CURRENT TRENDS IN INSURANCE

“In the business of Insurance you should always “Innovate” or “Evaporate”.There is a sea of change occurring and going to occur in the Health Insurance sector, both globally and nationally. Globally, with particular reference to the increasing costs etc, many large insurance companies are planning to buy up hospitals and run on their won. The experiments are going on. At the National level, during the tenure of office of Sri. P. Chidambaram, who with a great vision opened up the Health Insurance sector to privatization.   As a result of which many private organizations, corporate sector leaders drafted plans to enter in to Health Insurance field. There is little or no surprise to note that the Mediclaim is certainly not the answer to the health care needs of the one billion people of this country. In a bold and wise move Mr. Chidambaram opened up the Health care sector to foreign Insurance companies by allowing them to develop joint ventures with Indian companies holding major stakes (51%) and many Large corporate, L.I.C and the general Insurance corporation of India are likely to form such joint venture companies.   And Apollo Group under the great visionary chairmanship of Dr. Pratap C. Reddy, who also pioneered the idea way back in 1980’s, is preparing to make its presence felt substantially . Given the pressure on the Public health care distribution system and the general shortage of resources being experienced by government, private health care and in turn the Private Insurance companies have large business potential.   What the country to day lacks is a comprehensive health care policy to improve the infrastructure in the health sector. This will lead to an improvement in the health care segment and will also enable Insurance companies to extend health insurance cover to a larger segment of the population. If there are insufficient number of quality hospitals where the policyholders can be treated, then the number of policies issued will have to be limited. The health care infrastructure can also grow to some extent on the performance of the health Insurance sector, both directly and indirectly.   The New health Insurance players can look towards a substantial portion of the 200-300 million strong middle class for health insurance business. This will in turn provide a fillip to the growth of the health care delivery system, both qualitatively and quantitatively.  The poor who are not in a position to pay the premiums demanded by the private players will have to be looked after by the public health care system till they graduate to the premium paying stage. The government can help in relieving some burden on the poorer sections of the society.   It is important to note that the private companies should be very cautious in preparing the organization and the executive channels to take care not to allow any possibility of formation or development of a nexus between the doctors and the policyholders. The involvement of experienced and qualified personnel at various levels of organization would be very useful, and much more so if it is a medical doctor.   It is also necessary to develop systematic structures to provide preventive health care and also to early detection of disease processes, to the policy holders. This aspect can help the insurer to contain the futuristic expenditure, as well as the risk management.

  Since after the nationalization few decades ago, and now opening up of the Insurance sector to private players, particularly with foreign players (partial participation) the people of India particularly the middle class (about 200-300 million strong) are looking for a bright future and security throu the insurance sector. This futuristic hope and expectations are more evident in the field of health Insurance sector, mainly due to the escalating medical care. Hence Health Insurance and its need for appropriate development in all respects is a must now and for future. The role of IRDA is going to be very important in monitoring the activities of insurance at large.   It is to be expected and rightly so, that the to-day’s customer /client is gradually becoming aware of his rights and expects ‘QUALITY’ and value added services from his vendor. The Health Insurance sector is no exception. The demands of the policyholders of a health insurance are the same if not more. People may compromise with any service to some extent, but not with his health and his demand for quality is rightly acceptable.   Are we to-day ready to face such challenging situation?

Yes , provided we act fast and keep pace. Keep up to date. The medical science is self growing and developing fast and very fast. And as such the concepts and functioning of Health Insurance also varies. The current trends in the practice of medical profession, eg; Defensive medicine is going to tell upon the Health Insurance sector too.   However the IRDA is going to be an effective regulator of all activities and also acts as a guiding principle in almost every activity.   It is only appropriate to consider here, that the opening up of the insurance sector, has raised high hope among people both in India and abroad. There are high expectations about how private insurer will fulfill the aspirations of the customers (clients or the insured) in India by catering to all types of Health insurance including Managed Health care. But the pace at which the privatization modalities, viz., granting of licenses and starting of the insurance operation in the last one year has begun to dilute those expectations. Some of the major Health insurance players of the world like Cigna, Aetna and others are still watching the Indian Insurance market from the fence. Others, who have got the license for the general insurance, are not too keen or enthusiastic about the Health insurance, particularly about the Managed Health Care. If the insurance reforms do not cater to the acute need of the customers for Health care, the rationale for opening the insurance sector to competition may be at state.   Hence it is necessary that both the IRDA and the private Insurance should move in quickly to promote the Health Insurance among the needy.   Considering the current trends, that are expected to take shape shortly, the private players are expected to consider seriously The Managed Health care systems to look after their clients. As a result the third party Administrators (TPAs) are now going to become a main stay of the Health Insurance Industry. The IRDA recently has notified the draft regulations during May 2001. They are briefly as follows.  

