Insurance sector in India

Insurance is an agreement in which a person makes regular payments to a company and the
company promises to pay money if the person is injured or dies, or to pay money equal to the value
of something (such as a house or car) if it is damaged, lost, or stolen or a risk-transfer mechanism
that ensures full or partial financial compensation for the loss or damage caused by event(s)
beyond the control of the insured party. Under an insurance contract, a party (the insurer)
indemnifies the other party (the insured) against a specified amount of loss, occurring from
specified eventualities within a specified period, provided a fee called premium is paid. In general
insurance, compensation is normally proportionate to the loss incurred, whereas in life insurance
usually a fixed sum is paid.
Some types of insurance (such as product liability insurance) are an essential component of risk
management, and are mandatory in several countries. Insurance, however, provides protection only
against tangible losses. It cannot ensure continuity of business, market share, or customer
confidence, and cannot provide knowledge, skills, or resources to resume the operations after a
disaster.
Brief history of insurance sector
The insurance sector in India has completed all the facets of competition - from being an open
competitive market to being nationalized and then getting back to the form of a liberalized market
once again. The history of the insurance sector in India reveals that it has witnessed complete
dynamism for the past two centuries approximately.With the establishment of the Oriental Life
Insurance Company in Kolkata, the business of Indian life insurance started in the year 1818.
Important milestones in the Indian life insurance business
1912: The Indian Life Assurance Companies Act came into force for regulating the life insurance
business.
1928: The Indian Insurance Companies Act was enacted for enabling the government to collect
statistical information on both life and non-life insurance businesses.
1938: The earlier legislation consolidated the Insurance Act with the aim of safeguarding the
interests of the insuring public.
1956: 245 Indian and foreign insurers and provident societies were taken over by the central
government and they got nationalized. LIC was formed by an Act of Parliament, viz. LIC Act, 1956.
It started off with a capital of Rs. 5 crore and that too from the Government of India.
The history of general insurance business in India can be traced back to Triton Insurance Company
Ltd. (the first general insurance company) which was formed in the year 1850 in Kolkata by the
British.
Important milestones in the Indian general insurance business
1907: The Indian Mercantile Insurance Ltd. was set up which was the first company of its type to
transact all general insurance business.
1957: General Insurance Council, an arm of the Insurance Association of India, framed a code of
conduct for guaranteeing fair conduct and sound business patterns.

1968: The Insurance Act improved for regulating investments and set minimal solvency levels and
the Tariff Advisory Committee was set up.
1972: The General Insurance Business (Nationalization) Act, 1972 nationalized the general
insurance business in India. It was with effect from 1st January 1973.
107 insurers integrated 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. GIC was incorporated as a company.
Insurance industry, as on 1.4.2000, comprised mainly two players:
(1) Life Insurance Corporation of India (LIC) General Insurers:
(2) General Insurance Corporation of India (GIC) (with effect from Dec'2000, a National Reinsurer)
GIC had four subsidiary companies, namely
i) The Oriental Insurance Company Limited
ii) The New India Assurance Company Limited
iii) National Insurance Company Limited
iv) United India Insurance Company Limited.
(With effect from Dec'2000, these subsidiaries have been de-linked from the parent company and
made as independent insurance companies)
The Insurance sector in India is governed by Insurance Act, 1938, the Life Insurance Corporation
Act, 1956 and General Insurance Business (Nationalization) Act, 1972, Insurance Regulatory and
Development Authority of India (IRDAI) Act, 1999 and other related Acts. With such a large
population and the untapped market area of this population, insurance happens to be a very big
opportunity in India. Today it stands as a business growing at the rate of 15-20 per cent annually.
Together with banking services, it adds about 7 per cent to the country's GDP .In spite of all this
growth the statistics of the penetration of the insurance in the country is very poor. Nearly 80% of
Indian populations are without Life insurance cover and the Health insurance. This is an indicator
that growth potential for the insurance sector is immense in India. It was due to this immense
growth that the regulations were introduced in the insurance sector and in continuation "Malhotra
Committee" was constituted by the government in 1993 to examine the various aspects of the
industry. The key element of the reform process was Participation of overseas insurance companies
with 26% capital. Creating a more efficient and competitive financial system suitable for the
requirements of the economy was the main idea behind this reform. Since then the insurance
industry has gone through many sea changes .The competition that LIC started facing from these
companies were threatening to the existence of LIC. Since the liberalization of the industry, the
insurance industry has never looked back and today stand as the one of the most competitive and
exploring industry in India. The entry of the private players and the increased use of the new
distribution are in the limelight today. The use of new distribution techniques and the IT tools has
increased the scope of the industry in the longer run.
Insurance sector reforms
In 1993, Malhotra Committee, headed by former Finance Secretary and RBI Governor R.N. Malhotra,
was formed to evaluate the Indian insurance industry and recommend its future direction.

