Introduction
"Insurance should be bought to safe you against a calamity that would otherwise be financially devastating."
In easy terms, assurance allows someone who suffers a loss or accident to be compensated for the effects of their misfortune. It lets you safe yourself against daily risks to your health, home and financial situation.
Insurance in India started without any regulation in the Nineteenth Century. It was a typical story of a colonial epoch: few British assurance associates dominating the market serving mostly large urban centers. After the independence, it took a theatrical turn. assurance was nationalized. First, the life assurance associates were nationalized in 1956, and then the normal assurance business was nationalized in 1972. It was only in 1999 that the inexpressive assurance associates have been allowed back into the business of assurance with a maximum of 26% of foreign holding.
"The assurance commerce is mammoth and can be quite intimidating. assurance is being sold for practically anything and everything you can imagine. Determining what's right for you can be a very daunting task."
Concepts of assurance have been extended beyond the coverage of tangible asset. Now the risk of losses due to sudden changes in currency exchange rates, political disturbance, negligence and liability for the damages can also be covered.
But if a someone thoughtfully invests in assurance for his property prior to any unexpected contingency then he will be suitably compensated for his loss as soon as the extent of damage is ascertained.
The entry of the State Bank of India with its proposal of bank assurance brings a new dynamics in the game. The group caress of the other countries in Asia has already deregulated their markets and has allowed foreign associates to participate. If the caress of the other countries is any guide, the dominance of the Life assurance Corporation and the normal assurance Corporation is not going to disappear any time soon.
The aim of all assurance is to compensate the owner against loss arising from a variety of risks, which he anticipates, to his life, property and business. assurance is in general of two types: life assurance and normal insurance. normal assurance means Fire, nautical and Miscellaneous assurance which includes assurance against burglary or theft, fidelity guarantee, assurance for employer's liability, and assurance of motor vehicles, livestock and crops.
Life assurance In India
"Life assurance is the genuine,sincere love letter ever written.
It calms down the crying of a hungry baby at night. It relieves the heart of a bereaved widow.
It is the comforting whisper in the dark silent hours of the night."
Life assurance made its debut in India well over 100 years ago. Its salient features are not as widely understood in our country as they ought to be. There is no statutory definition of life insurance, but it has been defined as a ageement of assurance whereby the insured agrees to pay inescapable sums called premiums, at specified time, and in consideration thereof the insurer agreed to pay inescapable sums of money on inescapable health sand in specified way upon happening of a particular event contingent upon the duration of human life.
Life assurance is first-rate to other forms of savings!
"There is no death. Life assurance exalts life and defeats death.
It is the selected we pay for the freedom of living after death."
Savings through life assurance warrant full security against risk of death of the saver. In life insurance, on death, the full sum assured is payable (with bonuses wherever applicable) whereas in other savings schemes, only the estimate saved (with interest) is payable.
The significant features of life assurance are a) it is a ageement relating to human life, which b) provides for cost of lump-sum amount, and c) the estimate is paid after the expiry of inescapable duration or on the death of the assured. The very purpose and object of the assured in taking policies from life assurance associates is to safeguard the interest of his dependents viz., wife and children as the case may be, in the even of premature death of the assured as a corollary of the happening in any contingency. A life assurance policy is also commonly appropriate as security for even a commercial loan.
Non-Life Insurance
"Every asset has a value and the business of normal assurance is connected to the security of economic value of assets."
Non-life assurance means assurance other than life assurance such as fire, marine, accident, medical, motor car and household insurance. Assets would have been created through the efforts of owner, which can be in the form of building, vehicles, machinery and other tangible properties. Since tangible property has a bodily shape and consistency, it is subject to many risks fluctuating from fire, allied perils to theft and robbery.
Few of the normal assurance policies are:
Property Insurance: The home is most valued possession. The policy is designed to cover the varied risks under a particular policy. It provides security for property and interest of the insured and family.
Health Insurance: It provides cover, which takes care of curative expenses following hospitalization from sudden illness or accident.
