100 marks insurance
TRANSCRIPT
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Introduction
Insurance is the equitable transfer of the risk of a loss, from one entity to another inexchange for payment. It is a form of risk management primarily used to hedge
against the risk of a contingent, uncertain loss.
An insurer, or insurance carrier, is a company selling the insurance; the insured, or
policyholder, is the person or entity buying the insurance policy. The amount to be
charged for a certain amount of insurance coverage is called the premium. Risk
management, the practice of appraising and controlling risk, has evolved as a
discrete field of study and practice.
The transaction involves the insured assuming a guaranteed and known relatively
small loss in the form of payment to the insurer in exchange for the insurer's
promise to compensate (indemnify) the insured in the case of a financial (personal)
loss. The insured receives a contract, called the insurance policy, which details the
conditions and circumstances under which the insured will be financially
compensated.
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Definition:
Insurance can be defined as, a promise of compensation for specific potential
future losses in exchange for a periodic payment.
Insurance is designed to protect the financial well-being of an individual, company
or other entity in the case of unexpected loss. Some forms of insurance are required
by law, while others are optional. Agreeing to the terms of an insurance policy
creates a contract between the insured and the insurer. In exchange for payments
from the insured (called premiums), the insurer agrees to pay the policy holder a
sum of money upon the occurrence of a specific event. In most cases, the policy
holder pays part of the loss (called the deductible), and the insurer pays the rest.
Examples include car insurance, health insurance, disability insurance, life
insurance, and business insurance.
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History of Insurance (worldwide prospective)
History of insurancerefers to the development of a modern business in insurance
against risks, especially regarding ships, cargo, and buildings ("property" and
"fire"), death ("life" insurance), automobile accidents ("auto"), and the cost of
medical treatment (health insurance). The industry has been profitable and has
provided attractive employment opportunities for white collar workers. It helps
eliminate risks (as when fire insurance companies demand safe practices and the
availability of fire stations and hydrants), spreads risks from the individual or
single company to the larger community, and provides an important source of
long-term finance for both the public and private sectors.
Banking, in the modern sense of the word, can be traced to medieval and early
Renaissance Italy, to the rich cities in the north such as Florence, Venice and
Genoa. The Bardi and Peruzzi families dominated banking in 14th century
Florence, establishing branches in many other parts of Europe. Perhaps the most
famous Italian bank was the Medici bank, established by Giovanni Medici in 1397.
The development of banking spread from northern Italy through Europe and anumber of important innovations took place in Amsterdam during the Dutch
Republic in the 16th century and in London in the 17th century. During the 20th
century, developments in telecommunications and computing caused major
changes to banks operations and let banks dramatically increase in size and
geographic spread. The Late-2000s financial crisis caused many bank failures,
including of some of the world's largest banks, and much debate about bank
regulation.
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Ancient World
The first methods of transferring or distributing risk were practiced by Chinese and
Babylonian traders as long ago as the 3rd and 2nd millennia BC, respectively.
Chinese merchants travelling treacherous river rapids would redistribute theirwares across many vessels to limit the loss due to any single vessel's capsizing.
The Babylonians developed a system which was recorded in the famous Code of
Hammurabi, c. 1750 BC, and practiced by early Mediterranean sailing merchants.
If a merchant received a loan to fund his shipment, he would pay the lender an
additional sum in exchange for the lender's guarantee to cancel the loan should the
shipment be stolen.
Achaemenian monarchs were the first to insure their people and made it official by
registering the insuring process in governmental notary offices. The insurance
tradition was performed each year in Nowruz (beginning of the Persian New
Year); the heads of different ethnic groups as well as others willing to take part,
presented gifts to the monarch. The most important gift was presented during a
special ceremony. When a gift was worth more than 10,000 Derrik (Achaemenian
gold coin) the issue was registered in a special office. This was advantageous to
those who presented such special gifts. For others, the presents were fairly assessedby the confidants of the court. Then the assessment was registered in special
offices.
The purpose of registering was that whenever the person who presented the gift
registered by the court was in trouble, the monarch and the court would help him.
Jahez, a historian and writer, writes in one of his books on ancient Iran:
"[W]henever the owner of the present is in trouble or wants to construct a building,
set up a feast, have his children married, etc. the one in charge of this in the court
would check the registration. If the registered amount exceeded 10,000 Derrik, he
or she would receive an amount of twice as much."
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A thousand years later, the inhabitants of Rhodes created the 'general average',
which allowed groups of merchants to pay to insure their goods being shipped
together. The collected premiums would be used to reimburse any merchant whose
goods were jettisoned during transport, whether to storm or sinkage.
The ancient Athenian "maritime loan" advanced money for voyages with
repayment being cancelled if the ship was lost. In the 4th century BC, rates for the
loans differed according to safe or dangerous times of year, implying an intuitive
pricing of risk with an effect similar to insurance.
The Greeks and Romans introduced the origins of health and life insurance c. 600
BCE when they created guilds called "benevolent societies" which cared for the
families of deceased members, as well as paying funeral expenses of members.
Guilds in the Middle Ages served a similar purpose. The Talmud deals with
several aspects of insuring goods. Before insurance was established in the late 17th
century, "friendly societies" existed in England, in which people donated amounts
of money to a general sum that could be used for emergencies.
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Medieval and Early modern
In 12th Century, after the establishment of Seljuk state in Anatolia, Seljuk Sultan
Ghiyas ad-Din Kaykhusraw I, introduced a form of state insurance which
reimbursing the traders for their loss from the state treasury, if they would berobbed within the Seljuk territory.
Separate insurance contracts (i.e., insurance policies not bundled with loans or
other kinds of contracts) were invented in Genoa in the 14th century, as were
insurance pools backed by pledges of landed estates. The first known insurance
contract dates from Genoa in 1347, and in the next century maritime insurance
developed widely and premiums were intuitively varied with risks. These newinsurance contracts allowed insurance to be separated from investment, a
separation of roles that first proved useful in marine insurance. The first printed
book on insurance was the legal treatise On Insurance and Merchants' Bets by
Pedro de Santarm (Santerna), written in 1488 and published in 1552
Insurance became far more sophisticated in post-Renaissance Europe, and
specialized varieties developed. The will of Robert Hayman, written in 1628, refersto two policies he has taken out with a wealthy Londoner: one of life insurance and
one of marine insurance. Toward the end of the 17th century, London's growing
importance as a centre for trade increased demand for marine insurance. In the late
1680s, Mr. Edward Lloyd opened a coffee house that became a popular haunt of
ship owners, merchants, and ships captains, and thereby a reliable source of the
latest shipping news. It became the meeting place for parties wishing to insure
cargoes and ships, and those willing to underwrite such ventures. Today, Lloyd's of
London remains the leading market (note that it is not an insurance company) for
marine and other specialist types of insurance, but it works rather differently than
the more familiar kinds of insurance.
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Insurance as we know it today can be traced to the Great Fire of London, which in
1666 devoured 13,200 houses. In the aftermath of this disaster, Nicholas Barbon
opened an office to insure buildings. In 1680, he established England's first fire
insurance company, "The Fire Office," to insure brick and frame homes.
