VARIOUS INTERMEDIARIES IN INSURANCE SECTOR

Received Guidance from Prof: - Kamal Rohra

Role of Intermediaries in Insurance Sector.

Royal College Of Arts, Science and Commerce

PROJECT ON : VARIOUS INTERMEDIARIES IN INSURANCE SECTOR
SUBJECT-5.4 (FINANCIAL REPORTING & ANALYSES)

T.Y.BANKING & INSURANCE SEMESTER 5 (2011-12)

GROUP NO: 02

GROUP MEMBERS
AZIM SAMNANI 39

JINSHA NOCHIYIL 18

NIDHI RADIA 22

BHAGYA KOTIAN

SHITAL KOTIAN 12

11

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It gives us immense pleasure in presenting our project on topic Intermediaries in Insurance Sector. We would firstly like to thank our institution & sincerely thank our principal Sir Prof. A.E.Lakdawala & Vice Principal Prof. Kamala for providing us support & giving us an opportunity for doing BBI course & completing project. We would also like to express our profound gratitude to our project guide Prof.Kamal Rohra who has so ably guided our research project with his vast fund knowledge, advice & constant encouragement without which this project would have not been possible. We candidly appreciate his implicit & valuable contribution in drawing up this project work. We take this opportunity to highlight the valuable contribution of BBI coordinator Prof.Kamal Rohra & our collogues & especially our parents who have always supported & encouraged. The success of this project report to large extent is dedicated to them too. We also thank to all those who have helped us & whom we have forgotten to mention in this space.

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INDEX
Chapter No
1 2 3 4 5 6

Topic
DEFINATION OF INSURANCE INTRODUCTION TO INSURANCE HISTORY OF INSURANCE INSURANCE INTERMEDIARIES INSURANCE BROKER INSURANCE AGENT

Page No.
5 6 8 11 13 25

7 8 9 10 11

SURVEYOR AND LOSS ASSESSORS BANCASSURANCE INSURANCE INTERMEDIARIES IN INDIA CASE STUDY CONCLUSION

29 33 37 41 46

12

BIBLIOGRAPHY / WEBLIOGRAPHY

47

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Definition & Meaning:

Insurance is the means of managing risk and protection against financial loss arising as a result of contingencies, which may or may not occur. In other words, insurance is the act of providing assurance, against a possible loss, by entering into a contract, with one who is willing to give assurance. Through this contract, the person willing to give assurance binds himself to make good such loss, if it occurs.

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Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for a premium, and can be thought of as a guaranteed small loss to prevent a large, possibly devastating loss. An insurer is a company selling the insurance. An insured is the person or entity buying the insurance. The insurance rate is a factor used to determine the amount to be charged for a certain amount of insurance coverage, called the premium. Risk management, the practice of appraising and controlling risk, has evolved as a discrete field of study and practice. One of the- main features of the pre-nationalized insurance sector was the utilization of the insurance sector as a backup or extension by the well-known industrial houses of India. There are mainly two forms, of insurance in India viz. Life and non-life. Life insurance provides protection to a household against the risk of Page 6 of 47

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premature death of its income-earning, member. Non-life insurance can be grouped fire, marine and miscellaneous insurance. Life insurance Corporation of India carries on life insurance business and, the General Insurance Corporation and its four subsidiaries deal with non-life insurance. After liberalization of the insurance sector in 1999 private players have entered both life and non-life business in India. The Insurance Regulatory and Development Authority (IRDA) was constituted in April 2000 as an autonomous body to regulate and develop the business of insurance and re-insurance in the country in terms of the insurance regulatory and Development Authority Act, 1999. As the insurance market in India is liberalized, the pattern of distribution is likely to undergo vast changes with new channels being introduced. A quantum jump in Insurance business in terms of premium, policies, lives covered, etc., would necessitate corresponding increase in the capacity of the distribution channels.

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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. Page 8 of 47

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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 nationalizing the Life Insurance sector and Life Insurance Corporation came into existence in the same year. The LIC absorbed 154 Indian, 16 nonIndian insurers as also 75 provident societies245 Indian and foreign insurers in all. The LIC had monopoly till the late 90s when the Insurance sector was reopened to the private sector.

