THE CONCEPT INSURANCE

OF
many, exposed to similar risks. Insurance is a mechanism for transferring risk and reducing risk by having a large number of individuals who share in the

Insurance is a contract between two parties where by one party called insurer under takes 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. Insurance is a protection against financial loss arising on the

financial losses of the group. Risk in hibitsaction and is highly

subjective on an individual basis. Insurance objectifies risk. People trade the possibility of financial loss for the relative certainty of the premium paid and reimbursement for loss. Insurance frees people to take action even in the face of possible financial loss. Thus,

happening of an unexpected event. Insurance premiums companies to provide collect for this

protection. A loss is paid out of the premiums collected from the

insuring public and the Insurance Companies act as trustees to the amount collected. For Example, in a Life Policy, by paying a premium to the Insurer, the family of the insured person receives a fixed compensation on the death of the insured. Similarly, in a car

insurance provides utility even if no loss ever occurs. Some people believe insurance is similar to gambling or opening a savings account.

BASIC INSURANCE TERMINOLOGIES Insured
The person known as the policy holder ,a person with insurance coverage.

insurance, in the event of the car meeting with an accident, the insured receives the compensation to the extent of damage. It is a system by which the losses

Insurer

suffered by a few are spread over

A company licensed to transact the business of insurance and issue insurance policies. Policy It's the written contract between an insurance company and its insured. It defines what the company agrees to cover for what period of time and describes the obligations and

A licensed person or organization who sells insurance and represents the insurance company to the policy holder. ORIGIN OF INSURANCE Whenever there is uncertainty

there is risk. We do not have any control over uncertainties which involves financial losses. The risk may be certain events like death, pension, retirement or uncertain

responsibilities of the insured. Premium It's the amount of money a

events like theft, fire, accident, etc. Insurance is a financial service for collecting the savings of the public and providing them with risk

policyholder pays for insurance protection. Claim It's the notice to the insurance company that under the terms ofa policy, a loss maybe covered. Indemnity Legal principle that specifies an insured should not collect more than the actual cash value of a loss but should be restored to

coverage. It comes under service sector and while marketing this service due care is taken in quality product and customer satisfaction. The main function of the Insurance is to provide protection against the possible chances of generating losses. The insurance sector in India has come a full circle from being an open competitive market to nationalization and back to a liberalized market again. Tracing the developments in theIndian

approximately the same financial position as existed before the loss. Agent

insurance sector reveals the 360-

degree

turn

witnessed

over

a

business urban area.

was

concentrated

in

period of almost two centuries.

INSURANCE SECTOR
The opening up of Insurance sector was a part of theon going

liberalization in the financial sector

GENERAL INSURANCE
General (non life) insurance

of India. The changing face of the financial sector and the entry of several companies in the field of life and non life Insurance segment are one of the key results of these liberalization efforts. Insurance

provide a short term coverage ,ususall for a period of one year. general insurance and fire transact fire insurance, motor insurance, marine insurance, categories insurance predominant miscellaneous and motor are vehicle insurance business. Among these business motor

business by way of generating premium income adds significantly to be the GDP. Over the past three years, more than thirty companies have expressed interest in doing business (Insurance Development in India. The IRDA

insurance is compulsory in india and the motor insurance portfolio constitutes around 40 percent of the total gross premium collected by the general .Moreover, insurance motor industry

Regulatory Authority) is the

regulatory authority, which looks over all related aspects of the insurance business. The provisions of the IRDA bill acknowledge many issues related to insurance sector. The IRDA bill provides guidance for three levels of players - Insurance Company, Insurance brokers and Insurance agent. Life Insurance sector is one of the key areas

insurance due to third party liability claims has substantially contributed to underwriting losses. The government nationalized the general insurance business on 1 jan 1973, by passing the general insurance business act, 1972.prior to nationalization, insurance

where enormous business potential exists. InIndia currently the life insurance premium as a

a better Chance to save as well as insure. The regulatory system in India is relatively new and takes some more time to make the Insurance competitive sector one. a perfectly Insurance

percentage of GDP is 1.3 % against, 5.2 per centin the US. General Insurance is another segment, which has been growing at a faster pace. But as per the current comparative statistics, the general insurance premium has been lower than life insurance. General Insurance premium as a percentage of GDP was a mere 0.5 'per cent in 1996. In the General Insurance Business , General (GIC) and Insurance, and United Insurance Corporation Insurance, National Oriental Insurance

