Products and service offered and Channels of

distribution, Banc assurance model and Fund

Management in insurance sector
 

By K.Viswanathan

12/07/2021 1
 Various categories of Insurance
Types of Insurances available
1. Life Insurance
2. Non- Life Insurance:
 Pension
 Health care
 Personal Accident
 Motor vehicles
 Various Types of Properties
 Miscellaneous:
- Fire
- Marine
- Agricultural & Cattle
- Others
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 Products under Life Insurance
 

Life Insurance Products:

Life insurance is a contract of utmost good faith- uberrimafide
Term insurance : Scope to insure life for a huge sum. Amount
payable only if death occurs. Otherwise forefeited.
Endowment Assurance: This is a bit expensive. If death
happens, the assured sum and eligible bonuses are paid. If not it
is paid at the end of the period.
Whole Life Assurance: Costlier than Term assurance ; cheaper
than Endowment. If death occurs, the sum assured and bonus
are paid. If not, sum assured is paid, if policy holder survives till
age of 100 or 35th policy anniversary whichever is later.
Insurance is called immediate estate; the estate not existing till
the death comes into existence.

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 Products under Life Insurance
 

Life Insurance Products:

Living benefits or Accelerated Death benefits: A certain
percentage or full sum is made available during the life of the
insured, if he contacts any of the major illness or killer diseases.
This is to meet the urgent financial burden of hospitalisation.
Waiver of premium , extension of life cover after expiry of
policy etc are sometimes allowed. They are living benefits.
In Accelerated Death benefit policy, terminally ill patients get
the amounts between 50-80% during their period of illness
itself.
Viaticum Settlements: Only way for terminally ill patients, for
urgent requirements, was to surrender policy at surrender
value. Viaticum settlement is sale of an existing insurance policy
at a discounted rate to a third party- Legal angle-right or wrong
Secondary market in US for such policies.
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 Products under Life Insurance
 

Life Insurance Products:

Life settlement is modified form of viaticum policies.
There is no life threatening disease here. Policies are sold
to third parties. IRDA has imposed certain restrictions on
such policies- only term benefits and no savings benefits.
Tradable Insurance Contracts: Under this a policy can
be assigned to another person. Lapsed policies are
identified and revived. An affluent person revives the
policy. In turn the policy is assigned to him. The investor
a higher consideration than an insurance company would
offer. As assignee the investor gets all the benefits under
the policy and gains more if the policy holder dies.
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 Products under Life Insurance
 

Life Insurance Products:

Tradable Insurance Contract :
Arguments in support:
- Assignment is not illegal
- doctrine of insurable interest is not violated as it is required
only at the time of insurance.
- Assignee gets better offer.
- Policy gets revived; company’s lapse ratio comes down.
Precautions taken by Insurance Companies:
- Assignments to be permitted only within family
- Assignments where the policy holder dies within two years of such
assignments, should be treated as early claims and investigated.
- Claims settled in favour of Assignees should be subject to income tax.
- Separate data of such claims and settlement is to be maintained.

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 Products under Life Insurance
 

Life Insurance Products:

Annuities: Pension payments to the annuitants.
Two Types- Deferred annuities and immediate annuities.
In deferred annuities, either you pay lump sum and received
the periodical payments later or pay in instalments and receive
the sums later.
In immediate annuities, annuity payment starts from the next
month after you purchase the annuity. Individual and group
annuities are available.
Participating Policies: Policies eligible for bonus. Policies
become eligible for bonus after a minimum period of time- in
the case of LIC, after 3yrs.

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 Products under Life Insurance
 

Life Insurance Products:

Other important Life Insurance Products:
Critical Illness insurance:
The policy pays out a lump sum if the insured is diagnosed with
any of the major illnesses such as cancer, heart disease, stroke,
multiple sclerosis, Alzheimer’s disease, Parkinson’s disease etc.
In mediclaim policies the indirect costs incurred in
hospitalisation are not covered. But in critical illness policies,
these get covered. Different companies provide different
benefits, as under:
1. Payment of the agreed amount in one lump sum.
2. No payment if not suffering from any critical illness.
3. Payment of 50% on diagnosis and 50% on death.
4. Annual payment of 10% after affliction.
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 Products under Life Insurance
 

Life Insurance Products:

Other important Life Insurance Products:
Keyman insurance Policy:
To protect a company from losses arising out of the unforeseen
death of a key person in the organisation.
 It is on these persons technical savvy, administrative prowess and
vision the organisations are run. The exit or death of such a person
will have repercussions on the corporate bottom line, stock prices and
customer loyalty.
The sum assured will be very high. To arrive at this the insured takes
into account not only the present contribution by the key person but
also the replacement cost.
Some companies use this as add on to super annuation payment to
the employee to retain him.
 Income tax deduction available as business expense on premium
paid by Co.
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 Products under Life Insurance
 

