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2. Introduction
Life Insurance
Fire
Marine
Miscellaneous Insurance.
Insurance provides:
Protection to investor.
Accumulation of savings.
Channeling these savings into sectors needing huge long term investment.
Functions of insurance:
Small capital to cover larger risk: Insurance relieves the businessmen from
security investments, by paying small amount of premium against larger
risks and uncertainty.
Risk free trade: Insurance promotes exports insurance, which makes the
foreign trade risk free with the help of different types of policies under
marine insurance cover.
Life insurance:
Whichever is earlier. In case of life insurance, the payment for life insurance
policy is certain. The Event insured against is sure to happen only the time of its
happening is not known. So life insurance is known as ‘Life Assurance’. The
subject matter of insurance is life of human being. Life insurance provides risk
coverage to the life of a person. On death of the person insurance offers
protection against loss of income and compensate the titleholders of the policy.
Life insurance as risk cover: - Insurance is all about risk cover and
protection of life. Insurance provides a unique sense of security that no
other form of invest can provide.
Life insurance as tax planning: - Insurance serves as an excellent tax saving
mechanism too.
Saving for old age: - After retirement the earning capacity of a person
reduces. Life insurance enables a person to enjoy peace of mind and a
sense of security in his/her old age.
Promotion of savings: - Life insurance encourages people to save money
compulsorily. When life policy is taken, the assured is to pay premiums
regularly to keep the policy in force and he cannot get back the premiums,
only surrender value can be returned to him. In case of surrender of policy,
the policyholder gets the surrendered value only after the expiry of
duration of the policy.
Initiates investments: - Life Insurance Corporation encourages and
mobilizes the public savings and canalizes the same in various investments
for the economic development of the country. Life insurance is an
important tool for the mobilization and investment of small savings.
Credit worthiness: - Life insurance policy can be used as a security to raise
loans. It improves the credit worthiness of business.
Social Security: - Life insurance is important for the society as a whole also.
Life insurance enables a person to provide for education and marriage of
children and for construction of house. It helps a person to make financial
base for future.
Tax Benefit: - Under the Income Tax Act, premium paid is allowed as a
deduction from the total income under section 80C.
Through branch
Through agency
Through financial institution
Through banks
Independent agency system means of selling and servicing property and casualty
insurance through agents who represent different companies. The agents own
the records of the policies they sell.
Insurance is now governed by a blend of statutes, administrative agency
regulations, and court decisions. State statutes often control premium rates, prevent
unfair practices by insurers, and guard against the financial insolvency of insurers
to protect insureds.
Insurance agencies:
To recruit advisors.
Make them aware of different insurance products.
To give them training session.
To motivate them for efficient work.
To get maximum and efficient work from their advisors.
Every industry has an operational department which supports the market division.
History:
Life insurance came to India from England in 1818 when oriental life
insurance company started in Calcutta by Europeans. After this many insurance
companies had been started in India. But these companies were looking after only
the needs of European community established in India. Indian people were not
being insured by these companies. First Indian life insurance company came as
Bombay mutual life insurance assurance. Second company was Bharat insurance
company came in 1896. After this the united India in madras, national Indian and
national insurance in Calcutta and the co-operative assurance in Lahore were
established in 1906.
Role of IRDA:
Indian Insurance consumers are like Indian Voters, they are soft but when time is
right and ripe, they demand and seek necessary changes. De-tariff of many
Insurance Products are the reflection of changing aspirations and growing
demand of Indian consumers.
For historical years, Indian consumers were at receiving end. Insurance Product
was underwritten and was practically forced onto consumers on a “Take-it-As-it-
basis”. All that got changed with passage of IRDA act in 1999. New insurance
companies have come into existence leading to open competition and hence
better products for customers.
Customers are looking at Insurance for covering Pure Risk now which I have
covered in my next section. Another good reason why we are seeing quick
changes in the buying behavior of Insurance from mere Investment to risk
mitigation is the cost of Replacement of Goods (ROG) or Cost of Services (COS).
