CHAPTER-I

INTRODUCTION

The etymology of the word risk can be traced to the Latin word rescue meaning risk
at sea or that which cuts. Risk is associated with uncertainty and reflected by way of
charge on the fundamental/ basic i.e. in the case of business it is the capital, which is
the cushion that protects the liability holders of an institution from any unexpected loss.
In the process of financial intermediation the gap of which becomes thinner and thinner
banks are exposed to severe competition and hence are competition to encounter
various types of financial and non-financial risks viz., credit, interest rate, foreign
exchange, liquidity, equity price, commodity price, legal reputation, brand equity risks
etc. These risks are interdependent and events affecting and area of risk can have
ramifications and penetrations for a range of other categories of risks. Foremost thing is
to understand the risks run by the bank and to ensure that the risks are properly
confronted, effectively controlled and rightly managed.
A risk is any uncertainty about future event that threatens yours organizations ability
to accomplish its mission. Business is a trade off between risk and return. There can be
no risk free or zero risk oriented business. This is due to the fact that the concept of a
project implies effecting current investment, for a future activity and a future gain after
the project construction period can be dither ways. When such changes are adverse,
when there is time over run or cost escalation the investment in the project comes to
grief even before the project is completed. There con be also be several unexpected
developments both internal and from the external environment that can render your
project calculation go away

There can be minimum risk in a captive controlled economy, where high tariff walls
protect industry and banks by directed credit and directed interest rates, and directed
investments, but along with such minimum risk, there would also be minimum growth
of the economy. In India after total, regulation for several
decades, the economy witnesses around 3% average growth. The Indian economy has
now been freed of state.
Management risk:
When you invest in a mutual fund, you depend on the fund's manager to make
the right decisions regarding the fund's portfolio. If the manager does not perform as
well as you had hoped, you might not make as much money on your investment as you
expected.
Risk:

Risk/Return Trade-Off:
The most important relationship to understand is the risk-return trade-off.
Higher the risk greater the returns/loss and lower the risk lesser the returns/loss.
Market Risk:
Sometimes prices and yields of all securities rise and fall. Broad outside
influences affecting the market in general lead to this. This is true, may it be big
corporations or smaller mid-sized companies. This is known as Market Risk. A
Systematic Investment Plan (SIP) that works on the concept of Rupee Cost Averaging
(RCA) might help mitigate this risk.
Credit Risk:
The debt servicing ability (may it be interest payments or repayment of
principal) of a company through its cash flows determines the Credit Risk faced by you.
This credit risk is measured by independent rating agencies like CRISIL who rate
companies and their paper. An AAA rating is considered the safest whereas a D
rating is considered poor credit quality. A well-diversified portfolio might help mitigate
this risk.
Interest risk:
In a free market economy interest rates are difficult if not impossible to predict.
Changes in interest rates affect the prices of bonds as well as equities. If interest rates
raise the prices of bonds fall and vice versa. Equity might be negatively affected as well
in a rising interest rate environment. A well-diversified portfolio might help mitigate
this risk.

Determinations of objectives:
It is very important for an organization to identify the objectives of the risk
management function. This includes the expectations that the organization has from the
risk manger. The efficiency of the risk management may be seriously hampered if its
objectives are not clearly specified. The clear declination of objective helps in
identification of the risk management process as holistic approach rather than as
isolated individual problems to be dealt with.
Identification of the objectives:
Identification of the objectives of a risk management process depends of the
type of the organization. However, the guiding principle of development of objectives
for any organization remains the same; to save the organization from the perceived
risks.
Usually the organization develops a risk management policy, which lays down the
objectives of risk management. The top management of the organization usually
develops the policy for risk management. The ultimate responsibility of the welfare of
the organizations rests with the top management because of which they lay down the
important policy decisions. However, the risk manager can provide valuable
suggestions, which will help the top management in arriving at well-developed policies.
Post loss objectives
1

Survival of the organization

Perpetuity of the organizations operations

Steady flow of income earnings

Social obligation

Pre-loss objectives
1

Economy

Fulfillment of external obligations

Reduction in anxiety

Social obliguessssss

SCOPE

My study about the risk management covers the following

Various types of risks in insurance sectors

Need for risk management

Managing various types of risk

Understand the background of the organization and its risks (e.g. its core

Aspects

processes, valuable assets, competitive areas etc.).

Evaluate the Risk Management activities being undertaken so far.

Develop a structure for the Risk Management initiatives and controls

(countermeasures, security controls etc.) to follow.

METHODOLOGY AND DATA COLLECTION

The current heightened sense of national alert and the administrations focus on the
security of Federal Information Technology (IT) assets requires that USDA take
immediate action to secure our systems. In addition, the General Accounting Office
(GAO) and USDAs Office of Inspector General (OIG) have issued reports over the
past several years that describe persistent computer security weaknesses in the federal
sector, which support this requirement. These pervasive weaknesses introduce risks
that could allow malicious or unintentionally dangerous users to read, modify, delete or
otherwise damage information or disrupt operations. The reasons or motivations of the
attacker could include curiosity, criminal activities, sabotage, espionage or terrorism
and could seriously affect USDAs mission.

Protection of information assets and maintaining the availability, integrity and

confidentiality of USDAs information technology assets and telecommunications
resources are vital in meeting USDAs program delivery requirements. Implementation
of security measures such as a risk management program, effective security controls,
certification and accreditation of IT systems and updated security plans are vital
components in our response to this situation.
This chapter concerns the implementation of USDA Risk Management (RM) Program.
RM includes a structured approach to assessing risks, identifying vulnerabilities, and
implementing appropriate mitigation strategies.
PRIMARY DATA
I gathered information by interacting with employees at
Various levels in the insurance
SECONDARY DATA

I referred to risk management related articles from various.

Magazines and journals, professional bankers, ICFAI reader etc.

Material provided by ICICI prudential

LIMITATIONS

Theyre certain limitation for the study. These limitations are

Prevented to conduct in depth analysis in the risk management

Concept they are

Time is one limiting factor

The provided duration of 45 days is not enough to collect the data and to
conduct in depth analysis.

The confidential data is another limiting factor and the non-availability of

officials in ICICI Prudential.

In addition to these Online Terms, the Customer agrees, confirms and

understands that he will also be bound by and will have to observe the
online terms and conditions of the Policy as recited in the related
policy document that will be issued to the Customer.

For the purpose of availing Facility, the Customer would need to have legal and
valid access to the Internet which shall be procured at his own cost and efforts.
ICICI Prudential may keep its records of the Transactions in any form it wishes.
In the event of any dispute, ICICI Prudentials records shall be binding as the
conclusive evidence of the Transactions carried out through Internet in the
absence of clear proof that ICICI Prudentials records are erroneous or
incomplete.
ICICI Prudential is not obliged to provide facility for online premium payments
or for conducting any transaction or submitting any request online or change of
any Personal Information online by the mere fact that the Facility has been
provided. Further services and facilities relating to Policy on online mode will
be provided only in the absolute discretion and as decided by ICICI Prudential.

ICICI Prudential reserves the right to charge and recover from the Registered
User service charge for providing the Facility. The charge can be recovered

along with or in addition to the First Premium through the payment mode
chosen by the Registered User.
payment request. In no case, ICICI Prudential will be held liable for any
erroneous transactions incurred arising out of or relating to the Customer
entering wrong account or card numbers.
The Registered User understands that the credit card details (where First
Premium is paid by credit card) is not stored on ICICI Prudentials servers, and
accordingly ICICI Prudential is not responsible for the security and / or safety of
the card number or for any transaction under the caagoies.

The Registered User hereby agrees that under no circumstances, ICICI

Prudential's aggregate liability for claims relating to the Facility, whether for
breach of in tort (including but not limited to negligence) shall be limited to the
First Premium.

The Terms and Conditions as applicable to the Website generally and as given
in Part A shall also apply for usage of Facility unless inconsistent with any
Online Terms.

CHAPTER-II

REVIEW OF LITERATURE

DEFINING RISK:
Usually, the term risk is used synonymously with insurance, which is not correct.
There is no universally accepted definition of risk.
In one sense, risk is defined as a variation in the possible outcome. In another sense,
risk is defined as The degree of uncertainty associated with apostle loss.The degree
of risk is estimated based on the certainty level with which the outcome of an activity
can be forecast. The greater the accuracy with which the outcome can be predicated the
lower is the risk.

Possibility of loss or injury: Peril.

Someone or something that creates or suggests a hazard.

The chance of loss or the perils to the subject matter of an insurance contract;
also the degree of probability of such loss.

A person or a thing that is a specified hazard to an insurer.

An insurance hazard from a specified cause or source.

Apart from the words uncertainty, certainty, risk other words such as peril and
hazard are most frequently used in the field of risk and insurance management quite
often they are used interchangeably with risk. It is better to understand the distinction
between them before we start using these word.
THE EFFECT OF RISK :As mentioned earlier risk results in gains or losses. If we invest in an
equality share we may gain or lose when we sell it at a later date. If a fire accident
occurs in a warehouse it will result in losses only. We are very much concerned with
negative impact of risk when we attempt to manage it. Loss is a state wherein
someone is deprived of something he/she had. It may refer to loss

10

of money, memory, stock, or reputation. Loss as used in the insurance, has limited
meaning. It is defined as an undesired unplanned reduction in economic value resulting
from chance. Those losses, which do not result from chance, are not covered as loss in
insurance. For instance, depreciation, chance events. Some losses are immediate in
nature and result from insured peril. These are called Direct losses. If a fire reduces
the building to ash, the building is a direct loss. A direct loss leads to consequential or
indirect losses, which are in the from of increased expenses on account of construction
of new building. Other establishment expenses, etc. Such losses are termed as indirect
losses.
CLASSIFICATION OF RISK
Different risks require different methods and approaches to deal with them.
Pure Vs. Speculative Risk
As per the outcome of an event, a risk can either be pure or speculative. Pure
risk refers to those events whose effects cause either loss or no loss to the enterprise in
all circumstances but no gain. The chances of making any profit from such risk
occurrences are abysmally low. A few examples of pure risk are fire, theft, earthquake,
death, accident, etc.In case of speculative risk, the outcome may result in either a loss
or a profit to; the organization. Thus most of the speculative risks are from within the
organization and are business-related. Some speculative risks are optional. Investment
in equity of another company is an option, and not mandatory. Hence the risk arising
out of such decision is optional and avoidable if desired so. Usually an insurance
company insures pure risks but not speculative risks.

11

Board Classification of pure Risks

Types of losses from pure Risks
B
Direct losses

indirect losses

Damage to assets

Loss of Normal profit

Injury /illness to employees

Higher cost of funds

Liability claims and defense cost

investment
Bankruptcy costs

Classification of Pure Risks

There are four broad categories of pure risk. They are

Property risk

Personal risk

Liability risk

Loss of income risk.

PROPERTY RISK
In this case there is a fear of loss of property because of some unforeseen
events. Property includes both movable and immovable assets. There are always
chances of loss of house because of earthquake, heavy storm and other natural
calamities. Similarly a severe damage to a personal computer may be caused because of
repetitive power failure or low voltage. Property risk is further divided into two
categories, namely direct loss and indirect loss.
The value of the property destroyed due to a given peril is a direct loss and the
additional expenses incurred due to the destruction of the property are the indirect loss.
In other words, indirect loss occurs because of direct loss.

