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Chapter 16

Insurance

Indian Financial System, 5e

By: Bharati V. Pathak
 Chapter Objectives

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To understand:
1. Meaning and principles of insurance
2. Opening up of the insurance sector in India
3. Insurance Regulatory and Development Authority
4. Health insurance
5. Insurance intermediaries
6. Risk management in insurance
7. General insurance
8. Reinsurance
9. Micro insurance
10. General Insurance Corporation of India
11. Non-life insurance sector
12. Life insurance
13. Life Insurance Corporation of India
14. Life insurance industry
Indian Financial System, 5e
By: Bharati V. Pathak
 Insurance

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Meaning
Insurance may be described as a social device to
reduce or eliminate risk of loss to life and
property.
Insurance involves four aspects
 An asset
 The risk insured against
 The principle of pooling
 The contract

Indian Financial System, 5e

By: Bharati V. Pathak
 Principles of Insurance

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 Principle of ‘uberrima fides’ or principle of utmost
good faith.
 Principle of indemnity.
 Doctrine of subrogation.
 Principle of causa proxima.
 Principle of insurable interest

Indian Financial System, 5e

By: Bharati V. Pathak
 Opening of the Insurance Sector

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 The insurance industry till August 2000 had only
two nationalized players:
 Life Insurance Corporation (LIC)
 General Insurance Corporation (GIC) and its
four subsidiaries.
 Recognizing the global trend of competitive,
market-driven insurance industry and the
recommendations of the Malhotra Committee, the
insurance industry was opened up in August 2000.
 There are at present 24 life insurance and 31
general insurance companies operating in India
with more players expected to come in.
Indian Financial System, 5e
By: Bharati V. Pathak
The Insurance Industry

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Indian Financial System, 5e
By: Bharati V. Pathak
 Insurance Regulatory and
Development Authority

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 The IRDA was constituted as an autonomous body to
regulate and develop the business of insurance and
reinsurance in India.
 The IRDA was set up in 1996 but it was formally
constituted as a regulator of the insurance industry in
April 2000.
 The objectives of the IRDA are twofold: policyholder
protection and healthy growth of the insurance market.
 Duties of IRDA
 To regulate and develop the insurance and
reinsurance business.

Indian Financial System, 5e

By: Bharati V. Pathak
Policy Holder’s Grievances
Redressal System

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Indian Financial System, 5e
By: Bharati V. Pathak
 Insurance Intermediaries

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 Agents
 Surveyors and Loss Assessors
 Brokers
 Third Party Administrators
 Ban assurance
 Insurance Marketing Firms
 Insurance Web Aggregators
 Point of Sales Person
 Common Service Centre – Special Purpose Vehicle(CSC-
SPV)
 Insurance Repository
Indian Financial System, 5e
By: Bharati V. Pathak
Risk Management

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Risks in Insurance Business
 portfolio
 solvency
 marketing
 market
 operational

Indian Financial System, 5e

By: Bharati V. Pathak
 General Insurance

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 General or non-life insurance is insurance for a period of
one year.
 There are four nationalized and nine private sector general
insurance companies.
 The government notified the General Insurance Corporation
of India (GIC) as an Indian reinsurer in November 2000.
 The four public sector companies are:
 The Oriental Insurance Company Limited
 The New India Assurance Company Limited
 The National Insurance Company Limited
 The United India Insurance Company Limited.

Indian Financial System, 5e

By: Bharati V. Pathak
 Crop Insurance

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 Hybrid of open National Crop Insurance Programme
(NCIP)
 PRADHAN MANTRI FASAL BIMA YO JANA (PMFBY)
 Weather Based Crop Insurance Scheme (WBCIS)

Indian Financial System, 5e

By: Bharati V. Pathak
General Insurance Products

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 Fire Insurance
 Motor Insurance
 Marine Cargo Insurance
 Marine Hull Insurance
 Non-traditional/Rural

Indian Financial System, 5e

By: Bharati V. Pathak
Pattern of Investments

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Indian Financial System, 5e
By: Bharati V. Pathak
 Health Insurance

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The effecting of contracts which provide sickness
benefits or medical, surgical, or hospital expense
benefits, whether in-patient or out-patient, on an
indemnity, reimbursement, service, prepaid,
hospital or other plans basis, including assured
benefits and long-term care.

Indian Financial System, 5e

By: Bharati V. Pathak
 Health Insurance Policies

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 Standard Health
 Reimbursement and Cashless
 Floater
 Group Mediclaim
 Cancer Medical Expenses
 Health riders
 Other Health Insurance covers

Indian Financial System, 5e

By: Bharati V. Pathak
 Reinsurance

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 Reinsurance is insurance for direct insurance companies.
 This primary insurer transfers a part or all of the risks he
has insured to another insurer to reduce his own liability
(the risk that he has assumed).
 The insurers seek protection of their own risk by
reinsuring with reliable reinsurers.
 Reinsurance evolved as a natural corollary to insurance.

