General Insurance
Content
³GENERAL INSURANCE´
Submitted for the Seminar Report work of INDIAN FINANCIAL SYSTEM
TEACHER IN CHARGE Dr. P. T. Jose Reader, M.com, Ph. D
SUBMITTED BY NIXON.C.PAUL Roll No: 08B18 III YEAR B.COM
DEPARTMENT OF COMMERCE ST ALOYSIUS COLLEGE ELTHURUTH 2010-2011
INTRODUCTION
Insurance is a contract between two parties where by one party called insurer under takes in exchange for a fixed sum called premiums, to pay the other party called insured a fixed amount of money on the happening of a certain event. 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. For Example, in a Life Policy, by paying a premium to the Insurer, the family of the insured person receives a fixed compensation on the death of the insured. Similarly, in a car insurance, in the event of the car meeting with an accident, the insured receives the compensation to the extent of damage. It is a system by which the losses suffered by a few are spread over many, exposed to similar risks. Insurance is a mechanism for transferring risk and reducing risk by having a large number of individuals who share in the financial losses of the group. Risk in habitation and is highly subjective on an individual basis. Insurance objectifies risk. People trade the possibility of financial loss for the relative certainty of the premium paid and reimbursement for loss. Insurance frees people to take action even in the face of possible financial loss. Thus, insurance provides utility even if no loss ever occurs. Some people believe insurance is similar to gambling or opening a savings account.
In law and economics, insurance is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for payment. An insurer is a company selling the insurance; an insured, or policyholder, is the person or entity buying the insurance policy. The insurance rate is a factor used to determine the amount to be charged for a certain amount of insurance coverage, 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. ORIGIN OF INSURANCE Whenever there is uncertainty there is risk. We do not have any control over uncertainties which involves financial losses. The risk may be certain events like death, pension, retirement or uncertain events like theft, fire, accident, etc. Insurance is a financial service for collecting the savings of the public and providing them with risk coverage. It comes under service sector and while marketing this service due care
is taken in quality product and customer satisfaction. The main function of the Insurance is to provide protection against the possible chances of generating losses. The insurance sector in India has come a full circle from being an open competitive market to nationalization and back to a liberalized market again. Tracing the developments in the Indian insurance sector reveals the 360-degree turn witnessed over a period of almost two centuries. BASIC INSURANCE TERMINOLOGIES Agent: An insurance company representative licensed by the state, who solicits, negotiates or effects contracts of insurance, and provides service to the policyholder far the insurer. Actual Total Loss: It is a loss where the goods are completely lost and become irrecoverable Additional cover: An insurance policy extended to cover additional risk perils such as strikes. Riots and Civil commotion etc on payment of extra premium. Agreed value policy: Policy which undertakes to pay a specified amount in case of total loss. Under this case the policy does not take into account the current market value. Assessor: Person who estimates the value of goods for the purpose of apportioning the sum payable by the underwriters to settle the claims. Also called as Surveyor.
Assured: Party indemnified against 19ss by means of insurance. Burglary: It is a theft committed by breaking into or out of the premises. Evidence of breaking In, Is necessary. Coverage: The scope of protection provided under a contract of insurance; any of several risks covered by a policy. Cargo insurance: A generic term used in both inland marine and ocean marine insurance to designate the types of insurance available to provide coverage for cargo that is being transported by truck, rail, air, ship, or boat. Certificate of Insurance: A statement of coverage issued to an individual insured, specifying the insurance benefits and principal provisions applicable to the member. Claim: The formal request by a policyholder or a claimant for payment of loss under an insurance policy. Co-insurance: A provision under which an insured who carries less than the stipulated percentage of insurance to value, will receive a loss payment that is limited to the same ration which the amount of insurance bears to the amount required;
Cover Note: Is the document that is issued provisionary pending issuance of insurance Policy. Indemnity: Legal principle that specifies an insured should not collect more than the actual cash value of a loss but should be restored to approximately the same financial position as existed before the loss Insurable Interest: A condition in which the person applying for insurance and the person who is to receive the policy benefit will suffer all emotional or financial loss, if any untouched event occurs. Without insurable interest, an insurance contract is invalid, Insurance: Social device for minimizing risk of uncertainty regarding loss by spreading the risk over a large enough number of similar exposures to predict the individual chance of loss. Net Premium: The portion of premium rate which is designed to cover benefits of the policy, excluding expenses, contingencies and profit. Policy: Is the legal document that has the conditions of the insurance contract. Premium: It is the amount paid to secure an insurance policy. Salvage: Recovery made by an insurance company by the sale of property which has been taken over from that insured
as a part of loss settlement. The remains of damaged vehicle or any other property. Third party: Any person other than the two parties signing an insurance, contract.