12

PERSONAL RISK
`It refers to the possibility of loss of income or assets as a result of the loss of
the ability; to earn income. This may result from untimely death of the earning member,
dependent old age, prolonged illness, disability or unemployment.
Apart from individuals, organizations are also subject to personal loss
exposures. When employees meet with accidents, it may result in injuries or death. This
would cost the organization not only the cost of hospitalization or compensation claim
but also the loss suffered due to; the decrease in production or income and other
incidental expenses.
LIABILITY RISK
Liability risk arises when there is a possibility of an unintentional damage to
other person or to his property because of negligence. However, the chances of
intentional harm are not ruled out in certain circumstances. Legally speaking a person
cannot be exonerated from his activities either intentional or unintentional, if it he same
result in loss to some other person or his property. Thus there are always chances that
liability risk is to be met because of ones activities causing adversity to another person.
For example, construction of big dams results in dislocation of a number of villagers.
Thousands of families suffer loss of their properties and livelihood. This is an
unintentional harm arising from the construction of the dam. It results in liability
expenses incurred on rehabilitation and compensation; fro lost properties, such as
house, agricultural land and business establishments.
LOSS OF INCOME RISK
Loss of income risk is an indirect loss from a given risk. As discussed under
property risks, whenever there is a direct loss, it is followed by some consequences that
result in indirect loss.
For example, if a textile companys premises were destroyed in an earthquake, the
production facilities and plant layout are also disturbed and it would take some time to
come back to the normal level of production.

13

Dynamic vs. Static Risk

Static risk remains constant over an observed period of time. Risks remain static
because the environments in which they exist are static.
Dynamic risks arise from the changes that occur in an environment, which may be
economic, social, technological, and political. Change in the environment creates risk
and uncertainty about the future.
Fundamental vs. Particular Risks
Those risks, which affect a larger group, such as a society or an industry, or a
particular segment of an industry, are termed as fundamental risks. For example, natural
calamities such as flood, earthquake, drought, epidemics, etc. affect the whole mass in
the same manner irrespective of caste, creed or religion or geographical boundaries.
ATTITUDE TOWARDS RISK
Attitude towards risk reflects the perception or a mental position with regard to
a fact or state, or it is a feeling or emotion towards a fact or a situation. Individuals can
be grouped into three different categories as per their attitude towards risk. They are:

Those who are neutral/indifferent to risk,

Those who are willing to take up risks, and

Those who avoid risk.

HUMAN RESPONSE TO RISK

It is not possible for an individual or an organization to avoid risk. Every
organization is exposed to risks of various degrees in the course of business. It is the
duty of the risk manager of a company to analyze the characteristics of risks to which
the organization is exposed and develop suitable strategies to minimize the same.
MANAGEMENT OF RISK
In risk management, the term management refers to the efforts of an
individual or an organization for achieving the desired objective. For example, a
businessman would like to plan the production level as per the demand of the market.
14

RISK MANAGEMENT STRATEGIES :Risk is all-pervasive and there is no escape. Hence, human beings must always
find different ways in dealing with risks. Several methods can be used in everyday life
to handle both pure risk and speculative risks. They are.

Risk avoidance

Risk reduction

Risk retention

Risk combination

Risk sharing

Risk hedging

Risk management strategies

Risk
Avoidance

Risk
Reduction

Loss
Prevention

Risk
Retention

Risk
Transfer

Risk
Sharing

Risk
Hedging

Loss
Control

Risk avoidance
This is the strongest method of dealing with risks. Risk avoidance results in the
total elimination of exposure to loss due to a specific risk. It involves abandoning some
activity and so losing the benefits associated with it.
There are two ways by which risk can be avoided. In the first case the person
will not assume any risk, therefore, he will not do any project that exposes him to risks.
This is known as proactive evidence. In the second case a person will try to abandon the

15

exposure to loss assumed earlier, by discontinuing the activity or winding up the

project. This is called abandonment avoidance.
Risk Reduction
Risk reduction aims at decreasing the number of losses by reducing the
occurrence of loss through various measures. Risk may be reduced in two ways namely
loss prevention and loss control.
Loss Prevention
It is the most desirable means of dealing with risks. Since the possibility of loss
is eliminated., risk is also completely eliminated. Safety programmers like medical
care, security guards etc. and other measures like fire sprinkler systems, burglar alarms,
are all examples of loss prevention activities.
Loss Control
Organizations buy insurance in order to protect themselves against a perceived
loss from a risk. This may be because of occurrence of a certain event. At the same time
the insurance company would like to avoid occurrence of such event. For this purpose it
would provide various methods or incentives to the company to undertake safety
measures.
Risk Retention
It is the most common method of dealing with risks. Individuals face a number
of risks some of which cannot be avoided, reduced or transferred. Individuals and
organizations retain such risks. Risk may be retained knowingly or unknowingly.
Transfer it or reduce it. When the risk is perceived and no attempts are made to transfer
it or reduce it. When the risk is not perceived at all then it is retained unknowingly. In
such cases, the person retains the financial consequences of the possible loss without
realizing of doing so.
Risk Transfer
If risk or effect of risk is borne by a party other than the one who is primarily
exposed to risk, it may be called risk transfer. For example, a building
16

contractor who does not expertise in interior decoration may hire an interior
decorator for the building. Thus the contractor has passed on the risk of loss of
reputation in the market because of the poor interior decoration.
Risk Sharing
Risk sharing is an arrangement to share losses. Risk is usually shared in a
number of forms. One conmen example is the corporation, where investments of large
number of persons are pooled and each bears only a portion of risk that the enterprise
may incur. Insurance is an other advice of risk sharing where members of the group
share risk.
Hedging
Corporation in which individual investors and organization place money have
exposure to fluctuations in all kind of financial prices like foreign exchange rate,
interest rates, commodity prices and equity prices. The effect of changes in these prices
on the earnings is huge. Hence organization resort to hedging which reduces the risk
evolved in holding an investments
Loss Reduction
The aim of the loss reduction into reduces the degree of loss incurred by the
occurrence of a particular event. Though it does not reduce the chances of occurrence
of the event. It reduces the impact of the loss caused by the event. For example, the seat
belt in a car does not reduce the chances of accident but it reduces the extent of injury
inflicted upon the person. So is the case with wearing helmets, using parachutes, fire
sprinkler system in a building etc. all these safety devices add to the reduction of loss
rather than the reduction of probability of occurrence of the event itself.

The hazard

The environment

The interaction

The outcome

The consequences
17

NATURE OF RISK MANAGEMENT

Risk management aims to at controlling the risk exposure of a firm. It is a rational
approach towards controlling the our risk to which an organization or an individual is
exposed to, risk management function can be grouped with other management
functions such as financial management, human resources management, etc.
An over view of different risks will help us to understand the nature of risk
management organizations and individuals are exposed to a wide arrays of risk in their
day-to-day operations, such:
1

Fire risk

Risk of theft

Loss of customers

Delay in delivery of raw materials

Break down of machinery

Accidents

Bad debts

Changes in industrial policy whenever the government changes

Changes in financial markets

10

Changes in taxation etc.

The perspective of risks management varies from one individual. Organizations have
their own views on risk. Many scholars and practitioners
Agree that risk management is an evolving science while a distinct minority feels that it
is going to disappear in the years to come. In between there are many views on the
nature of risk management.

18

The traditional view of risk management, believes that risk management is an

interdisciplinary science that manages that pure risk of an organization. According to
this view risk management is not changing radically but moving in increments, there
fore it is an evolving science. This view recommends insurance purchase as a risk
management solution.
1

Hardware

Software failure

Organization failure

Human failure

CORPORATE RISK MANAGEMENT

Private corporate sector adopted active risk management for a variety of reasons. The
risk management program of a corporate entity aims at logical way to solve problems it
perceives. These problems if not managed properly, can result in heavy losses. The loss
may be in term of money, material, opportunities or human life. The risk manager of a
company develops plans for protecting against any unfavorable events. He undertakes
the risk management process, which starts from information, supervising the initiation
and progress plans of loss control measures, which are critical for the organization. He
also undertakes negotiation for the terms and conditions to cover the losses and takes
adequate steps for amicably setting them against the insurers. There are few activities
involving risks, which still remain with in the organization even when no insurance has
been undertaken. The risk management process of an individual is guided more or less
by the same principles. The important steps of the personal risk management process
are;
1.

Identification and measurement of personal risks

2.

Development and implementation of risk management plans

3.

Constant review and control of plans

19

RISK MANAGEMENT PROCESS

There are six distinct steps in risk management process, which are stated below:
1. Evaluation of risk/exposures.
2. Consideration and selection of risk management techniques
Implementation of decisions.
3. Evaluation and review.
Identification of risks:
The second objective of the risk management process is to identify the
potential risks to which the organization can be exposed. Therefore, the risk manager
has to analyze various systems of the organization in detail and identify the maximum
possible risk exposure of the firm. The risk manager usually undertakes a systematic
study of identifying the potential risks. A few other methods used in general are
checklist, questionnaire, flowchart, financial system analysis and close examination of
company operations. A brief description of the techniques applied by risk managers to
identify organizational risk is given below.

ORIENTATION :It is important for the risk managers to have clear understanding of
the various processes of the organization and orient their thinking towards these
processes. They should have in depth knowledge about the aims and objectives of the
organization as well as specific characteristic of the organization, which distinguishes it
from other. The past documents of the organization will provide data about the history
and scope of the organization.

20

CHAPTER-III

INDUSTRY AND COMPANY

PROFILE

21

INDUSTRY PROFILE
History:
Life insurance came to India from England in 1818 when oriental life
insurance company started in Calcutta by Europeans. After this many insurance
companies had been started in India. But these companies were looking after only the
needs of European community established in India. Indian people were not being
insured by these companies. First Indian life insurance company came as Bombay
mutual life insurance assurance. Second company was Bharat insurance company came
in 1896. After this the united India in madras, national Indian and national insurance in
Calcutta and the co-operative assurance in Lahore were established in 1906.
To regulate Indian insurance business first insurance act came in 1912 as
life insurance company act and provident fund act. These acts consist of premium rates
tables and periodical valuations of companies. In the first two decade of 20 th century
many life insurance companies were started. So the insurance act came in 1938 to
governing life and non life insurance companies and to provide strict state control. In
1956 the life insurance business in India was nationalized. In 1956 life insurance
corporation of India (LIC) was created to spreading life insurance much more widely
particularly in rural areas. In that year LIC had 5 zonal offices, 33 divisional offices and
212 branch offices. In 1957 the business of LIC of sum assured of 200crores,
1000crores in 1970, and 7000crores in 1986.

Indian regulatory development authority:

In 1999, the Insurance Regulatory and Development Authority (IRDA) was constituted
as an autonomous body to regulate and develop the insurance industry. The IRDA was
incorporated as a statutory body in April, 2000. The key objectives of the IRDA include
promotion of competition so as to enhance customer satisfaction through increased
consumer choice and lower premiums, while ensuring the financial security of the
insurance market. The IRDA opened up the market in August 2000 with the invitation
for application for registrations. Foreign companies were allowed ownership of up to
26%. The Authority has the power to frame regulations under Section 114A of the
22

Insurance Act, 1938 and has from 2000 onwards framed various regulations ranging
from registration of companies for carrying on insurance business to protection of
policyholders interests.

