Insurance industry

Meaning of Insurance
Insurance is the most important aspect a novice to insurance market should be conversant with. Insurance is a hedging instrument used as a precautionary measure against future contingent losses. This instrument is used for managing the possible risks of the future. 2.1 Overview of Insurance Industry With a large population and untapped market, insurance happens to be a big opportunity in India. The insurance business (measured in the context of first year premium) grew at 47.93 per cent in 2005-06, surpassing the growth rate of 32.49 percent achieved in 2004-05. However, insurance penetration in the country continues to be low. Insurance penetration or premium volume as a share of a countrys GDP, for the year 2005 stood at 2.53 per cent for life insurance and 0.62 per cent for non-life insurance. The level of penetration tends to rise as income increases, particularly in life insurance. India, with its huge middle class households, has exhibited potential for the insurance industry. Saturation of markets in many developed economies has made the Indian market even more attractive for global insurance majors. The insurance market has witnessed dynamic changes which includes presence of a fair number of insurers in both life and non-life segment. 2.1.1 Life Insurance in India Life insurance industry recorded a premium income of Rs.105875.76 crore during 2005-06 as against Rs.82854.80 crore in the previous financial year, recording a growth of 27.78 per cent. The contribution of first year premium, single premium and renewal premium to the total premium was Rs.21275.75 crore (20.09 per cent); Rs.17509.78 crore (16.54 per cent); and Rs.67090.21 crore (63.37 per cent), respectively. In the year 2000-01, when the industry was opened up to the private players, the life insurance premium was Rs.34,898.48 crore

which constituted of Rs.6996.95 crore of first year premium, Rs.25191.07 crore of renewal premium and Rs.2740.45 crore of single premium. Post opening up, single premium had declined from Rs.9, 194.07 crore in the year 2001-02 to Rs.5674.14 crore in 2002-03 with the withdrawal of the guaranteed return policies. Though it went up marginally in 2003-04 to Rs.5936.50 crore (4.62 per cent growth) the year 2004-05 witnessed a significant shift with the single premium Income rising to Rs.10336.30 crore showing 74.11 per cent growth over 2003-04, accounting for 12.74 per cent of the total premium underwritten in that year. As against 34.62 percent in 2005-06.While the number of single premium individual policies underwritten by the private insurance companies grew by 103 percent, the non-single premium individual policies grew by 64 percent. The new insurers have improved their market share from 9.33 per cent in 2005-06 to 14.25 percent in 2006-07.

It reflects increase in their persistency ratio and enables insurers to bring down overall cost of doing business. The renewal premium underwritten by the life insurance industry, during 2006-07 recorded a growth of 18.46 per cent as against 20.85 per cent in 2005-06. The private insurers and LIC reported growths of 122.56 per cent and 14.32 per cent respectively during the year. Segregation of the first year premium reflects a definite consolidation towards linked products with premium underwritten at Rs.16060.67 crore in 2006-07 as against Rs.8247.74 crore in 2005-06, i.e., a growth of 95 per cent. The non-linked premium was Rs.19804.33 crore as against Rs.17069.37 crore in 2004-05, i.e., a growth of 16 per cent. The linked and non-linked business accounted for 44.78 and 55.22 per cent as against 32.54 and 67.46 per cent respectively in the year 2005-06.

2.1.2 History of the Insurance Industry The business of life insurance in India in its existing form started in India in the year 1818 with the establishment of the Oriental Life Insurance Company in Calcutta. Insurance sector reforms: In 1993, Malhotra Committee headed by former Finance Secretary and RBI Governor R.N. Malhotra was formed to evaluate the Indian insurance industry and recommend its future direction. The Malhotra committee was set up with the objective of complementing the reforms initiated in the financial sector. The reforms were aimed at creating a more efficient and competitive financial system suitable for the requirements of the economy keeping in mind the structural changes currently underway and recognizing that insurance is an important part of the overall financial system where it was necessary to address the need for similar reforms

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

2) Competition No Company should deal in both Life and General Insurance through a single entity. Private Companies with a minimum paid up capital of Rs.1bn should be allowed to enter the industry.

Foreign companies may be allowed to enter the industry in collaboration with the domestic companies. Postal Life Insurance should be allowed to operate in the rural market. Only One State Level Life Insurance Company should be allowed to operate in each state.