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. Page 9 of 47

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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%. 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 14 general insurance companies including the ECGC and Agriculture Insurance Corporation of India and 14 life insurance companies operating in the country. Page 10 of 47

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Insurance mediators or intermediaries are autonomous populace or firms who carry the insurer and the insured together and act as a mediator. Some groups 0f intermediaries also act as a distribution channel for bringing the product of the insurance to the customer as in the case of brokers. An insurance intermediary acts either on behalf of the client or the insurance company. In India, the insurance intermediaries except surveyor were not in existence till 1999 but with liberalization, privatization and globalization (LPG) of insurance sector the distribution channel have also been widened and the IRDA Act, 1999 included the term "Insurance

Intermediaries" in the Insurance Act, 1938. Up to 1999, the insurance product was sold either through an Agent or the company directly through Development Officers and branch mangers. Prior to 1950, the chief agent, special agent, and principle agent were also in existence but the practice was discounted after 1950. Page 11 of 47

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In India the insurance intermediaries have been defined in the IRDA Act, 1999 and section 2(1) (f) of the act states:

"Intermediaries or insurance intermediary includes insurance brokers, insurance, consultants, surveyors and loss assessors."

Through the insurance sector has been privatized the insurers can deal with intermediaries only if they are holding valid license issued by the authority and the authority has laid down the norms for licensing of intermediaries.

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The insurance broker is such individual who contribute maximum share insurance business. A high standard of professional skills and conduct expected of the broker.

WHO CAN BECOME AN INSURANCE BROKER?

Any person may be an individual, a partnership firm or a company formed and registered under the companies Act, 1956 can apply for grant of license to be a Broker. (In case of a company the aggregate holding of equity shares by foreign Company either by itself or through Its Subsidiaries or nominees or persons should be within the prescribed limits laid down by the Reserve Bank Of India). HOW TO APPLY: The application is to be sent to the insurance regulatory and development authority in prescribed form and it can be made for anyone of the following categories:

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CATEGORY - 1
(A) Direct general insurance broker, or

(B) Direct life insurance broker. This means a person who is registered in respect of either general insurance business for life insurance business but not for reinsurance business. Such individuals contribute maximum share of business in life insurance.

CATEGORY - 2 Re insurance broker, which is different from category one and is also called indirect broker. CATEGORY 3 Composite broker whose functions will consist of that of Direct Insurance Broker and Reinsurance Broker. CATEGORY 4 Other insurance consultants, risk management consultants or any other classification as may be approved by the authority. Such intermediaries create awareness among the people about the importance of insurance and also provide consultancy as to how to invest in the insurance.

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FUNCTIONS OF BROKERS:
The functions of brokers are as follows: Obtaining a detailed knowledge of the clients business and philosophy, Maintaining clear records of the clients business so that this can be explained to an insurer and other parties, Provision to the client of technical advice and advice on developments in the insurance market and the law, Maintaining a detailed knowledge of available markets, Selection and recommendation of an insurer or group of insurers, Negotiating with insurer on the client behalf, Acting promptly on instructions from a client and providing written acknowledgements and progress reports,
Collecting and remitting premiums and claims,

Where appropriate and dependent size of both the client and broker, providing additional services such as insurance consultancy services, risk management services and uninsured loss recoveries, Maintaining precise records of past claims. and Providing services such as insurance consultancy risk management services and uninsured loss recoveries.

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PROCESSING OF APPLICATION FOR BROKERSHIP:

While processing the application for grant of licenses the authority itself towards the following aspects:

Availability of infrastructure, i.e. adequate office space, equipment and manpower. Applicant should have minimum 2 persons in his employment who have the experience to conduct the business of insurance broker. Applicant should have no direct or indirect connection with a person whose application has been rejected earlier. Applicant should have a net worth of Rs. 25 lakhs in case of category 1, Rs. 100 lakhs for category 2, Rs. 125 lakhs for category 3, and Rs. 10 lakhs for category-4.

IF FEE IS NOT PAID BY BROKER:

If the broker fails to pay the fee within the stipulated period Authority may suspend his license and the insurance broker shall cease. To function as an insurance broker for the duration of the suspension period any person who acts as a insurance broker without holding a license shall be punishable with the Authority with a fine, which, may extend to Rs.l lakh.

