It aims strengthening and institutionalizing the
mechanism of financial stability and development.
 It will monitor macro-prudential supervision of the
economy. It will assess the functioning of the large
financial conglomerates.
 It will address intra regulatory coordination issues.
The FSDC Sub Committee Chaired by the Governor of the
RBI
An important wing of the FSDC, in terms of functional
responsibility is the Sub-committee chaired by the Governor
of the RBI. It meets more often than the full Council. All the
members of the FSDC are also the members of the Sub-
committee. Additionally, all four Deputy Governors of the
RBI and Additional Secretary, DEA, in charge of FSDC, are
also members of the Sub Committee.
Other wings within the FSDC-
There are few other regulatory wings within the FSDC
created for specific purposes: the Inter regulatory technical
group, Technical Group on financial inclusion and financial
literacy, Inter regulatory forum for monitoring financial
conglomerates (IRF-FC), Early Warning Group, Working
Group on resolution regime for financial institutions and the
Macro Financial and Monitoring Group.
International Financial Organization
An International Financial Organisation/Institution (IFI)
is a financial institution that has been established (or
chartered) by more than one country, and hence are subjects
of international law. Its owners or shareholders are
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generally national governments, although other
international institutions and other organizations
occasionally figure as shareholders. The most prominent IFIs
are creations of multiple nations, although some bilateral
financial institutions (created by two countries) exist and are
technically IFIs. The best known IFIs were established after
World War II to assist in the reconstruction of Europe and
provide mechanisms for international cooperation in
managing the global financial system.
The following are major financial regulatory bodies in
the world.
1. World Bank
2. European Investment Bank (EIB)
3. Islamic Development Bank (IsDB)
4. Asian Development Bank (ADB)
5. European Bank for Reconstruction and Development
(EBRD)
6. New Development Bank (NDB)
7. Asian Infrastructure Investment Bank (AIIB)
8. International Monetary Fund (IMF)
9. International Bank for Reconstruction and
Development (IBRD)
10. International Finance Corporation (IFC)
11. International Development Association (IDA)
12. International Centre for Settlement of Investment
Disputes (ICSID)
13. Multilateral Investment Guarantee Agency (MIGA)
14. World Trade Organization (WTO)
15. Organisation for Economic Co-operation and
Development (OECD)
16. International Labour Organization (ILO)
1. World Bank-
The World Bank is an international financial institution that
provides loans to countries of the world for capital projects.
It comprises two institutions: the International Bank for
Reconstruction and Development, and the International
Development Association. The World Bank is a component of
the World Bank Group.
Headquarters: Washington, D.C., USA, Founded: 1944
2. European Investment Bank
The European Investment Bank is the lending arm of the
European Union. EIM are the world’s largest multilateral
lender and the biggest provider of climate finance. EIM help
the economy, create jobs and promote equality. The EIB
Group has two parts: the European Investment Bank and the
European Investment Fund. The EIF specialises in finance for
small businesses and mid-caps.
Headquarters: Luxembourg, Founded: 1958
3. Islamic Development Bank (IsDB)
he Islamic Development Bank is a multilateral development
financing institution located in Jeddah, Saudi Arabia. It was
founded in 1973 by the Finance Ministers at the first
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Organisation of the Islamic Conference with the support of
the king of Saudi Arabia at the time, and began its activities
on 3 April 1975.
Founded: 1973, Headquarters: Jeddah, Saudi Arabia
4. Asian Development Bank (ADB)
The Asian Development Bank was conceived in the early
1960s as a financial institution that would be Asian in
character and foster economic growth and cooperation in
one of the poorest regions in the world. A resolution passed
at the first Ministerial Conference on Asian Economic
Cooperation held by the United Nations Economic
Commission for Asia and the Far East in 1963 set that vision
on the way to becoming reality.
The Philippines capital of Manila was chosen to host the new
institution, which opened on 19 December 1966, with 31
members that came together to serve a predominantly
agricultural region. Takeshi Watanabe was ADB's first
President. During the 1960s, ADB focused much of its
assistance on food production and rural development.
Founded: 1966, Headquarters: Manila, Philippines
5. European Bank for Reconstruction and Development
The European Bank for Reconstruction and Development
(EBRD) was established to help build a new, post-Cold War
era in Central and Eastern Europe. The EBRD was set up in
haste to meet the challenge of an extraordinary moment in
Europe’s history, the collapse of communism in its East. In
fact, a mere 18 months elapsed between the first mooting of
the idea of a European development bank, by President
François Mitterrand of France, in October 1989 and its
opening for business with headquarters in London in April
1991.
Founded: 1991, Headquarters: London, United Kingdom
6. New Development Bank
The New Development Bank, formerly referred to as the
BRICS Development Bank, is a multilateral development
bank established by the BRICS states. According to the
Agreement on the NDB, "the Bank shall support public or
private projects through loans, guarantees, equity
participation and other financial instruments."
Founded: 2014, Headquarters: Shanghai, China
7. Asian Infrastructure Investment Bank
he Asian Infrastructure Investment Bank (AIIB) is a
multilateral development bank with a mission to improve
social and economic outcomes in Asia. Headquartered in
Beijing, we began operations in January 2016 and have now
grown to 93 approved members worldwide. By investing in
sustainable infrastructure and other productive sectors in
Asia and beyond, we will better connect people, services and
markets that over time will impact the lives of billions and
build a better future.
Founded: 2016, Headquarters: Beijing, China
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8. International Monetary Fund
The International Monetary Fund (IMF) is an organization of
189 countries, working to foster global monetary
cooperation, secure financial stability, facilitate international
trade, promote high employment and sustainable economic
growth, and reduce poverty around the world. Created in
1945, the IMF is governed by and accountable to the 189
countries that make up its near-global membership.
The IMF's primary purpose is to ensure the stability of the
international monetary system—the system of exchange
rates and international payments that enables countries (and
their citizens) to transact with each other. The Fund's
mandate was updated in 2012 to include all macroeconomic
and financial sector issues that bear on global stability.
Headquarters: Washington, D.C., USA, Founded: 1944
9. International Bank for Reconstruction and
Development
The International Bank for Reconstruction and Development
is an international financial institution that offers loans to
middle-income developing countries. The IBRD is the first of
five member institutions that compose the World Bank
Group.
Headquarters: Washington, D.C., USA, Founded: 1944
10. International Finance Corporation
The International Finance Corporation is an international
financial institution that offers investment, advisory, and
asset-management services to encourage private-sector
development in developing countries.
Headquarters: Washington, D.C., USA, Founded: 1956
11. International Development Association
The International Development Association (IDA) is the part
of the World Bank that helps the world’s poorest countries.
Overseen by 173 shareholder nations, IDA aims to reduce
poverty by providing loans (called “credits”) and grants for
programs that boost economic growth, reduce inequalities,
and improve people’s living conditions.
IDA complements the World Bank’s original lending arm—
the International Bank for Reconstruction and Development
(IBRD). IBRD was established to function as a self-sustaining
business and provides loans and advice to middle-income
and credit-worthy poor countries. IBRD and IDA share the
same staff and headquarters and evaluate projects with the
same rigorous standards.
Headquarters: Washington, D.C., USA, Founded: 1960
12. International Centre for Settlement of Investment
Disputes
ICSID is the world’s leading institution devoted to
international investment dispute settlement. It has extensive
experience in this field, having administered the majority of
all international investment cases. States have agreed on
ICSID as a forum for investor-State dispute settlement in
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most international investment treaties and in numerous
investment laws and contracts.
ICSID was established in 1966 by the Convention on the
Settlement of Investment Disputes between States and
Nationals ofICSID Primer Image. 300 x 445.jpg Other States
(the ICSID Convention). The ICSID Convention is a
multilateral treaty formulated by the Executive Directors of
the World Bank to further the Bank’s objective of promoting
international investment. ICSID is an independent,
depoliticized and effective dispute-settlement institution. Its
availability to investors and States helps to promote
international investment by providing confidence in the
dispute resolution process. It is also available for state-state
disputes under investment treaties and free trade
agreements, and as an administrative registry.
Headquarters: Washington, D.C., USA, Founded: 1966
problems. It works with governments to understand what
drives economic, social and environmental change. OECD
measure productivity and global flows of trade and
investment. OECD analyses and compare data to predict
future trends.
Headquarters: Paris, France, Founded: 1961
16. International Labour Organization
The International Labour Organization is a United Nations
agency whose mandate is to advance social justice and
promote decent work by setting international labour
standards.
Headquarters: Geneva, Switzerland, Founded: 1919.

13. The Multilateral Investment Guarantee Agency

The Multilateral Investment Guarantee Agency (MIGA) is a
member of the World Bank Group. Our mandate is to
promote cross-border investment in developing countries by
providing guarantees (political risk insurance and credit
enhancement) to investors and lenders.

MIGA guarantees protect investments against

noncommercial risks and can help investors obtain access to
funding sources with improved financial terms and
conditions. The agency derives its unique strength from the
World Bank Group and from its structure as an international
Introduction of Insurance
Risks and Perils-
organization whose shareholders include most countries of
Every day, we hear stories about accidents and other
the world. This enables us to provide an umbrella of
misfortunes that someone has suffered.
deterrence against government actions that could disrupt
projects, and assist in the resolution of disputes between
Some of these include:
investors and governments. We also add value through our
 All of a sudden, people fall seriously ill.
ability to offer clients extensive knowledge of emerging
 Motor vehicles are stolen and people die or get injured
markets and of international best practice in environmental
in accidents involving motor vehicles.
and social management.