Personal accident Insurance: This assurance policy provides payment for loss of life or injury (partial or permanent) caused by an accident. This includes repayment of cost of treatment and the use of hospital facilities for the treatment.
Travel Insurance: The policy covers the insured against varied eventualities while traveling abroad. It covers the insured against personal accident, curative expenses and repatriation, loss of checked baggage, passport etc.
Liability Insurance: This policy indemnifies the Directors or Officers or other professionals against loss arising from claims made against them by conjecture of any wrongful Act in their official capacity.
Motor Insurance: Motor Vehicles Act states that every motor car plying on the road has to be insured, with at least Liability only policy. There are two types of policy one surface the act of liability, while other covers insurers all liability and damage caused to one's vehicles.
Journey From An child To Adolescence!
Historical Perspective
The history of life assurance in India dates back to 1818 when it was conceived as a means to provide for English Widows. Interestingly in those days a higher selected was expensed for Indian lives than the non-Indian lives as Indian lives were carefully more risky for coverage.
The Bombay Mutual Life assurance community started its business in 1870. It was the first business to fee same selected for both Indian and non-Indian lives. The Oriental assurance business was established in 1880. The normal assurance business in India, on the other hand, can trace its roots to the Triton (Tital) assurance business Limited, the first normal assurance business established in the year 1850 in Calcutta by the British. Till the end of nineteenth century assurance business was practically entirely in the hands of overseas companies.
Insurance regulation formally began in India with the passing of the Life assurance associates Act of 1912 and the Provident Fund Act of 1912. Any frauds during 20's and 30's desecrated assurance business in India. By 1938 there were 176 assurance companies. The first extensive legislation was introduced with the assurance Act of 1938 that in case,granted spoton State operate over assurance business. The assurance business grew at a faster pace after independence. Indian associates strengthened their hold on this business but despite the growth that was witnessed, assurance remained an urban phenomenon.
The Government of India in 1956, brought together over 240 inexpressive life insurers and provident societies under one nationalized monopoly corporation and Life assurance Corporation (Lic) was born. Nationalization was justified on the grounds that it would create much needed funds for rapid industrialization. This was in conformity with the Government's chosen path of State lead planning and development.
The (non-life) assurance business prolonged to prosper with the inexpressive sector till 1972. Their operations were restricted to organized trade and commerce in large cities. The normal assurance commerce was nationalized in 1972. With this, nearly 107 insurers were amalgamated and grouped into four associates - National assurance Company, New India assurance Company, Oriental assurance business and United India assurance Company. These were subsidiaries of the normal assurance business (Gic).
The life assurance commerce was nationalized under the Life assurance Corporation (Lic) Act of India. In some ways, the Lic has become very flourishing. Regardless of being a monopoly, it has some 60-70 million policyholders. Given that the Indian middle-class is nearby 250-300 million, the Lic has managed to capture some 30 odd percent of it. nearby 48% of the customers of the Lic are from rural and semi-urban areas. This probably would not have happened had the hire of the Lic not specifically set out the goal of serving the rural areas. A high recovery rate in India is one of the exogenous factors that have helped the Lic to grow rapidly in up-to-date years. Despite the recovery rate being high in India (compared with other countries with a similar level of development), Indians display high degree of risk aversion. Thus, nearly half of the investments are in bodily assets (like property and gold). nearby twenty three percent are in (low yielding but safe) bank deposits. In addition, some 1.3 percent of the Gdp are in life assurance connected savings vehicles. This figure has doubled between 1985 and 1995.
A World viewpoint - Life assurance in India
In many countries, assurance has been a form of savings. In many developed countries, a significant fraction of domestic recovery is in the form of donation assurance plans. This is not surprising. The prominence of some developing countries is more surprising. For example, South Africa features at the estimate two spot. India is nestled between Chile and Italy. This is even more surprising given the levels of economic development in Chile and Italy. Thus, we can stop that there is an assurance culture in India despite a low per capita income. This promises well for hereafter growth. Specifically, when the wage level improves, assurance (especially life) is likely to grow rapidly.
Insurance Sector Reform:
Committee Reports: One Known, One Anonymous!