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REMUNERATION TO BROKERS:
Brokers belonging to Category 1 will be paid brokerage not exceeding 17.5% of the premium payable on the policy. In other categories the market forces will determine the remuneration.

CODE OF CONDUCT FOR BROKERS:

The code of conduct is required to establish a recognized standards of Professional conduct of which all insurance brokers should, in the interest of the Public and in the performance of their duties, conform and in doing so they should bear in mind this objective and the underlying spirit of this code in the matter of regulation of their professional standard. The code of conduct will cover the following:

1) Brokers Relationship With Clients:

Insurance Brokers must:

Deal with their clients with utmost good faith and truthfulness at times.
Act with care and meticulousness. Make sure that the client understands his relationship with the broker and on whose behalf the broker is acting. Treat all information supplied by the prospective clients a completely confidential to themselves and to the Insurers to which the business Page 17 of 47

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is being offered. Take appropriate steps to maintain the security of confidential documents in the possession. Understand the type of clients that they are dealing with and the extent of the client awareness of risk and insurance. This knowledge should be taken into account in their dealings with their c1ient, and Avoid conflicts of interest.

2) Sales Practices of Brokers:

Insurance brokers must:

Authentic that they are members of the insurance brokers association of India (IBAI), as approved by the Authority. Make out who they are and explain as soon as possible the degree of choice in the products that they are able to offer. Ensure that the policy proposed is suitable to the needs of the prospective clients. Offer advice only on those matters in which they are knowledgeable and seek or recommend other specialist advice when necessary. Not make inaccurate or unfair criticisms of any insurer or IBAI member. Enlighten why a policy or policies are proposed and provide comparisons in terms of price, cover and / or service where they are able to offer more than one choice of product cover and / or service where they are able to offer more than offer more than one product. Explain the period for which the quotation remains valid if cover is not affected immediately. Page 18 of 47

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Clarity the procedures to follow in the event of a complaint.

3) Duty to Disclose Information

Insurance broker must: Make certain that the consequences of non-disclosure and inaccuracies are pointed out to the prospective client. Stay away from influencing the prospective client and make it clear that all the answers or statements given are the latters own responsibility. Appeal their client to make true, air and complete disclosure where they believe that the client has not done so. If further disclosure is not forthcoming they should consider declining to act further. Explain to their clients the importance of disclosing all subsequent changes that might affect the Insurance throughout the duration of the policy. And Disclose on behalf of their client all material facts within and give a fair presentation of the risk.

4.) Explanation of the contract

Insurance Brokers must:

Categorize the insurer or insurers. Any changes once the contract has commenced must be advised immediately.

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Draw attention to any major or unusual restrictions and exclusions in the policy, explain how the contract, may be cancelled. Notify changes to the terms and conditions of any Insurance contract and give reasonable notice before any changes take effect. Advise their clients of any Insurance proposed on their behalf which will be effected with an insurer outside India and, if appropriate of the possible risks involved. And Advise their, client that any non-insurance product will not be subject to IBAl and, if appropriate, the implications in terms of consumer redress and solvency.

5) Renewal Procedures:

Insurance Brokers must:

Promise that their clients are aware of the expiry date of the insurance even if they choose not to offer further cover to the client. Make certain that renewal notice contains a warning about the duty of disclosure including the necessity to advice changes affecting the policy which have occurred since the policy inception or the last renewal date. Ensure that renewal notices contain a warning that the proposer keeps a record (including copies of letters) of all information supplied to the insurer for the purpose of renewal of the contracta and Assurance that their client always receives the insurers

renewal invitation.

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6) Claims Management by Brokers Insurance brokers must:

Put in plain words to their clients their obligations to notify claims promptly and to disclose all material facts and advice subsequent developments as soon as possible.
Request their clients to make true, fair and compete disclosure where they believe that the client has not done so. If further disclosure is not forthcoming they should consider declining to act further for the client.

Give prompt advice to the client of any requirements concerning the

claim. Forward any information received from the client regarding a claim or an incident that may rise to a claim without delay, and in any event within three working days and

Inform the client without the delay of the insurer's decision or

otherwise of a claim. and on request give all responsible assistance to a client in pursuing his claim pursuing his claim.