TYPES OF INSURANCE Any risk that can be quantified can potentially be insured. Specific kinds of risk that may give rise to claims are known as "perils". An insurance policy will set out in details which perils are covered by the policy and which are not. Below are (non-exhaustive) lists of the many different types of insurance that exist. INSURANCE
Insurance is generally categorized into two divisions: 1. Life Insurance 2. General Insurance
LIFE INSURANCE
Life insurance provides a monetary benefit to a decedent's family or other designated beneficiary, and may specifically provide for income to an insured person's family, burial, funeral and other final expenses. Life insurance policies often allow the option of having the proceeds paid to the beneficiary either in a lump sum cash payment or an annuity. Annuities provide a stream of payments and are generally classified as insurance because they are issued by insurance companies and regulated as insurance and require the same kinds of actuarial and investment management expertise that life insurance requires. Annuities and pensions that pay a benefit for life are sometimes regarded as insurance against the possibility that a retiree will outlive his or her financial resources. In that sense, they are the complement of life insurance and, from an underwriting perspective, are the mirror image of life insurance. Certain life insurance contracts accumulate cash values, which may be taken by the insured if the policy is surrendered or which may be borrowed against. Some policies, such as annuities and endowment policies, are financial instruments to accumulate or liquidate wealth when it is needed.
Important milestones in the life insurance business in India: 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 nationalized. LIC formed by an Act of Parliament- LIC Act 1956- with a capital contribution of Rs. 5 crore from the Government of India.
GENERAL INSURANCE
The general insurance industry in India was nationalized and a government company known as General Insurance Corporation of India (GIC) was formed by the Central Government in November 1972. General (non life) insurance provide a short term coverage, ususall for a period of one year. General insurance transact fire insurance, motor insurance, marine insurance and miscellaneous insurance business. Among these categories
fire and motor insurance business are predominant motor vehicle insurance is compulsory in India and the motor insurance portfolio constitutes around 40 percent of the total gross premium collected by the general insurance industry .Moreover, motor insurance due to third party liability claims has substantially contributed to underwriting losses. The government nationalized the general insurance business on 1 Jan 1973, by passing the general insurance business act, 1972.prior to nationalization; insurance business was concentrated in urban area. The opening up of Insurance sector was a part of the ongoing liberalization in the financial sector of India. The changing face of the financial sector and the entry of several companies in the field of life and non life Insurance segment are one of the key results of these liberalization efforts. Insurance business by way of generating premium income adds significantly to be the GDP. Over the past three years, more than thirty companies have expressed interest in doing business in India. The IRDA (Insurance Regulatory Development Authority) is the regulatory authority, which looks over all related aspects of the insurance business. The provisions of the IRDA bill acknowledge many issues related to insurance sector. The IRDA bill provides guidance for three levels of players - Insurance Company, Insurance brokers and Insurance agent. Life Insurance sector is one of the key areas where enormous business potential exists. In India currently the life insurance premium as a percentage of GDP is 1.3 % against, 5.2 per centin the US.
General Insurance is another segment, which has been growing at a faster pace. But as per the current comparative statistics, the general insurance premium has been lower than life insurance. General Insurance premium as a percentage of GDP was a mere 0.5 'per cent in 1996. In the General Insurance Business, General Insurance Corporation (GIC) and its four subsidiaries viz. New India Insurance, Oriental Insurance, National Insurance and United India Insurance, are doing major business. The General Insurance Industry has been growing at a rate of 19 percent per year. The entry of several private insurance companies, particularly international insurance companies, through joint ventures, will speed up the process of insurance mobilization. The competition will unleash new schemes and benefits, which will give consumers a better Chance to save as well as insure. The regulatory system in India is relatively new and takes some more time to make the Insurance sector a perfectly competitive one. Insurance Regulatory Authority of India issued regulations on 15 subjects which included appointed. Actuary, actuarial report, Insurance agents, solvency margins, reinsurance registration of Insurers, and obligation of insurers to rural and social sector, investment and accounting procedure. The reform in Insurance in India is guided by factors like availability of a variety of products at a competitive price, improvement in the quality of customer services etc. Also the employment opportunities in the Insurance sector wil1increase as major players set their business plans in India. The policy of the Government to open
up the financial sector and the Insurance sector is expected to bring greater FDI inflow into the country. The increase in the investment limit in this vital sector has generated considerable business interests among the foreign Insurance companies" Their entry wil1 certainly change the Insurance sector considerably Sector and companies in general insurance: There are four nationalized and nine private general insurance companies: The government notified the general insurance corporation of India (GIC) as an Indian reinsurer in November 2000. With this the four public sector companies which were subsidiaries of GIC have been delinked from it and are noe broadly run as board managed companies. The four public sector companies are: The oriental insurance company limited. The new India assurance company limited. The national insurance company limited. The united India insurance company limited. The private sector general insurance companies are: The general Royal sundram alliance insurance company limited. Reliance general insurance company limited. IFFCO Tokio general insurance company limited. TATA AIG general insurance company limited. Bajaj Allianz general insurance company limited. ICICI Lombard general insurance company limited.
Cholamandalam general insurance company limited. HDFC-Chubb general insurance company limited. Star health and allied insurance company limited. Two new public sector entrants in general insurance businesses are: Export credit guarantee corporation limited. Agriculture insurance company of India Ltd. The minimum paid up capital of the general insurance companies was raised to Rs 100 crore under the modified insurance Act. The four nationalized general insurance companies enhanced their paid up capital from 40 crore to Rs 100 crore. The general insurance market is not big as the life insurance market. While life insurance accounts for 81 per cent of the insurance market in India, general accounts for the remaining 19 per cent. WHO SHOULD BUY GENERAL INSURANCE? Anyone who owns an asset can buy insurance to protect it against losses due to fire or theft and so on. Each one of us can insure our and our dependents¶ health and well being through hospitalization and personal accident policies. To buy a policy the person should be the one who will bear financial losses if they occur. This is known as insurable interest.