 House and belongings are destroyed by fire.
Headquarters: Washington, D.C., USA, Founded: 1988
 Large scale loss of lives and destruction of property in
cyclones and tsunamis.
14. World Trade Organization
The World Trade Organization (WTO) is the only global
Life is full of uncertainties and surprises. Protecting oneself,
international organization dealing with the rules of trade
one’s families and society from these uncertain events has
between nations. At its heart are the WTO agreements,
been one of the biggest concerns of man for centuries.
negotiated and signed by the bulk of the world’s trading
nations and ratified in their parliaments. The goal is to help
Definition of Risk- ‘Risk’ is a term that we use to refer to the
producers of goods and services, exporters, and importers
chance of suffering a loss as a result of uncertain events like
conduct their business.
the above.
Headquarters: Geneva Switzerland, Founded: 1995
The events that give rise to such risks are known as Perils.
15. Organisation for Economic Co-operation and
We face many such risks in our day-to-day life including
Development
risks to our life, health, property and so on. We don’t know
The mission of the Organisation for Economic Co-operation
whether and when something unfortunate will happen to us
and Development (OECD) is to promote policies that will
or our family members or property. It may not always be
improve the economic and social well-being of people
possible for us to prevent such a happening. For instance, we
around the world.
cannot prevent a storm or somebody’s death from occurring.
The OECD provides a forum in which governments can work
Savings and investment-
together to share experiences and seek solutions to common

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 Insurance and Financial Marketing Awareness | LIC ADO Main 2019
It is possible for us to take measures to reduce the financial
consequences that arise due to the above mentioned risks
and protect ourselves financially. One of the ways by which
this is normally done is with the help of savings and
investment.
Example- We would have seen or learnt from our parents or
elders about the need to save for the future. By saving or
investing money, the money so accumulated can be used to
cope with the loss. However, such savings can only give back
our own money plus some returns.
What would happen if a human life is lost or a person is
disabled permanently or temporarily?
Example- A person dies suddenly. Where would the person’s
family get the money from to support itself? How would the
person’s family meet the various living expenses after his
death? A person suffers a paralytic stroke that leaves him
permanently bed- ridden. Such an event would result in loss
of income to the household and put the family in a lot of
hardship. The loss suffered is so large in all such situations
that one’s savings may not be sufficient to take care of the
financial burden.
Insurance-
Luckily for us, there is something called ‘Insurance’. It is
founded on a simple idea. Even though an event like death or
a fire can come as a terrible economic blow to someone,
when we take the society as a whole, during any given year,
only a few would suffer in such manner. If a small
contribution is collected from everyone in the community
and pooled to create a common fund, the amount so pooled
can be used to pay money to the few unfortunate members
who have been subject to the loss.
Definition- Insurance is a mechanism of risk transfer and
sharing by pooling of risks and funds among a group of
individuals who are exposed to similar kinds of risks for the
benefit of those who suffer loss on account of the risk.
Insurance is, thus, a financial tool specially created to reduce
the financial impact of unforeseen events and to create
financial security. Indeed, everyone who wants to protect
himself against financial hardship should consider insurance.
Traditionally, “the joint family” has been an informal
social security in India. In modern society, social security is
available only to those who are employed in the organised
sector. Insurance is considered one of the tools of social
security for formal and informal sectors and is largely
carried out in two ways.
i. The first way is known as Social Insurance. Here, the State
or government takes care of those who are subjected to
losses due to some risk event. Examples are, providing a
pension when one grows old or providing free medical
treatment, meeting the cost of hospitalization etc. The fund
for this purpose comes from a pool made up from taxes or
mandatory social security contributions required to be made
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by all those who work and earn an income. The Employees’
State Insurance scheme (ESI) that provides medical care
and other benefits to employees and Employees’ Provident
Fund Organization (EPFO) that provides pensions and
survivors’ benefits in the event of an employee’s death are
the popular schemes under this head.
ii. The second way is through voluntary Private Insurance.
Here, individuals and groups can buy insurance from an
insurance company by entering into a contract of insurance
with the company. The insurance company enters into a
contract (an insurance policy) whereby it (insurer)
undertakes, in exchange for a small amount of money
(premium), to provide financial protection by agreeing to
pay the insuring person (insured) a fixed amount of money
(sum assured) on the happening of a certain event (insured
peril). Insurance companies collect premiums to provide for
this protection and losses are paid out of the premiums so
collected from the insuring public. In other words, an
insurance contract promises to make good to the insured a
certain sum in consideration for the premium received from
the insured.
History of Life Insurance
Brief History of Insurance-
The story of insurance is probably as old as the story of
mankind. The same instinct that prompts modern
businessmen today to secure themselves against loss and
disaster existed in primitive men also. They too sought to
avert the evil consequences of fire and flood and loss of life
and were willing to make some sort of sacrifice in order to
achieve security. Though the concept of insurance is largely a
development of the recent past, particularly after the
industrial era – past few centuries – yet its beginnings
date back almost 6000 years.
Life Insurance in its modern form came to India from
England in the year 1818. Oriental Life Insurance Company
started by Europeans in Calcutta was the first life insurance
company on Indian Soil. All the insurance companies
established during that period were brought up with the
purpose of looking after the needs of European community
and Indian natives were not being insured by these
companies. However, later with the efforts of eminent people
like Babu Muttylal Seal, the foreign life insurance
companies started insuring Indian lives. But Indian lives
were being treated as sub-standard lives and heavy extra
premiums were being charged on them. Bombay Mutual
Life Assurance Society heralded the birth of first Indian life
insurance company in the year 1870, and covered Indian
lives at normal rates. Starting as Indian enterprise with
highly patriotic motives, insurance companies came into
existence to carry the message of insurance and social
security through insurance to various sectors of society.
Bharat Insurance Company (1896) was also one of such
companies inspired by nationalism. The Swadeshi
movement of 1905-1907 gave rise to more insurance
companies. The United India in Madras, National Indian and
National Insurance in Calcutta and the Co-operative
Assurance at Lahore were established in 1906. In 1907,
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 Insurance and Financial Marketing Awareness | LIC ADO Main 2019
Hindustan Co-operative Insurance Company took its birth in
one of the rooms of the Jorasanko, house of the great poet
Rabindranath Tagore, in Calcutta. The Indian Mercantile,
General Assurance and Swadeshi Life (later Bombay Life)
were some of the companies established during the same
period. Prior to 1912 India had no legislation to regulate
insurance business. In the year 1912, the Life Insurance
Companies Act, and the Provident Fund Act were passed. The
Life Insurance Companies Act, 1912 made it necessary that
the premium rate tables and periodical valuations of
companies should be certified by an actuary. But the Act
discriminated between foreign and Indian companies on
many accounts, putting the Indian companies at a
disadvantage.
Some of the important milestones in the life insurance
business in India are:
1818: Oriental Life Insurance Company, the first life
insurance company on Indian soil started functioning.
1870: Bombay Mutual Life Assurance Society, the first
Indian life insurance company started its business.
1912: The Indian Life Assurance Companies Act enacted
as the first statute to regulate the life insurance business.
1928: The Indian Insurance Companies Act enacted to
enable the government to collect statistical information
about both life and non-life insurance businesses.
1938: Earlier legislation consolidated and amended to by the
Insurance Act with the objective of protecting the interests of
the insuring public.
1956: 245 Indian and foreign insurers and provident
societies are taken over by the central government and
nationalised. LIC formed by an Act of Parliament, viz. LIC Act,
1956, with a capital contribution of Rs. 5 crore from the
Government of India.
History of General Insurance
The entire general insurance business in India was
nationalised by General Insurance Business
(Nationalisation) Act, 1972 (GIBNA).
The Government of India (GOI), through Nationalisation
took over the shares of 55 Indian insurance companies
and the undertakings of 52 insurers carrying on general
insurance business. General Insurance Corporation of India
(GIC) was formed in pursuance of Section 9(1) of GIBNA. It
was incorporated on 22nd November 1972 under the
Companies Act, 1956 as a private company limited by
shares. GIC was formed for the purpose of superintending,
controlling and carrying on the business of general
insurance. As soon as GIC was formed, GOI transferred all the
shares it held of the general insurance companies to GIC.
Simultaneously, the nationalised undertakings were
transferred to Indian insurance companies.
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After a process of mergers among Indian insurance
companies, four companies were left as fully owned
subsidiary companies of GIC-
National Insurance Company Limited.
The New India Assurance Company Limited.
The Oriental Insurance Company Limited.
United India Insurance Company Limited.
The next landmark happened on 19th April 2000, when the
Insurance Regulatory and Development Authority Act,
1999 (IRDA) came into force. This Act also introduced
amendment to GIBNA and the Insurance Act, 1938. An
amendment to GIBNA removed the exclusive privilege of GIC
and its subsidiaries carrying on general insurance in India.In
November 2000, GIC was renotified as the Indian Reinsurer
and through administrative instruction, its supervisory role
over the four subsidiaries was ended.With the General
Insurance Business (Nationalisation) Amendment Act 2002
(40 of 2002) coming into force from March 21, 2003; GIC
ceased to be a holding company of its subsidiaries.The
ownership of the four erstwhile subsidiary companies and
also of the General Insurance Corporation of India was
vested with Government of India.