7) Complaint:

Insurance Brokers must: Ascertain that letter of instructions. policies and renewal documents contain details of complaints handling procedures. Accept complaints either by phone or in writing. Acknowledge a complaint not later than 14 days from the receipt of correspondence. advise the member of staff who will be dealing with the complaint and the timetable for dealing with it. Page 21 of 47

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Ensure that they have a procedure so that the complaints are dealt wit at a suitably senior level. and Have in place a system for recording and monitoring complaints.

8) Documentation: Insurance Brokers must: Make sure that any documents, issued by them comply with all statutory or regulatory requirements from time to time in force. Send policy documents without avoidable delay. Make available, with policy documentation, advice that the documentation should be read carefully and retained by the client. Not withhold documentation from their clients without their consent, unless adequate and justifiable reasons are disclosed in writing and without delay to the client.

9) Handling Client /Insurer Money: Insurance broker must: Make certain that the money belonging to clients or insurers are not mixed with their/his own. Separate accounts are properly maintained in regard to those amounts proper information is periodically made to the

client/insurer. Ensure that these moneys are banked in a proper manner.

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Ensure that moneys belonging to others are kept with them for a reasonable period only. And Ensure strict compliance of the provisions of regulation 17 (i.e. Segregation of Insurance moneys.)

10) Remuneration: Insurance Brokers must: Reveal all fees or charges (not commission) they propose to charge the client, which will be in addition to the insurance premium. Score back of commission will be considered as a charge for this purpose. Recommend the client in writing of the insurance premium and any fees charges separately and the purposes of any related services. If requested by a client, disclose the amount of their commission or other remuneration they receive as a result of effecting insurance for that client. This will include any payment received as a result of securing on behalf of the client any service additional to the arrangement of the contract of insurance. and Advice their client prior to affecting the insurance of their intention to make any deductions from the amount of claim collected for a client where there are reorganized practices for the type of insurance concerned.

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11) Competence and Training: Insurance Brokers must: Make certain that their staff are aware of and adhere to the standards expected of them by this code. Make sure that are competent, suitable and have been given the necessary training as required by the authority. Ensure that there is a system in place to monitor the quality of advice given by their staff. And Ensure that members of staff are aware of legal requirements including the law of agency affecting their activities. and only handle.

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Insurance companies do the business of insuring people against perils, whose main business is to club people sharing the same risk. collect the share of contribution from all of them, and then payout the compensation to the sufferers. The business of insurance companies both life and non-life is procured through an individual who is appointed as an agent. An Agent is a person licensed by the IRDA to do insurance business. Agents are not the regular employees of the insurer. they work on commission basis in a freelance manner. There are some qualifications and procedural formalities, which have to be fulfilled for grant of a license of agent.

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An agent, in order to obtain a license, has to go through a training programmed and appear for an examination. The purpose of licensing course is designed to prepare an individual to work as an insurance agent. It provides a foundation, terminology, and concepts upon which an individual can build successful career as an agent.

COMMON LICENSING PROVISIONS:

Evidence of all of the following has to be made available to the authority before registration as an agent. Section 42 (4) of the amended Insurance Act, 1938 states an agent to be one who is not: a) A minor. b) Found to be of unsound mind by a court of competent jurisdiction. c) Found guilty of criminal misappropriation or criminal breach of trust or cheating or forgery or an abetment of or attempt to commit such offence by a court of competent jurisdiction. and

d) Found guilty of having knowingly participated in or convinced at any fraud, dishonesty or misrepresentation against an insurer or an insured. And who: e) Possesses a pass in 12th standard (reduced to 10th standard for rural agents).
f)

Has been trained for a minimum period of four weeks. And.

g) Has a pass in an examination prescribed by the Authority.

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The expectations from an agent are:

Agent should offer consumers good service by responding to customers needs in terms of grant cover, advice, conduct, etc Agent should be willing to promote products in personal lines market making the best use of their professional ability.

Needs for Agent's Training:

Agents are provided training to: a) Instruct him (her) complete knowledge of products. b) Imbibe in him (her) the importance of Pre-and-post sale service to customers. c) Equip him (her) as a trusted professional capable of advising persons on Insurance". d) Make him (her) as an efficient salesperson. e) Enable him (her) to master various techniques in the area of sale of insurance products.

