INSURANCE INDUSTRY –PUBLIC SECTOR
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Submitted by: Harsha S S
ICM
INSURANCE
Insurance may be described as a social device to reduce or eliminate risk of life and property. Under the plan of insurance, a large number of people associate themselves by sharing risk, attached to individual. The risk, which can be insured against include fire, the peril of sea, death, incident, & burglary. Any risk contingent upon these may be insured against at a premium commensurate with the risk involved.
Insurance is actually a contract between 2 parties whereby one party called insurer undertakes in exchange for a fixed sum called premium to pay the other party happening of a certain event. Insurance is a contract whereby, in return for the payment of premium by the insured, the insurers pay the financial losses suffered by the insured as a result of the occurrence of unforeseen events. The insurance sector in India has come a full circle from being an open competitive market to nationalisation and back to a liberalised market again.
A 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 nationalised. 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 (Nationalisation) Act, 1972 nationalised 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 reforms:
In 1993, Malhotra Committee headed by former Finance Secretary and RBI Governor R.N. Malhotra was formed to evaluate the Indian insurance industry and recommend its future direction.
The Malhotra committee was set up with the objective of complementing the reforms initiated in the financial sector. The reforms were aimed at "creating a more efficient and competitive financial system suitable for the requirements of the economy keeping in mind the structural changes currently underway and recognizing that insurance is an important part of the overall financial system where it was necessary to address the need for similar reforms…"
In 1994, the committee submitted the report and some of the key recommendations included:
1) Structure
• Government stake in the insurance Companies to be brought down to 50%.
• Government should take over the holdings of GIC and its subsidiaries so that these subsidiaries can act as independent corporations.
• All the insurance companies should be given greater freedom to operate.
2) Competition
• Private Companies with a minimum paid up capital of Rs.1bn should be allowed to enter the industry.
• No Company should deal in both Life and General Insurance through a single entity.
• Foreign companies may be allowed to enter the industry in collaboration with the domestic companies.
• Postal Life Insurance should be allowed to operate in the rural market.
• Only One State Level Life Insurance Company should be allowed to operate in each state.
3) Regulatory Body
• The Insurance Act should be changed.
• An Insurance Regulatory body should be set up.
• Controller of Insurance (Currently a part from the Finance Ministry) should be made independent.
4) Investments
• Mandatory Investments of LIC Life Fund in government securities to be reduced from 75% to 50%.
• GIC and its subsidiaries are not to hold more than 5% in any company (There current holdings to be brought down to this level over a period of time).
5) Customer Service
• LIC should pay interest on delays in payments beyond 30 days.
• Insurance companies must be encouraged to set up unit linked pension plans.
• Computerisation of operations and updating of technology to be carried out in the insurance industry The committee emphasized that in order to improve the customer services and increase the coverage of the insurance industry should be opened up to competition.
But at the same time, the committee felt the need to exercise caution as any failure on the part of new players could ruin the public confidence in the industry. Hence, it was decided to allow competition in a limited way by stipulating the minimum capital requirement of Rs.100 crores. The committee felt the need to provide greater autonomy to insurance companies in order to improve their performance and enable them to act as independent companies with economic motives. For this purpose, it had proposed setting up an independent regulatory body.
MAJOR POLICY CHANGES
Insurance sector has been opened up for competition from Indian private insurance companies with the enactment of Insurance Regulatory and Development Authority Act, 1999 (IRDA Act). As per the provisions of IRDA Act, 1999, Insurance Regulatory and Development Authority (IRDA) was established on 19th April 2000 to protect the interests of holder of insurance policy and to regulate, promote and ensure orderly growth of the insurance industry. IRDA Act 1999 paved the way for the entry of private players into the insurance market which was hitherto the exclusive privilege of public sector insurance companies/ corporations. Under the new dispensation Indian insurance companies in private sector were permitted to operate in India with the following conditions:
• Company is formed and registered under the Companies Act, 1956;
• The aggregate holdings of equity shares by a foreign company, either by itself or through its subsidiary companies or its nominees, do not exceed 26%, paid up equity capital of such Indian insurance company;
• The company's sole purpose is to carry on life insurance business or general insurance business or reinsurance business.
• The minimum paid up equity capital for life or general insurance business is Rs.100 crores.
• The minimum paid up equity capital for carrying on reinsurance business has been prescribed as Rs.200 crores.
The Authority has notified 27 Regulations on various issues which include Registration of Insurers, Regulation on insurance agents, Solvency Margin, Re-insurance, Obligation of Insurers to Rural and Social sector, Investment and Accounting Procedure, Protection of policy holders' interest etc. Applications were invited by the Authority with effect from 15th August, 2000 for issue of the Certificate of Registration to both life and non-life insurers. The Authority has its Head Quarter at Hyderabad.
MAJOR PLAYERS
LIFE INSURERS
Life Insurance Corporation of India
GENERAL INSURERS
National Insurance Company Limited
New India Assurance Company Limited
Oriental Insurance Company Limited
United India Insurance Company Limited
REINSURER
General Insurance Corporation of India
JOB OPPORTUNITIES THROUGH THE INDUSTRY
The following types of job openings can be availed in the insurance sector:
• Actuary: The job of an actuary is to apply his analytical skills in measuring the risks involved in writing insurance policies pertaining property, life, health and business.