Role of IRDA:

Protecting the interests of policyholders.

Establishing guidelines for the operations of insurers, and brokers.

Specifying the code of conduct, qualifications, and training for insurance

intermediaries and agents.

Promoting efficiency in the conduct of insurance business.

Regulating the investment of funds by insurance companies.

Specifying the percentage of business to be written by insurers in rural sectors.

Handling disputes between insurers and insurance intermediaries.

Changing perception of Indian customers:

Indian Insurance consumers are like Indian Voters, they are soft but when time is right
and ripe, they demand and seek necessary changes. De-tariff of many Insurance
Products are the reflection of changing aspirations and growing demand of Indian
consumers.
For historical years, Indian consumers were at receiving end. Insurance Product was
underwritten and was practically forced onto consumers on a Take-it-As-it-basis. All
that got changed with passage of IRDA act in 1999. New insurance companies have
come into existence leading to open competition and hence better products for
customers.
Indian customers have become very sensitive to Coverage / Premium as well as the
Products (read Risk Solution), that is given to them. There are not ready to accept any
product, no matter even if that is coming from the market leader, should that product is
not serving the purpose. A case in point is ULIP Product / Group Life and Credit Life in
Life Insurance segment and Travel / Family Floater Health and Liability Insurance in
the Non-life segment are new age Avatar. The new products are constantly being

23

demanded by Indian consumers, which is putting huge pressures on Insurance

companies (Read Risk Under-writers) and Brokers to respond.
Customers are looking at Insurance for covering Pure Risk now which I have covered
in my next section. Another good reason why we are seeing quick changes in the
buying behavior of Insurance from mere Investment to risk mitigation is the cost of
Replacement of Goods (ROG) or Cost of Services (COS).
Now Indian customers are aware of insurance industry and insurance products provided
by companies. They have become more sensitive. They would not accept any type of
insurance product unless it fulfills their requirements and needs. In historic days
customers looking at insurance products as a life cover which can provide security
against any unacceptable events, but now customers look at insurance products as an
investment as well as life cover. So todays customers wants good return from the
insurance companies. The Indian customers forms the pivot of each companys
strategy.
Investment of Indian household savings (as a % in different sector)
BANK DEPOSITS
CORP. BANKS
SHARES AND DEBENTURES

39%
2%
1%

MUTUAL FUNDS
NBFCS
GOVT. BONDS
INSURANCE
PF/ RETIRE FUNDS
CURRENCY

2%
3%
13%
13%
21%
6%
Source: - www. avivaindia.com

24

Changing face of Indian insurance industry:

After the Insurance Regulatory and Development Authority Act have been passed
there has been establishment of many private insurance companies in India. Previously
there was a monopoly business for Life Insurance Corporation of India (L.I.C.) who
was the only life-insurance company for the people till 2000. L.I.C. still holds 71.4% of
the market share in 2006. But after the introduction of private life insurance companies
there is a great competition in Indian market now. Everyone is trying to capture the
fresh market here and penetrate it with aggressive marketing strategies . Today lifeinsurance is not only limited up to just life risk cover and maturity period bonuses but
changed to greater return from the investments. With the introduction of the unit linked
insurance policies these companies are investing the money in different investment
instruments like shares, bonds, debentures, government and other securities. People are
demanding for higher returns with the life risk cover and private companies are giving
30-40% average growth per annum. These life-insurance companies have every kind of
policies suiting every need right from financial needs of, marriage, giving birth and
rearing up a child, his education, meeting daily financial needs of life, pension solutions
after retirement. These companies have every aspects and needs of our life covered
along with the death-benefit.
In India only 25% of the population has life insurance. So Indian life-insurance
market is the target market of all the companies who either want to extend or diversify
their business. To tap the Indian market there has been tie-ups between the major Indian
companies with other International insurance companies to start up their business. The
government of India has set up rules that no foreign insurance company can set up their
business individually here and they have to tie up with an Indian company and this
foreign insurance company can have an investment of only 24% of the total start-up
investment.

Indian insurance industry can be featured by:

Low market penetration.

25

Ever growing middle class component in population.

Growth of customers interest with an increasing demand for better insurance

products.

Application of information technology for business.

Rebate from government in the form of tax incentives to be insured.

Today, the Indian life insurance industry has a dozen private players,

each of which are making strides in raising awareness levels, introducing innovative
products and increasing the penetration of life insurance in the vastly underinsured
country. Several of private insurers have introduced attractive products to meet the
needs of their target customers and in line with their business objectives. The success of
their effort is that they have captured over 28% of premium income in five years.
The biggest beneficiary of the competition among life insurers has been
the customer. A wide range of products, customer focused service and professional
advice has become the mainstay of the industry, and the Indian customers forms the
pivot of each companys strategy. Penetration of life insurance is beginning to cut
across socio-economic classes and attract people who have never purchased insurance
before.
Life insurance is also now being regarded as a versatile financial planning
tool. Apart from the traditional term and saving insurance policies, industry has seen the
entry and growth of unit linked products. This provides market linked returns and is
among the most flexible policies available today for investment. Now products are
priced, flexible, and realistic and sustain so people in better position to understand the
risk and benefits of the product and they are accepting these innovative products.
So it is clear that the face of life insurance in India is changing, but with
the changes come a host of challenges and it is only the credible players with a long
term vision and a robust business strategy that will survive. Whatever the
developments, the future and the opportunities in this industry will surely be exciting.
There are 12 private players in Indian life insurance market.
26

6 bank owned insurers: - HDFC standard life, ICICI prudential, ING Vysya, MetLife,
OM Kotak, SBI life.
6 independent insurers: - Aviva, ANP sanmar, Birla sun life, Bajaj Allianz, Max New
York life, Tata AIG.
Major international insurers are- Prudential and Standard life
from UK, Sun life of Canada, AIG, MetLife and New York life of the US.

Increasing growth since liberalization:

YEAR
FY03
FY04
FY05
FY06
FY07

LIC (in bn rs.)

110
120
130
140
240

PRIVATE PLAYER
10
20
40
60
160

Source: - Insurance Industry (ICFAI publication book)

Possibilities for insurance companies in India:

Further deregulation of the market.

Greater concern for the customers.

Newer products and services.

Competition and quality consciousness.

Cost effective operations.

Restructuring of the public sector.

Consolidation of domestic insurance markets.

Technology driven shift in product design.

Actual operations and distribution.

Convergence of financial services.

Global insurance industry

27

Globally, insurers increasingly are pressured by the demands of their clients. The
development of global insurance industry over the past few years was influenced by
booming stock markets which enabled considerable capital gains to be made in non life
business. Increase in insurers equity capital increased underwriting capacity, while
demand did not develop at the same pace, resulting in decrease in insurance policies
prices. The stock market boom of the past few years led to demand for unit linked
insurance products.
The global insurance industry is growing at rapid pace. Most of the markets are
undergoing globalization. Lot of mergers and acquisition are taking place in the
insurance world. The rapidity in the industry, technological improvement has resulted
in pressures on a few economic parameters. The world insurance industry is at peak of
its globalization process.
Global insurance market is increasing by an average of six percent per year
since 1990. Insurance companies have collected $2443.7 billion premium world wide
according to the global development of premium volume in 144 countries in 2005.
$1521.3 has been generated as life insurance premium and $922.7 as non life insurance
premium. The US accounted for 35% of global life and non life premium, Japan had
global share of 21%, and UK was having 10% of global share.

Influence on Indian insurance industry:

In this era of globalization, insurance companies face a dynamic global environment.
Dramatic changes are taking place owing to the internationalization of activities,
appearance of new risk, new types of covers to match with new risk situations, and
unconventional and innovative ideas on customer services. Low growth rates in
developed markets, changing customers needs, and the uncertain economic conditions
in the developing world are exerting pressure on insurers resources and testing their
ability to survive. Now the existing insurers are facing difficulties from non-traditional
competitors those are entering the retail market with new approaches and through new
channels.
India has a rapidly growing middle class and this section can afford to buy
insurance products. This shows the attraction that the Indian market holds for foreign
28

insurers who have been putting pressure on developing countries as well as on India to
open up its market.

Life insurance penetration as a % of GDP

United kingdom
Japan
Korea
United states
Malaysia
India
China
Brazil

8.9%
8.3%
7.3%
4.1%
3.6%
3.0%
1.8%
1.3%
Source: - www.indianinsuranceresearch.com

Functioning of insurance industry:

Insurers business model:
Profit = earned premium + investment income - incurred loss - underwriting expenses
Insurers make money in two ways: (1) through underwriting, the processes by which
insurers select the risks to insure and decide how much in premiums to charge for
accepting those risks and (2) by investing the premiums they collect from insured.
The most difficult 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.
An insurer's underwriting performance is measured in its combined ratio. The loss ratio
(incurred losses and loss-adjustment expenses divided by net earned premium) is added
to the expense ratio (underwriting expenses divided by net premium written) to
29

determine the company's combined ratio. The combined ratio is a reflection of the
company's overall underwriting profitability. A combined ratio of less than 100 percent
indicates underwriting profitability, while anything over 100 indicates an underwriting
loss.
Insurance companies also 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 insurance premiums but has not been paid out in claims. Insurers start
investing insurance premiums as soon as they are collected and continue to earn interest
on them until claims are paid out.
. 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.
Finally, claims and loss handling is the materialized utility of insurance. In managing
the claims-handling function, insurers seek to balance the elements of customer
satisfaction, administrative handling expenses, and claims overpayment leakages.

Investment management:
Investment operations are often considered incidental to the business of insurance, and
have traditionally viewed as secondary to underwriting. In the past risk management
was the most important part of business, whereas today the focus has shifted to fund
management. Investment income is a large component of insurance revenues, skilful
and careful management of funds. Insurance is a business of large numbers and
generates huge amount of funds over time. These funds arise out of policyholder funds
in the case of life insurance, and technical and free reserves in the non-life segments.
Time lag between the procurement of premium and the payment of claim provides an
interval during which the funds can be deployed to generate income. Insurance
companies are among the largest institutional investors in the world. Assets managed by
insurance companies are estimated to account for over 40% of the worlds top ten asset
managers.

30

Returns on investments influence the premium rates and bonuses

and hence investment income will continue to be an important component of insurance
company profits. In life insurance, benefits from insurance profits accrue directly to
policy holders when it is passed on to him in the form of a bonus. In non life insurance
the benefits are indirect and mostly by the creation of an investment portfolio.
Investment income has to compensate for underwriting results which are increasingly
under pressure. In the case of insurance, the difference between revenue and the
expenses is known as operating surplus.
Revenue =premium.
Expenses =sum of claims + commission payable on procurement of business +
operating expenses.
Operating surplus =revenue-expenses.
Net investment income includes income from trading in and holding stock market
securities including government securities, special deposits with the central
government, loans to several public utilities and service providers in state government.
Insurance premium collected is converted in a pool of fund then divided in
to four expenses.