Now Indian customers are aware of insurance industry and insurance products
provided by companies. They have become more sensitive. They would not
accept any type of insurance product unless it fulfills their requirements and
needs. In historic day’s customers looking at insurance products as a life cover
which can provide security against any unacceptable events, but now customers
look at insurance products as an investment as well as life cover. So today’s
customers wants good return from the insurance companies. The Indian
customer’s forms the pivot of each company’s strategy.
After the Insurance Regulatory and Development Authority Act have been
passed there has been establishment of many private insurance companies in
India. Previously there was a monopoly business for Life Insurance Corporation of
India (L.I.C.) who was the only life-insurance company for the people till 2000.
L.I.C. still holds 71.4% of the market share in 2006. But after the introduction of
private life insurance companies there is a great competition in Indian market
now. Everyone is trying to capture the fresh market here and penetrate it with
aggressive marketing strategies. Today life-insurance is not only limited up to just
life risk cover and maturity period bonuses but changed to greater return from
the investments. With the introduction of the unit linked insurance policies these
companies are investing the money in different investment instruments like
shares, bonds, debentures, government and other securities. People are
demanding for higher returns with the life risk cover and private companies are
giving 30-40% average growth per annum. These life-insurance companies have
every kind of policies suiting every need right from financial needs of, marriage,
giving birth and rearing up a child, his education, meeting daily financial needs of
life, pension solutions after retirement. These companies have every aspects and
needs of our life covered along with the death-benefit.
Today, the Indian life insurance industry has a dozen private players,
each of which are making strides in raising awareness levels, introducing
innovative products and increasing the penetration of life insurance in the vastly
underinsured country. Several of private insurers have introduced attractive
products to meet the needs of their target customers and in line with their
business objectives. The success of their effort is that they have captured over
28% of premium income in five years.
6 bank owned insurers: - HDFC standard life, ICICI prudential, ING Vysya, MetLife,
OM Kotak, SBI life.
6 independent insurers: - Aviva, ANP sanmar, Birla sun life, Bajaj Allianz, Max
New York life, Tata AIG.
Globally, insurers increasingly are pressured by the demands of their clients. The
development of global insurance industry over the past few years was influenced
by booming stock markets which enabled considerable capital gains to be made in
non life business. Increase in insurers equity capital increased underwriting
capacity, while demand did not develop at the same pace, resulting in decrease in
insurance policies prices. The stock market boom of the past few years led to
demand for unit linked insurance products.
The global insurance industry is growing at rapid pace. Most of the markets are
undergoing globalization. Lot of mergers and acquisition are taking place in the
insurance world. The rapidity in the industry, technological improvement has
resulted in pressures on a few economic parameters. The world insurance
industry is at peak of its globalization process.
India has a rapidly growing middle class and this section can afford to buy
insurance products. This shows the attraction that the Indian market holds for
foreign insurers who have been putting pressure on developing countries as well
as on India to open up its market.
Source: - www.indianinsuranceresearch.com
Insurers make money in two ways: (1) through underwriting, the processes by
which insurers select the risks to insure and decide how much in premiums to
charge for accepting those risks and (2) by investing the premiums they collect
from insured.
The most difficult aspect of the insurance business is the underwriting of policies.
Using a wide assortment of data, insurers predict the likelihood that a claim will
be made against their policies and price products accordingly. To this end,
insurers use actuarial science to quantify the risks they are willing to assume and
the premium they will charge to assume them. Data is analyzed to fairly
accurately project the rate of future claims based on a given risk. Actuarial science
uses statistics and probability to analyze the risks associated with the range of
perils covered, and these scientific principles are used to determine an insurer's
overall exposure. Upon termination of a given policy, the amount of premium
collected and the investment gains thereon minus the amount paid out in claims
is the insurer's underwriting profit on that policy.
Investment management:
Revenue = premium.
Net investment income includes income from trading in and holding stock market
securities including government securities, special deposits with the central
government, loans to several public utilities and service providers in state
government.
Insurance normally insure only pure risks .However, not all pure risk is
insurable .certain requirements usually must be fulfilled before a pure risk can be
privately insured .From the view point of the insurer, there are ideally six
requirement of an insurable risk