1.     Third party administrators will be allowed to enter into agreement s with more than one insures for reducing health insurance services; but as TAPs they are barred from becoming directors of an insurance company, insurance agents, or an intermediary. 2.     The TPA will be required to start with a minimum working capital of Rs. ONE CRORE.3.     The license will be renewed every Third year by the IRDA.4.     TPAS would also have to maintain and report to the IRDA on transaction carried out on behalf of the insurer. But this would not include trade secrets, including identity and addresses of policyholders. 5.     The IRDA has also drawn up a code of conduct’ for the TPAs refraining them from trading in information, submitting wrong information to the insures and making advertisement s with out prior approval of the insurer among other things. 6.     A TPA also has to undergo a training of minimum three months in the field of Health insurance and have access to competent medical professionals to advise the insurance companies and the client on various matters. 7.     The TPA has to spell out the scope of services that it will deliver, while getting in to an agreement with a insurance company.   The above draft guidelines are open for suggestions till May 15, to develop the guidelines keeping in view to develop them further to the local requirement, and the final regulations will be published after wards.

The IRDA is shortly coming out with norms for the policyholders protection and also TPAs for the Rs. 90,000 crore Health Insurance Sector by the end of April 2001 (vide supra).   According to IRDA chairman, N.Rangachary, the regulators are in the process of drafting several norms and it would be ready by the end of April 2001. Although TPAs initially wanted marketing rights of insurers, he said there has been some amount of understanding between the insurers and TAPs to develop the health insurance sector.   As mentioned earlier, the IRDA sources said that the health insurance sector in India was estimated at Rs. 90,000 crore and is ,expected to grow by ten percent every year.  The TPAs, which may be hospitals or other agencies, can accelerate this growth rate by assisting insurers through faster claim settlement, quality hospital services etc.   The following data indicates the status of select Asian Countries, with reference to their National incomes and their Health expenditure both in public and private sectors.   The data shows the need for an insight in to the Health care expenditures of those countries and also the necessary steps that may have to be taken to improve the health status of their people. The data may also suggest the improvements that can be envisaged thro. The Health Insurance sector. It is also hoped that the efficient and active Health Insurance management may bring down the per capita expenditure on Health, both at an individual and group level.   National Income and Health expenditure of Select Asian Counties (in US Dollars)

Country Per capita

Per capital total health

% of GNP

Public sector

% of T.H.E

Private sector

% of T.H.E.

income GNP

expenditure Health expenditure per capital

public sector

Health Expenditure per capital

Private sector

1 2 3 43/2

5 65/3

7 8 7/3

Korea 2,370 148.37 5.1 17.87 12 130.49 88.Malaysia 1830 58.51 3.5 44.97 77 13.53 23.Thailand 810 32.79 3.8 9.94 30 22.38 73.Papuang 720 26.18 3.8 23.68 91 2.49 9.Philippines 560 14.09 2.4 3.76 27 10.33 7.3Indonesia 490 10.42 2.4 3.90 37 6.52 63.Sri Lanka 400 9.18 2.3 5.32 58 3.85 42China 300 11.04 4.0 2.13 19 8.91 81India 290 12.51 4.3 4.63 37 7.87 63Burma 200 6.41 3.2 2.29 36 4.12 64Bangladesh 160 3.80 1.7 1.12 40 2.68 60Nepal 150 2.11 1.4 1.28 61 0.83 39

  Source : National Seminar on Health Insurance. (Asia Insurance Post – March 20001

Global Insurance Industry Trends: What are the Implications?Understanding global insurance industry trends and what they mean for U.S. insurers is important. But the real winners are likely to be those who can successfully implement change.Over the past few years it has be come apparent that the global insurance industry is being shaped by a small number of well-defined external drivers of change. These are commonly identified as:* Increasing consolidation, convergence and globalization;* An evolving socioeconomic and political context;* Changing consumer concerns and buying behavior;* Rapidly developing technology;* Broadening distribution patterns; and* Shifting regulations.While each of these drivers of change is still relevant, viewing the industry against this backdrop can now provide only a superficial view. The world is moving on. In this article, we have attempted to identify 10 of the most important current issues facing the industry globally and venture an opinion in relation to their implications.For some time, size seems to have been viewed by many insurers as an objective in itself, bringing with it market power and reduced costs. It is true that the cost of new technology and the desire for economies of scale continue to drive consolidation. In our judgment, however, the reality is that as markets increasingly deregulate, few groups will have the required capital to achieve global dominance, and still fewer will be able to successfully obtain the management skills to be winners in all lines of business in a more open competitive environment.U.S. and European insurers moving into Asia, Latin America, and other developing markets face challenges in managing cross-cultural issues. This was nicely put by Thou Yan Li, commissioner of China's Insurance Regulatory Commission in Shanghai at the China Rendezvous conference earlier this year when he said, "Although foreign

