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The introduction of private players in the industry has added to the colors in the dull industry. The initiatives taken by the private players are very competitive and have given immense competition to the on time monopoly of the market LIC. Since the advent of the private players in the market the industry has seen new and innovative steps taken by the players in this sector. The new players have improved the service quality of the insurance. Bancassurance in its simplest form is the distribution of insurance products through a bank's distribution channels. In concrete terms bancassurance, which is also known as Allfinanz - describes a package of financial services that can fulfill both banking and insurance needs at the same time.Where legislation has allowed, bancassurance has mostly been a phenomenal success and, although slow to gain pace, is now taking off across Asia, especially now that banks are starting to become more diverse financial institutions, and the concept of universal banking is being accepted. In India, the signs of initial success are already there despite the fact that it is a completely new phenomenon. The factors and principles of why it is a success elsewhere exists in India, and there is no doubt that banks are set to become a significant distributor of insurance related products and services in the years to come. Bancassurance is seen by many to be a significant or even the primary channel. The fact that the India is the Emerging Market is throwing a lot of competition among the foreign players as well as the Indian players. The flow of foreign direct investment (FDI) into the India is significant owing to low labour costs and positive economic prospects. India's economic growth is boosting more investments in properties and automobiles, helping the companies to sell more coverage to insure the assets With changes in market conditions and changing demographics, the insurance industry is experiencing good growth. It is one of the fastest growing industries in the country. The changes in market conditions and increase in GDP, with a healthy growth in stock markets unit linked policies and other types of policies will continue to grow. Also, with changes in demographics like the increasing size of middle class and middle-aged population will further enhance the growth of the insurance sector. Other factors like government regulations related to tax rules and the proposed FDI will further attract many international companies to the country, which will provide the necessary impetus in the growth of the insurance industry.
The origin of insurance is very old .The time when we were not even born; man has sought some sort of protection from the unpredictable calamities of the nature. The basic human trait is to be averse to the idea of taking risks. There is always an urge to minimize the risks and take protection against possible future. The risk includes fire, perils of sea, death, accidents and burglary. The basic urge in man to secure himself against any form of risk and uncertainty led to the origin of insurance.
Concept of insurance:
Insurance is a mechanism by which the financial loss experienced, either due to the damage or due to loss of asset because of happening of some uncertainties, is transferred to an insurance pool. It is the loss distribution method in which the loss or damages suffered by one individual is distributed to all the members of the insurance pool. It only gives alternate benefit, payment of compensation from the common fund of insurance business capital and increases the confidence of people in the business. It motivates the business people to boldly invest in the field of ever changing insurance business.
This insurance mechanism has a limitation where by, the member is compensated only if he experiences loss of asset. If the asset is not damaged, he will not get any return from his share of funds in the common pool. The individual suffers a very negligible loss of his share amount due to the payment of premium in to the common fund.
The insurance will not curb the risk prevailing to the asset due to the happening of the uncertainties, but it reduces the economic loss of assets. It only provides the alternate source to meet the contingencies resulting due to the happening of the uncertainties and the income loss due to the loss of the asset.
MEANING OF INSURANCE
Insurance may be described as a social device to reduce or eliminate risk of loss to life and property. Insurance is a collective bearing of risk. Insurance is a financial device to spread the risks and losses of few people among a large number of people, as people prefer small fixed liability instead of big uncertain and changing liability. Insurance can be defined as a “legal contract between two parties whereby one party called insurer undertakes to pay a fixed amount of money on the happening of a particular event, which may be certain or uncertain.” The other party called insured pays in exchange a fixed sum known as premium. Insurance is desired to safeguard oneself and one‟s family against possible losses on account of risks and perils. It provides financial compensation for the losses suffered due to the happening of any unforeseen events.