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 in India nationalized through The General Insurance Business (Nationalization) Act, 1972 with effect from 1st January 1973. 107 insurers amalgamated and grouped into four companies- the National Insurance Company Limited, the New India Assurance Company Limited, the Oriental Insurance Company Ltd. and the United India Insurance Company Ltd. GIC incorporated as a company IMPORTANCE OF GENERAL INSURANCE General Insurance covers are necessary for every family. It is important to protect one¶s property, which one might have acquired from one¶s hard earned income. A loss or damage to one¶s property can leave one shattered. Losses created by catastrophes such as the tsunami, earthquakes. Cyclones etc have left many homeless and penniless. Such
losses can be devastating but insurance could help mitigate them. Property can be covered, so also the people against Personal Accident. A Health Insurance policy can provide financial relief to a person undergoing medical treatment whether due to a disease or an injury. Industries also need to protect themselves by obtaining insurance covers to protect their building, machinery, stocks etc. They need to cover their liabilities as well. Financiers insist on insurance. So, most industries or businesses that are financed by banks and other institutions do obtain covers. But are they obtaining the right covers? And are they insuring adequately are questions that need to be given some thought. Also organizations or industries that are self-financed should ensure that they are protected by insurance. Most general insurance covers are annual contracts. However, there are few products that are long-term. General Insurance includes those insurance policies which are not covered under life insurance. General insurance provides protection against risk of loss to assets like home, motor vehicle, etc. Common general insurance plans include motor insurance, fire insurance, personal accident insurance, health insurance, marine insurance etc FIRE INSURANCE Fire insurance provides protection against damage to property caused by accidents due to fire, lightening or explosion, whereby the explosion is caused by boilers not being used for industrial purposes. Fire insurance also
includes damage caused due to other perils like strom tempest or flood; burst pipes; earthquake; aircraft; riot, civil commotion; malicious damage; explosion; impact. Fire insurance business in India is governed by the All India Fire Tariff that lays down the terms of coverage, the premium rates and the conditions of the Fire Policy. The fire insurance policy has been renamed as Standard Fire and Special Perils Policy. The risks covered are as follows:
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Dwellings, Offices, Shops, Hospitals (Located outside the compounds of industrial/manufacturing risks) Industrial / Manufacturing Risks Utilities located outside industrial/manufacturing risks Machinery and Accessories Storage Risks outside the compound of industrial risks Tank farms / Gas holders located outside the compound of industrial risks
The following are excluded from insurance coverage:
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Loss or damage caused by war, civil war and kindered perils Loss or damage caused by nuclear activity Loss or damage to the stocks in cold storage caused by change in temperature. Loss or damage due to over-running of electric and/ or electronic machines
Claims In the event of a fire loss covered under the fire insurance policy, the Insured shall immediately give notice thereof to the insurance company. Within 15 days of the occurrence of such loss the Insured should submit a claim in writing giving the details of damages and their estimated values. Details of other insurances on the same property should also be declared MARINE INSURANCE Marine insurance and marine cargo insurance cover the loss or damage of ships at sea or on inland waterways, and of cargo in transit, regardless of the method of transit. When the owner of the cargo and the carrier are separate corporations, marine cargo insurance typically compensates the owner of cargo for losses sustained from fire, shipwreck, etc., but excludes losses that can be recovered from the carrier or the carrier's insurance. Many marine insurance underwriters will include "time element" coverage in such policies, which extends the indemnity to cover loss of profit and other business expenses attributable to the delay caused by a covered loss. Actual total loss and constructive total loss These two terms are used to differentiate the degree of proof where a vessel or cargo has been lost. An actual total loss refers to the situation where the position is clear and a constructive total loss refers to the situation where a loss is inferred. In practice, a constructive total loss might also be
used to describe a loss where the cost of repair is not economic; i.e. a 'write-off'. The different terms refer to the difficulties of proving a loss where there might be no evidence of such a loss. In this respect, marine insurance differs from non-marine insurance, where the insured is required to prove his loss. Traditionally, in law, marine insurance was seen as an insurance of 'the adventure', with insurers having a stake and an interest in the vessel and/ or the cargo rather than, simply, an interest in the financial consequences of the subject-matter's survival. Marine insurance further includes: Marine Cargo Marine cargo policy provides protection to the goods loaded on a ship against all perils between the departure and arrival warehouse. Therefore, marine cargo covers carriage of goods by sea as well as transportation of goods by land. Marine Hull Marine hull policy provides protection against damage to ship caused due to the perils of the sea. Marine hull policy covers three-fourth of the liability of the hull owner (ship-owner) against loss due to collisions at sea. The remaining 1/4th of the liability is looked after by associations formed by ship-owners for the purpose (P and I clubs)
VEHICLE INSURANCE Auto insurance OR VEHICLE INSURANCE protects the policy- holder against financial loss in the event of an incident involving a vehicle they own, such as in a traffic collision. Coverage typically includes: 1. Property coverage, for damage to or theft of the car; 2. Liability coverage, for the legal responsibility to others for bodily injury or property damage; 3. Medical coverage, for the cost of treating injuries, rehabilitation and sometimes lost wages and funeral expenses. Most countries, such as the United Kingdom, require drivers to buy some, but not all, of these coverage¶s. When a car is used as collateral for a loan the lender usually requires specific coverage. HOME INSURANCE Home insurance provides compensation for damage or destruction of a home from disasters. In some geographical areas, the standard insurances exclude certain types of disasters, such as flood and earthquakes that require additional coverage. Maintenance-related problems are the homeowners' responsibility. The policy may include inventory, or this can be bought as a separate policy, especially for people who rent housing. In
some countries, insurers offer a package which may include liability and legal responsibility for injuries and property damage caused by members of the household, including pets.
