KANPUR

FINANCIAL INSTITUTIONS AND MARKETS

TERM PAPER ON
(INSURANCE SECTOR)

SUBMITTED TO: SUBMITTED BY:

Prof. SUDHANSHU PANDIYA MBA(FC) IInd SEM.
GROUP 6th
SACHIN VERMA

ANAMIKA MISHRA

VIKAS VERMA
JITENDRA KANAUJIA

PANKAJ SINGH
 *ACKNOWLEDGEMENT*

On the event of the completion of this project, we take the opportunity to express my deep sense
of gratitude toward all those people without whose guidance, inspiration and timely help this
project would have never seen the light of day. Any accomplishment requires the efforts of many
people and this project is no different.

We find great pleasure in expressing my project guide Professor Mr. SUDHANSHU PANDIYA
whose guidance and inspiration right from the conceptualization to the finishing stage proved to
be very essential and valuable in the completion of the project. We would also like to
acknowledge for their valuable time, data and information, which they have provided. This
played a key role in the project. Lastly, we would like to thank all my classmates and friends for
their valuable suggestions and guidance for the project work.

CONTENTS
1. Introduction

2. Origin of insurance

3. Brief Overview of Insurance Industry

4. Concept of insurance

5. Insurance industry Classification

6.4Is of insurance services

7. Working of insurance

8. LIC

9. Investments of LIC in various Sectors

10. LIC products and plans

11. Major players of Life Insurance Companies

12. General Insurance Corporation

13. IRDA

14. Current trends in insurance sector

INTRODUCTION
The Government of India (GoI) opened the insurance sector to private players on October 24.
2000, thusunraveling a new chapter in this field. This new policy of GOI is an outcome of
India’s policy of
liberalization and also the result of its obligation as a signatory to the WTO to conform to its
principles and guidelines relating to the reduction of barriers to trade in services. This epoch-
making decision has ushered in a new era that has transgressed four decades of complete control
by the public sector over the insurance sector (life insurance was nationalized in 1956 by
merging 245 private insurance companies to form the life Insurance Corporation Of India (LIC),
while general insurance was nationalized with the formation of general Insurance Corporation
(GIC) in 1972). This decision of the GOI has been accompanied by a set of laws and regulations
governing this domain. Accordingly the Insurance Regulatory and Development Authority Act
1999 (The IRDA Act) was enacted with the predominant aim of setting up an autonomous body
known as the Insurance Regulatory and Development Authority (the
IRDA) to regulate, promote and ensure orderly growth of the insurance industry. The influx of
new players in both life and non-life sectors has made the insurance market a consumers
paradise. All new players are striving to introduce innovative products. Where the old players
(LIC and GIC) have a first mover advantage and have a wide spread network, the new players
are banking on their innovative products and superior services to surge them ahead. It is too soon
to say which of the new players will succeed and which of them will perish. But the opening up
of the sector is a step that will be beneficial both to the insured as well as the insurer.

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 events like theft, fire, accident, etc. Insurance is a financial service for collecting the
savings of the public and providing them with risk 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 the
Indian insurance sector reveals the 360-degree turn witnessed over a period of almost two
centuries.

BRIEF HISTORY OF THE INSURANCE SECTOR

The business of life insurance in India in its existing form started in India in the year 1818 with
the establishment of the Oriental Life Insurance Company in Calcutta. Some of the important
milestones in the life insurance business in India are:
1912: The Indian Life Assurance Companies Act enacted as the first statute to regulate the life
insurance business.
1928: The Indian Insurance Companies Act enacted to enable the government to collect
statistical information about both life and non-life insurance businesses.
1938: Earlier legislation consolidated and amended to by the Insurance Act with the objective of
protecting the interests of the insuring public.
1956: 245 Indian and foreign insurers and provident societies taken over by the central
government and nationalized. LIC formed by an Act of Parliament, viz. LIC Act, 1956, with a
capital contribution of Rs. 5 crore from the Government of India. The General insurance business
in India, on the other hand, can trace its roots to the Triton Insurance Company Ltd., the first
general insurance company established in the year 1850 in Calcutta by the British.
Some of the important milestones in the general insurance business in India are:
1907: The Indian Mercantile Insurance Ltd. set up, the first company to transact all classes of
general insurance business.
1957: General Insurance Council, a wing of the Insurance Association of India, frames a code of
conduct for ensuring fair conduct and sound business practices.
1968: The Insurance Act amended to regulate investments and set minimum solvency margins
and the Tariff Advisory Committee set up.
1972: The General Insurance Business (Nationalization) Act, 1972 nationalized the general
insurance business in India with effect from 1st January 1973. 107 insurers amalgamated 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 incorporated as a company.