• Agent: The job of the insurance agent is to convince those people or organizations that are out of the insurance cover and sell insurance policies to them.
• Claims Adjuster: The job of the claims adjuster is to check the damages incurred for which insurance claims have to be paid. He is responsible for settling fair deals between the insurance company and the customer.
• Service Representatives: The service representatives shuttle between the insurance company that writes the policy and the insurance agent who sells it.
• Underwriter: The job of the underwriter is to decide whether the applicant is eligible to get the desired insurance cover by measuring his exposure to risk.
• Customer Service Agent: The job of the customer service agent is to answer the daily queries of the customers. He is also incharge of updating the coverage and policy of the customer.
• Risk Manager: The risk manager analyses the risk faced by an organization and suggests way and means out of it.
• Loss Control Specialist: The job of the loss control specialist is to examine the safety measures undertaken by an organization. This is to minimize financial losses owing to accidents in the workplace.
OBJECTIVES
Objectives of Life Insurers
• Spread Life Insurance widely and in particular to the rural areas and to the socially and economically backward classes with a view to reaching all insurable persons in the country and providing them adequate financial cover against death at a reasonable cost.
• Maximize mobilization of people's savings by making insurance-linked savings adequately attractive.
• Bear in mind, in the investment of funds, the primary obligation to its policyholders, whose money it holds in trust, without losing sight of the interest of the community as a whole; the funds to be deployed to the best advantage of the investors as well as the community as a whole, keeping in view national priorities and obligations of attractive return.
• Conduct business with utmost economy and with the full realization that the moneys belong to the policyholders.
• Act as trustees 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 the insured public by providing efficient service with courtesy.
Objectives of General Insurers
• To serve better the insurance needs of the entire community, keeping CUSTOMER as the focus.
• To strengthen our tradition of being CUSTOMER - FRIENDLY, in order to provide quality service.
• To manage Business profitably, manage funds judiciously and deploy investible funds for optimum yield.
• To optimise the retention of Indian business and conduct reinsurance and international operations in the best interest of the country.
• To work towards minimisation of losses and develop Risk Management Technologies.
• To function as a strong and dynamic non-life insurer
CONTRIBUTIONS OF THE INDUSTRY
• It provides development opportunity to those larger industries having more risks in their setting up.
• It is an international business. The country can earn foreign exchange by way of issue of marine insurance policies and various other ways.
• It promotes exports insurance, which makes the foreign trade risk free with the help of different types of policies.
• Life Insurance Corporation is a major instrument for mobilization of savings of people particularly from the middle and lower income groups. These savings are channeled into investments for economic growth.
GROWTH
Growth Strategy for Nationalized Insurance Companies
Most of the opportunities and challenges that we have discussed apply equally to existing and new insurers. It must be emphasized that the opening of the insurance market is far from a bad thing for nationalized insurers. With a strong presence, a wide network and considerable brand equity, they are in a good position to tap the very same segments profitably, while improving their product and service offerings. The Indian company should Leverage information technology to service large numbers of customers efficiently and bring down overheads. Technology can complement or supplement distribution channels cost-effectively. It can also help improve customer service levels considerably.
Besides this, other areas can be focused to grow and survive in the Indian Market
1. Understanding Customer needs: Use data warehousing, management and mining to gauge the profitability and potential of various customer and product segments and ensure effective cross selling. Understanding the customer better will allow insurance companies to design appropriate and-customized products, determine pricing correctly and increase profitability.
2. High-level Training and Development: Ensure high levels of training and development not just for staff but also for agents and distribution organizations. Existing organizations will have to train staff for better service and flexibility, while all companies will have to train employees to cope with new products and an intensive use of information technology.
3. Alliance&Tieup: The importance of alliances and tie-ups means that companies will have to integrate related but separate providers into their systems to ensure seamless delivery.
4. Agent Relationship: Build strong relationships with intermediaries such as agents.
5. Market Segmentation: They must segment the market carefully to arrive at the appropriate products and pricing and should cater the needs of every individual.
6. Revamped Marketing Strategy: Worldwide, insurance products move along a continuum from pure service products to pure commodity products then they could be sold through the medical shops, groceries, novelty stores etc. Once commodization, popularity and awareness of the products are attained then the products can move to remote channels such as the telephone or direct mail. In the UK for example, retailer Marks & Spencer now sells insurance products. At this point, buyers look for low price. Brand loyalty could shift from the insurer to the seller.
INDUSTRY STRYCTURE
Chairman-Cum-Managing Director
Directors
General Managers
Financial Adviser
Chief Vigilance Officer
Company Secretary
FUTURE OF THE INDUSTRY
Life Insurance Corporation of India says it expects to pump in around Rs. 40,000 crore in equities in 2009-10. The LIC’s business from the rural area is increasing steadily. The LIC transacts business throughout India and also in foreign countries like U K, Mauritius, Fiji, Kenya, Nepal and Bahrain. LIC has begun India’s biggest investor in stock market. As a result of all these factors LIC of India has made a great trust among the people so there is no chance of dissolution of the company .So there exists a very tight competition in insurance field especially for upcoming companies in public sector. Since the competition is high the arising companies are offering very attractive products by accepting new methods they can make their future safe and can make a good position among the insurers.
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