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Analysing General Insurance Business in India
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Table of Content-
1- Executive summary
2- General insurance
3- Scenario of General insurance in India
4- Insurance Regulatory Development Authority
5- Insurance Regulatory Authority
6- General rules
7- Products of GIC
Insurance is not the sale of products, but servicing customers. It is a system, by which the losses suffered by a few are spread over many, Exposed to similar risks. Insurance is a protection against financial loss arising: on the happening of an unexpected event. Insurance companies collect premiums to provide for this protection. A loss is paid out of the premiums collected from the insuring public and the Insurance Companies act as trustees to the amount collected. The very fundamental principle of spreading of the risk is actually practiced by the insurance companies by reinsuring the risks that they have insured. The opening up of the Insurance Sector to Private Companies, has made available more products and world class service to Indian Customer.
This project has been made with an objective to give an insight into various facts of General Insurance sector in India. An attempt has been made to explain the apex body of General Insurance. i.e. General Insurance Corporation of India, its structure, products and subsidiaries.
Also the review of latest entrants into insurance sector via private players like TATA AIG
General Insurance Company, Reliance General Insurance Company limited, Bajaj Allianz
General Insurance Company, IFFCO Tokio General Insurance Company, Royal Sundaram
General Insurance Company limited and ICICI Lombard General Insurance Company have been described in brief, Due to the growth in the technological sector of the country, the insurance companies have started utilizing these technologies to its optimum level. A case study based on the devastating Mumbai floods on 26th July 2005 is been prepared and facts of the case are being listed along with the effect of the particular situation on the General Insurance Companies is been justified.
With the opening up of the insurance industry to the private sector, the need for a strong, independent and autonomous Insurance Regulatory Authority was felt. As the enacting of legislation would have taken time, the then Government constituted through a Government resolution an Interim Insurance Regulatory Authority pending the enactment of a comprehensive legislation.
The Insurance Regulatory and Development Authority Act, 1999 is an act 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 amend the Insurance Act, 1938, the Life Insurance
Corporation Act, 1956 and the General insurance Business (Nationalization) Act, 1972 to end the monopoly of the Life Insurance Corporation of India (for life insurance business) and General Insurance Corporation and its subsidiaries (for general insurance business).
Definition and meaning:
Insurance is the means of managing risk and protection against financial loss arising as a result of contingencies, which may or may not occur. In other words, insurance is the act of providing assurance, against a possible loss, by entering into a contract, with one who is willing to give assurance. Through this contract the person willing to give assurance binds himself to make good such loss, if it occurs.
2. GENERAL INSURANCE:
General insurance means managing risk against financial loss arising due to fire, marine or miscellaneous events as a result of contingencies, which may or may not occur. General
Insurance means to “Cover the risk of the financial loss from any natural calamities viz. Flood,
Fire, Earthquake, Burglary, etc.. i.e. the events which are beyond the control of the owner of the goods for the things having insurable interest with the utmost good faith by declaring the facts about the circumstances and the products by paying the stipulated sum , a premium and not having a motive of making profit from the insurance contract."
SCENARIO OF GENERAL INSURANCE MARKET
Brief the history of general Insurance.
In India General Insurance business started, Marine Insurance started on later part of the
17th century. Before nationalization in 1947 we have 147 insurance companies, foreign and Indian both. But during their nationalization, in 1973 we have 107 companies that merge into four companies, i.e. taken over by Government.
General Insurance Corporation of India (GIC) was set up in 1973 as a holding company, with four subsidiary operating companies - National Insurance co Ltd., New India Assurance Co. Ltd.,
Oriental Insurance co Ltd., and United India Insurance Co Ltd., with a clear cut mission as set out in the Act.
The overall scenario in the insurance market in India after nationalization is
GIC and its subsidiaries function through a vast country - wide network of around 4100 offices spread across the length and breadth of the country, GIC has taken the benefit of insurance to almost every district, across hilly terrain and often inaccessible areas of the country. The customer interface is made easy through a network of agents, development officers and employees at Branch, Divisional and Regional offices as well as at the corporate level.
The GIC and its subsidiaries have a workforce of approximately 86,000. In 1973 tainted at various levels through in house training institutions. Now the total number of employees went up. The industry has also promoted the National Insurance Academy (NIA), which is the premier training institute in insurance, catering not only to Indian Nationals but also to select foreign nationals. The industry issues around 23 million documents and settles 2 million claims every year.