INSURANCE SECTOR
The opening up of Insurance sector was a part of the on going liberalization in the financial
sector 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 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 in India. The IRDA (Insurance Regulatory Development 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 where enormous business potential exists. In
India currently the life insurance premium as a percentage of GDP is 1.3 % against, 5.2 per cent
in 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 Insurance Corporation (GIC) and its four subsidiaries viz.
New India Insurance, Oriental Insurance, National Insurance and United India Insurance, are
doing major business. The General Insurance Industry has been growing at a rate of 19 percent
per year.
The entry of several private insurance companies, particularly international insurance companies,
through joint ventures, will speed up the process of insurance mobilization. The competition will
unleash new schemes and benefits, which will give consumers 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 sector a perfectly competitive one. Insurance Regulatory Authority of India issued
regulations on 15 subjects which included appointed. Actuary, actuarial report, Insurance agents,
solvency margins, reinsurance registration of Insurers, and 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 customer services etc. Also the employment opportunities in the Insurance sector wil1
increase as major players set their business plans in India. The policy of the government to open
up the financial sector and the Insurance sector is expected to bring greater FDI inflow into the
country. The increase in the investment limit in this vital sector has generated considerable
business interests among the foreign Insurance companies" Their entry wil1 certainly change the
Insurance sector considerably.

THE CONCEPT OF INSURANCE

"Insurance is a contract between two parties whereby one party called insurer undertakes 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 happening of an unexpected event.
Insurance companies collect premiums to provide 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, 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 suffered by a few are
spread over 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 financial losses of the
group. Risk inhibitsaction 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, insurance provides utility even if no loss ever occurs.
Some people believe insurance is similar to gambling or opening a savings account. Neither is
true. When you place a bet, you create a risk and you have the chance of losing all or making
more than your wager. Insurance companies write policies for pure not speculative risks and
indemnify you when you have a covered loss. In the insurance industry, the word "indemnify"
means you cannot be put in a better position than you were before the loss. The definition of
insurance can be made from two points:

 Functional definition.
 Contractual definition.
FUNCTIONAL DEFINITION
Insurance is a co-operative device to spread the loss caused by a particular risk over a number of
persons who are exposed to it and who agree to insure themselves against the risk.

GENERAL DEFINITION
Insurance has been defined to be that in which a sum of money as a premium is paid in
consideration of the insurer’s incurring the risk of paying a large sum upon a given contingency.
In the words of John Magee, “Insurance is a plan by themselves which large number of people
associate and transfer to the shoulders of all, risks that attach to individuals.”

FUNDAMENTAL DEFINITION
In the words of D.S. Hansell, “Insurance accumulated contributions of all parties participating in
the scheme.”

CONTRACTUAL DEFINITION
In the words of justice Tindall, “Insurance is a contract in which a sum of money is paid to the
assured as consideration of insurer’s incurring the risk of paying a large sum upon a given
contingency.”
 BASIC INSURANCE TERMINOLOGIES

Insured
The person known as the policyholder, a person with insurance coverage.
Insurer
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
responsibilities of the insured.
Premium
It's the amount of money a policyholder pays for insurance protection.
Claim
It's the notice to the insurance company that under the terms of a 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 approximately the same financial position as existed before the
loss.
Agent
A licensed person or organization who sells insurance and represents the insurance company to
the policyholder.
Broker
An organization or person paid by the policy holder to look for insurance on their behalf.
Deductible
It's the amount of the loss which the insured is responsible to pay before the insurance company
pays the benefits.

Expiration Date
This is the date on which the policy ends.
Grace Period
A period (usually 30 or 31 days) following each insurance premium due date, other than the first
due date, during which an overdue premium may be paid. All provisions of the policy remain in
force throughout this period.
Limit
It's the maximum amount paid by the insurance company under the terms of a policy.
Underwriting
The process of classifying applicants for insurance by identifying characteristics such as age,
gender, health, occupation and hobbies. People with similar characteristics are grouped together
and are charged a premium based on the group's level of risk.

INSURANCE INDUSTRY CLASSIFICATION

Insurance has been classified into:
Life Insurance
General Insurance or Non-Life insurance

LIFE INSURANCE
Life insurance is a written contract between the insured and the insurer, that provides for the
payment of the insured sum on the date of the maturity of the contract or on the unfortunate
death of the insured, whichever occurs earlier.

NON LIFE INSURANCE

General insurance or non-life insurance policies, including automobile and homeowners
policies, provide payments depending on the loss from a particular financial event. General
insurance typically comprises any insurance that is not determined to be life insurance.

There are various broad categories of non-life or general Insurance as follows:

HEALTH INSURANCE:
Just like one looks to safeguard ones wealth, these policies ensure guarding the insurer's health
against any calamities that may cause long term harm to one’s life and even hamper ones earning
ability for a
lifetime. Some examples of this type of policy are mediclaim policy, personal accident, group
accident, traffic accident, etc.

