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INTRODUCTION :

Insurance may be described as a social device to reduce or eliminate risk of loss to


life and property. Under the plan of insurance, a large number of people associate
themselves by sharing risks attached to individuals. The risks which can be insured
against include fire, the perils of sea, death and accidents and burglary. Any risk
contingent upon these, may be insured against at a premium commensurate with
the risk involved. Thus collective bearing of risk is insurance.

DEFINITION :

General definition:
In the words of John Magee, “Insurance is a plan by which large number of
people associate themselves and transfer to the shoulders of all, risks that attach
to individuals.”

Fundamental definition:

In the words of D.S. Hansell, “Insurance may be defined as a social


device providing financial compensation for the effects of misfortune,
the payment being made from the accumulated contributions of all
parties participating in the scheme.”
Contractual definition:
In the words of justice Tindall, “ Insurance is a contract in which a sum of money
is paid to the assured as consideration of insurer’s incurring the risk of paying a
large sum upon a given contingency.”
What is Insurance

An insurance contract provides risk coverage to the insuree. A purchaser


of insurance pays a fixed premium in exchange for a promise of compensation in
the event of some specified loss. Insurance is bought because it gives peace of
mind to the holders. This comfort level is important in personal and business life.
Though the primary purpose of insurance is to provide risk coverage, when the
contract period extends over a long time, as in the case of life insurance,
premium payments comprise of two components – one for buying risk coverage
and the other towards savings. This bundling together of risk coverage and
savings is peculiar to life insurance and is more common in developing countries
like India. In the industrially advanced countries, this is not necessarily so and
short duration life insurance contracts without a savings component are equally
popular. In the developing economies because of the savings component and
the long nature of the contract, life insurance has become an important
instrument of mobilising long-term funds. The savings component puts the life
insurance in direct competition with other financial institutions and savings
instruments.

The total investment portfolio of the insurers in India as at the end of


March, 2005 was Rs. 4,65,864 crore. The total premium collected by the insurers
both life and non-life in 2004-05 was Rs.1,00,335 crore. The major contribution
came from life insurance. The insurance penetration i.e., premia as percentage
of GDP was 3.17 per cent in 2004. While this ratio is steadily increasing, it is far
below the world average of 8.06 per cent. This shows the vast potential that
exists.
Characteristics of insurance :
 Sharing of risks
 Cooperative device
 Evaluation of risk
 Payment on happening of a special event
 The amount of payment depends on the nature of losses
Incurred.

FUNCTIONS OF INSURANCE

The functions of Insurance will give you an idea on how to go ahead with the
approach of insurance and what type of insurance to choose. In a layman's
words, insurance means, ‘a guard against pecuniary loss arising on the
happening of an unforeseen event’. In developing economies, the insurance
sector still holds a lot of potential which can be tapped. Majority of the people in
the developing countries remains unaware of the functions and benefits of
insurance and it is for this reason that the insurance sector is still to grow.

Tangible or intangible – an individual can insure anything! Be it a house, car,


factory, or the voice of a singer, leg of a footballer, and the hand of an
author.....etc. It is possible to insure all these as they have the possibility of
becoming non functional by any disaster or an accident.

Basic functions of Insurance

1. 1.Primary Functions
2. 2.Secondary Functions
3. 3.Other Functions
Primary functions of insurance

• Providing protection – The elementary purpose of insurance is to allow


security against future risk, accidents and uncertainty. Insurance is in
reality a protective cover against economic loss, by apportioning the risk
with others.
• Collective risk bearing – Insurance is an instrument to share the
financial loss. It is a medium through which few losses are divided among
larger number of people.
• Evaluating risk – Insurance fixes the likely volume of risk by assessing
diverse factors that give rise to risk. Risk is the basis for ascertaining the
premium rate as well.
• Provide Certainty – Insurance is a device, which assists in changing
uncertainty to certainty.

Secondary functions of insurance

• Preventing losses – Insurance warns individuals and businessmen to


embrace appropriate device to prevent unfortunate aftermaths of risk by
observing safety instructions; installation of automatic sparkler or alarm
systems, etc.
• Covering larger risks with small capital – Insurance assuages the
businessmen from security investments. This is done by paying small
amount of premium against larger risks and dubiety.
• Helps in the development of larger industries – Insurance provides an
opportunity to develop to those larger industries which have more risks in
their setting up.