Chairman-cum-Managing Director of GIC- Alice G
Vaidyan, Headquarters- Mumbai.
Know About IRDAI
In India, insurance has a deep-rooted history. It finds
mention in the writings of Manu (Manusmrithi),
Yagnavalkya (Dharmasastra) and Kautilya
(Arthasastra). The writings talk in terms of pooling of
resources that could be re-distributed in times of calamities
such as fire, floods, epidemics and famine. This was probably
a pre-cursor to modern day insurance. Ancient Indian
history has preserved the earliest traces of insurance in the
form of marine trade loans and carriers’ contracts. Insurance
in India has evolved over time heavily drawing from other
countries, England in particular.
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. In 1829, the Madras Equitable had begun transacting
life insurance business in the Madras Presidency. 1870 saw
the enactment of the British Insurance Act and in the last
three decades of the nineteenth century, the Bombay
Mutual (1871), Oriental (1874) and Empire of India
(1897) were started in the Bombay Residency. This era,
however, was dominated by foreign insurance offices which
did good business in India, namely Albert Life Assurance,
Royal Insurance, Liverpool and London Globe Insurance and
the Indian offices were up for hard competition from the
foreign companies.
In 1914, the Government of India started publishing returns
of Insurance Companies in India. The Indian Life Assurance
Companies Act, 1912 was the first statutory measure to
regulate life business. In 1928, the Indian Insurance
Companies Act was enacted to enable the Government to
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collect statistical information about both life and non-life
business transacted in India by Indian and foreign insurers
including provident insurance societies. In 1938, with a view
to protecting the interest of the Insurance public, the earlier
legislation was consolidated and amended by the Insurance
Act, 1938 with comprehensive provisions for effective
control over the activities of insurers.
The Insurance Amendment Act of 1950 abolished
Principal Agencies. However, there were a large number of
insurance companies and the level of competition was high.
There were also allegations of unfair trade practices. The
Government of India, therefore, decided to nationalize
insurance business.
An Ordinance was issued on 19th January, 1956
nationalising the Life Insurance sector and Life Insurance
Corporation came into existence in the same year. The LIC
absorbed 154 Indian, 16 non-Indian insurers as also 75
provident societies—245 Indian and foreign insurers in all.
The LIC had monopoly till the late 90s when the Insurance
sector was reopened to the private sector.
The history of general insurance dates back to the Industrial
Revolution in the west and the consequent growth of sea-
faring trade and commerce in the 17th century. It came to
India as a legacy of British occupation. General Insurance in
India has its roots in the establishment of Triton Insurance
Company Limited, in the year 1850 in Calcutta by the British.
In 1907, the Indian Mercantile Insurance Limited was set up.
This was the first company to transact all classes of general
insurance business. 1957 saw the formation of the General
Insurance Council, a wing of the Insurance Association of
India. The General Insurance Council framed a code of
conduct for ensuring fair conduct and sound business
practices. In 1968, the Insurance Act was amended to
regulate investments and set minimum solvency margins.
The Tariff Advisory Committee was also set up then.
In 1972 with the passing of the General Insurance Business
(Nationalisation) Act, general insurance business was
nationalized with effect from 1st January, 1973. 107 insurers
were amalgamated and grouped into four companies,
namely National Insurance Company Ltd., the New India
Assurance Company Ltd., the Oriental Insurance
Company Ltd and the United India Insurance Company
Ltd. The General Insurance Corporation of India was
incorporated as a company in 1971 and it commence
business on January 1st 1973.
This millennium has seen insurance come a full circle in a
journey extending to nearly 200 years. The process of re-
opening of the sector had begun in the early 1990s and the
last decade and more has seen it been opened up
substantially. In 1993, 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.The objective was to complement the
reforms initiated in the financial sector. The committee
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submitted its report in 1994 wherein , among other things, it
recommended that the private sector be permitted to enter
the insurance industry. They stated that foreign companies
be allowed to enter by floating Indian companies, preferably
a joint venture with Indian partners.
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 key objectives of the
IRDA include promotion of competition so as to enhance
customer satisfaction through increased consumer choice
and lower premiums, while ensuring the financial security of
the insurance market.
The IRDA opened up the market in August 2000 with the
invitation for application for registrations. Foreign
companies were allowed ownership of up to 26% (FDI At
present, up to 49%). The Authority has the power to frame
regulations under Section 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 was
converted into a national re-insurer. Parliament passed a bill
de-linking the four subsidiaries from GIC in July, 2002.
Today there are 31 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 a colossal one and is growing at a
speedy rate of 15-20%. Together with banking services,
insurance services add about 7% to the country’s GDP. A
well-developed and evolved insurance sector is a boon for
economic development as it provides long- term funds for
infrastructure development at the same time strengthening
the risk taking ability of the country.
IRDAI Headquarters- Hyderabad, Chairperson: Subhash
Chandra Khuntia.
Types of Insurance
There are two broad types of insurance:
1. Life Insurance- Life insurance is a contract that offers
financial compensation in case of death or disability. Some
life insurance policies even offer financial compensation
after retirement or a certain period of time. Life insurance,
thus, helps you secure your family’s financial security even in
your absence. You either make a lump-sum payment while
purchasing a life insurance policy or make periodic
payments to the insurer. These are known as premiums. In
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exchange, your insurer promises to pay an assured sum to
your family in the event of death, disability or at a set time.
2. General Insurance- A general insurance is a contract that
offers financial compensation on any loss other than death.
It insures everything apart from life. A general insurance
compensates you for financial loss due to liabilities related to
your house, car, bike, health, travel, etc. The insurance
company promises to pay you a sum assured to cover
damages to your vehicle, medical treatments to cure health
problems, losses due to theft or fire, or even financial
problems during travel.
Types of Life Insurance-
 Term Insurance
 Money-back policy
 Unit-Linked Insurance Plan
 Pension Plans
Types of General Insurance-
 Motor Insurance
 Home Insurance
 Health Insurance
 Fire Insurance
Term Insurance- Term Insurance is a life insurance plan
that provides financial coverage to the beneficiary of the
insured person for a defined period of time. In the event of
death of term insurance policyholder during policy term, the
beneficiary can claim death benefits from the insurance
company.
Money-back policy- A money back policy is one of the
smarter ways to plan your life investment cover. You not
only receive money back over frequent intervals of the policy
tenure, a sum assured at the end of the policy term, bonus
amounts as declared by the insurer but also an adequate
insurance cover for the whole of the policy period.
Unit-Linked Insurance Plan- A Unit Linked Insurance Plan
(ULIP) is a product offered by insurance companies that,
unlike a pure insurance policy, gives investors both
insurance and investment under a single integrated plan.
Pension Plans- Pension plans also known as retirement
plans are investment plans that lets you allocate a part of
your savings to accumulate over a period of time and provide
you with steady income after retirement. Even if a person
has a good amount of savings, a pension plan is nevertheless
crucial.
Motor Insurance/Vehicle insurance- Vehicle insurance is
insurance for cars, trucks, motorcycles, and other road
vehicles. Its primary use is to provide financial protection
against physical damage or bodily injury resulting from
traffic collisions and against liability that could also arise
from incidents in a vehicle.
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Home insurance- Home insurance is a type of property
insurance that covers a private residence. It is an insurance
policy that combines various personal insurance protections,
which can include losses occurring to one's home, its
contents, loss of use (additional living expenses), or loss of
other personal possessions of the homeowner, as well as
liability insurance for accidents that may happen at the home
or at the hands of the homeowner within the policy territory.
Health Insurance- Health Insurance is an insurance policy
that ensures that you get cashless treatment or expense
reimbursement, in case you fall ill. A health insurance policy
reimburses the insured for medical and surgical expenses
arising from an illness or injury that leads to hospitalization.
Fire Insurance- Fire insurance is property insurance
covering damage and losses caused by fire. The purchase of
fire insurance in addition to homeowner's or property
insurance helps to cover the cost of replacement, repair, or
reconstruction of property, above the limit set by the
property insurance policy.
Indian Insurance Market
Introduction-
The insurance industry of India consists of 57 insurance
companies of which 24 are in life insurance business and
33 are non-life insurers. Among the life insurers, Life
Insurance Corporation (LIC) is the sole public sector
company. Apart from that, among the non-life insurers there
are six public sector insurers. In addition to these, there is
sole national re-insurer, namely, General Insurance
Corporation of India (GIC Re). Other stakeholders in Indian
Insurance market include agents (individual and corporate),
brokers, surveyors and third party administrators servicing
health insurance claims.
Investments and Recent Developments-
The following are some of the major investments and
developments in the Indian insurance sector.
 As of November 2018, HDFC Ergo is in advanced talks to
acquire Apollo Munich Health Insurance at a valuation of
around Rs 2,600 crore (US$ 370.05 million).
 In October 2018, Indian e-commerce major Flipkart
entered the insurance space in partnership with Bajaj
Allianz to offer mobile insurance.
 In August 2018, a consortium of WestBridge Capital,
billionaire investor Mr Rakesh Jhunjunwala announced
that it would acquire India’s largest health insurer Star
Health and Allied Insurance in a deal estimated at
around US$ 1 billion.