AUTOMOBILE INSURANCE:
Auto Policy is required to be taken to cover the risks that arise to the owner, vehicle and third
party. This includes the Compulsory Vehicle Policy (In India, by the Motor Vehicles Act, every
car owner is required
to covered against Act risks) and the Comprehensive Vehicle Policy.

FIRE INSURANCE:
This policy is required to be taken to prevent any loss of profits property from incidental fire.
Eg: fire insurance and fire consequential loss policy.

4 I’S OF INSURANCE SERVICE

The 4 I’s refers to the different dimensions/ characteristics of any service. Unlike pure product,
services have its own characteristics and its related problems. So the service provider needs to
deal with these problems accordingly. The service provider has to design different strategies
according the varying feature of the service. These 4 I’s not only represent the characteristics of
different services but also the problems and advantages attached to it.
These 4 I’s can be broadly classified as:

• Intangibility
• Inconsistency
• Inseparability
• Inventory

 INTANGIBILITY:
Insurance is a guarantee against risk and neither the risk nor the guarantee is tangible. Hence,
insurance rightly come under services, which are intangible. Efforts have been made by the
insurance companies to make insurance tangible to some extent by including letters and forms.

 INCONSISTENCY
Service quality is often inconsistent. This is because service personnel have different capabilities,
which vary in performance from day to day. This problem of inconsistency in service quality can
be reduced through standardization, training and mechanization.

 INSEPARABILITY
Services are produced and consumed simultaneously. Consumers cannot and do not separate the
deliverer of the service from the service itself. Interaction between consumer and the service
provider varies based on whether consumer must be physically present to receive the service.

 INVENTORY
No inventory can be maintained for services. Inventory carrying costs are more subjective and
lead to idle production capacity. When the service is available but there is no demand, cost rises
as, cost of paying the people and overhead remains constant even though the people are not
required to provide services due to lack of demand. In the insurance sector however, commission
is paid to the agents on each policy that they sell. Hence, not much inventory cost is wasted on
idle inventory. As the cost of agents is directly proportionate to the policy sold.

WORKING OF INSURANCE

MAJOR PLAYERS OF LIFE INSURANCE COMPANIES

Sl. No. Insurers Foreign Partners Regn. Date of Year of
No. Registration Operation

1. HDFC Standard Life Standard Life 101 23.10.2000 2000-01

Insurance Co. Ltd. Assurance, UK

2. Max New York Life New York Life, 104 15.11.2000 2000-01
Insurance Co. Ltd. USA

3. ICICI-Prudential Life Prudential , UK 105 24.11.2000 2000-01

Insurance Co. Ltd.

4. Om Kotak Life Old Mutual, South 107 10.01.2001 2001-02

Insurance Co. Ltd. Africa

5. Birla Sun Life Sun Life, Canada 109 31.01.2001 2000-01

Insurance Co. Ltd.

6. Tata-AIG Life American 110 12.02.2001 2000-01

Insurance Co. Ltd. International
Assurance Co.,
USA

7. SBI Life Insurance BNP Paribas 111 29.03.2001 2001-02

Co. Ltd. Assurance SA,
France

8. ING Vysya Life ING Insurance 114 02.08.2001 2001-02

Insurance Co. Ltd. International B.V.,
Netherlands

9. Allianz Bajaj Life Allianz, Germany 116 03.08.2001 2001-02

Insurance Co. Ltd.

10. Metlife India Metlife 117 06.08.2001 2001-02

Insurance Co. Ltd. International
Sl. No. Insurers Foreign Partners Regn. Date of Year of
No. Registration Operation

Holdings Ltd.,
USA

11. Reliance Life --- 121 03.01.2002 2001-02

Insurance Co. Ltd.
(Earlier AMP
Sanmar Life
Insurance Co. from
3.1.2002 to
29.9.2005)

12. AVIVA Aviva International 122 14.05.2002 2002-03

Holdings Ltd., UK

13. Sahara Life --- 127 06.02.2004 2004-05

Insurance Co. Ltd.

14. Shriram Life Sanlam, South 128 17.11.2005 2005-06

Insurance Co. Ltd. Africa

15. Bharti AXA Life AXA Holdings, 130 14.07.2006 2006-07

Insurance Co. Ltd. France

16. Future Generali India Generali, Italy 133 04.09.2007 2007-08

Life Insurance
Company Ltd.

17. IDBI Fortis Life Fortis, Netherlands 135 19.12.2007 2007-08

Insurance Company
Ltd.

18. Canara HSBC OBC HSBC, UK 136 08.05.2008 2008-09

Sl. No. Insurers Foreign Partners Regn. Date of Year of
No. Registration Operation

Life Insurance
Company Ltd.

19. AegonReligare Life Religare, 138 27.06.2008 2008-09

Insurance Company Netherlands
Ltd.

