M.F.S.M. Y. Khan

INSURANCE SERVICES CHAPTER # 9

1

Chapter Objectives:

• History of Insurance• Insurance: Facts and Reality• Meaning of Insurance• Types of Insurance• Insurance Products Portfolio Analysis• Salient Features of INSURANCE ACT, 1938• Insurance Market Scenario• Major Insurance Players (Life and General Insurance)• Emerging Distribution Channels in Insurance• Concept of Bancassurance

2

Chapter Objectives: CONT….

• IRDA – FUNCTIONS AND POWERS• Share of Insurance in GDP• Emerging Trends in Insurance Business• Obstacles to Growth• Opportunities in INDIA• Overview of Insurance Schemes (Life/General)

3

History of LIFE-Insurance in India

Facts & Reality

• “INDIA is the FIFTH largest Insurance market in ASIA” with total premiums of Rs. 2,297.1 Billion in FY-08.

• Intense competition led by more than 44 private players (life and non-life segment).

• Present FDI limit in Insurance Sector is 26% in both the segment.

• Emerging distribution channels.

• Changing Demographics and Awareness.

5

Definition of Insurance:

• “A contract between two parties whereby one party called insurer undertakes in exchange for a fixed sum called premiums, to pay the other party called insured a fixed amount of money on the happening of a certain event”

• In layman's point of view, insurance can be a protection against financial loss arising on the happening of an unexpected event like death of the person, permanent disability, loss in the business venture, accident, etc.

6

Types of Insurance:

A. Life insurance

B. General insurance

General insurance is further classified:-

1. Fire insurance2. Marine insurance3. Miscellaneous insurance

1. Vehicle insurance2. Medi-claim/Health insurance3. Shopkeepers insurance4. Engineering/Technology insurances etc..

7

Product Portfolios Analysis

8

Income Protection

Critical Illness

ProtectionSavings

Individual Pension

Group Pension

Breakup of Premium Income (%)

The Insurance Act 1938: Guidelines for Insurance Players

Eligibility:– A Public Company OR– A Co-operative Society OR– A corporate body other than Pvt. Company incorporated outside India

thorough not more than 26% of Equity Partnership with existing Indian Insurance Company.

– Minimum Paid-up Capital – Rs. 100 Crore Registration: Compulsory with IRDA. Cancellation of Registration:

Fails to comply with RBI Safety Deposite Rules, Business has been transferred/amalgamated without approval, Fails to comply with the provisions of Insurance Act 1938

9

The Insurance Act 1938: Guidelines for Insurance Players…

Renewal of Registration: Renewal application should be made to IRDA before 31 Dec of the each

preceding year.

RENEWAL FEES: ¼ of 1% of collected premium income of a year or Rs. 5 Crore, Whichever is less.

Restriction on Company Name: Capital requirement:

Life/General Insurance -- Rs. 100 Cr.

Life/General and Reinsurance – Rs. 200 Cr.

Promoter’s Holdings: Can’t hold more than 26% of the paid-up Eq. Cap Deposits with RBI:

1% and 3% of the total gross premium for LIFE/GENERAL and Reinsurance respy.

10

The Insurance Act 1938: Guidelines for Insurance Players…

Accounts and Balance sheet: Separate accounts for SHAREHOLDERS and POLICY HOLDERS

Investment of Assets: 25% in GOVT. Securities Not less than 25% In Other Approved Securities

Insurance Business in Rural Sector

Power to issue directions

Control over company management Appointment/Re-Appointment/Termination of Appoint. of TOP MGT.

Licensing of Insurance Agents Eligibility Norms should be strictly followed

11

The Insurance Act 1938: Guidelines for Insurance Players…

REINSURANCE: An insurance company generally undertakes the risks according to

its capacity. Sometimes a company undertakes more risks than its capacity. It tries to share the risk with some company in case of its occurrence.

When the insurance company insures the risk with some other insurance company, it is called Re-insurance. The re-insurance may be for the full amount of the policy or for a part of it. In case of loss the first company will get compensation from the second company. The insured will be concerned only with the company from which it purchased insurance policy. Re-insurance is taken place between insurance companies only.