companies have certain advantages in some aspects, our domestic companies are in the same market with the same language, culture, and legislation. It is easier for domestic companies to contact each other. In these aspects, the foreign companies are no match."Add to this that the cost of acquisitions is becoming increasingly prohibitive as suitable targets become fewer. So, if the old thinking was get bigger to get more cost-effective, the new thinking must be get more specialized. Multiline global insurers present management challenges of significant scale. Successful companies will become more focused, with some getting out of any activity where they are not best in class. We can expect to see more outsourcing of noncore activities and more strategic alliances with both financial services and nonfinancial services companies as insurance groups move to operate in a flexible alliance model.The InternetIt has been said that the Internet will do for services what the production line has done for goods. What does this mean for insurance? Some commentators have proclaimed the Internet as the final solution to the insurance distribution problem. Such a simplistic answer could hardly be further from the truth as it only addresses a small part of the question. Yes, the Internet will become a strong distribution channel for simpler products but no one should underestimate the power of the agent or adviser. The bottom line is that customers will always self-select distribution.In an Internet world no one can own the customer; the customer is empowered by knowledge. As far as distribution through the Internet is concerned, there remain many unanswered questions. How to deal with channel conflict? How to prevent margins from being eroded? And most fundamentally, if you build a Web site, will customers find it and buy from it?The good news about the Internet is that its real power is as a driver for complex business models that integrate all methods of distribution, as a facilitator of straight-through processing in policy administration and claims management, and as a reducer of procurement costs. Business costs will fall dramatically; for example, financial services group AXA has estimated that policy management costs will drop by 98 percentAll the major global insurance companies are spending billions of dollars on their e-business strategies. The winners will be those that target their spending most effectively. As Bill Gates put it in his book, Business @ the Speed of Thought, "we always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten."For most insurers, the priority should be to use the Internet first to re-engineer business processes, and second to enhance existing distribution channels. Only after that should it be used to create new distribution models. Traditional insurers with large, often part-time, agency forces face particular challenges in channel enhancement but also have much to gain. A more professional and productive agency force will be a logical outcome of insurers adopting modern Internet-driven business models.Regulation is ShiftingDeregulation worldwide is encouraging the emergence of universal financial services organizations, like Zurich Financial Services, to replace stand-alone banks, insurers, and brokerage firms. It is also enabling new and nontraditional players, such as Virgin of the UK, to enter the market. Overall, this promises to be a new test for bancassurance models. This trend is already affecting Asia where the Malaysian and Singapore industries are classic examples of the deregulatory forces at work. Big Bang in Japan is another. The conference for Emerging Insurance Markets in Kuala Lumpur, Malaysia, earlier this year confirmed this trend will continue.

At the same time, this deregulation is being countered by increasing controls over the way products are delivered and sold to consumers. Market conduct is an emerging issue in many countries well beyond just the United Kingdom and United States. There is a shift from regulation of what is sold by a particular institution to regulation of how it is sold. To meet this new situation, new regulators are emerging--such as the Financial Services Authority in the United Kingdom and the Australia Prudential Regulation Authority--supported by new consumer protection legislation that typically sets out how an insurer can deal with its agents and its customers. This legislation covers matters like agent authorization and training as well as the way in which advice can be given to consumers.In the United States, in order to enforce the Gramm-Leach-Bliley Act mandates on privacy, state legislatures and regulators are promulgating laws and/or regulations to implement all or part of the new model privacy regulation adopted by the National Association of Insurance Commissioners In Kansas City, Mo. In some state legislatures, the insurance industry is vigorously opposing proposed legislation to the extent that it varies from the national uniform standards or would restrict the sharing of information for business purposes.An implication for insurers is that their customers will become more demanding as they become better educated and have access to better remedies. Successful insurers will increasingly need to pay close attention to corporate governance issues including privacy and market conduct.Breaking the Value ChainThe traditional view of an insurance business as a provider of fully integrated service delivery is obsolete. Distribution, underwriting (manufacture), administration, and funds management are becoming increasingly disaggregated. As companies seek to meet customer needs, they will need to place emphasis on multiple channels and multiple relationships rather than providing all the products and services themselves.Distributors will seek to provide customer convenience and greater value by bringing together a range of products, theirs and other peoples, in one offering designed to deliver wealth creation. In this context, savings products, life risk and property risk are all points on the same continuum. Customer convenience is the key. The battle will be for the opportunity to serve customers in tomorrow's marketOn the surface, global companies have advantages in building brand awareness. For this reason, global groups like Allianz, AXA, and ING are changing the names of their operations around the world to their own. There are obviously many insurers with strong domestic brands--Sun Life in Canada, Northwestern Mutual in the United States, HSBC in Hong Kong, Cathay Life in Taiwan, Samsung Life in Korea and Tokio Marine & Fire in Japan, to name just a few-but the challenge remains for an insurer to build a global or at least pan-North America/pan-Asia brand before existing global brands take over.A conclusion to be drawn from this is that we should not expect to see start-ups rising to prominence in insurance in the same way as we have seen in the technology sector unless they are backed by strong brands and extensive capital.It used to be true for insurers that too much capital was barely enough. This was because the whole emphasis of insurers was on maintaining statutory solvency rather than profitability.Insurance companies, particularly in the U.S. and Europe, are now recognizing that they compete for capital with other types of companies. Active capital management is needed to maximize shareholder returns.Swiss Re is a good example of a company that has sharply increased its shareholder value by actively managing its capital. Storebrand and Chubb are others. Many insurers still