20. DLF Pramerica Life Prudential of 140 27.06.2008 2008-09

Insurance Co. Ltd. America, USA

21. Star Union Dai-ichi Dai-ichi Mutual 142 26.12.2008 2008-09

Life Insurance,
Japan

22. IndiaFirst life Legal & General 143 05.11.2009 2009-10

insurance company Middle East
Limited, UK

23. Life Insurance --- 512 01.09.1956 1956-57

Corporation of India

LIC OF INDIA

Life Insurance Corporation of India (LIC) was formed in September 1956 by an Act of
Parliament, LIC Act 1956 with a contribution of Rs. 50 million.

The then Finance Minister Mr. C. D. Deshmukh while piloting the bill for nationalization
outlined the objectives of LIC thus:

“To conduct the business with utmost economy with the spirit of trusteeship; to charge
premium no higher than warranted by strict actuarial considerations; to invest the funds
 for obtaining maximum yield for the policy holders consistent with safety of capital; to
render prompt and efficient service to policy holders thereby making Insurance widely
popular”.

Presently the LIC has a network of seven zones; 100 divisions and 2,048 branches, personnel
exceed seven lakhs employees and over six lakhs agents.

Vision: A trans-nationally competitive financial conglomerate of significance to societies and

Pride of India.

Mission: To explore and enhance the quality of the life of people through financial security by
providing products and services of aspired attributes with competitive returns and by
rendering resources for economic development.

Values: Caring and Courtesy, Initiatives and Innovation, Integrity and Transparency, Quality
and Returns, Participation and Relationship, and Trustworthiness and Reliability

Culture: Agility (quickness), Adaptability, Collaboration, Commitment, Discipline,

Empowerment, Sensitivity, and Excellence.

OBJECTIVES

• Spread Life Insurance widely and in particular to the rural areas.

• Maximise mobilization of people’s savings by making insurance-linked savings
adequately attractive.
• Deployment of funds to the best of advantage of the investors as well as the
community as whole, keeping in view national priorities and obligations of
attractive return.
• Conduct of business at most economy and with the full realisation that the money
belongs to the policyholders.
• Act as trustee of the insured public in their individual and collective capacities.
• Meet the various life insurance needs of the community that would arise in the
changing social and economic environment.
• Involve all people working in the Corporation to the best of their capability in
furthering the interests of public by providing efficient service with courtesy.
• Promote amongst all agents and employees of the Corporation a sense of
participation, pride and job satisfaction through discharge of their duties with
dedication towards achievement of Corporate Objectives.
 PRINCIPLES AND INVESTMENT POLICY OF LIC’s

 Security of funds, and

 Maximization of return of investment,

INVESTMENT POLICY

1. Central Govt. marketable securities being not less than 20%

2. Loans to Housing Bank including above (1) being not less than 25%

3. State Govt. securities including Govt. Guaranteed marketable securities, inclusive of

(2) above being not less than 50%

4. Socially oriented sectors including public sector, co-operative sector house building
by policyholders, own house scheme, inclusive of (3) above not less than 75%

5. Private corporate sector, loans to policyholders for construction and acquisition of

immovable property 25%
 PRINCIPLES AND INVESTMENT POLICY OF LIC’s

 Security of funds, and

 Maximization of return of investment,

INVESTMENT POLICY

1. Central Govt. marketable securities being not less than 20%

2. Loans to Housing Bank including above (1) being not less than 25%

3. State Govt. securities including Govt. Guaranteed marketable securities, inclusive of

(2) above being not less than 50%

4. Socially oriented sectors including public sector, co-operative sector house building
by policyholders, own house scheme, inclusive of (3) above not less than 75%

5. Private corporate sector, loans to policyholders for construction and acquisition of

immovable property 25%
 PRINCIPLES AND INVESTMENT POLICY OF LIC’s

 Security of funds, and

 Maximization of return of investment,

INVESTMENT POLICY

1. Central Govt. marketable securities being not less than 20%

2. Loans to Housing Bank including above (1) being not less than 25%

3. State Govt. securities including Govt. Guaranteed marketable securities, inclusive of

(2) above being not less than 50%

4. Socially oriented sectors including public sector, co-operative sector house building
by policyholders, own house scheme, inclusive of (3) above not less than 75%

5. Private corporate sector, loans to policyholders for construction and acquisition of

immovable property 25%
 PRINCIPLES AND INVESTMENT POLICY OF LIC’s

 Security of funds, and

 Maximization of return of investment,

INVESTMENT POLICY

1. Central Govt. marketable securities being not less than 20%

2. Loans to Housing Bank including above (1) being not less than 25%

3. State Govt. securities including Govt. Guaranteed marketable securities, inclusive of

(2) above being not less than 50%

4. Socially oriented sectors including public sector, co-operative sector house building
by policyholders, own house scheme, inclusive of (3) above not less than 75%