IMPORTANCE OF INSURANCE
Insurance constitutes one of the major segments of the financial market. Insurance services play predominant role in the process of financial intermediary. Today insurance industry is one of the most growing sectors in India. There is lot of potential in the Indian Insurance Industry. There are many issues, which require study. The scope of the study of insurance industry of India would be very great as there are ongoing developments in the industry after the opening of the sector. The major issue right now is the hike in FDI (Foreign Direct Investment) limit from 26% to 49% in the insurance sector. Government may in near future allow 49% FDI in Insurance. This would lead to more capital inflow by foreign partners. Another major issue is the effects on LIC after the entry of private players in the market. Though market share of LIC has been affected, it has improved in terms of efficiency. There are number of other hot topics like penetration of Health Insurance, Rural marketing of insurance, new distribution channels, new product ranges, insurance brokers‟ regulation, incentive scheme of development officers of LIC etc. So it offers lot of scope for studying the insurance industry. Right now the insurance industry has great opportunities in a country like India or China which huge population. Also the penetration of insurance in India is very low in both life and non-life segment so there is lot potential to be tapped. Before
starting the discussion on insurance industry and related issues, we have to start with the basics of insurance..
DIFFERENCE BEETWEN INSURANCE AND ASSURANCE
Assurance is older in history and it was used to describe all types of insurances. From 1826, the term assurance came to be used only for the risks covered by life insurance and the term insurance was exclusively used to denote the risks covered by marine, fire, etc. The word assurance indicated certainty. In life insurance, there is an assurance from the insurance company to make payment under the policy either on the maturity or at earlier death.
On the other hand the word insurance was used to denote indemnity type of insurances where the insurance company was liable to pay only in case of the loss damage the property. The insured event was bound to happen sooner or later under assurance but the event insured against may or may not happen under insurance. The principle of “indemnity” applies to “insurance contracts”(non-life) only. The scope of the word, insurance is wider.
PRINCIPLES OF INSURANCE
An insurance contract is based on some basic principles of insurance. (1) Principle of “Uberrima Fides” or Principle of utmost good faith It means “maximum truth”. Both the parties should disclose all material information regarding the subject matter of insurance.
(2) Principle of indemnity This means that if the insured suffers a loss against which the policy has been made, he shall be fully indemnified only to the extent of loss. In other words, the insured is not entitled to make a profit on his loss. (3) Principle of subrogation This means the insurer has the right to stand in the place of the insured after settlement of claims in so far as the insured‟s right of recovery from an alternative source is involved.
The insurer before the settlement of the claim may exercise the right. In other words, the insurer is entitled to recover from a negligent third party any loss payments made to the insured. The purposes of subrogation are to hold the negligent person responsible for the loss and prevent the insured from collecting twice for the same loss. The concept of „Third Party Claims‟ is based on the same principle. (4) Principle of causa proxima The cause of loss must be direct and an insured one in order to claim of compensation. (5) Principle of insurable interest The assured must have insurance interest in the life or property insured. Insurable interest is that interest which considerably alters the position of the assured in the event of loss taking place and if the event does not take placed, he remains in the same old position.
HISTORY OF INSURANCE
The concept of insurance is believed to have emerged almost 4500 years ago in the ancient land of Babylonia where traders used to bear risk of the carvan by giving loans, which were later repaid with interest when the goods arrived safely. The concept of insurance as we know today took shape in 1688 at a place called Lloyd‟s Coffee House in London where risk bearers used to meet to transact business. This coffee house became so popular that Lloyd‟s became the one of the first modern insurance companies by the end of the eighteenth century. Marine insurance companies came into existence by the end of the eighteenth century. These companies were empowered to write fire and life insurance as well as marine. The Great Fire of London in 1966 caused huge loss of property and life. With a view to providing fire insurance facilities, Dr. Nicholas Barbon set up in 1967 the first fire insurance company known as the Fire office. The early history of insurance in India can be traced back to the Vedas. The Sanskrit term „Yogakshema‟ (meaning well being), the name of Life Insurance Corporation of India‟s corporate headquarters, is found in the RigVeda. The Aryans practiced some form of „community insurance‟ around 1000 BC. Life insurance in its modern form came to India from England in 1818. The Oriental Life Insurance Company was the first insurance company to be set up in India to help the widows of European community. The insurance companies, which came into existence between 1818 and 1869, treated Indian lives as subnormal and charged an extra premium of
15 to 20 percent. The first Indian insurance company, the Bombay Mutual Life Assurance Society, came into existence in 1870 to cover Indian lives at normal rates. The Insurance Act, 1938, the first comprehensive legislation governing both life and non-life branches of insurance were enacted to provide strict state control over insurance business. This amended insurance Act looked into investments, expenditure and management of these companies. By the mid- 1950s there were 154 Indian insurers, 16 foreign insurers, and 75 provident societies carrying on life insurance business in India. Insurance business flourished and so did scams, irregularities and dubious investment practices by scores of companies. As a result the government decided to nationalize the life assurance business in India. The Life Insurance Corporation of India (LIC) was set up in 1956. The nationalization of life insurance was followed by general insurance in 1972.