The Malhotra committee was set up with the objective of complementing the reforms initiated in
the financial sector. The reforms were aimed at "creating a more efficient and competitive
financial system suitable for the requirements of the economy keeping in mind the structural
changes currently underway and recognizing that insurance is an important part of the overall
financial system where it was necessary to address the need for similar reforms.". In 1994, the
committee submitted the report and some of the key recommendations included:
1) Structure
Government stake in the insurance Companies to be brought down to 50%. Government should take
over the holdings of GIC and its subsidiaries so that these subsidiaries can act as independent
corporations.All the insurance companies should be given greater freedom to operate.
2) Competition
Private Companies with a minimum paid up capital of Rs.1bn should be allowed to enter the
industry. 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.
Postal Life Insurance should be allowed to operate in the rural market.Only One State Level Life
Insurance Company should be allowed to operate in each state.
3) Regulatory Body
The Insurance Act should be changed. An Insurance Regulatory body should be set up. Controller of
Insurance (Currently a part from the Finance Ministry) should be made independent.
4) 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 (There current holdings
to be brought down to this level over a period of time).
5) Customer Service
LIC should pay interest on delays in payments beyond 30 days. Insurance companies must be
encouraged to set up unit linked pension plans. Computerization of operations and updating of
technology to be carried out in the insurance industry. The committee emphasized that in order to
improve the customer services and increase the coverage of the insurance industry should be
opened up to competition.But at the same time, the committee felt the need to exercise caution
as any failure on the part of new players could ruin the public confidence in the industry. Hence, it
was decided to allow competition in a limited way by stipulating the minimum capital requirement
of Rs.100 crores. The committee felt the need to provide greater autonomy to insurance companies
in order to improve their performance and enable them to act as independent companies with
economic motives. For this purpose, it had proposed setting up an independent regulatory body.
Independent Regulatory Body - IRDAI
Insurance sector has been opened up for competition from Indian private insurance companies with
the enactment of Insurance Regulatory and Development Authority Act, 1999 (IRDA Act). As per the
provisions of IRDA Act, 1999, Insurance Regulatory and Development Authority (IRDA) was
established on 19th April 2000 to protect the interests of holder of insurance policy and to
regulate, promote and ensure orderly growth of the insurance industry.

IRDA Act 1999 paved the way for the entry of private players into the insurance market which was
hitherto the exclusive privilege of public sector insurance companies/ corporations. Under the new
dispensation Indian insurance companies in private sector were permitted to operate in India with
the following conditions: Company is formed and registered under the Companies Act, 1956;
The aggregate holdings of equity shares by a foreign company, either by itself or through its
subsidiary companies or its nominees, do not exceed 26%, paid up equity capital of such Indian
insurance company. The company's sole purpose is to carry on life insurance business or general
insurance business or reinsurance business.The minimum paid up equity capital for life or general
insurance business is Rs.100 crores.The minimum paid up equity capital for carrying on reinsurance
business has been prescribed as Rs.200 crores. The Authority has notified 27 Regulations on various
issues which include Registration of Insurers, Regulation on insurance agents, Solvency Margin, Reinsurance, Obligation of Insurers to Rural and Social sector, Investment and Accounting Procedure,
Protection of policy holders' interest etc. Applications were invited by the Authority with effect
from 15th August, 2000 for issue of the Certificate of Registration to both life and non-life insurers.
The Authority has its Head Quarter at Hyderabad.
India Insurance Policies at a Glance
Indian insurance companies offer a comprehensive range of insurance plans, a range that is growing
as the economy matures and the wealth of the middle classes increases. The most common types
include: term life policies, endowment policies, joint life policies, whole life policies, loan cover
term assurance policies, unit-linked insurance plans, group insurance policies, pension plans, and
annuities. General insurance plans are also available to cover motor insurance, home insurance,
travel insurance and health insurance. Due to the growing demand for insurance, more and more
insurance companies are now emerging in the Indian insurance sector. With the opening up of the
economy, several international leaders in the insurance sector are trying to venture into the Indian
insurance industry.