Other functions of insurance

• Is a savings and investment tool – Insurance is the best savings and


investment option, restricting unnecessary expenses by the insured.
• Medium of earning foreign exchange – Being an international business,
any country can earn foreign exchange by way of issue of marine
insurance policies and a different other ways.
• Risk Free trade – Insurance boosts exports insurance, making foreign
trade risk free with the help of different types of policies under marine
insurance cover.

Challenges facing Insurance Industry

• Threat of New Entrants: The insurance industry has been budding with
new entrants every other day. Therefore the companies should carve out
niche areas such that the threat of new entrants might not be a hindrance.
There is also a chance that the big players might squeeze the small new
entrants.
• Power of Suppliers: Those who are supplying the capital are not that big
a threat. For instance, if someone as a very talented insurance
underwriter is presently working for a small insurance company, there
exists a chance that any big player willing to enter the insurance industry
might entice that person off.
• Power of Buyers: No individual is a big threat to the insurance industry
and big corporate houses have a lot more negotiating capability with the
insurance companies. Big corporate clients like airlines and
pharmaceutical companies pay millions of dollars every year in premiums.
• Availability of Substitutes: There exist a lot of substitutes in the
insurance industry. Majorly, the large insurance companies provide similar
kinds of services – be it auto, home, commercial, health or life insurance.
Indian Insurance Industry: New Avenues for Growth 2012

With an annual growth rate of 15-20% and the largest number of life insurance
policies in force, the potential of the Indian insurance industry is huge. Total
value of the Indian insurance market (2004-05) is estimated at Rs. 450 billion
(US$10 billion). According to government sources, the insurance and banking
services’ contribution to the country's gross domestic product (GDP) is 7% out of
which the gross premium collection forms a significant part. The funds available
with the state-owned Life Insurance Corporation (LIC) for investments are 8% of
GDP.

Till date, only 20% of the total insurable population of India is covered under
various life insurance schemes, the penetration rates of health and other non-life
insurances in India is also well below the international level. These facts indicate
the of immense growth potential of the insurance sector.

The life insurance industry in India grew by an impressive 36%, with premium
income from new business at Rs. 253.43 billion during the fiscal year 2004-2005,
braving stiff competition from private insurers. The market share of the state
behemoth, LIC, has clocked 21.87% growth in business at Rs.197.86 billion by
selling 2.4 billion new policies in 2004-05. But this was still not enough to arrest
the fall in its market share, as private players grew by 129% to mop up Rs. 55.57
billion in 2004-05 from Rs. 24.29 billion in 2003-04.
Though the total volume of LIC's business increased in the last fiscal year (2004-
2005) compared to the previous one, its market share came down from 87.04 to
78.07%. The 14 private insurers increased their market share from about 13% to
about 22% in a year's time. The figures for the first two months of the fiscal year
2005-06 also speak of the growing share of the private insurers. The share of
LIC for this period has further come down to 75 percent, while the private players
have grabbed over 24 percent.
There are presently 12 general insurance companies with four public sector
companies and eight private insurers. According to estimates, private insurance
companies collectively have a 10% share of the non-life insurance market.

Though the focus of this market research report is on the potential growth on the
Indian Insurance Sector, it also talks about the market size, market
segmentation, and key developments in the market after 1999. The report gives
an instant overview of the Indian non-life insurance market, and covers fire,
marine, and other non-life insurance. The data is supplied in both graphical and
tabular format for ease of interpretation and analysis. This report also provides
company profiles of the major private insurance companies.

Products and Services offered by Insurance Companies in India:

The insurance companies in India dealing in life insurance are mainly engaged in
offering two categories of life insurance products- the Endowment Assurance
Products and the Money Back Products. The vehicle insurance products rank
next to life insurance product in terms of demand. The up coming products
comprise linked products. The products offer various facilities to the investors as
for example they are available with free look facility so that the investor gets time
to examine the policy within the free look period. They are offered the facility to
return the policy in case it is not able to satisfy his requirements.

INDIAN INSURANCE POLICIES

Insurance Policy India provides the clients with the details required for the
coverages in the policy, date of commencement of the policy and their adopting
organizations. It plays a important role in the Indian insurance sector.
The Insurance Policy India is regulated by certain acts like the Insurance
Act(1938), the Life Insurance Corporation Act(1956), General Insurance Business
(Nationalization) Act(1972), Insurance Regulatory and Development Authority
(IRDA) Act(1999). The insurance policy determines the covers against risks,
sometime opens investment options with insurance companies setting high returns
and also informs about the tax benefits like the LIC in India. There are two types of
insurance covers:

1. Life insurance

2. General insurance

Life insurance – this sector deals with the risks and the accidents affecting the
life of the customer. Alongside, this insurance policy also offers tax planning and
investment returns. There are various types of life Insurance Policy India:

a. Endowment Policy: An endowment policy is a life insurance contract


designed to pay a lump sum after a specified term (on its 'maturity') or on earlier
death. Typical maturities are ten, fifteen or twenty years up to a certain age limit.
Some policies also pay out in the case of critical illness.

b. Whole Life Policy: A typical whole life policy runs as long as the policyholder
is alive. In other words, the risk is covered for the entire life of the policyholder,
which is why they are know as whole life policies.

c. Term Life Policy: Term life insurance or term assurance is life insurance which
provides coverage at a fixed rate of payments for a limited period of time, the
relevant term. If the insured dies during the term, the death benefit will be paid to
the beneficiary. Term insurance is the most inexpensive way to purchase a
substantial death benefit on a coverage amount per premium dollar basis.
d. Money-back Policy: Unlike ordinary endowment insurance plans where the
survival benefits are payable only at the end of the endowment period, money
back policies provide for periodic payments of partial survival benefits during the
term of the policy, of course so long as the policy holder is alive. An important
feature of this type of policies is that in the event of death at any time within the
policy term, the death claim comprises full sum assured without deducting any of
the survival benefit amounts, which may have already been paid as money-back
components. Similarly, the bonus is also calculated on the full sum assured.

e. Joint Life Policy: Joint life policies are similar to endowment policies in as
much as these policies also offer maturity benefits to the policyholders, apart form
covering the risks as all life insurance policies. But these are categorized
separately as these cover two lives together thus offering a unique advantage in
some cases; notable, for a married couple or for partners in a business firm.

f. Group Insurance Policy: Group insurance is an insurance that covers a


group of people, usually who are the members of societies, employees of a
common employer, or professionals in a common group.

g. Loan Cover Term Assurance Policy: Loan cover term assurance policy is
an insurance policy, which covers a home loan. Such a policy covers the
individual's home loan amount in case of an eventuality. The cover on such a
policy keeps reducing with the passage of time as individuals keep paying their
EMIs (equated monthly instalments) regularly, which reduces the loan amount.

h. Pension Plan or Annuities: The individual plans that look into your future
and helps to foresee the financial stability during the age of retirement is are the
Pension plans. These plans are particularly helpful for those senior citizens and
those who plan for a future with security and safety. The main aim of these
pension plans is that they provide security to the entire family with respect to the
financial support during the productive plan and a happy lifestyle to oneself and
their spouse at the age of retirement.
i. Unit Linked Insurance Plan: Unit Linked Insurance Plan (ULIP) provides for
life insurance where the policy value at any time varies according to the value of
the underlying assets at the time. ULIP is life insurance solution that provides for
the benefits of protection and flexibility in investment. The investment is denoted
as units and is represented by the value that it has attained called as Net Asset
Value (NAV).

General Insurance: this sector covers almost everything related to property,


vehicle, cash, household goods, health and also one's liability towards others.
The major segments covered under general Insurance Policy India are:

a. Home Insurance: is the type of property insurance that covers private homes.
It is an insurance policy that combines various personal insurance protections,
which can include losses occurring to one's home, its contents, loss of its use
(additional living expenses), or loss of other personal possessions of the
homeowner, as well as liability insurance for accidents that may happen at the
home or at the hands of the homeowner within the policy territory. It requires that
at least one of the named insureds occupies the home.

b. Health Insurance: Health insurance, like other forms of insurance, is a form


of collectivism by means of which people collectively pool their risk, in this case
the risk of incurring medical expenses. The collective is usually publicly owned or
else is organized on a non-profit basis for the members of the pool, though in
some countries health insurance pools may also be managed by for-profit
companies. It is sometimes used more broadly to include insurance covering
disability or long-term nursing or custodial care needs. It may be provided
through a government-sponsored social insurance program, or from private
insurance companies.
c. Motor Insurance: Vehicle insurance (also known as auto insurance, car
insurance, or motor insurance) is insurance purchased for cars, trucks, and other
vehicles. Its primary use is to provide protection against losses incurred as a
result of traffic accidents and against liability that could be incurred in an
accident.

d. Travel Insurance: Travel Insurance is insurance that is intended to cover


medical expenses and financial (such as money invested in nonrefundable pre-
payments) and other losses incurred while traveling, either within one's own
country, or internationally. Temporary travel insurance can usually be arranged at
the time of the booking of a trip to cover exactly the duration of that trip, or a more
extensive, continuous insurance can be purchased from travel insurance
companies, travel agents or directly from travel suppliers such as cruiselines or
tour operators. However, travel insurance purchased from travel suppliers tends to
be less inclusive than insurance offered by insurance companies.