To pay the expenses of the management.

To pay agency commission.

To pay for the claims.

Surplus money will be invested in govt. securities.

31

Requirements of an insurance risk

Insurance normally insure only pure risks .However, not all pure risk is insurable
.certain requirements usually must be fulfilled before a pure risk can be privately
insured .From the view point of the insurer, there are ideally six requirement of an
insurable risk

There must be a large number of exposure units

The loss must be accidental and unintentional.
The loss must be determinable and measurable.
The loss should not be catastrophic.
The chance of loss must be calculable.
The premium must be economically feasible

Comparison of Insurance with other Similar Factors

(1) Insurance and gambling compared
Insurance is often erroneously confused with gambling .There are two important
differences between them .First ,gambling creates a new speculative risk ,while
insurance is a technique for handling an already existing pure risk .thus ,if you bet Rs
300 on a horse ,a new speculative technique is created ,but if you pay Rs 300 to an
insurer for fire insurance ,the risk of fire is already present and is transferred to the
insurer by a contract. No new risk is created by the transaction.
The second difference between insurance and gambling is that gambling is
socially unproductive, because the winners gain comes at the expense of the loser .In
contract; insurance is always socially productive, because neither the insurer nor the
insured is placed in a position where the gain of the winner comes at the expense of the
loser. The insurer and the insured have a common interest in the prevention of a loss.
Both parties win if the loss does occur .Moreover, consistent gambling transaction
generally never restore the losers to their former financial position .In contract
,insurance contracts restore the insureds financially in whole or in part if a loss occurs
(2) Insurance and hedging compared

32

The concept of hedging is to transferring the risk to the speculator through

purchase of future contracts .An insurance contract, however, is not the same thing as
hedging .Although both technique are similar in that risk is transferred by a contract,
and no new risk is created, there are some important difference between them. First, an
insurance transaction involves the transfer of insurable risks, because the requirement
of an insurable risk generally can be met .However, hedging is a technique for handling
risks that are typically uninsurable ,such as protection against a decline in the price
agriculture products and raw materials.
A second difference between insurance and hedging is that insurance and hedging is
that insurance can reduce the objective risk of an insurer by application of the law of
large numbers. As the number of exposure units increases, the insurers prediction of
future losses improves, because the relative variation of actual loss from expected loss
will decline .thus, many insurance transactions reduce objective risk. In contract,
hedging typically involves only risk transfer , not risk reduction .The risk of adverse
price fluctuation is transferred because of superior knowledge of market conditions
.The risk is transferred, not reduced, and prediction of loss generally is not based on the
law of large numbers.

Various types of life insurance policies:

Endowment policies: This type of policy covers risk for a specified period,
and at the end of the maturity sum assured is paid back to policyholder with the
bonuses during the term of the policy.

Money back policies: This type of policy is for periodic payments of

partial survival benefits during the term of the policy as long as the policy
holder is alive.

Group insurance: This type of insurance offers life insurance protection

under group policies to various groups such as employers-employees,
professionals, co-operatives etc it also provides insurance coverage for people in
certain approved occupations at the lowest possible premium cost.

Term life insurance policies: This type of insurance covers risk only
during the selected term period. If the policy holder survives the term, risk cover
33

comes to an end. These types of policies are for those people who are unable to
pay larger premium required for endowment and whole life policies. No
surrender, loan or paid up values are in such policies.

Whole life insurance policies: This type of policy runs as long as the
policyholder is alive and is covered for the entire life of the policyholder. In this
policy the insured amount and the bonus is payable only to nominee on the
death of policy holder.

Joint life insurance policies: These policies are similar to endowment

policies in maturity benefits and risk cover, but joint life policies cover two lives
simultaneously such as married couples. Sum assured is payable on the first
death and again on the death of survival during the term of the policy.

Pension plan: a pension plan or annuity is an investment over a certain

number of years but does not provide any life insurance cover. It offers a
guaranteed income either for a life or certain period.

Unit linked insurance plan: ULIP is a kind of insurance plan which

provides life cover as well as return on premium paid over a certain period of
time. The investment is denoted as units and represented by the value called as
net asset value (NAV).

34

Insurance and economy

Indian economy is growing in reference to global market. Business of insurance

with its unique features has a special place in Indian economy.

It is a highly specialized technical business and customer is the most concern

people in this business, therefore this business is able to spur the growth of
infrastructure and act as a catalyst in the overall development of Indian
economy.

The high volumes in the insurance business help spread risk wider, allowing a
lowering of the rates of the premium to be charged and in turn, raising profits.
When there is a bigger base, the probabilities become more predictable, and
with system wide risks balanced out, profits improve. This explains the current
scenario of mergers, acquisitions, and globalization of insurance.

Insurance is a type of savings. Insurance is not only important for tax benefits,
but also for savings and for providing security. It can be serving as an essential
service which a welfare state must make available to its people.

Insurance play a crucial role in the commercial lives of nations and act as the
lubricants of economic activities. Insurance firms help to spread the potentially
financial consequences of risk among the large number of entities, to mobilize
and distribute savings for productive use, facilitate investment, support and
encourage external trade, and protect economic entities against external risk.

Insurance and economic growth mutually influences each other. As the economy
grows, the living standards of people increase. As a consequence, the demand for life
insurance increases. As the assets of people and of business enterprises increase in the
growth process, the demand for general insurance also increases.

In fact, as the

economy widens the demand for new types of insurance products emerges. Insurance
is no longer confined to product markets; they also cover service industries. It is
equally true that growth itself is facilitated by insurance. A well-developed insurance
sector promotes economic growth by encouraging risk-taking. Risk is inherent in all
economic activities. Without some kind of cover against risk, some of these activities
will not be carried out at all. Also insurance and more particularly life insurance is a
35

mobilizer of long term savings and life insurance companies are thus able to support
infrastructure projects which require long term funds.

There is thus a mutually

beneficial interaction between insurance and economic growth. The low income levels
of the vast majority of population have been one of the factors inhibiting a faster
growth of insurance in India. To some extent this is also compounded by certain
attitudes to life. The economy has moved on to a higher growth path. The average rate
of growth of the economy in the last three years was 8.1 per cent. This strong growth
will bring about significant changes in the insurance industry.
At this point, it is important to note that not all activities can be insured. If that
were possible, it would completely negate entrepreneurship. Professor Frank Knight in
his celebrated book Risk Uncertainty and Profit emphasized that profit is a
consequence of uncertainty. He made a distinction between quantifiable risk and nonquantifiable risk. According to him, it is non-quantifiable risk that leads to profit. He
wrote It is a world of change in which we live, and a world of uncertainty. We live
only by knowing something about the future; while the problems of life or of conduct at
least, arise from the fact that we know so little. This is as true of business as of other
spheres of activity. The real management challenges are uninsurable risks. In the case
of insurable risks, risk is avoided at a cost.

36

THE COMPANY
ICICI Prudential Life Insurance Company is a joint venture between ICICI Bank, a
premier financial powerhouse, and Prudential plc, a leading international financial
services group headquartered in the United Kingdom. ICICI Prudential was amongst
the first private sector insurance companies to begin operations in December 2000 after
receiving approval from Insurance Regulatory Development Authority (IRDA).
ICICI Prudential Life's capital stands at Rs. 4,793 crores (as of March 31, 2013) with
ICICI Bank and Prudential plc holding 74% and 26% stake respectively. For the
financial year 2013, the company has garnered total premium of Rs 13,538 crores and
has underwritten over 13 million policies since inception. The company has assets held
over Rs. 74,000 crores as on March 31, 2013.
For the past decade, ICICI Prudential Life Insurance has maintained its dominant
position (on new business retail weighted basis) amongst private life insurers in the
country, with a wide range of flexible products that meet the needs of the Indian
customer at every step in life.

DISTRIBUTION
ICICI Prudential Life has one of the largest distribution networks amongst private life
insurers in India. It has a strong presence across India with around 1,600 branches and
an advisor base of over 1,90,000 (as on March 31, 2013).

The company has bancassurance partners having tie-ups with ICICI Bank and
Proddatur Co-Op Town Bank Ltd.

37

Our Offering
Commitment to customers is at the core of every aspect of the companys initiatives, be
it product development, distribution, the sales process or servicing and claims
settlement. Product development is undertaken basis thorough research and
understanding of the needs of customers. For over a decade, ICICI Prudential Life
Insurance has maintained its focus on offering a wide range of flexible products that
meet the needs of the Indian customer at every stage in life. This has ensured that the
various products offered by the company strategically fit into the financial plan of the
customers and helps them achieve their various long term financial goals. In addition,
ICICI Prudential Life also has a comprehensive multichannel distribution network
spanning various geographic and income segments to ensure that its products and
services are accessible to customers. ICICI Prudential Life Insurance has been helping
customers meet their long term financial goals by adopting an investment philosophy
that aims to achieve risk adjusted returns over the long term. The customer centric
approach and focus on innovation has enabled the company to garner the unstinted
support of its customers and there creating a trusted brand in the Indian life insurance
sector.

Products
Insurance Plans for Individuals

ICICI Prudential Life Insurance offers a range of innovative, customer-centric

products that meet the needs of customers at every life stage. Its products can be
enhanced with up to 4 riders, to create a customized solution for each
policyholder.

Savings & Wealth Creation Plans

ICICI Pru LifeStage Wealth II is a unit linked insurance plan that offers
multiple choices to decide how your savings would be invested based on your
risk appetite. ICICI Pru Pinnacle Super is a unit linked insurance plan that gives
38

you the advantage of varying exposure to equities with downside protection, so

that your investments are protected in financially volatile times. UIN 105L118V02

ICICI Pru LifeTime Premier is a comprehensive savings plan that offers you
a choice of portfolio strategies for your savings and at the same time secures
you against uncertainties of life.UIN - 105L112V02

ICICI Pru Elite Life is a unit linked insurance plan that offers you multiple
choices on how to invest your savings along with an insurance cover.UIN 105L125V02

ICICI Pru Elite Wealth is a unit linked insurance plan that offers you the
greatest value for your hard earned savings. Also, you get rewarded with
Loyalty Additions from the sixth year onwards to maximize the return on your
investments. UIN - 105L126V02

ICICI Pru Future Secure is a participating endowment life insurance plan that
helps you save for specific goals in the future, while providing protection for
your family from financial distress in case of your untimely demise. Thus the
dual benefit of savings and protection it helps you ensure a secure future for
your loved ones. UIN - 105N117V01

ICICI Pru Whole Life provides you with a unique double advantage of savings
and protection that not only allows you to meet your goals but also seeks to
ensure that your dear ones will continue to live their lives in comfort without
financial worries in case of unforeseen eventuality UIN - 105N116V01

ICICI Pru Save 'n' Protect is an ideal plan for those who want to accumulate
funds on a regular basis while enjoying insurance protection. UIN 105N004V02

ICICI Pru CashBak is a single policy that combines the triple benefit of
protection, savings & periodic liquidity. UIN - 105N005V02

39

Protection Plans

ICICI Pru iCare is a term insurance plan that you can buy online at your
convenience at their home in a simple and cost-effective manner. UIN 105N122V01

ICICI Pru Pure Protect is a flexible and affordable term product, with which
you can ensure your life and provide total security for your family in case of an
unfortunate event. UIN - 105N084V01

ICICI Pru LifeGuard is a protection plan, which offers life cover at low cost.
It is available in 2 options -level term assurance with return of premium &
single premium. ICICI Pru HomeAssure is a mortgage reducing term assurance
plan designed specifically to help customers cover their home loans in a simple
and cost-effective manner. UIN - 105N006V02

Child Plans

ICICI Pru SmartKid Regular Premium is an endowment regular premium

life insurance plan which comes with a unique Payer Waiver Benefit (PWB).
This benefit ensures that in case of death of the parent, the company pays all
future premiums on behalf of the parent. This means that the child gets money
at important stages of his/her student life and education never suffers due to lack
of funds.UIN No - 105N014V02

Group Insurance Plans

ICICI Prudential also offers Group Insurance Solutions for companies seeking
to enhance benefits to their employees.