TIME LINE IN INSURANCE HISTORY (MAJOR LANDMARKS)
1818: British introduced the life insurance to India with the establishment of the Oriental Life Insurance Company in Calcutta.
1850: Non life insurance started with Triton Insurance Company.
1870 : Bombay Mutual Life Assurance Society is the first India owned life insurer.
1912 : The Indian Life Assurance Company Act enacted to regulate the life insurance business.
1938 : The Insurance Act was enacted.
1956 : Nationalization took place. Government took over 245 Indian and foreign insurers and provident societies.
1972 : Non-life business nationalized, General Insurance Corporation (GIC) came into being.
1993 : Malhotra committee was constituted under the chairmanship of former RBI chief R.N. Malhotra to draw a blue print for insurance sector reforms.
1994: Malhotra committee recommended reentry of private players.
1997: IRDA (Insurance Regulatory and Development Authority) was set up as a regulator of the insurance market in India.
2000 : IRDA started giving license to private insurers. ICICI Prudential, HDFC were first private players to sell insurance Policies.
2001: Royal Sundaram was the first non-life private player to sell an insurance policy.
2002 : Bank allowed to sell insurance plans as TPAs enter the scene, insurers start setting nonlife claims in the cashless mode.
MEANING OF LIFE INSURANCE
There are three parties in a life insurance transaction: the insurer, the insured, and the owner of the policy (policyholder), although the owner and the insured are often the same person. Another important person involved in a life insurance policy is the beneficiary. The beneficiary is the person or persons who will receive the policy proceeds upon the death of the insured. Life insurance may be divided into two basic classes – term and permanent. • Term life insurance provides for life insurance coverage for a specified term of years for a specified premium. The policy does not accumulate cash value. • Permanent life insurance is life insurance that remains in force until the policy matures, unless the owner fails to pay the premium when due. • Whole life insurance provides for a level premium, and a cash value table included in the policy guaranteed by the company. The primary advantages of whole life are guaranteed
death benefits, guaranteed cash values, fixed and known annual premiums, and mortality and expense charges will not reduce the cash value shown in the policy. •Universal life insurance (UL) is a relatively new insurance product intended to provide permanent insurance coverage with greater flexibility in premium payment and the potential for a higher internal rate of return. A universal life policy includes a cash account. Premiums increase the cash account. If you want insurance protection only, and not a savings and investment product, buy a term life insurance policy. If you want to buy a whole life, universal life, or other cash value policy, plan to hold it for at least 15 years. Cancelling these policies after only a few years can more than double your life insurance costs. Check the National Association of insurance Commissioners website (www.naic.org/cis) or your local library for information on the financial soundness of insurance companies.