Some of the well known Insurance Policy India are:

Social Security Group Scheme – a scheme covering the age group of 18-60
years and an insurance of Rs.5000 for natural death and of Rs.25000 on due to
accidental death.

Shiksha Sahyog Yojana – a scheme providing an educational scholarship of


Rs.300 per quarter per child is given for a period of four years.

Jan Arogya Bima Policy – a scheme for the adults upto the age of 45 years is
Rs. 70 and for children it is Rs. 50. The limit coverage is fixed at Rs.5000 per
annum.

Mediclaim Insurance Policy – a scheme covering the age group from 5-80 years
with a tax benefit of up to Rs 10,000.

Jana Shree Bima Yojana – this is a coverage of Rs 2,000 on natural death and
Rs 50,000 for accidental death. The premium amount is fixed at Rs. 200 for single
member.

Videsh Yatra Mitra Policy – a scheme covering medical expenses during the
period of overseas travel.

Bhagya Shree Child Welfare Bima Yojana – a scheme covering one girl child in
a family upto the age of 18 whose parents age does not exceed 60 years, with a
premium of Rs.15 per annum.

Raj Rajeshwari Mahila Kalyan Yojana – a scheme providing protection to


woman in the age group of 10 to 75 years with an insurance of Rs. 25,000 and
premium Rs.15 per annum.

Ashray Bima Yojana – a scheme covering workers in case of loss of jobs.


Personal Accident Insurance Scheme for Kissan Credit Card – a scheme covering
all the KCC holders up to an age of 70 years. Insurance coverage includes 50,000
for accidental death and 25,000 for partial disability.
Insurance and Growth

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
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 has 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 non-quantifiable 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.

Indian Insurance – Growth

Such a stupendous growth after along wait was well deserved for the insurance
companies. Sharp and excellent market scheme along with wide product
bandwidth proved to be a winner among the masses. A considerable growth rate
was also recorded by the private companies. The India insurance sector is likely
to put its foot forward towards more competition with growing importance and
recognition.

Assessment of Risks

An important function of an insurer is to assess the average level of risk borne


while offering a product. This assessment depends upon a variety of factors and
actuarial calculations become necessary. This is a highly technical area
involving theories of probability. The premium charged by an insurer is based on
the calculated average risk. Obviously this premium will be high for people who
perceive themselves to be in a low risk category. However, for insurance as an
activity to succeed, the population to which a product is offered must consist of
categories with different degrees of risk. That is why the larger the coverage, the
lower the average risk and lower the premium. Diversification is the way to
reduce the average risk.
Regulatory Framework

As in the case of all financial institutions, insurance is an activity that needs to be


regulated. This is so because the smooth functioning of business depends on
the trust and confidence reposed by the customers in the solvency of the
financial institutions. Insurance products are of little value to customers, if they
cannot trust the company to keep its promise. The regulatory framework in
relation to the insurance companies seeks to take care of three major concerns –
(a) protection of consumers’ interest, (b) to ensure the financial soundness of the
insurance industry, and (c) to help the healthy growth of the insurance market.
So long as insurance remained the monopoly of the Government, the need for
an independent regulatory authority was not felt. However, with the acceptance
of the idea that there can be private insurance entities, the need for a regulatory
authority becomes paramount. With the passing of the Insurance Development
and Regulatory Act in 2000, the insurance regulatory authority has become a
statutory authority. Protecting consumer interest involves proper disclosure,
keeping prices affordable, some mandatory products and standardization. Most
importantly, it has to make sure that consumers get paid by insurers. From the
consumers’ point of view, the most important function of the regulatory authority
will be to ensure quick settlement of claims without unnecessary litigation. With
respect to solvency and financial health, regulations will have to be introduced to
ensure that insurance companies follow appropriate prudential norms such as
solvency margins. Large funds are under the custody of the insurers and they
get invested to produce additional returns. The management of these funds is
important to the insurer, the insured and the economy. Entry into the insurance
industry must also be regulated with suitable capital adequacy norms. The third
role should be one of development. The insurance industry in India has a large
potential and the framework of regulation must enable the industry to tap this
vast potential.
IRDA over the last decade has brought into force a number of regulations which
are well conceived. They have received wide spread appreciation. The recent
decision of IRDA to move to a free tariff regime for several general insurance
products is welcome. The prescription of tariff is contrary to market principles
and insurance products need to be priced based on market forces.