In the late 19th century, "accident insurance" began to be available, which operated
much like modern disability insurance. This payment model continued until the
start of the 20th century in some jurisdictions (like California), where all laws
regulating health insurance actually referred to disability insurance.
The first insurance company in the United States underwrote fire insurance and
was formed in Charles Town (modern-day Charleston), South Carolina in 1732,
but it provided only fire insurance.
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Insurance in India
Insurance is a subject listed in the Union list in the Seventh Schedule to theConstitution of India where only centre can legislate. The insurance sector has
gone through a number of phases by allowing private companies to solicit
insurance and also allowing foreign direct investment of up to 49%, the insurance
sector has been a booming market. However, the largest life-insurance company in
India; Life Insurance Corporation is still owned by the government.
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History of insurance in India
India had the nineteenth largest insurance market in the world in 2003. Strong
economic growth in the last decade combined with a population of over a billion
makes it one of the potentially largest markets in the future. Insurance in India has
gone through two radical transformations. Before 1956, insurance was private with
minimal government intervention. In 1956, life insurance was nationalized and a
monopoly was created. In 1972, general insurance was nationalized as well
(endnote 1). But, unlike life insurance, a different structure was created for the
industry. One holding company was formed with four subsidiaries. As a part of the
general opening up of the economy after 1992, a Government appointed committee
recommended that private companies should be allowed to operate. It took six
years to implement the recommendation. Private sector was allowed into insurancebusiness in 2000. However, foreign ownership was restricted. No more than 26%
of any company can be foreign-owned.
A totally regulation free regime ended in 1912 with the introduction of regulation
of life insurance. A comprehensive regulatory scheme came into place in 1938.
This was disabled through nationalization. But, the Insurance Act of 1938 became
relevant again in 2000 with deregulation. With a strong hint of sustained growth ofthe economy in the recent past, the Indian market is likely to grow substantially
over the next few decades.
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of life insurance companies along with provident fund companies (provident fund
companies are pension funds). In 1912, two sets of legislation were passed: the
Indian Life Assurance Companies Act and the Provident Insurance Societies Act.
There are several striking features of these legislations. First, they were the first
legislations in India that particularly targeted the insurance sector. Second, they left
general insurance business out of it. The government did not feel the necessity to
regulate general insurance. Third, they restricted activities of the Indian insurers
but not the foreign insurers even though the model used was the British Act of
1909.
Comprehensive insurance legislation covering both life and non-life business did
not materialize for the next twenty-six years. During the first phase of these years,
Great Britain entered World War I. This event disrupted all legislative initiatives.
Later, Indians demanded freedom from the British. As a concession, India was
granted home rule through the Government of India Act of 1935. It provided for
Legislative Assemblies for provincial governments as well as for the central
government. But supreme authority of promulgated laws still stayed with the
British Crown.
The only significant legislative change before the Insurance Act of 1938, was Act
XX of 1928. It enabled the Government of India to collect information of Indian
insurance companies operating in India, Foreign insurance companies operating in
India and Indian insurance companies operating in foreign countries. The last two
elements were missing from the 1912 Insurance Act. Information thus collected
allows us to compare the average size face value of Indian insurance companies
against their foreign counterparts. In 1928, the average policy value of an Indian
company was 619 US dollars against 1,150 US dollars for foreign companies.
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Foreign insurance companies were doing well during that period. In 1938, the
average size of the policy sold by Indian companies has fallen to 532 US dollars
(in comparison with 619 US dollars in 1928) and that of foreign companies had
risen somewhat to 1, 188 US dollars (in 1928, the average size was 1,150 US
dollars).
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The Birth of the Insurance Act, 1938:
In 1937, the Government of India set up a consultative committee. Mr. Sushil C.
Sen, a well known solicitor of Calcutta, was appointed the chair of the committee.
He consulted a wide range of interested parties including the industry. It wasdebated in the Legislative Assembly. Finally, in 1938, the Insurance Act was
passed. This piece of legislation was the first comprehensive one in India. It
covered both life and general insurance companies. It clearly defined what would
come under the life insurance business, the fire insurance business and so on . It
covered deposits, supervision of insurance companies, investments, commissions
of agents, directors appointed by the policyholders among others. This piece of
legislation lost significance after nationalization. Life insurance was nationalized
in 1956 and general insurance in 1972 respectively. With the privatization in thelate Twentieth Century, it has returned as the backbone of the current legislation of
insurance companies.
To implement the 1938 Act, an insurance department (that became known as the
insurance wing) was first set up in the Ministry of Commerce by the Government
of India. Later, it was transferred to the Ministry of Finance. One curious lement of
classification used (Appendix 1) was to include automobile insurance in themiscellaneous category. Later in the century, automobiles became the largest
single item of general insurance. However, it continued to be included in that
category making it difficult to delineate the effects of losses due to pricing that
drove this sector. For example, the Tariff Advisory Committee effectively fixed
prices for a number of general insurance lines of business. Most premiums were
below what would have been actuarially fair (especially for auto). But reporting
auto insurance under the miscellaneous category masked this under-pricing.
When the market was opened again to private participation in 1999, the earlier
Insurance Act of 1938 was reinstated as the backbone of the current legislation of
insurance companies, as the Insurance Regulatory and Development Authority Act
of 1999 was superimposed on the 1938 Insurance Act. This revival of the Act has
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created a messy problem. The Insurance Act of 1938 explicitly forbade financial
services from the activities permitted by insurance companies.
By 1956, there were 154 Indian life insurance companies. There were 16 non-
Indian insurance companies and 75 rovident societies were issuing life insurance
policies. Most of these policies were centered in the cities (especially around big
cities like Bombay, Calcutta, Delhi and Madras).
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Mortality Tables:
Before the mortality of Indian lives were used for constructing mortality tables for
India, it was common practice to use the British Office Table O(M) based on the
British experience during 1863-1893. As was noted earlier, the table was used witha rating up of five to seven years to approximate Indian lives. The first ever Indian
table based on assured Indian lives was created based on the experience of Oriental
Government Security Life Assurance Co. Ltd. for the period 1905-25
(Vaidyanathan, 1934). It was noted that the lowest mortality was experienced by
the Endowment policies and the highest mortality was experienced by the Whole
Life policies. Subsequent updates were produced by the Life Insurance
Corporation in the 1970s (called LIC 75-79) and in the 1990s (called LIC 94-96).
Given that the Life Insurance Corporation was a monopoly, it had no incentives to
update mortality tables frequently. Indeed, the Malhotra Committee noted this fact
as follows. Quite a few persons including, notably, representat ives of consumer
groups have told the Committee that Life Insurance Corporation premium rates had
remained unrevised for a long period and were unjustifiably high in spite of the
fact that trends in mortality rates all over the country are continuously showing
improvement. The Report recommended that such tables be published every tenyears.