Group Gratuity Plan: ICICI Prudential Life's group gratuity plan helps
employers fund their statutory gratuity obligation in a scientific manner and also
avail of tax benefits as applicable to approved gratuity funds.

Group Leave encashment Plan: ICICI Prudential Life's Group offers a market
linked and traditional leave encashment plan designed to aid the employer to

40

build a fund to meet their future leave encashment liability. The contributions
made will be invested as per the chosen investment plans and will be available
for payment of the benefit when it falls due. Additionally, the product also
provides for term cover for all the employees covered under the policy. UIN 105L079V01

Group Term Insurance Plan: ICICI Prudential Life's flexible group term is a
one-year renewable life insurance policy that enables you to provide every
member of your team with an affordable life cover.

Flexible Rider Options

ICICI Prudential Life offers flexible riders, which can be added to the basic
policy at a marginal cost, depending on the specific needs of the customer.

Accident & disability benefit: If death occurs as the result of an accident

during the term of the policy, the beneficiary receives an additional amount
equal to the rider sum assured under the policy. If an accident results in total and
permanent disability, 10% of rider sum assured will be paid each year, from the
end of the 1st year after the disability date for the remainder of the base policy
term or 10 years, whichever is lesser.

Critical illness benefit: Critical Illness Benefit Rider provides protection

against 9 critical illnesses to the policyholder when attached to the basic plan.

Income Benefit Rider: In case of death of the life assured during the term of
the policy, 10% of the rider sum assured is paid annually to the beneficiary, on
each policy anniversary till maturity of the rider. Income Benefit rider is
available with SmartKid Child Plans. Premiums paid under this rider are
eligible for tax benefits under Section 80C.

Waiver of Premium Rider (WOP): On total and permanent disability due to

an accident, all future premiums for both the base policy and rider(s) will be
waived till the end of the term of the rider or death of the life assured, if earlier.

41

Waiver of Premium Rider on Critical Illness Rider: This rider waives all
your future premiums of your base policy on occurrence of specified 20 Critical
Illnesses. This ensures that your policy benefits continue as planned.

Vision & Values

Our vision:
To be the dominant Life, Health and Pensions player built on trust by world-class
people and service.
This we hope to achieve by:

Understanding the needs of customers and offering them superior products and
service

Leveraging technology to service customers quickly, efficiently and

conveniently

Developing and implementing superior risk management and investment

strategies to offer sustainable and stable returns to our policyholders

Providing an enabling environment to foster growth and learning for our

employees

And above all, building transparency in all our dealings

The success of the company will be founded in its unflinching commitment to 5
core values -- Integrity, Customer First, Boundaryless, Ownership and Passion.
Each of the values describe what the company stands for, the qualities of our
people and the way we work.

We do believe that we are on the threshold of an exciting new opportunity, where we

can play a significant role in redefining and reshaping the sector. Given the quality of
our parentage and the commitment of our team, there are no limits to our growth.

42

Our values :
Every member of the ICICI Prudential team is committed to 5 core values: Integrity,
Customer First, Boundaryless, Humility, and Passion. These values shine forth in all we
do, and have become the keystones of our success.

Awards & Recognitions

Awards 2012
ICICI Prudential Life Insurance has been pronounced winner in the 2nd Excellence
Awards and Recongnition for Shared Services, 2012. We won the award in the category
- Shared Services in India - Insurance Domain.
These awards have been instituted by All India Management Association (AIMA) &
Delhi Management Association (DMA), in collaboration with Rvalue Consulting as
knowledge partners, to honour,recognize & promote trasformative strategies for shared
services.

Bronze Effie in the Financial services category for the campaign "Life Insurance in just
10 Minutes"

ICICI Pru iCare has been voted the Product of the Year 2012*
*A survey by Nielsen for Insurance Category that included 30,000 people

Awards 2011
ICICI Prudential Life Insurance has been conferred the Insurance Company of the Year
Award 2011 and Company of the Year Award 2011 Life Insurance at The Indian
Insurance Awards 2011 instituted by the reputed insurance journal of India Insurance
Review, in association with Celent, a research and consulting firm.

43

ICICI Prudential Life Insurance has been awarded the prestigious award for the Best
Leading Private Player Life Insurance 2011 at the CNBC TV18 Best Bank and
Financial Institution Awards for FY11.
ICICI Prudential Life Insurance was awarded the ICWAI National Award for
Excellence in Cost Management 2010 under the Private sector-Service (Large)
category at ICWAI annual event.
Awards 2010
India's Most Customer Responsive Insurance Company. AGC Networks - Economic
Times, Customer Responsiveness Awards, 2010.
Awards 2009
ICICI Pru Life ranked as the Most Trusted Pvt Life Insurance brand in the Brand Equity
"Most Trusted Brands 2009" survey
The International Council of Customer Service Organizations (ICCSO) recently
awarded ICICI Prudential Life, the International Service Excellence Awards 2009 in the
categories of Customer Charter Winner, Service Excellence in Large Business
Highly Commended and Customer Service Leader awarded to Ms. Priya Nayak, VPService Quality.
ICICI Prudential Life Insurance has won the first runner up award for the Best Defect
Elimination in Service & Transaction category at Asian Six Sigma Excellence Summit
2009.
Awards 2008
India's Most Customer Responsive Insurance Company . Avaya Global Connect Economic Times. Customer Responsiveness Awards, 2007
ICICI Prudential Life Insurance won the award for the Best Life Insurer-Runner up at
the Outlook Money & NDTV Profit Awards 2007

44

ICICI Prudential Lifes, retirement solutions campaign for the year 2006-07 was
awarded the Bronze Effie trophy in the services category.It also won the Brand Equity
Bravery Award 2007, instituted by Ad Club.
ICICI Prudential Lifes website, www.iciciprulife.com was awarded the best website
among private life insurers at the Web 18 and Frost & Sullivan Genius of the Web
Awards 2007 for commendable work in the online medium..

BOARD OF DIRECTORS
The ICICI Prudential Life Insurance Company Limited Board comprises reputed
people from the finance industry both from India and abroad.
Ms. Chanda D. Kochhar, Chairperson
Mr. N. S. Kannan, Director
Mr. K. Ramkumar, Director
Mr. Rajiv Sabharwal, Director
Mr. Barry Stowe, Director
Mr. Adrian OConnor, Director
Mr. Keki Dadiseth, Independent Director
Prof. Marti G. Subrahmanyam, Independent Director
Ms. Rama Bijapurkar, Independent Director
Mr. Vinod Kumar Dhall, Independent Director
Mr. Sridar Iyengar, Independent Director
Mr. Sandeep Bakhshi, Managing Director & CEO
Mr. Puneet Nanda, Executive Director
Mr. Madhivanan Balakrishnan, Executive Director

45

CHAPTER-IV

DATA ANALYSIS AND

INTERPRETATION

46

RISK ANALYSIS QUESTIONNAIRE

The risk analysis questionnaire is very much helpful in identifying the possible
risk of a particular department. A structured questionnaire is to be prepared for a
particular department keeping in mind its activities, past performance and personnel.
The questionnaire is to be distributed among the employees. Thus, by analyzing the
response from the questionnaire, one can identify the different potential risks to which
that particular department risks to both insurable and uninsurable risks.
CHECKLIST OF EXPOSURES
In this case, a list of those activities is prepared which may prove risky to the
organization. Though the list is not exhaustive, it covers the major potential risky
activities. The list of such activities depends basically on the business of the
organization, its priorities, sizes, location, etc. the checklist, along with other risk
identification methods, helps in identifying the potential risk to which the organization
may be exposed to.
INSURANCE POLICY CHECKLIST
These checklists are usually available with the insurance companies. They are
also periodically published in the insurance related journals or magazines. These
checklists provide insight about the type of insurance that particular insurance that a
particular industry may need. Thus the job of a risk manager is to identify the bestsuited checklist emphasizes mostly only on the insurable risks and very little focus is
given on non-insurable pure risks.
FLOW CHARTS
Flow charts are usually system specific. These concentrate on specific events, which
may be potentially risky to the organization, are depicted in a structural manner and
each of these activities is analyzed. The most important objective of the flow chart is
that the risk manger becomes though roughly acquainted with the technicalities of the
company. This is turn help in the determination of specific risk, which may be potential
and hazardous to the organization.
47

ANALYSIS OF FINANCIAL SYSTEM

The financial systems of a company include the balance sheet, profit and loss account,
cash flow statement, auditors, report, report of the chairperson, etc. the balance sheet
analysis helps in identifying, for example, the overlooked assets or contingent
liabilities. Similarly, the profit and loss statement identifies those areas of business
which the risk manager to have thorough knowledge of the source and utilization of
funds of a company. Because, ultimately the effort of risk manager is going to be
reflected in these statements. The risk manager must also gather as much information as
he can from the notes to the accounts and reports of the auditors and the chairperson.
EVALUATION OF RISK
After identification of different risks from all the possible angles, it is important to
evaluate each of them. What would be the degree of loss (both in quantitative and
qualitative terms)? What is the probability of the occurrence of these activities? There
may be a few risks, which need immediate attention, and others, which demand to loss
or even bankruptcy to the organization, rank equally. And it is not possible to align
these into separate categories. If a firm becomes bankrupt because of earthquake or
legal liability or financial liability or heavy fire, the final outcome of all these risks in
the same and that is bankruptcy. Therefore, instead of assigning some numerical or
alphabetical value such as 1,2,3or A, B, Cone should attempt to group them into
different categories. These may be:
A.

Critical categories

B.

Important categories

C.

Unimportant categories

CRITICAL CATEGORIES
These include those risks, which are left exposed, would result into heavy loss to the
company. These risks mostly lead to bankruptcy of the company. For example, flood,
earthquake, volcano eruption, legal battles, loss in exports, etc.

