Description
It also includes distribution models of insurance. It explains general insurance, health insurance, re-insurance, types of insurance policies, unit linked insurance, micro insurance, challenges for insurance sector.
Indian Insurance Sector
Presented By: AKHTAR FARUQUE SRINATH PANDEY NIMBARK NIRMALYA SOUMIK ARAGHYA
INTRODUCTION
Introduction
Definition: • Legal contact between two parties • Economic cooperation Distinct Features: • Liability – driven financial intermediaries • Holding solvency capital • Determination of premium rate • Challenging task for marketing
Roles of Insurance in Economic Growth
• Stability to Business • Promotional Role in Nation - Building • Social welfare through Life Insurance • Financing in development
Principles of Insurance
• • • • • Principle of utmost good faith Principle of indemnity Doctrine of subrogation Principle of causa proxima Principle of insurable interest
History of Insurance in India
• 1818: The Oriental Life Insurance Company • 1870: Bombay Mutual Life Assurance Society • 1938: Insurance Act • 1956: Life Insurance Corporation Act • 1972: General Insurance Act • 1999: Insurance Regulatory and Development Authority
IRDA
Mission Statement: "To Protect the interests of the policyholders, to regulate, promote and ensure orderly growth of the insurance industry and for matters connected therewith or incidental thereto.“ Objectives: • Policy holder protection • Healthy growth of the insurance market
INSURANCE INTERMERDIARIES
INSURANCE INTERMEDIARIES
• • • • • AGENTS SURVEYORS AND ASSESSORS BROKERS THIRD PARTY ADMINISTRATORS BANKS
ALTERNATE DISTRIBUTION
• • • • • • • DIRECT MARKETING AUTOMOBILE MANUFACTURER TIE-UPS FOREX DEALERS WORKSITE MARKETING INTERNET DEPARTMENTAL STORES MARINE CARGO INSURANCE
GENERAL INSURANCE
• • • • • FIRE INSURANCE MOTOR INSURANCE MARINE CARGO INSURANCE MARINE HULL INSURANCE NON-TRADITIONAL/RURAL
Details of IRDA Regulations on Investments
Type of Investment Central Government Securities being not less than State Government Securities and other Guaranteed Securities including above being not less than
(%) 20 30 5
Housing and Loans to State Government for Housing and Fire Fighting equipment, being not less than, Investments in Approved Investments as specified in Schedule II. a )Infrastructure and Social Sector with in the meaning of IRDA regulations not less than b )Others to be governed by Exposure Norms specified in IRDA regulation (Investment in "other than approved investments" can in no case exceed 25% of the assets) not exceeding
10 55
MAINTAINANCE OF SOLVENCY MARGINS
• RATIO OF FREE CAPITAL TO TOTAL BUSINESS • SOLVENCY MARGIN OF (whichever is higher) – 50 crore – 20% of net premium income – 30% of net incurred claims • UNEXPLORED RISK • INCURRED BUT NOT REPORTED
MARKET SHARE OF INSURANCE COMAPNIES IN INDIA
HEALTH-INSURANCE
Health Insurance
Defined in Registration of Insurance Companies Regulations 2000 as “Effecting of contracts which provide sickness benefits or medical, surgical or hospital expense benefits, whether in-patient or out-patient, on an indemnity, reimbursement, service, prepaid hospital or other plan basis, including assured benefits and long-term care.”