 In September 2018, HDFC Ergo launched ‘E@Secure’ a
cyber insurance policy for individuals.
 Insurance sector companies in India raised around Rs
434.3 billion (US$ 6.7 billion) through public issues in
2017.
 In 2017, insurance sector in India saw 10 merger and
acquisition (M&A) deals worth US$ 903 million.
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 India's leading bourse Bombay Stock Exchange (BSE)
will set up a joint venture with Ebix Inc to build a robust
insurance distribution network in the country through a
new distribution exchange platform.
Government Initiatives-
The Government of India has taken a number of initiatives to
boost the insurance industry. Some of them are as follows:
 In September 2018, National Health Protection Scheme
was launched under Ayushman Bharat to provide
coverage of up to Rs 500,000 (US$ 7,723) to more than
100 million vulnerable families. The scheme is expected
to increase penetration of health insurance in India from
34 per cent to 50 per cent.
 Over 47.9 million famers were benefitted under Pradhan
Mantri Fasal Bima Yojana (PMFBY) in 2017-18.
 The Insurance Regulatory and Development Authority of
India (IRDAI) plans to issue redesigned initial public
offering (IPO) guidelines for insurance companies in
India, which are to looking to divest equity through the
IPO route.
 IRDAI has allowed insurers to invest up to 10 per cent in
additional tier 1 (AT1) bonds that are issued by banks to
augment their tier 1 capital, in order to expand the pool
of eligible investors for the banks.
Road Ahead-
The future looks promising for the life insurance industry
with several changes in regulatory framework which will
lead to further change in the way the industry conducts its
business and engages with its customers.
The overall insurance industry is expected to reach US$ 280
billion by 2020. Life insurance industry in the country is
expected grow by 12-15 per cent annually for the next three
to five years. Demographic factors such as growing middle
class, young insurable population and growing awareness of
the need for protection and retirement planning will support
the growth of Indian life insurance.
ULIP Unit Linked Insurance Plan (ULIP)
ULIP or Unit Linked Insurance Plan is a mix of insurance
along with investment. From a ULIP, the goal is to provide
wealth creation along with life cover where the insurance
company puts a portion of your investment towards life
insurance and rest into a fund that is based on equity or debt
or both and matches with your long-term goals. These goals
could be retirement planning, children’s education or
another important event you may wish to save for.
When you make an investment in ULIP, the insurance
company invests part of the premium in shares/bonds etc.,
and the balance amount is utilized in providing an insurance
cover. There are fund managers in the insurance companies
who manage the investments and therefore the investor is
spared the hassle of tracking the investments. ULIPS allow
you to switch your portfolio between debt and equity based
on your risk appetite as well as your knowledge of the
market’s performance. Benefits like these which offer
investors the flexibility of switching is a huge factor
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contributing to the popularity of these investment
instruments.
Lock-in-period of ULIP-
One of the changes brought about by the Insurance
Regulatory and Development Authority of India (IRDAI)
in the year 2010 as regards ULIPs, was to increase the lock in
a period from 3 years to 5 years. However, insurance being a
long-term product, as an investor you may not really reap
the benefit of the policy unless you hold it for the entire term
of the policy which can range from 10 to 15 years.
Why you should invest in ULIPs?
Life cover: First and foremost, with ULIPs you get a life
cover coupled with investment. It offers security that a
taxpayer’s family can fall back on in case of emergencies like
the untimely death of the taxpayer, etc.
Income tax benefits: Not many are aware that the premium
paid towards a ULIP is eligible for a tax deduction under
Section 80C. Additionally, the returns out of the policy on
maturity are exempt from income tax under Section
10(10D) of the Income-tax Act. This is a dual benefit that
you can claim with this policy.
Finance Long Term Goals: If you have long-term goals like
buying a house, a new car, marriage, etc., then ULIP is a good
investment option because the money gets compounded. As
a result, the net returns are generally more. This stands true
even if you want to exit after the 5 year lock-in period in
comparison to not having invested the amount at all and
retaining it in a savings account or in the form of an FD. But,
under ULIP, the mantra is to always keep the policy going for
a longer time horizon to reap the best out of it.
The flexibility of a portfolio switch: As already mentioned,
ULIPS are usually designed in a way that they allow you to
switch your portfolio between debt and equity based on your
risk appetite as well as your knowledge of how the market is
performing. Insurance companies, on the other hand, allow a
very few numbers of switches free of cost.
Types of ULIPs-
ULIPs are categorized based on the following broad
parameters:
(a) Funds that ULIPs invest in-
(i) Equity Funds: Where the premium paid is invested in the
equity market and thereby is subject to higher risk
(ii) Balanced funds: Where the premium paid is balanced
between the debt and the equity market to minimise the risk
for investors
(iii) Debt Funds: Where the premium is invested in debt
instruments which carry a lower risk but in turn also offer a
lower return
(b) End use of Funds-
(i) Retirement Planning: For those of you who plan to
invest for the retirement days while you are still employed
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 Insurance and Financial Marketing Awareness | LIC ADO Main 2019
(ii) Child Education: You can investment with a long-term
goal of saving to fund your child’s education or save for some
unforeseen circumstances
(iii) Wealth Creation: You can make investments to build a
heavy corpus that you can utilize for a future financial goal
(c) Death benefit to Policy Holders-
(i) Type-I ULIP: This pays higher of the assured sum value
or the fund value to the nominee in case of death of the
policyholder
(ii) Type-II ULIP: This pays the assured sum value, plus the
fund value to the nominee in case of the death of the
policyholder
ULIPs Vs. Mutual Funds-
Risk exposure - ULIPs are a relatively less risky product
because they are insurance products. Even though ULIPs
have great variety of products available investing in equities
and bonds, they have to be more careful in investment
because of the nature of insurance products. Mutual funds
are of various types as explained above. Equity oriented
mutual funds are more risky than the hybrid ones and hybrid
mutual funds are more risky than the debt funds.
Potential of Returns - Since ULIPs invest in relatively low
risk products, the potential of returns is also low. The reason
is that they have to promise sum assured irrespective of
whether the plan makes money. Mutual funds are of different
varieties. Equity oriented mutual funds give higher returns
than the hybrid ones. Hybrid mutual funds offer better
returns than debt funds.
Lock-in period - Since ULIP is an insurance product,
insurance companies define a lock-in period for investment.
Hence if an investor buys ULIP, he or she cannot sell before
the lock-in period of 3 to 5 years depending on individual
ULIP products and the structure. Most of the mutual funds
typically do not have any lock-in period. You can buy and sell
mutual funds anytime. There is a certain type of mutual
funds, known as closed fund, which have lock-in period of 3
years.
Liquidity - Liquidity is defined as the ease with which
investors can redeem their investment. It is also about time
it takes to receive your investment back after redemption.
Needless to say, mutual funds are more liquid since it is more
widely traded in the market.
Charges - The advantage of mutual fund is its low charges
and professional management. The management fee of
mutual funds is typically 1% to 2%. ULIP charges are higher.
Public Sector Insurance Companies
1. Life Insurance Corporation of India
LIC of India was incorporated on 1st September 1956 by
amalgamating 243 Companies by the Act of Parliament
called Insurance Act, 1956. LIC is governed by the Insurance
Act 1938, LIC Act 1956, LIC Regulations 1959 and Insurance
Regulatory and Development Authority Act 1999.
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LIC headquarters- Mumbai
LIC Chairman- MR Kumar
2. General Insurance Corporation of India
GIC of India is a state owned enterprise in India. It was the
sole reinsurance company in the Indian insurance market
until the insurance market was open to foreign reinsurance
players by late 2016 including companies from Germany,
Switzerland and France.
Headquarters- Mumbai
Chairman-cum-Managing Director- Alice G Vaidyan
3. The New India Assurance Company Limited
The New India Assurance Company Limited, founded by Sir
Dorabji Tata in 1919, a Multinational General Insurance
Company, today operates in 28 countries and headquartered
at Mumbai, India. Our global business crossed Rs. 22,270
crores in March 2017. We have been market leaders in India
in Non-Life business for more than 40 years.
Headquarters- Mumbai
Chairman cum Managing Director- Atul Sahai.
4. United India Insurance Company Limited
United India Insurance Company Limited was incorporated
as a Company on 18th February 1938. General Insurance
Business in India was nationalized in 1972. 12 Indian
Insurance Companies, 4 Cooperative Insurance Societies and
Indian operations of 5 Foreign Insurers, besides General
Insurance operations of southern region of Life Insurance
Corporation of India were merged with United India
Insurance Company Limited. After Nationalization United
India has grown by leaps and bounds and has 18300 work
force spread across 1340 offices providing insurance cover
to more than 1 Crore policy holders. The Company has
variety of insurance products to provide insurance cover
from bullock carts to satellites.
Headquarters- Chennai
Chairman cum Managing Director- Girish
Radhakrishnan
5. Oriental Insurance Company Limited
The Oriental Insurance Company Limited was incorporated
at Bombay on 12th September 1947. The Company was a
wholly owned subsidiary of the Oriental Government
Security Life Assurance Company Ltd and was formed to
carry out General Insurance business. The Company was a
subsidiary of Life Insurance Corporation of India from 1956
to 1973 ( till the General Insurance Business was
nationalized in the country). In 2003 all shares of our
company held by the General Insurance Corporation of India
have been transferred to Central Government.