MISCELLANEOUS INSURANCES
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Boiler insurance (also known as boiler and machinery insurance or equipment breakdown insurance) insures against accidental physical damage to equipment or machinery. Crop insurance "Farmers use crop insurance to reduce or manage various risks associated with growing crops. Such risks include crop loss or damage caused by weather, hail, drought, frost damage, insects, or disease, for instance." Builder's risk insurance insures against the risk of physical loss or damage to property during construction. Builder's risk insurance is typically written on an "all risk" basis covering damage due to any cause (including the negligence of the insured) not otherwise expressly excluded. Builder's risk insurance is coverage that protects a person's or organization's insurable interest in materials, fixtures and/or equipment being used in the construction or renovation of a building or structure should those items sustain physical loss or damage from a covered cause.
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Earthquake insurance is a form of property insurance that pays the policyholder in the event of an earthquake that causes damage to the property. Most ordinary homeowner¶s insurance policies do not cover earthquake damage. Most earthquake insurance policies feature a high deductible. Rates depend on location and the probability of an earthquake, as well as the construction of the home. A fidelity bond is a form of casualty insurance that covers policyholders for losses that they incur as a result of fraudulent acts by specified individuals. It usually insures a business for losses caused by the dishonest acts of its employees. Flood insurance protects against property loss due to flooding. Many insurers in the U.S. do not provide flood insurance in some portions of the country. In response to this, the federal government created the National Flood Insurance Program which serves as the insurer of last resort. Landlord insurance covers residential and commercial properties which are rented to others. Most homeowner's insurance covers only owner-occupied homes. Supplemental natural disaster insurance covers specified expenses after a natural disaster renders the policyholder's home uninhabitable. Periodic payments are made directly to the insured until the home is rebuilt or a specified time period has elapsed.
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Surety bond insurance is a three party insurance guaranteeing the performance of the principal. Terrorism insurance provides protection against any loss or damage caused by terrorist activities. Volcano insurance is an insurance that covers volcano damage in Hawaii. Windstorm insurance is an insurance covering the damage that can be caused by hurricanes and tropical cyclones.
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Development of general insurance: British and other foreign insurance companies transacted general insurance business in India through their agents. Subsequently, they established their companies in India. The triton insurance company limited was the first general insurance company established in Calcutta in 1850.Foreign companies had a monopoly in the insurance business up to the close of nineteenth century. The first Indian company to transact general insurance business was Indian mercantile insurance company limited in Bombay in 1907. In 1957, the general insurance council .Framed a code of conduct for insuring fair transaction of general insurance business. A controller of insurance was appointed to implement this code of conduct. In 1965, insurance floated a reinsurance company, Indian Reinsurance Corporation
limited, for retention of the general insurance business in India. In 1961, the Indian guarantee and general insurance company limited, a government company along with Indian Reinsurance Corporation were notified as Indian reinsurance. The insurance companies¶ voluntary ceded to each of them 10 percent of their gross direct premium. In 1960,the Govt of made it mandatory for every insurer to ceded 20 percent in fire and marine cargo,10 percent in marine hull and miscellaneous insurance and 5 percent in credit and solvency business to these two reinsurances. In1966, Indian reinsurance companies are formed the reinsurance pools in fire and hull department for retention of higher premiums in the country. The members companies ceded a specified percentage of premiums to the respective pools which were managed by two statutory reinsurance. The government nationalized the general insurance business Act 1972. One hundred and seven insurer including the branches of foreign companies operating in India were amalgamated and group into four companies, namely the national insurance company limited ,the new India assurance company limited ,the oriental insurance company limited, the united India assurance limited. The general insurance corporation as a holding company of these four companies in November 1972. The general insurance company is smaller than the life insurance company. The total market size in annual premium is about half of that life insurance. The general insurance in
India has currently about Rs20,000 crores of premium income with a five year compounded annual growth rate in the 16 percent range. The demand for general insurance is still generated by some of mandatory or regularity requirements. Motor vehicle insurance is compulsory and hence motor insurance premium dominates the total premium portfolio. The growth of general insurance business is hampered by lack of product innovation, lack of quality data on risks and associated parameters handicaps product innovation.
CONCLUSION
We all are exposed to various risks in our daily life. Even the wisest and the cleverest person cannot provide for or avoid all risks. Nobody can predict or foresee the calamity he suffers in future. Everybody on the road, whether on foot or in vehicle carries some risks of accident which may result in some serious injury, loss of limb impairing ability to earn livelihood or even death? One may take precautions against such risks, but the risks cannot be eliminated. Similarly there can be loss due to fire, floods, earthquakes, burglaries, illness etc. A risk involves loss. Not all, but most of the losses can be expressed in terms of money. A person exposed to some risk may incur a loss. If the loss in huge he may not be able to bear it alone. Society may have to render help to enable the sufferer to cope up with the situation. Help rendered to earthquake victims in such an example. However it will be better if a device or system is available and such a system is called insurance.
