Insurance Sector

Brief history of insurance sector The insurance sector in India has completed all the facets of competition –from being an open competitive market to being nationalized and then getting back to the form of a liberalized market once again. The history of the insurance sector in India reveals that it has witnessed complete dynamism for the past two centuries approximately. With the establishment of the Oriental Life Insurance Company in Kolkata, the business of Indian life insurance started in the year 1818. Important milestones in the Indian life insurance business 1907: The Indian Mercantile Insurance Ltd. was set up which was the first company of its type to transact all general insurance business.
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 1912: The Indian Life Assurance Companies Act came into force for regulating the life insurance business.

 1928: The Indian Insurance Companies Act was enacted for enabling the government to collect statistical information on both life and non-life insurance businesses.

 1938: The earlier legislation consolidated the Insurance Act with the aim of safeguarding the interests of the insuring public.

 1956: 245 Indian and foreign insurers and provident societies were taken over by the central government and they got nationalized. LIC was formed by an Act of Parliament, viz. LIC Act, 1956. It started off with a capital of Rs. 5 crore and that too from the Government of India.

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 1957: General Insurance Council, an arm of the Insurance Association of India, framed a code of conduct for guaranteeing fair conduct and sound business patterns.

 1968: The Insurance Act improved for regulating investments and set minimal solvency levels and the Tariff Advisory Committee was set up.

 1972: The General Insurance Business (Nationalization) Act, 1972 nationalized the general insurance business in India. It was with effect from 1st January 1973.

The history of general insurance business in India can be traced back to Triton Insurance Company Ltd. (the first general insurance company) which was formed in the year 1850 in Kolkata by the British. 107 insurers integrated and grouped into four companies viz. the National Insurance Company Ltd., the New India Assurance Company Ltd., the Oriental Insurance Company Ltd. and the United India Insurance Company Ltd. GIC was incorporated as a company.

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Concept of Insurance On the one hand, human life is subject to various risks—risk of death or disability due to natural or accidental causes. Humans are also prone to diseases, the treatment of which may involve huge expenditure. On the other hand, property owned by man is exposed to various hazards, natural and man-made. When human life is lost or a person is disabled permanently or temporarily, there is a loss of income to the household. The family is put to hardship. Sometimes survival itself is at stake for the dependants. When it comes to property, loss or damage to property results in either whole or partial loss in income to the person or entity. Risk has the element of unpredictability. Death/disability or loss/damage could occur at anytime. Losses can be mitigated through insurance. Insurance is a commodity which offers protection against various contingencies. Insurance products available for life and non-life are many. In non-life, apart form personal covers such as accident covers and health insurance, there are products covering liabilities under a particular law and or common law. The various products are designed to cater to different needs of an individual or industry such as fire insurance policy on multi-storeyed building, householder’s policy. An insurance contract promises to make good to the insured a certain sum in consideration for a payment in the form of premium from the insured. Human life cannot be valued. Hence the sum assured ( or the amount guaranteed to be paid in the event of a loss ) is by way of a ‘benefit’ in the case of life insurance. Life insurance products provide a definite amount of money to the dependants of the insured in case the life insured dies during his active income earning period or becomes
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disabled on account of an accident causing reduction/complete loss in his income earnings. An individual can also protect his old age when he ceases to earn and has no other means of income by purchasing an annuity product. A Personal Accident cover is also for protection. In the event of death or disability, permanent or temporary, of the insured, it provides for compensation which is either the whole or a percentage of the Capital Sum Insured depending on the kind of loss. In the case of Health Insurance, the policy seeks to cover expenses towards of treatment of diseases and or injury upto the Sum Insured opted for by the insured. In respect of insurance relating to property, there are many products available. Property may be covered against fire and perils of nature including flood, earthquake etc. Machinery may be insured for breakdown. Goods in transit can be insured under a marine cargo insurance cover. Insurance covers are also available for ships and other vessels. A motor insurance policy covers third party damage as well as damage to the vehicle. Insurance of property is based on the principle of indemnity. The idea is to bring the insured to the same financial position as he /she was before the loss occurred. It safeguards the investment in the property. Where there is no insurance, losses can mar a project or an industry. General Insurance offers stability to the economy and to the society. Insurance offers security and so peace of mind to the individual. The concept of insurance is that the losses of a few are made good by contribution from many. It is based on the law of large numbers. It stemmed from the need of man to find a solution for mitigation of losses. It also reflects the nature of man to find a solution collectively. As per regulations, insurers have to give the various features of the products at the point of sale. The insured should also go through the various terms and conditions of the products and understand what they have bought and met their insurance needs. They ought to understand the claim procedures so that they know what to do in the event of a loss. Insurance provides compensation to a person for an anticipated loss to his life, business or an asset. Insurance is broadly classified into two parts covering different types of risks: 1.Long-term (Life Insurance) 2. General Insurance (Non-life Insurance)

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Long-term Insurance Long term insurance is so called because it is meant for a long-term period which may stretch to several years or whole life-time of the insured. Long-term insurance covers all life insurance policies. Insurance against risk to one's life is covered under ordinary life assurance. Ordinary life assurance can be further clasified into following types:

Types of Ordinary Life Meaning Assurance 1. Whole Life Assurance In whole life assurance, insurance company collects premium from the insured for whole life or till the time of his retirement and pays claim to the family of the insured only after his death. In case of endowment assurance, the term of policy is defined for a specified period say 15, 20, 25 or 30 years. The insurance company pays the claim to the family of assured in an event of his death within the policy's term or in an event of the assured surviving the policy's term.

2. Endowment Assurance

3. Assurances for Children i). Child's Deferred Assurance: Under this policy, claim by insurance company is paid on the option date which is calculated to coincide with the child's eighteenth or twenty first birthday. In case the parent survives till option date, policy may either be continued or payment may be claimed on the same date. However, if the parent dies before the option date, the policy remains continued until the option date without any need for payment of premiums. If the child dies before the option date, the parent receives back all premiums paid to the insurance company. ii). School fee policy: School fee policy can be availed by effecting an endowment policy, on the life

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of the parent with the sum assured, payable in instalments over the schooling period. 4. Term Assurance The basic feature of term assurance plans is that they provide death risk-cover. Term assurance policies are only for a limited time, claim for which is paid to the family of the assured only when he dies. In case the assured survives the term of policy, no claim is paid to the assured. Annuities are just opposite to life insurance. A person entering into an annuity contract agrees to pay a specified sum of capital (lump sum or by instalments) to the insurer. The insurer in return promises to pay the insured a series of payments untill insured's death. Generally, life annuity is opted by a person having surplus wealth and wants to use this money after his retirement. There are two types of annuities, namely: Immediate Annuity: In an immediate annuity, the insured pays a lump sum amount (known as purchase price) and in return the insurer promises to pay him in instalments a specified sum on a monthly/quarterly/half-yearly/yearly basis. Deferred Annuity: A deferred anuuity can be purchased by paying a single premium or by way of instalments. The insured starts receiving annuity payment after a lapse of a selected period (also known as Deferment period). 6. Money Back Policy Money back policy is a policy opted by people who want periodical payments. A money back policy is generally issued for a particular period, and the sum assured is paid through periodical payments to the insured, spread over this time period. In case of death of the insured within the term of the policy, full

5. Annuities

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sum assured along with bonus accruing on it is payable by hte insurance company to the nominee of the deceased. General Insurance Also known as non-life insurance, general insurance is normally meant for a short-term period of twelve months or less. Recently, longer-term insurance agreements have made an entry into the business of general insurance but their term does not exceed five years. General insurance can be classified as follows: 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. Marine insurance basically covers three risk areas, namely, hull, cargo and freight. The risks which these areas are exposed to are collectively known as "Perils of the Sea". These perils include theft, fire, collision etc. 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 (shipowner) against loss due to collisions at sea. The remaining 1/4th of the liability is looked after by associations formed by shipowners for the purpose (P and I clubs). Miscellaneous As per the Insurance Act, all types of general insurance other than fire and marine insurance are covered under miscellaneous

Marine Insurance

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insurance. Some of the examples of general insurance are motor insurance, theft insurance, health insurance, personal accident insurance, money insurance, engineering insurance etc.

Indian Insurance: Sector Reform The formation of the Malhotra Committee in 1993 initiated reforms in the Indian insurance sector. The aim of the Malhotra Committee was to assess the functionality of the Indian insurance sector. This committee was also in charge of recommending the future path of insurance in India. The Malhotra Committee attempted to improve various aspects of the insurance sector, making them more appropriate and effective for the Indian market. The recommendations of the committee put stress on offering operational autonomy to the insurance service providers and also suggested forming an independent regulatory body. The Insurance Regulatory and Development Authority Act of 1999 brought about several crucial policy changes in the insurance sector of India. It led to the formation of the Insurance Regulatory and Development Authority (IRDA) in 2000. The goals of the IRDA are to safeguard the interests of insurance policyholders, as well as to initiate different policy measures to help sustain growth in the Indian insurance sector. The Authority has notified 27 Regulations on various issues which include Registration of Insurers, Regulation on insurance agents, Solvency Margin, Re-insurance, Obligation of Insurers to Rural and Social sector, Investment and Accounting Procedure, Protection of policy holders' interest etc. Applications were invited by the Authority with effect from 15th August, 2000 for issue of the Certificate of Registration to both life and non-life insurers. The Authority has its Head Quarter at Hyderabad. Detailed information on IRDA is available at their web-site www.irdaindia.org In 1993, Malhotra Committee headed by former Finance Secretary and RBI Governor R.N. Malhotra was formed to evaluate the Indian insurance industry and recommend its future direction. The Malhotra committee was set up with the objective of complementing the reforms initiated in the financial sector. The reforms were aimed at "creating a more efficient and competitive financial system suitable for the requirements of the economy keeping in
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mind the structural changes currently underway and recognizing that insurance is an important part of the overall financial system where it was necessary to address the need for similar reforms…"

In 1994, the committee submitted the report and some of the key recommendations included: 1) Structure
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Government stake in the insurance Companies to be brought down to 50%. Government should take over the holdings of GIC and its subsidiaries so that these subsidiaries can act as independent corporations. All the insurance companies should be given greater freedom to operate.

2) Competition
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Private Companies with a minimum paid up capital of Rs.1bn should be allowed to enter the industry. No Company should deal in both Life and General Insurance through a single entity. Foreign companies may be allowed to enter the industry in collaboration with the domestic companies. Postal Life Insurance should be allowed to operate in the rural market. Only One State Level Life Insurance Company should be allowed to operate in each state.

