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Role of Intermediaries in Insurance Sector-1

Role of Intermediaries in Insurance Sector-1

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Published by Prakash Kumar

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Published by: Prakash Kumar on Sep 05, 2012
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07/18/2013

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INSURANCE
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 intoa contract, with one who is willing to give assurance. Through this contract the person willing togive assurance binds himself to make good such loss, if it occurs.
INTRODUCTION:
Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, inexchange 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 becharged 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 theinsurance sector as a backup or extension by the well-known industrial houses of India. There aremainly two forms, of insurance in India
viz.
Life and non-life. Life insurance provides protection toa household against the risk of premature death of its income-earning, member. Non-life insurancecan be grouped under three heads
viz.,
fire, marine and miscellaneous insurance. Life insuranceCorporation of India carries on life insurance business and, the General Insurance Corporation andits 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) wasconstituted in April 2000 as an autonomous body to regulate and develop the business of insuranceand re-insurance in the country in terms of the insurance regulatory and Development AuthorityAct, 1999.1
 
As the insurance market in India is liberalized, the pattern of distribution is likely to undergo vastchanges 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.
THE NEED FOR NEW CHANNELS:
The need for new channels can also be appreciated if distribution is approached from the point of view of the customer.
Customer choice of the distribution channel is dictated by:
Socio-demographic factors (education, employment income)
Ease of access
Complexity of product/service; need for advice.On the other hand the insurers' choice of distribution channels is dictated by:
Costs associated relative to the premium charged
Access to customer base
Complexity of the productsGlobally, as a result, many different channels such as agents, brokers, banks and direct haveemerged. There have also emerged several variations between these like brokers liaising with banks, advisors employed by insurers working out of a Bank branch, and bank as a wholeacting as a broker or agent.2
 
HISTORY OF INSURANCE
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 termsof 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 Indianhistory 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, Englandin particular.1818 saw the
advent of life insurance business in India
with the establishment of the OrientalLife Insurance Company in Calcutta. This Company however failed in 1834. In 1829, the MadrasEquitable had begun transacting life insurance business in the Madras Presidency. 1870 saw theenactment of the British Insurance Act and in the last three decades of the nineteenth century, theBombay Mutual (1871), Oriental (1874) and Empire of India (1897) were started in the BombayResidency. This era, however, was dominated by foreign insurance offices which did good business in India, namely Albert Life Assurance, Royal Insurance, Liverpool and London GlobeInsurance and the Indian offices were up for hard competition from the foreign companies.In 1914, the Government of India started publishing returns of Insurance Companies in India. TheIndian Life Assurance Companies Act, 1912 was the first statutory measure to regulate life business. In 1928, the Indian Insurance Companies Act was enacted to enable the Government tocollect statistical information about both life and non-life business transacted in India by Indianand foreign insurers including provident insurance societies. In 1938, with a view to protecting theinterest of the Insurance public, the earlier legislation was consolidated and amended by theInsurance Act, 1938 with comprehensive provisions for effective control over the activities of insurers.The Insurance Amendment Act of 1950 abolished Principal Agencies. However, there were a largenumber of insurance companies and the level of competition was high. There were also allegations3

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