The reform of the insurance sector is part of the overall economic reform process
that is underway. The basic philosophy underlying the new economic policy is to
improve the productivity and efficiency of the system. This is sought to be
achieved partly by creating a more competitive environment. The growth of the
real economy depends upon the efficiency of the financial sector. A greater
element of competition is being injected into the financial system as well.

All regulators need to keep in mind that there is a fine distinction between
regulations and controls. Regulations lay down norms while controls have a
propensity to micromanage institutions. Regulators must take care to ensure
that regulations do not slide into controls.

The insurance industry in our country underwent a big change in 2000 when
private participants were allowed into the industry along with a streamlined
regulatory and supervisory regime. There are at present 14 private life insurance
companies along with LIC and 12 entities in non-life sector. There is evidence to
show that competition has done good to insurance industry. The rate of growth
of the industry in the post liberalization period has been faster. It has also
developed in terms of product innovation and the use of alternative distribution
channels.
FUND MANAGEMENT IN INSURANCE SECTOR

Insurance is a capital-intensive industry. It is also a long-gestation business. In


order to mobilize high rates of household savings the industry needs huge sums
of capital to continue growing at rates seen in the past five years. The law
provides for participation of global insurance firms in the Indian market only
through joint ventures with Indian partners. FDI in these joint ventures can not
exceed 26%. This means the Indian partner of a joint venture will have to bring in
a minimum of 74% of additional capital required to do new business. On the
other hand the foreign partner is unwilling to commit more capital and
management resources as they have little say in shaping the business. There is
also a strong case for raising the FDI cap in reinsurance and auxiliary insurance
services such as brokerage and actuarial services. The FDI not only brings in
capital but also insurance 'best practices' and new insurance products, and
innovative distribution channels that help insurers reach a broader spectrum of
the population. India is highly prone to natural catastrophes. In the past decade,
India and China accounted for one-fourth of the global economic losses from
natural disasters. Less than one percent of the economic losses resulting from
these disasters were insured. Insurance for natural catastrophes is almost
negligible. Only an insurance market that has a strong capital base and ample
provisions to handle the inherent risks of a major event can respond to the
disaster mitigation needs. The raising of the FDI cap will go a long way in
facilitating this.
INVESTMENT OF INSURANCE FUNDS :

Any reform of the insurance sector must necessarily consider aspects related to
the investment of insurance funds. Under sec 27A of the insurance act and its
application in the LIC act, the manner in which LIC can deploy its funds is stated.
Under the current guidelines, the LIC is required to invest 75% of the accretions
through a controlled fund in certain approved investments. 25% of accretions
may be invested by LIC for investments in private corporate sectors, loans to
policyholders, construction and acquisition of immovable assets. These
stipulations have resulted in the lack of flexibility in the optimization of its risk and
profit portfolio.
It has been reported that the government is planning to offer
greater autonomy to LIC through the following:
It is proposed that the deployment of the balance of 50% of the funds will be left
to discretion of LIC. Similarly, it is proposed that the GIC will be subject to the
following guidelines:

CAPITAL NORMS FOR NEW INSURANCE COMPANIES :

One of the contentious issues raised by foreign companies seeking an entry into
the insurance sector in India is the minimum paid up capital requirements. The
Malhotra committee (1994) recommended
The Emerging Insurance sector of India.
Rs 100 crores as the norm. The multilateral insurance working group (an industry
forum representing most of the interested foreign and Indian companies seeking
an entry into the insurance sector) has recommended Rs. 50 crore. The IRA is
also reported to considering a graded pattern for capitalization of the companies
keeping in mind the volume of business likely to be handled by them.
The Insurance Potential :
The main reason why the leading insurance companies in the world and
the leading corporate group in India have shown a keen interest in the insurance
sector, is the vast potential for future business. Restricted, as the market has
been, through the operations of the two monopolies (LIC and GIC), it is generally
felt that the sector can grow exponentially if it is opened up. The decade 1987-97
has witnessed a compounded growth rate of marginally more than 10% in life
insurance business. LIC predicts for itself that its business has potential to grow
by 16.27% p.a. in a decade 1997-2007 (LIC, 1997). If we take a look at
insurance coverage index for the age group of 20- 59 years a considerable gap
between India and other countries in Asia can be observed. In this scenario,
naturally insurance companies see a vast potential.