Although Indian markets were privatized and opened up to foreign associates in a estimate of sectors in 1991, assurance remained out of bounds on both counts. The government wanted to go forward with caution. With pressure from the opposition, the government (at the time, dominated by the Congress Party) decided to set up a committee headed by Mr. R. N. Malhotra (the then Governor of the keep Bank of India).
Malhotra Committee
Liberalization of the Indian assurance market was suggested in a article released in 1994 by the Malhotra Committee, indicating that the market should be opened to private-sector competition, and eventually, foreign private-sector competition. It also investigated the level of pleasure of the customers of the Lic. Inquisitively, the level of buyer pleasure seemed to be high.
In 1993, Malhotra Committee - headed by former Finance Secretary and Rbi Governor Mr. R. N. Malhotra - was formed to evaluate the Indian assurance commerce and recommend its hereafter course. The Malhotra committee was set up with the aim of complementing the reforms initiated in the financial sector. The reforms were aimed at creating a more productive and competing financial theory convenient for the needs of the economy keeping in mind the structural changes presently happening and recognizing that assurance is an important part of the extensive financial theory where it was significant to address the need for similar reforms. In 1994, the committee submitted the article and some of the key recommendations included:
o Structure
Government bet in the assurance associates 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 assurance associates should be given greater freedom to operate.
Competition
Private associates with a minimum paid up capital of Rs.1 billion should be allowed to enter the sector. No business should deal in both Life and normal assurance through a particular entity. Foreign associates may be allowed to enter the commerce in collaboration with the domestic companies. Postal Life assurance should be allowed to operate in the rural market. Only one State Level Life assurance business should be allowed to operate in each state.
o Regulatory Body
The assurance Act should be changed. An assurance Regulatory body should be set up. Controller of assurance - a part of the Finance Ministry- should be made Independent.
o Investments
Compulsory 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 business (there current holdings to be brought down to this level over a duration of time).
o Customer Service
Lic should pay interest on delays in payments beyond 30 days. assurance associates must be encouraged to set up unit connected pension plans. Computerization of operations and updating of technology to be carried out in the assurance industry. The committee accentuated that in order to heighten the buyer services and growth the coverage of assurance policies, commerce should be opened up to competition. But at the same time, the committee felt the need to rehearsal caution as any failure on the part of new competitors could ruin the group confidence in the industry. Hence, it was decided to allow competition in a little way by stipulating the minimum capital requirement of Rs.100 crores.
The committee felt the need to provide greater autonomy to assurance associates in order to heighten their operation and enable them to act as independent associates with economic motives. For this purpose, it had proposed setting up an independent regulatory body - The assurance Regulatory and development Authority.
Reforms in the assurance sector were initiated with the passage of the Irda Bill in Parliament in December 1999. The Irda since its incorporation as a statutory body in April 2000 has meticulously stuck to its agenda of framing regulations and registering the inexpressive sector assurance companies.
Since being set up as an independent statutory body the Irda has put in a framework of globally compatible regulations. The other decision taken at the same time to provide the supporting systems to the assurance sector and in particular the life assurance associates was the initiate of the Irda online assistance for issue and reparation of licenses to agents. The approval of institutions for imparting training to agents has also ensured that the assurance associates would have a trained workforce of assurance agents in place to sell their products.
The Government of India liberalized the assurance sector in March 2000 with the passage of the assurance Regulatory and development Authority (Irda) Bill, lifting all entry restrictions for inexpressive players and allowing foreign players to enter the market with some limits on direct foreign ownership. Under the current guidelines, there is a 26 percent equity lid for foreign partners in an assurance company. There is a proposal to growth this limit to 49 percent.