Headquarters- New Delhi
Chairman-Cum-Managing Director- AV Girija Kumar
6. National Insurance Company Limited
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NIC (National Insurance Company Limited) is India’s oldest
general insurance Company. It was incorporated in Kolkata
on 5th December, 1906 to fulfil the nationalist aspiration for
Swaraj. 66 years later, after nationalisation it was merged
along with 21 foreign and 11 Indian companies to form
National Insurance Company Ltd, one of the 4 subsidiaries of
the Govt. owned General Insurance Corporation of India.
Headquarters- Kolkata
Chairman-Cum-Managing Director- Tajinder Mukherjee
7. Agriculture Insurance Company of India Limited
Agriculture Insurance Company of India Limited (AIC) has
been formed at the behest of Government of India,
consequent to the announcement by the then Hon'ble Union
Finance Minister in his General Budget Speech FY 2002-03
that, "to subserve the needs of farmers better and to move
towards a sustainable actuarial regime, it was proposed to
set up a new Corporation for Agriculture Insurance".
Headquarters- New Delhi
Chairman-Cum-Managing Director- Alamelu T  IFFCO TOKIO General Insurance Co. Ltd. (Based in-
Lakshmanachari
Private Sector Insurance Companies
In India, there are 24 important life insurance
companies in private sector registered by IRDAI.
 Acko General Insurance Limited (Based in- Mumbai)
 Aditya Birla Health Insurance Co. Ltd. (Based in-
Mumbai)
 Religare Health Insurance Co. Ltd. (Based in- Chennai)
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 Apollo Munich Health Insurance Co. Ltd (Based in-
Gurugram)
 Bajaj Allianz General Insurance Co. Ltd (Based in- Pune)
 Bharti AXA General Insurance Co. Ltd. (Based in-
Mumbai)
 Cholamandalam MS General Insurance Co. Ltd. (Based
in- Chennai)
 CIGNA TTK Health Insurance Co. Ltd. (Based in-
Mumbai)
 DHFL General Insurance Ltd. (Based in- Mumbai)
 Edelweiss General Insurance Co. Ltd. (Based in-
Mumbai)
 Future Generali India Insurance Co. Ltd. (Based in-
Mumbai)
 Reliance General Insurance Co.Ltd (Based in- Mumbai)
 Go Digit General Insurance Ltd (Based in- Pune)
 HDFC ERGO General Insurance Co.Ltd. (Based in-
Mumbai)
 ICICI LOMBARD General Insurance Co. Ltd. (Based in-
Mumbai)
Gurugram)
 Kotak Mahindra General Insurance Co. Ltd. (Based in-
Mumbai)
 Liberty General Insurance Ltd. (Based in- Mumbai)
 Magma HDI General Insurance Co. Ltd. (Based in-
Mumbai)
 Max Bupa Health Insurance Co. Ltd (Based in- New
Delhi)
 Star Health & Allied Insurance Co.Ltd. (Based in-
Chennai)
 Universal Sompo General Insurance Co. Ltd. (Based in-
Mumbai)
 Shriram General Insurance Co. Ltd. (Based in- Jaipur)
 Tata AIG General Insurance Co. Ltd. (Based in- Mumbai)
Glossary of Insurance Terms
 Ab initio- A term used to describe avoidance of a
contract from its inception or its beginning. The
Insurance Contracts Act allows an insurer to avoid a
policy ab initio in situations where an insured
fraudulently nondisclosed or fraudulently
misrepresented information when applying for
insurance.
 Accident- An unplanned and unexpected event which
occurs suddenly and at a definite place.
 Accident Cover- Provides benefits in the event of an
accident occurring during the period of cover. Usually
refers to insurance covering injury or death arising out
of violent, accidental, external and visible means.
 Act of God- An event or occurrence due to natural
causes which occurs independently of human
intervention and either could not be foreseen, or if
foreseen, could not be reasonably guarded against. (e.g.
storm, flood, earthquake, cyclone).
 Actual total loss- Where the property insured is
completely destroyed or so badly damaged that it ceases
to be a thing of the kind insured, or where the insured is
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 Insurance and Financial Marketing Awareness | LIC ADO Main 2019
irretrievably deprived of it. Also called “constructive
total loss”.
 Adjuster- Also known as an assessor is a representative
of the insurer who seeks to determine the extent of the
company's liability for loss when a claim is submitted.
 Advice- (in relation to Financial Services) A statement
made which influences, or is intended to influence, a
person to purchase a particular financial product or
service. Advice can be personal or general: Personal
advice is advice which takes one or more of a person’s
individual circumstances into account. General advice is
advice which is not personal—i.e. does not fulfil this
individual circumstances test.
 Agent- A person holding an agency agreement with an
insurer and who, for reward, carries on the business of
arranging contracts of insurance as agent for one or
more insurers. Such an agent is referred to as an
Authorised Representative.
 Aggrieved party- A party who has been wronged. A
person who is a victim is said to be aggrieved.
 Agreed Value- (Usually associated with motor vehicle
insurance) A car's agreed value is set at the beginning of
each period of cover. It is based on the fair value given
then for the cars make and model in the motor trade's
most commonly accepted price handbook. The value
doesn't change for the period of cover.
 Amount covered- The current amount covered is
shown on the most recent of the insurance schedule and
the renewal notice. It is the most the insurer will pay,
less any excess, for a claim that is covered by the policy.
The amount covered includes GST.
 Arbitration- A system of deciding legal disputes
between an insured and an insurer by use of a private
tribunal outside of the court system.
 Arson- Any unlawful setting fire to property
 Australian Financial Services Licensee- A person who
holds an Australian Financial Services licence.
 Binder- An authority given by an insurer to an
intermediary to enter into, as agent for the insurer,
contracts of insurance on behalf of the insurer. Some
binders give an intermediary authority to deal with and
settle claims against the insurer, as agent for the insurer.
 Broadform- A form of liability wording that extends the
cover for personal injury beyond physical injury, disease
or death to include other causes including mental injury
or anguish, fright, false arrest, malicious prosecution,
libel, slander, defamation, wrongful entry, eviction or
other invasion of the right of private property, assault
and battery which occurs during the period of the policy.
 Broker- An intermediary, who acts on behalf of a person
who is applying for insurance. They earn a commission
from the insurer; however, they have a responsibility to
obtain cover appropriate to the needs of the insured. In
certain circumstances a broker can also act as an agent
for the insurer in terms of issuing a policy or collecting a
premium.
 Burglary- Theft following forcible and violent entry to
the premises. Note: this term may not apply for some
states of Australia.
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 Business pack- A number of policies typically required
by a business are combined into one policy or package—
e.g. fire damage to property, burglary, liability, etc.
Business packs are sometimes tailored to cover the risks
of a particular industry or business—e.g. motor dealers,
builders, etc.
 Cancellation- The termination of a policy before the
expiry date.
 Captive insurance company- An insurance company
that is wholly owned by one or more entities, the main
purpose of which is to insure the risks of its parent
Companies. Several large Australian companies and
organisations have their own captive insurers.
 Catastrophe reinsurance- A form of reinsurance
whereby the reinsured is protected against an
accumulation of losses from the same event—e.g. a
cyclone.
 Caveat emptor- Let the buyer beware. Insurance
contracts are NOT Caveat emptor (buyer beware)
contracts. They are Uberrima Fidei Utmost Good Faith)
contracts.
 Cedant- An insurer who transfers all or part of a risk to
a reinsurer.
 Cede- To transfer risk from an insurer to a reinsurer. A
‘cession’ is a particular reinsurance transaction.
Normally, this refers to the proportional insurance of a
risk.
 Ceding insurer- The original insurer. It is the company
which deals with the client, and reinsures part or all of
the risk.
 Certificate of Insurance- A certificate that acts as proof
that a policy has been issued.
 Cession- The portion of the sum insured of a risk ceded
to a reinsurer. A Cession is a particular reinsurance
transaction.
 Claim- Notification by or on behalf of a claimant that an
event likely to be covered by a policy has occurred, or is
likely to occur, and giving formal notice to the insurer
accordingly. Usually a claim will be accompanied by a
request for indemnification under the policy.
 Claimant- The party asserting a right of recovery under
a contract of insurance.
 Claims history- The history of losses suffered by an
insured which have been covered by insurance. Some
claims histories also record events notified to the
insurer which did not result in actual claims pay-outs—
e.g. events below the policy excess.
 Claims Ratio- The ratio of the cost of claims to earned
premiums.
 Closing- The document sent by a broker to an insurer
confirming and finalising an insurance cover arranged
by the broker.
 Commission- A fee charged by a broker or agent for
services in the sale of an insurance contract.
 Common Law- The principles of law arising from court
decisions.
 Comprehensive Insurance- (Usually associated with
motor vehicle insurance) Provides specified cover for
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damage to insured car as well as damage the insured car
may cause to the property of others.
 Contract- An agreement between two or more parties
which is enforceable by law.
 Contribution- Where an insured has two or more
insurance policies which are covering the same interest
against the same peril, the insured can make his/her
claim in full against one or other of the insurers. The
chosen insurer can then require the other insurers to
make a proportional contribution towards that loss.
(Given that the insurance policies are subject to the rule
of indemnity, the insured is prevented from recovering
from all the insurers and therefore making a profit from
his/her claims).
 Coverage- The scope of the protection provided under a
contract of insurance.
