Evaluation of Insurance Industry

Contents
y What is Insurance? y Introduction to Insurance Industry y History of Insurance y Important milestones in Life Insurance Business y Important milestones in General Insurance Business y Objectives of LIC y Capital Requirements & Foreign Participation y Principles y Types of Insurance y Types of Plans y Types of Life Insurance y Life Insurance Considerations y Conclusion

What is INSURANCE?
y Insurance, is a form of risk management primarily used to

hedge against the risk of a contingent loss.

y Insurance is defined as the equitable transfer of the risk of a

potential loss, from one entity to another, in exchange for a premium.

y Insurance rate is a factor used to determine the amount,

called the premium, to be charged for a certain amount of insurance coverage

Introduction to Insurance
Insurance is a contract that pledges payment of an amount to the person assured on the happening of the event insured against. Insurance is appropriate when you want to protect against a significant monetary loss.

History of Insurance Industry

1818 - Oriental Life Insurance Company 1st Insurance Company. 1870 - Bombay Mutual Life Assurance Society 1st Life Insurance Company. 1912 - The Indian Life Assurance Companies Act enacted the 1st Law to Regulate the Life Insurance Business. 1928 - The Indian Insurance Companies Act enacted to enable the government to collect statistical information about both life & non-life insurance businesses.

Contd..
1938: Earlier legislation consolidated & amended the Insurance Act with the objective of protecting the interests of the insuring public.

1956: 245 Indian & foreign insurers & provident societies are taken over by the central government & nationalized.

LIC formed by an Act of Parliament, viz. LIC Act, 1956, with a capital contribution of Rs. 5 crore from the Government of India.

The first General Insurance Company established in the year 1850 in Calcutta by the British.

Contd..
y 1907: The Indian Mercantile Insurance Ltd. set up, the first y 1957: General Insurance Council, a wing of the Insurance

company to transact all classes of general insurance business. Association of India, frames a code of conduct for ensuring fair conduct and sound business practices.

y 1968: The Insurance Act amended to regulate investments and

set minimum solvency margins and the Tariff Advisory Committee set up.

y 1972: The General Insurance Business (Nationalisation) Act, 1972

nationalised the general insurance business in India with effect from 1st January 1973.

y 107 insurers amalgamated and grouped into four companies viz.

The National Insurance Company Ltd., The New India Assurance Company Ltd., The Oriental Insurance Company Ltd. and The United India Insurance Company Ltd.

Recommendation of RN Malhotra Committee

y y y

In 1993, Malhotra Committee - headed by former Finance Secretary & RBI Governor R.N. Malhotra. Objective - to create more efficient & competitive financial system. Key recommendations of the reform;

 1.Structure: a. government stake 50% in insurance companies.  2.Competition:

  

Private Companies with a minimum paid up capital of Rs.1bn should be allowed to enter the sector. No Company should deal in both life and general insurance through a single entity. Foreign companies may be allowed to enter the industry in collaboration with the domestic companies.

 Regulatory Body:
The insurance act should be changed. An insurance regulatory body should be set up. Controller of insurance-a part of the Finance Ministry should be made independent.

 Investments :
Mandatory Investments of LIC Life Fund in government securities to be reduced from 75% to 50%. GIC and its subsidiaries are not to hold more than 5% in any company.

 Customer Service:
LIC should pay interest on delay on payment beyond 30 days. Insurance companies must be encouraged to set up unit link pension plans.

Objectives of LIC
y Spread Life Insurance widely and in particular to the rural areas

and to the socially and economically backward classes with a view to reaching all insurable persons in the country.
y Maximize mobilization of people's savings by making insurance-

linked savings adequately attractive.

y Conduct business with utmost economy and with the full

realization that the moneys belong to the policyholders.

y Meet the various life insurance needs of the

community that would arise in the changing social and economic environment.
y Act as trustees of the insured public in their individual

and collective capacities

Capital Requirements & Foreign Participation

y Minimum capital requirement for direct life and Non-

life Insurance company is INR1000 million and that for reinsurance company is INR2000 million. A maximum 26% foreign equity stake is allowed in direct insurance and reinsurance companies. In the 2004- 05 budget, the Government proposed for increasing the foreign equity stake to 49%, this is yet to be effected.