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Milestones of Insurance Regulations in the 20th Century
Year Significant Regulatory Event
1912
1928
1938
1956
1972
1993
1994
1995
1996
1997
1997
1998
1999
1999
2000
The Indian Life Insurance Company Act
Indian Insurance Companies Act
The Insurance Act: Comprehensive Act to regulate insurance businessin India
Nationalization of life insurance business in India with a monopolyawarded to the Life Insurance Corporation of India
Nationalization of general insurance business in India with theformation of a holding company General Insurance CorporationSetting up of Malhotra CommitteeRecommendations of Malhotra Committee published
Setting up of Mukherjee Committee
Setting up of (interim) Insurance Regulatory Authority (IRA)Recommendations of the IRAMukherjee Committee Report submitted but not made public
The Government gives greater autonomy to Life InsuranceCorporation, General Insurance Corporation and its subsidiaries withregard to the restructuring of boards and flexibility in investmentnorms aimed at channeling funds to the infrastructure sectorThe cabinet decides to allow 40% foreign equity in private insurancecompanies-26% to foreign companies and 14% to Non-residentIndians and Foreign Institutional InvestorsThe Standing Committee headed by Murali Deora decides that foreignequity inprivate insurance should be limited to 26%. The IRA bill isrenamed the Insurance Regulatory and Development Authority BillCabinet clears Insurance Regulatory and Development Authority BillPresident gives Assent to the Insurance Regulatory and DevelopmentAuthority Bill
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Evolution of Insurance during Nationalized Era: 1956-2000
Rationale for Nationalization:
After India became independent in 1947, National Planning modeled after theSoviet Union was implemented. Nowhere was it more evident in the Second Five
Year Plan implemented by the Prime Minister Jawaharlal Nehru. His vision was to
have key industries under direct government control to facilitate the
implementation of National Planning. Insurance business (or for that matter, any
financial service) was not seen to be of strategic importance.
The genesis of nationalization of life insurance came from a document producedby Mr. H. D. Malaviya called Insurance Business in India on behalf of the Indian
National Congress. Mr. Malaviya had written a dozen books. This was one of the
more obscure ones. In that document, he made four important claims to justify
nationalization. First, he argued that insurance is a cooperative enterprise, under
a socialist form of government; therefore, it is more suited for government to be in
insurance business on behalf of the people. Second, he claimed that Indian
companies are excessively expensive. Third, he argued that private competition has
not improved services to the public or to the policyholders. Preventative
activities such as better public health, medical check-up, hazard prevention
activities did not improve. Fourth, lapse ratios of life policies were very high
leading to national waste.
His argument for high cost of Indian insurers is the only one that he beefed up with
data. Others were made in vague terms. Therefore, we take a closer look at hisevidence. Based on some data, he presents what he called overall expenses of
insurance business operation in India, USA and UK. He showed that it costs Indian
insurers 27%-28% of premium income for insuring lives whereas in the USA, the
corresponding figure is 16%-17%. In the UK, it is even lower at 13%-14%. On the
face of it, this argument seems watertight. Unfortunately, this is not the case. On
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closer inspection on how the numbers were arrived at, we find that for the
calculation, the denominator used for India is not the same used for the USA or the
UK. Specifically, for the Indian numbers, the denominator uses premium income
only, whereas, for the other two countries, the denominator uses total income that
includes premium income and investment income (as is customary world over).
The Finance Minister C. D. Deshmukh announced nationalization of the life
insurance business. In his speech, he justified the action as follows.
With the Second Plan, involving an accelerated rate of
investment and development, the widening and deepening of all
possible channels of public savings has become more than evernecessary. Of this process, the nationalization of insurance is a vital
part. He then went on to declare, The total [life] insurance in force
exceeds Rs. 10,000 millions, that is a little over Rs. 25 per had. Quite
recently it was claimed on behalf of a private enterprise that business
in force could be increased to Rs. 80,000 millions and per capita
insurance to Rs. 200. I am in complete agreement. There can be no
doubt as to the possibilities of life insurance in India and I mention
these figures only to show how greatly we could increase our savings
through insurance. He added, Thus even in insurance which is a
type of business which ought never to fail if it is properly run, we find
that during the last decade as many as twenty five life insurance
companies went into liquidation and another twenty five had so
frittered away their resources that their business had to be transferred
to other companies at a loss to the policyholders.
Thus, the nationalization was justified based on three distinct arguments. First, the
government wanted to use the resources for its own purpose. Clearly that meant
that the government was not willing to pay market rate of return for the assets
(otherwise, they could have raised the capital whether insurance companies were
private or public). Second, it sought to increase market penetration by
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nationalization. Third, the government found the number of failures of insurance
companies to be unacceptable. The government claimed that the failures were the
result of mismanagement.
Given that by the end of the century the government would de-nationalize life
insurance, we would examine in some detail whether nationalization did succeed in
these three areas. The government did succeed in channeling the resources of life
insurance business into infrastructure.
The Life Insurance Corporation of India, as of March 2001, had a total sum
assured of 155 billion US dollars. The value of Life Fund was 40 billion US
dollars. The book value of Life Insurance Corporations socially oriented
investments (endnote 4) mainly comprising of government securities holdings
at end-March 2001 amounted to 27 billion US dollars (73% of a total portfolio
value of 37 billion US dollars). In total, 84% of Life Insurance Corporations
portfolio comprises of exposure to the public sector.
The Reserve Bank of India Weekly Statistical Supplement, October 11, 2003shows that 52% of the outstanding stock of government securities is held by just
two public sector institutions: the State Bank of India and the Life Insurance
Corporation of India approximately in equal proportions.
The second question why general insurance was not being nationalized in 1956.
The Finance Minister addressed it in his speech as follows. I would also like to
explain briefly why we have decided not to bring in general insurance into thepublic sector. The consideration which influenced us most is the basic fact that
general insurance is part and parcel of the private sector of trade and industry and
functions on a year to year basis. Errors and omission and commission in the
conduct of its business do not directly affect the individual citizen. Life insurance
business, by contrast, directly concerns the individual citizen whose savings, so
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vitally needed for economic development, may be affected by any acts of folly or
misfeasance on the part of those in control or be retarded by their lack of
imaginative policy.
Thus, he did not deem general insurance to be vitally needed for economic
development. The only way this view could be justified is if we view insurance as
a vehicle for long terms investment and if we ignore the elimination of uncertainty
through insurance as a relatively minor benefit. After all, general insurance reduces
uncertainty for non-life category the same way life insurance reduces uncertainty
for life.
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Rural Insurance:
In his Budget Speech, Mr. Deshmukh had specific hopes for rural insurance. He
announced, It will be possible to spread the message of insurance as far and as
wide as possible, reaching out beyond the most advanced urban areas and into hither to neglected, namely, rural areas.
After nationalization, Life Insurance Corporation has specifically taken up rural
insurance as a target. To promote rural insurance, it followed a segmented
approach to the market. First, it targeted the rural wealthy with regular individual
policies. Second, it offered group policies to people who could not afford
individual policies. For the very poor, it offered government subsidized policies.
In India, even in 2004, more than half of the population live in rural areas and
contribute a quarter of the GDP. Thus, the policymakers felt that it was essential to
bring life insurance business to the rural population.
The success of the rural expansion can be measured in a number of differentdimensions. Here we are not talking about success necessarily in the sense of
commercial success of higher profits. The Finance Minister was talking about
social objective of bringing insurance cover for the neglected rural areas. After
all, if profits were to be made by the private sector in rural insurance, they would
not have neglected rural areas. Therefore, below we will measure success in terms
of penetration of life insurance in rural areas.