The chance up of the sector is likely to lead to greater spread and deepening of assurance in India and this may also include restructuring and revitalizing of the group sector companies. In the inexpressive sector 12 life assurance and 8 normal assurance associates have been registered. A host of inexpressive assurance associates operating in both life and non-life segments have started selling their assurance policies since 2001
Mukherjee Committee
Immediately after the publication of the Malhotra Committee Report, a new committee, Mukherjee Committee was set up to make concrete plans for the requirements of the newly formed assurance companies. Recommendations of the Mukherjee Committee were never disclosed to the public. But, from the data that filtered out it became clear that the committee recommended the inclusion of inescapable ratios in assurance business balance sheets to ensure transparency in accounting. But the Finance minister objected to it and it was argued by him, probably on the guidance of some of the inherent competitors, that it could influence the prospects of a developing assurance company.
Law Commission Of India On revision Of The assurance Act 1938 - 190th Law Commission Report
The Law Commission on 16th June 2003 released a Consultation Paper on the revision of the assurance Act, 1938. The former rehearsal to amend the assurance Act, 1938 was undertaken in 1999 at the time of enactment of the assurance Regulatory development Authority Act, 1999 (Irda Act).
The Commission undertook the present rehearsal in the context of the changed policy that has permitted inexpressive assurance associates both in the life and non-life sectors. A need has been felt to toughen the regulatory mechanism even while streamlining the existing legislation with a view to removing portions that have become superfluous as a consequence of the up-to-date changes.
Among the major areas of changes, the Consultation paper suggested the following:
a. Merging of the provisions of the Irda Act with the assurance Act to avoid multiplicity of legislations;
b. Deletion of redundant and transitory provisions in the assurance Act, 1938;
c. Amendments reflect the changed policy of permitting inexpressive assurance associates and strengthening the regulatory mechanism;
d. Providing for stringent norms concerning maintenance of 'solvency margin' and investments by both group sector and inexpressive sector assurance companies;
e. Providing for a full-fledged grievance redressal mechanism that includes:
o The constitution of Grievance Redressal Authorities (Gras) comprising one judicial and two technical members to deal with complaints/claims of policyholders against insurers (the Gras are imaginable to replace the present theory of insurer appointed Ombudsman);
o Appointment of adjudicating officers by the Irda to conclude and levy penalties on defaulting insurers, assurance intermediaries and assurance agents;
o Providing for an appeal against the decisions of the Irda, Gras and adjudicating officers to an assurance Appellate Tribunal (Iat) comprising a judge (sitting or retired) of the supreme Court/Chief Justice of a High Court as presiding officer and two other members having sufficient caress in assurance matters;
o Providing for a statutory appeal to the supreme Court against the decisions of the Iat.
Life & Non-Life assurance - development and Growth!
The year 2006 turned out to be a momentous year for the assurance sector as regulator the assurance Regulatory development Authority Act, laid the foundation for free pricing normal assurance from 2007, while many associates announced plans to strike into the sector.
Both domestic and foreign players robustly pursued their long-pending question for expanding the Fdi limit from 26 per cent to 49 per cent and toward the fag end of the year, the Government sent the extensive assurance Bill to Group of Ministers for consideration amid strong reservation from Left parties. The Bill is likely to be taken up in the funds session of Parliament.
The infiltration rates of health and other non-life insurances in India are well below the international level. These facts indicate huge growth inherent of the assurance sector. The hike in Fdi limit to 49 per cent was proposed by the Government last year. This has not been operationalized as legislative changes are required for such hike. Since chance up of the assurance sector in 1999, foreign investments of Rs. 8.7 billion have tipped into the Indian market and 21 inexpressive associates have been granted licenses.
The involvement of the inexpressive insurers in varied commerce segments has increased on inventory of both their capturing a part of the business which was earlier underwritten by the group sector insurers and also creating further business boulevards. To this effect, the group sector insurers have been unable to draw upon their inherent strengths to capture further premium. Of the growth in selected in 2004-05, 66.27 per cent has been captured by the inexpressive insurers despite having 20 per cent market share.