Submitted for the Seminar Report work of INDIAN FINANCIAL SYSTEM
TEACHER IN CHARGE Dr. P. T. Jose Reader, M.com, Ph. D
SUBMITTED BY NIXON.C.PAUL Roll No: 08B18 III YEAR B.COM
DEPARTMENT OF COMMERCE ST ALOYSIUS COLLEGE ELTHURUTH 2010-2011
INTRODUCTION
Insurance is a contract between two parties where by one party called insurer under takes in exchange for a fixed sum called premiums, to pay the other party called insured a fixed amount of money on the happening of a certain event. 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. For Example, in a Life Policy, by paying a premium to the Insurer, the family of the insured person receives a fixed compensation on the death of the insured. Similarly, in a car insurance, in the event of the car meeting with an accident, the insured receives the compensation to the extent of damage. It is a system by which the losses suffered by a few are spread over many, exposed to similar risks. Insurance is a mechanism for transferring risk and reducing risk by having a large number of individuals who share in the financial losses of the group. Risk in habitation and is highly subjective on an individual basis. Insurance objectifies risk. People trade the possibility of financial loss for the relative certainty of the premium paid and reimbursement for loss. Insurance frees people to take action even in the face of possible financial loss. Thus, insurance provides utility even if no loss ever occurs. Some people believe insurance is similar to gambling or opening a savings account.
In law and economics, insurance is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for payment. An insurer is a company selling the insurance; an insured, or policyholder, is the person or entity buying the insurance policy. The insurance rate is a factor used to determine the amount to be charged for a certain amount of insurance coverage, 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. ORIGIN OF INSURANCE Whenever there is uncertainty there is risk. We do not have any control over uncertainties which involves financial losses. The risk may be certain events like death, pension, retirement or uncertain events like theft, fire, accident, etc. Insurance is a financial service for collecting the savings of the public and providing them with risk coverage. It comes under service sector and while marketing this service due care
is taken in quality product and customer satisfaction. The main function of the Insurance is to provide protection against the possible chances of generating losses. The insurance sector in India has come a full circle from being an open competitive market to nationalization and back to a liberalized market again. Tracing the developments in the Indian insurance sector reveals the 360-degree turn witnessed over a period of almost two centuries. BASIC INSURANCE TERMINOLOGIES Agent: An insurance company representative licensed by the state, who solicits, negotiates or effects contracts of insurance, and provides service to the policyholder far the insurer. Actual Total Loss: It is a loss where the goods are completely lost and become irrecoverable Additional cover: An insurance policy extended to cover additional risk perils such as strikes. Riots and Civil commotion etc on payment of extra premium. Agreed value policy: Policy which undertakes to pay a specified amount in case of total loss. Under this case the policy does not take into account the current market value. Assessor: Person who estimates the value of goods for the purpose of apportioning the sum payable by the underwriters to settle the claims. Also called as Surveyor.
Assured: Party indemnified against 19ss by means of insurance. Burglary: It is a theft committed by breaking into or out of the premises. Evidence of breaking In, Is necessary. Coverage: The scope of protection provided under a contract of insurance; any of several risks covered by a policy. Cargo insurance: A generic term used in both inland marine and ocean marine insurance to designate the types of insurance available to provide coverage for cargo that is being transported by truck, rail, air, ship, or boat. Certificate of Insurance: A statement of coverage issued to an individual insured, specifying the insurance benefits and principal provisions applicable to the member. Claim: The formal request by a policyholder or a claimant for payment of loss under an insurance policy. Co-insurance: A provision under which an insured who carries less than the stipulated percentage of insurance to value, will receive a loss payment that is limited to the same ration which the amount of insurance bears to the amount required;
Cover Note: Is the document that is issued provisionary pending issuance of insurance Policy. Indemnity: Legal principle that specifies an insured should not collect more than the actual cash value of a loss but should be restored to approximately the same financial position as existed before the loss Insurable Interest: A condition in which the person applying for insurance and the person who is to receive the policy benefit will suffer all emotional or financial loss, if any untouched event occurs. Without insurable interest, an insurance contract is invalid, Insurance: Social device for minimizing risk of uncertainty regarding loss by spreading the risk over a large enough number of similar exposures to predict the individual chance of loss. Net Premium: The portion of premium rate which is designed to cover benefits of the policy, excluding expenses, contingencies and profit. Policy: Is the legal document that has the conditions of the insurance contract. Premium: It is the amount paid to secure an insurance policy. Salvage: Recovery made by an insurance company by the sale of property which has been taken over from that insured
as a part of loss settlement. The remains of damaged vehicle or any other property. Third party: Any person other than the two parties signing an insurance, contract.
TYPES OF INSURANCE Any risk that can be quantified can potentially be insured. Specific kinds of risk that may give rise to claims are known as "perils". An insurance policy will set out in details which perils are covered by the policy and which are not. Below are (non-exhaustive) lists of the many different types of insurance that exist. INSURANCE
Insurance is generally categorized into two divisions: 1. Life Insurance 2. General Insurance
LIFE INSURANCE
Life insurance provides a monetary benefit to a decedent's family or other designated beneficiary, and may specifically provide for income to an insured person's family, burial, funeral and other final expenses. Life insurance policies often allow the option of having the proceeds paid to the beneficiary either in a lump sum cash payment or an annuity. Annuities provide a stream of payments and are generally classified as insurance because they are issued by insurance companies and regulated as insurance and require the same kinds of actuarial and investment management expertise that life insurance requires. Annuities and pensions that pay a benefit for life are sometimes regarded as insurance against the possibility that a retiree will outlive his or her financial resources. In that sense, they are the complement of life insurance and, from an underwriting perspective, are the mirror image of life insurance. Certain life insurance contracts accumulate cash values, which may be taken by the insured if the policy is surrendered or which may be borrowed against. Some policies, such as annuities and endowment policies, are financial instruments to accumulate or liquidate wealth when it is needed.