Principles
y Insurability  Large number of similar exposure units  Definite Loss  Accidental Loss  Large Loss  Affordable Premium  Calculable Loss

Contd .

y Legal  Indemnity  Insurable Interest  Utmost good faith  Contribution  Proximate Cause

Life Insurance vs. Other Savings

Protection Aid to Thrift Liquidity Tax Relief Money when you need it

Types of Insurance
Life insurance Non - Life Insurance (general insurance)

Types of Insurance
 Motor Insurance  Health Insurance  Disability Insurance  Property Insurance  Liability Insurance  Credit Insurance  Travel Insurance  Specified Disease Insurance  Professional Liability Insurance  Title Insurance

Motor Insurance
y This includes automobile, truck, motorcycle, aircraft,

boat, or any other form of motorized transportation. It is perhaps the most common type of insurance, and is required by law in many countries. y Motor insurance covers the insured party against financial loss that he may incur to repair his vehicle or a third party s in the event of an accident. In return for annual or semi-annual premiums, the insurance company is bound to pay any losses as described in the policy. Such a policy may include property, liability or third party, and medical coverage.

Health Insurance
Most developed nations have government-funded health care which means that most or all citizens have access to medical facilities and treatment, as well as health insurance.

Disability Insurance
y This form of insurance protects workers from injuries

and illnesses which prevent them from doing their jobs. It can pay for existing commitments the policyholders may have such as outstanding bills, mortgages, utilities, and more.

Property Insurance
y This type of insurance typically covers things like

homes, machinery, crops, valuable goods, shipped cargo, rented property (homes or apartments), and more. y It can cover damages as a result of various activities including acts of God (earthquakes, floods, storms, hurricanes, etc), vandalism, terrorism, fraud, and more.

Liability Insurance
y This covers negligent acts of an insured party with

reference to a vehicle or a home. It protects the insured against legal claims and indemnification.

Credit Insurance
y This is taken by lenders who need coverage against the

people that have credit with them. In the event of their inability to pay it back usually due to unemployment, disability, or death, this insurance protects the lender.

Travel Insurance
y Travel insurance covers financial losses caused by trips

abroad. Depending on the policy in question, in may cover lost luggage, theft of personal possessions, medical costs and delayed flights.

Specified Disease Insurance

y Taking a step beyond health insurance, specified

disease insurance (such as cancer insurance or Alzheimer's insurance) helps people guard against the incredible financial burdens of specific long-term diseases or conditions. These types of policies often provide a cash benefit for just about every part of the treatment regimen, from hospital confinement to treatment and drugs. Benefits are often paid directly to the policy owner.

Professional Liability Insurance

y Professional liability insurance is a specialty coverage

not covered under any property or homeowners endorsements. Professional liability coverage protects professionals, such as doctors, financial advisors, etc., against financial losses from lawsuits filed against them by their clients or patients.

Types of Life Insurance

Life Insurance is broadly divided into 3 categories : Term Life Insurance Whole Life Insurance Universal Life Insurance

Term Life Insurance

In this type of life insurance, financial coverage is provided for a certain period of time according to the terms of the policy. When the term period gets over, the policy holder can either end the policy or continue it by paying annual premiums.

Whole Life Insurance

In this type of life insurance, the insured is provided with permanent financial protection. It is a long term insurance plan where the policy holder needs to pay premiums annually.

Universal Life Insurance

This is a permanent life insurance plan which has flexible terms. It allows some of the benefits such as death benefits, saving benefits to be reviewed and changed according to the policy holder s need.

Conclusion
Insurance can be summed up as Praying for the best being PREPARED for the WROST.