have a lot of work to do in this area. Successful capital management requires a combination of actuarial and financial skills.As global brands become increasingly important, as global companies learn to leverage their skills worldwide, as they centralize their back-offices in low-cost jurisdictions, as funds are increasingly managed globally, it will follow that larger players with strong brands and quality management will have a clear advantage.Asian and developing insurance markets presently are widely seen as opportunities for the existing global players. But it is a realistic expectation that strong Asian-based global insurers will also emerge.Choosing a strategy, however, is only a part of the battle. "What to do?" is no longer the question. The real question is "how to make it happen?" Implementation linked to constant innovation will be the true key to success. This means having not just a good leader to set the strategy, but a cohesive team with strong project management skills to implement it. Or as Bob Mendelsohn, CEO of Royal & SunAlliance put it, "Companies that are successful will be those that learn fast, fail fast and recover fast.

BancassuranceThe Bank Insurance Model (BIM), also sometimes known as Bancassurance, is the term used to describe the partnership or relationship between a bank and an insurance company whereby the insurance company uses the bank sales channel in order to sell insurance products.BIM allows the insurance company to maintain smaller direct sales teams as their products are sold through the bank to bank customers by bank staff.Bank staff and tellers, rather than an insurance salesperson, become the point of sale/point of contact for the customer. Bank staff are advised and supported by the insurance company through product information, marketing campaigns and sales training.Both the bank and insurance company share the commission. Insurance policies are processed and administered by the insurance company.BIM differs from Classic or Traditional Insurance Model (TIM) in that TIM insurance companies tend to have larger insurance sales teams and generally work with brokers and third party agents.An additional approach, the Hybrid Insurance Model (HIM), is a mix between BIM and TIM. HIM insurance companies may have a sales force, may use brokers and agents and may have a partnership with a bank.BIM is extremely popular in European countries such as Spain, France and Austria.The usage of the term 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 or creates too much competition with existing insurers.

Bancassurance in India: Issues & Implications

Introduction: - As per the investigation made by Graham Morris the opening of insurance industry to private sector participation in December1990 has led to the entry of 20 new players, with 12 in life Insurance Sector & 8 in the non-life insurance sector. Almost without exception these companies are seeking to utilize multiple distribution channels such as –

1) Traditional Agencies 2) Bancassurance 3) Brokers & 4) Direct Marketing

Bancassurance is seen by many to be a significant or even the primary channel.

The banking & Insurance industry have charged rapidly in the changing and challenging economic environment through out the globe. In the competitive & open environment each & every one wants to do better than others. And they know that if they are not able to provide better service the won't survive in Industry. Insurance companies are also to be competitive by cutting cost & serving in the better way to customers. Now the time has come to choose and adopt appropriate distribution channel.

The insurance Industry has indeed awakened to deregulated environment in which several private companies have partnered with multinational insurance Insurance companies. Despite a billion of population, India still has a low insurance percentage of 1.95 and it is in 51st position in world. Despite of the fact that India boosts a saving rate around 25%, less than 5% is spending on insurance. To streamline the saving in to insurance Bancassurance is the best channel to tackle four challenges facing the insurance industry,

* Product innovation * Distribution * Customer Service & * Investments

Definition: The Bancassurance is the distribution of insurance products through the bank's distribution channels. It is a phenomenon where in insurance products are offered through the distribution channels of the banking services along with a complete range of banking & investment products & services. In simple term we can say Bancassurance tries to exploit synergies between both the insurance companies & banks. In the simple term of insurance there are only two parties.

1) The Bank 2) The Insurer & 3) The customer.

* Bancassurance in India: Bancassurance in India is a very new concept, but if past gaining ground. In our country the banking & insurance sectors are regulated by two different entries. They are: -

* Banking is fully governed by RBI & * Insurance sector is by IRDA

And bank assurance being the combination of two sectors comes under the purview of both the regulators. Each of the regulators has given out detailed guidelines for banks getting into insurance sector.

* Guidelines given by RBI:- The Reserve Bank of India has given certain guidelines for banks entering into the insurance sector. They are as follows: -

1. Any commercial bank will be allowed to undertake insurance business as the agent of insurance companies & this will be on fee basis with no-risk participation 2. The second guideline given by the RBI is that the joint ventures will be allowed for financial strong banks wishing to undertake insurance business with risk participation. 3. The third guideline is for banks which are not eligible for this joint venture option, an investment option of

(1) up to 10% of the net worth of the bank or (2) Rs. 50 crores. Whichever is lower is available.

The bank that wants to enter in participates in the Insurance industry they have to follow the above guidelines given by the Reserve Bank of India.