48

IMPORTANT RISKS
This category includes those risks, which would become detrimental to the survival f
the company. Though the company may not become bankrupt, it has to borrow funds
from the market in order to carryout with its business. For example, theft or fire to go
down, lockout, strike, bomb blast in the premises, etc.
UNIMPORTANT RISK
These are the risks, which though disadvantageous to the company, can meet the loss
from its existing recourses. Foe example, injury to a worker, delay in receipt of
material, temporary power failure, etc.
In order to classify the various exposures, it id=s important to ascertain the degree of
financial loss and the extent to which the company can absorb such loss. Moreover, it is
also important to ascertain the extent to which the company can meet the uninsured part
of the loss without resorting to borrowing from the market. It is difficult to standardize
the risks into the above-mentioned three categories for different types of organization.
However, this is an important guideline, which will help the organization in prioritizing
their respective exposures.
RISK AVOIDANCIn this case, the entity does not accept the risk even for a
momentary period. Thus, the entity retains from undertaking any risky activity. A
person who is afraid of meeting with an accident of while driving does not drive.
Similarly, a company, which is afraid of some chemical leakage, may not undertake
production of such goods. Thus the entity identifies to avoids the potential various risks
RISK REDUCTION
In this case all activities undertaken by the entity to reduce the risk exposure are
included so that the organization can decrease the frequency, severity and
unpredictability of loss. This method gained popularly because of the fact that reduction
of risk exposure is a more economic approach than underwriting an insurance policy.
This results in giving more emphasis to development of such procedures and
approaches, which will decrease the occurrence, or severity of the losses.

49

RISK TRANSFER
In this case, the risk is transferred through agreements, contracts, surety bonds or
insurance. Purchase of insurance is the most prevalent practice amongst the
businessmen. In addition to insurance there are other risk transfer techniques, which
will be discussed in chapter V
IDENTIFICATION OF RISK
Risk identification is a process of identifying risk and uncertainties systematically and
continuously. Identification of risk is a crucial step in the process of risk management
for both individuals as well as organizations. The process leads to the development of
information on various sources of risk, hazards, risk, factors, perils and various
exposures to loss, since some of these words are new we will give their meaning in
brief.
Sources of risk are the sources from which hazards, perils and risk factors develop.
Hazard is a condition in the environment that creates or increases the chance of loss or
its severity.
Peril is a cause of loss.
Exposure to loss means properties, situations or persons facing the possibility of loss.
SOURCES OF RISK
Hazards, perils, risk factors emanate from different sources. a ;riot may arise from a
social environment. A governments decision to grant or withdraw subsidy given to
farmers on fertilizers arise from political environment create different risks to
organizations and individuals. Though the sources of environment can be classified on
different bases, we have tried to use a general classification. Given below are the
sources of risk.
Economic Environment
Economic environment of a country comprises the national income, money supply,
inflation, consumption and savings habits of the public, capital markets, export and
import policies, government expenditure and nature of investment. Any change in
income level, consumption pattern habits influence the demand-supply conditions of
goods and services as well as the growth of an industry.
50

Legal environment
Law is usually evolved on the basis of the established habits and thoughts of people. It
performs the following functions;
a.

It ensures stability and security in society.

b.

It clearly sets the limits on the actions of individuals and organization.

c.

It establishes the rule of law by ensuring fairer justice.

Operational Environment
Business organizations produce and sell some products or services. They employ some
technology and people; use a place and other resources in the process of production. By
nature of product or service some organizations are exposed to risk. For instance, a coal
mining business exposes the company to accidents in the field. Air carrier business is
exposed to aviation risks. A cinema theatre is exposed to the risk of riots. State transport
buses are exposed to the risk of fire from public.
Exposures to Risk
Usually in any business enterprise, people only bother to manage risks when the
organization is directly exposed it them. These exposures create hazardous conditions,
which in turn influence the acts of perils. So one of the important parts of risk
identification is to find out the exposures well in advance to avoid direct exposures to
loss. Broadly speaking, any organization is exposed to risk. But the nature of exposure
needs to be categorized for an easier evaluation of the negative financial impact. Based
on the nature, exposure can be classified into three categories; property exposures,
liability exposures and human resource exposures.
Property Exposures
Property can be of two types; real and personal.
Real property may be defined as the land and whatever is growing on it, or erected on
it or affixed to it.
Personal property is anything that is subject to owner ship that another real property.
According to another classification, property may be divided into physical assets
(consisting of land, buildings, plant and machinery), financial assets (comprising of

51

investments in stocks, bonds, government securities and cash on hand) and intangible
assets (like goodwill, intellectual properties).
These are exposed to different types of hazards or risk factors depending up on their
nature. Physical property may be damaged, destroyed, stolen of may suffer a loss of
value.
Liability Exposures
The legal environment in a given country determines the liability exposures. These
exposures are pure risks. Under a given law, rights can be enforced while the
obligations have to be fulfilled. Every organization is exposed to the risk of losses due
to the failure in fulfilling the legally imposed obligations. Civil and criminal law
describe the duties and responsibilities a citizen is expected to follow. On certain
activities, statutory limitations are imposed through state and union legislations.
Statutory authorities impose rules and directives to establish the standards of care.
Human Resources Exposures
People are the prime movers of any organization. The employees of a company are
exposed to several risks. Due to this risk the organization as well as the employees
suffers the loss. Human resources of a company are exposed to poor as well as
speculative risk. A company may have to sustain the following types of human
resources exposures.
A person may meet with an accident and suffer physical injury while working. It may
result in temporary or permanent disability or even death. Either of the above outcome
forces the company as well as the injured to sustain loss. This is a pure risk.

FRAMEWORK FOR POTENTIAL RISK IDENTIFICATION

A formal procedure is needed to identify the risks in a systematic way, without which
formulation of strategies for managing will difficult. If a risk manager does not identify
the losses or gains to which an organization is a exposed to, he would find it too
difficult to handle when the undiscovered risks confront the organization.
Systematic procedures must be evolved to developed a framework all the risks, pure as
well as speculative. The identification process must continuously monetarily internal

52

and the external environment to capture the information on various risks, since the risk
identification is not a one-time affair or an episodic event.
Loss Exposure Check List
A detailed understanding of the events that cause loss will help in the preparation of a
risk check list a check list of potential losses can be prepared from the insurance survey
and loss analysis questionnaires. Insurance survey questionnaires eliciting information
of exposures that are insurable whereas the loss in a analysis questionnaires generally
deal with all pure risks. The questionnaires published by American management
association (AMA), international risk management institute and risk and insurance
management society (RIMS) are often referred by many. AMAs risk analysis guide
provides a checklist of (a) the possible assets and (b) possible exposures. Further, the
exposures are categorized in to direct, indirect and third party exposures. Such checklist
may not be fully useful as they fail to cover some risks usual to a given organization
and they failed to cover speculative risks.
Property Exposures
Tangible assets: building, plant, stocks, vehicles, and vessels.
Intangible assets: patents copyrights, trademarks, and goodwill
Liability exposure: liabilities for failure of products, process, and compensation
claims etc.
Human resource exposures
Key personal resignation, accidents etc.
Application of checklist
A checklist is very helpful to an organization to frame the potential risk identification
systems how ever; a standard checklist has drawbacks, which are given below
a. It may fail to consider the risks, which are unusual and uniquely related to a
particular organization or situation
b. It does not focus on the speculative risk properly, as is done in the traditional
risk practices.
c. It does not includes all risk exhaustively

53

The first in Appling the checklist is to have a look at the seven sources of risks,
mention in the sections. The risk management can briefly describe each of the sources.
Some experts suggest a slightly different approach. They say that a careful analysis
must be made of not only the external environment but also internal exposures. As for
this organization they consider the arising from (a) customer or client, (b) suppliers, (c)
competitors, (d) regulators.

FINANCIAL STAMENT ANALYSIS

Trading account profit and loss account and balance sheet are refer to as financial
statement. The risks applicable to a given organization can be identified from the check
list the advocates of this method argue that it is possible to identify the property,
liability and personal exposures from a careful study and detailed analysis of the
organizations financial statements.
Using this method a detailed study of each account is made to determine what risks it
creates. The risks identified will be reported under each account title. Merits of this
method are:
a. It is objective and reliable as the results are based on readily available figures
b. The result can be presented in a clear and concise form
c. It translates risks identification in to financial terminology which is more
acceptable to the managers, accountants, bankers, creditors and shareholders
d. Apart from risk identification, it can also be used in risks measurement fund and
risk management.
Example showing the potential losses from perils under the account vehicles.
Account title: vehicles
Specific property: martin esteem car
Loss: direct and Indirect
Perils: accident fire, theft and human perils
Specific liability exposure: commensuration for damaging others property, injuring or
killing other people.
Perils: accidents
54

Personal exposure: the driver and others we is the car may be killed or injured in the
accident
Perils: accident and fire.
FLOW CHARTS
Flow charts act as an important tool for identifying risks and uncertainties in
organizations. Flow charts generally show the material flow of all operation of the
organization. This is more suitable for organization in the manufacturing industry. It
shows all operation at a glance the following points from the flow charts help us in the
process of risk identification

Blooming mill

Steel casting

Axie forge shop

Wheel forging
shop

Heat treatment
shop

Heat treatment
shop

Machining

Machining

Assembly of axie and wheels

Balancing

Flow charts describing the flow of materials in a wheel and axle plant, manufacturing
and assembling wheels and axles for trains
a. The potential production bottle necks can be identify easily, which will be
useful in identifying the operational risk of the company
55

b. The property, liability and human resource exposures can be identify and the
estimated through out flow
The following or sum of the potential losses arising from risks.
Property losses: repairs and replacement of machines, equipment, raw materials and
finished goods. In addition to the direct loss there will be indirect loss due to
production stoppage.
Liability loss: liability exposures arise when the organization supply defective
products, when it trucks damage other property or injure people on the road through
negligence.
Human resource exposure: loss arising from the death of key employ, loss to the
families of employee due to the death, retirement, accident, or poor health.
INPUT-OUTPUT ANALASYS
Input-output analysis is based on the flow of goods and services in the economy
where the output of one organization or entity becomes the input for another
organization. In an organization the output of one department is assumed to be the
input for another department. It is applicable mostly to process industry or assembly
line production processes, or wherever interdependencies exist between
organization units.
The difference between the value of input and output of each department
is considered to be value addition in the given department. With the help value
additions data, we can determine the contribution from each department to the
profits of the organization and the interdependencies between them. Input-output
analysis highlights the departments whose output is critical.

56

Risk Chain Methods

It can be termed as a loss and hazard analysis tool. The relationship between
hazards and losses is analytically examined. This approach performs a detailed
analysis of the environmental influence on the hazard, result of the influence and its
long-tern effects. The events in the chain will be discussed in the chapters ahead.
How ever, they are listed below as a foretaste:
A. The hazard,
B. The environment,
C. The interaction,
D. The outcome, and
E. The consequence,
RISK EVALUATION
Risk identification involves the perception of risk and analyzing its
Possible outcomes, while risk evaluation
Helps an organization to find out the possible
CONSEQUENCES OF RISK IN MONETARY TERMS.
a.
b.

To develop a benchmark based on the importance of the risk to the organization.

To apply this yardstick to all the risks identified.

The consequences of risk may lead to direct and indirect losses, which may have some
adverse financial impact on the company. Risk evaluation begins with the risk
identification and its outcomes; Risk identification is the initial step in the process of
risk evaluation or assessment.

57

RISK CLAIMS & RISK ANALYSE

INTRODUCTION
1.