Indian Financial System, 5e

By: Bharati V. Pathak
Types of Reinsurance

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Indian Financial System, 5e
By: Bharati V. Pathak
 General Insurance Corporation Of
India

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 The government nationalized the general insurance
business in 1972.
 One hundred and seven insurers, including branches of
foreign companies operating in India.
 The main objectives of GIC were superintending,
controlling, and carrying on the business of general
insurance.
 GIC has turned into a full reinsurer providing
reinsurance to the direct general insurance companies
in India.

Indian Financial System, 5e

By: Bharati V. Pathak
GIC’s Organizational Structure

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Indian Financial System, 5e
By: Bharati V. Pathak
 Life Insurance

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 Life insurand the assurer, whereby, the latter for
consideration promises to pay a certain sum of
money to the former (or failing ance is a contract
between two parties, the assured him/her, to the
person entitled to receive the same) on the
happening of the event insured against.

Indian Financial System, 5e

By: Bharati V. Pathak
 Benefits of Life Insurance

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 Safeguards the insured’s family against an untimely death
and provides for a secured income;
 Is a means of compulsory savings;
 Is a source of income during old age;
 Helps in meeting certain periodic financial needs, either for a
child’s education or marriage;
 Improves the lifestyle of the insured and his family;
 Takes care of disabilities and uncertain future adversities of
life;
 Brings in tax-benefits under Section 80C of the Income Tax
Act.
Indian Financial System, 5e
By: Bharati V. Pathak
 Life Insurance Products

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 Endowment plan
 Money-back policies
 Whole-life policy
 Term insurance policy
 Unit-linked insurance policies

Indian Financial System, 5e

By: Bharati V. Pathak
 Investments

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By: Bharati V. Pathak
Indian Financial System, 5e
 Life Insurance Corporation (LIC)
Of India

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 The Life Insurance Corporation of India was set up
with the objective of spreading life insurance much
more widely and, in particular, to the rural areas
and to the socially and economically backward
classes with a view to reaching all insurable
persons in the country and providing them
adequate financial cover against death at a
reasonable cost.
Indian Financial System, 5e
By: Bharati V. Pathak
 Mission & Vision of LIC

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 Vision: A trans-nationally competitive financial
conglomerate of significance to societies and
pride of India.

 Mission: Explore and enhance the quality of life

of people through financial security by providing
products and services of aspired attributes with
competitive returns, and by rendering resources
for economic development.

Indian Financial System, 5e

By: Bharati V. Pathak
Organizational Set-up of LIC

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Indian Financial System, 5e
By: Bharati V. Pathak
LIC Subsidiaries

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 LIC has three subsidiaries
 Life Insurance Corporation (International) EC

 LIC Mutual Fund

 LIC Pension Fund

Indian Financial System, 5e

By: Bharati V. Pathak
 Micro Insurance

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 Micro insurance is provision of insurance to
poor.
 It aims at building mechanisms for insuring the
poor against various risks.
 Micro insurance is the insurance provided
through the Micro insurance products which
includes “general micro-insurance product”.

Indian Financial System, 5e

By: Bharati V. Pathak
Micro Insurance Products

"Copyright © 2018 Pearson India Education Services Pvt. Ltd".

Indian Financial System, 5e
By: Bharati V. Pathak
 Micro Insurance Distribution

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(i) Risk Identification and Assessment

(ii) Education and Awareness

(iii) Enrolment

(iv) Controlling Adverse Section and Moral Hazard

(v) Marketing

(vi) Claim Servicing

Indian Financial System, 5e

By: Bharati V. Pathak
 Social Insurance in India

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1. RKBY—Rashtriya Krishi Bima Yojana

2. RSBY—Rashtriya Swasthya Bima Yojana

3. PMJBY—Pradhan Mantri Jeevan Jyoti Bima

Yojana

4. PMSBY—Pradhan Mantri Suraksha Bima Yojana

Indian Financial System, 5e

By: Bharati V. Pathak
 Mutual Insurance

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 Mutual insurance also known as community based health
insurance is community-owned and governed, owned and
run with member participation.

 It has regular engagement with its members and is

designed for long-term financial sustainability.

 There are 15 mutual and cooperatives, across 13 states,

providing insurance services to approximately 1 million
people using risk retention or risk sharing models.

Indian Financial System, 5e

By: Bharati V. Pathak