Country wide computerization in the recently past has made the task of policy- holder's servicing easier and rapid. At the same time, profitable lines and premium components increases and we became a investment company.
Where does Indian Insurance sector stand compared to International Insurance Sector?
Technologically, Indian insurance sector is quiet comparable with the international sector. Our vast resources of skilled and technical manpower, huge market potentiality and technical knowhow - all are comparable with the international market. But lacking in the process of computerization and in pricing (premium rate) is also seen.
In product, we have demand in less because lack of awareness for adequate insurance cover in India with insuring public. Our marketing strategy is not very modern. But we are trying to rectify both these (Technology and Marketing) areas.
The problems faced by Indian Insurance Sector Today:
The main problems are:
· Lack of awareness for insurance needs
· Lack of penetration due to inadequate marketing/delivery system
· Total computerization still in the process of implementation
· Sophisticated covers do not have adequate demands because of General attitude to insurance in India
Recognizing its organizational strengths, the Govt. of India has also entrusted the corporation with the administration of various schemes for social melioration and public welfare. Social security schemes benefiting millions of Citizens below the poverty line.
Personal Accident Insurance and Hut Insurance are operated all over the country for which the premiums are paid by the Government. The GIC administers on behalf of Government, the crop Insurance scheme for areas and crops notified under the crop Insurance Scheme.
Role General Insurance Industry is playing in the growth of economy of the country:
The General Insurance Industry has an enviable track record among public sector units. It has a consistent profit and dividend paying record accompanied by a steady growth in its financial resources.
Through investments in the- Government sector and: socially - oriented Sectors the Industry has contributed immensely to the nation's development. The industry is recognized as one of the largest financial' Institutions in the Country. The ventures initiated by the industry in the areas of
Mutual Fund, Housing Finance have done exceedingly well in recent years.
To protect the country's foreign exchange reserves, the reinsurance arrangement are so organized that maximum retention is made possible within the country while at the same time protecting interests of the policy holders. The GIC'S inwards reinsurance wing, called the SWIFT, maximizes the foreign exchange balance by acting as an international insurer-accepting risk from all over the globe.
The impact of liberalization of economy in the activities of GlC is
With the liberalization of economy, General Insurance in India is poised for a quantum jump, both in quality and quantity.
Vision for the future:
It is estimated that the industry will outstrip the present rate of growth and reach a premium value of over Rs. l,20,000 millions by taking advantage of the extra-large mega risk and social awareness of insurance in general, even as . a developing country turns into a developed country.
The task before the industry to service the growing number of policy-holders would equally see a quantum jump in issuance of documents and settlement of claims. Matching reserves and consequent investment will be a natural corollary.
It is expected that the investment portfolio will touch around Rs. 2,50,000 millions by the end of the next decade, with the strength built up over the years since nationalization, GIC new looks to the future with confidence and optimism, takes on global chal1enge with its high standard of service, innovative initiative and a compelling social perspective.
GIC's plan - in new business areas:
The two new areas that GIC is getting into are the areas of health care and crop insurance. For the health care business, the corporation has received permission to set up a separate management services company. GIC has plans to increase the scope of cover in health care, personal accident and crop insurance and will require expertise in pricing the products.
INSURANCE REGULATORY AND DEVELOPMENT AUTHORITARIAN
Insurance Regulatory and Development Authority Act, 1999, came into being from 19/04/2000.
Objects are stated in Act are as follows:
"An Act to provide for establishment of Authority to protect interests of holders of insurance policies to regulate, promote and ensure orderly growth of insurance industry and for matters connected there with and further to amend Insurance Act, 1938, Life Insurance Corporation Act, 1956 and General Insurance Business (Nationalization) Act, 1972".
IRDA will consist of a chairperson and not more than five whole time members and not more than four part time members. Whole time members shall hold office for 5 years or until age of 62
(65 in case of chair person) whichever is earlier. Part time members shall hold office for not more than 5 years.
Powers and Function of Authority
1. To regulate, promote and ensure orderly growth of insurance and re- insurance business
2. To issue a certificate of registration, renew, modify, withdraw, suspend or cancel such registration of applicant, i.e. insurance company
3. To prepare a code of conduct for agents, surveyors and loss accesses and other intermediaries who take part in insurance business
4. To exercise all powers and perform all functions of controller of Insurance under Insurance
5. To protect interest of policy holders in matters concerning assignment of policy, settlement of claims, terms and conditions of contract etc.