 Damages- Compensation for loss suffered, which is
awarded by courts and endeavours to place a person in
the position where they would have been had the loss
not been suffered.
 Decline- To refuse. For example, the insurer may decide
not to accept a proposal for insurance or perhaps decline
to accept a claim.
 Deposit premium- Amount paid by a client as an initial
premium under a policy. The deposit premium is subject
to adjustment at the end of the policy period based on,
for example, claims experience. After adjustment, the
insured receives a refund or is required to pay extra
premium, as the case may be.
 Depreciation- A decrease in the value of any type of
property over a period of time resulting from use, wear
and tear, or obsolescence.
 Direct insurer- Is an insurer which deals direct with the
consumer rather than through an intermediary or agent.
 Direct policy- The parties to a direct insurance contract
are the insurer and the original insured. The term is
used to differentiate the direct policy contract from any
reinsurance contract that may be arranged as a result of
the direct policy contract.
 Disaster- A disaster is said to have occurred when the
normal community and organisational arrangements
cannot cope with a hazard impact.
 Disclaimer- A person may make a statement to the
effect that they will not accept any responsibility for
certain things which may (or may not) happen. For
example, disclaimers are used to try and avoid or limit a
person’s liability for breach of duty of care.
 Due date- The date a policy is in force to and by when a
renewal premium must be paid.
 Earned Premium- Insurance policies usually run for a
period of 12 months. An insured can cancel a policy at
any time and request a refund of premium. Therefore,
insurers must only take into the books of account that
portion of premium which corresponds to actual elapsed
time on risk. That portion of premium which can be
taken up in the accounts is called earned premium. That
portion of premium yet to expire is termed unearned
premium.
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 Endorsement- Any writing appearing on a policy, or
additional documentation attaching to a policy, whereby
the printed terms of the policy, the parties to it, or other
particulars, are varied.
 Expiry date- The date upon which a policy ends.
Conventionally, 4.00 pm is the normal time of expiry,
although this varies by type of policy and by insurer.
 Financial Ombudsman Service- Any policyholder who
is dissatisfied with the outcome of his or her dealings
with the insurer can contact the Insurance Ombudsman
Service on 1300 780 808.
 First party- The first and second parties are simply the
parties to an insurance contract. A third party is not a
party to the contract but a party who seeks to be
compensated for some injury or loss caused by the
insured. A first party policy may also refer to insurance
for the policyholder’s own property or person.
 Gross Premium- The net premium plus operating
expenses, commissions and other expenses.
 Insolvency- A situation where a person is unable to pay
debts as and when they fall due for payment.
 Insolvent- A company may not be able to settle debts in
full because its assets are worth less than the liabilities
that must be paid off.
 Insurance- A device for transferring specified risks of
individual persons to an insurer. The insurer agrees, for
consideration (usually payment of a premium), to
assume, to a specified extent, certain losses that may be
suffered by the insured.
 Insurance schedule- Sets out the information given to
an insurer upon which the decision to offer cover is
made. It also displays the individual details of a policy.
 Insured- The party to an insurance arrangement to
whom the insurer agrees to provide cover against
specified losses, or to render services, subject to the
terms of the insurance contract.
 Insurer- The party to an insurance arrangement who
undertakes to provide cover or to render services, on the
happening of specified events.
 Liability Insurance- A form of general insurance that
provides cover in regard to the insured's legal obligation
for loss or damage to another person.
 Market value- The fair price for which something can
be sold in its current condition.
 Open policy- Provides cover for all risks of a certain
type during a set period of time. The sum insured is then
adjusted for the actual total sum insured. Commonly
used for marine cargo policies and construction policies.
 Outstanding claims- The aggregate liabilities (total case
reserves less amounts paid) faced by an insurer under
lodged claims that at any point in time have not been
finalised.
 Peril- The cause of a possible loss. Not to be confused
with hazard.
 Policy- Means the Product Disclosure Statement and the
policy schedule.
 Policy schedule- A notice showing the particular details
of a policy.
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 Policyholder- Generally use to describe the policy
owner and/or insured.
 Reinsured- An insurance company or Lloyd’s syndicate
who buys reinsurance. This term is the preferred usage
to “cedant” in non-proportional reinsurance contracts as
risks are not ceded to these contracts— losses exceeding
the deductible being payable by the Reinsurer.
 Risk- General meaning is a thing or person insured.
 Third party- A person or entity who is not a party to an
insurance contract but who has an alleged or actual right
of action for injury or damages against an insured under
a contract of insurance.
 Umbrella Cover- Reinsurance protection for several
classes of business, usually arranged by combining the
retentions and/or deductibles of the different classes
and protecting them by one excess of loss contract.
 Written premiums- The total premiums on all policies
written by an insurer during a specified period of time,
regardless of what proportion has been earned. See
earned premiums.
Abbreviation Related to Insurance Industry
 IRDAI- Insurance Regulatory and Development
Authority of India
 NCLT- National Company Law Tribunal
 TPA - Third Party Administration
 TRAI- Telecom Regulatory Authority of India
 FDA- Food and Drug Administration
 FII- Foreign Institutional Investor
 TRIM- Trade Related Investment Measures
 NSDL- National Security Depository Limited
 NAV- Net Asset Value
 SEBI- Securities and Exchange Board of India
 NASSCOM- National Association of Software and
Services
 NDS- Negotiated Dealing System
 CRISIL- Credit Rating Information Services of India
Limited
 IPO- Initial Public Offer
 SEZ- Special Economic Zone
 GIPSA- General Insurance Public Sector Association Of
India
 BIFR- Board for Industrial and Financial Reconstruction
 FDI- Foreign Direct Investment
 GNP- Gross National Product
 PLI- Public Liability Insurance
 EEI- Electronic Equipment Insurance
 ULIP- Unit Linked Insurance Plan
 LIC- Life Insurance Corporation
 GBIC- Governing Body of Insurance Council
 IIB- Insurance Information Bureau of India
 IGMS- Integrated Grievance Management System
 IBAI- Insurance Brokers Association of India
 IIRM- Institute of Insurance and Risk Management
 UHIS- Universal Health Insurance Scheme
 PLCS – Personal Lines Coverage Specialist
 REBC – Registered Employee Benefits Consultant
 ARM – Associate in Risk Management
 AIAF–Associate in Insurance Accounting and Finance
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Employee State Insurance Scheme
The Employees' State Insurance Scheme is an integrated
measure of Social Insurance embodied in the Employees'
State Insurance Act and it is designed to accomplish the task
of protecting 'employees' as defined in the Employees' State
Insurance Act, 1948 against the impact of incidences of
sickness, maternity, disablement and death due to
employment injury and to provide medical care to insured
persons and their families. The ESI Scheme applies to
factories and other establishment's viz. Road Transport,
Hotels, Restaurants, Cinemas, Newspaper, Shops, and
Educational/Medical Institutions wherein 10 or more
persons are employed. However, in some States threshold
limit for coverage of establishments is still 20. Employees of
the aforesaid categories of factories and establishments,
drawing wages upto Rs.15,000/- a month, are entitled to
social security cover under the ESI Act. ESI Corporation has
also decided to enhance wage ceiling for coverage of
employees under the ESI Act from Rs.15,000/- to
Rs.21,000/-.
ESI Corporation has extended the benefits of the ESI Scheme
to the workers deployed on the construction sites located in
the implemented areas under ESI Scheme w.e.f. 1st August,
2015. The ESI Scheme is financed by contributions from
employers and employees. The rate of contribution by
employer is 4.75% of the wages payable to employees. The
employees' contribution is at the rate of 1.75% of the wages
payable to an employee. Employees, earning less than Rs.
137/- a day as daily wages, are exempted from payment of
their share of contribution.
When and how ESIC started?
ESIC scheme was inaugurated in Kanpur on 24th February
1952 (ESIC Day) by then Prime Minister Pandit Jawahar Lal
Nehru. The venue was the Brijender Swarup Park, Kanpur
and Panditji addressed a 70,000 strong gathering in Hindi in
the presence of Pt. Gobind Ballabh Pant, Chief Minister Uttar
Pradesh, Babu Jagjivan Ram, Union Labour Minister, Raj
Kumari Amrit Kaur, Union Health Minister, Sh.Chandrabhan
Gupt, Union Food Minister and Dr.C.L.Katial, the first
Director General of ESIC.
ESIC scheme was simultaneously launched at Delhi as well
and the initial coverage for both the centers was 1,20,000
employees. Our first Prime Minister was the first honorary
insured person of the Scheme. The promulgation of
Employees' State Insurance Act, 1948 (ESI Act), by the
Parliament was the first major legislation on social Security
for workers in independent India. It was a time when the
industry was still in a nascent stage and the country was
heavily dependent on an assortment of imported goods from
the developed or fast developing countries.
Coverage-
In the beginning, the ESI Scheme was implemented at just
two industrial centers in the country in 1952, namely Kanpur
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and Delhi. There was no looking back since then in terms of
its geographic reach and demographic coverage. Keeping
pace with the process of industrialization, the Scheme today,
stands implemented at over 843 centres in 33 States and
Union Territories. The Act now applies to over 7.83 lakhs
factories and establishments across the country, benefiting
about 2.13 crores insured persons/family units. As of now,
the total beneficiary stands at over 8.28 crores.