Examination for Agents

a) All agents on completion of their training will have to appear in a written examination. b) The exam will consist of objective type questions only. c) The exam will be of maximum 100 marks. d) The time for examination will be 2 hours. Page 27 of 47

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e) 10% of Question will be numerical. f) This will be followed by an interview of 25 marks, conducted by the insurance company. g) Every agent will have to score at least 50% marks in the written exam and 60% in the interview for qualifying in the agents examination and for award of a certificate.

Practical Training:

a) Every person aspiring to take up agency as a career will have to undergo on the job practical training with the designated company

where he will work under the supervision of a sales functionary. b) The sales functionary will teach the trainee the nuances of creating the need in the mind of the customer, understanding the wants of the clients, proposing 2 or 3 solutions for satisfying the want and finally helping him decide the best option and closing the deal. c) In addition, administrative matters, documentation, etc. will also be taught to the trainee.

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This category of intermediaries is related to only non-life business. Their main functions are to survey and assess any mishappening or disaster and evaluate the financial loss to the insurance companies. The insurance companies make financial
'\

assistance on the basis of the evaluation made surveyor. More specifically, the functions of any Surveyor and Loss Assessor will be as follows: Conduct inspection, re-inspection, pre-inspection of the property in question suffering a loss. Examine, inquire, investigate, verify and check upon the causes and the circumstances of the loss in question including their nature and extent of loss and related factors/documents. Estimate measure determine: the quantum-description-valuation of the subject under loss. Initiate immediate measures to protect damage property and to prevent aggravation of losses. Advise the insurer and the insured about the loss minimization. Loss control, security, and safety measures, where appropriate to avoid further losses. Check the admissibility of the loss whether it falls within the scope of the policy contract, to point out about the adequacy or inadequacy of the sum insured, and whether the amount claimed are: fair Page 29 of 47

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reasonable and necessary. Survey and assess the loss on behalf of insurer a or insuring public. Recommend the net liability in terms of insurance contract. Advice on repair and replacement techniques. Checking the ownership-insurable interest-indemnity related proofs.
Declare whether the surveyor/loss assessor has an interest in the

subject matter in question or whether it pertains to any blood relation, business partners or through shareholding & if so refrain from carrying out the survey and loss assessment in that respect. Report on the financial loss of the damage suffered by the insured to the insurer. The reporting must be intelligently communicated, so

that, adequate information and the supporting documents and

statements satisfy beyond doubt that the recommendations are sub stained and the he has thoroughly discharged his duties expected of him. Report about unfair claim handling practices, observed during discharge of duties. Comment any happening in the process of discharge of duties if it is against the law of the land. State there is no professional negligence in discharge of the service. Report about the damages to the third parties and properties which are not parties to the contact of insurance. Adjust the loss after it is assessed, taking into account. the policy conditions, exclusions and other factors, e.g. custom duty, usage of items expenses for which others may be responsible and salvage positioned. etc. Page 30 of 47

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Eligibility for becoming Surveyor

Any person who holds any of the following qualifications can become a Surveyor and Loss Assessor: Degree of a recognized university in any branch of engineering. Fellow or Associate member of institute of Chartered Accountants of India or Institute of cost works Accountants of India.

Actuarial qualifications or holds a degree or diploma of any recognized university or institute in relation to insurance. and

Holds a Diploma in insurance granted or recognized by the Government.

Code of conduct for Surveyor and Loss Assessors

Like the brokers and agents, every surveyor and loss assessor including the Company/ Firm of Surveyor and Loss Assessors shall abide by the code of conduct specified by-the Authority from time to time. In particular and without prejudice to the generality of the foregoing the code of conduct shall include the following: To exhibit the identity card and/or the license issued by the Authority while carrying out the job of survey and loss assessment and be physically fit to undertake the rigorous of the job. 'To conduct the survey job in a manner and behavior, which is transparent, honest, sincere, fair, objective and free from personal interest and ensure that the professional, technical standards of competence are upheld. To endeavor to keep abreast with profession attending professional Page 31 of 47

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courses, trainings, seminars and workshops upgrading the required skills. To uphold not only ethical behavior but professional reputation and credibility while refraining from making remarks, comments or grievances in the public or to the press without exhausting internal professional and legal avenue. Any conduct of surveyor and loss assessor which is not:

professional, proper, right, efficient, good behavior, efficient or

contains deliberate disobedience, unlawful behavior, neglect of duty, conduct amiss, malfeasance, will include among other matters to be misconduct and volatize of the code of conduct. The Authority, before imposing any penalty, fine or suspension or cancellation of a license because of misconduct shall cause an enquiry and provide reasonable opportunity to the license-holder of being heard.