* Guidelines given by IRDA: - The Insurance regulatory development & Authority has given certain guidelines for the Bancassurance they are as follows: -

1) Chief Insurance Executive: Each bank that sells insurance must have a chief Insurance Executive to handle all the insurance matters & activities. 2) Mandatory Training: All the people involved in selling the insurance should under-go mandatory training at an institute determined (authorized) by IRDA & pass the examination conducted by the authority. 3) Corporate agents: Commercial banks, including co-operative banks and RRBs may become corporate agents for one insurance company. 4) Banks cannot become insurance brokers.

Issues for regulation: Certain regulatory barriers have slowed the development of Bancassurance in India down. Which have only recently been cleared with the passage of the insurance (amendment) Act 2002. Prior it was clearly an impractical necessity and had held up the implementation of Bancassurance in the country. As the current legislation places the: -

(1) Training and examination requirements: upon the corporate insurance executive within the corporate agency, this barrier has effectively been removed.

Another regulatory change is published in recent publication of IRDA regulation relating to the (2) Licensing of Corporate agents

(2) Specified person to satisfy the training & examination: According to new regulation of IRDA only the specific persons have to satisfy the training & examination requirement as insurance agent.

Exception: A noticeable exception is that for the individuals who processing the Certified Associateship of Indian Institute of Banks (CAIIB) only 50 hours training rather than 100 hours.

Restrictive feature : A restrictive feature of Bancassurance regulation is that:

(1) They appear to constrain the corporate agents to receive only commission, the profit sharing arrangements would seen to be ruled out. 2) The products sold through bank channels / networks can be highly profitable and so such agreement with banks is highly beneficial for banks only.

Important Bancassurance tie-up in India: There are certain tie-up between the Insurance company & banks are given at present days these tie-up are going well, running well & past in the field of Bancassurance.

(1) LIC: The insurance company LIC of India have tie up with the following bank for Bancassurance. They are: -

(A) Corporation Bank

(B) Indian Overseas Bank (C) Centurion Bank (D) Sahara District Central Co-operative bank (E) Janta Urban Co-operative bank (F) Yeotmal Mahila Sahakari Bank (G) Vijaya Bank & (H) Oriental Bank of Commerce

2) SBI – Life – Insurance Co: The SBI life Insurance Co Ltd is starting & Running its Insurance business with the help of S.B.I.

3) Bajaj Allianz general Insurance Co. Ltd: In the field of general Insurance the Bajaj Allianz General Insurance Co Ltd., has tie-up with Karur Vysya Bank & Lord Krishna Bank.

4) Birla Sun life Insurance Co. Ltd: The Birla Sun life Insurance Company has a tie-up with the following bank for the insurance purpose :-

(a) Bank of Rajasthan (b) Andhra Bank (c) Bank of Muscat (d) Development Credit Bank (e) Dutch Bank & (f) Catholic Syrian Bank

Inspite of above mentioned tie-up with banks. There are many tie-ups for the purpose of bancassurance. Like ICICI Prudential, United India Insurance Co-Ltd. & so on

* Issues to be keep in mind while tie-up: The followings are certain issues that we have to keep in mind while tie-up with bank for Bancassurance purpose

(1) Do not depend upon traditional Method: The tie-up needs to develop innovative products and services rather than depends upon the traditional tracks. The kind of products. The bank would be allowed to sell are another major issue. For example: - a complex unit-linked life insurance product is better sold through brokers & agents, while a standard term product or simple products like auto Insurance, home loan and accident Insurance cover can be handled by bank branches.

(2) Clarity on operational activities : There is need to be clarify on the operational activities of Bancassurance that :-

(a) Who will do branding? (b) Will the Insurance Company prefer to place a person at the branch of the bank? Or (c) Will the bank branch train and keep its own people? (d) Who will pay remuneration of above-mentioned people bank or Insurance Company or both in some ratio?

(3) Required Good Training: Even though the banks are in personal contact with its client, a high degree of active marketing skill is required to sell the insurance products. These can be possible through proper training only.

SWOT Analysis of Bancassurance in India:

On order to implement the bancassurance model in our country a lot of steps we have to taken.

(A) Top professionals will have to be hired. (B) We have to study the Indians nature regarding insurance. (C) Study about lower middle as well as upper class of society & how much they are eager to adopt insurance. (D) Favorable & easy policies for the people. (E) High capital investment in infrastructure development particularly in Information Technology & Telecommunication is required (F) Creation of research & development cell is very important & adaptive task. (G) We have to study about the SWOP analysis of world in the field of bancassurance & we can take this study as base.

Advantages of Banassurance: Bancassurance is a tool, which is beneficial to bank, customer & Insurer at a time. There are certain benefits of bancassurance are given.

(1) From the banks point of view: -

(A) By selling the insurance product by their own channel the banker can increase their income. (B) Banks have face-to-face contract with their customers. They can directly ask them to take a policy. And the banks need not to go any where for customers. (C) The Bankers have extensive experience in marketing. They can easily attract customers & non-customers because the customer & non-customers also bank on banks. (D) Banks are using different value added services life-E. Banking tele banking, direct mail & so on they can also use all the above-mentioned facility for Bankassurance purpose with customers & non-customers.