Important milestones in the life insurance business in India: 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 nationalized. LIC formed by an Act of Parliament- LIC Act 1956- with a capital contribution of Rs. 5 crore from the Government of India.
GENERAL INSURANCE
The general insurance industry in India was nationalized and a government company known as General Insurance Corporation of India (GIC) was formed by the Central Government in November 1972. General (non life) insurance provide a short term coverage, ususall for a period of one year. General insurance transact fire insurance, motor insurance, marine insurance and miscellaneous insurance business. Among these categories
fire and motor insurance business are predominant motor vehicle insurance is compulsory in India and the motor insurance portfolio constitutes around 40 percent of the total gross premium collected by the general insurance industry .Moreover, motor insurance due to third party liability claims has substantially contributed to underwriting losses. The government nationalized the general insurance business on 1 Jan 1973, by passing the general insurance business act, 1972.prior to nationalization; insurance business was concentrated in urban area. The opening up of Insurance sector was a part of the ongoing liberalization in the financial sector of India. The changing face of the financial sector and the entry of several companies in the field of life and non life Insurance segment are one of the key results of these liberalization efforts. Insurance business by way of generating premium income adds significantly to be the GDP. Over the past three years, more than thirty companies have expressed interest in doing business in India. The IRDA (Insurance Regulatory Development Authority) is the regulatory authority, which looks over all related aspects of the insurance business. The provisions of the IRDA bill acknowledge many issues related to insurance sector. The IRDA bill provides guidance for three levels of players - Insurance Company, Insurance brokers and Insurance agent. Life Insurance sector is one of the key areas where enormous business potential exists. In India currently the life insurance premium as a percentage of GDP is 1.3 % against, 5.2 per centin the US.
General Insurance is another segment, which has been growing at a faster pace. But as per the current comparative statistics, the general insurance premium has been lower than life insurance. General Insurance premium as a percentage of GDP was a mere 0.5 'per cent in 1996. In the General Insurance Business, General Insurance Corporation (GIC) and its four subsidiaries viz. New India Insurance, Oriental Insurance, National Insurance and United India Insurance, are doing major business. The General Insurance Industry has been growing at a rate of 19 percent per year. The entry of several private insurance companies, particularly international insurance companies, through joint ventures, will speed up the process of insurance mobilization. The competition will unleash new schemes and benefits, which will give consumers a better Chance to save as well as insure. The regulatory system in India is relatively new and takes some more time to make the Insurance sector a perfectly competitive one. Insurance Regulatory Authority of India issued regulations on 15 subjects which included appointed. Actuary, actuarial report, Insurance agents, solvency margins, reinsurance registration of Insurers, and obligation of insurers to rural and social sector, investment and accounting procedure. The reform in Insurance in India is guided by factors like availability of a variety of products at a competitive price, improvement in the quality of customer services etc. Also the employment opportunities in the Insurance sector wil1increase as major players set their business plans in India. The policy of the Government to open
up the financial sector and the Insurance sector is expected to bring greater FDI inflow into the country. The increase in the investment limit in this vital sector has generated considerable business interests among the foreign Insurance companies" Their entry wil1 certainly change the Insurance sector considerably Sector and companies in general insurance: There are four nationalized and nine private general insurance companies: The government notified the general insurance corporation of India (GIC) as an Indian reinsurer in November 2000. With this the four public sector companies which were subsidiaries of GIC have been delinked from it and are noe broadly run as board managed companies. The four public sector companies are: The oriental insurance company limited. The new India assurance company limited. The national insurance company limited. The united India insurance company limited. The private sector general insurance companies are: The general Royal sundram alliance insurance company limited. Reliance general insurance company limited. IFFCO Tokio general insurance company limited. TATA AIG general insurance company limited. Bajaj Allianz general insurance company limited. ICICI Lombard general insurance company limited.
Cholamandalam general insurance company limited. HDFC-Chubb general insurance company limited. Star health and allied insurance company limited. Two new public sector entrants in general insurance businesses are: Export credit guarantee corporation limited. Agriculture insurance company of India Ltd. The minimum paid up capital of the general insurance companies was raised to Rs 100 crore under the modified insurance Act. The four nationalized general insurance companies enhanced their paid up capital from 40 crore to Rs 100 crore. The general insurance market is not big as the life insurance market. While life insurance accounts for 81 per cent of the insurance market in India, general accounts for the remaining 19 per cent. WHO SHOULD BUY GENERAL INSURANCE? Anyone who owns an asset can buy insurance to protect it against losses due to fire or theft and so on. Each one of us can insure our and our dependents¶ health and well being through hospitalization and personal accident policies. To buy a policy the person should be the one who will bear financial losses if they occur. This is known as insurable interest.