3) Regulatory Body The Insurance Act should be changed. An Insurance Regulatory body should be set up. Controller of Insurance (Currently a part from the Finance Ministry) should be made independent. 4) Investments Mandatory Investments of LIC Life Fund in government securities to be reduced from 75% to 50%. GIC and its subsidiaries are not to hold more than 5% in any company (There current holdings to be brought down to this level over a period of time). 5) Customer Service LIC should pay interest on delays in payments beyond 30 days. Insurance companies must be encouraged to set up unit linked pension plans. Computerization of operations and updating of technology to be carried out in the insurance industry The committee emphasized that in order to improve the customer services and increase the coverage of the insurance industry should be opened up to competition.

But at the same time, the committee felt the need to exercise caution as any failure on the part of new players could ruin the public confidence in the industry. Hence, it was decided to allow competition in a limited way by stipulating the minimum capital requirement of Rs.100 crores. The committee felt the need to provide greater autonomy to insurance companies in

order to improve their performance and enable them to act as independent companies with economic motives. For this purpose, it had proposed setting up an independent regulatory body. 2.1.4 Insurance companies IRDA has so far granted registration to 12 private life insurance companies and 9 general insurance companies. If the existing public sector insurance companies are included, there are currently 13 insurance companies in the life side and 13 companies operating in general insurance business. General Insurance Corporation has been approved as the Indian reinsurer for underwriting only reinsurance business. Particulars of the life insurance companies and general insurance companies including their web address is given below OBJECTIVES OF STUDY To study the awareness level of people about insurance companies in rural areas. To identify the factors people consider at the time of buying any insurance policy. To find out the customer preference between public and private Insurance companies in rural areas. LIFE INSURERS Public Sector Life Insurance Corporation of India Private Sector Allianz Bajaj Life Insurance Company Limited Birla Sun-Life Insurance Company Limited HDFC Standard Life Insurance Co. Limited ICICI Prudential Life Insurance Co. Limited ING Vysya Life Insurance Company Limited Max New York Life Insurance Co. Limited MetLife Insurance Company Limited Kotak Mahindra Life Insurance Co. Ltd. SBI Life Insurance Company Limited TATA AIG Life Insurance Company Limited www.allianzbajaj.co.in www.birlasunlife.com www.hdfcinsurance.com www.iciciprulife.com www.ingvysayalife.com www.maxnewyorklife.com www.metlife.com www.kotakmahnidra.com www.sbilife.co.in www.tata-aig.com www.licindia.com Websites

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

OBJECTIVES OF STUDY To study the awareness level of people about insurance companies in rural areas. To identify the factors people consider at the time of buying any insurance policy.

To find out the customer preference between public and private Insurance companies in rural areas.

ORIGIN AND GROWTH OF INSURANCE SECTOR:

Insurance in modern form originated in the Mediterranean during the 13th century. (The earliest references to insurance- found in Babylonia, the Greeks and the Romans). Marine insurance is the oldest form of insurance followed by life insurance and fire insurance. The history of life insurance in India dates back to 1818 when it was conceived as a means to provide for English Widows. A higher premium was charged for Indian lives than the non-Indian lives (considering to be more riskier for coverage).There were 176 insurance companies.

Insurance regulation formally began in India through the passing of two acts

the Life Insurance companies Act of 1912 and

the Provident Fund Act of 1912.

However the first comprehensive legislation was introduced with the Insurance Act of 1938 that provided strict state control over insurance business in the country. The business of India Insurance grew at a faster place as competition amongst the Indian companies intensified.

The decision of nationalization of life insurance business took place in 1956 when 245 Indian and foreign insurance provident societies were first merged and then nationalized. It paved the way towards the establishment of one nationalized monopoly corporation called Life Insurance Corporation (LIC)

1.1.2 Need for Insurance Insurance is desired to safeguard oneself and one's family against possible losses on account of risks and perils. It provides financial compensation for the losses suffered due to the happening of any unforeseen events. By taking life insurance a person can have peace of mind and need not worry about the financial consequences in case of any untimely death. Certain Insurance contracts are also made compulsory by legislation. For example, Motor Vehicles Act 1988, stipulates that a person driving a vehicle in a public place should hold a valid insurance policy covering Act" risks.

1.1.3 Basically there are two types of insurance 1. Life Insurance 2. General Insurance Insurance - Life Your family counts on you every day for financial support: food, shelter, transportation, education, and much more. Insurance provides you with that unique sense of security that no other form of investment provides. It gives you a sense of financial support especially during that time of crisis irrespective of the fluctuations in the stock market. Insurance provides for your career goals right from your childhood years. Life insurance is all about making sure your family has adequate financial resources to make those plans and dreams come true. It provides financial protection to help your family or business to manage after your death. Few of the Life insurance policies are: Whole life policies - Cover the insured for life. The insured does not receive money while he is alive; the nominee receives the sum assured plus bonus upon death of the insured..