5. Private corporate sector, loans to policyholders for construction and acquisition of

immovable property 25%
 PRINCIPLES AND INVESTMENT POLICY OF LIC’s

 Security of funds, and

 Maximization of return of investment,

INVESTMENT POLICY

1. Central Govt. marketable securities being not less than 20%

2. Loans to Housing Bank including above (1) being not less than 25%

3. State Govt. securities including Govt. Guaranteed marketable securities, inclusive of

(2) above being not less than 50%

4. Socially oriented sectors including public sector, co-operative sector house building
by policyholders, own house scheme, inclusive of (3) above not less than 75%

5. Private corporate sector, loans to policyholders for construction and acquisition of

immovable property 25%
 PRINCIPLES AND INVESTMENT POLICY OF LIC’s

 Security of funds, and

 Maximization of return of investment,

INVESTMENT POLICY

1. Central Govt. marketable securities being not less than 20%

2. Loans to Housing Bank including above (1) being not less than 25%

3. State Govt. securities including Govt. Guaranteed marketable securities, inclusive of

(2) above being not less than 50%

4. Socially oriented sectors including public sector, co-operative sector house building
by policyholders, own house scheme, inclusive of (3) above not less than 75%

5. Private corporate sector, loans to policyholders for construction and acquisition of

immovable property 25%
 PRINCIPLES AND INVESTMENT POLICY OF LIC’s

 Security of funds, and

 Maximization of return of investment,

INVESTMENT POLICY

1. Central Govt. marketable securities being not less than 20%

2. Loans to Housing Bank including above (1) being not less than 25%

3. State Govt. securities including Govt. Guaranteed marketable securities, inclusive of

(2) above being not less than 50%

4. Socially oriented sectors including public sector, co-operative sector house building
by policyholders, own house scheme, inclusive of (3) above not less than 75%

5. Private corporate sector, loans to policyholders for construction and acquisition of

immovable property 25%
 PRINCIPLES AND INVESTMENT POLICY OF LIC’s

 Security of funds, and

 Maximization of return of investment,

INVESTMENT POLICY

1. Central Govt. marketable securities being not less than 20%

2. Loans to Housing Bank including above (1) being not less than 25%

3. State Govt. securities including Govt. Guaranteed marketable securities, inclusive of

(2) above being not less than 50%

4. Socially oriented sectors including public sector, co-operative sector house building
by policyholders, own house scheme, inclusive of (3) above not less than 75%

5. Private corporate sector, loans to policyholders for construction and acquisition of

immovable property 25%
 PRINCIPLES AND INVESTMENT POLICY OF LIC’s

 Security of funds, and

 Maximization of return of investment,

INVESTMENT POLICY

1. Central Govt. marketable securities being not less than 20%

2. Loans to Housing Bank including above (1) being not less than 25%

3. State Govt. securities including Govt. Guaranteed marketable securities, inclusive of

(2) above being not less than 50%

4. Socially oriented sectors including public sector, co-operative sector house building
by policyholders, own house scheme, inclusive of (3) above not less than 75%

5. Private corporate sector, loans to policyholders for construction and acquisition of

immovable property 25%
 PRINCIPLES AND INVESTMENT POLICY OF LIC’s

 Security of funds, and

 Maximization of return of investment,

INVESTMENT POLICY

1. Central Govt. marketable securities being not less than 20%

2. Loans to Housing Bank including above (1) being not less than 25%

3. State Govt. securities including Govt. Guaranteed marketable securities, inclusive of

(2) above being not less than 50%

4. Socially oriented sectors including public sector, co-operative sector house building
by policyholders, own house scheme, inclusive of (3) above not less than 75%

5. Private corporate sector, loans to policyholders for construction and acquisition of

immovable property 25%
 PRINCIPLES AND INVESTMENT POLICY OF LIC’s

 Security of funds, and

 Maximization of return of investment,

INVESTMENT POLICY

1. Central Govt. marketable securities being not less than 20%

2. Loans to Housing Bank including above (1) being not less than 25%

3. State Govt. securities including Govt. Guaranteed marketable securities, inclusive of

(2) above being not less than 50%

4. Socially oriented sectors including public sector, co-operative sector house building
by policyholders, own house scheme, inclusive of (3) above not less than 75%

5. Private corporate sector, loans to policyholders for construction and acquisition of

immovable property 25%
 PRINCIPLES AND INVESTMENT POLICY OF LIC’s

 Security of funds, and

 Maximization of return of investment,

INVESTMENT POLICY

1. Central Govt. marketable securities being not less than 20%

2. Loans to Housing Bank including above (1) being not less than 25%

3. State Govt. securities including Govt. Guaranteed marketable securities, inclusive of

(2) above being not less than 50%

4. Socially oriented sectors including public sector, co-operative sector house building
by policyholders, own house scheme, inclusive of (3) above not less than 75%