(1) We first examine the penetration of life insurance in terms of headcounts. The
earliest figure we have is for 1961. Around 36% of all the individual life policies
sold were in the rural sector. This proportion fell to 29% by 1970. Then from 1980,
the proportion had started to climb. It climbed steadily for a decade. Between 1995
and 1999 it climbed even faster with fully 57% of all policies sold were in the rural
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sector. This increase between 1980 and 1999 is remarkable for two reasons. First,
the proportion of people living in rural areas has been falling steadily since 1950.
Second, the fall in the proportion had not only halted since 1980 but it had been
reversed. Thus, there is no question that the Life Insurance Corporation, through
deliberate policy change managed to penetrate the rural market since 1980 in a way
they could not earlier. Of course, the headcount gives us only the part of the story.
(2) Another way of examining the rural insurance business is in terms of the value
of the insurance policies sold. This is depicted in Figure 1. In passing we note that
during no period under study did the value of individual life insurance sold in the
rural areas as a proportion of the total value of all individual life insurance policies
sold in India breach 40%. During the late 1990s, even though the headcount of
rural individual life policies sold kept climbing as a proportion of all individual life
policies sold, the value of those policies did not. This implies that there were more
policies sold with a smaller average value. This would imply that the profitability
of each policy sold in the rural area in the late 1990s fell.
(3) Finally we examine the value of the average individual life policy sold in the
rural areas as a percent of the average of all the individual life policies soldnationwide. In 1961, this proportion was 84%. It fell almost steadily to 74% by
1970. Then it climbed back to 84% in 1990. It has hovered around that figure since
then. If we examine the per capita income in the rural areas and contrast that with
the per capita income in the urban areas, we find that for almost all states there is a
50% difference. Specifically, if the average rural income is 100, for most states, the
urban average income is 150. Therefore, the individual life insurance policies in
the rural areas are not being bought by the average rural households but by the
relatively wealthy rural households.
Thus, the observations (2) and (3) above raise an uncomfortable question. Has the
expansion of the Life Insurance Corporation in the rural areas served the rural rich
at the high cost of reduced profitability of the company? Obviously this was not
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the intention when the Finance Minister spoke of serving the neglected rural areas
in his speech at the eve of nationalizing life insurance in 1956.
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Prelude to nationalization of general insurance; Birth of the Tariff
Advisory Committee:
The first collective measures to regulate rates and terms and conditions go back to
1896 with the formation of Bombay Association of Fire Insurance agents. By1950, there was a set of regulation of rates, accepted by most insurers. The
Insurance Act of 1938 was amended in 1950 to set up a Tariff Committee under
the control of the General Insurance Council of the Insurance Association of India.
Main lines of general insurance came under the Tariff Committee (they included
Marine, Fire and Miscellaneous which included auto). Over the next eighteen
years, Tariff Committee prevailed as the rate maker. It was obligatory for all
insurers.
In 1968, the Insurance Act of 1938 was amended further. A Tariff Advisory
Committee replaced the Tariff Committee. The Tariff Advisory Committee
became a statutory body. Section 64UC(2) of the Act stated: In fixing, amending
or modifying any rates, advantages, terms or conditions relating to any risk, the
(Tariff) Advisory Committee shall try to ensure, as far as possible, that there is no
unfair discrimination between risks of essentially the same hazard, and also that
consideration is given to past and prospective loss experience: provided that the(Tariff) Advisory Committee may, at its discretion, make suitable allowances for
the degree of credibility to be assigned to the past experience including allowances
for random fluctuations and may also, at its discretion, make suitable allowance for
future hazards of conflagration or catastrophe or both.
The introduction of the Tariff Advisory Committee was seen as an independent,
impartial, scientifically driven body for ratemaking in general insurance. After the
nationalization of general insurance in 1972 (see below), the Tariff Advisory
Committee became the handmaiden of the nationalized companies. For example,
the Chairman of the General Insurance Corporation, the holding company of four
nationalized subsidiary, also became the Chairman of the Tariff Advisory
Committee. All members of the Tariff Advisory Committee were nominated by the
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General Insurance Corporation. It came under heavy criticism from the Malhotra
Committee. The Report stated that the data supplied (by the nationalized
companies) was often incomplete and outdated and, over the years, the system has
almost broken down.
The rates implemented by the Tariff Advisory Committee did not necessarily
reflect the market price. For example, after the amendments of the Motor
Vehicles Act of 1939 (in 1982 and again in 1988), Third Party Liability became
unlimited. It became clear that premium rates had to be revised upward to reflect
this change in law. However, political pressure from transporters prevented this
rise in premium.
Back in 1994, the Malhotra Committee recommended a delinking of the Tariff
Advisory Committee from the General Insurance Corporation. It also
recommended a gradual phasing out of the Tariff Advisory Committee with the
exception of a few areas. However, it did not set a timetable. A recent report of a
special committee set up by the Insurance Regulatory and Development Authority
suggests an abolition of the Tariff Advisory Committee by April 1, 2006.
In India, the Tariff Advisory Committee set a floor price, that is, a minimum price
is set and all insurance companies have to charge at least that minimum price. They
could charge more (with the approval of the Tariff Advisory Committee). It should
be emphasized that tariffication or setting a floor price is not unique to India alone.
Neither is the practice only followed by developing countries. The Malhotra
Committee Report noted that two large countries like Japan and Germany had
similar floor prices in place. However, the rates were periodically reviewed andadjusted cording to the market experience. In Japan, tariffs were abolished
coinciding with the liberalization of insurance in 1998. In Malaysia, motor and fire
insurance are still subject to tariff regulations. In Indonesia, tariff regime was
introduced in 1983. It continued till 1996. In India, de-tariffication (the removal of
tariffs) was introduced in 1994 in the marine hull business only the segment of
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the market dominated by foreign companies. Due to political pressure, it refrained
from removing tariffs in the entire cargo insurance segment.
Any move away from the tariffed regime is not always popular. What usually
follows is rising premiums in some lines. For example, in India, with de-
tariffication, motor insurance prices will rise. This will probably be pinned as a
folly of privatization. Of course, such premium adjustment has nothing to do with
privatization per se. Government-owned insurers could take a loss in the motor
insurance business (as they did during the 1990s) and cover the deficit from other
lines of business. But, privately run insurance companies would seek to generate
profit from every line of business. As a result, motor insurance premiums will rise
to cover losses. Similarly, rating systems based on age and experience of the
drivers would be slowly introduced. It will be a slow and long process as they
require individual specific past information that can be gathered cost effectively
only with computerization of vehicle accident information and other risks.
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Reinsurance
A reinsurer in India was defined clearly for the first time in the Insurance Act of
1938. Indian currency has not been convertible since independence. Thus, to retain
the maximum possible premium within India and thereby preserving foreigncurrency became a priority for reinsurance business. India did not have a floating
exchange rate until the 1990s. Therefore, hard currencies (like the US dollar) were
considered valuable resources. Thus, the policy was to pay minimum possible
premiums in hard currencies. To achieve this goal, the insurance companies in
India formed the India Reinsurance Corporation in 1956. This was a voluntary
agreement at the time.
