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7/4/2014 Mrunal [Economy] Insurance Types, IRDA, Reforms, FDI in Insurance for AFPC, LIC AAO etc exams

Mrunal 1/6
[Economy] Insurance Types, IRDA, Reforms, FDI in Insurance for AFPC,
LIC AAO etc exams
1. Who can make laws on Insurance?
1. What are the functions of IRDA?
2. Organizational setup of IRDA
3. Insurance Ombudsman
1. Functions of Insurance Ombudsman
2. Selection of Ombudsman
4. Insurance Policies: Types
1. General Insurance
2. Life Insurance
5. Nationalization of Insurance business
6. Foreign Direct Investment in Insurance
7. Reform in Insurance sector
1. Already Done by IRDA
2. Pending Reform
8. LIC
9. GIC- Reinsurer
10. Mock Questions
Who can make laws on Insurance?
Insurance is a subject listed in the Union list in the Seventh Schedule to the
Constitution of India.
That means only Union Government can make laws on insurance (a state
Government cannot make law on this subject)
Insurance Regulatory and Development Authority (IRDA)
Created on the recommendations of the Malhotra Committee report
Started in 2000, it is a statutory body (i.e. made through an Act of parliament).
What are the functions of IRDA?
To run insurance businesss, a company has to register itself with IRDA.
IRDA regulates the insurance industry and protects the customers.
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IRDA has the power to frame regulations regarding Insurance market (just like
SEBI for Capital market)
promotion of competition so as to enhance customer satisfaction through
increased consumer choice and lower premiums. (for example IRDA allowed
Health Insurance Portability)
Organizational setup of IRDA
IRDA has a ten member team consisting of
1 Chairman
5 whole-time members
4 part-time members
All of them, appointed by the Government of India.
Insurance Ombudsman
was created by a Government of India in 1998
Functions of Insurance Ombudsman
Receive and consider complaints in respect of insurance from any person who
has any problem against an insurer.
pass an award within 3 months after receiving complaint.
Insurance companies are required to honour the awards passed by an Insurance
Ombudsman within three months.
If the policy holder [customer] is not satisfied with the award of the Ombudsman
he can approach other venues like Consumer Forums and Courts of law for
redressal of his grievances.
Selection of Ombudsman
Ombudsman are drawn from Insurance Industry, Civil Services and Judicial
A committee comprising of Chairman, IRDA, Chairman, LIC, Chairman, GIC and
a representative of the Central Government select the Insurance Ombudsman.
There are twelve Ombudsman across the country allotting them different
geographical areas as their areas of jurisdiction.
An insurance Ombudsman is appointed for a term of three years or till the
incumbent attains the age of sixty five years, whichever is earlier.
Re-appointment is not permitted.
What is premium?
To enjoy SAB TV, Zee TV, Star Movies, AXN, HBO etc. youve to make regular
payment to Dish TV/Tata Sky etc., we call it subscription.
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Similarly to get insurance protection, youve to make regular payment to the
insurance company, we call it premium.
Insurance Policies: Types
Two main types: General and Life
General Insurance
General Insurance = Every Insurance plan EXCEPT life insurance plan
Name Sub categories
Insurance policies
medical insurance, accident, property and vehicle insurance
Rural Insurance
protection against natural and climatic disasters for agriculture
and rural businesses
Insurance policies
coverage for project, construction, contracts, fire, equipment
loss, theft, etc.
Insurance policies
protection against loss and damage of property during
transportation, transactions, marine insurance etc.
Life Insurance Types
list is not exhastive.
Whole life plan
You pay the premium till you retire or till the term of the
Your family will get money ONLY after you die.
You MUST DIE to get back the money.
Insurance company collect premium form the insured for
the certain period of time like 15, 20, 25, 30 years.
If you die within that term, the company will pay huge
money to your family.
If you dont die within that term, company will return the
premium you paid + some interest or bonus on it.
So, you DONOT NEED TO DIE to get back the money.