5. Private corporate sector, loans to policyholders for construction and acquisition of

immovable property 25%
 PRINCIPLES AND INVESTMENT POLICY OF LIC’s

 Security of funds, and

 Maximization of return of investment,

INVESTMENT POLICY

1. Central Govt. marketable securities being not less than 20%

2. Loans to Housing Bank including above (1) being not less than 25%

3. State Govt. securities including Govt. Guaranteed marketable securities, inclusive of

(2) above being not less than 50%

4. Socially oriented sectors including public sector, co-operative sector house building
by policyholders, own house scheme, inclusive of (3) above not less than 75%

5. Private corporate sector, loans to policyholders for construction and acquisition of

immovable property 25%
 PRINCIPLES AND INVESTMENT POLICY OF LIC’s

 Security of funds, and

 Maximization of return of investment,

INVESTMENT POLICY

1. Central Govt. marketable securities being not less than 20%

2. Loans to Housing Bank including above (1) being not less than 25%

3. State Govt. securities including Govt. Guaranteed marketable securities, inclusive of

(2) above being not less than 50%

4. Socially oriented sectors including public sector, co-operative sector house building
by policyholders, own house scheme, inclusive of (3) above not less than 75%

5. Private corporate sector, loans to policyholders for construction and acquisition of

immovable property 25%
 PRINCIPLES AND INVESTMENT POLICY OF LIC’s

 Security of funds, and

 Maximization of return of investment,

INVESTMENT POLICY

1. Central Govt. marketable securities being not less than 20%

2. Loans to Housing Bank including above (1) being not less than 25%

3. State Govt. securities including Govt. Guaranteed marketable securities, inclusive of

(2) above being not less than 50%

4. Socially oriented sectors including public sector, co-operative sector house building
by policyholders, own house scheme, inclusive of (3) above not less than 75%

5. Private corporate sector, loans to policyholders for construction and acquisition of

immovable property 25%
 PRINCIPLES AND INVESTMENT POLICY OF LIC’s

 Security of funds, and

 Maximization of return of investment,

INVESTMENT POLICY

1. Central Govt. marketable securities being not less than 20%

2. Loans to Housing Bank including above (1) being not less than 25%

3. State Govt. securities including Govt. Guaranteed marketable securities, inclusive of

(2) above being not less than 50%

4. Socially oriented sectors including public sector, co-operative sector house building
by policyholders, own house scheme, inclusive of (3) above not less than 75%

5. Private corporate sector, loans to policyholders for construction and acquisition of

immovable property 25%
 PRINCIPLES AND INVESTMENT POLICY OF LIC’s

 Security of funds, and

 Maximization of return of investment,

INVESTMENT POLICY

1. Central Govt. marketable securities being not less than 20%

2. Loans to Housing Bank including above (1) being not less than 25%

3. State Govt. securities including Govt. Guaranteed marketable securities, inclusive of

(2) above being not less than 50%

4. Socially oriented sectors including public sector, co-operative sector house building
by policyholders, own house scheme, inclusive of (3) above not less than 75%

5. Private corporate sector, loans to policyholders for construction and acquisition of

immovable property 25%
 PRINCIPLES AND INVESTMENT POLICY OF LIC’s

 Security of funds, and

 Maximization of return of investment,

INVESTMENT POLICY

1. Central Govt. marketable securities being not less than 20%

2. Loans to Housing Bank including above (1) being not less than 25%

3. State Govt. securities including Govt. Guaranteed marketable securities, inclusive of

(2) above being not less than 50%

4. Socially oriented sectors including public sector, co-operative sector house building
by policyholders, own house scheme, inclusive of (3) above not less than 75%

5. Private corporate sector, loans to policyholders for construction and acquisition of

immovable property 25%
 PRINCIPLES AND INVESTMENT POLICY OF LIC’s

 Security of funds, and

 Maximization of return of investment,

INVESTMENT POLICY

1. Central Govt. marketable securities being not less than 20%

2. Loans to Housing Bank including above (1) being not less than 25%

3. State Govt. securities including Govt. Guaranteed marketable securities, inclusive of

(2) above being not less than 50%

4. Socially oriented sectors including public sector, co-operative sector house building
by policyholders, own house scheme, inclusive of (3) above not less than 75%

5. Private corporate sector, loans to policyholders for construction and acquisition of

immovable property 25%
 PRINCIPLES AND INVESTMENT POLICY OF LIC’s

 Security of funds, and

 Maximization of return of investment,

INVESTMENT POLICY

1. Central Govt. marketable securities being not less than 20%

2. Loans to Housing Bank including above (1) being not less than 25%

3. State Govt. securities including Govt. Guaranteed marketable securities, inclusive of

(2) above being not less than 50%

4. Socially oriented sectors including public sector, co-operative sector house building
by policyholders, own house scheme, inclusive of (3) above not less than 75%