Life Insurance
Health Insurance
General Insurance
Health Insurance Policies
Indemnity Based Benefit Type
• Eg, medi-claim, health guard, health wise etc • Provide reimbursement of hospitalization expenses
• Eg, hospital cash, critical illness ( standalone ) or as raider with life insurance • Provide lump-sum payment
Types of health Insurance Policies
Standard Health Insurance Policy Reimbursement and Cashless Policies Floater Policy Group Mediclaim Policy Health Riders under life Insurance
Status of Health Insurance Industry
Positives Negetives Government Stance
• Highest growth rate in the segment after life insurance • Premiums grew from Rs 675cr ( 2001-02) to 5100cr ( 200708)
• Tendency to buy health insurance in mid age • Claim ratio is around 6.4% • Nonstandardization of healthcare costs
• Planning to substantially relax entry norms • Minimum capital requirement expected to be slashed from 100cr to around 25cr
RE-INSURANCE
Reinsurance
Reinsurance is “insurance of risks assumed by the primary insurer ( ceding company ) to another insurer known as Reinsurer”
Facultative
• Insurance of large individual risks • Reinsurer has the right to accept or reject risk presented by ceding company
Treaty
• Reinsurance of specific types of risks that are automatically ceded and accepted • Higher certainty for ceding company
Reinsurance
Type Method Structure
Treaty
Facultative
Proportional
NonProportional
Quota Share
Surplus Share
Excess of Loss
Stop Loss
GENERAL INSURANCE
General Insurance Corporation(GIC)
• Incorporated in 1972. • 107 Indian and foreign companies were amalgamated into four companies – ? National insurance company Ltd. ? New India Assurance company Ltd. ? Oriental Insurance company Ltd. ? United India Assurance company ltd. • GIC as a holding company of the above four companies. • Task of GIC is to supervise, control and carry the business of general insurance in India.
Contd…
Carrying on general insurance business
Advising insurance companies for controlling expense
Functions of GIC
Aiding, Assisting and advising insurance companies
Advising insurance companies in investment of funds
Issuing directions regarding the conduct of general insurance business
Few Key Points…
• In Nov, 2000 Govt. of India notified GIC as the “Indian Reinsurer” under section 101A of the insurance act, 1938. • IRDA has prescribed that 20% of the gross premium will have to be ceded compulsorily with GIC which was reduced to 10% in 2008-09.
Life Insurance
• A contract between assured and the assurer where the latter promises to pay a certain sum of money to the former on the happening of the event insured against. • Five needs – Dying early, living too long, disability, care for children and wealth generation. • Total 23 players (1 public sector and 22 private sector companies). • Market dominated by Life insurance corporation of India (LIC).
Types of Insurance Policies
Endowment Plan
Term Insurance Policies
Insurance Policies
Money-Back Policies
Whole Life Policies
Unit-Linked Insurance Policies (ULIP)
• ULIP are those where a part of the premium is charged for the risk-cover and the rest is invested in select mutual funds as per the choice of the investor. • Three fund choices – debt fund, balanced fund, equity fund. • Major Benefits – ? Appreciation of the investment ?Tax rebate ?Life cover
MICRO-INSURANCE
LIC-Life Insurance Corporation of India
• Formed on 1 sep 1956 as an autonomous body •Objective was spreading life insurance much more widely and especially to rural areas •Role of LIC was to maximise the peoples savings and ensuring the welfare of the country •Acting as trustees of the insured public in their individual and collective capacities.
LIC Contd.
Subsidiaries • Life Insurance Corporation (International) • LIC Mutual Fund • LIC Pension Fund Products • Individual Plans • Group Schemes • Social Security group Insurance schemes • Pension Plans • Special Plans
Micro Insurance
• It is a provision of insurance for the poor • Products include Term Life Insurance, Accidental Death Insurance, Health Insurance , Asset Insurance all dealing with fundamental risks of livelihood.
Micro Insurance Delivery Models
• Partner-Agent Model • Community Based/ Mutual Model • Full service Model • Provider- Driven Model Examples include Bajaj Allianz Jana Vikas Yojana, ICICI PruSarv Jana Suraksha, SBI Life Grameen Shakti.