3) Regulatory Body
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The Insurance Act should be changed. An Insurance Regulatory body should be set up. Controller of Insurance (Currently a part from the Finance Ministry) should be made independent.

4) Investments
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Mandatory Investments of LIC Life Fund in government securities to be reduced from 75% to 50%. GIC and its subsidiaries are not to hold more than 5% in any company (There current holdings to be brought down to this level over a period of time).

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5) Customer Service
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LIC should pay interest on delays in payments beyond 30 days. Insurance companies must be encouraged to set up unit linked pension plans. Computerisation of operations and updating of technology to be carried out in the insurance industry The committee emphasized that in order to improve the customer services and increase the coverage of the insurance industry should be opened up to competition.

But at the same time, the committee felt the need to exercise caution as any failure on the part of new players could ruin the public confidence in the industry. Hence, it was decided to allow competition in a limited way by stipulating the minimum capital requirement of Rs.100 crores. The committee felt the need to provide greater autonomy to insurance companies in order to improve their performance and enable them to act as independent companies with economic motives. For this purpose, it had proposed setting up an independent regulatory body.

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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 detail 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. A single policy may cover risks in one or more of the categories set out below. For example, auto insurance would typically cover both property risk (covering the risk of theft or damage to the car) and liability risk (covering legal claims from causing an accident). A homeowner's insurance policy in the U.S. typically includes property insurance covering damage to the home and the owner's belongings, liability insurance covering certain legal claims against the owner, and even a small amount of coverage for medical expenses of guests who are injured on the owner's property. Business insurance can be any kind of insurance that protects businesses against risks. Some principal subtypes of business insurance are (a) the various kinds of professional liability insurance, also called professional indemnity insurance, which are discussed below under that name; and (b) the business owner's policy (BOP), which bundles into one policy many of the kinds of coverage that a business owner needs, in a way analogous to how homeowners insurance bundles the coverages that a homeowner needs. Auto insurance Vehicle insurance Auto insurance protects you against financial loss if you have an accident. It is a contract between you and the insurance company. You agree to pay the premium and the insurance company agrees to pay your losses as defined in your policy. Auto insurance provides property, liability and medical coverage: 1. Property coverage pays for damage to or theft of your car.

2. Liability coverage pays for your legal responsibility to others for bodily injury or property damage. 3. Medical coverage pays for the cost of treating injuries, rehabilitation and sometimes lost wages and funeral expenses.

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An auto insurance policy comprises six kinds of coverage. Most countries require you to buy some, but not all, of these coverages. If you're financing a car, your lender may also have requirements. Most auto policies are for six months to a year. In the United States, your insurance company should notify you by mail when it’s time to renew the policy and to pay your premium. Home insurance Main article: 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. Health Main articles: Health insurance and Dental insurance Health insurance policies by the National Health Service in the United Kingdom (NHS) or other publicly-funded health programs will cover the cost of medical treatments. Dental insurance, like medical insurance, is coverage for individuals to protect them against dental costs. In the U.S., dental insurance is often part of an employer's benefits package, along with health insurance. Accident, Sickness and Unemployment Insurance Disability insurance policies provide financial support in the event the policyholder is unable to work because of disabling illness or injury. It provides monthly support to help pay such obligations as mortgages and credit cards.
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Disability overhead insurance allows business owners to cover the overhead expenses of their business while they are unable to work.
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Total permanent disability insurance provides benefits when a person is permanently disabled and can no longer work in their profession, often taken as an adjunct to life insurance.
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Workers' compensation insurance replaces all or part of a worker's wages lost and accompanying medical expenses incurred because of a job-related injury.
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Casualty Casualty insurance insures against accidents, not necessarily tied to any specific property. Main article: Casualty insurance Crime insurance is a form of casualty insurance that covers the policyholder against losses arising from the criminal acts of third parties. For example, a company can obtain crime insurance to cover losses arising from theft or embezzlement.
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Political risk insurance is a form of casualty insurance that can be taken out by businesses with operations in countries in which there is a risk that revolution or other politicalconditions will result in a loss.
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Life Main article: 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

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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. In many countries, such as the U.S. and the UK, the tax law provides that the interest on this cash value is not taxable under certain circumstances. This leads to widespread use of life insurance as a tax-efficient method of saving as well as protection in the event of early death. In U.S., the tax on interest income on life insurance policies and annuities is generally deferred. However, in some cases the benefit derived from tax deferral may be offset by a low return. This depends upon the insuring company, the type of policy and other variables (mortality, market return, etc.). Moreover, other income tax saving vehicles (e.g., IRAs, 401(k) plans, Roth IRAs) may be better alternatives for value accumulation. Property Main article: Property insurance Property insurance provides protection against risks to property, such as fire, theft or weather damage. This includes specialized forms of insurance such as fire insurance, flood insurance, earthquake insurance, home insurance, inland marine insurance or boiler insurance. Automobile insurance, known in the UK as motor insurance, is probably the most common form of insurance and may cover both legal liabilityclaims against the driver and loss of or damage to the insured's vehicle itself. Throughout the United States an auto insurance policy is required to legally operate a motor vehicle on public roads. In some jurisdictions, bodily injury compensation for automobile accident victims has been changed to a no-fault system, which reduces or eliminates the ability to sue for compensation but provides automatic eligibility for benefits. Credit card companies insure against damage on rented cars.
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Driving School Insurance provides cover for any authorized driver whilst undergoing tuition, cover also unlike other motor policies provides cover for
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instructor liability where both the pupil and driving instructor are equally liable in the event of a claim. Aviation insurance insures against hull, spares, deductibles, hull wear and liability risks.
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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.
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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.[18]
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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."[19]
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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 homeowners insurancepolicies 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 theconstruction of the home.
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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.
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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.
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Home insurance or homeowners' insurance: See "Property insurance".

Landlord insurance is specifically designed for people who own properties which they rent out. Most house insurance cover in the UK will not be valid if the property is rented out therefore landlords must take out this specialist form of home insurance.

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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.
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Surety bond insurance is a three party insurance guaranteeing the performance of the principal.
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Terrorism insurance provides protection against any loss or damage caused by terrorist activities.
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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.

Liability Main article: Liability insurance Liability insurance is a very broad superset that covers legal claims against the insured. Many types of insurance include an aspect of liability coverage. For example, a homeowner's insurance policy will normally include liability coverage which protects the insured in the event of a claim brought by someone who slips and falls on the property; automobile insurance also includes an aspect of liability insurance that indemnifies against the harm that a crashing car can cause to others' lives, health, or property. The protection offered by a liability insurance policy is twofold: a legal defense in the event of a lawsuit commenced against the policyholder and indemnification (payment on behalf of the insured) with respect to a settlement or court verdict. Liability policies typically cover only the negligence of the insured, and will not apply to results of wilful or intentional acts by the insured. Public liability insurance covers a business against claims should its operations injure a member of the public or damage their property in some way.
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Directors and officers liability insurance protects an organization (usually a corporation) from costs associated with litigation resulting from mistakes made by directors and officers for which they are liable. In the industry, it is usually called "D&O" for short.
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Environmental liability insurance protects the insured from bodily injury, property damage and cleanup costs as a result of the dispersal, release or escape of pollutants.
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Errors and omissions insurance: See "Professional liability insurance" under "Liability insurance".
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Prize indemnity insurance protects the insured from giving away a large prize at a specific event. Examples would include offering prizes to contestants who can make a half-court shot at a basketball game, or a hole-in-one at a golf tournament.
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Professional liability insurance, also called professional indemnity insurance, protects insured professionals such as architectural corporation and medical practice against potential negligence claims made by their patients/clients. Professional liability insurance may take on different names depending on the profession. For example, professional liability insurance in reference to the medical profession may be called malpractice insurance. Notaries public may take out errors and omissions insurance (E&O). Other potential E&O policyholders include, for example, real estate brokers, Insurance agents, home inspectors, appraisers, and website developers.
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Credit Main article: Credit insurance Credit insurance repays some or all of a loan when certain things happen to the borrower such as unemployment, disability, or death. Mortgage insurance insures the lender against default by the borrower. Mortgage insurance is a form of credit insurance, although the name credit insurance more often is used to refer to policies that cover other kinds of debt.
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Many credit cards offer payment protection plans which are a form of credit insurance.
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Other types Collateral protection insurance or CPI, insures property (primarily vehicles) held as collateral for loans made by lending institutions.
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Defense Base Act Workers' compensation or DBA Insurance provides coverage for civilian workers hired by the government to perform contracts outside the U.S. and Canada. DBA is required for all U.S. citizens, U.S. residents, U.S. Green Card holders, and all employees or subcontractors hired on overseas government contracts. Depending on the country, Foreign Nationals must also be covered under DBA. This coverage typically includes expenses related to medical treatment and loss of wages, as well as disability and death benefits.
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Expatriate insurance provides individuals and organizations operating outside of their home country with protection for automobiles, property, health, liability and business pursuits.
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Financial loss insurance or Business Interruption Insurance protects individuals and companies against various financial risks. For example, a business might purchase coverage to protect it from loss of sales if a fire in a factory prevented it from carrying out its business for a time. Insurance might also cover the failure of a creditor to pay money it owes to the insured. This type of insurance is frequently referred to as "business interruption insurance." Fidelity bonds and surety bonds are included in this category, although these products provide a benefit to a third party (the "obligee") in the event the insured party (usually referred to as the "obligor") fails to perform its obligations under a contract with the obligee.
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Kidnap and ransom insurance

