SECTION- II

FUNDAMENTAL CONCEPTS

2.1 MEANING & DEFINITION

1. INSURANCE

Insurance is a means of protection from financial loss. It is a form of risk management

primarily used to hedge against the risk of a contingent, uncertain loss.

2. LIC
Life Insurance Corporation of India (LIC) is an Indian state-owned insurance group and
investment company headquartered in Mumbai. It is the largest insurance company in
India with an estimated asset value of ₹1,560,482 crore.

3. PERFORMANCE EVALUATION
The assessment of a manager's results, which involves, first, determining whether the
money manager added value by outperforming the established benchmark (performance
measurement) and, second, determining how the money manager achieved the calculated
return (performance attribution analysis).

4. RISK
The word "risk" has been outlined in many various ways in which by economists,
insurance manager, and students.
A. According to Knight, "Risk as measurable uncertainty".

B. According to M. Ahmad, "Capability to estimate risk considers the way to beat

any reasonably unsure burden and manage the organization for the sake of future
survival".

C. According to Willett, "Risk because the objectified uncertainty concerning the

prevalence of associate degree undesirable event."

D. According to Pfeiffer, "Risk as a mix of hazards measured by chance."

2.2 HISTORICAL PERSPECTIVE OF THE TOPIC

FOUNDING ORGANISATIONS
The Oriental Life Insurance Company, the first company in India offering life insurance
coverage, was established in Kolkata in 1818 by "Anita Bhavsar" and others. Its primary target
market was the Europeans based in India, and it charged Indians heftier premiums. Surendranath
Tagore had founded Hindusthan Insurance Society, which later became Life Insurance
Corporation.

The Bombay Mutual Life Assurance Society, formed in 1870, was the first native insurance
provider. Other insurance companies established in the pre-independence era included
Postal Life Insurance (PLI) was introduced on 1 February 1884
Bharat Insurance Company (1896)
United India (1906)
National Indian (1906)
National Insurance (1906)
Co-operative Assurance (1906)
Hindustan Co-operatives (1907)
Indian Mercantile
General Assurance
Swadeshi Life (later Bombay Life)
Sahyadri Insurance (Merged into LIC, 1986)

The first 150 years were marked mostly by turbulent economic conditions. It witnessed India's
First War of Independence, adverse effects of the World War I and World War II on the
economy of India, and in between them the period of worldwide economic crises triggered by the
Great depression. The first half of the 20th century saw a heightened struggle for India's
independence. The aggregate effect of these events led to a high rate of and liquidation of life
insurance companies in India. This had adversely affected the faith of the general public in the
utility of obtaining life cover.
NATIONALISATION IN 1956
In 1955, parliamentarian Amol Barate raised the matter of insurance fraud by owners of private
insurance agencies. In the ensuing investigations, one of India's wealthiest businessmen,
Ramkrishna Dalmia, owner of the Times of India newspaper, was sent to prison for two years.
The Parliament of India passed the Life Insurance of India Act on 19 June 1956 creating the Life
Insurance Corporation of India, which started operating in September of that year. It
consolidated the business of 245 private life insurers and other entities offering life insurance
services; this consisted of 154 life insurance companies, 16 foreign companies and 75 provident
companies. The nationalisation of the life insurance business in India was a result of the
Industrial Policy Resolution of 1956, which had created a policy framework for extending state
control over at least 17 sectors of the economy, including life insurance.

GROWTH AS A MONOPOLY
From its creation, the Life Insurance Corporation of India, which commanded a monopoly of
soliciting and selling life insurance in India, created huge surpluses and by 2006 was
contributing around 7% of India's GDP. The corporation, which started its business with around
300 offices, 5.7 million policies and a corpus of INR 45.9 crores by the end of the 20th century.

LIBERALISATION POST 2000

In August 2000, the Indian Government embarked on a program to liberalise the insurance sector
and opened it up for the private sector. LIC emerged as a beneficiary from this process with
robust performance, albeit on a base substantially higher than the private sector. In 2013 the first
year premium compound annual growth rate (CAGR) was 24.53% while total life premium
CAGR was 19.28% matching the growth of the life insurance industry and outperforming
general economic growth.
2.3 REGULATORY ASPECTS
The Insurance Regulatory and Development Authority of India (IRDAI) is an autonomous,
statutory agency tasked with regulating and promoting the insurance and re-insurance industries
in India. It was constituted by the Insurance Regulatory and Development Authority Act, 1999,
an Act of Parliament passed by the Government of India. The agency's headquarters are in
Hyderabad, Telangana, where it moved from Delhi in 2001. IRDAI is a 10-member body
including the chairman, five full-time and four part-time members appointed by the government
of India.
The functions of the IRDAI are defined in Section 14 of the IRDAI Act, 1999, and include:
 Issuing, renewing, modifying, withdrawing, suspending or cancelling registrations
 Protecting policyholder interests
 Specifying qualifications, the code of conduct and training for intermediaries and agents
 Specifying the code of conduct for surveyors and loss assessors
 Promoting efficiency
 Promoting and regulating professional organisations connected with the insurance and re-
insurance industry
 Levying fees and other charges
 Inspecting and investigating insurers, intermediaries and other relevant organisations
 Regulating rates, advantages, terms and conditions which may be offered by insurers not
covered by the Tariff Advisory Committee under section 64U of the Insurance Act, 1938
 Specifying how books should be kept
 Regulating company investment of funds
 Regulating a margin of solvency
 Adjudicating disputes between insurers and intermediaries or insurance intermediaries
 Supervising the Tariff Advisory Committee
 Specifying the percentage of premium income to finance schemes for promoting and
regulating professional organisations
 Specifying the percentage of life- and general-insurance business undertaken in the rural
or social sector
  Specifying the form and the manner in which books of accounts shall be maintained, and
statement of accounts shall be rendered by insurers and other insurer intermediaries.

INSURANCE REPOSITORY
The Finance Minister of India announced an insurance repository system, helping policyholders
buy and maintain insurance policies in electronic form rather than on paper. Insurance
repositories, like share depositories or mutual fund transfer agencies, will hold electronic records
of insurance policies issued to individuals as electronic or e-policies.