CHALLENGES FOR INSURANCE SECTOR
CHALLENGES-PENSION FUNDS
• Incomprehensive pension schemes. • Substantial population working in non-formal sector • Unavailability of UID leads to difficulty in finding the people in informal sector • Excess mortality rate of insurance policy holders in comparison to annuity policy holders
CHALLENGES-HEALTH INSURANCE
• No substantial growth in health care insurance market. • No differentiation from non-life insurance • Capital requirement for entering health insurance is very highRs 1000 Mn • Private health insurance schemes cost up to 10 times higher than public health insurance schemes • Lack of proper statistics make the market unexplored and keep it unattactive.
CHALLENEGS-LIFE INSURANCE
• Life insurer needs a minimum S&P rating of BBB • Insurers cannot have a reinsurance arrangement with companies to which they are linked by shareholding, unless the arrangement is regarded as competitive and the IRDA has given its approval to such an arrangement • Absence of morbidity data in India makes Insurance companies rely on global sources and their past experiences
CHALLENGES-NON LIFE INSURANCE
• Rising competitive pressure has exposed weaknesses within the industry that will require stronger ongoing supervisory attention • The prevalence of market tariffs and the cap on foreign ownership are two of the major liberalization issues India will have to tackle • Controversial aspect of India’s non-life insurance industry is its tariff regime, which dates back to the 19th century and is still very much in evidence today.
OTHER KEY CHALLENGES
• Government’s policy to maximize domestic retention in reinsurance has led to considerable restrictions within the sector. • Unavailability of clear definition of rural sector in insurance business terms has resulted in pragmatic problems for insurers planning to fulfill the rural sector obligations. • Despite government promotion, rural insurance has remained a small part of the total market. Most insurance companies see rural business as an obligation rather than an opportunity
CONCLUSION
India is among the most promising emerging insurance markets in the world. Its current premium volume of USD 18 billion has the potential to increase to USD 90 billion within the next decade. In particular, life insurance, which currently makes up 80% of premiums, is widely tipped to lead the growth. The major drivers include sound economic fundamentals, a rising middle-income class, an improving regulatory framework and rising risk awareness.
doc_593540963.pdf
It also includes distribution models of insurance. It explains general insurance, health insurance, re-insurance, types of insurance policies, unit linked insurance, micro insurance, challenges for insurance sector.
Indian Insurance Sector
Presented By: AKHTAR FARUQUE SRINATH PANDEY NIMBARK NIRMALYA SOUMIK ARAGHYA
INTRODUCTION
Introduction
Definition: • Legal contact between two parties • Economic cooperation Distinct Features: • Liability – driven financial intermediaries • Holding solvency capital • Determination of premium rate • Challenging task for marketing
Roles of Insurance in Economic Growth
• Stability to Business • Promotional Role in Nation - Building • Social welfare through Life Insurance • Financing in development
Principles of Insurance
• • • • • Principle of utmost good faith Principle of indemnity Doctrine of subrogation Principle of causa proxima Principle of insurable interest
History of Insurance in India
• 1818: The Oriental Life Insurance Company • 1870: Bombay Mutual Life Assurance Society • 1938: Insurance Act • 1956: Life Insurance Corporation Act • 1972: General Insurance Act • 1999: Insurance Regulatory and Development Authority
IRDA
Mission Statement: "To Protect the interests of the policyholders, to regulate, promote and ensure orderly growth of the insurance industry and for matters connected therewith or incidental thereto.“ Objectives: • Policy holder protection • Healthy growth of the insurance market
INSURANCE INTERMERDIARIES
INSURANCE INTERMEDIARIES