(II) From the Insurer Point of view:

(A) The Insurance Company can increase their business through the banking distribution channels because the banks have so many customers. (B) By cutting cost Insurers can serve better to customers in terms lower premium rate and better risk coverage through product diversification.

(III) From the customers' point of view: Product innovation and distribution activities are directed towards the satisfaction of needs of the customer. Bancassurance model assists customers in terms of reduction price, diversified product quality in time and at their doorstep service by banks.

CONCLUSION:

With the opening up of insurance sector and with so many players entering the Indian Insurance Industry it is required by Insurance Companies to come up with well established infrastructure facilities with good call centre service to attract and provide information to customer regarding different good policies & their premium pay scheme.

The life Insurance Industry in India has been progressing at a rapid growth since opening up of the sector. The size of country, a diverse set of people combined with problems of connectivity in rural areas, makes insurance selling in India is a very difficult task. Life Insurance Companies require good distribution strength and tremendous man power to reach out such a huge customer base.

Where legislation ahs allowed bancassurance had mostly been a phenomenal success and although slow to gain pace, is now taking of across Asia, especially now that banks are starting to become more diverse financial institution and the concept of universal banking is being adopted.

In the field of bancassurance banks will bring a customer database, leverage their name, recognition & reputation of both local and regional levels. If they are using personal contact with customers and non-customers then only they can success in the field of bancassurance.

But the proper implementation of bancassurance is still facing so many hurdles because of poor manpower management, lack of call centers, no personal contact with customers, inadequate incentives to agents and unfullfilment of other essential requirements.

Finally we can say that the bancassurance would mostly depend on how well insurers and bankers understanding is with each other and how they are capturing the opportunity and how better service they are providing to their, customers. Let us you all pay more attention towards the policies and enjoy the service provide by banks and Insurance Companies by the mode of Bancassurance.

Universal banking: The means and the ends are controversial The term universal banking has been doing the rounds in India for a long time even though its context has varied. A Reserve Bank of India appointed committee — the Khan Working group — submitted a report in May 1998. The committee which looked into the need for harmonising the working of development financial institutions (DFIs) and commercial banks, thought of universal banking as one possible solution, a recommendation anticipated even earlier by the Narasimham Committee II. Universal banking generally refers to the undertaking of many financial activities by one institution, in most cases under one roof — a kind of financial supermarket is the end result. Theory... At a theoretical level, the fascination for universal banking is rooted in the perceived advantages it confers over the existing system of specialised financial institutions and commercial banks existing side by side. Some even say that the move towards universal banking cannot be stopped anywhere in the world. Even financial systems of countries such as the U.S. and the U.K. — for long strong sceptical of the universal banking concept — now see virtue in encouraging banks to undertake a variety of financial services under one roof. A number of factors including especially the onslaught of the disintermediation process are contributing to the break up of the barriers between the providers of several financial products. Commercial banks, in a sense, are becoming irrelevant, at least in their most traditional roles of deposit taking and lending. And practice of universal banking In India the growing literature on the subject, nearly all of it pro-universal banking, has been overtaken by certain practical developments. Universal banking is about to become a reality. On April 1,ICICI's reverse merger with ICICI Bank was expected to be completed. Both in a de jure and in a de facto sense universal banking would have arrived in India. However there have been obstacles, mainly in the form of a legal challenge to the terms of the merger between ICICI and ICICI Bank. The predicament of the ICICI's top management shows that even the means to achieve the universal banking status can be controversial. Also, it should not be forgotten that it is the inadequacy and irrelevance of the DFI model (which ICICI and IDBI represent) that has pushed the universal bank model on to the centre stage. There has been no evolution, as the RBI had hoped, but a sudden jump into a new territory. For that reason at least the controversy over universal banking will not end. Among other key issues waiting to be addressed is the role and efficacy of the regulator in the new set up. Even more basically the consumers for whom the universal banking model is touted to be a big virtue need to understand its rationale. In India, as in the U.S. and the U.K., commercial banks have had a clear cut role earmarked for