5. Private corporate sector, loans to policyholders for construction and acquisition of

immovable property 25%
 PRINCIPLES AND INVESTMENT POLICY OF LIC’s

 Security of funds, and

 Maximization of return of investment,

INVESTMENT POLICY

1. Central Govt. marketable securities being not less than 20%

2. Loans to Housing Bank including above (1) being not less than 25%

3. State Govt. securities including Govt. Guaranteed marketable securities, inclusive of

(2) above being not less than 50%

4. Socially oriented sectors including public sector, co-operative sector house building
by policyholders, own house scheme, inclusive of (3) above not less than 75%

5. Private corporate sector, loans to policyholders for construction and acquisition of

immovable property 25%
LIC PRODUCTS contd…
TOTAL INVESTMENT OF LIC IN INFRASTRUCTURE
TOTAL INVESTMENT OF LIC IN VARIOUS SECTORS
 GENERAL INSURANCE CORPORATION OF INDIA (GIC)

The General Insurance business in India was nationalized with effect from 1.1.1973 by the
General Insurance Business (Nationalization) Act, 1972 and a Government company known as
General Insurance Corporation of India was formed. 107 Indian and foreign insurers which were
operating in the country prior to nationalization, were grouped into four operating companies
namely

1. National Insurance Company Ltd.

2. Oriental Insurance Company Ltd.
3. New India Assurance Company Ltd.
4. United India Insurance Company Ltd.

The Government of India subscribed to the capital of GIC. GIC, in turn, subscribed to the capital
of the above four companies. All the four companies are government companies registered under
the Companies Act.
All the above four subsidiaries of GIC operate all over the country competing with one another
and underwriting various classes of general insurance business except for aviation insurance of
national airlines and crop insurance which is handled by the GIC
GIC and its subsidiaries have representation either directly or through branches in 18 countries
and through associate/ locally incorporated subsidiaries in 14 other countries. A subsidiary
company of GIC India International Pvt. Ltd. is operating in Singapore and their joint venture
company, Kenindia Assurance Company Ltd. in Kenya. On the whole, the foreign operations of
the general insurance industry have been profitable.
GIC was converted into India's national reinsurer from December, 2000 and all the subsidiaries
working under the GIC umbrella were restructured as independent insurance companies. Indian
Parliament has cleared a Bill on July 30,2002 delinking the four subsidiaries from GIC. A
separate Bill has been approved by Parliament to allow brokers, cooperatives and intermediaries
in the sector.
Currently insurance companies- both private and public has to cede 20 percent of its reinsurance
with GIC. GIC is planning to increase reinsurance premium by 20 percent which works out at
Rs. 3000 cr. GIC is actively considering entry into overseas markets including West Asia, South-
east Asia and SAARC region.

TYPES AND STRUCTURE OF BUSINESS

General insurance policies are not financial claims.

There is no guarantee of renewal of policy on the same terms or on any terms.
The contract is short-term contract.
The general insurance companies do not collect savings.
Policy claims are unpredictable.
Assets are held in relatively liquid form.
GIC meets the requirements of industrial, manufacturing, commercial, services, household, and
agricultural sectors through wide range of 115 products, granting insurance coverage.
GIC has been promoting insurance cover in the field of livestock, poultry, sericulture,
horticulture, pump sets, and personal accidents.

Classification of General Insurance Business

Marine, (relatively less importance to India)
Fire, (Major business but its share is coming down) and
Miscellaneous(grown substantially) theft, loss, damage, etc.
Other Policies (non-traditional schemes)
Manages Comprehensive Crop Insurance Scheme introduced by the Central Govt. in 1985.

INVESTMENT POLICY OF GIC

Central Govt. securities being not less than 20%

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%
 REGULATORY AUTHORITY

INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY

IRDA is formed as an authority to protect the interests of holders of insurance policies, to

regulate, promote and ensure orderly growth of the insurance industry. With the Insurance
Regulatory and Development Act, the focus shifted to the following:

 The Insurance Regulatory and Development Authority (IRDA) should give priority to
health insurance while issuing certificates of registration
 Policyholders' funds will be invested in the social sector and infrastructure. The
percentage may be specified by the IRDA and such regulations will apply to all insurers
operating in the country;
 Insurers will be expected to undertake a certain percentage of business in the rural or
social sector and provide policies to persons residing in rural areas, workers in the
unorganized and informal economically back;
 In case the insurers fail to meet the social sector obligation a fine of Rs.2.5 mn would be
imposed the first time. Subsequent failures would result in cancellation of licenses.