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Bancassurance symbolizes the convergence of banking and insurance. The term involves distribution of insurance products through a banks branch network. In concrete terms, bancassurance, which is also known as Allfinanz describes a package of financial services that can fulfill both banking and insurance needs at the same time. While Bancassurance has become a success story In Europe, it is relatively a new premium in Asia. Bancassurance as a means of distribution of insurance products is already in force in India in some form or the other. Banks are selling personal accident and baggage insurance directly to their customers as a value addition to their products. Banks are also participating in the distribution of mortgage linked insurance products like fire, motor or cattle insurance to their customers. Even IRDA Bill in India has stimulated the growth of bancassurance by allowing the use of multiple distribution channels by banks and insurance companies.

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(A)

BENEFITS OF BANCASSURANCE:

Insurance companies see bancassurance as a tool for increasing their market penetration and premium turnover. The customer sees bancassurance as a bonanza in terms of reduced price, high quality product and delivery at doorsteps. Banks and Insurance companies have complementary strengths. In their natural and traditional roles and with their current skills, neither banks nor insurance companies could effectively mount a bancassurance start-up alone.

Collaboration is the key to making this new channel work. For banks, bancassurance is a means of product diversification and a source of additional free income. Expenses ratio in insurance activities through bancassurance is very low. Banks and the insurance companies benefit from the same distribution channels and people. Above all a back-of-the-envelope calculation taking into account only the existing customer base shows that banks could collectively be looking at a fee-based income of anywhere between Rs. 13,500 crore and Rs.22, 000 crore over the next five years. The total fee-based income of the Indian banking Industry in 2001-02 was Rs. 9,213 crore Banks are thus looking at tie-up with insurance companies to boost their non-interest income. SBI Life Insurance Company, a predominant player in bancassurance, is positive about the channel bringing about a transformation in the way insurance has been sold so far. The company is banking heavily on bancassurance and plans to explore the potential of State Bank of Indias 9,000 plus branches spread across the country and also its 4,000 plus associate banks. The company is targeting around 10% of Page 34 of 47

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the business during its startup phase. It leads to the creation of oneshop where a customer can apply for mortgages, pensions, savings, and insurance products. The customer gains from both the sides as cost gets reduced.

WHY IS BANCASSURANCE MORE SUITED TO LIFE INSURANCE PRODUCTS?

Traditionally, much fewer non-life insurance products are

distributed through bancassurance than life insurance products. There are several reasons for this:

The main reason may be the complementary nature of life

insurance and banking products: bank employees are already familiar with financial products and quickly adapt to selling insurance-based savings or pension products.

On the other hand, the non-life market requires special

management and selling skills, which are not necessarily prevalent in bancassurance. In addition, such competencies require significant investment in training and motivation, and therefore additional costs.

Life insurance products are generally long-term products, which

require customers to have complete confidence in the institution that invests their money. And we now know that, in many countries, banks have a better image and are more trusted than insurance companies.

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Bank advisers can use their knowledge of their customers

finances to target their advice towards specific needs. This is a major advantage in life insurance and less important in personal injury insurance. Some professionals also refer to the claims management aspect of personal injury insurance, which could have a negative impact on brand image. This would seem to explain why for a long time bancassurance operators hesitated to offer these types of product.