Legal Expenses Insurance covers policyholders against the potential costs of legal action against an institution or an individual. Locked funds insurance is a little-known hybrid insurance policy jointly issued by governments and banks. It is used to protect public funds from tamper by unauthorized parties. In special cases, a government may authorize its use in protecting semi-private funds which are liable to tamper. The terms of this type of insurance are usually very strict. Therefore it is used only in extreme cases where maximum security of funds is required.
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Media Insurance is designed to cover professionals that engage in film, video and TV production.
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Nuclear incident insurance covers damages resulting from an incident involving radioactive materials and is generally arranged at the national level. See the Nuclear exclusion clause and for the United States the Price-Anderson Nuclear Industries Indemnity Act)
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Pet insurance insures pets against accidents and illnesses - some companies cover routine/wellness care and burial, as well.
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Pollution Insurance which consists of first-party coverage for contamination of insured property either by external or on-site sources. Coverage for liability to third parties arising from contamination of air, water, or land due to the sudden and accidental release of hazardous materials from the insured site. The policy usually covers the costs of cleanup and may include coverage for releases from underground storage tanks. Intentional acts are specifically excluded.
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Purchase insurance is aimed at providing protection on the products people purchase. Purchase insurance can cover individual purchase protection, warranties, guarantees, care plans and even mobile phone insurance. Such insurance is normally very limited in the scope of problems that are covered by the policy.
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Title insurance provides a guarantee that title to real property is vested in the purchaser and/or mortgagee, free and clear of liens or encumbrances. It is usually issued in conjunction with a search of the public records performed at the time of a real estate transaction.
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Travel insurance is an insurance cover taken by those who travel abroad, which covers certain losses such as medical expenses, loss of personal belongings, travel delay, personal liabilities, etc.
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Insurance financing vehicles Fraternal insurance is provided on a cooperative basis by fraternal benefit societies or other social organizations.[20]
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No-fault insurance is a type of insurance policy (typically automobile insurance) where insureds are indemnified by their own insurer regardless of fault in the incident.
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Protected Self-Insurance is an alternative risk financing mechanism in which an organization retains the mathematically calculated cost of risk within the organization
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and transfers the catastrophic risk with specific and aggregate limits to an insurer so the maximum total cost of the program is known. A properly designed and underwritten Protected Self-Insurance Program reduces and stabilizes the cost of insurance and provides valuable risk management information. Retrospectively Rated Insurance is a method of establishing a premium on large commercial accounts. The final premium is based on the insured's actual loss experience during the policy term, sometimes subject to a minimum and maximum premium, with the final premium determined by a formula. Under this plan, the current year's premium is based partially (or wholly) on the current year's losses, although the premium adjustments may take months or years beyond the current year's expiration date. The rating formula is guaranteed in the insurance contract. Formula: retrospective premium = converted loss + basic premium × tax multiplier. Numerous variations of this formula have been developed and are in use.
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Formal self insurance is the deliberate decision to pay for otherwise insurable losses out of one's own money. This can be done on a formal basis by establishing a separate fund into which funds are deposited on a periodic basis, or by simply forgoing the purchase of available insurance and paying out-of-pocket. Self insurance is usually used to pay for high-frequency, low-severity losses. Such losses, if covered by conventional insurance, mean having to pay a premium that includes loadings for the company's general expenses, cost of putting the policy on the books, acquisition expenses, premium taxes, and contingencies. While this is true for all insurance, for small, frequent losses the transaction costs may exceed the benefit of volatility reduction that insurance otherwise affords.
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Reinsurance is a type of insurance purchased by insurance companies or selfinsured employers to protect against unexpected losses. Financial reinsurance is a form of reinsurance that is primarily used for capital management rather than to transfer insurance risk.
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Social insurance can be many things to many people in many countries. But a summary of its essence is that it is a collection of insurance coverages (including components of life insurance, disability income insurance, unemployment insurance, health insurance, and others), plus retirement savings, that requires participation by all citizens. By forcing everyone in society to be a policyholder and pay premiums, it ensures that everyone can become a claimant when or if he/she needs to. Along the way this inevitably becomes related to other concepts such as the justice system
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and the welfare state. This is a large, complicated topic that engenders tremendous debate, which can be further studied in the following articles (and others):
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National Insurance Social safety net Social security Social Security debate (United States) Social Security (United States) Social welfare provision

Stop-loss insurance provides protection against catastrophic or unpredictable losses. It is purchased by organizations who do not want to assume 100% of the liability for losses arising from the plans. Under a stop-loss policy, the insurance company becomes liable for losses that exceed certain limits called deductibles.

Closed community self-insurance Some communities prefer to create virtual insurance amongst themselves by other means than contractual risk transfer, which assigns explicit numerical values to risk. A number ofreligious groups, including the Amish and some Muslim groups, depend on support provided by their communities when disasters strike. The risk presented by any given person is assumed collectively by the community who all bear the cost of rebuilding lost property and supporting people whose needs are suddenly greater after a loss of some kind. In supportive communities where others can be trusted to follow community leaders, this tacit form of insurance can work. In this manner the community can even out the extreme differences in insurability that exist among its members. Some further justification is also provided by invoking the moral hazard of explicit insurance contracts. In the United Kingdom, The Crown (which, for practical purposes, meant the Civil service) did not insure property such as government buildings. If a government building was damaged, the cost of repair would be met from public funds because, in the long run, this was cheaper than paying insurance premiums. Since many UK government buildings have been sold to property companies, and rented back, this arrangement is now less common and may have disappeared altogether. Insurers' business model

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Underwriting and investing The business model can be reduced to a simple equation: Profit = earned premium + investment income - incurred loss - underwriting expenses Insurers make money in two ways:
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Through underwriting, the process by which insurers select the risks to By investing the premiums they collect from insured parties.

insure and decide how much in premiums to charge for accepting those risks;

The most complicated aspect of the insurance business is the underwriting of policies. Using a wide assortment of data, insurers predict the likelihood that a claim will be made against their policies and price products accordingly. To this end, insurers use actuarial science to quantify the risks they are willing to assume and the premium they will charge to assume them. Data is analyzed to fairly accurately project the rate of future claims based on a given risk. Actuarial science uses statistics and probability to analyze the risks associated with the range of perils covered, and these scientific principles are used to determine an insurer's overall exposure. Upon termination of a given policy, the amount of premium collected and the investment gains thereon minus the amount paid out in claims is the insurer's underwriting profit on that policy. Of course, from the insurer's perspective, some policies are "winners" (i.e., the insurer pays out less in claims and expenses than it receives in premiums and investment income) and some are "losers" (i.e., the insurer pays out more in claims and expenses than it receives in premiums and investment income); insurance companies essentially use actuarial science to attempt to underwrite enough "winning" policies to pay out on the "losers" while still maintaining profitability. An insurer's underwriting performance is measured in its combined ratio[8] which is the ratio of losses and expenses to premiums. A combined ratio of less than 100 percent indicates underwriting profitability, while anything over 100 indicates an underwriting loss. A company with a combined ratio over 100% may nevertheless remain profitable due to investment earnings. Insurance companies earn investment profits on “float”. “Float” or available reserve is the amount of money, at hand at any given moment, that an insurer has collected in

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insurance premiums but has not paid out in claims. Insurers start investing insurance premiums as soon as they are collected and continue to earn interest or other income on them until claims are paid out. The Association of British Insurers (gathering 400 insurance companies and 94% of UK insurance services) has almost 20% of the investments in the London Stock Exchange.[9] In the United States, the underwriting loss of property and casualty insurance companies was $142.3 billion in the five years ending 2003. But overall profit for the same period was $68.4 billion, as the result of float. Some insurance industry insiders, most notably Hank Greenberg, do not believe that it is forever possible to sustain a profit from float without an underwriting profit as well, but this opinion is not universally held. Naturally, the “float” method is difficult to carry out in an economically depressed period. Bear markets do cause insurers to shift away from investments and to toughen up their underwriting standards. So a poor economy generally means high insurance premiums. This tendency to swing between profitable and unprofitable periods over time is commonly known as the "underwriting" or insurance cycle.[10] Property and casualty insurers currently make the most money from their auto insurance line of business. Generally better statistics are available on auto losses and underwriting on this line of business has benefited greatly from advances in computing. Additionally, property losses in the United States, due to unpredictable natural catastrophes, have exacerbated this trend. Claims Claims and loss handling is the materialized utility of insurance; it is the actual "product" paid for, though one hopes it will never need to be used. Claims may be filed by insureds directly with the insurer or through brokers or agents. The insurer may require that the claim be filed on its own proprietary forms, or may accept claims on a standard industry form such as those produced by ACORD. Insurance company claims departments employ a large number of claims adjusters supported by a staff of records management and data entry clerks. Incoming claims are classified based on severity and are assigned to adjusters whose settlement authority varies with their knowledge and experience. The adjuster undertakes a

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thorough investigation of each claim, usually in close cooperation with the insured, determines if coverage is available under the terms of the insurance contract, and if so, the reasonable monetary value of the claim, and authorizes payment. Adjusting liability insurance claims is particularly difficult because there is a third party involved, the plaintiff, who is under no contractual obligation to cooperate with the insurer and may in fact regard the insurer as a deep pocket. The adjuster must obtain legal counsel for the insured (either inside "house" counsel or outside "panel" counsel), monitor litigation that may take years to complete, and appear in person or over the telephone with settlement authority at a mandatory settlement conference when requested by the judge. If a claims adjuster suspects underinsurance, the condition of average may come into play to limit the insurance company's exposure. In managing the claims handling function, insurers seek to balance the elements of customer satisfaction, administrative handling expenses, and claims overpayment leakages. As part of this balancing act, fraudulent insurance practices are a major business risk that must be managed and overcome. Disputes between insurers and insureds over the validity of claims or claims handling practices occasionally escalate into litigation; see insurance bad faith.

INSURANCE BUSINEES:
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Insurance business is divided into four classes :
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1) Life Insurance 2) Fire Insurance 3) Marine Insurance and 4) Miscellaneous Insurance.
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Life Insurers transact life insurance business; General Insurers transact the rest. No composites are permitted as per law. LEGISLATION (as on 1.4.2000):

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Insurance is a federal subject in India. The primary legislation that deals with insurance business in India is: Insurance Act, 1938, and Insurance Regulatory & Development Authority Act, 1999. INSURANCE PRODUCTS (as on 1.4.2000) (for latest information get in touch with the current insurers – website information of insurers is provided at the web page for insurers ): Life Insurance:

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Popular Products: Endowment Assurance (Participating), and Money Back (Participating). More than 80% of the life insurance business is from these products. General Insurance:

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Fire and Miscellaneous insurance businesses are predominant. Motor Vehicle insurance is compulsory. Tariff Advisory Committee (TAC) lays down tariff rates for some of the general insurance products (please visit website of GIC for details ) 2001 New products have been launched by life insurers. These include linkedproducts. For details, please visit the websites of life insurers.

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INFORMATION
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About the insurance industry, the following documents may be helpful: Malhotra Committee Report (The Report of the Committee on Reforms in the Insurance Sector); IRDA's First Annual Report - 2001 CUSTOMER PROTECTION: Insurance Industry has Ombudsmen in 12 cities. Each Ombudsman is empowered to redress customer grievances in respect of insurance contracts on personal lines where the insured amount is less than Rs. 20 lakhs, in accordance with the Ombudsman Scheme. Addresses can be obtained from the offices of LIC and other insurers.