Regulatory Authority of India issued regulations on 15 subjects which included appointed. Actuary,

actuarial report, Insurance agents, solvency registration margins, of reinsurance and

Insurers,

obligation of insurers to rural and social sector, investment and

accounting procedure. The reform in Insurance in India is guided by factors like availability of a variety of products at a competitive price, improvement in the quality of

its four subsidiaries viz. New India

India Insurance, are doing major business. The General Insurance per year. The entry of several private Industry has been growing at a rate of 19 percent

customer services etc. Also the employment opportunities in the Insurance sector wil1increase as major players set their business plans in India. The policy of the government to openup the financial sector and the Insurance sector is expected to bring greater FDI inflow into the country. The

insurance companies, particularly international insurance companies, through joint ventures, will speed up the process of insurance

mobilization. The competition will unleash new schemes and

increase in the investment limit in this vital sector has generated

benefits, which will give consumers

considerable among the

business foreign Their

interests Insurance

The

private

sector

general

insurance companies are:  The general Royal sundram alliance insurance company limited.  Reliance general insurance

companies" certainly

entry the

wil1

change

Insurance

sector considerably

Sector and companies in general insurance: There are four nationalized and nine private general insurance  The government notified the  general insurance corporation of india (GIC) as an Indian reinsurer in November 2000. With this the four public sector companies which were subsidiaries of GIC have been delinked from it and are noe broadly run as board managed companies. the four public sector companies are:  The oriental insurance

company limited.  IFFCO insurance limited. TATA AIG general Tokio general company

companies: insurance company limited. Bajaj Allianz general

insurance company limited.  ICICI Lombard general

insurance company limited.  Cholamandalam general

insurance company limited.  HDFC-Chubb general

insurance company limited. Star health and allied

company limited.  The new india assurance company limited.  The national insurance

insurance company limited. Two new public sector entrants in general insurance business are:  Export credit guarantee

company limited.  The united india insurance company limited.

corporation limited.

 Agriculture

insurance

insurance segment is the most lucrative as fire rate as govern by tariff.the compitation is maximum in the segment .bulk of the premium comes from corporate clients with large industrial assets. fire insurance today accounts for a fifth of business for non-life insurance companies and brings in most of their profits.

company of india Ltd. The minimum paid up capital of the general insurance companies was raised to Rs 100 crore under the modified insurance Act.the four nationalised general insurance companies enhanced their paid up capital from 40 crore to Rs 100 crore. The general insurance market is not big as the life insurance market. While life insurance accounts for 81 per cent of the insurance market in india, general accounts for the remaining 19 per cent. General insurance products Fire insurance This cover the following:

Motor insurance
The coverage is for the following:  Various trucks, types of cars, and

two-wheelers,

three –wheelers.  There are two types of motor insurance namely:  Third party insurance which

 Bulding or flat.  Furniture fixtures and other contents.  Loss of profit, that is,

only insure the party other than the owner in an accident.
 Comprehensive

insurance third party

consequently loss. Fire insurance is comprehensive policy which covers loss on account of fire, earthquakes, flodd, strike. It can premises to be taken only by be insured.fire

which insure the owner as well as the involved. In motor insurance, the rates were revised upwards twice,once in1982 and then in 1990 as the high cost

of repairs coupled with third party claims had adversely affected the incurred loss ratio.motor insurance is mandatory leading to good amount of premium collection but it is not financed upon as it could lead to litigation problem.motor insurance is the single largest and the fastest growing business line for insurance companies .