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 in India nationalized through The General Insurance Business (Nationalization) Act, 1972 with effect from 1st January 1973. 107 insurers amalgamated and grouped into four companies- the National Insurance Company Limited, the New India Assurance Company Limited, the Oriental Insurance Company Ltd. and the United India Insurance Company Ltd. GIC incorporated as a company IMPORTANCE OF GENERAL INSURANCE General Insurance covers are necessary for every family. It is important to protect one¶s property, which one might have acquired from one¶s hard earned income. A loss or damage to one¶s property can leave one shattered. Losses created by catastrophes such as the tsunami, earthquakes. Cyclones etc have left many homeless and penniless. Such
losses can be devastating but insurance could help mitigate them. Property can be covered, so also the people against Personal Accident. A Health Insurance policy can provide financial relief to a person undergoing medical treatment whether due to a disease or an injury. Industries also need to protect themselves by obtaining insurance covers to protect their building, machinery, stocks etc. They need to cover their liabilities as well. Financiers insist on insurance. So, most industries or businesses that are financed by banks and other institutions do obtain covers. But are they obtaining the right covers? And are they insuring adequately are questions that need to be given some thought. Also organizations or industries that are self-financed should ensure that they are protected by insurance. Most general insurance covers are annual contracts. However, there are few products that are long-term. General Insurance includes those insurance policies which are not covered under life insurance. General insurance provides protection against risk of loss to assets like home, motor vehicle, etc. Common general insurance plans include motor insurance, fire insurance, personal accident insurance, health insurance, marine insurance etc FIRE INSURANCE Fire insurance provides protection against damage to property caused by accidents due to fire, lightening or explosion, whereby the explosion is caused by boilers not being used for industrial purposes. Fire insurance also
includes damage caused due to other perils like strom tempest or flood; burst pipes; earthquake; aircraft; riot, civil commotion; malicious damage; explosion; impact. Fire insurance business in India is governed by the All India Fire Tariff that lays down the terms of coverage, the premium rates and the conditions of the Fire Policy. The fire insurance policy has been renamed as Standard Fire and Special Perils Policy. The risks covered are as follows:
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Dwellings, Offices, Shops, Hospitals (Located outside the compounds of industrial/manufacturing risks) Industrial / Manufacturing Risks Utilities located outside industrial/manufacturing risks Machinery and Accessories Storage Risks outside the compound of industrial risks Tank farms / Gas holders located outside the compound of industrial risks
The following are excluded from insurance coverage:
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Loss or damage caused by war, civil war and kindered perils Loss or damage caused by nuclear activity Loss or damage to the stocks in cold storage caused by change in temperature. Loss or damage due to over-running of electric and/ or electronic machines
Claims In the event of a fire loss covered under the fire insurance policy, the Insured shall immediately give notice thereof to the insurance company. Within 15 days of the occurrence of such loss the Insured should submit a claim in writing giving the details of damages and their estimated values. Details of other insurances on the same property should also be declared MARINE INSURANCE Marine insurance and marine cargo insurance cover the loss or damage of ships at sea or on inland waterways, and of cargo in transit, regardless of the method of transit. When the owner of the cargo and the carrier are separate corporations, marine cargo insurance typically compensates the owner of cargo for losses sustained from fire, shipwreck, etc., but excludes losses that can be recovered from the carrier or the carrier's insurance. Many marine insurance underwriters will include "time element" coverage in such policies, which extends the indemnity to cover loss of profit and other business expenses attributable to the delay caused by a covered loss. Actual total loss and constructive total loss These two terms are used to differentiate the degree of proof where a vessel or cargo has been lost. An actual total loss refers to the situation where the position is clear and a constructive total loss refers to the situation where a loss is inferred. In practice, a constructive total loss might also be
used to describe a loss where the cost of repair is not economic; i.e. a 'write-off'. The different terms refer to the difficulties of proving a loss where there might be no evidence of such a loss. In this respect, marine insurance differs from non-marine insurance, where the insured is required to prove his loss. Traditionally, in law, marine insurance was seen as an insurance of 'the adventure', with insurers having a stake and an interest in the vessel and/ or the cargo rather than, simply, an interest in the financial consequences of the subject-matter's survival. Marine insurance further includes: Marine Cargo Marine cargo policy provides protection to the goods loaded on a ship against all perils between the departure and arrival warehouse. Therefore, marine cargo covers carriage of goods by sea as well as transportation of goods by land. Marine Hull Marine hull policy provides protection against damage to ship caused due to the perils of the sea. Marine hull policy covers three-fourth of the liability of the hull owner (ship-owner) against loss due to collisions at sea. The remaining 1/4th of the liability is looked after by associations formed by ship-owners for the purpose (P and I clubs)
VEHICLE INSURANCE Auto insurance OR VEHICLE INSURANCE protects the policy- holder against financial loss in the event of an incident involving a vehicle they own, such as in a traffic collision. Coverage typically includes: 1. Property coverage, for damage to or theft of the car; 2. Liability coverage, for the legal responsibility to others for bodily injury or property damage; 3. Medical coverage, for the cost of treating injuries, rehabilitation and sometimes lost wages and funeral expenses. Most countries, such as the United Kingdom, require drivers to buy some, but not all, of these coverage¶s. When a car is used as collateral for a loan the lender usually requires specific coverage. HOME INSURANCE Home insurance provides compensation for damage or destruction of a home from disasters. In some geographical areas, the standard insurances exclude certain types of disasters, such as flood and earthquakes that require additional coverage. Maintenance-related problems are the homeowners' responsibility. The policy may include inventory, or this can be bought as a separate policy, especially for people who rent housing. In
some countries, insurers offer a package which may include liability and legal responsibility for injuries and property damage caused by members of the household, including pets.