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In terms of sheer numbers, the strength of LICs distribution channel comprising over 5.90 lakh active Agents and over 18,800 development officers appears to be phenomenal. This is indeed a diverse in nature and spread, for which a strong marketing network is imperative. The network duly supported by 2048 servicing branches no doubt gives us the confidence in terms of numbers. Let us examine the Indian intermediaries channel. Since the reorganization in 80s LIC has been laying a lot of emphasis on professionalizing its field force. Prior to these attempts, most of the training needs were left to the Agents instructors and this arrangement had many shortcomings, which included:

a) Lack of professional approach, technical and material know how on the part of the instructor himself. b) Fewer number of instructors in comparison to the training requirements of agents. c) Lack of proper infrastructure and training facilities. and lukewarm approach on the part of the development officers in promoting professionalism amongst their agents. Even today, some of the agents do not have adequate product knowledge and their sales skills have not been developed beyond a certain level. One of the inhibiting factors possibly is ensuring that the agency force remains dependent on sales supervision or in other Page 37 of 47

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words, fear of independence of the agency force is predominant. As such, the phenomenon of dependency was and is being encouraged to maintain a firm grip/hold over the agency force. One of the best indicators of this phenomenon is the fact that when the umbrella of sales supervision is somehow not available, a majority of agents get terminated due to lack of guidance, which they had got used to. This has also given rise to a situation where a majority of agents never visit the office, as the need to do so is never emphasized upon them by their sales supervisor. However, with training becoming a major focus of the reorganization especially for the field force with the creation of a network of ZTCs and STCs to provide both knowledge and professional inputs to the agents as well as the. Development officers, the situation has been slowly changing for the better. However, a lot still needs to be done in terms of qualitative improvement of our agents, which cannot be achieved just through training but also requires qualitative improvement in selection/recruitment itself. Life insurance requires need-based selling. For need-based selling, we need to emphasize on the customers need distinct from the salesmans need. The picture of life insurance selling has to be in conformity with the customer aspirations. Some of the agents have a tendency to sell products that they want to sell rather than the products is attributable to the commission structure somehow has been designed to give the agents. The incentive to promote certain products, which would guarantee a bulkier commission initially, rather than those products wherein the commissions are spread out Page 38 of 47

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over a period of time. To overcome this lacuna, it is essential that the basis rate of commission itself be restructured. So that the agents do not derive any benefit in so far as promoting a product for there own short-term financial gain. This will lead to a situation where the customer is more assured of being sold a product of his choice rather than being misled into buying a product that he does not need.

SUMMARY AND FINDINGS:

The concept of broker is very well entrenched in the developed countries and more than 40% of the insurance business is conducted through brokers as compared to India. The broker will not only act for one insurance company but he can represent more than three companies at a time. Agents present eligibility conditions to be certainly being made more stringent and the minimum qualification level for rural and urban agents needs to be raised. This is necessary because insurance is not a simple product but a complex service that will require a certain degree of understanding to ensure correct sale. In general insurance, the claims are settled on the basis of the report submitted by the independent agency which is known as surveyor or loss assessors and they are qualified persons, having expertise in this field. If an insurance company employs its own experts then they may be biased toward the claim, as they are an employee of insurance company. Therefore, to avoid any conflicts of interest independent surveyors are necessary. Third party administrators in health services also play an important role in insurance sector but health insurance is not very popular in Page 39 of 47

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India because it is a costly proposal. Further more there is lack of awareness among the people about the benefits they can derive from health insurance. At present, health insurance purchased by those who are affluent and can afford to pay the medical bills whereas it is actually required by those who cannot afford the costly medical treatment.

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Aon Global in India

Corporate Profile:

Aon Global Insurance Brokers Pvt Ltd. (Aon Global) is a joint venture between Mr. Prabodh B. Thakker of Global Insurance Services and Aon Corporation. Aon Global is the leading insurance intermediary in the Indian market.

Aon Global is a Composite Broker licensed by the Insurance Regulatory and Development Authority. As a Composite Broker, Aon Global is permitted to offer both reinsurance and corporate (domestic) broking solutions to its clients. Aon Global combines international expertise and local knowledge to provide value added, professional, cutting edge risk management and insurance solutions to its clients. The company is the leading broker for placement of facultative risks in the aviation and energy sectors.

Aon Global became operational on March 3, 2003. The company is headquartered in Mumbai, has offices in Delhi, Chennai, Bangalore and Pune. The company has 80 staff members on its rolls, 60 of whom are insurance professionals having the requisite qualifications and experience to meet client needs. Page 41 of 47

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Aon Global is bullish about the prospects of the insurance industry in India. The company aims to play a pioneering role in improving insurance penetration and risk awareness in the country. Aon Global is committed to contributing to the overall growth and efficiency of the insurance industry in India and in leading the insurance broking segment with highly talented and rewarded people and delighted customers.