them by law and practice. As a financial intermediary, banks accepted deposits which they lent and the difference between the interest earned (from the borrowers) and that paid (on deposits) called the spread has traditionally formed the major part of their income. All other income which came from say issuing a draft or confirming a letter of credit have been called miscellaneous income, probably because such business was originally considered to be incidental to the main banking activity of deposit taking and lending. DFIs, on the other hand, have primarily been into project financing for which they developed substantial expertise. They have been in the long end of the banking business, granting term loans (project loans) while banks have been primarily short-term lenders. The difference between the two — banks and DFIs — is even more marked if one ooks at the liabilities side of their balance sheets. To fund their long-term lending activities, DFIs looked to the government for cheap funds and tax breaks. Part of the SLR securities which banks have been compelled to buy were instruments issued by one of the DFIs. Banks meet their funding requirements by accepting deposits of less than three year duration. Universal banking, involving manifold activities, can be successful only if there is no mismatch between their resources and their lending/investments. And for managing their risks better universal banks claim to undertake a wide variety of activities. To succeed uniformly across a spectrum of financial products, these banks should also nurture and develop a strong brand. Branding of financial products has become the new mantra. Any institution whether fully integrated as ICICI would be (post merger) or operating through a number of associates can be a "virtual" universal banking, offering a garland of financial products under one brand. Hence, according to one view, universal banking is already in vogue and that it has arrived without the pains of a restructuring of a ty type attempted by ICICI. Interestingly, IDBI has also contemplated a similar move to acquire the universal banking status. In the recent budget, there are two concrete moves to convert it into an universal bank eventually: legislative changes to "corporotise" it and conversion of certain long term loans to "appropriate" long term instruments. Critics, however, point out that it is not much the attractiveness of the idea as much as the sheer necessity of abdicating the DFI model that motivates the drive towards universal banking. It has been admitted that DFIs have to move on and into retail. But no thought has been given to the likely problems the banking regulator will face. For that matter whether the new entities will have the requisite skills to undertake so many activities. At a larger level there is always the need for setting up a level playing field for all-former DFIs which have converted to universal banks as well the more established banks. Universal Banking: An Overview

Universal Banking includes not only services related to savings and loans but also investments. However in practice the term 'universal banks' refers to those banks that offer a wide range of financial services, beyond commercial banking and investment banking, insurance etc. Universal banking is a combination of commercial banking, investment banking and various other activities including insurance. If specialized banking is the one end universal banking is the other. This is most common in European countries.

Universal banking has some advantages as well as disadvantages. The main advantage of universal banking is that it results in greater economic efficiency in the form of lower cost, higher output and better products. However larger the banks, the greater the effects of their failure on the system. Also there is the fear that such institutions, by virtue of their sheer size, would gain monopoly power in the market, which can have significant undesirable consequences for economic efficiency. Also combining commercial and investment banking can gives rise to conflict of interests .Conflict of interests was one of the major reasons for introduction of Glass-Steagall Act in US.

Universal banking in India

In India Development financial institutions (DFIs) and refinancing institutions (RFIs) were meeting specific sectoral needs and also providing long-term resources at concessional terms, while the commercial banks in general, by and large, confined themselves to the core banking functions of accepting deposits and providing working capital finance to industry, trade and agriculture. Consequent to the liberalisation and deregulation of financial sector, there has been blurring of distinction between the commercial banking and investment banking.

Reserve Bank of India constituted on December 8, 1997, a Working Group under the Chairmanship of Shri S.H. Khan to bring about greater clarity in the respective roles of banks and financial institutions for greater harmonisation of facilities and obligations . Also report of the Committee on Banking Sector Reforms or Narasimham Committee (NC) has major bearing on the issues considered by the Khan Working Group.

The issue of universal banking resurfaced in Year 2000, when ICICI gave a presentation to RBI to discuss the time frame and possible options for transforming itself into an universal bank. Reserve Bank of India also spelt out to Parliamentary Standing Committee on Finance, its proposed policy for universal banking, including a case-by-case approach towards allowing domestic financial institutions to become universal banks.

Now RBI has asked FIs, which are interested to convert itself into a universal bank, to submit their plans for transition to a universal bank for consideration and further discussions. FIs need to formulate a road map for the transition path and strategy for smooth conversion into an universal bank over a specified time frame. The plan should specifically provide for full compliance with prudential norms as applicable to banks over the proposed period.

Approach to Universal Banking

The Narsimham Committee II suggested that Development Financial Institutions (DFIs) should convert ultimately into either commercial banks or non-bank finance companies. The Khan Working Group held the view that DFIS should be allowed to become banks at the earliest. The RBI released a 'Discussion Paper' (DP) in January 1999 for wider public debate. The feedback on the discussion paper indicated that while the universal banking is desirable from the point of view of efficiency of resource use, there is need for caution in moving towards such a system by banks and DFIs. Major areas requiring attention are the status of financial sector reforms, the state of preparedness of the concerned institutions, the evolution of the regulatory regime and above all a viable transition path for institutions which are desirous of moving in the direction of universal banking. It is proposed to adopt the following broad approach for considering proposals in this area:

The principle of "Universal Banking" is a desirable goal and some progress has already been made by permitting banks to diversify into investments and long-term financing and the DFIs to lend for working capital, etc. However, banks have certain special characteristics and as such any dilution of RBI's prudential and supervisory norms for conduct of banking business would be inadvisable. Further, any conglomerate, in which a bank is present, should be subject to a consolidated approach to supervision and regulation.

Though the DFIs would continue to have a special role in the Indian financial System, until the debt market demonstrates substantial improvements in terms of liquidity and depth, any DFI, which wishes to

do so, should have the option to transform into bank (which it can exercise), provided the prudential norms as applicable to banks are fully satisfied. To this end, a DFI would need to prepare a transition path in order to fully comply with the regulatory requirement of a bank. The DFI concerned may consult RBI for such transition arrangements. Reserve Bank will consider such requests on a case by case basis.