The life assurance commerce recorded a selected wage of Rs.82854.80 crore during the financial year 2004-05 as against Rs.66653.75 crore in the former financial year, recording a growth of 24.31 per cent. The gift of first year premium, particular selected and reparation selected to the total selected was Rs.15881.33 crore (19.16 per cent); Rs.10336.30 crore (12.47 per cent); and Rs.56637.16 crore (68.36 per cent), respectively. In the year 2000-01, when the commerce was opened up to the inexpressive players, the life assurance selected was Rs.34,898.48 crore which constituted of Rs. 6996.95 crore of first year premium, Rs. 25191.07 crore of reparation selected and Rs. 2740.45 crore of particular premium. Post chance up, particular selected had declined from Rs.9, 194.07 crore in the year 2001-02 to Rs.5674.14 crore in 2002-03 with the resignation of the guaranteed return policies. Though it went up marginally in 2003-04 to Rs.5936.50 crore (4.62 per cent growth) 2004-05, however, witnessed a significant shift with the particular selected wage rising to Rs. 10336.30 crore showing 74.11 per cent growth over 2003-04.
The size of life assurance market increased on the drive of growth in the economy and concomitant growth in per capita income. This resulted in a favourable growth in total selected both for Lic (18.25 per cent) and to the new insurers (147.65 per cent) in 2004-05. The higher growth for the new insurers is to be viewed in the context of a low base in 2003- 04. However, the new insurers have improved their market share from 4.68 in 2003-04 to 9.33 in 2004-05.
The segment wise break up of fire, nautical and miscellaneous segments in case of the group sector insurers was Rs.2411.38 crore, Rs.982.99 crore and Rs.10578.59 crore, i.e., a growth of (-)1.43 per cent, 1.81 per cent and 6.58 per cent. The group sector insurers reported growth in Motor and health segments (9 and 24 per cent). These segments accounted for 45 and 10 per cent of the business underwritten by the group sector insurers. Fire and "Others" accounted for 17.26 and 11 per cent of the selected underwritten. Aviation, Liability, "Others" and Fire recorded negative growth of 29, 21, 3.58 and 1.43 per cent. In no other country that opened at the same time as India have foreign associates been able to grab a 22 per cent market share in the life segment and about 20 per cent in the normal assurance segment. The share of foreign insurers in other competing Asian markets is not more than 5 to 10 per cent.
The life assurance sector grew new selected at a rate not seen before while the normal assurance sector grew at a faster rate. Two new players entered into life assurance - Shriram Life and Bharti Axa Life - taking the total estimate of life players to 16. There was one new entrant to the non-life sector in the form of a standalone health assurance business - Star health and Allied Insurance, taking the non-life players to 14.
A large estimate of companies, mostly nationalized banks (about 14) such as Bank of India and Punjab National Bank, have announced plans to enter the assurance sector and some of them have also formed joint ventures.
The proposed change in Fdi cap is part of the extensive amendments to assurance laws - The assurance Act of 1999, Lic Act, 1956 and Irda Act, 1999. After the proposed amendments in the assurance laws Lic would be able to voice reserves while assurance associates would be able to raise resources other than equity.
About 14 banks are in queue to enter assurance sector and the year 2006 saw Any joint venture announcements while others scout partners. Bank of India has teamed up with Union Bank and Japanese assurance major Dai-ichi Mutual Life while Pnb tied up with Vijaya Bank and significant for foraying into life insurance. Allahabad Bank, Karnataka Bank, Indian Overseas Bank, Dabur venture Corporation and Sompo Japan assurance Inc have tied up for forming a non-life assurance business while Bank of Maharashtra has tied up with Shriram Group and South Africa's Sanlam group for non-life assurance venture.
Conclusion
It seems cynical that the Lic and the Gic will wither and die within the next decade or two. The Irda has taken "at a snail's pace" approach. It has been very cautious in granting licenses. It has set up fairly spoton standards for all aspects of the assurance business (with the probable exception of the disclosure requirements). The regulators all the time walk a fine line. Too many regulations kill the motivation of the newcomers; too relaxed regulations may induce failure and fraud that led to nationalization in the first place. India is not unique among the developing countries where the assurance business has been opened up to foreign competitors.
The assurance business is at a significant stage in India. Over the next consolidate of decades we are likely to contemplate high growth in the assurance sector for two reasons namely; financial deregulation all the time speeds up the development of the assurance sector and growth in per capita Gdp also helps the assurance business to grow.
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