Schemes Related to Insurance (PMFBY, PMJJBY,
PMSBY Etc.)
The main schemes related to Insurance sector are:-
 Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY)
 Pradhan Mantri Suraksha Bima Yojana (PMSBY)
 Life Cover under Pradhan Mantri Jan Dhan Yojana
(PMJDY)
 Varishtha Pension Bima Yojana (VPBY)
 Pradhan Mantri Fasal Bima Yojana (PMFBY)
 Pradhan Mantri Vaya Vandana Yojana (PMVVY)
 Restructured Weather Based Crop Insurance Scheme
(RWBCIS)
1. Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY)-
The PMJJBY is available to people in the age group of 18 to
50 years having a bank account who give their consent to
join/enable auto-debit. Aadhar would be the primary KYC for
the bank account. The life cover of Rs. 2 lakhs shall be for the
one year period stretching from 1st June to 31st May and will
be renewable. Risk coverage under this scheme is for Rs. 2
Lakh in case of death of the insured, due to any reason. The
premium is Rs. 330 per annum which is to be auto-debited in
one installment from the subscriber’s bank account as per
the option given by him on or before 31st May of each annual
coverage period under the scheme. The scheme is being
offered by Life Insurance Corporation and all other life
insurers who are willing to offer the product on similar
terms with necessary approvals and tie up with banks for
this purpose.
2. Pradhan Mantri Suraksha Bima Yojana(PMSBY)-
The Scheme is available to people in the age group 18 to 70
years with a bank account who give their consent to
join/enable auto-debit on or before 31st May for the
coverage period 1st June to 31st May on an annual renewal
basis. Aadhar would be the primary KYC for the bank
account. The risk coverage under the scheme isRs.2 lakh for
accidental death and full disability and Rs. 1 lakh for partial
disability. The premium of Rs. 12 per annum is to be
deducted from the account holder’s bank account through
‘auto-debit’ facility in one installment. The scheme is being
offered by Public Sector General Insurance Companies or any
other General Insurance Company who are willing to offer
the product on similar terms with necessary approvals and
tie up with banks for this purpose.
3. Life Cover under Pradhan Mantri Jan Dhan Yojana
(PMJDY)-
The Hon’ble Prime Minister in his Independence Day Speech
announced a comprehensive program of Financial Inclusion
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targeting a large number of people who are currently
deprived of even rudimentary financial services. In this
direction, the Pradhan Mantri Jan DhanYojana (PMJDY) sets
out to provide a basic Bank account to every family who till
now had no account. The bank account comes with a RuPay
debit card with a built-in accidental insurance cover of Rs. 1
lakh. During the launch on 28.08.14 in New Delhi, Hon’ble
Prime Minister also announced a life cover of Rs. 30,000/-
for those subscribing to a bank account with a RuPay debit
card before 26th January, 2015 to complement the Rs. 1 lakh
accident insurance cover. This life insurance cover of Rs.
30,000/- under Pradhan Mantri Jan DhanYojana, gives life
insurance cover on death of the life assured, due to any
reason, to the deceased’s family. The scheme aims to provide
security to families from economically weaker sections who
cannot afford direct purchase of such insurance. The
premium subscription for the life cover under PMJDY is
borne by the Government of India.
4. Varishtha Pension Bima Yojana-
The NDA Government during its last term in office had
introduced the Varishtha Pension BimaYojana (VPBY) as a
pension scheme for senior citizens. Under the scheme a total
no. of 3.16 lakh annuitants are being benefited and the
corpus amounts to Rs. 6,095 crore. For the benefit of citizens
aged 60 years and above, the Hon'ble Finance Minister in his
Budget Speech for the year 2014-15 proposed to revive the
scheme for a limited period from 15 August, 2014 to 14
August, 2015. Accordingly, the revived Varishtha Pension
BimaYojana (VPBY) was formally launched by the Finance
Minister on 14.08.2014 and has been opened during the
window stretching from 15th August, 2014 to 14th August,
2015. Thus all those who subscribe to the VPBY during this
period will receive an assured guaranteed return of 9%
under the policy. The scheme is administered through Life
Insurance Corporation of India (LIC). Under the Scheme the
subscribers on payment of a lump sum amount get pension
at a guaranteed rate of 9% per annum (payable monthly).
Any gap in the guaranteed return over the return generated
by the LIC on the fund is compensated by Government of
India by way of subsidy payment in the scheme. The scheme
allows withdrawals of deposit amount by the annuitant after
fifteen years of purchase of the policy.
5. Pradhan Mantri Fasal Bima Yojana (PMFBY)-
The Pradhan Mantri Fasal Bima Yojna was launched on 18th
February 2016 by Prime Minister Shri Narendra Modi. 21
states implemented the scheme in Kharif 2016 whereas 23
states and 2 UTs have implemented the scheme in Rabi
2016-17. Approximately 3.7 Crores farmers have been
insured in the Kharif 2016 for 3.7 crore ha of land at
premium of Rs 16212 crore for a sum insured of Rs
128568.94 crore as per figures available on 31.03.2017.
PMFBY provides a comprehensive insurance cover against
failure of the crop thus helping in stabilising the income of
the farmers. The Scheme covers all Food & Oilseeds crops
and Annual Commercial/Horticultural Crops for which past
yield data is available and for which requisite number of
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Crop Cutting Experiments (CCEs) are conductedbeing under Other Important Topics Related to Insurance
General Crop Estimation Survey (GCES). The scheme is
implemented by empanelled general insurance companies.
Selection of Implementing Agency (IA) is done by the
concerned State Government through bidding. The scheme is
compulsory for loanee farmers availing Crop Loan /KCC
account for notified crops and voluntary for other others.
The scheme is being administered by Ministry of Agriculture.
6. Pradhan Mantri Vaya Vandana Yojana(PMVVY)-
Based on the success and popularity of Varishtha Pension
Bima Yojana 2003 (VPBY-2003), Varishtha Pension Bima
Yojana 2014 (VPBY-2014) schemes, and to protect elderly
persons aged 60 years and above against a future fall in their
interest income due to the uncertain market conditions, as
also to provide social security during old age, it is decided to
launch a simplified scheme of assured pension of 8% called
the ‘प्रधानमंत्रीवयवन्दनायोजना’. ‘प्रधानमंत्रीवयवन्दनायोजना’ ’ is
being implemented through Life Insurance Corporation (LIC)
of India. As per the scheme, on payment of an initial lump
sum amount ranging from a minimum purchase price of Rs.
1, 50,000/- for a minimum pension of Rs 1000/- per month
to a maximum purchase price of Rs. 7, 50,000/- for
maximum pension of Rs. 5,000/- per month, subscribers will
get an assured pension based on a guaranteed rate of return
of 8% per annum, payable monthly.
7. Restructured Weather Based Crop Insurance Scheme
(RWBCIS)-
The RWBCIS was launched on 18th February 2016 by
Hon’ble Prime Minister 12 states implemented the scheme in
Kharif 2016 whereas 9 states have implemented the scheme
in Rabi 2016-17. Approximately 15 lakhs farmers have been
insured in the Kharif 2016 for 16.95 lakh ha of land at
premium of Rs983.96 crore for a sum insured of Rs8536.53
crore as per figures available on 31st March 2017.
Weather Based Crop Insurance Scheme (WBCIS) aims to
mitigate the hardship of the insured farmers against the
likelihood of financial loss on account of anticipated crop
loss resulting from adverse weather conditions relating to
rainfall, temperature, wind, humidity etc. WBCIS uses
weather parameters as “proxy for crop yields in
compensating the cultivators for deemed crop losses. Pay-
out structures are developed to the extent of losses deemed
to have been suffered using the weather triggers.
Weather Station (RWS) or Backup Weather Station (BWS) as
the case may be, and the claims process shall commence
once the weather data is received. Claims processing are
strictly as per the insurance term sheets, payout structure
and the Scheme provisions. All standard Claims are
processed and paid within 45 days from the end of the risk
period. The scheme is being administered by Ministry of
Agriculture.
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Awareness
Elimination period in insurance- In the disability income
insurance or loss of income insurance, the elimination period
is the amount of time you have to wait before benefits are
paid. In other words, it is a time-period between the
beginning of the injury and the benefits you are paid off.
Longer the Elimination period lower the premium and vice
versa.
Endowment Policy- An endowment policy is a combination
of saving along with risk cover. This type of policy is
specially designed to accumulate wealth and at the same
time cover your life. In this type of policy the insured will
pay a regular premium for specific time period. And in case
of death the money will be paid to beneficiary but, if you
outlive the policy tenure, you will receive the sum assured
along with accumulated bonus.
No physical exam- Such insurance company that says,“No
physical exam” gives freedom to the policyholder to take
policy and exempt the physical test that is mandatory by
certain life insurance company. Normally, such insurance
company is more expensive and the insured has to pay a
higher premium on their policy.
Group Life insurance- Group life insurance is a single policy
that covers an entire group. Such policy is taken by an
employer for the bigger organization to cover their
employee, as an individual policy holder, it may cost more
than a group policy.
Third party Insurance- An insurance policy that covers the
damage caused by another person or party is known as third
party Insurance. In this type of insurance, the insured is the
first party, insurance company is the second party while the
damage done by another is referred as the third party. This
type of Insurance policy is purchased for vehicles, so that in
case of the accident they can claim it.