Nationalization In 1955, parliamentarian Feroze Gandhi raised the matter of insurance fraud by owner's of private insurance companies. In the ensuing investigations, one of India's wealthiest businessmen, Ram Kishan Dalmia, owner of the Times of India newspaper, was sent to prison for two months. Eventually, the Parliament of India passed the Life Insurance of India Act on 1956-06-19, and the Life Insurance Corporation of India was created on 1956-09-01, by consolidating the life insurance business of 245 private life insurers and
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other entities offering life insurance services. Nationalization of the life insurance business in India was a result of the Industrial Policy Resolution of 1956, which had created a policy framework for extending state control over at least seventeen sectors of the economy, including the life insurance. The company began operations with 5 zonal offices, 33 divisional offices and 212 branch offices. Objectives of nationalisation of insurance:
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Spread Life Insurance widely and in particular to the rural areas and to the socially and economically backward classes with a view to reaching all insurable persons in the country and providing them adequate financial cover against death at a reasonable cost. Maximize mobilization of people's savings by making insurance-linked savings adequately attractive. Bear in mind, in the investment of funds, the primary obligation to its policyholders, whose money it holds in trust, without losing sight of the interest of the community as a whole; the funds to be deployed to the best advantage of the investors as well as the community as a whole, keeping in view national priorities and obligations of attractive return. Conduct business with utmost economy and with the full realization that the moneys belong to the policyholders. Act as trustees of the insured public in their individual and collective capacities. Meet the various life insurance needs of the community that would arise in the changing social and economic environment. Involve all people working in the Corporation to the best of their capability in furthering the interests of the insured public by providing efficient service with courtesy. Promote amongst all agents and employees of the Corporation a sense of participation, pride and job satisfaction through discharge of their duties with dedication towards achievement of Corporate Objective.

double insurance Situation in which the same risk is insured by two overlapping but independent insurance policies. It is lawful to obtain double insurance, and the insured can make claim to both insurers in the event of a loss because both are liable under their respective polices. The insured, however, cannot profit (recover more than the loss suffered) from this arrangement because the insurers are law bound only to share the actual loss in the same proportion they share the total premium. Also called dual insurance. Deposit Insurance System

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Deposit insurance is a system established to protect depositors within a certain coverage amount against the loss of their deposits placed in a financial institution, in the unlikely events that a financial institution fail. Announcing the coverage limit that depositors will be paid back by the deposit insurance agency will help lessen the panic which may lead to systemic run. The source of fund for compensation mainly comes from premiums collected from financial institutions which are members of deposit insurance system. Concept of Establishing the Deposit Insurance Agency The main concept of establishing a deposit insurance agency is to protect small and unsophisticated depositors who are the majority in financial institution system. These depositors do not have large amount of money in financial institutions but need access to financial services. The system is designed to enable them to receive their deposits back directly from the deposit insurance agency in stead of waiting until the liquidation process is finalized. Another advantage of deposit insurance is to enhance financial stability through 1) preventing depositors from rushing to withdraw money when a financial institution is in difficulty which may lead to systemic run, and 2) encouraging depositors whose deposits are not fully covered to monitor financial institutions' performance. The coverage limit is set considering the state of economy and the amount of deposits that small depositors have in financial institutions. In the case of Thailand, 98% of the depositors have less than 1 million baht in their accounts. Deposit insurance, as we know it today, was introduced in India in 1962. India was the second country in the world to introduce such a scheme - the first being the United States in 1933. Banking crises and bank failures in the 19th as well as the early 20th Century (1913-14) had, from time to time, underscored the need for depositor protection in India. After the setting up of the Reserve Bank of India, the issue came to the fore in 1938 when the Travancore National and Quilon Bank, the largest bank in the Travancore region, failed. As a result, interim measures relating to banking legislation and reform were instituted in the early 1940s. The banking crisis in Bengal between 1946 and 1948, once again revived the issue of deposit insurance. It was, however, felt that the measures be held in abeyance till the Banking Companies Act, 1949 came into force and comprehensive arrangements were made for the supervision and inspection of banks by the Reserve Bank. It was in 1960 that the failure of Laxmi Bank and the subsequent failure of the Palai Central Bank catalyzed the introduction of deposit insurance in India. The Deposit Insurance Corporation (DIC) Bill was introduced in the Parliament on August 21, 1961 and received the assent of the President on December 7, 1961. The Deposit Insurance Corporation commenced functioning on January 1, 1962 .

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The Deposit Insurance Scheme was initially extended to functioning commercial banks. Deposit insurance was seen as a measure of protection to depositors, particularly small depositors, from the risk of loss of their savings arising from bank failures. The purpose was to avoid panic and to promote greater stability and growth of the banking system what in today’s argot are termed financial stability concerns. In the 1960s, it was also felt that an additional the purpose of the scheme was to increase the confidence of the depositors in the banking system and facilitate the mobilisation of deposits to catalyst growth and development. When the DIC commenced operations in the early 1960s, 287 banks registered with it as insured banks. By the end of 1967, this number was reduced to 100, largely as a result of the Reserve Bank of India’s policy of the reconstruction and amalgamation of small and financially weak banks so as to make the banking sector more viable. In 1968, the Deposit Insurance Corporation Act was amended to extend deposit insurance to 'eligible co-operative banks'. The process of extention to cooperative banks, however took a while it was necessary for state governments to amend their cooperative laws. The amended laws would enable the Reserve Bank to order the Registrar of Cooperative Societies of a State to wind up a co-operative bank or to supersede its Committee of Management and to require the Registrar not to take any action for winding up, amalgamation or reconstruction of a co-operative bank without prior sanction in writing from the Reserve Bank of India. Enfolding the cooperative banks had implications for the DIC - in 1968 there were over 1000 cooperative banks as against the 83 commercial banks that were in its fold. As a result, the DIC had to expand its operations very considerably. The 1960s and 1970s were a period of institution building. 1971 witnessed the establishment of another institution, the Credit Guarantee Corporation of India Ltd. (CGCI). While Deposit Insurance had been introduced in India out of concerns to protect depositors, ensure financial stability, instill confidence in the banking system and help mobilise deposits, the establishment of the Credit Guarantee Corporation was essentially in the realm of affirmative action to ensure that the credit needs of the hitherto neglected sectors and weaker sections were met. The essential concern was to persuade banks to make available credit to not so creditworthy clients. In 1978, the DIC and the CGCI were merged to form the Deposit Insurance and Credit Guarantee Corporation (DICGC). Consequently, the title of Deposit Insurance Act, 1961 was changed to the Deposit Insurance and Credit Guarantee Corporation Act, 1961. The merger was with a view to integrating the functions of deposit insurance and credit guarantee prompted in no small measure by the financial needs of the erstwhile CGCI. After the merger, the focus of the DICGC had shifted onto credit guarantees. This owed in part to the fact that most large banks were nationalised. With the financial sector reforms undertaken in the 1990s, credit guarantees have been gradually phased out and the focus of the Corporation is veering back to its core function of Deposit

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Insurance with the objective of averting panics, reducing systemic risk, and ensuring financial stability. Why Do We Need Deposit Insurance? Deposit insurance provides three important benefits to the economy: 1. It assures small depositors that their deposits are safe, and that their deposits will be immediately available to them if their bank fails. 2. It maintains public confidence in the banking system, thus fostering economic stability. Without the confidence of the public, banks could not lend money, but would have to keep depositors' money on hand in cash at all times. 3. It supports the banking structure. Deposit insurance makes it possible for the United States to have a system of both large and small banks; if there were no deposit insurance, the banking industry would probably be concentrated in the hands of a very few enormous banks. An argument against deposit insurance is that it reduces "depositor discipline," which is the depositors' means of policing bank activity. This is true. If depositor discipline alone governed the banking system, however, we would see a significant increase in bank runs, losses to small savers and economic instability, particularly in credit markets. The difficulty in maintaining a successful deposit insurance system lies in maintaining a role for depositor discipline without threatening the overall stability of the banking system.

Insurance Policy
Mortgage Insurance The mortgage insurance is a special type of insurance policy and is gaining huge popularity in the Indian mortgage industry. The mortgage insurance is a special type of insurance policy that guarantees repayment of a mortgage loan in the event of death or disability of the person who borrowed the mortgage. The tenure of payment of such mortgage insurance is usually of 12 months and in some cases it goes higher up. Furthermore, the lender can also protect his loaned capital through these special type of insurance instrument.In today's world the meaning of the term mortgage is better

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understood only when we see that the maximum number of peoples purchase their homes with a mortgage. The term mortgages which has flourished the world's housing market is simply meant as a process by which the individual and the business can purchase the residential and the commercial property without paying the total value. Mortgage is defined as a loan to an individual or a businessman for purchasing a real estate. In this case the real estate also acts as a collateral for the loan. Meaning of Mortgage Insurance :Simply insurance that protects the lender if in any case the homebuyer does not make their respective mortgage payments is called as mortgage insurance. It can be defined as a financial guaranty that protects the lenders against the loss. In any case if the borrower is found to be defaulted and the lender takes the title of the property then the mortgage insurer reduces the loss to the lender. More over in case of mortgage insurance, the insurer haves some risk by lending money. This type of specialized mortgage life insurance products are of two types: Private Mortgage Insurance  Mortgage Insurance Premium Private Mortgage Insurance :– Private Mortgage Insurance are mortgage life insurance products that protects the borrower from the lender in the event of default which generally, covers a substantial portion of the capital borrowed. They are insurance products of private insurance companies. Mortgage Insurance Premium :Mortgage Insurance Premium are mortgage life insurance products that also protects the lender in the event of non-payment due to some unfortunate event. These life insurance products are generally government insurance products. Who needs mortgage insurance? Mortgage insurance is not required by law but often is required by the money lender who is offering the mortgage. This is especially true if they are offering a mortgage to someone who has had a patchy employment record or is in a high risk group such as a pensioner. Regardless of your status, mortgage insurance is usually required when the loan amount is greater than 80% of the value of the property.Also known as mortgage payment protection, mortgage insurance is suggested for anyone who has a standard style mortgage as it replaces your payments if you are unable to meet your mortgage due to injury or long term illness. More innovative mortgages offer payment breaks for long periods of time and may make mortgage insurance unnecessary. Our key services in this include :31

      

Marketing and selling Originations Risk and underwriting Approval and issuance Loan administration Collections Finance and accounting

Money Back Policy Unlike ordinary endowment insurance plans where the survival benefits are payable only at the end of the endowment period, money back policies provide for periodic payments of partial survival benefits during the term of the policy, of course so long as the policy holder is alive.An important feature of this type of policies is that in the event of death at any time within the policy term, the death claim comprises full sum assured without deducting any of the survival benefit amounts, which may have already been paid as money-back components. Similarly, the bonus is also calculated on the full sum assured. plan is an excellent plan with good return on reinvestment, best suited for businessmen and professionals. Money is available at regular intervals in future to meet the specific expenses such as children's education or marriage. At the same time, the policy provides insurance protection for the family as well as old age provision. Salient Features : A policy where lump sum amounts are paid to the life assured at periodic intervals on survival.  In case of death of the life assured within the term, the total sum insured is paid to the nominee, irrespective of earlier survival benefits.  Bonus is payable under this scheme.  Premiums are to be paid regularly to get survival benefits.  Premiums cease at death or on expiry of term whichever is earlier.  This plan can be availed of for terms 20 or 25 years .