12

The Insurance Act 1938: Guidelines for Insurance Players…

Penalties:

Default in compliance with Insurance Act – Rs. 5 Lakh

Violates Registration/Capital/Deposite Rules – Rs. 5 Lakh

False Statements in documents – Rs. 5 Lakh

Fails to comply with Rural Sector guidelines – Rs. 25 Lakh

13

Market Scenario before IRDA Act 1999

Life insurance company: 1. LIC of India

General insurance companies:

1. National insurance company ltd2. New India assurance company ltd3. Oriental insurance company ltd4. United India insurance company ltd

14

Market Scenario After IRDA Act 1999

Considering the LPG, The IRDA has liberalized entry barriers;- Entry of Private Sector Indian Players- Entry of Foreign Players- Entry of Banks

Competition between public sector & private sector- New Product Offerings- Innovative Marketing and Selling Techniques

15

List of Life Insurance Companies in IndiaSl. No. Name of the Company

1 HDFC Standard Life Insurance Company Ltd.

2 Max New York Life Insurance Co. Ltd.

3 ICICI Prudential Life Insurance Company Ltd.

4 Kotak Mahindra Old Mutual Life Insurance Limited

5 Birla Sun Life Insurance Company Ltd.

6 Tata AIG Life Insurance Company Ltd.

7 SBI Life Insurance Company Limited .

8 Bajaj Allianz Life Insurance Company Limited

9 Bharti-Axa Life Insurance Co Ltd.

10 Future Generali India Life Insurance Company Ltd.

11 IDBI Fortis Life Insurance Company Ltd.

12 Aegon Religare Life Insurance Company Ltd.

13 DLF Pramerica Life Insurance Company Ltd.

List of General Insurance Companies in India

1. BAJAJ Allianz General Insurance Company Ltd2. ICICI Lombard General Insurance Company Ltd3. IFFCO Tokio General Insurance Company Ltd4. Reliance General Insurance Company Ltd5. Royal Sundaram Alliance Insurance Company Ltd6. TATA AIG General Insurance Company Ltd7. Apollo DKV Insurance Company Ltd8. STAR Health & Allied Insurance Company Ltd9. Universal Sompo General Insurance Co. Ltd. 10.Agriculture Insurance Company Of India Ltd11.National Insurance Company Ltd12.New India Assurance Company Ltd

17

INSURANCE: Emerging Dist. Channel

Who procure the INSURANCE business:-• Agents• Corporate agents• Insurance brokers• Banks (Bancassurance)• 'Bank Referral' – AN EMERGING WAY• E-Insurance• Co-operative societies/ Panchayats/APMCs• Invisible/Indirect/Virtual Mode • Postal Network• Call Centres and SMS 18

What is Bancassurance?

• The Bancassurance, also sometimes known as Bank Insurance Model (BIM).

• Bancassurance simply means “Selling of Insurance Products By Banks”.

• 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.

19

What is Bancassurance?

• Bank staff 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.

• BIM is extremely popular in European countries such as Spain, France and Austria.

• 'Bank Referral‘ – The new way of selling Ins. Products20

Insurance Regulatory & Development Authority (IRDA)

• The regulator for insurance business in India is IRDA.

• IRDA was established in 1999

• IRDA’s HQ is located at Hyderabad

• IRDA’s Functions:

• To regulate, promote and ensure orderly growth of the insurance business and reinsurance business in India.

• To protect the interests of policy holders.21

POWERS AND FUNCTIONS OF IRDA

• IRDA’s functions: CONT…• Issue to the applicant a certificate of Registration, Renew,

Modify, Withdraw, Suspend Or Cancel Such Registration.

• Specifying requisite qualifications, code of conduct and practical training for insurance intermediaries and agents.

• Specifying the code of conduct for surveyors and loss assessors.

• Promoting efficiency in the conduct of insurance business by issuing/amending new/existing guidelines.

• Promoting and regulating professional organizations connected with the insurance and re-insurance business.

• Impose fees and other charges for carrying out the purposes of this act.

22

POWERS AND FUNCTIONS OF IRDA…

• IRDA’s functions: CONT…• Specifying the form and manner in which books of

account shall be maintained.

• Regulating investment of funds by insurance companies.

• Regulating maintenance of MARGIN OF SOLVENCY.

• Adjudication/Settlement of disputes between insurers and intermediaries.

• Supervising the functioning of the Tariff Advisory Committee.

• Other.

23

Economic GrowthGDP 8.3 % in 2008-09

Sector Growth % of GDPAgriculture 2.6 17.5Industry 8.9 26.8Services 10.7 55.7(Fin.& 11.7 14.7Insurance)

24

Growth of Insurance Business

• Life Insurance Premium from Rs. 400 crores in 1956 to Rs.156042 crores in 2007-08 with 47 % growth.