In 1961, the Government created the Indian Guarantee and General Insurance
Company. By amendment to Section 101A of the Insurance Act, the Government
required all companies to give statutory cession of 10% each to the India
Reinsurance Corporation and to the Indian Guarantee and General Insurance
Company. This requirement has been echoed in the Act passed in 2000. The only
reinsurance company allowed to operate in India is the General Insurance
Corporation.
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behavior of the general insurance employees were not customer friendly. Thus,
the goal of efficient customer service remained elusive. Cost cutting seemed to
have worked between 1973 and 1980. The cost of operation as a percent of
premium income fell from around 30% in 1973 to around 24% in 1980. Thereafter,
there had not been a huge change in cost of operation. For investment funds, it was
again noted that funds of the General Insurance Corporation had very low rates of
return general insurance companies have been far too conservative in managing
their equity portfolios. For rural expansion, the subsidiaries introduced a number
of schemes such as crop insurance, cattle insurance and the like. They also tried to
stimulate rural business by raising the commissions of the rural agents.
Unfortunately, the companies did not make much headway in any direction for
expanding rural business. With respect to reinsurance, the General Insurance
Corporation did retain a large amount of reinsurance domestically in some areas ofgeneral insurance (such as motor insurance). Finally, the competition among the
subsidiaries of the General Insurance Corporation remained elusive. Effectively
they acted like a cartel carving up the market into their own regional territories
and acting like monopolies.
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Investment Regimes; Before and After Nationalization:
The Insurance Act of 1938 required that the life insurance companies should hold
55% of their assets in government securities or other approved securities (Section
27A of the Insurance Act). In the 1940s, many insurance companies were part offinancial conglomerates. With a 45% balance to play with, some insurance
companies used these funds for their other enterprises or even for speculation. A
committee headed by Cowasji Jehangir was set up in 1948 to examine these
practices. The committee recommended the following amendments to the
Insurance Act. Life insurance companies should invest 25% of their assets in
government securities. Another 25% should go into government securities or other
approved securities. Another 35% should go into approved investment that might
include stocks and bonds of publicly traded companies. But, they should be bluechip companies. Only 15% could be invested in other areas if the Board of
Directors of the insurance company approved them.
In 1958, Section 27A of the Insurance Act was modified to stipulate the following
investment regime:
a) Central Government market securities of not less than 20%b) Loans to National Housing Bank including (a) above should be no less than
25%
c) In State Government securities including (b) above should be no less than50%
d) In socially oriented sectors including public sector, cooperative sector, housebuilding by policyholders, own-your-own-home schemes including (c)
above should be no less than 75%.
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For General Insurance, Section 27B of the Insurance Act of 1938 was amended in
1976. The guideline for investment was set as follows.
(a) Central Government Securities 25%
(b) State Government and public sector bonds 10%
(c) Loans to State Governments, various housing schemes 35%.
The remaining 30% investment could be in market sector in the form of equity,
long term loans, debentures and other forms of private sector investment. We
examine the actual level of investment by the General Insurance Corporation in
Table 5. Investment in Central Government Securities hovered around 20%between 1980 and 2000. Investment in State Government Securities stayed much
closer to the target of 10% throughout the period. Soft loans to housing rose from
8% in 1980 to a high of 29% in 1990, only to fall again to a low of 14% of the
portfolio at the final stage. The Malhotra Committee (1994) recommended that the
mandated investment of funds in Government Securities of the general insurance
companies should be reduced to 40 per cent (Malhotra, 1994, VI, p. 50). In April
1995, the Government relaxed the investment policies of General Insurance
Corporation and its subsidiaries. Therefore, in the last half of the 1990s, we see ajump in the other approved investment by the General Insurance Corporation to the
55%-60% range.
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Life Insurance Business during the Nationalized Era
Indian life insurance was nationalized in 1956. All life companies were merged
together to form one single company: the Life Insurance Corporation. By 2000,
Life Insurance Corporation had 100 divisional offices in seven zones with 2048branches. There were over 680,000 active agents across India with a total of
117,000 employees in the Life Insurance Corporation employed directly.
There are two problems with this type of examination of the industry. First, the
population of India has grown from 413 million in 1957 to over 1,000 million in
2000. Therefore, we would expect growth in life policies sold by the growth of the
population alone. Second, if we measure growth in life insurance in nominalamount, for a country like India, where the annual inflation rate has averaged 7.8%
a year between 1957 and 2002, we would expected a growth in the sale of life
insurance by the sheer force of inflation. Therefore, in our discussion, we will not
indulge in such descriptions.
The largest segment of the life insurance market in India has been individual life
insurance. The types of the policies sold were mainly whole life, endowment andmoney back policies. Money back policies return a fraction of the nominal value
of the premium paid by the policyholder at the termination of the contract. Until
recently, term life policies were not available in the Indian market. The number of
new policies sold each year went from about 0.95 million a year in 1957 to around
22.49 million in 2001. The total number of policies in force went from 5.42 million
in 1957 to 125.79 million in 2001. Thus, on both counts there has been a 25-fold
increase in the number of policies sold. Of course, during the same period, the
population has grown from 413 million in 1957 to over 1,033 million in 2001. On a
per capita basis, there were 0.0023 new policies per capita in 1957 compared with
0.0218 new policies in 2001. Total policies per capita went from 0.0131 in 1957 to
0.1218 in 2001. A part of this rise is directly attributable to a deliberate policy of
rural expansion of the Life Insurance Corporation.
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In recent years, life insurance saving has played a bigger role in national saving. It
clearly shows a nonlinear relationship between these two variables. Specifically, at
relatively lower levels of saving rate (that correspond to lower level of income), a
rise in saving rate does not lead to a rise in life insurance premium expressed as a
fraction of GDP. Beyond a threshold, in the case of India, the threshold value of
saving rate seems to be around 20%, the life premium as a percent of GDP starts to
grow rapidly. India has reached that turning point.
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General Insurance Business during the Nationalized Era
After the nationalization of general insurance in 1972, the government set up one
holding company the General Insurance Corporation of India. Under the holding
company, there were four subsidiaries. Information about general insurancepremium earned is shown in Table 8. Between 1985 and 2001, the business of
general insurance grew tenfold to 122 billion rupees. Thus, general insurance
business in India is approximately one fourth the size of life insurance business. In
1988, fire insurance (in terms of premium earned) accounted for about a quarter of
all business. The percentage has remained the same over the next fourteen years.
Marine insurance has shrunk in relative importance. It went from nearly 20% of
general insurance to under 10% by 2001.
The biggest component called miscellaneous has grown be occupy 68% of
general insurance market. This classification is unfortunate. This method of
categorizing lines of business can be traced back to the Insurance Act of 1938 (see
Appendix 1). It stipulated whatever cannot be classed as life insurance or fire
insurance or marine insurance is put into this category called miscellaneous.
Thus, the biggest component of general insurance motor insurance is lumped
with a range of other general insurance such as aviation, engineering and cropinsurance. In terms of premium, motor insurance accounts for around 54% of
premium income. The Tariff Advisory Committee has been unwilling to revise
motor premium upward (due to political pressure) to be consistent with higher
losses experienced. As a result, the losses have mounted in motor insurance. A
crude measure (of profitability) of claims as a percent of premium earned hovered
between 120% and 140% during 1996 and 2001 for motor insurance business.