MARKET SHARE OF INDIAN INSURANCE INDUSTRY

The introduction of private players in the industry has added value to the
industry. The initiatives taken by the private players are very competitive and
have given immense competition to the on time monopoly of the market LIC.
Since the advent of the private players in the market the industry has seen new
and innovative steps taken by the players in this sector. The new players have
improved the service quality of the insurance. As a result LIC down the years
have seen the declining phase in its career. The market share was distributed
among the private players. Though LIC still holds the 75% of the insurance
sector but the upcoming natures of these private players are enough to give
more competition to LIC in the near future. LIC market share has decreased from
95% (2002-03) to 81 %( 2004-05).The following companies has the rest of the
market share of the insurance industry.
NAME OF THE PLAYER MARKET SHARE (%)

Name of the Player Market share (%)


LIFE INSURANCE CORPORATION OF INDIA 82.3
ICICI PRUDENTIAL 5.63
BIRLA SUN LIFE 2.56
BAJAJ ALLIANZ 2.03
SBI LIFE INSURANCE 1.80
HDFC STANDARD 1.36
TATA AIG 1.29
MAX NEW YARK 0.90
AVIVA 0.79
OM KOTAK MAHINDRA 0.51
ING VYSYA 0.37
MET LIFE 0.21

PRESENT SCENARIO OF INSURANCE INDUSTRY

 India with about 200 million middle class household shows a huge
untapped potential for players in the insurance industry. Saturation of
markets in many developed economies has made the Indian market even
more attractive for global insurance majors. The insurance sector in India
has come to a position of very high potential and competitiveness in the
market. Indians, have always seen life insurance as a tax saving device,
are now suddenly turning to the private sector that are providing them new
products and variety for their choice.

 Consumers remain the most important centre of the insurance sector.


After the entry of the foreign players the industry is seeing a lot of
competition and thus improvement of the customer service in the industry.
Computerisation of operations and updating of technology has become
imperative in the current scenario. Foreign players are bringing in
international best practices in service through use of latest technologies

 The insurance agents still remain the main source through which
insurance products are sold. The concept is very well established in the
country like India but still the increasing use of other sources is
imperative. At present the distribution channels that are available in the
market are listed below.
Direct selling •
Corporate agents •
Group selling •
Brokers and cooperative societies •
Bancassurance •

 Customers have tremendous choice from a large variety of products


from pure term (risk) insurance to unit-linked investment products.
Customers are offered unbundled products with a variety of benefits as
riders from which they can choose. More customers are buying products
and services based on their true needs and not just traditional moneyback
policies, which is not considered very appropriate for long-term protection
and savings. There is lots of saving and investment plans in the market.
However, there are still some key new products yet to be introduced - e.g.
health products.

 The rural consumer is now exhibiting an increasing propensity for


insurance products. A research conducted exhibited that the rural
consumers are willing to dole out anything between Rs 3,500 and Rs
2,900 as premium each year. In the insurance the awareness level for life
insurance is the highest in rural India, but the consumers are also aware
about motor, accidents and cattle insurance. In a study conducted by
MART the results showed that nearly one third said that they had
purchased some kind of insurance with the maximum penetration skewed
in favor of life insurance. The study also pointed out the private
companies have huge task to play in creating awareness and credibility
among the rural populace. The perceived benefits of buying a life policy
range from security of income bulk return in future, daughter's marriage,
children's education and good return on savings, in that order, the study
adds.

Conclusion
The insurance sector has a vast potential not only because incomes are
increasing and assets are expanding but also because the volatility in the system
is increasing. In a sense, we are living in a more risky world. Trade is becoming
increasingly global. Technologies are changing and getting replaced at a faster
rate. In this more uncertain world, for which enough evidence is available in the
recent period, insurance will have an important role to play in reducing the risk
burden individuals and businesses have to bear. In the emerging scenario, the
insurance industry must pay attention to (a) product innovation, (b) appropriate
pricing, and (c) speedy settlement of claims. The approach to insurance must be
in tune with the changing times.

The mission of the insurance sector in India should be to extend the


insurance coverage over a larger section of the population and a wider segment
of activities. The three guiding principles of the industry must be to charge
premium no higher than what is warranted by strict actuarial considerations, to
invest the funds for obtaining maximum yield for the policy holders consistent
with the safety of capital and to render efficient and prompt service to policy
holders. With imaginative corporate planning and an abiding commitment to
improved service, the mission of widening the spread of insurance can be
achieved. As I said at the beginning, you who are graduating today have an
important role in fulfilling this mission.

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