6. To promote efficiency in conduct of insurance business
7. To promote and regulate professional organizations connected with insurance business
8. To regulate investment of funds of insurance companies
9. To regulate maintenance of margin of solvency
10. To adjudicate disputes between insurers and intermediaries
11. To call for information from" undertake inspection and conduct enquiries and investigations including audit of insurers, intermediaries etc.
12. To control and regulate rates', advantages, terms and conditions offered by Insurers in respect of general insurance business riot so controlled by Tariff Advisory committee
13. To prescribe manner and forms in which books of accounts is to be maintained
14. To exercise other powers as such may be prescribed by central government.
Insurance Regulatory Authority
On the recommendations of the Malhotra Committee, government has set up an interim
Insurance Regulatory Authority (IRA), with a view to activate an insurance regulatory apparatus essential for proper monitoring and control of the insurance industry. The IRA is headed by a chairman who is also Controller of insurance and chairman of TBC. The other members of the
IRA, not exceeding seven in number of whom not more than three shall serve full time, shall be nominated by the central government.
Insurance industry, as on 1.4.2000, comprised mainly two players: The state insurers:
1- Life Insures:
• Life Insurance Corporation of India (LIC)
2- General Insurers
• General Insurance Corporation of India (GIC) (with effect from Dec ‘2000, a national reinsurer)
Some players in the General Insurance Industry:
1. Oriental Insurance Company Ltd.
2. New India Assurance Company Ltd.
3. National Insurance Company Ltd.
4. United India Insurance Company Ltd.
1. Bajaj Alliaz General Insurance Company Ltd.
2. Reliance General Insurance Company Ltd.
3. Tata AIG General Insurance Company Ltd.
4. Royal Sundaram Alliance Insurance Company Ltd.
The insurance policy shall be void and all the premiums paid by insured may be forfeited by the insurance company in the event of mis-presentation or mis-declaration and/or non-disclosure of any material facts.
2. Reasonable care:
The insured shall take all reasonable steps to safeguard the property insured against any loss or damage. Insured shall exercise reasonable care that only competent employees are employed and shall take all reasonable precautions to prevent all accidents and shall comply with all statuary or other regulations
If any claim under the policy may be in any respect fraudulent or if any fraudulent means or device are used by the insured or any one acting on the insured’s behalf to obtain any benefit under the insurance policy, all the benefits under the insurance policy may be forfeited.
4. Few basic principles of general insurance are:
1. Insurable interest
2. Utmost good faith
5 Risks of loss not covered under general insurance are:
The loss or damage or liability or expenses whether direct or indirect occasion by happening through or arising from any consequences of war, invasion, act of foreign enemy, hostilities (whether war be declared or not), civil war, rebellion revolution, civil commotion or loot or pillage in connection therewith and loss or damage caused by depreciation or wear and tear.
The different types of General insurance products are listed below. While most policies are optional that is at the behest of the insured, some are mandatory. The mandatory ones are:
• Motor Insurance
• Public liability (for corporate class)
Other policies include:
1- Fire insurance
o Building or flat
o Furniture fixtures & other content’s
o Loss of profit that is consequential loss
2- Miscellaneous insurance
o Personal insurance
o Burglary ,theft
o Workmen’s compensation
o Fidelity guarantee
o Comprehensive Package Policy for jewelry, T.V, V.C.R, Furniture etc…
3- Marine Cargo Insurance
o Cargo In Transit
o Cargo Declaration Policy
4- Marine Hull Insurance
Inland Vessels Ocean going vessels, fishing & sailing vessels, freight at risk, construction of ships, voyage insurance of various vessels, ship breaking , insurance Awaiting break up, insurance Oil & energy in respect of onshore & offshore risks including construction risk.
Non – Traditional / Rural
o Cattle / Hens
o Water Pump for agriculture
o Other Livestock
o Motor Insurance
Motor insurance is mandatory for all types of vehicles in India. There are two types of motor insurance are
o Third party, which only insures the party / parties other than the owner in an accident
o Comprehensive, which insures the owner as well as the third party involved.
The premium for motor vehicles is decided on the following factors:
o Value of the vehicle
o Location where it is to registered .places having higher claim rates (like Mumbai) are likely to have higher premium
The premium for heavy commercial
o Value of the vehicle
o Gross laden weight, that is, the carrying capacity of the vehicle.