• • • • • AGENTS SURVEYORS AND ASSESSORS BROKERS THIRD PARTY ADMINISTRATORS BANKS
ALTERNATE DISTRIBUTION
• • • • • • • DIRECT MARKETING AUTOMOBILE MANUFACTURER TIE-UPS FOREX DEALERS WORKSITE MARKETING INTERNET DEPARTMENTAL STORES MARINE CARGO INSURANCE
GENERAL INSURANCE
• • • • • FIRE INSURANCE MOTOR INSURANCE MARINE CARGO INSURANCE MARINE HULL INSURANCE NON-TRADITIONAL/RURAL
Details of IRDA Regulations on Investments
Type of Investment Central Government Securities being not less than State Government Securities and other Guaranteed Securities including above being not less than
(%) 20 30 5
Housing and Loans to State Government for Housing and Fire Fighting equipment, being not less than, Investments in Approved Investments as specified in Schedule II. a )Infrastructure and Social Sector with in the meaning of IRDA regulations not less than b )Others to be governed by Exposure Norms specified in IRDA regulation (Investment in "other than approved investments" can in no case exceed 25% of the assets) not exceeding
10 55
MAINTAINANCE OF SOLVENCY MARGINS
• RATIO OF FREE CAPITAL TO TOTAL BUSINESS • SOLVENCY MARGIN OF (whichever is higher) – 50 crore – 20% of net premium income – 30% of net incurred claims • UNEXPLORED RISK • INCURRED BUT NOT REPORTED
MARKET SHARE OF INSURANCE COMAPNIES IN INDIA
HEALTH-INSURANCE
Health Insurance
Defined in Registration of Insurance Companies Regulations 2000 as “Effecting of contracts which provide sickness benefits or medical, surgical or hospital expense benefits, whether in-patient or out-patient, on an indemnity, reimbursement, service, prepaid hospital or other plan basis, including assured benefits and long-term care.”
Life Insurance
Health Insurance
General Insurance
Health Insurance Policies
Indemnity Based Benefit Type
• Eg, medi-claim, health guard, health wise etc • Provide reimbursement of hospitalization expenses
• Eg, hospital cash, critical illness ( standalone ) or as raider with life insurance • Provide lump-sum payment
Types of health Insurance Policies
Standard Health Insurance Policy Reimbursement and Cashless Policies Floater Policy Group Mediclaim Policy Health Riders under life Insurance
Status of Health Insurance Industry
Positives Negetives Government Stance
• Highest growth rate in the segment after life insurance • Premiums grew from Rs 675cr ( 2001-02) to 5100cr ( 200708)
• Tendency to buy health insurance in mid age • Claim ratio is around 6.4% • Nonstandardization of healthcare costs
• Planning to substantially relax entry norms • Minimum capital requirement expected to be slashed from 100cr to around 25cr
RE-INSURANCE
Reinsurance
Reinsurance is “insurance of risks assumed by the primary insurer ( ceding company ) to another insurer known as Reinsurer”
Facultative
• Insurance of large individual risks • Reinsurer has the right to accept or reject risk presented by ceding company
Treaty
• Reinsurance of specific types of risks that are automatically ceded and accepted • Higher certainty for ceding company
Reinsurance
Type Method Structure
Treaty
Facultative
Proportional
NonProportional
Quota Share
Surplus Share
Excess of Loss
Stop Loss
GENERAL INSURANCE
General Insurance Corporation(GIC)
• Incorporated in 1972. • 107 Indian and foreign companies were amalgamated into four companies – ? National insurance company Ltd. ? New India Assurance company Ltd. ? Oriental Insurance company Ltd. ? United India Assurance company ltd. • GIC as a holding company of the above four companies. • Task of GIC is to supervise, control and carry the business of general insurance in India.
Contd…
Carrying on general insurance business
Advising insurance companies for controlling expense
Functions of GIC
Aiding, Assisting and advising insurance companies
Advising insurance companies in investment of funds
Issuing directions regarding the conduct of general insurance business
Few Key Points…
• In Nov, 2000 Govt. of India notified GIC as the “Indian Reinsurer” under section 101A of the insurance act, 1938. • IRDA has prescribed that 20% of the gross premium will have to be ceded compulsorily with GIC which was reduced to 10% in 2008-09.