Gap insurance- GAP insurance is also known as Guaranteed
Auto Protection. It covers the difference between the actual
cash value of the vehicle and the balance still owed on
financing like loan. GAP insurance amount is generally paid
up front.
Schedule of loss’ in home insurance- Schedule of loss is a
document submitted to the insurance company to claim the
policy; it gives the information of damaged or lost items like
model number, when it was purchased, cost of the item etc.
Insurance Ombudsman
The Insurance Ombudsman scheme was created by the
Government of India for individual policyholders to have
their complaints settled out of the courts system in a cost-
effective, efficient and impartial way. There are at present 17
Insurance Ombudsman in different locations and any
person who has a grievance against an insurer, may himself
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 Insurance and Financial Marketing Awareness | LIC ADO Main 2019
or through his legal heirs, nominee or assignee, make a
complaint in writing to the Insurance ombudsman within
whose territorial jurisdiction the branch or office of the
insurer complained against or the residential address or
place of residence of the complainant is located.
You can approach the Ombudsman with complaint if:
 You have first approached your insurance company with
the complaint and
 They have rejected it
 Not resolved it to your satisfaction or
 Not responded to it at all for 30 days
 Your complaint pertains to any policy you have taken in
your capacity as an individual and
 The value of the claim including expenses claimed is not
above Rs 30 lakhs.
Your complaint to the Ombudsman can be about:
(a) Delay in settlement of claims, beyond the time specified
in the regulations, framed under the IRDAI Act, 1999.
(b) Any partial or total repudiation of claims by the Life
insurer, General insurer or the Health insurer.
(c) Any dispute about premium paid or payable in terms of
insurance policy
(d) Misrepresentation of policy terms and conditions at any
time in the policy document or policy contract.
(e) Legal construction of insurance policies in so far as the
dispute relates to claim.
(f) Policy servicing related grievances against insurers and
their agents and intermediaries.
(g) Issuance of life insurance policy, general insurance policy
including health insurance policy which is not in conformity
with the proposal form submitted by the proposer.
(h) Non issuance of insurance policy after receipt of
premium in life insurance and general insurance including
health insurance and
(i) Any other matter resulting from the violation of
provisions of the Insurance Act, 1938 or the regulations,
circulars, guidelines or instructions issued by the IRDAI from
time to time or the terms and conditions of the policy
contract, in so far as they relate to issues mentioned at
clauses (a) to (f)
The settlement process-
Recommendation:
 The Ombudsman will act as mediator and
 Arrive at a fair recommendation based on the facts of the
dispute
 If you accept this as a full and final settlement, the
Ombudsman will inform the company which should
comply with the terms in 15 days
Award:
 If a settlement by recommendation does not work, the
Ombudsman will:
 Pass an award within 3 months of receiving all the
requirements from the complainant and which will be
binding on the insurance company
Once the Award is passed-
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 The Insurer shall comply with the award within 30 days
of the receipt of award and intimate the compliance of
the same to the Ombudsman.
Bancassurance
Bancassurance is a French term referring to the selling of
insurance through a bank's established distribution
channels. In other words, we can say Bancassurance is the
provision of insurance (assurance) products by a bank. The
usage of the word picked up as banks and insurance
companies merged and banks sought to provide insurance,
especially in markets that have been liberalised recently. It is
a controversial idea, and many feel it gives banks too great a
control over the financial industry. In some countries,
bancassurance is still largely prohibited, but it was recently
legalized in countries like USA when the Glass Steagall Act
was repealed after the passage of the Gramm Leach Bililey
Act.
Bancassurance is the selling of insurance and banking
products through the same channel, most commonly through
bank branches. Selling insurance means distribution of
insurance and other financial products through Banks.
Bancassurance concept originated in France and soon
became a success story even in other countries of Europe. In
India a number of insurers have already tied up with banks
and some banks have already flagged off bancassurance
through select products.
Bancassurance has become significant. Banks are now a
major distribution channel for insurers, and insurance sales
a significant source of profits for banks. The latter partly
being because banks can often sell insurance at better prices
(i.e., higher premiums) than many other channels, and they
have low costs as they use the infrastructure (branches and
systems) that they use for banking. Bancassurance primarily
rests on the relationship the customer has developed over a
period of time with the bank. And pushing risk products
through banks is a much more cost-effective affair for an
insurance company compared to the agent route, while, for
banks, considering the falling interest rates, fee based
income coming in at a minimum cost is more than welcome.
Advantages of Bancassurance:
The following factors have mainly led to success of
bancassurance-
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 Insurance and Financial Marketing Awareness | LIC ADO Main 2019
(a) Pressure on banks' profit margins. Bancassurance offers Current Insurance Schemes
another area of profitability to banks with little or no capital
outlay. A small capital outlay in turn means a high return on
equity.
(b) A desire to provide one-stop customer service. Today,
convenience is a major issue in managing a person's day to
day activities. A bank, which is able to market insurance
products, has a competitive edge over its competitors. It can
provide complete financial planning services to its customers
under one roof.
(c) Opportunities for sophisticated product offerings.
(d) Opportunities for greater customer lifecycle
management.
(e) Diversify and grow revenue base from existing
relationships.
(f) Diversify risks by tapping another area of profitability.
(g) The realisation that insurance is a necessary consumer
need. Banks can use their large base of existing customers to
sell insurance products.
(h) Bank aims to increase percentage of non-interest fee
income
(i) Cost effective use of premises
Status of Bancassurance in India-
Reserve Bank of India (RBI) has recognized
"bancassurance" wherein banks are allowed to provide
physical infrastructure within their select branch premises
to insurance companies for selling their insurance products
to the banks’ customers with adequate disclosure and
transparency, and in turn earn referral fees on the basis of
premia collected. This would utilize the resources in the
banking sector in a more profitable manner. Bancassurance
can be important source of revenue. With the increased
competition and squeezing of interest rates spreads profit
are likely to be under pressure. Fee based income can be
increased through hawking of risk products like insurance.
There is enormous potential for insurance in India and
recent experience has shown massive growth pace. A
combination of the socio-economic factors are likely to make
the insurance business the biggest and the fastest growing
segment of the financial services industry in India. However,
before taking the plunge in to this new field, banks as
insurers need to work hard on chalking out strategies to sell
risk products especially in an emerging competitive market.
However, future is bright for bancassurance. Banks in India
have all the right ingredients to make Bancassurance a
success story. They have large branch network, huge
customer base, enjoy customer confidence and have
experience in selling non-banking products. If properly
implemented, India could take leadership position in
bancassurance all over the world
Government of India Notification dated 03rd August 2000,
specified ‘Insurance’ as a permissible form of business that
could be undertaken by banks under Section 6(1)(o) of the
Banking Regulation Act, 1949. Then onwards, banks are
allowed to enter the insurance business as per the guidelines
and after obtaining prior approval of Reserve Bank of India.
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1. Rashtiya Swasthiya Bima Yojana (RSBY)
RSBY (Rashtriya Swasthiya Bima Yojana) has been launched
by Ministry of Labour and Employment, Government of India
to provide health insurance coverage for Below Poverty Line
(BPL) families. The objective of RSBY is to provide protection
to BPL households from financial liabilities arising out of
health shocks that involve hospitalization. Beneficiaries
under RSBY are entitled to hospitalization coverage up to Rs.
30,000/- for most of the diseases that require
hospitalization. Government has even fixed the package rates
for the hospitals for a large number of interventions. Pre-
existing conditions are covered from day one and there is no
age limit. Coverage extends to five members of the family
which includes the head of household, spouse and up to
three dependents. Beneficiaries need to pay only Rs. 30/- as
registration fee while Central and State Government pays the
premium to the insurer selected by the State Government on
the basis of a competitive bidding.
2. Aam Aadmi Bima Yojana (AABY)
Aam admi bima yojana, a Social Security Scheme for rural
landless household was launched on 2nd October, 2007. The
head of the family or one earning member in the family of
such a household is covered under the scheme. The premium
of Rs.200/- per person per annum is shared equally by the
Central Government and the State Government. The member
to be covered should be aged between 18 and 59 years.
 On natural death- Rs 30,000
 On death due to accident/on permanent disability due to
accident (loss of 2 eyes or 2 limbs)- Rs 75,000
 On partial permanent disability due to accident (loss of
one eye or one limb)- Rs 37,500
3. Janashree Bima Yojana-
Janashree Bima Yojana (JBY) was launched on 10th August
2000. The Scheme replaced Social Security Group Insurance
Scheme (SSGIS) and Rural Group Life Insurance Scheme
(RGLIS). 45 occupational groups have been covered under
this scheme.
4. Universal Health Insurance Scheme (UHIS)-
The four public sector general insurance companies have
been implementing Universal Health Insurance Scheme for
improving the access of health care to poor families. The
scheme provides for reimbursement of medical expenses
upto Rs.30,000/- towards hospitalization floated amongst
the entire family, death cover due to an accident @
Rs.25,000/- to the earning head of the family and
compensation due to loss of earning of the earning member
@Rs.50/- per day upto maximum of 15 days. The Universal
Health Insurance Scheme (UHIS) has been redesigned
targeting only the BPL families. The premium subsidy has
been enhanced from Rs.100 to Rs.200 for an individual,
Rs.300 for a family of five and Rs.400 for a family of seven,
without any reduction in benefits.
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