insurance business in india through their agents. The Subsequently,they their triton was limited in in upto to companies insurance the first in company established inindia. company general established monopoly business company insurance mercantile limited 1957,the for insuring of in

insurance

Calcutta the the

1850.Foreign companies had a insurance close of

Marine cargo insurance
This covers:  Cargo in transit.  Cargo declaration policy.  Marine hull insurance. Inland freight vessels, at ocean going of

nineteenth century.the first Indian transact was in general Indian 1907.in insurance of A was company business Bombay general fair

insurance

council .Framed a code of conduct transaction business. insurance general controller conduct. In 1965 , insurance floated a reinsurance company,Indian reinsurance corporation limited, for retention of the general insurance business in india. In Indian guarantee and insurance Indian The company 1961,the general ,a limited insurance

vessels,fishing and scaling vessels, risk,construction ships,ship breaking insurance.the marine hull portfolio is a Rs 400 crores business and detarifing the competition among general insurance to offer cheaper prices wil increase,as a result the shiping industry will be the beneficiary.

appointed to implement this code of

Development insurance:

of

general

government company along with reinsurance insurance corporation companies were notified as Indian reinsurance.

British and other foreign insurance companies transacted general

voluntary ceded to each of them 10 percent of their gross direct premium. In 1960,the govt of made it mandatory for every insurer to ceded 20 percent in fire and marine cargo,10 percent in marine hull and miscellaneous insurance and 5 percent in credit and solvency business to these two reinsurancers. In1966 , Indian are reinsurance formed the

company of these four companies in November 1972. The general insurance company is smaller than the life insurance company. The total market size in annual premium is about half of that life insurance. The general insurance in nidia has currently about Rs20,000 crores of premium income with a five year compounded annual growth rate in the 16 percent range. The demand for general insurance is still generated by some of mandatory or regularitybrequirements. Motor vehicle insurance is compulsory and hence motor insurance the total is premium general dominates insurance by lack

companies

reinsurance pools in fire and hull department for retention of higher premiums in the country. The members companies ceded a specified percentage of premium to the respective pools which were managed reinsurance. The government nationalized the general insurance business Act 1972. One hundered and seven insurer including the branches of foreign companies operating in india were amalgamated and group into four companies, namely the national insurance company limited ,the new india assurance company limited ,the oriental limited..the insurance general company limited,the united india assurance insurance corporation as a holding by two statutory

premium portfolio.the growth of business of hampered product

innovation,lack of quality data on risks and associated parameters handicaps product innovation.

De-tariffing

of

non-life

insurance products:
Most of the non-life insurance business transacted in india was governed by tariffs. Tariffs are documents that prescribe the rates as well as policy coverage and condition pertaining to a class of

insurance. This had resulted in a very little room for competition in these areas. This also left very less incentives for a rating better managed risks, thus resulting in avoidable insurers. claim To costs fuel for to the fire add

 With a view to pre-empting a rate asked war in motor not to insurance,the regulator has companies offer vehicle cover at rates lower then 10 percent of the tariff.  If the companies want to offer higher discount after jan 2007,they would have to explain rationale.  Insurance are allowed to marginally increase the rates for third party insurance.  The third party premium their pricing

,features like adverse selection and moral hazard ensured that bottom lines of insurance always under pressure regardless of volume of business. pricing The regime year for 2007 non will life witness a switch over to atariff-free insurance. This is excepted to bring about hectic competition in pricing of non life insurance products.hoeever,with a view to ensuring a gradual transition to a free market regime,the regulator has put on hold the freedom tomodify conditions. De=tariffing of motor insurance from 1 january, 2007,will be the biggest insurance nationalization. deregulation industry Motor in the since insurance coverage or policy

would go into a special pool which will be managed by general this pool.  If the premium in the pool is inadequate to meet all claims,the claim shortfall be shared by the insurer in proportion of their overall business size.  Insurance premium companies as will insurance council and claims will be paid out of

today accounts for over 35 percent of the premium income of non life insurance adopted companies . IRDA a phased approach to

receive 10 percent of the management general expenses,while

detariffing in motor insurance.

insurance council will get2.5 percent for managing the pool.
 In the first phase,companies

State Govt. securities and other government guaranteed securities, including (1) above, being not less than 30% Loans to HUDCO/DDA/GIC-HF and to state govts. For housing and firefighting equipment, not less than15% Market sector not more than 55

will issue polcies and settle claims through their branches.the claims shortfall  Would be shared by the industry at the end of the year.