MISCELLANEOUS INSURANCES
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Boiler insurance (also known as boiler and machinery insurance or equipment breakdown insurance) insures against accidental physical damage to equipment or machinery. Crop insurance "Farmers use crop insurance to reduce or manage various risks associated with growing crops. Such risks include crop loss or damage caused by weather, hail, drought, frost damage, insects, or disease, for instance." Builder's risk insurance insures against the risk of physical loss or damage to property during construction. Builder's risk insurance is typically written on an "all risk" basis covering damage due to any cause (including the negligence of the insured) not otherwise expressly excluded. Builder's risk insurance is coverage that protects a person's or organization's insurable interest in materials, fixtures and/or equipment being used in the construction or renovation of a building or structure should those items sustain physical loss or damage from a covered cause.
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Earthquake insurance is a form of property insurance that pays the policyholder in the event of an earthquake that causes damage to the property. Most ordinary homeowner¶s insurance policies do not cover earthquake damage. Most earthquake insurance policies feature a high deductible. Rates depend on location and the probability of an earthquake, as well as the construction of the home. A fidelity bond is a form of casualty insurance that covers policyholders for losses that they incur as a result of fraudulent acts by specified individuals. It usually insures a business for losses caused by the dishonest acts of its employees. Flood insurance protects against property loss due to flooding. Many insurers in the U.S. do not provide flood insurance in some portions of the country. In response to this, the federal government created the National Flood Insurance Program which serves as the insurer of last resort. Landlord insurance covers residential and commercial properties which are rented to others. Most homeowner's insurance covers only owner-occupied homes. Supplemental natural disaster insurance covers specified expenses after a natural disaster renders the policyholder's home uninhabitable. Periodic payments are made directly to the insured until the home is rebuilt or a specified time period has elapsed.
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Surety bond insurance is a three party insurance guaranteeing the performance of the principal. Terrorism insurance provides protection against any loss or damage caused by terrorist activities. Volcano insurance is an insurance that covers volcano damage in Hawaii. Windstorm insurance is an insurance covering the damage that can be caused by hurricanes and tropical cyclones.
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Development of general insurance: British and other foreign insurance companies transacted general insurance business in India through their agents. Subsequently, they established their companies in India. The triton insurance company limited was the first general insurance company established in Calcutta in 1850.Foreign companies had a monopoly in the insurance business up to the close of nineteenth century. The first Indian company to transact general insurance business was Indian mercantile insurance company limited in Bombay in 1907. In 1957, the general insurance council .Framed a code of conduct for insuring fair transaction of general insurance business. A controller of insurance was appointed to implement this code of conduct. In 1965, insurance floated a reinsurance company, Indian Reinsurance Corporation
limited, for retention of the general insurance business in India. In 1961, the Indian guarantee and general insurance company limited, a government company along with Indian Reinsurance Corporation were notified as Indian reinsurance. The insurance companies¶ voluntary ceded to each of them 10 percent of their gross direct premium. In 1960,the Govt of made it mandatory for every insurer to ceded 20 percent in fire and marine cargo,10 percent in marine hull and miscellaneous insurance and 5 percent in credit and solvency business to these two reinsurances. In1966, Indian reinsurance companies are formed the reinsurance pools in fire and hull department for retention of higher premiums in the country. The members companies ceded a specified percentage of premiums to the respective pools which were managed by two statutory reinsurance. The government nationalized the general insurance business Act 1972. One hundred and seven insurer including the branches of foreign companies operating in India were amalgamated and group into four companies, namely the national insurance company limited ,the new India assurance company limited ,the oriental insurance company limited, the united India assurance limited. The general insurance corporation as a holding company of these four companies in November 1972. The general insurance company is smaller than the life insurance company. The total market size in annual premium is about half of that life insurance. The general insurance in
India has currently about Rs20,000 crores of premium income with a five year compounded annual growth rate in the 16 percent range. The demand for general insurance is still generated by some of mandatory or regularity requirements. Motor vehicle insurance is compulsory and hence motor insurance premium dominates the total premium portfolio. The growth of general insurance business is hampered by lack of product innovation, lack of quality data on risks and associated parameters handicaps product innovation.
CONCLUSION
We all are exposed to various risks in our daily life. Even the wisest and the cleverest person cannot provide for or avoid all risks. Nobody can predict or foresee the calamity he suffers in future. Everybody on the road, whether on foot or in vehicle carries some risks of accident which may result in some serious injury, loss of limb impairing ability to earn livelihood or even death? One may take precautions against such risks, but the risks cannot be eliminated. Similarly there can be loss due to fire, floods, earthquakes, burglaries, illness etc. A risk involves loss. Not all, but most of the losses can be expressed in terms of money. A person exposed to some risk may incur a loss. If the loss in huge he may not be able to bear it alone. Society may have to render help to enable the sufferer to cope up with the situation. Help rendered to earthquake victims in such an example. However it will be better if a device or system is available and such a system is called insurance.