Term Plan
You keep paying premium for given period (5,10,20 etc.
If you die within that period, your family gets huge
But if you dont die within that period, you will not get a
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single penny from the company.
So, you MUST DIE to get back the money.
Good part- Term Plans have cheaper premium than other
ULIP(Unit Linked
Insurance Policy)
You pay regular premium to the company.
Company invests it in Debt and Equity markets. [click Me
to know more about Debt and Equity Markets]
The profit generated by this investment, will be given to
you no matter you die or not.
Thus you get the benefit of risk cover as well as the
investment gains.
You DONOT NEED TO DIE to get back the money.
They pay higher return than Endowment.
Nationalization of Insurance business
In 1972, Government of India passed of the General Insurance Business
(Nationalisation) Act,
With this Act, Government took control of all the private insurance companies
of India and created 4 companies
National Insurance Company Ltd General Insurance.HQ: Kolkata
New India Assurance Company Ltd General InsuranceHQ: Mumbai
Oriental Insurance Company Ltd General InsuranceHQ: New Delhi
United India Insurance Company Ltd. General InsuranceHQ: Chennai
Foreign Direct Investment in Insurance
up to 26% is allowed.Update: 49% allowed after Mamta Left the UPA alliance.
For example Bajaj Allianz Life Insurance Company Limited is a joint venture
The Indian Company Bajaj (that scooter maker, has 74% stakes in this
The Foreign Company Allianz AG (German Company, has 26% stakes in
this company)
Similar arrangement was present in Max New York Life Insurance Company
But the New York Life sold its stakes and left the game hence the new name of
the company is Max Life Insurance Company. [You might have seen the ads on
TV about its name change.]
Reform in Insurance sector
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Already Done by IRDA
If an Insurance company has been in business for 10 years, it can launch IPO.
Mobility / Portability in Health Insurance= if youre unhappy with your Health
(Medical) insurance company, you can change it.
Pending Reform
Mohan: I want to increase the FDI limit from 26% to 49%. Then more foreign
companies would come up = more products = lower premiums.
Mamatha: But Im opposed to FDI in Retail, Insurance and Aviation.
Mohan: Ok I drop the idea sir-ji.
Life Insurance Corporation of India
100% owned by Government.
Started in 1956
HQ: Mumbai
Motto: Yogakshemam Vahamyaham (taken from Gita, meaning I carry what
you require.)
Provides Life Insurance, Health Insurance
GIC- Reinsurer
Suppose LIC sells 1000 life insurance policies, each with a 1 crore policy limit
(e.g. I, the customer pay Rs.10,000 premium every year and If I die my family
should get 1 crore- that type of Policy).
Theoretically, the LIC could lose 1000 crores in a day, if every customer dies on
the same day!
So to prevent itself from such a loss, LIC itself should take some insurance from
a third insurance company (GIC).
for example I, the LIC Manager shall continue to pay the GIC 1 lakh every
month, and in return GIC insures that if my company LIC has to pay more than
100 crores in policy claims within 1 week, then GIC will cover the cost.
So, This third party, General Insurance Corporation of India (GIC) = Reinsurer.
GIC is the ONLY Reinsurer in India.
Mock Questions for APFC, LIC AAO
Which of the following statements are correct?
1. IRDA is a statutory body.
2. IRDA is made up of 1 chairman and 3 members.
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3. IRDA members are selected by RBI governor.
4. Oriental Insurance LTD is the only Reinsurer in India.
5. Government owns only 51% in LIC.
6. LICs motto is Nabha Sparsha Diptam
7. Health insurance is a type of Life insurance.
8. In ULIP policy, customers money in invested in Government securities only.
9. The premium of a Term plan is cheaper than Endowment plan.
10. Every Insurance Company has to appoint an Insurance Ombudsman in its head
11. Currently, a foreign company can invest upto 49% in an Indian Insurance
12. IRDA has allowed portability in life insurance products from 2011.
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Posted By Mrunal On 09/09/2012 @ 18:24 In the category Economy