A claim is the demand that the insurer should redeem the promise made in the
contract. The insurer has then to perform his part of the contract i.e. settle the
claim, after satisfying himself that all the condition and requirements for settlement
of claim have been complied. In particular he should check.

Whether an insured event has taken place?

What are the obligations assumed under the contract, which are required to be
performed? These may be payment of bonus, payment of sum assured in
installments, waiver of future premiums, etc

MATURITY CLAIMS
2

Under endowment type of policies, the SA is to be paid when the term of the policy
is over. The date on which the term is complete, is the date of maturity and the
settlement of the SA on that date, is the maturity claim. The amount payable on
maturity is the SA, less any debts like loan and interest or outstanding premium. To
this bonuses, if any would be added, if it is a with profit policy.

The insurer, based on the records showing the policies that will mature every
month, initiates action on maturity claims. The insurer normally sends advance
intimation to the insured. The insurer has to satisfy that

There are no assignments

The identity of the policyholder is proved.

The age stands admitted

The premiums are all paid (this is not required for a paid-up policy)

The original policy is handed in

The discharge voucher is duly complete.

58

SURVIVAL BENEFIT PAYMENTS

4

A survival benefit is paid during the currency of the policy, before the date of
maturity. The procedure will be similar to payment of maturity claims. Action will
be initiated by the insurer and post dated cheques will be sent in advance

If the policy is reported to be lost, insurers are unlikely to settle on the basis of an
indemnity, as may done in the case of a maturity claim. The reason is that when a
maturity claim is paid, no further obligations remain under the policy. but, the
policy does not cease to exist after the survival benefits.

If the life assured dies after the date when the survival benefit was due, but before
it is settled, the survival benefit will not be paid to the nominee.
The death claim will be paid to the nominee.

DEATH CLAIM
7

The procedures in settling a death claim are more complex than in the case of
maturity claims. This is mainly because, the facts relating to death have to be
studied and the identities of claimants have to be established.

The death claim action beings with an intimation being received in the insurers
office. The intimation may be sent by the nominee, assignee relative of the life
assured, the employee, agent or development officer. This intimation may have very
little information other than the police number, the name of the life assured and the
data of death.

Proof of age, if age is not already admitted.

CLAIM CONCESSION
10 There are situation when, though the policy has lapsed and nothing is payable, yet
the insurer pays the death claim. For example, assume that in 30 years old.
Endowment policy, 30th annual premium is not paid and the policy is in a state of
lapse in the last year. If the life assured dies a few weeks before maturity, it would
be wrong to say that the death claim is not payable. There is practically no risk in
the last year.
11 The L.I.C pays claims in full in the following circumstances, after deducting the
outstanding premiums with interest. In both the cases, the policy could have been
59

revived by just paying the arrears of premium and no proof of good health would
have been necessary.

After there years, if the death claims arises within six months from the
date of lapse.

After five years, if the death claims arises within twelve months from the
date of lapse.

12 In cases where premiums are being advanced from surrender value, the claim
amount will be payable in full.
PERSUMPTION OF DEATH
13 Proof of death is essential. A death certificate issued by the municipal office or
similar local body is the acceptable proof of death. A certificate of burial or
cremation can also be obtained. Statements from witness to the last rites will be
supporting evidence. In the case of accidents, air crashes or an seas, or natural
calamities, the bodies may not be found. In such cases, insurers rely on statements
from the carriers or other authorities with relevant information. In case of defense
personnel, a certificate from the commanding officer of the unit is to be obtained. If
a court of enquiry is ordered, its findings should be obtained.
14 Some times a person is reported missing without any information about his
whereabouts. The Indian evidence act provides for presumption of death in such
cases, if he has not been heard of for seven years. If the nominee or heirs claim that
the life insured is missing and must be presumed to be dead, insurers insist on a
decree from a competent court. It is necessary that the premiums should be paid till
the court decrees presumption of death. The insurer may also act on its own without
a decree of the court, if reasonably strong circumstantial evidence exists to show
that the life assured could not have survived a fatal accident or hazard. Insurers as a
matter of concession waive the premiums during the seven-year period.

60

PRECAUTIONS
15 As per the Indian lunacy Act, if a person is mentally deranged, a court of law is
required to appoint a person to act as a guardian to manage the properties of the
lunatic. Where the assured or the person to sign the discharge form. If the person to
sign the discharge is known to be a lunatic, only such a guardian can sign the
discharge form. If the person has recovered from the mental disorder, a medical
certificate to that effect, would be necessary.
16 Any order from a court or other judicial authority with reference to the policy
money has to be respected. The insurer does not have to contest the orders. It is for
the claimants to do so. Sometimes, the court orders may not be appropriate. For
example, the policy moneys under a MWP act policy cannot be attached against the
debts of the life assured. If a court or judicial tribunal passes an order of attachment,
the claimants must get that order vacated. The insurer may present the facts if called
upon to do so.
17 If the life assured is reported to have died before the maturity date, the claim has to
be treated as a death claim and processed accordingly. But if the assured is reported
to have died after the date of maturity but be fore the receipt is discharged, the
claim is to be treated as a maturity claim and paid to the legal heirs. Death
certificate and evidence of title would be necessary.
18 Payments of claim amount to non-residents are governed by the foreign exchange
control regulations.
ACCIDENT AND DISABILITY BENEFITS
19 These benefits are conditional on conclusive evidence, that all the eligibility
conditions are satisfied and that the exclusions do not apply. The conditions are that

The accident must be caused by outward, violent means, not self inflicted

The death must be result of injuries caused by that accident

The death must occur within 120 days or such other period as may be
specified

61

20 The exclusions may be

Intentional self-injury, attempted suicide, insanity, immorality, intoxication,

intoxication

Accident while engaged in civil aviation or aeronautics, other than as

passenger

Injuries resulting from riots, civil commotion etc

IRDA REGULATIONS
21 The IRDA Regulations stipulate that

The insurer should ask for all the requirements in the case of a death claim
at one time and not piecemeal

The decision to admit or to repudiate should be made within 30 days of

receipt of papers

If an investigation is necessary, it should be completed within 6 months

Interest at 2% over the bank rate, will be payable for delays in settling the
death claims

Interest at the savings Bank rate will be paid if the insurer is ready to pay
but the claimants are not ready to collect.

62

Risk capacity
1 What is your age (in years)?

30-40

2 How many dependants do you have?

none/1 person

3 Your present occupation is

ca

4 What is your current annual Income?

5

1 lac-3lac

How many more years do you plan to work?

11 to 15 years

Risk behavior
1 How good is your knowledge of finance & markets?
Expert knowledge
2 If you had Rs. 1 lack with you, where would you invest?
Mostly in deposits & rest in shares / Miffs
3 Which of the full instruments have you invested before?
Bank deposits, NSC, PPF, Bonds etc
4 You have a tip from a friend on the price appreciation of a
Certain share, you:
Want to invest but unable to decide when to
5 The stock market has dropped by 25% &the share that you own has also dropped by
25%, but the market expects the share to go up again. What would you do?
Sell some of them
6 You win Rs.10, 000 in a game show. You have the choice to keep the money or risk it
to win a higher amount. You
Risk the 10000 on 25% chance of winning 750

63

Final output
Real risk capacity is

Higher

Your attitude towards risk is

Balanced

Suggestion

Equity exposure may be

Increased marginally.

64

Risk capacity
1

What is your age (in years)?

40-49

How many dependants do you

Have?

3 person

Your present occupation is

Business

What is your current annual

Income?

1 Lac-3Lacs

How many more years do you plan to work?

11 t0 15 years

Risk behavior
1

How good is your knowledge of finance & markets?

No knowledge

If you had Rs. 1 lack with you, where would you invest?
Mostly in deposits & rest in shares / MFs

Which of the full instruments have you invested before?

Bank deposits, NSC, PPF, Bonds etc

You have a tip from a friend on the price appreciation of a

Certain share, you:
Want to invest but unable to decide when to

The stock market has dropped by 25% &the share that you own has also
dropped by 25%, but the market expects the share to go up again. What would
you do?
Sell some of them

You win Rs.10, 000 in a game show. You have the choice to keep the money or
risk it to win a higher amount you:
Happy with the money have won

65

Final output
Real risk capacity is

medium

Your attitude towards risk is

very conservative

Suggestion

equity exposure may be increased

66

Risk capacity
1

What is your age (in years)?

30 -40

How many dependants do you

Have?

1 Person

Your present occupation is

Business

What is your current annual

Income?

1 Lac to 5 Lacs

Yow many more years do you plan to work?

11 to 15 years

Risk behavior
1

How good is your knowledge of finance & markets?

Expert knowledge

If you had Rs. 1 lack with you, where would you invest?
Mostly in deposits & rest in shares / MFs

Which of the full instruments have you invested before?

Bank deposits, NSC, PPF, Bonds etc

You have a tip from a friend on the price appreciation of a

Certain share, you:
Want to invest but unable to decide when to

The stock market has dropped by 25% &the share that you own has also
dropped by 25%, but the market expects the share to go up again. What would
you do ?
Sell some of them

You win Rs.10, 000 in a game show. You have the choice to keep the money or
risk it to win a higher amount. You:
Risk the 10000 on 25% chance of winning 750

67

Final output
Real risk capacity is
Your attitude towards risk is
Suggestion

68

Risk capacity
1

What is your age (in years)?

30 -40

How many dependants do you

Have?

None /1 Person

Your present occupation is

CA

What is your current annual

Income?

10 Lac to 13 Lac

How many more years do you plan to work?

11 to 15 years

Risk behavior
1

How good is your knowledge of finance & markets?

Expert knowledge

If you had Rs. 1 lack with you, where would you invest?
Mostly in deposits & rest in shares / MFs

Which of the full instruments have you invested before?

Bank deposits, NSC, PPF, Bonds etc

You have a tip from a friend on the price appreciation of a

Certain share, you:
Want to invest but unable to decide when to

The stock market has dropped by 25% &the share that you own has also
dropped by 25%, but the market expects the share to go up again. What would
you do?
Sell some of them

You win Rs.10, 000 in a game show. You have the choice to keep the money or
risk it to win a higher amount. You:
Risk the 10000 on 25% chance of winning 750
69

Final output
Real risk capacity is

Medium

Your attitude towards risk Is

Suggestion

Balanced
Current Asset Allocation may be
Maintained

70

Risk capacity
1

What is your age (in years)?

18-30

How many dependants do you

Have?

4 persons or more

Your present occupation is

Doctor

What is your current annual

Income?

5 Lacs-10Lacs

How many more years do you plan to work?

15 years or more

Risk behavior
1

How good is your knowledge of finance & markets?

Aware of only fixed return investments

If you had Rs. 1 lack with you, where would you invest?
Mostly in deposits & rest in shares / MFs

Which of the full instruments have you invested before?

Bank deposits & mutual funds

You have a tip from a friend on the price appreciation of a

Certain share, you:
Want to invest but unable to decide when to

The stock market has dropped by 25% &the share that you own has also
dropped by 25%, but the market expects the share to go up again, what would
you do?
Keep all of them as you expect price to go up

You win Rs.10, 000 in a game show. You have the choice to keep the money or
risk it to win a higher amount. You:
Risk the 10000 on 25% chance of winning 750
71

Final output
Real risk capacity is

Medium

Your attitude towards risk is

Balanced

Suggestion

Current Asset Allocation may be

Maintain.