The regulatory framework of RBI in respect of DFIs would need to be strengthened if they are given greater access to short-term resources for meeting their financing requirements, which is necessary.

In due course, and in the light of evolution of the financial system, Narasimham Committee's recommendation that, ultimately there should be only banks and restructured NBFCs can be operationalised.

a) Reserve requirements Compliance with the cash reserve ratio and statutory liquidity ratio requirements (under Section 42 of RBI Act, 1934, and Section 24 of the Banking Regulation Act, 1949, respectively ) would be mandatory for an FI after its conversion into a universal bank.   b) Permissible activities Any activity of an FI currently undertaken but not permissible for a bank under Section 6(1) of the B. R. Act, 1949, may have to be stopped or divested after its conversion into a universal bank..   c) Disposal of non-banking assets - Any immovable property, howsoever acquired by an FI, would, after its conversion into a universal bank, be required to be disposed of within the maximum period of 7 years from the date of acquisition, in terms of Section 9 of the B. R. Act.   d) Composition of the Board Changing the composition of the Board of Directors might become necessary for some of the FIs after their conversion into a universal bank, to ensure compliance with the provisions of Section 10(A) of the B. R. Act, which requires at least 51% of the total number of directors to have special knowledge and experience.   e) Prohibition on floating charge of assets The floating charge, if created by an FI, over its assets, would require, after its conversion into a universal bank, ratification by the Reserve Bank of India under Section 14(A) of the B. R. Act, since a banking company is not allowed to create a floating charge on the undertaking or any property of the company unless duly certified by RBI as required under the Section.   f) Nature of subsidiaries If any of the existing subsidiaries of an FI is engaged in an activity not permitted under Section 6(1) of the B R Act , then on conversion of the FI into a universal bank, delinking of such subsidiary / activity from the operations of the universal bank would become necessary since Section 19 of the Act permits a bank to have subsidiaries only for one or more of the activities permitted under Section 6(1) of B. R. Act.   g) Restriction on investments An FI with equity investment in companies in excess of 30 per cent of the paid up share capital of that company or 30 per cent of its own paid-up share capital and reserves, whichever is less, on its conversion into a universal bank, would need to divest such excess holdings to secure compliance with the provisions of Section 19(2) of the B. R. Act, which prohibits a bank from holding shares in a company in excess of these limits.   h) Connected lending Section 20 of the B. R. Act prohibits grant of loans and advances by a bank on security of its own shares or grant of loans or advances on behalf of any of its directors or to any firm in which its director/manager or employee or guarantor is interested. The compliance with these provisions would be mandatory after conversion of an FI to a universal bank.   i) Licensing

An FI converting into a universal bank would be required to obtain a banking licence from RBI under Section 22 of the B. R. Act, for carrying on banking business in India, after complying with the applicable conditions.   j) Branch network An FI, after its conversion into a bank, would also be required to comply with extant branch licensing policy of RBI under which the new banks are required to allot at east 25 per cent of their total number of branches in semi-urban and rural areas.   k) Assets in India An FI after its conversion into a universal bank, will be required to ensure that at the close of business on the last Friday of every quarter, its total assets held in India are not less than 75 per cent of its total demand and time liabilities in India, as required of a bank under Section 25 of the B R Act.   l) Format of annual reports After converting into a universal bank, an FI will be required to publish its annual balance sheet and profit and loss account in the in the forms set out in the Third Schedule to the B R Act, as prescribed for a banking company under Section 29 and Section 30 of the B. R. Act .   m) Managerial remuneration of the Chief Executive Officers On conversion into a universal bank, the appointment and remuneration of the existing Chief Executive Officers may have to be reviewed with the approval of RBI in terms of the provisions of Section 35 B of the B. R. Act. The Section stipulates fixation of remuneration of the Chairman and Managing Director of a bank by Reserve Bank of India taking into account the profitability, net NPAs and other financial parameters. Under the Section, prior approval of RBI would also be required for appointment of Chairman and Managing Director.   n) Deposit insurance An FI, on conversion into a universal bank, would also be required to comply with the requirement of compulsory deposit insurance from DICGC up to a maximum of Rs.1 lakh per account, as applicable to the banks.   o) Authorised Dealer’s Licence Some of the FIs at present hold restricted AD licence from RBI, Exchange Control Department to enable them to undertake transactions necessary for or incidental to their prescribed functions. On conversion into a universal bank, the new bank would normally be eligible for fulfledged authorised dealer licence and would also attract the full rigour of the Exchange Control Regulations applicable to the banks at present, including prohibition on raising resources through external commercial borrowings.   p) Priority sector lending On conversion of an FI to a universal bank, the obligation for lending to “priority sector” up to a prescribed percentage of their ‘net bank credit’ would also become applicable to it .   q)   Prudential norms After conversion of an FI in to a bank, the extant prudential norms of RBI for the all-India financial institutions would no longer be applicable but the norms as applicable to banks would be attracted and will need to be fully complied with.