For HCV’s the driver is also insured along with the vehicle. A charge of rs.15/- is made as premium for the driver. For all sorts of vehicles insured, the policy would not cover the use on hire, reward or organized racing, speed reliability trails and speed testing.
There is (NCB) No Claim Bonus applicable for each year an insured person does not claim .It is accrued as a 5% deduction from the premium amount for the next year, subject to maximum
5- Property Insurance
Property insurance covers land, buildings and the contents of building. There are several types of
Property insurance packages, but the most common are the Fire Insurance and burglary Insurance.
6- Fire Insurance
Fire insurance is a comprehensive policy, which goes beyond only fire accidents. The policy, besides covering loss on account of fire, also covers loss on account of the following
o Malicious Intent
Fire insurance only can be taken by the owner of the premises to be insured. A tenant cannot insure rented premises since he does not have insurable interest. But the tenant has the option of insuring the contents of the premises. The premium is based on “Good faith" and depends on the value of property being insured.
It should be noted that thought fire insurance is not compulsory, in case of corporate availing of loans, the lending institution may insist on equipment or relevant property to be insured against fire. This trend is now also being followed by housing finance companies, some of which are insisting that the premises be insured against fire.
Burglary insurance covers all losses arisen out of burglary committed in one’s premises. The only condition for lodging a claim on the insurance party is that there should be a “forced entry" in to the premises. A forced entry may in the form of physical damage to the entry area, or to a person or entry gained through coercion. In this case too, the policy has no limitations and it is the right of the insured to decide upon the value of the insurance cover.
The Settlement of claims constitutes one of the important functions in an insurance organization.
The proper settlement of claims requires a sound knowledge of thee law, principles and practices governing insurance contracts and in particular a thorough knowledge of the terms and conditions of the standard policies and various extensions and modifications there under.
The procedure in respect of claim a under various classes of insurance follows a common pattern and may be considered under 3 broad headings
It is essential that early notification of the loss is received by insurance undue delay in notification would adversely affect the position of the insurer. However if there is any delay in notification or not or weather is material will be ultimately decided by the courts based on the facts of the individual cases
The notice of loss condition in liability policies provides for two aspects
a.) Notification of the happening of the accident immediately followed by
b.) Notification of the receipt of claim or suit filed against the insured.
Under certain types of policies (e.g. Burglary) notice is also to be given to police authorities.
At common law, there is a duty on the part of the insured to observe good faith .This duty of good faith means that at all times the insured has to act as if he is uninsured.
For E.g., the private car package policy provides , among other things , that the insured shall take all reasonable steps to safeguard the motor car from loss or damage and to maintain it in efficient condition. In the event of any accident or breakdown the motor car shall not be left unattended without proper precautions being taken to prevent further damage or loss.
On receipt of intimation of loss or damage insurers check that:
a.) the policy is in force on the date of occurrence of the loss or damage
b.) The loss or damage is by a peril insured by the policy.
c.) Notice of loss received without undue delay.
After this check up the loss is allotted a number and entered in the claims register.
The contents of the claim form vary with each class of insurance .In general the claim in general the claim form is designed to elicit full information regarding the circumstances of the loss such as date of loss, time, cause of loss, extent of loss etc claim forms are invariably sued in fire and miscellaneous insurance.
Investigation and Assessment
On receipt of the claim form duly completed from the insured the insurers decide about the investigation and assessment of loss if the loss is small the investigation to determine the cause and extent of loss is done by an officer of the insurers. Sometimes even this may be waived and the loss settled he basis of the claim form only.
The investigation of larger or complicated claims is entrusted to independent professional surveyors who are specialist in their line the appointment of a surveyor is intimated to the claimant the surveyor is furnished with all relevant claim papers such as claim form policy copy etc…However, many a times surveyor is appointed and survey is carried immediately on receipt on notice of loss, that is even before claim form could be issued.
In addition to the claim form independent survey report certain documents are required to be submitted by the insurers to substantiate the claim for example for fire claims for fire claims a report for the fire brigade for motor claims driving license registration copy police report etc
It is distinct from litigation and is a method of settling disputes under contract in accordance and conciliation act 1996.
The claim is processed on the basis of Claim form Independent report from Surveyors, legal opinion, medical opinion etc as the case may be. Various documents furnished by the insured.
Any other evidence secured by the insurers.
If the claim is in order settlement is effected by cheque the payment is entered in claims register as well as in the relevant process record. Appropriate recoveries are made from the insurers if any.