HISTORY OF LIFE INSURANCE
Risk protection has been a primary goal of humans and institutions throughout history. Protecting against risk is what insurance is all about. Over 5000 years ago, in China, insurance was seen as a preventative measure against piracy on the sea. Piracy, in fact, was so prevalent, that as a way of spreading the risk, a number of ships would carry a portion of another ship's cargo so that if one ship was captured, the entire shipment would not be lost. In another part of the world, nearly 4,500 years ago, in the ancient land of Babylonia, traders used to bear risk of the caravan trade by giving loans that had to be later repaid with interest when the goods arrived safely. In 2100 BC, the Code of Hammurabi granted legal status to the practice. It formalized concepts of “bottomry” referring to vessel bottoms and “respondentia” referring to cargo. These provided the underpinning for marine insurance contracts. Such contracts contained three elements: a loan on the vessel, cargo, or freight; an interest rate; and a surcharge to cover the possibility of loss. In effect, ship owners were the insured and lenders were the underwriters. Life insurance came about a little later in ancient Rome, where burial clubs were formed to cover the funeral expenses of its members, as well as help survivors monetarily. With Rome's fall, around 450 A.D., most of the concepts of insurance were abandoned, but aspects of it did continue through the Middle Ages, particularly with merchant and artisan guilds. These provided forms of member insurance covering risks like fire, flood, theft, disability, death,
And even imprisonment. During the feudal period, early forms of insurance ebbed with the decline of travel and longdistance trade. But during the 14th to 16th centuries, transportation, commerce, and insurance would again reemerge. Insurance in India can be traced back to the Vedas. For instance, yogakshema, the name of Life Insurance Corporation of India's corporate headquarters, is derived from the Rig Veda. The term suggests that a form of "community insurance" was prevalent around 1000 BC and practiced by the Aryans. Similar to ancient Rome, burial societies were formed in the Buddhist period to help families build houses, and to protect widows and children.
Illegal almost everywhere else in Europe, life insurance in England was vigorously promoted in the three decades following the Glorious Revolution of 1688. The type of insurance we see today owes it's roots to 17th century England. Lloyd's of London, or as they were known then, Lloyd's Coffee House, was the location where merchants, ship owners and underwriters met to discuss and transact business deals. While serving as a means of risk-avoidance, life insurance also appealed strongly to the gambling instincts of England's burgeoning middle class. Gambling was so rampant, in fact, that when newspapers published names of prominent people who were seriously ill, bets were placed at Lloyd‟s on their anticipated dates of death. Reacting against such practices, 79 merchant underwriters broke away in 1769 and two years later formed a “New Lloyd‟s Coffee House” that became known as the “real Lloyd‟s.” Making wagers on people's deaths ceased in 1774 when parliament forbade the practice
Insurance moves to America
The U.S. insurance industry was built on the British model. The year 1735 saw the birth of the first insurance company in the American colonies in Charleston, SC. The Presbyterian Synod of Philadelphia in 1759, sponsored the first life insurance corporation in America for the benefit of ministers and their dependents. And the first life insurance policy for the general public in the United States was issued, in Philadelphia, on May 22, 1761.
But it wasn't until 80 years later (after 1840), that life insurance really took off in a big way. The key to its success was reducing the opposition from religious groups. In 1835, the infamous New York fire drew people's attention to the need to provide for sudden and large losses. Two years later, Massachusetts became the first state to require companies by law to maintain such reserves. The great Chicago fire of 1871 further emphasized how fires can cause huge losses in densely populated modern cities. The practice of reinsurance, wherein the risks are spread among several companies, was devised specifically for such situations. With the creation of the automobile, public liability insurance, which first made its appearance in the 1880s, gained importance and acceptance? More advancement was made to insurance during the process of industrialization. In 1897, the British government passed the Workmen's Compensation Act, which made it mandatory for a company to insure its employees against industrial accidents. During the 19th century, many societies were founded to insure the life and health of their members, while fraternal orders provided low-cost, members only insurance. Even today, such fraternal orders continue to provide insurance coverage to members, as do most labor organizations. Many employers sponsor group insurance policies for their employees, providing not just life insurance, but sickness and accident benefits and old-age pensions. Employees contribute a certain percentage of the premium for these policies.
Even though the American insurance industry was greatly influenced by Britain, the US market developed somewhat differently from that of the United Kingdom. Contributing to that was America's size; land diversity and the overwhelming desire to be independent. As America moved from a colonial outpost to an independent force, from a farming country to an 21 industrial nation, the insurance business developed from a small number of companies to a large industry. Insurance became more sophisticated, offering new types of coverage and diversified services for an increasingly complex country.
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