Therefore, this line of business was not profitable for these state-run enterprises.
As a result, overall profitability of four subsidiaries of the General Insurance
Corporation has masked the losses incurred in motor insurance.
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Introduction of the New Legal Structure
After the report of the Malhotra Committee came out, changes in the insurance
industry appeared imminent. Unfortunately, instability of the Central Government
in power slowed down the process. The dramatic climax came in 1999. On March
16, 1999, the Indian Cabinet approved an Insurance Regulatory Authority (IRA)
Bill designed to liberalize the insurance sector. The government fell in April 1999
just on the eve of the passage of the Bill. The deregulation was put on hold once
again.
An election was held in late 1999. A new government came to power. On
December 7, 1999, the new government passed the Insurance Regulatory andDevelopment Authority Act. This Act repealed the monopoly conferred to the Life
Insurance Corporation in 1956 and to the General Insurance Corporation in 1972.
The authority created by the Act is now called the Insurance Regulatory and
Development Authority.
New licenses are being given to private companies. The Insurance Regulatory and
Development Authority have separated out life, non-life and reinsurance insurancebusinesses. Therefore, a company has to have separate licenses for each line of
business. Each license has its own capital requirements (around USD24 million for
life or non-life and USD48 million for reinsurance).
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Features of the Insurance Regulatory and Development Act
The Insurance Regulatory and Development Act of 1999 was set out as follows.
To provide for the establishment of an Authority to protect the interests of holders
of insurance policies, to regulate, promote and ensure orderly growth of the
insurance industry and for matters connected therewith or incidental thereto and
further to amdend the Insurance Act, 1938, the Life Insurance Corporation Act,
1956 and the General Insurance Business (Nationalisation) Act, 1972.
The Act effectively reinstituted the Insurance Act of 1938 with (marginal)
modifications. Whatever was not explicitly mentioned in the 1999 Act referred
back to the 1938 Act.
(1)It specified the creation and functioning of an Insurance AdvisoryCommittee that sets out rules and regulation.
(2)It stipulates the role of the Appointed Actuary. He/she has to be a Fellowof the Actuarial Society of India. For life insurers the Appointed Actuary has
to be an internal company employee, but he or she may be an external
consultant if the company happens to be a non-life insurance company. The
Appointed Actuary would be responsible for reporting to the Insurance
Regulatory and Development Authority a detailed account of the company.
(3)Under the Actuarial Report and Abstract, pricing of productshave to begiven in detail. It also requires details of the basic assumptions for valuation.
There are prescribed forms that have to be filled out by the Appointed
Actuary including specific formulas for calculating solvency ratios.
(4)It stipulates the requirements for an agent. For example, insurance agentsshould have at least a high school diploma along with training of 100 hours
from a recognized institution.
(5)Under Assets, Liabilities, and Solvency Margin of Insurers, the InsuranceRegulatory and Development Authority has set up strict guidelines on asset
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and liability management of the insurance companies along with solvency
margin requirements. Initial margins are set high (compared with developed
countries). The margins vary with the lines of business.
Life insurers have to observe the solvency ratio, defined as the ratio of the amountof available solvency margin to the amount of required solvency margin: (a) the
required solvency margin is based on mathematical reserves and sum at risk, and
the assets of the policyholders fund; (b) the available solvency margin is the
excess of the value of assets over the value of life insurance liabilities and other
liabilities of policyholders and shareholders funds.
For general insurers, this is the higher of RSM-1 or RSM-2, where RSM-1 is basedon 20% of the higher of (i) gross premiums multiplied by a factor A, or (ii) net
premiums; RSM-2 is based on 30% of the higher of (i) gross net incurred claims
multiplied by a factor B, or (ii) net incurred claims
(6)It sets the reinsurance requirement for (general) insurance business. For allgeneral insurance, a compulsory cession of 20% regardless of line of
business to the General Insurance Corporation, the designated nationalreinsurer was stipulated.
(7) Under the Registration of Indian Insurance Companies, it sets out detailsof registration of an insurance company along with renewal requirements.
For renewal, it stipulates a fee of one-fifth of one percent of total gross
premium written direct by an insurer in India during the financial year
preceding the year. It seeks to give detailed background for each of the
following key personnel: Chief Executive, Chief Marketing Officer,
Appointed Actuary, Chief Investment Officer, Chief of Internal Audit and
Chief Finance Officer. Details of sales force, activities in rural business and
projected values of each line of business are also required.
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(8) Under Insurance Advertisements and Disclosure, details of insuranceadvertisement in physical and electronic media has to be detailed with the
Insurance Regulatory and Development Authority. The advertisements have
to comply with the regulation prescribed in section 41 of the Insurance Act,
1938. The Act of 1938 says, No person shall allow or offer to allow, either
directly or indirectly, as an inducement to any person to take out or renew or
continue an insurance in respect of any kind of risk relating to lives or
property in India, any rebate of the whole or part of the commission payable
or any rebate of the premium shown on the policy, nor shall any person
taking out or renewing or continuing a policy accept any rebate, except such
rebate as may be allowed in accordance with the published prospectus or
tables of the insurer.
(9) All insurers are required to provide some coverage for the rural sector. It iscalled the Obligations of Insurers to Rural Social Sectors.
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Life Insurance Corporation of India
Life Insurance Corporation of India (LIC) is the largest insurance group and
investment company in India. Its a state-owned where Government of India has
100%stake. LIC also funds close to 24.6% of the Indian Government's expenses. It
has assets estimated of 13.25 trillion (US$241.15 billion). It was founded in 1956
with the merger of 243 insurance companies and provident societies.
Headquartered in Mumbai, financial and commercial capital of India, the Life
Insurance Corporation of India currently has 8 zonal Offices and 113 divisional
offices located in different parts of India, around 3500 servicing offices including
2048 branches, 54 Customer Zones, 25 Metro Area Service Hubs and a number ofSatellite Offices located in different cities and towns of India and has a network of
13,37,064 individual agents, 242 Corporate Agents, 79 Referral Agents, 98
Brokers and 42 Banks (as on 31.3.2011) for soliciting life insurance business from
the public.
The slogan of LIC is "Yogakshemam Vahamyaham" which translates from
Sanskrit to "Your welfare is our responsibility". The slogan is derived from theAncient Hindu text, the Bhagavad Gita's 8th Chapter, 22nd verse. The literal
translation from Sanskrit to English is "I carry what you require". The slogan can
be seen in the logo and is written in Devanagiri script below the hands holding the
lamp.
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History
The story of insurance is probably as old as the story of mankind. The same
instinct that prompts modern businessmen today to secure themselves against loss
and disaster existed in primitive men also. They too sought to avert the evilconsequences of fire and flood and loss of life and were willing to make some sort
of sacrifice in order to achieve security. Though the concept of insurance is largely
a development of the recent past, particularly after the industrial era past few
centuriesyet its beginnings date back almost 6000 years.
Life Insurance in its modern form came to India from England in the year 1818.