72

Risk capacity
1

What is your age (in years)?

30-40

How many dependants do you

Have?

Your present occupation is

Salaried

What is your current annual

Income?

1 Lac- 3Lac

How many more years do you plan to work?

2person

15years or more

Risk behavior
1

How good is your knowledge of finance & markets?

Expert knowledge

If you had Rs. 1 lack with you, where would you invest?
Mutual funds only

Which of the full instruments have you invested before?

Savings bank & fixed Deposits

You have a tip from a friend on the price appreciation of a
Certain share, you:

Invest immediately
The stock market has dropped by 25% &the share that you own has also
dropped by 25%, but the market expects the share to go up again. What would
you do?
Sell all the shares
You win Rs.10, 000 in a game show. you have the choice to keep the money or
risk it to win a huger amount. You:
Happy with the money you have won

73

Final output
Real risk capacity is

medium

Your attitude towards risk is

Suggestion
Maintained.

balanced
current

74

asset

allocation

may

be

Risk capacity
1

What is your age (in years)?

50-59

How many dependants do you

Have?

None/1 person

Your present occupation is

professional

What is your current annual

Income?

5Lacs-10Lcs

How many more years do you plan to work?

5 to 10 years

Risk behavior
1

How good is your knowledge of finance & markets?

Expert knowledge

2
3
4
5

If you had Rs. 1 lack with you, where would you invest?
Shares only
Which of the full instruments have you invested before?
Bank deposits & shares
You have a tip from a friend on the price appreciation of a
Certain share, you:
You ignore the tip
The stock market has dropped by 25% &the share that you own has also
dropped by 25%, but the market expects the share to go up again. What would
you do?
Keep all of them as you expect price to go up

You win Rs.10,000 in a game show.you have the choice to keep the money or
risk it to win a higer amount. You:
Risk the 10000 on 25% chance of winning 750

75

Final output
Real risk capacity is

high

Your attitude towards risk is

Aggressive

Suggestion

Current asset allocation may be

Maintained.

76

CHAPTER-V

FINDINGS AND SUGGESTIONS

77

FINDINGS
On an analysis and evaluation of the data collected from the respondents the
following findings were found.

Before establishment of private concerns the share of LIC was 22% hence there
is a wide scope for private concerns to enter in to market.

Total 100 respondents have been approached out of which 75 are the potential
respondents who have shown interest for investment and finance plan

Above 20% of respondents are shown interest for investment and financial plan

About 33.33% of respondents are not interest to give their personal records.

About 12.67% of respondents have already been covered by other insurance

companies.

About 10% of respondents have given invalid records.

About 10% of respondents are newly employed or trainees.

About 10% of respondents interested for investment plan after knowing ICICI
PRUDENTIAL LIFE INSURANCE products.

78

SUGGESTION
WHAT TO DO ABOUT THE RISK?
The recourse available to banks could be

If the risk is at the prospective stage, try to avoid it.

If the risk is likely to occur, and it is unavoidable, accept the risk and retain it in
an economically justifiable basis.

Try to execute some effective actions as to reduce or eliminate the loss likely to
be incurred due to happening of the particular risky incident.

Try to diversify within a portfolio of risks with a view to shortening the loss.

For risky business areas, introduction of prudent exposure norms in advance

may help in minimizing the loss.

Sound risks measurement procedures and information systems, if put in place in

the right perspective, will help in taking timely decisions for avoidance of risk.

If suitable, hedge the risks artificially i.e., counter balance and neutralize the
risk to a certain degree, b use of derivative instruments. This, in itself, is a very
risky option.

Monitor various categories of risks on continuous basis and report to

appropriate authority that risk can be overcome in future.

Liquidate the risk by transfer without recourses to other party.

Put in place the comprehensive internal control audit systems with a view to
controlling risks.

CREDIT RISK:

Setting up prudential limits on (a) various financial parameters, (b) single/

group borrowers limits, (c) substantial exposure limits, (d) exposure to
industries sectors especially sensitive sectors, regions, etc.

Adoption of risk adjusted return on capital (RAROC) framework for pricing of

loans.

79

Stipulating (a) quantitative ceiling on aggregate exposure in specified rating

categories, (b) rating wise distribution of borrowers in various industries,
business segments, etc. (c) exposure to industries, sectors, regions, etc. (d) target
rating wise volume of loans, portable defaults and provisioning requirements.

Undertaking rapid portfolio reviews, stress tests and scenario analysis when
external environment is undergoing rapid chances.

Building adequate data and historical loan and model variable, spanning
multiple credit cycles, for switching over to credit risk modeling after a
specified period of time.

Estimating the total potential exposure in respect of off- balance sheet items on
a static or dynamic basis

Risk techniques
Risk control focuses on minimizing the risk of losses by using different techniques.
Risk avoidance, risk abandonment, risk reduction, risk transfer, risk retention, etc. As a
doctor is required to diagnose the disease for prescribing a medicine, so also risk
manager is required to know the risks that an organizations exposed to, before
initiating any kind of
Risk measure.
Risk financing
Risk financing is concerned about reimbursement of loses suffered by an
organization via residual risk/non-controlled risk. There are different kinds of risk
financing techniques that can be broadly grouped under two heads viz., risk retention
and risk transfer. In practice, here are very few pre risk transfers or retention techniques
of risk financing as they often contain a bit of both. Insurance is one of the frequently
chosen risk-financing tools. A commercial insurer or y a group of people coming
together as in-house insurance outfits can provide such insurance. Insurance, through
self-help groups eliminates the risk of adverse selection and moral hazard.
Risk management organization
INTEREST RATE RISK:

Segmenting the balance sheet into trading and banking books.

80

Laying down policies with regard to volume, maximum maturity, holding

period, duration, stop loss, defeasance period, rating standards etc, for
classifying securities in the trading book.

Conducts stress rests to estimate future volatility in values due to outlier events
in the market

Assessing the magnitude of basis and embedded option risks.

Setting up definite timeframe for moving over to duration gap analysis

Adopting balance sheet simulation models for quantifying the market dynamics
on asset-liability mixes, future earnings/economic values, subject to availability
of quality data, information technology and technical expertise..

SOME OTHER SUGGESTIONS:

Internal process and expertise in risk aggregation and capital allocation to be

developed.

Suitable methodologies to be developed for estimating and maintaining

economic capital by banks operating in internal market. The principle of
economic capital exists to absorb unexpected loss-to the extent that current
profits fall short of that capacity-and thus to minimize the profitability of
insolvency.

Capital to risk to be adjusted to the risk and equity capital to be maintained

according to assessed size of the risk.

Loss of risk to be loaded on cost, as expected loss is a cost to the organization.

Concept of risk adjusted returns to be implemented.

The risky assets to be marked to the market.

International best practices to be followed in developing the risk management

framework particularly the organizational structure.

NEW BASEL CAPITAL ACCORD:

The new Basel capital accord is based around three complementary elements
viz.,
(i) To reinforce minimum capital standards,
(ii) To have the supervisory review process, and
81

(iii) To promote safety and soundness in banks and financial systems.

Market discipline imposes strong incentives on banks to conduct their business
in a safe sound and efficient manner, including an incentive to maintain a strong capital
base as a cushion against potential future losses arising from risk exposures. The Basel
committee is already working on the scope of application of the accord, capital and
capital adequacy, and risk exposure and assessment. The risk management has come at
the central stage in the new Basel capital accord.
RISK BUDGETING:
Risk budgeting is the next step on the risk management journey. Risk budgeting
is the process through which potential loss of various categories of risks is being
measured i.e. risk tolerance levels are being fixed up. Monitoring is also being done.
Under the risk budgeting system, to know whether the loss is under control and is
within the risk tolerance levels. If it is crossing the measured limits, corrective steps are
taken to keep it within the risk tolerance levels.
RISK BASED SUPERVISION:
It is the responsibility of supervisors to monitor that banks are following sound
risk management policies and procedures and are sustaining ethical and professional
standards on continuous basis. Supervisors will have to ensure that appropriate internal
controls are in place and banks are in compliance with supervisory and regulatory
guidance. The RBL is already keenly working on this area and it has recently
announced the draft guidelines to put in place the risk based supervision system in
India.

82

CONCLUSION
Risk is sometimes referred to as the possibility of loss or injury. This is termed
as peril. A hazard is a condition that serves to increase the occurrence of perils.
There are different types of hazards such as physical hazards, and moral
hazards.
There are two types of losses: direct losses and indirect losses. Direct losses
refer to the loss of an object that is exposed to risk, such as property. Indirect
losses refer to the losses arising from direct losses.
There are four levels of uncertainty based on our ability to forecast the outcome
and the probability of that outcome. They are certainty, objective uncertainty,
subjective uncertainty and complete uncertainty. In the first case the outcomes
are certain, in the second case the outcomes can be identified with known
probabilities.
Risks are of different types. Pure risk refers to the risks that always result in
losses. Speculative risk refers to a risk to a risk from which a possibility of a
gain of loss exists.
Dynamic risk arises out of changes in the environment which may be political,
economic or social, whereas static risk is unaffected by changes in the
environment.
Depending upon human attitude towards risk whether he is risk averse or a
risk lover the strategy to manage risk varies. Risk can be avoided or prevented
by risk avoidance, loss control, loss prevention, loss reduction and risk transfer.
Insurance is one methods of transferring risk to a third party by paying a
premium for the same.
As risk emanates from different activity, the focus of risk management should
be on making other managers realize the implication of their actions on the
organizations risk level and learn to manage it
Risk management widely perceived as an attempt to manage firms risk levels
using various available sources out of which insurance is the most commonly
used one
83

 It s imperative that risk manager must have a holistic approach. Ignorance of

risk management is still the main reason given by many corporate entities for
not practicing it.
Risk identification is the basic task of risk management of any organization. The
risks to which a company is exposed to should be identified by exploring the
organization risks from various environment in which the organization
functioning
Risk identification includes the study of hazards, which are the conditions that
influence the causes of occurrence of losses. An organization should find out the
hazards carefully in order to prevent the losses
Risk evaluation is the final phase of risk identification job. In order to evaluate
it properly, past facts and figures about losses are to be collected properly; these
historical data will help to find out the chances of losses and it level of severity
Estimation of risk management budget is critical function of a risk manager to a
great extent has capabilities are measured by estimates he makes: and the
success of risk management program depends largely on the accuracy of
estimates.

84

BIBLIOGRAPHY
RISK MANAGEMENT PRACTICES BY MR. KANNAN.
FINANCIAL MANAGEMENT BY PRASANNA CHANDRA
WEBSITES:

PERSONAL WEBSITE OF MR. KANNAN.

WWW. ICICI PRUDENTIAL .COM

WWW. WIKIPEDIA.COM

WWW. GOOGLE.COM

PROFESSIONAL INSURANCE MAZINIES BY ICFAI.

NEWS PAPERS:

TIMES OF INDIA

BUSINESS PAPER

DECHON CHRONICLE.

85