Life Insurance
• A contract between assured and the assurer where the latter promises to pay a certain sum of money to the former on the happening of the event insured against. • Five needs – Dying early, living too long, disability, care for children and wealth generation. • Total 23 players (1 public sector and 22 private sector companies). • Market dominated by Life insurance corporation of India (LIC).
Types of Insurance Policies
Endowment Plan
Term Insurance Policies
Insurance Policies
Money-Back Policies
Whole Life Policies
Unit-Linked Insurance Policies (ULIP)
• ULIP are those where a part of the premium is charged for the risk-cover and the rest is invested in select mutual funds as per the choice of the investor. • Three fund choices – debt fund, balanced fund, equity fund. • Major Benefits – ? Appreciation of the investment ?Tax rebate ?Life cover
MICRO-INSURANCE
LIC-Life Insurance Corporation of India
• Formed on 1 sep 1956 as an autonomous body •Objective was spreading life insurance much more widely and especially to rural areas •Role of LIC was to maximise the peoples savings and ensuring the welfare of the country •Acting as trustees of the insured public in their individual and collective capacities.
LIC Contd.
Subsidiaries • Life Insurance Corporation (International) • LIC Mutual Fund • LIC Pension Fund Products • Individual Plans • Group Schemes • Social Security group Insurance schemes • Pension Plans • Special Plans
Micro Insurance
• It is a provision of insurance for the poor • Products include Term Life Insurance, Accidental Death Insurance, Health Insurance , Asset Insurance all dealing with fundamental risks of livelihood.
Micro Insurance Delivery Models
• Partner-Agent Model • Community Based/ Mutual Model • Full service Model • Provider- Driven Model Examples include Bajaj Allianz Jana Vikas Yojana, ICICI PruSarv Jana Suraksha, SBI Life Grameen Shakti.
CHALLENGES FOR INSURANCE SECTOR
CHALLENGES-PENSION FUNDS
• Incomprehensive pension schemes. • Substantial population working in non-formal sector • Unavailability of UID leads to difficulty in finding the people in informal sector • Excess mortality rate of insurance policy holders in comparison to annuity policy holders
CHALLENGES-HEALTH INSURANCE
• No substantial growth in health care insurance market. • No differentiation from non-life insurance • Capital requirement for entering health insurance is very highRs 1000 Mn • Private health insurance schemes cost up to 10 times higher than public health insurance schemes • Lack of proper statistics make the market unexplored and keep it unattactive.
CHALLENEGS-LIFE INSURANCE
• Life insurer needs a minimum S&P rating of BBB • Insurers cannot have a reinsurance arrangement with companies to which they are linked by shareholding, unless the arrangement is regarded as competitive and the IRDA has given its approval to such an arrangement • Absence of morbidity data in India makes Insurance companies rely on global sources and their past experiences
CHALLENGES-NON LIFE INSURANCE
• Rising competitive pressure has exposed weaknesses within the industry that will require stronger ongoing supervisory attention • The prevalence of market tariffs and the cap on foreign ownership are two of the major liberalization issues India will have to tackle • Controversial aspect of India’s non-life insurance industry is its tariff regime, which dates back to the 19th century and is still very much in evidence today.
OTHER KEY CHALLENGES
• Government’s policy to maximize domestic retention in reinsurance has led to considerable restrictions within the sector. • Unavailability of clear definition of rural sector in insurance business terms has resulted in pragmatic problems for insurers planning to fulfill the rural sector obligations. • Despite government promotion, rural insurance has remained a small part of the total market. Most insurance companies see rural business as an obligation rather than an opportunity
CONCLUSION
India is among the most promising emerging insurance markets in the world. Its current premium volume of USD 18 billion has the potential to increase to USD 90 billion within the next decade. In particular, life insurance, which currently makes up 80% of premiums, is widely tipped to lead the growth. The major drivers include sound economic fundamentals, a rising middle-income class, an improving regulatory framework and rising risk awareness.
doc_593540963.pdf