GENERAL COUNCIL:
The function of

INSURANCE

CURRENT TRENDS INSURANCE SECTOR

IN

India's insurance sector is zooming to the general show an unprecedented of more

progressive

growth

insurance council include aiding and advising the insurer carrying on general insurance business in the matters of setting up standards of conduct and sound practice and in the matter of rendering efficient services to holders of policies of general insurance. The council has deliberated on issues relating to de tariffing of the motor insurance business,review vehicles Act of and the motor of structure

than200% by the period of 200910. The Associated Chambers of Commerce and Industry of

Indiahas clocked out the fact that during this period, private players in the industry will see a growth of about 140 per cent, owing to the adoption marketing of the aggressive in

techniques

comparison of the growth rate of 35 per cent-40 per cent achieved by the state owned The insurance is

compensation/remuneration payable to agents.

companies.

chamber

INVESTMENT POLICY OF GIC Central Govt. securities being not less than20%

expected to poise the business of insurance to reach at

Rs.2000billion in coming 2 years

from the present level of Rs. 500 billion. With the result of adoption of the intense marketing strategies by the private players, the

Act,1938,

the

Life

Insurance

Corporation Act, 1956 and General Insurance Business(Nationalization). Act,

declination has been witnessed in respect of the share of the state owned insurance companies

1972, Insurance Regulatory and Development Authority(IRDA) Act, 1999 and by various other acts. The roots of the insurance sector can be tracked down in the year 1818 in the formation of thelife insurance Corporation in Calcutta. The idea was to provide means to the English widows.During that time different premiums were

captured in the market. The market share fallout has been noticed in context of such companies like GIC, LIC, which have comedown to nearly 70 per cent in the past 4-5 years from the 97 per cent. The experts have forecasted the more severe competition in the insurance sector likely to be occurred in the near future. Till recently, insurance sector was majority driven by the government sector players but now many private sector multinational players have come into the picture. Like HDFC, ICICI, Kotak, Mahindra and Birla Sunlife. Insurance sector has been characterized as the booming sector of the Indian arena, which has shown the growth rate of more than 15 per cent to 20 percent. Insurance in India is put under the federal subject and is governed by the Insurance

charged for the Indian and English people lives. In1870, the Bombay Mutual Life Insurance Society

started its insurance business and it chargedthe same premium from all people irrespective of whether they were Indian or English. In the year 1912, insurance regulation was started due to the passing of the Life Insurance Companies Act and the Provident Fund Act. By the year of 1938, in India there were total 176 insurance. companies. In the year of 1938, with the passing of Insurance Act, 1938 there was the introduction of the first

comprehensive legislation. It was passed with the aim of providing the strict state control over the insurance business. After the

came

into

effect-

National

Insurance Company, New India Assurance Company, Oriental

Insurance Company and United India Insurance Company.

independence, insurance sector in India grew at a much higher pace. In the year 1956, Indian

government combined together 245 Indian and foreign insurers and the provident societies under the name of nationalized

monopolycorporation. It was the same period when the life

insurance corporation (LIC)came into theexistence by the passing of the Act of Parliament and through the contribution of capital around Rs. 5 crore. Till 1972, private sector has enjoyed somehow monopoly in the general insurance sector. There were around 107 private

companies in the field. With the effect of the General Insurance Business 1972, the (Nationalization) general Act,

insurance

business got the India. Due to the amalgamation insurance of 107 4 private new

companies,

companies, as the subsidiaries of the General Insurance Company,

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