• General Insurance Premium from Rs. 200 crores in 1972 to Rs.24905 crores in 2007-08 with 22 % growth.

25

Emerging Trends

• Globalization - "The Dynamic Force"• MNCs - "The New Path Maker"• More customer oriented• Mostly better service oriented• More competitive offers and plans• Micro-insurance and Health Insurance• De-tariffing in General Insurance from 1.1.2007

leading to greater price war & new products in future.

• Banks entering insurance market through joint ventures with foreign finance majors.

26

Emerging Trends….

Innovative Product Offerings

- Demand for Pension Plans/ULIPs

New ways of MARKETING/DISTRIBUTION:– Invisible Insurance– Bancassurance– Corporate Agency/Franchise – Online Transactions– Co-operative Insurance

27

Emerging Trends…..

Greater Job Opportunities: -

• For thousands of Insurance Managers, IT Professionals• For Lacs of Insurance Advisors/Agents• For Insurance Professionals• For Risk Managers• For Underwriters• For claim Settlements Agents and Surveyors.

28

Emerging Trends….

• Increasing No. of Insurance companies & Intermediaries

• Increasing Awareness about Insurance

• Growth in GDP

• Increasing No. of Middle Class Families

• Increasing awareness about Health Insurance and Medi - claim Policy.

• AND ABOVE ALL, HIGH GROWTH PROSPECTS FOR INS. CO’S BECOZ OF HIGH UNTAPPED MARKET AND INDUSTRY LIFE-CYCLE IS IN “GROWTH STAGE”.

29

Obstacles to Growth

India lives on Villages Education & Unawareness Volatile Capital Market Scenario Lack of Proper Distribution Channels Per Capita Income is less than Intl. std. Insurance is sold, not purchased Profit motive of Insurance Companies

(Ex- only 40% of 1st Yr. prem. capitalized in ‘Unit Gain’ of Bajaj Allianz). Mostly taken for Savings not for Protection.

6

Nearly 65% people are out of coverage.

New competitors, products and distribution channels has come up…

Second largest and fast growing economy after China

Support & positive approaches from Govt.’s side.

Basic Life Insurance Policies

Term assurance policy:• Provides death cover only during policy period• Premium is low• No refund of premium• Sum assured paid on death

32

Whole Life Policy

• Death cover only• Period is not specified• Premium is low & paid during life time • No refund of premium• Sum assured paid on death

33

Endowment Plan

• Covers death & survival benefits• Sum assured paid on death or on maturity of policy • Period of policy at the option of proposer• Most common plan

34

Money Back Policy

• Available for different periods• Covers death & survival benefits• Lump sum paid periodically• Full sum assured paid on death

35

Unit Linked Insurance Policies (ULIP)

• Each premium split into units and risk premium for life cover

• Units are priced as per current market value

• In the event of death, the Sum assured & current value of units are to be paid

• Otherwise, Current value of units paid on maturity.

• Contains Lock in Period, generally 3 years.

• Proportionate Withdrawal Can be made after Lock in Period

• Offering tax benefits.

36

Annuity (Pension) Plans

• These are pension plans• Immediate annuity or deferred annuity starts at specified age

periodically• Single premium paid for immediate annuity• Premium in installments paid for deferred annuity• Life cover simultaneously

37

Important aspects of Life Insurance Policies

• Policies available with bonus or without bonus

• Policies available exclusively for women & children

• Additional cover for major diseases available

• Guaranteed bonus policies available

• Policies available for limited period premium payment & risk coverage for longer period

38

Important aspects of Life Insurance Policies..

• Loans are available on policies

• Lapsed/discontinued policies can be revived

• Policy can be surrendered after three years

• Nomination & assignment can be done

39

General Insurance Policies

• Fire Policies

• Marine Policies

• Vehicle Policies

• Health Insurances

• Liability Insurances

• Rural/Crop Insurance Policies

• Engineering Insurances

40

Health Insurance

• Medi claim policy

• Overseas Medi claim policy

• Videsh yatra policy

• Corporate frequent travelers policy

• Employment & study policy

• Group Medi claim policy

41

Rural Insurance Policies (Micro Insurance)

• Cattle/Livestock Policy

• Poultry Policy

• Agricultural Pump Set Policy

• Crop Insurance

• Farmer’s Insurance

42

Engineering Insurances

• Machinery Breakdown Insurance

• Loss of Profit Insurance

• Electronic Equipment Insurance

• Storage cum Erection/Assembly Insurance

43