Life Insurance Products:

Other important Life Insurance Products:
Linked Assurances:
The sum assured and bonus are linked to select capital market
instruments/ basket of instruments. UTI was the pioneer in this to
start Unit linked insurance plan in 1971.
 Under this, the subscribers are given a term life insurance cover and
the premium for the same is deducted from the contribution made to
the insurance co. for the group life cover.
 Unit plans are designed to offer security of life cover along with
prospect of high growth. Option is exercised by the investor in
choosing the pattern and extent of investment- Secured funds, debt
funds, Gilts, Risk Funds, Equity funds and various combinations of the
above.
 Premium paid are utilised to purchase units at current offer price.
The Units may be encashed at current bid price.
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 Products under Life Insurance
 

Life Insurance Products:

Other important Life Insurance Products:
Rural Life Insurance Plan:
Started by Post office as Postal Life Insurance plan to cover the
life of people in rural areas.
LIC also started offering rural insurance
Now many companies are offering rural plans to tap the
potential there.
Micro Insurance:
To cover micro financed industries.
 The Act of Micro insurance Regulations 2005 has been passed
NGOs, SHGs and Micro Finance Institutions are permittted to sell
micro insurance products.
Insurance for weaker sections
Insurance for NRIs:
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 Products under Non-Life Insurance
 

Other Non- Life Products:

Pension Schemes :
Every body needs financial support in their old age.
By 2050 20 % of the population is expected to be over 60 yrs.
Employees’ Provident Fund:
Tatas were the first to introduce in 1920s.
Provident Fund Act was passed in 1925.
Rate of statutory contribution is 12%. The employee may contribute
any amount over it.
Dave Committee was set up to address the issues in Provident Fund. It
suggested several measures like withdrawal to be allowed only in case
of permanent disability or for construction/
Purchase of a house etc: Rate should be market driven.
For those in unorganised and self- employed sector PPF was
introduced.
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 Products under Non-Life Insurance
 

Other Non- Life Products:

Pension Schemes :
Public Provident Fund:
Started in 1968 with annual interest rate of 4.5%.
Minimum Rs. 500 and maximum Rs. 70,000 for a period of 15 yrs.
S.A Dave Committee recommended some changes:
Scheme to be called Individual retirement Fund
Tax-free contribution to be raised to Rs. 120,000/ including
employers contribution if any.
Permissible withdrawals to be taxed 10% .
Rate of interest to be market driven.
All Commercial Banks and Post Offices to accept PPF
contributions.

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 Products under Non-Life Insurance
 

Other Non- Life Products:

Pension Schemes :
Small Savings or Postal Savings Schemes:
•Postal department plays a significant role in mobilising savings.
•Small Savings Instruments are :
-PO Savings A/cs
- PO Time Deposits
- PO Recurring Deposits
- National Savings Certificates
- Indira Vikas Patras ( Discontinued)
-Kisan Vikas Patras
- National Savings Scheme 87
-PO Monthly Income Scheme
Post Office schemes get some tax exemptions. There is debate on that. The
matter is subject to review.

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 Products under Non-Life Insurance
 

Other Non- Life Products:

Pension Schemes :
Small Savings or Postal Savings Schemes:
•Postal department plays a significant role in mobilising savings.
•Small Savings Instruments are :
-PO Savings A/cs
- PO Time Deposits
- PO Recurring Deposits
- National Savings Certificates
- Indira Vikas Patras ( Discontinued)
-Kisan Vikas Patras
- National Savings Scheme 87
-PO Monthly Income Scheme
Post Office schemes get some tax exemptions. There is debate on that. The
matter is subject to review.
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 Products under Non-Life Insurance
 

Other Non- Life insurance Products:

Pension Schemes :
Pensions:
The dictionary meaning is it is an allowance or stipend in consideration of
past services to the one retired from service, especially a regular stipend by
the Govt to retired officers, disabled soldiers and families of soldiers killed in
service.
 In India only 6% of the persons retiring have any type of pension benefits.
 More than 15% of the old age population contributes to one or other
pension schemes marketed by LIC or by Pvt Co.s
 There is low coverage of pensioners in India.
 Pension reforms were started in India after independence.
 The Pvt Insurance co.s have taken up this seriously.
 Entrusting the management of pension funds to professional managers will
enhance the efficiency and prudence in the management of these funds.
 If an element of compulsory contribution to pension funds is introduced , it
will enhance the savings of the people.
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 Products under Non-Life Insurance
 

Other Non- Life Products:

Pension Schemes :
Social Security Pension:
Many attempts were made to make this possible.
 Many of the state govt.s have pension schemes for those who have no one
to look after them. The amount varies from Rs. 75 to Rs. 300 a month. On an
average each state pays Rs. 150 to its destitute senior citizens.
 Pension liabilities of US and other European governments show that the
same has to be funded by contributions. Whether such contributions will be
made in India is a question.
 Even Insurance Co.s do not have any product to support this.
Reister Pension:
Germany introduced this first.
 Pvt contribution pension fund with voluntary contributions, commencing
as low as 1% of the gross salary and finally going upto 4% .
 The contributions are tax deductible with some contributions from
employers as well.
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 Products under Non-Life Insurance
 

Other Non- Life Products:

General Insurance :
Covers many items , the following are the important ones:
Contingencies arising out of
•Accidents
• Sickness
•Livestock insurance etc.
Covers risks like:
•Fire, floods, earthquake
•Marine
•Motor cars
•Other Vehicles like scooter, bikes etc.
•Personal accidents, fidelity, burglary,
Reinsurance :
•Insurers Insurance : A major initiative to spread the risk of insurance among
many insurers.
•In India GIC does reinsurance
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 Other important Insurance matters
 

Bancassurance :
Bancassurance simply means selling of insurance products by banks
Insurance Cos and Banks tie up to sell insurance products to the Banking
customers
Bank acts as the corporate agency to sell insurance products
It originated in India in the year 2000 when the Government issued
notification under Banking Regulation Act which allowed Indian Banks to do
insurance distribution.
It started picking up after Insurance Regulatory and Development
Authority (IRDA) passed a notification in October 2002 on 'Corporate Agency'
regulations.
As per the concept of   Corporate Agency, banks can act as an agent of one
life and one non-life insurer.
Currently bancassurance accounts for a share of almost 25-30% of the
premium income amongst the private players in India.

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 Other important Insurance matters

Bancassurance :
Advantages :
For Banks:
1. Non-Interest income
2. Providing additional services , so cost reduction of channels.
3. Multi products availability to customers
4. Home Loans and insurance as a combined product
5. Improving sales culture of employees
For Insurance Co.s:
6. Improved geographical reach without additional cost.
7. Managing with smaller sales team.
8. Bank referral – data base of customers is given to insurance companies.
9. Tapping rural potential.
10. Penetration level of banks is better.
For Customers:
11. Insurance and banking facilities in one place.
12. Lesser trouble due to organisational unification.
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 Other important Insurance matters
 

A SWOT Analysis Bancassurance :

Strengths:
1. Huge potential for Life coverage due to population.
2. Similarly for Household policies, mediclaim and Travel Insurance.
3. Large pool of skilled professionals good at selling insurance .
4. Variety of products
Weaknesses:
5. IT developments are not upto the mark- WAN and LAN are required for
greater marketing.
6. Middle class is overburdened with inflation and tax.
7. Products are not flexible.
8. Life and medical insurance gets tax exemptions. Others like travel , house
holder etc., do not.

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 Other important Insurance matters
 

A SWOT Analysis Bancassurance :

Opportunities:
1. Enormous data base of customers. This needs to be properly dissected and
used.
2. Mergers and acquisitions between banking and insurance are allowed in other
countries. We may allow here also.
Threats:
3. Change in approach is not easy.
4. Change of work will be resisted.
5. Possible non-response from target customers.- various reasons.
6. Higher investor expectation in the face of competition may not be fulfilled.
Regulatory Issues:
1.Insurance Amendment Act 2002 cleared certain barriers.
2. Prior to that directors were required to undergo 100 hrs of agency training .
3. Now the requirement is on one person- corporate Insurance executive-and not
all directors .
4. Profit sharing is still not there- only commission
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 Other important Insurance matters
 

Regulations for investment in Insurance Sector:

1. Regulations under the Insurance Regulatory and Development Authority
(Investment) (Amendment) Regulations, 2001 passed.
2. Regulations have been laid down on the amount of investment an insurance
co. can make out of its Life Funds and other funds in the following areas:
• Govt securities -25%
• Approved securities, including above -50%
• Infrastructure and Social Sector - 15% ( Not less than )
• Other sectors -35% ( Not more than)

3. Pension and General Annuity Business:

• Govt Securities - 20%
• Govt / approved securities - 40%
• Other approved Investments - 60%

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 Other important Insurance matters
 

3. General Insurance :
• Central Govt Securities - Not less than 20%
• State Govt and other guaranteed Securities - Not less than 30%
• Housing and Loans to State Govt.s for housing - Not less than 5%
• Infrastructure and Social Sector - Not less than 10%
• Others ( unapproved not to exceed 25%) - Not exceeding 55%
 There are specific regulations as to the minimum required rating of the
securities in which only these funds can invest.
 Norms are also laid down for constitution of the Investment Committee.
 Necessary certifications to be provided by the investment Committee of the
Institution
 Reasons for exceptions, if any, have to be explained.

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 Products and service offered and
Channels of distribution, Banc
assurance model and Fund
Management in insurance sector

THANK YOU

12/07/2021 25