DUTIES, POWERS AND FUNCTIONS OF IRDA

The following are the powers and the functions of the IRDA are as follows:

(a)The IRDA issues, modifies, renews, suspends, withdraws and cancels all certificate of
registration for all parties that apply.
(b)They are also responsible for the protection of the interests of the policy holders in matters
concerning assigning of policy, nomination by policy holders, insurable interest, settlement of
insurance claim, surrender value of policy and other terms and conditions of contracts of
insurance.
(c) The IRDA specifies requisite qualifications, code of conduct and practical training for
intermediary or insurance intermediaries and agents.
(d)It also specifies the code of conduct for surveyors and loss assessors.
(e)The IRDA has been given the responsibility of promoting efficiency in the conduct of
insurance business.
(f) It is in charge of promoting and regulating professional organizations connected with the
insurance and reinsurance business;
(g) It has been entrusted with the control of the Insurance sector by calling for information from,
undertaking inspection of, conducting inquires and investigations including audit of the insurers,
intermediaries, insurance intermediaries and other organizations connected with the insurance
business;
(h)It will also be responsible for the control and regulation of the rates, advantages, terms and
conditions that may be offered by insurers.
(i) The IRDA will specify the form and manner in which books of account shall be maintained
and statement of accounts shall be rendered by insurers and other insurance intermediaries.

(j) One of the most important functions is that of regulating investment of funds by insurance
companies and the maintenance of margin of solvency.
(k)The other function is that of adjudication of disputes between insurers and intermediaries or
insurance intermediaries.
 CURRENT TRENDS IN INSURANCE SECTOR

India's insurance sector is zooming to show an unprecedented progressive growth of more than
200% by the period of 2009-10. The Associated Chambers of Commerce and Industry of India
has 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 of the aggressive marketing techniques in
comparison of the growth rate of 35 per cent-40 per cent achieved by the state owned insurance
companies. The chamber is expected to poise the business of insurance to reach at Rs.2000
billion 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 declination has been witnessed in
respect of the share of the state owned insurance companies captured in the market. The market
share fallout has been noticed in context of such companies like GIC, LIC, which have come
down to nearly 70 per cent in the past 4-5 years from the 97 per cent. The experts have fore
casted 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 per
cent. Insurance in India is put under the federal subject and is governed by the Insurance Act,
1938, the Life Insurance Corporation Act, 1956 and General Insurance Business(Nationalization)
Act, 1972, Insurance Regulatory and Development Authority(IRDA) Act, 1999 and by various
otheracts.

The roots of the insurance sector can be tracked down in the year 1818 in the formation of the
life insurance Corporation in Calcutta. The idea was to provide means to the English widows.
During that time different premiums were charged for the Indian and English people lives. In
1870, the Bombay Mutual Life Insurance Society started its insurance business and it charged
the 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 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 monopoly
corporation. It was the same period when the life insurance corporation (LIC)came into the
existence 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 (Nationalization) Act, 1972, the general insurance business got nationalized
in the India. Due to the amalgamation of 107 private insurance companies, 4 new companies, as
the subsidiaries of the General Insurance Company, came into effect- National Insurance
Company, New India Assurance Company, Oriental Insurance Company and United India
Insurance Company.
 CONCLUSION

The financial markets have continued to witness unprecedented liberalization, growth and
reforms over the last decade prompted by regulatory compulsions and a rapid integration
between domestic and global markets. And as a result, one has seen substantial growth in the
number of financial firms (insurance companies, mutual funds, brokerages, banks etc.) and in the
number and variety of financial products and services offered by them. As the need of the people
is changing so is changing the investment habits of the people and this has brought in a spate of
new products and schemes where people can invest. The concept of insurance as an investment
option has arrived where people first identify the varying needs of money then converts the
needs into specific amount of money and time required to achieve the objective of investments
plans. The objective of insurance as an investment is to ensure that investments are driven by
predetermined and well thought out investment plan and that the investments are suitable and
adequate to meet these plans. But for this the planner must understand the universe of
investments options. He/she must be well informed on the risk and return attributes of these
options.
In addition to the above, companies should also innovate to come up with better products that
would suit the Indian population and should also try to market and sell their products through
new channels of distribution that can be effective in selling their products to the masses. People
should identify their needs and then decide on the type of policy they want to invest in. insurance
is a good investment option for those people who do not know where to invest and who do not
want to the risk of capital erosion. But, people who are financially savvy can opt for term
insurance and invest the rest in other options that may give them higher returns.
 REFRENCES

 Data on Indian Insurance from http://www.irdaindia.org

 Profile of Indian Insurance Companies by IRDA.
 Different statistics from http://www.rbi.org.in
 Different Survey on Insurance sector conducted by IIRC.
 Journals published by Insurance Regulatory & Development Authority.
 Management of financial institutions by R.M. Srivastava
 http://www.businesstoday.com
 http://www.businessworld.com
 http://www.economictimes.com
 www.licindia.co.in
 www.sbilife.co.in/
 www.tata-aig-life.com
 www.bharti-axalife.com/
 www.hdfcinsurance.com/
 www.reliancelife.co.in/
 www.bajajallianz.com/
 www.metlife.co.in/
 www.birlasunlife.com/
 http://www.finance.indiamart.com
 http://www.indianindustry.com/trade-information/insurance-sector-growth.html