Oriental Life Insurance Company started by Europeans in Calcutta was the firstlife insurance company on Indian Soil. All the insurance companies established
during that period were brought up with the purpose of looking after the needs of
European community and Indian natives were not being insured by these
companies. However, later with the efforts of eminent people like Babu Muttylal
Seal, the foreign life insurance companies started insuring Indian lives. But Indian
lives were being treated as sub-standard lives and heavy extra premiums were
being charged on them. Bombay Mutual Life Assurance Society heralded the birth
of first Indian life insurance company in the year 1870, and covered Indian lives atnormal rates. Starting as Indian enterprise with highly patriotic motives, insurance
companies came into existence to carry the message of insurance and social
security through insurance to various sectors of society. Bharat Insurance
Company (1896) was also one of such companies inspired by nationalism. The
Swadeshi movement of 1905-1907 gave rise to more insurance companies. The
United India in Madras, National Indian and National Insurance in Calcutta and the
Co-operative Assurance at Lahore were established in 1906. In 1907, Hindustan
Co-operative Insurance Company took its birth in one of the rooms of the
Jorasanko, house of the great poet Rabindranath Tagore, in Calcutta. The Indian
Mercantile, General Assurance and Swadeshi Life (later Bombay Life) were some
of the companies established during the same period. Prior to 1912 India had no
legislation to regulate insurance business. In the year 1912, the Life Insurance
Companies Act, and the Provident Fund Act were passed. The Life Insurance
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Companies Act, 1912 made it necessary that the premium rate tables and periodical
valuations of companies should be certified by an actuary. But the Act
discriminated between foreign and Indian companies on many accounts, putting
the Indian companies at a disadvantage.
The first two decades of the twentieth century saw lot of growth in insurance
business. From 44 companies with total business-in-force as Rs.22.44 crore, it rose
to 176 companies with total business-in-force as Rs.298 crore in 1938. During the
mushrooming of insurance companies many financially unsound concerns were
also floated which failed miserably. The Insurance Act 1938 was the first
legislation governing not only life insurance but also non-life insurance to provide
strict state control over insurance business. The demand for nationalization of life
insurance industry was made repeatedly in the past but it gathered momentum in
1944 when a bill to amend the Life Insurance Act 1938 was introduced in the
Legislative Assembly. However, it was much later on the 19th of January, 1956,
that life insurance in India was nationalized. About 154 Indian insurance
companies, 16 non-Indian companies and 75 provident were operating in India at
the time of nationalization. Nationalization was accomplished in two stages;
initially the management of the companies was taken over by means of an
Ordinance, and later, the ownership too by means of a comprehensive bill. TheParliament of India passed the Life Insurance Corporation Act on the 19th of June
1956, and the Life Insurance Corporation of India was created on 1st September,
1956, with the objective of spreading life insurance much more widely and in
particular to the rural areas with a view to reach all insurable persons in the
country, providing them adequate financial cover at a reasonable cost.
LIC had 5 zonal offices, 33 divisional offices and 212 branch offices, apart from itscorporate office in the year 1956. Since life insurance contracts are long term
contracts and during the currency of the policy it requires a variety of services need
was felt in the later years to expand the operations and place a branch office at
each district headquarter. Re-organization of LIC took place and large numbers of
new branch offices were opened. As a result of re-organisation servicing functions
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were transferred to the branches, and branches were made accounting units. It
worked wonders with the performance of the corporation. It may be seen that from
about 200.00 crores of New Business in 1957 the corporation crossed 1000.00
crores only in the year 1969-70, and it took another 10 years for LIC to cross
2000.00 crore mark of new business. But with re-organisation happening in the
early eighties, by 1985-86 LIC had already crossed 7000.00 crore Sum Assured on
new policies.
Today LIC functions with 2048 fully computerized branch offices, 109 divisional
offices, 8 zonal offices, 992 satellite offices and the corporate office. LICs Wide
Area Network covers 109 divisional offices and connects all the branches through
a Metro Area Network. LIC has tied up with some Banks and Service providers to
offer on-line premium collection facility in selected cities. LICs ECS and ATM
premium payment facility is an addition to customer convenience. Apart from on-
line Kiosks and IVRS, Info Centres have been commissioned at Mumbai,
Ahmedabad, Bangalore, Chennai, Hyderabad, Kolkata, New Delhi, Pune and many
other cities. With a vision of providing easy access to its policyholders, LIC has
launched its Satellite Sampark offices. The satellite offices are smaller, leaner
and closer to the customer. The digitalized records of the satellite offices will
facilitate anywhere servicing and many other conveniences in the future.
LIC continues to be the dominant life insurer even in the liberalized scenario of
Indian insurance and is moving fast on a new growth trajectory surpassing its own
past records. LIC has issued over one crore policies during the current year. It has
crossed the milestone of issuing 1,01,32,955 new policies by 15th Oct, 2005,
posting a healthy growth rate of 16.67% over the corresponding period of the
previous year.
From then to now, LIC has crossed many milestones and has set unprecedented
performance records in various aspects of life insurance business. The same
motives which inspired our forefathers to bring insurance into existence in this
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country inspire us at LIC to take this message of protection to light the lamps of
security in as many homes as possible and to help the people in providing security
to their families.
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General Insurance Corporation of India
General Insurance Corporation of India (GIC Re) is the sole reinsurance company
in the Indian insurance market with over three decades of experience.
History
The entire general insurance business in India was nationalised by the Government
of India (GOI) through the General Insurance Business (Nationalisation) Act
(GIBNA) of 1972. 55 Indian insurance companies and 52 other general insurance
operations of other companies were nationalized through the act.
The General Insurance Corporation of India (GIC) was
formed in pursuance of Section 9(1) of GIBNA. It was
incorporated on 22 November 1972 under the
Companies Act, 1956 as a private company limited by
shares. GIC was formed to control and operate the
business of general insurance in India.
The GOI transferred all the assets and operations of the nationalized general
insurance companies to GIC and other public-sector insurance companies. After a
process of mergers and consolidation, GIC was re-organized with four fully owned
subsidiary companies: National Insurance Company Limited, New India Assurance
Company Limited, Oriental Insurance Company Limited and United India
Insurance Company Limited.
GIC and its subsidiaries had a monopoly on the general insurance business in India
until the landmark Insurance Regulatory and Development Authority Act (IRDA
Act) of 1999 came into effect on 19 April 2000. This act also amended the GIBNA
Act and Insurance Act of 1938. The act along with the amendments ended the
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monopoly of GIC and its subsidiaries and liberalized the insurance business in
India.
In November 2000, GIC was renotified as India's Reinsurer, but its supervisory
role over its subsidiaries was ended. This was followed by the General InsuranceBusiness (Nationalisation) Amendment Act of 2002. Coming into effect from 21
March 2003, this amendment ended GIC's role as a holding company of its
subsidiaries. The ownership of the subsidiaries was transferred to the Government
of India, which in turn divested its stake in the companies through listings on
Indian stock exchanges.
As a result of these reforms, GIC became the sole Re-Insurer in India, and is nowcalled GIC Re. Indian insurance companies are required by law to cede 10% of
every policy value to GIC Re, subject to some limitations and exceptions. GIC Re
has diversified its operations and is now emerging as an important Re-Insurer in
SAARC countries, Southeast Asia, Middle East and Africa. GIC Re has also
expanded its international operations through branches in London and Moscow.