Who should buy this plan? Such plans are particular popular with individuals for whom income at regular intervals is a necessity in addition to an insurance cover. The minimum age is 12 years to be eligible for a Money-Back Policy.
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How is it beneficial to me? Under money back policies premiums can be paid as per the insurance company’s policy. These could be quarterly, half yearly or annually. The premiums for these policies are payable for the selected term of years, or till death if it occurs earlier.By buying such policies one can receive income at regular intervals other than the risk cover it provides. Also a good amount of bonus on the full sum assured is quite a good bargain.

Travel Insurance Travel insurance covers any travel related losses incurred during one’s domestic or international travels. Any good travel insurance plan should cover medical expenses, expenses regarding travel delays, emergency returns, protection from theft of cash or other personal belongings and compensation for any baggage delay.Travel insurance is insurance that is intended to cover medical expenses and financial (such as money invested in nonrefundable pre-payments) and other losses incurred while traveling, either within one's own country, or internationally. Temporary travel insurance can usually be arranged at the time of the booking of a trip to cover exactly the duration of that trip, or a more extensive, continuous insurance can be purchased from travel insurance companies, travel agents or directly from travel suppliers such as cruiselines or tour operators. The most common risks that are covered by travel insurance are : Medical expenses  Emergency evacuation/repatriation  Overseas funeral expenses  Accidental death, injury or disablement benefit  Cancellation  Curtailment  Delayed departure  Loss, theft or damage to personal possessions and money  Delayed baggage  Legal assistance  Personal liability and rental car damage excess Travel Insurance: Coverage

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Some of the common risks that should be covered under any good travel insurance policy are as follows: Travel cancellations, delayed departures, losses, theft or damage of personal possessions, medical expenses, emergency return or repatriation, accidental death, rental car damage or any sort of legal assistance related to traveling. Different companies may provide different coverage facilities under their own insurance and the exact policies will vary. Travel Insurance: Other Types There are other types of travel insurance which expressly cover things like high risk sports, traveling to high-risk countries and protection against terrorism, chronic diseases and more. Travel Insurance: Special coverage One can also find travel insurance which insures all of the prepaid, non-refundable trip costs which may include airfare, hotels bookings, tour costs or whatever else may have been paid for upfront or pre-booked. Travel Insurance: International Medical Insurance Another type of travel insurance is under an international medical insurance scheme, which falls under two categories. The first is medical travel insurance that provides emergency medical coverage while away from home. The second is international major medical insurance which covers both emergency and non-emergency incidents. Health Insurance What is a health insurance policy? A health insurance policy is a contract between an insurer and an individual or a group, in which the insurer agrees to provide specified health insurance at an agreed-upon price the premium. Depending on the policy, the premium may be payable either in a lump sum or in instalments. Health insurance usually provides either direct payment or reimbursements for expenses associated with illnesses and injuries. The cost and range of protection provided by the health insurance will depend on the insurance provider and the particular policy purchased. These days, most companies give the benefit of health insurance to the employees. However, in case your employer does not offer a health insurance plan, it is advisable to opt for a health insurance scheme. Health insurance is insurance that pays for medical expenses. It is sometimes used more broadly to include insurance covering disability or long-term nursing or custodial care needs. It may be provided through a government-sponsored social insurance program, or from private insurance companies. It may be purchased on a group basis or purchased by individual consumers. In each case, the covered groups or individuals pay premiums or taxes to help protect themselves from high or unexpected healthcare expenses. What does it cover?
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In anticipation of unexpected events that create the need for medical goods and services, the health insurance does not cover certain ailments. It does not cover ailments in the first year after the policy is taken. It covers hospitalisation charges for:  Heart attacks  Strokes  Prolonged illnesses  Loss of limb, eye, or other parts of the body due to accident  Injuries  Maternity expenses  Medicines Health Insurance Right For You? Everyone has a choice to either purchase health insurance or not. Choosing not to purchase an health insurance plan, such as the one Pratt provides, can cause you to pay a substantial amount of medical bills with your own money. Children are very susceptible to illness, having doctor visits every few months and on average receiving medications for illness up to twice a year. Why put you or your family at risk of not being covered in a time of need. Your family and children's health is a top priority and providing you with low cost heath insurance is ours. By choosing Pratt Insurance you will be making the right choice and not worrying about large medical bills later on down the road. So when you're ready for health insurance that you can't argue about, sign up. Being a top credited low cost health insurance provider is what Pratt's main objective is. Knowing we are doing everything we can for our clients is what has put us on top of the industry in past years. Why do you need health insurance? Health insurance has become a necessity in today’s world considering the rise in the cost of medical care and treatment and the huge population of the country. The escalating cost of medical treatment today is beyond the reach of the common man. Even if an individual is healthy and has never had any major problem, it is not possible to predict what may happen in the future. There is a growing public awareness for better health care and desire to have better health care from private medical providers. In case of a medical emergency, cost of hospital room, doctor’s fees, medicines and related health services all add up to a huge sum. In such times, health insurance provides the much needed financial relief. What you need to know?

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You should understand the policy, and become familiar with common health insurance provisions, including limitations, exclusions, and riders. It is very important to know what your policy covers and what you have to pay yourself. Health Insurance policies generally cover boarding, nursing and diagnostic expenses, which include room rent charged at the hospital or nursing home, fees of the surgeon, anesthetist, doctor, etc. Some policies even offer fixed cash amount for each day you stay at any hospital for treatment. If you have a persistent health problem and then decide to take insurance, it might not be covered. Expenses on hospitalization, incurred in the first 30 days after taking a policy are also not entitled, except in case of an injury from accident. Treatment of certain diseases is not covered during the first year of your policy. The list of diseases may vary form one health policy to another. Who can avail this facility? Health insurance can be availed by people aged between five and seventy five (The upper and lower age limits may vary slightly depending on the policy). The health insurance scheme could either be a personal scheme or a group scheme sponsored by your employer.

Life Insurance Plans
Endowment Plan whole life, an endowment life insurance policy is designed primarily to provide a living benefit. Thus, it is more of an investment than a whole life policy. Endowment life insurance pays the face value of the policy either at the time of death of the policyholder or at the time of maturity of the policy. The policy is a method of accumulating capital for a specific purpose and protecting this savings program against the saver's premature death. Many investors use endowment life insurance to fund anticipated financial needs, such as college education or retirement. Premium for an endowment life policy is much higher than that of a whole life policy. Endowment policy covers risk for a specified period, at the end of which the sum assured is paid back to the policyholder, along with the bonus accumulated during the term of the policy. An endowment life insurance policy is designed primarily to provide a living benefit and only secondarily to provide life insurance protection. Therefore, it is more of an investment than a whole life policy.Endowment life insurance pays the face

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value of the policy either at the insured's death or at a certain age or after a number of years of premium payment. Endowment policy is an instrument of accumulating capital for a specific purpose and protecting this savings program against the saver's premature death.Premium on endowment policies is payable for the full term of the endowment policy unless, the insurer dies earlier. When compared to whole life policies, the premium rates for endowment policies are higher and the bonus rates lower. But one of the major attractions of endowment policies is that they provide a return on premium payments, when the policy comes to an end. The endowment received at the maturity of the policy can be used for buying an annuity policy to generate a monthly pension for the whole life. Features : Moderate Premiums  High bonus  High liquidity  Savings oriented. Endowment insurance are policies that cover the risk for a specified period and at the end the sum assured is paid back to the policyholder along with all the bonus accumulated during the term of the policy. The Endowment insurance policies work in two ways, one they provide life insurance cover and on the other hand as a vehicle for saving. They are more expensive than Term policies and Whole life policies. Normally the bonus in calculated on the sum insured but the only draw back is that the bonuses are not compounded. Endowment insurance plans are best for people who do not have a saving and an investing habit on a regular basis. Endowment Insurance Plans can be bought for a shorter duration period. Endowment Plan Benefits  Survival Benefits :Payment of full Sum Assured plus bonus plus final additional bonus.  Death Benefits :Payment of full Sum Assured plus accrued bonus.  Suitable for :Being an endowment assurance policy, this plan is apt for people of all ages and social groups who wish to protect their families from a financial setback that may occur owing to their demise. The amount assured if not paid by reason of his death earlier will payable at the end of the endowment term where it can be invested in an annuity provision for the rest of the policyholder's life or in any other way he may think most suitable at that time. Whole Life Plan

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What is whole life insurance? A whole life insurance policy covers you for your entire life, not just for a specific period such as term insurance. Your death benefit and premium in most cases will remain the same. Whole life insurance also builds cash value, which is a return on a portion of your premiums that the insurance company invests. Your cash value is tax-deferred until you withdraw it and you can borrow against it.As the name suggests, whole life insurance is for the whole life and not just for a specified period, as in term insurance. As there is no fixed end date for the policy, only the death benefit exists and is paid to the named beneficiary. The policyholder is not entitled to any money during his or her own lifetime.. You can opt for whole life policies after the age of 45 either for the purpose of leaving behind an estate for one's heirs or for covering the possibility of premature stoppage of pension income in the case of relatively early death after retirement. Features :This plan is mainly devised to create an estate for the heirs of the policyholder as the plan basically provides for payment of sum assured plus bonuses on the death of the policyholder. However, considering the increased longevity of the Indian population, the Corporation has amended the above provision, thereby providing for payment of sum assured plus bonuses in the form of maturity claim on completion of age 80 years or on expiry of term of 40 years from date of commencement of the policy whichever is later.The premiums under the policy are payable up to age 80 years of the policyholder or for a term of 35 years whichever is later.If the payment of premium ceases after 3 years, a paid-up policy for such reduced sum assured will be automatically secured provided the reduced sum assured exclusive of any attached bonus is not less than Rs.250/-. Such reduced paid-up policy is not entitled to participate in the bonus declared thereafter but the bonuses already declared on the policy will remain attach, provided the policy is converted in to a paid-up policy after the premiums are paid for 5 years. A whole life policy for an investment? The rate of return on a whole life insurance policy is very low compared to other investments, even with the tax savings factored in. Most investment professionals would agree that life insurance should not be used solely as an investment tool and you should judge your policy choices on the protection and not the rate of return. But, if you are in need of life insurance, the tax benefits and cash value is an added bonus when purchasing protection for your loved ones. Whole Life: Benefit