INSURANCE NOTES
1. What is Insurance?
Insurance is defined as a contract between two parties whereby one party called insurer undertakes in exchange for a fixed sum called
premium to pay the other party called insured a fixed amount of money after happening of a certain event.
According to the Indian Contract Act 1872, A Contract may be defined as an agreement between two or more parties to do or to
abstain from doing an act, with an intention to create a legally binding relationship.
2. What is Banccasurance?
Banccasurance means selling of insurance products through banks. The insurance companies and the banks come up in a partnership
wherein the bank sells the tied insurance companys insurance products to its clients.
Bank Insurance Model is also termed as Banccasurance.
3. Who is an Actuary?
A person with expertise in the fields of economics, statistics and mathematics, who helps in risk assessment and estimation of
premiums etc for an insurance business, is called an actuary.
A professional statistician working in an insurance company is an Actuary.
4. What is an Actuarial Science?
Actuarial science is the discipline that applies mathematical and statistical methods to assess risk in insurance, finance and other
industries and professions.

Actuarial science includes a number of interrelated subjects, including probability, mathematics, statistics, finance, economics, financial
economics, and computer programming.
5. Who are Third Party Administrators?
Third Party Administrators or TPAs are a vital link between health insurance companies, policyholders and health care providers.
The TPAs maintain databases of policy holders and issue them identity cards with unique identification numbers and handle all the post
policy issues including claim settlements.
6. What is Mortality Charge?
Mortality Charge is the amount charged every year by the insurer to provide the life cover to the policyholder on the life of the Life
Insured. It is also called as Cost of Insurance.
7. What is Maturity Date?
The date on which the principal amount of a note, draft, acceptance bond or other debt instrument becomes due and is repaid to the
investor and interest payments stop.
The maturity date tells you when you will get your principal back and for how long you will receive interest payments.
8. Who is an Agent?
An Agent is a person who is licensed by state to sell Insurance. The Agents serve as an intermediary between the insurance company
and the insured.
Agents are only responsible for the timely and accurate processing of forms, premiums, and paperwork.

Captive Agent Agent sell Insurance of a specific Company.

Independent Agent Agent who works independently and sells Insurance of many companies.

9. Who is a Broker?
An insurance broker is a specialist in insurance and risk management.Brokers act on behalf of their clients and provides advice in the
interests of their clients.
Insurance brokers can be best described as a kind of super-independent agent.
10. What is Annuity?
A long-term contract sold by an insurance company designed to provide payments to the holder at specified intervals, usually after
retirement.

Types Of Insurance
There are usually five types of insurance policies. They are as follows:

Whole life

Term Insurance

Life annuity

Endowment

Investment linked

Medical and health

Whole life Insurance:

Life insurance policy that normally covers an individual until his or her death, unless it lapses due to non-payment of premium or is
cancelled, builds up a cash value (called cash surrender value),pays a fixed death benefit. The insured or policyholder may obtain a
loan (called policy loan) against the accumulated cash value. Also called continuous premium whole life insurance, ordinary life
insurance, permanent life insurance, or straight life insurance.
Term Insurance:
Term insurance is the most traditional life insurance policy wherein the insured gets death benefit if any contingency happens within the
policy term. The insured is, however, not entitled to receive any survival benefit if he outlives the policy term.
Term insurance policies are available in the range of 10-30 years term. These plans are relatively cheaper than endowment policies,
money back policies and ULIPs. The benefits in a term insurance policy can be availed only in the event of the death of the insured.
Simplest and usually the cheapest type of life insurance that stays in effect for a specified period or until a certain age of the insured. It
pays the face amount of the policy in case the insured dies within the coverage period (term) but pays nothing if he or she outlives it.
Also, (unlike in whole life insurance) whereas it premium cost is low in younger years, it generally increases rapidly with the age of the
insured. Term life insurance is used commonly as an insurance cover for a loan repayment or post-death liabilities such as estate taxes.
Life Annuity:
Life annuity is an insurance product in which the annuitant receives a series of future payments for his/her lifetime after retirement. The
annuitant has to pay a predetermined payment or a series of regular payments till he/she is working.
Life annuity provides financial support to the retires and helps them maintain a similar standard of living as before retirement. In a life
annuity the uncertainty of the annuitant's life span is shifted to the insurer.
Series of payments at fixed intervals, guaranteed for a fixed number of years or the lifetime of one or more individuals. Similar to a
pension, the money is paid out of an investment contract under which the annuitant(s) deposit certain sums (in a lump sum or in
instalments) with an annuity guarantor (usually a government agency or an insurance firm). The amount paid back includes principal
and interest, either or both of which (depending on the local regulations) may be tax exempt. An annuity is not an insurance policy but a
tax-shelter.
Endowment Insurance:
Life insurance policy that pays the assured sum (face amount) on a fixed date or upon the death of the insured, whichever comes
earlier. Endowment policies carry premiums higher than those on conventional whole life policies and term insurance, but are useful in
meeting special lump sum needs such as college expenses or for buying a retirement home. Also called endowment life policy or
endowment policy.
Health Insurance and Medical insurance
Health insurance is a type of insurance coverage that pays for medical and surgical expenses that are incurred by the insured. Health
insurance can either reimburse the insured for expenses incurred from illness or injury or pay the care provider directly. Health
insurance is often included in employer benefit packages as a means of enticing quality employees.
Read more: http://www.bankersadda.com/2016/02/lic-aao-types-of-insurance.html#ixzz4ArSgjDUL

Public Sector Companies: Insurance

Public Sector Insurance Companies

Life Insurance Corporation of India

General Insurance Corporation of India

National Insurance Co. Ltd.

Oriental Insurance Co. Ltd.

New India Assurance Co. Ltd.

United India Insurance Co. Ltd.

Life Insurance Corporation of India

Headoffice - Mumbai
Chairman - Shri S. K. Roy

The Parliament of India enacted the Life Insurance Corporation Act on the 19th of June 1956, and the Life Insurance Corporation of
Indian was established on 1st September, 1956, with the objective of spreading life insurance much more widely and in particular to the
rural areas with a view to reach all insurable persons in the country, providing them adequate financial cover at a reasonable cost.

General Insurance Corporation

Headoffice - Mumbai
Chairman - Mrs. Alice G. Vaidyan

General Insurance Corporation of India (GIC Re) was approved as Indian Reinsurer on 3rd November,2000. As an Indian reinsurer
GIC has been giving reinsurance support to four public sector & other private general insurance companies.

The New India Assurance Co. Ltd.

Headoffice- Mumbai
Chairman - G.Srinivasan

It is the "largest general insurance company of India on the basis of gross premium collection inclusive of foreign operations". It was
founded by Sir Dorabji Tata in 1919, and was nationalised in 1973.

National Insurance Company Limited (NICL)

Headoffice- Kolkata
Chairman - Shri A.V. Girija Kumar

It is a state owned general insurance company in India. The company was established in 1906 and nationalised in 1972. It's portofolio
consists of a multitude of general insurance policies, offered to a wide arena of clients encompassing different sectors of the economy.
[3] Apart from being leading insurance provider in India, NICL also serves Nepal.

United India Insurance Company Limited

Headoffice - Chennai
Chairman - Milind Kharat

Under Department of Financial Services, Ministry of Finance (India), is a public sector General Insurance Company of India and one of
the top General Insurers in Asia. With the net worth of Rs 5407 crores and profit of Rs 528 crores, the company has collected gross
premium of Rs 9709 crores as of in the financial year 2013-14. The company has more than seven decades of experience in Non-life
Insurance business and was formed to its present form by the merger of 22 companies, consequent to the nationalisation of General
Insurance companies in India.

Oriental Insurance Company Ltd

Headoffice - New Delhi
Chairman - Dr. A.K.Saxena

It was established on September 12, 1947 in the then Bombay. It was a completely owned subsidiary of Oriental Government Security
Life Assurance Company Ltd. It was created with the mandate of executing its parent bodys general insurance operations.

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