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Data Analysis
1. Has the evolution in Insurance policies and services satisfied your needs?a) Yes
b)No
Findings:
Many of them are happy that, now the Insurance policies and services aretailored to them as per their [customer] needs.
Though Insurance has made its reach in urban areas, rural areas still lagbehind.
Recommendations:
Insurance sector should consider focusing on rural sector, where more than75% of Indian populations reside.
Yes
No
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2. How did you learn about various Insurance policies?a) Insurance agents
b) Advertisementsc) Word of mouth
Findings:
People had more faith in word of mouth from their family members, friends,colleagues, etc about various Insurance schemes.
Advertisements have much more reach in urban areas.
Recommendations:
Life Insurance corporations like LIC of India should organize variousawareness programmes about the benefit of insuring human life and
non0life.
Insurance agents
Advertisements
Word of mouth
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3. Which company would you prefer to insure your life with?a) Life Insurance Corporation of India
b) SBI Life Insurancec) ICICI Prudential Life Insuranced) HDFC Standard Life Insurance
Findings:
Life Insurance Corporation of India is the most trusted brand for lifeinsurance.
Fact:
According to The Brand Trust Report 2012, LIC of India is the 8th mosttrusted brand of India.
LIC of India
SBI
ICICI Prudential
HDFC Standard Life
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4. Which company would you prefer to insure your non-life with?a)National Insurance Co Ltd
b)New India Assurance Co Ltdc) Bajaj Allianz General Insuranced) ICICI Lombard
Findings:
The New India Assurance Co. Ltd is among the oldest and largest generalinsurance company of India on the basis of gross premium collection
inclusive of foreign operations, and thus it remains as the most
recommended general insurance company.
National Insurance CO Ltd
New India Assurance CO Ltd
Bajaj Alliaz General
Insurance
ICICI Lombard
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5. Do you own a life insurance policy?a) Yes
b)No
Findings:
Only 60% of working urbanities have insured their life. These peopleseemed to be very well educated.
There has been lack of awareness among the general public.
Recommendations:
As recommended previously, several organisations should run an awarenessprogramme about Insurance and its benefits.
Yes
No
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6. Evolution in Insurance industry, harmful or competitive?
Findings:
Almost everyone said that it has been very competitive now, and so, theyhave been focusing on being service oriented rather than being only profit
oriented.
7. Which age group people prefer the most, either to insure themselves or theirbelongings?
a) 18-24b) 25-35c) 35-45
Findings:
With the growing rate of literacy in India, more and more youth populationhas bought insurance policies compared to any other age group. Motor
insurance is very prominent among this age group.
Age group
18-24
25-35
35-45
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8. What do you believe in the 21stCentury?a) Retaining/Renewing old customers
b) Winning new customers
Findings:
Though most of them said it is very important to retain old customers, somebelieved it is equally important to win new customers.
Facts:
Retaining a customer is more cost-effective than acquiring a new customer.An old or abandoned customer will already have a relationship and a trust
level with your brand, company or product.
Retaining/Renewing
Winning
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9. One word for Indian Insurance sector in 2020.Findings:
Most of the managers and executives/agents believe that Insurance sector inIndia will be at its peak in or by 2020. They consider Insurance and Banking
to be among the booming industry in coming years.
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Conclusion
India is among the important emerging insurance markets in the world. Life
insurance will grow very rapidly over the next decades in India. The major drivers
include sound economic fundamentals, a rising middle-income class, an improving
regulatory framework and rising risk awareness. The fundamental regulatory
changes in the insurance sector in 1999 will be critical for future growth. Despite
the restriction of 26% on foreign ownership, large foreign insurers have entered the
Indian market.
State owned insurance companies still have dominant market positions. But, this
would probably change over the next decade. In the life sector, new privateinsurers are bringing in new products to the market. They also have used
innovative distribution channels to reach a broader range of the population. There
is huge in the largely undeveloped private pension market. The same is true for the
health insurance business. The Indian general insurance segment is still heavily
regulated. Three quarters of premiums are generated under the tariff system.
Reinsurance in India is mainly provided by the General Insurance Corporation of
India, which receives 20% compulsory cessions from other general insurers.
Finally, the rural sector has potential for both life and general insurance. To realize
this potential, designing suitable products is important. Insurers will need to pay
special attention to the characteristics of the rural labor force, like the prevalence
of irregular income streams and preference for simple products.
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References
Bibliography
Bhattacharya, Saugata and Urjit R. Patel, Reform Strategies in the IndianFinancial Sector, Paper presented at the Conference on Indias and Chinas
Experience with Reform and Growth, November 2003.
Tripathi, Dwijendra, 2004, The Oxford History of Indian Business (OxfordUniversity Press, Oxford).
Vaidyanathan, L. S., 1934, Mortality Experience of Assured Lives in India,1905-1925, Journal of the Institute of Actuaries, 60, 5-66.
Swain, Shitanshu, 2004, LIC Refusing To See The Writing On The Wall,Financial Express, April 19.
Rodrik, Dani and Arvind Subramanian, 2003, Why India can grow at SevenPercent, Economic and Political Weekly, April 17.
Weblography
Annual Report of the Ministry of Finance (Section 3, Insurance Division,http://finmin.nic.in/the_ministry/dept_eco_affairs/budget/annual_report/959
6ea3.PDF)
Nationalisation of Insurance in India.http://ccsindia.org/interns2003/chap32.pdf. Centre for Civil Society
General Insurance Corporation of India. Wikipedia authors (as of February2013).
Life Insurance Corporation of India. Wikipedia authors (as of February2013).
http://finmin.nic.in/the_ministry/dept_eco_affairs/budget/annual_report/9596ea3.PDFhttp://finmin.nic.in/the_ministry/dept_eco_affairs/budget/annual_report/9596ea3.PDFhttp://finmin.nic.in/the_ministry/dept_eco_affairs/budget/annual_report/9596ea3.PDFhttp://finmin.nic.in/the_ministry/dept_eco_affairs/budget/annual_report/9596ea3.PDF -
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Annexure
To anonymous:
b) Has the evolution in Insurance policies and services satisfied your needs?a) Yes
b)Noc) How did you learn about various Insurance policies?
a) Insurance agentsb) Advertisementsc) Word of mouth
d) Which company would you prefer to insure your life with?e) Life Insurance Corporation of Indiaf) SBI Life Insuranceg) ICICI Prudential Life Insuranceh) HDFC Standard Life Insurance
e) Which company would you prefer to insure your non-life with?e)National Insurance Co Ltdf) New India Assurance Co Ltdg) Bajaj Allianz General Insuranceh) ICICI Lombard
f) Do you own a Life Insurance?a) Yes
b)No
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To Insurance companies:
1) Evolution in Insurance industry, harmful or competitive?
2) Which age group people insure themselves the most?a) 18-24
b) 25-35c) 35-45
3) What do you believe in the 21stCentury?a) Retaining/Renewing old customers
b) Winning new customers4) One word for Indian Insurance sector in 2020.