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Money-back Life Insurance Plan :The money-back plan provides life insurance cover for a specific period. During the term of the policy, the insured receives tax-free, fixed proportions of the sum assured at regular intervals. On maturity i.e. on surviving the entire term of the policy, the insured receives the balance portion of the sum assured, if any, plus the bonus/participating profit/ guaranteed addition for the term of the policy, if any, or the value of the investments.In the event of death of the insured during the term of the policy, the nominee still receives the entire sum assured , plus the bonus/participating profit/guaranteed addition, if any.The premium for money back policies is higher in comparison to endowment and term plans. If one purchases money back plans with guaranteed addition, the premium is even higher. Some companies offer an option in choosing the premium paying term.Money back policies are advisable if the insured wants a product that provides both insurance cover and savings. Many people prefer to buy such policies to utilize the tax-free sum of money receivable to go on a holiday, refurnish their homes or even re-invest the same amount.

Term Plan Term life insurance policy covers risk only during the selected term period. If the policyholder survives the term, the risk cover comes to an end. Term life policies are primarily designed to meet the needs of those people who are initially unable to pay the larger premium required for a whole life or an endowment assurance policy. No surrender, loan or paid-up values are granted under term life policies because reserves are not accumulated. If the premium is not paid within the grace period, the policy lapses without acquiring any paid-up value. A lapsed policy can be revived during the lifetime of the life assured but before the expiry of the period of two years from the due date of the first unpaid premium on the usual terms. Accident and / or Disability benefits are not granted on policies under the Term plan. Term life policies are the cheapest form of insurance. Premiums in a term policy pay for the insurance and no part of the premium in a term life insurance policy is used for investment purposes. Term life policies are the cheapest form of insurance. Premiums in a term policy pay for the insurance and no part of the premium in a term life insurance policy is used for investment purposes. The length of a term life insurance policy varies from 5 to 30 years. Many people prefer term insurance to provide their families with the security cover, and then use the additional funds they would have paid into an endowment or other life insurance policy to make investments of their own choosing. Term life policies are suitable for those who need to provide financial security to their family but are unable to pay the larger premium required for a Whole Life or Endowment policy. A term life insurance policy is very different as compared to a regular life insurance
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policy as it is for a specific period of time. After the term gets over such type of insurance can either be cancelled or renewed. The cancellation and renewal decision depends totally on the policyholder and he may do so depending on his circumstances. Who offers term life insurance? Most insurance companies today offer term life insurance policies, but many agents would be reluctant to provide this policy. This is because generally the risk involved is more and the agent will not get much commission by selling a term life insurance as compared to what he will get on selling a regular life insurance policy. Types of Term Insurance : Straight Term: The insurance premiums and benefits remain constant throughout the term of the policy. Renewable Term: Can be renewed every time the coverage period lapses, irrespective of the status of the person’s health. In this policy, one can opt for annual renewable term, wherein the policy is taken for a year and is renewed annually for a total term ranging from 10 to 30 years.  Level Term: Ensures a fixed premium until the end of the policy period, which can range from five years to 30 years. Decreasing Term: The amount for which you are insured falls over the course of the term of the policy. The premium, however, remains constant. This term policy is used when one needs to protect mortgage or income.  Convertible Term: Can be converted from a term policy into a permanent one. Adjustable Premium: Allows insurance companies to offer lower premiums using less conservative estimates of mortality and administrative and interest costs.

Pension Plan A pension plan or an annuity is an investment that is made either in a single lump sum payment or through installments paid over a certain number of years, in return for a specific sum that is received every year, every half-year or every month, either for life or for a fixed number of years.Annuities differ from all the other forms of life insurance in that an annuity does not provide any life insurance cover but, instead, offers a guaranteed income either for life or a certain period.Typically annuities are bought to generate income during one's retired life, which is why they are also called pension plans. By buying an annuity or a pension plan the annuitant receives guaranteed income throughout his life. He also receives lump sum benefits for the annuitant's estate in addition to the payments during the annuitant's lifetime.Pension plans are perfect investment instrument for a person who after retiring from service has received a large sum as superannuation benefit. He can invest the proceeds in a pension plan as it is

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safest way of secured income for the rest of his life. One can pay for a pension plan either through an annuity or through installments that are annual in most cases. Types of Pension Plans Life Annuity :Guarantees you a specified amount of income for your life. After death, the amount invested is refunded to your nominee. Guaranteed Period Annuity :Provides specified income for your lifetime and guarantees that your nominee will receive payments for a certain minimum number of years, even if you should die earlier. In case you live longer than the specified minimum number of years, you are entitled to recieve annuity payments for your lifetime. Annuity Certain :Under this plan, the stipulated annuity is paid for a fixed number of years. The annuity payments stop at the end of that period, irrespective of how much longer you may live. Deferred Annuities :The premiums paid into such plans may be deducted from one’s taxable income at the time of payment. In addition, the interest earned on the annuities is not taxed immediately. But the proceeds of the annuity will be taxable when they are paid to you. Endowment insurance are policies that cover the risk for a specified period and at the end the sum assured is paid back to the policyholder along with all the bonus accumulated during the term of the policy. The Endowment insurance policies work in two ways, one they provide life insurance cover and on the other hand as a vehicle for saving. They are more expensive than Term policies and Whole life policies. Normally the bonus in calculated on the sum insured but the only draw back is that the bonuses are not compounded. Endowment insurance plans are best for people who do not have a saving and an investing habit on a regular basis. Endowment Insurance Plans can be bought for a shorter duration period. Key Benefits:- Dream Life Pension enhances your retirement kitty by providing special addition, starting from the end of 10th policy year  Change your planned retirement age any time during the policy term  Obtain tax benefits as per the prevailing tax laws on the premiums paid and the benefits received under the policy.

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Insurance Policy Administration Policy administration Customers used to receiving instant gratification on the Internet are apt to be frustrated by the insurance industry's often sluggish approach to product development, underwriting, and policy administration.The continued erosion of barriers between financial institutions, and the considerable overlap in the data they collect, support the idea that financial institutions should expand their core systems to address, in real time, more types and methods of transactions. A bank uses many of the same components to build a home loan application that an insurance company uses to build a homeowners policy. For example, flexible platforms - such as those based on the Windows Server System - would enable a bank to populate a homeowners policy with data from a mortgage application. In this way, the bank could offer the homebuyer insurance at the same time the mortgage is approved. Software providers and system integrators who use technology to build solutions that enable insurance transactions, including selling, underwriting, and policy processing. This group of providers and solutions creates an Insurance Value Chain for the industry. Policy Administration Systems :Policy Administration Systems solutions in : Policy Issuance  Billing  Dividend Calculation  Endorsement  Renewal Basic features : Pure internet-based  Quick implementation and requires minimal formal training to operate  User-friendly menu driven design allows effortless capture of new Business data  An user can put together data in any format into the system and store it  Faxing, Emailing and printing forms, documents from within the system is possible  To-do-list allows users to preserve their diary entries and task allocation  Multi-lingual support Life Insurance Policy Administration Services :42

           

Remittances including online processing Change of Payment Methodology Riders and special benefits New Business Coverage / Waiver / Reduction Premium lapses, renewals and reinstatements Surrender of policy processing Nomination services W2/Section 35 reports First notice of loss Updating of Policy holder Details Change of Beneficiary Disbursement Against Life Policy

MAJOR POLICY CHANGES Insurance sector has been opened up for competition from Indian private insurance companies with the enactment of Insurance Regulatory and Development Authority Act, 1999 (IRDA Act). As per the provisions of IRDA Act, 1999, Insurance Regulatory and Development Authority (IRDA) was established on 19th April 2000 to protect the interests of holder of insurance policy and to regulate, promote and ensure orderly growth of the insurance industry. IRDA Act 1999 paved the way for the entry of private players into the insurance market which was hitherto the exclusive privilege of public sector insurance companies/ corporations. Under the new dispensation Indian insurance companies in private sector were permitted to operate in India with the following conditions:
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Company is formed and registered under the Companies Act, 1956; The aggregate holdings of equity shares by a foreign company, either by itself or through its subsidiary companies or its nominees, do not exceed 26%, paid up equity capital of such Indian insurance company; The company's sole purpose is to carry on life insurance business or general insurance business or reinsurance business. The minimum paid up equity capital for life or general insurance business is Rs.100 crores. The minimum paid up equity capital for carrying on reinsurance business has been prescribed as Rs.200 crores.

The Authority has notified 27 Regulations on various issues which include Registration of Insurers, Regulation on insurance agents, Solvency Margin, Re-insurance, Obligation of Insurers to Rural and Social sector, Investment and Accounting Procedure, Protection of policy holders' interest etc. Applications were invited by the Authority with

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effect from 15th August, 2000 for issue of the Certificate of Registration to both life and non-life insurers. The Authority has its Head Quarter at Hyderabad.