About the Shareholders: Global Insurance Services Prior to the formation of Aon Global, Global Insurance Services (founded by the Late Shri Bhagwandas Peraj Thakker) was a leading player in the Indian reinsurance broking industry. The company has been, over the last 25 years, providing a range of insurance related services to large corporate houses including claims management, risk management advice, surveying and loss assessment/ adjusting solutions. Aon (or its legacy entities) and Global have shared a correspondent relationship for over 20 years.

Aon Corporation (www.Aon.com) Aon Corporation is a leading provider of risk

managementservices, insurance and reinsurance brokerage, human capital and management consulting, and specialty insurance underwriting. There are 47,000 employees working in Aons 500 offices in more than 120 countries. Backed by broad resources, industry knowledge and technical expertise, Aon professionals help a

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wide range of clients develop effective risk management and workforce productivity solutions.

What is insurance broking? Insurance broking typically involves the arrangement of appropriate insurance covers for a wide range of corporate risks with insurance/ reinsurance companies at competitive premiums. A broker assists corporates in the evaluation and selection of the optimal cover, provides a range of other services including managing claims, ensuring timely recovery and remittance of premiums, management of insurance records etc. On the broader risk management front, a broker studies the risk profile of a client and recommends ways to eliminate, control, minimize or transfer risks. Globally, brokers play a key role in the efficient functioning of the general insurance market.

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How Insurance Agents Cheat Customers? Via: indianmoney.com

Consider a situation you pay 500 rupees for a pen which has the name PARKER on it. You go home and take out the pen to write. It comes as a shock to you when you see that this pen has a refill of Cello Gripper inside. You start fuming and rush to the shop and yell at the shopkeeper. The shopkeeper says that he never guaranteed you about that pen and you never asked for a guarantee, and shows the board which reads goods once sold cannot be returned or exchanged. You may say that this situation is an exaggerated one but this is somewhat very similar to what happens in the insurance industry when claims of policy holders are rejected. All the organizations in the world have a rule book which decides the actions that all the employees have to perform and which differentiates DOs and Donts and insurance companies are not an exception to this. Each and every country has a regulating body to monitor and regulate the insurance companies. In India the regulating body is IRDA (Insurance Regulatory & Development Authority). As it happens in almost all businesses even this industry has got some disputes and many times in the news paper we see policy holder suing his insurance provider. Now there may be many reasons for such a thing happening and one of the factor which is widely accepted and debated is the role of the insurance agents. Page 44 of 47

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There have been many reports where the insurance agent has not provided the complete information or unwanted information or misinformed the prospective customer in order to close the sales. As a result of this policy holder is at the receiving end when his claims are rejected by the insurance companies.

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The concept of Broker is very well and entrenched in the developed countries and more than 40% of the insurance business is conducted through brokers as compared to India. The broker will not only act for one insurance company but he can represent more than three companies at a time. Agents present eligibility conditions to be certainly been made more stringent and the minimum qualification level for rural and urban agents needs to be raised. This is necessary because insurance is not a simple product but a complex service that will require a certain degree of understanding to ensure a correct sale. In general insurance, the claims are settled on the basis of the report submitted by the independent agency which is known as surveyer or loss assessors and they are qualified persons, having expertise in these fields. If a insurance companies employees its own experts then they may be biased towards the claim, as they are an employee of the insurance company. Therefore, to avoid to any conflicts of interest independence surveyors are necessary. Furthermore, there is a lack of awareness among the people about the benefits they can derived from health insurance. At present, health insurance purchase by those who are affluent and can afford to pay the medical bills whereas it is actually required by those who cannot afford the costly medical treatment.

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Name of the Books Insurance Principles And Practices Matthew M. J. Principle & Practice of Insurance Dr. P. Periasany Insurance Fundementals, environment and procedures B. S. Bodla, M. C. Garg, K. P. Singh. Insurance Theory and Practice B. D. Bhargava

Weblography www.irdaindia.org www.bimaonline.com www.insure2besecure.com www.agencyfaqs.com www.insuremagic.com

Thank You
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