Protection of the interest of policy holders: IRDA has the responsibility of protecting the interest of insurance policyholders. Towards achieving this objective, the Authority has taken the following steps: IRDA has notified Protection of Policyholders Interest Regulations 2001 to provide for: policy proposal documents in easily understandable language; claims procedure in both life and non-life; setting up of grievance redressal machinery; speedy settlement of claims; and policyholders' servicing. The Regulation also provides for payment of interest by insurers for the delay in settlement of claim. • The insurers are required to maintain solvency margins so that they are in a position to meet their obligations towards policyholders with regard to payment of claims. • It is obligatory on the part of the insurance companies to disclose clearly the benefits, terms and conditions under the policy. The advertisements issued by the insurers should not mislead the insuring public. • All insurers are required to set up proper grievance redress machinery in their head office and at their other offices. • The Authority takes up with the insurers any complaint received from the policyholders in connection with services provided by them under the insurance contract.
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Bancassurance

- a term coined by combining the two words bank and insurance (in French) - connotes distribution of insurance products through banking channels. Bancassurance encompasses terms such as ‘Allfinanz’ (in German), ‘Integrated Financial Services’ and ‘Assurebanking’. This concept gained currency in the growing global insurance industry and its search for new channels of distribution. Banks, with their geographical spread and penetration in terms of customer reach of all segments, have emerged as viable sources for the distribution of insurance products. Presently, there.s more activity here than anywhere else. And every one wants to jump onto the bandwagon for a piece of the action cake. The insurance industry has finally woken up from its long slumber to an altogether new awakening. It is the rise of a new dawn that has brought with it opportunities galore. From innumerable insurers, to affordable and quality covers for the consumer, from increase in distribution channels to incorporating information technology measures, from net selling to bringing about increased transparency - its all there. The ubiquitous agent is no more the only distribution channel today for insurance products. Increase in distribution channels has among others also seen the concept of Bancassurance taking roots in India, and it is emerging to be a viable solution to mass selling of insurance products. Bancassurance is a long-standing dream of offering a seamless service of banking, life & non-life products. India, being the one of the most populous country in the world with a huge potential for insurance companies, has an envious chain of bank branches as the lifeline of its financial system. Banks with over 65,000 branches & 65% of household investments are the backbone of the Indian financial market. In India, there are 75

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branches per million inhabitants. Clearly, that’s something insurance companies - both private and state-owned -would find nearly impossible to achieve on their own. Considering it as a channel for insurance gives insurance an unlimited exposure to Indian consumers. Banks have expertise on the financial needs, saving patterns and life stages of the customers they serve. Banks also have much lower distribution costs than insurance companies and thus are the fastest emerging distribution channel. For insurers, tying up with banks provides extensive geographical spread and countrywide customer access; it is the logical route for insurers to take. However, the evolution of bancassurance as a concept and its practical implementation in various parts of the world, have thrown up a number of opportunities and challenges. Aspects such as the most suited model for a given country with its economic, social and cultural ramifications interacting on each other, legislative hurdles, and the mindset of persons involved in this activity, have dominated the study and literature on bancassurance. The motives behind bancassurance also vary. For banks it is a means of product diversification and a source of additional fee income. Insurance companies see bancassurance as a tool for increasing their market penetration and premium turnover. The customer seesbancassurance as a bonanza in terms of reduced price, high quality product and delivery at doorsteps. Actually, everybody can be a winner here. Will it work in India? That can only be answered in the future; the initial action does show that many banks seem to believe that bancassurance will be a big success here. Some foreign and Indian banks -- Stanchart-Grindlays, ABN-Amro, Citibank, HSBC, Bank of Baroda (BoB) and State Bank of India (SBI) -- are hoping to replicate the French success of this insurance-cum-banking model.

Reasons for growing phenomena of Bancassurance The opening up of the insurance industry to private sector participation in December 1999 has led to the entry of 20 new players, with 12 in the life insurance sector and eight in the non-life insurance sector. Almost without exception these companies are seeking to utilize multiple distribution channels such as traditional agency, bancassurance, brokers and direct marketing. Bancassurance is seen by many to be a significant or even the primary channel (the latter being the case for at least SBI Life). In other Asian markets we have seen bancassurance make significant headway in recent
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times. For example, bancassurance accounted for 24% of new life insurance sales by .weighted. premium income* in Singapore in 2002. This is a significant increase on the equivalent 2001 statistic of 15% and is as a result of growth in significant bankcentric bancassurance operations. In Hong Kong the figure for 2002 is expected to be at the 20% level for the same basic reasons. • • • Life insurance premium represents 55% of the world insurance premium, and as the life insurance is basically a saving market. So it is one of the methods to increase deposits of banks. In non-life insurance business banks are looking to provide additional flow of revenues from the same customers through the same channel of distribution and with the same people. Insurers have been turning in ever-greater numbers to alternative modes of distribution because of the high costs they have paid for agent services. These costs became too much of a burden for many insurers compared to the returns they generated. Insurers operate through bancassurance own and control relationships with customers. Insurers found that direct relationships with customers gave them greater control of their business at a lower cost. Insurers who operate through the agency relationship are hardly having any control on their relationship with their clients. The ratio of expenses to premiums, an important efficiency factor, it is noticed very well that expenses ratio in insurance activities through bancassurance is extremely low. This is because the bank and the insurance company is benefiting from the same distribution channels and people. It is believed that the prospects for increased consolidation between banking and insurance is more likely dominated and derived by the marketing innovations that are likely to follow from financial service modernization. Such innovations would include cross selling of banking, insurance, and brokerage products and services; the increased use of the Internet by consumers; and a melding of insurance and banking corporate cultures. One of the most important reason of considering Bancassurance by Banks is increased return on assets (ROA). One of the best ways to increase ROA, assuming a constant asset base, is through fee income. Banks that build fee income can cover more of their operating expenses, and one way to build fee income is through the sale of insurance products. Banks that effectively crosssell financial products can leverage their distribution and processing capabilities for profitable operating expense ratios. By leveraging their strengths and finding ways to overcome their weaknesses, banks could change the face of insurance distribution. Sale of personal line insurance products through banks meets an important set of consumer needs. Most large retail banks engender a great deal of trust in broad segments of consumers, which they can leverage in selling them personal line insurance

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products. In addition, a bank.s branch network allows the face-to-face contact that is so important in the sale of personal insurance. Another advantage banks have over traditional insurance distributors is the lower cost per sales lead made possible by their sizable, loyal customer base. Banks also enjoy significant brand awareness within their geographic regions, again providing for a lower per-lead cost when advertising through print, radio and/or television. Banks that make the most of these advantages are able to penetrate their customer base and markets for above-average market share. Other bank strengths are their marketing and processing capabilities. Banks have extensive experience in marketing to both existing customers (for retention and cross selling) and non-customers (for acquisition and awareness). They also have access to multiple communications channels, such as statement inserts, direct mail, ATMs, telemarketing, etc. Banks’ proficiency in using technology has resulted in improvements in transaction processing and customer service.

By successfully mining their customer databases, leveraging their reputation and distribution systems. (branch, phone, and mail) to make appointments, and utilizing ’sales techniques. and products tailored to the middle market, European banks have more than doubled the conversion rates of insurance leads into sales and have increased sales productivity to a ratio which is more than enough to make bancassurance a highly profitable proposition.

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Insurers have much to gain from marketing through banks. Personal-lines carriers have found it difficult to grow using traditional agency systems because price competition has driven down margins and increased the compensation demands of successful agents. Over the last decade, life agents have sold fewer and larger policies to a more upscale client base. Middle-income consumers, who comprise the bulk of bank customers, get little attention from most life agents. By capitalizing on bank relationships, insurers will recapture much of this under served market. Most insurers that have tried to penetrate middle-income markets through alternative channels such as direct mail have not done well. Clearly, a change in approach is necessary. As with any initiative, success requires a clear understanding of what must be done, how it will be done and by whom. The place to begin is to segment the strengths that the bank and insurer bring to the business opportunity.

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Why Bancassurance in India? The management of the new Indian operations are conscious of the need to grow quickly to reduce painful start-up expense overruns. Banks with their huge networks and large customer bases give insurers an opportunity to do this efficiently. Regulations requiring certain proportions of sales to the rural and social sectors give an added impetus to the drive for bancassurance. Selling through traditional methods to these sectors can be inefficient and expensive. Tying up with a bank with an appropriate customer base can give an insurer relatively cheap access to such sectors. This is still an issue for insurers despite the recent widening of the definition of the rural sector (so that it now accords with the census definition). In India, as elsewhere, banks are seeing margins decline sharply in their core lending business. Consequently, banks are looking at other avenues, including the sale of insurance products, to augment their income. The sale of insurance products can earn banks very significant commissions (particularly for regular premium products). In addition, one of the major strategic gains from implementing bancassurance successfully is the development of a sales culture within the bank. This can be used by the bank to promote traditional banking products and other financial services as well. Bancassurance is not simply about selling insurance but about changing the mindset of a bank. In addition to acting as distributors, several banks have recognised the potential of insurance in India and have taken equity stakes in insurance companies. This is perhaps the precursor of a trend we have seen in the United Kingdom and elsewhere where banks started off as distributors of insurance but then moved to a manufacturing role with fully owned insurance subsidiaries.

Bancassurance in India - A SWOT Analysis Bancassurance as a means of distribution of insurance products is already in force. Banks are selling Personal Accident and Baggage Insurance directly to their Credit Card members as a value addition to their products. Banks also participate in the distribution of mortgage linked insurance products like fire, motor or cattle insurance to their customers. Banks can straightaway leverage their existing capabilities in terms of database and face-toface contact to market insurance products to generate some income for themselves, which hitherto was not thought of. Huge capital investment will be required to create infrastructure particularly in IT and telecommunications, a call
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center will have to be created, top professionals of both industries will have to be hired, an R & D cell will need to be created to generate new ideas and products. It is therefore essential to have a SWOT analysis done in the context of bancassurance experiment in India.

Strengths In a country of 1 Billion people, sky is the limit for personal lines insurance products. There is a vast untapped potential waiting to be mined particularly for life insurance products. There are more than 900 Million lives waiting to be given a life cover (total number of individual life policies sold in 1998-99 was just 91.73 Million). There are about 200 Million households waiting to be approached for a householder’s insurance policy. Millions of people travelling in and out of India can be tapped for Overseas Mediclaim and Travel Insurance policies. After discounting the population below poverty line the middle market segment is the second largest in the world after China. The insurance companies worldwide are eyeing on this, why not we pre-empt this move by doing it ourselves? Our other strength lies in a huge pool of skilled professionals whether it is banks or insurance companies who may be easily relocated for any bancassurance venture. LIC and GIC both have a good range of personal line products already lined up, therefore R & D efforts to create new products will be minimal in the beginning. Additionally, GIC with 4200 operating offices and LIC with 2048 branch offices are almost already omnipresent, which is so essential for the development of any bancassurance project.

Weaknesses The IT culture is unfortunately missing completely in all of the future collaborators i.e. banks, GIC & LIC. A late awakening seems to have dawned upon but it is a case of too late and too little. Elementary IT requirement like networking (LAN) is not in place even in the headquarters of these institutions, when the need today is of Wide Area Network (WAN) and Vast Area Network (VAN). Internet connection is not available even to the managers of operating offices. The middle class population that we are eyeing at is today overburdened, first by inflationary pressures on their pockets and then by the tax net. Where is the money left to think of insurance? Fortunately, LIC schemes get IT exemptions but personal line products from GIC

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(mediclaim already has this benefit) like householder, travel, etc. also need to be given tax exemption to further the cause of insurance and to increase domestic revenue for the country. Another drawback is the inflexibility of the products i.e. it cannot be tailor made to the requirements of the customer. For a bancassurance venture to succeed, it is extremely essential to have in-built flexibility so as to make the product attractive to the customer.

Opportunities Banks’ database is enormous even though the goodwill may not be the same as in case of their European counterparts. This database has to be dissected variously and various homogeneous groups are to be churned out in order to position the bancassurance products. With a good IT infrastructure, this can really do wonders. Other developing economies like Malaysia, Thailand and Singapore have already taken a leap in this direction and they are not doing badly. There is already an atmosphere created in the country for liberalization and there appears to be a political consensus also on the subject. Therefore, RBI or IRDA should have no hesitation in allowing the marriage of the two to take place. This can take the form of merger or acquisition or setting up a joint venture or creating a subsidiary by either party or just the working collaboration between banks and insurance companies.

Threats Success of a bancassurance venture requires change in approach, thinking and work culture on the part of everybody involved. Our work force at every level are so well entrenched in their classical way of working that there is a definite threat of resistance to any change that bancassurance may set in. Any relocation to a new company or subsidiary or change from one work to a different kind of work will be resented with vehemence. Another possible threat may come from non-response from the target customers. This happened in USA in 1980s after the enactment of Garn - St Germaine Act. A rush of joint ventures took place between banks and insurance companies and all these failed due to the non-response from the target customers. US banks have now again (since late 1990s) turned their attention to insurance mainly life insurance. The investors in the capital may turn their face off in case the rate of return on capital falls short of the existing rate of return on capital. Since banks and insurance companies have major portion of their income coming from the investments, the return from

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bancassurance must at least match those returns. Also if the unholy alliances are allowed to take place there will be fierce competition in the market resulting in lower prices and the bancassurance venture may never break-even.

Regulatory issues The development of bancassurance in India has been slowed down by certain regulatory barriers, which have only recently been cleared with the passage of the Insurance (Amendment) Act, 2002. Prior to this, all the directors of a company wishing to take up corporate agency (such as a bank) were technically required to undertake 100 hours of agency training and pass an examination. This was clearly an impractical requirement and had held up the implementation of bancassurance in the country. As the current legislation places the training and examination requirements upon a designated person (.the corporate insurance executive.) within the corporate agency, this barrier has effectively been removed. Other regulatory changes of note in this area are the recently published Insurance Regulatory and Development Authority (IRDA) regulations relating to the licensing of corporate agents. This specifies the institutions that can become corporate agents and sets out the training and examination requirements for the individuals who will be selling on behalf of the corporate agent, the so-called .specified persons. .Specified persons. have to satisfy the same training and examination requirements as insurance agents. A noticeable exception is that for those possessing the Certified Associateship of Indian Institute of Bankers (CAIIB) only 50 hours of training (rather than 100 hours) will be required. This also applies to certified accountants and actuaries. It is hoped that this aspect of the regulations will lead to well educated, professional bank officers carrying out the financial advisory process. Although expected, a restrictive feature of the bancassurance regulations is that they appear to constrain the corporate agent to receiving only commission; profit-sharing arrangements would seem to be ruled out. We feel that this, if applied in practice, is unfortunate as profitsharing agreements, which are increasingly common internationally, serve to align the interests of the bank and the insurance company. Also, as products sold through bank channels can be highly profitable, such agreements may be financially advantageous for banks. In the longer term a profit-sharing agreement can help a bank move from being a distributor to a manufacturer of insurance products thus leading to greater integration in the financial services marketplace.

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Given the open-mindedness and responsiveness of the IRDA to regulations in general, we hope that it will not be too long before profit-sharing agreements are permitted between insurers and corporate agents.

Summary Where legislation has allowed, bancassurance has mostly been a phenomenal success and, although slow to gain pace, is now taking off across Asia, especially now that banks are starting to become more diverse financial institutions, and the concept of universal banking is being accepted. In India, the signs of initial success are already there despite the fact that it is a completely new phenomenon. The factors and principles of why it is a success elsewhere exist in India, and there is no doubt that banks are set to become a significant distributor of insurance related products and services in the years to come.

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Reinsurance Reinsurance is a means by which an insurance company can protect itself with other insurance companies against the risk of losses. Individuals and corporations obtain insurance policies to provide protection for various risks (hurricanes, earthquakes, lawsuits, collisions, sickness and death, etc.). Reinsurers, in turn, provide insurance to insurance companies. Functions of reinsurance: There are many reasons why an insurance company would choose to reinsure as part of its responsibility to manage a portfolio of risks for the benefit of its policyholders and investors. Risk transfer:The main use of any insurer that might practice reinsurance is to allow the company to assume greater individual risks than its size would otherwise allow, and to protect a company against losses. Reinsurance allows an insurance company to offer higher limits of protection to a policyholder than its own assets would allow. For example, if the principal insurance company can write only $10 million in limits on any given policy, it can reinsure (or cede) the amount of the limits in excess of $10 million. Reinsurance’s highly refined uses in recent years include applications where reinsurance was used as part of a carefully planned hedge strategy. Income smoothing: Reinsurance can help to make an insurance company’s results more predictable by absorbing larger losses and reducing the amount of capital needed to provide coverage. Surplus relief:An insurance company's writings are limited by its balance sheet (this test is known as the solvency margin). When that limit is reached, an insurer can do one of the following: stop writing new business, increase its capital, or buy "surplus relief" reinsurance. Buying reinsurance is usually done on a quota share basis and is an efficient way of not having to turn clients away or raise additional capital. Arbitrage:The insurance company may be motivated by arbitrage in purchasing reinsurance coverage at a lower rate than what they charge the insured for the underlying risk, which can be in the area of risk associated with any form of the asset that is being issued or loaned against. It can be a car, a mortgage, an insurance (personal, fire, business, etc.) and alike.

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Reinsurer's Expertise:The insurance company may want to avail of the expertise of a reinsurer in regard to a specific (specialised) risk or want to avail of their rating ability in odd risks. Creating a manageable and profitable portfolio of insured risks: By choosing a particular type of reinsurance method, the insurance company may be able to create a more balanced and homogenous portfolio of insured risks. This would lend greater predictability to the portfolio results on net basis (after reinsurance) and would be reflected in income smoothing. While income smoothing is one of the objectives of reinsurance arrangements, the mechanism is by way of balancing the portfolio. Managing cost of capital for an insurance company:By getting a suitable reinsurance, the insurance company may be able to substitute "capital needed" as per the requirements of the regulator for premium written. It could happen that the writing of insurance business requires x amount of capital with y% of cost of capital and reinsurance cost is less than x*y%. Thus more unpredictable or less frequent the likelihood of an insured loss, more profitable it can be for an insurance company to seek reinsurance. Types of reinsurance Proportional:Proportional reinsurance (the types of which are quota share & surplus reinsurance) involves one or more reinsurers taking a stated percent share of each policy that an insurer produces ("writes"). This means that the reinsurer will receive that stated percentage of premiums and will pay that percentage of losses. In addition, the reinsurer will allow a "ceding commission" to the insurer to compensate the insurer for the costs of writing and administering the business (agents' commissions, modeling, paperwork, etc.). The insurer may seek such coverage for several reasons. First, the insurer may not have sufficient capital to prudently retain all of the exposure that it is capable of producing. For example, it may only be able to offer 1 million in coverage, but by purchasing proportional reinsurance it might double or triple that limit. Premiums and losses are then shared on a pro rata basis.

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Non-proportional:Non-proportional reinsurance only responds if the loss suffered by the insurer exceeds a certain amount, which is called the "retention" or "priority." An example of this form of reinsurance is where the insurer is prepared to accept a loss of 1 million for any loss which may occur and they purchase a layer of reinsurance of 4 million in excess of 1 million. If a loss of 3 million occurs, the insurer pays the 3 million to the insured, and then recovers 2 million from its reinsurer(s). In this example, the reinsured will retain any loss exceeding 5 million unless they have purchased a further excess layer (second layer) of say 10 million excess of 5 million. List of Insurance companies in India LIFE INSURERS Public Sector Life Insurance Corporation of India Private Sector Allianz Bajaj Life Insurance Company Limited Birla Sun-Life Insurance Company Limited HDFC Standard Life Insurance Co. Limited ICICI Prudential Life Insurance Co. Limited ING Vysya Life Insurance Company Limited Max New York Life Insurance Co. Limited MetLife Insurance Company Limited Om Kotak Mahindra Life Insurance Co. Ltd. SBI Life Insurance Company Limited TATA AIG Life Insurance Company Limited AMP Sanmar Assurance Company Limited Dabur CGU Life Insurance Co. Pvt. Limited www.allianzbajaj.co.in www.birlasunlife.com www.hdfcinsurance.com www.iciciprulife.com www.ingvysayalife.com www.maxnewyorklife.com www.metlife.com www.omkotakmahnidra.com www.sbilife.co.in www.tata-aig.com www.ampsanmar.com www.avivaindia.com www.licindia.com Websites

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GENERAL INSURERS Public Sector National Insurance Company Limited New India Assurance Company Limited Oriental Insurance Company Limited United India Insurance Company Limited Private Sector Bajaj Allianz General Insurance Co. Limited ICICI Lombard General Insurance Co. Ltd. IFFCO-Tokio General Insurance Co. Ltd. Reliance General Insurance Co. Limited Royal Sundaram Alliance Insurance Co. Ltd. TATA AIG General Insurance Co. Limited Cholamandalam General Insurance Co. Ltd. Export Credit Guarantee Corporation HDFC Chubb General Insurance Co. Ltd. www.bajajallianz.co.in www.icicilombard.com www.itgi.co.in www.ril.com www.royalsun.com www.tata-aig.com www.cholainsurance.com www.ecgcindia.com www.nationalinsuranceindia.com www.niacl.com www.orientalinsurance.nic.in www.uiic.co.in

REINSURER General Insurance Corporation of India www.gicindia.com

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