Endowment policies - Cover the insured for a specific period. The insured receives money on survival of the term and is not covered thereafter. Money back policies - The nominee receives money immediately on death of the insured. On survival the insured receives money at regular intervals during the term. These policies cost more than endowment with profit policies. Annuities / Children's policies - The nominee receives a guaranteed amount of money at a pre-determined time and not immediately on death of the insured. On survival the insured receives money at the same pre-determined time. These policies are best suited for planning children's future education and marriage costs. Pension schemes - are policies that provide benefits to the insured only upon retirement. If the insured dies during the term of the policy, his nominee would receive the benefits either as a lump sum or as a pension every month. Since a single policy cannot meet all the insurance objectives, one should have a portfolio of policies covering all the needs. Insurance - General Every asset has a value and the business of general insurance is related to the protection of economic value of assets. Assets would have been created through the efforts of owner, which can be in the form of building, vehicles, machinery and other tangible properties. Since tangible property has a physical shape and consistency, it is subject to many risks ranging from fire, allied perils to theft and robbery. Concepts of insurance have been extended beyond the coverage of tangible asset. Now the risk of losses due to sudden changes in currency exchange rates, political disturbance, negligence and liability for the damages can also be covered. But if a person judiciously invests in insurance for his property prior to any unexpected contingency then he will be suitably compensated for his loss as soon as the extent of damage is ascertained. Few of the General Insurance policies are:

Property Insurance: The home is most valued possession. The policy is designed to cover the various risks under a single policy. It provides protection for property and interest of the insured and family. Health Insurance: It provides cover, which takes care of medical expenses following hospitalization from sudden illness or accident. Personal Accident Insurance: This insurance policy provides compensation for loss of life or injury (partial or permanent) caused by an accident. This includes reimbursement of cost of treatment and the use of hospital facilities for the treatment. Travel Insurance: The policy covers the insured against various eventualities while traveling abroad. It covers the insured against personal accident, medical expenses and repatriation, loss of checked baggage, passport etc. Liability Insurance: This policy indemnifies the Directors or Officers or other professionals against loss arising from claims made against them by reason of any wrongful Act in their Official capacity. Motor Insurance: Motor Vehicles Act states that every motor vehicle plying on the road has to be insured, with at least Liability only policy. There are two types of policy one covering the act of liability, while other covers insurers all liability and damage caused to one's vehicles. Since a single policy cannot meet all the insurance objectives, one should have a portfolio of policies covering all the needs.

1.1.4 Need for Life Insurance Today, there is no shortage of investment options for a person to choose from. Modern day investments include gold, property, fixed income instruments, mutual funds and of course, life insurance. Given the plethora of choices, it becomes imperative to make the right choice when investing your hard-earned money. Life insurance is a unique investment that helps you to meet your dual needs - saving for lifes important goals, and protecting your assets.

Review of literature
Currie (1995) look at the effects that having public or private insurance has on health care utilization. They find that there are racial differences in how whites respond to having insurance versus how blacks respond. They find that white children covered by either form of insurance are more likely to visit a doctor when sick. White children covered by Medicaid are more likely to receive preventive care than white children with private insurance or no insurance. The authors find that for blacks Medicaid coverage has less effect on increasing preventive care and no increase in health care utilization. They also find that private insurance coverage for blacks has no increased effect of health care utilization over no coverage. Atmanand (2003) Key elements of disaster management are prevention, mitigation, preparedness, response and relief, rehabilitation. The various stakeholders in the process of disaster mitigation are policy makers, decision makers, administration, professionals, professional institutions, R&D institutions, financial institutions, insurance sector, community, NGOs and the common man. Insurance has played a very important role. The advanced countries have developed the insurance system and made it effective and mandatory as a result the loss of lives and property is comparatively less. In India, most of the losses suffered in natural disasters are not insured, for reasons such as lack of purchasing power, lack of interest in insurance, theory of karma attitude and ignorance of availability of such covers. Quite large numbers of agencies provide the insurance cover and foreign insurance companies have already ventured in such areas. This implies that the commercial and private sector can also play an essential role in disaster mitigation. The present study attempts to fill the gap in studies on the role of the insurance sector in disaster management. Mikhail Frolov (2004) this paper reviews the main results of the economic literature explaining the existence of deposit insurance in its modern form. It is shown that deposit insurance is not the only means to cope with the problem of bank runs. Yet it is a prevailing solution for the banks dominate the credit channels in most economies the world over, and

the modern payment systems are based on the convertibility of the bank deposits into cash. Being a part of the general public policy of financial sector stability, deposit insurance is structured in accordance with a core objective adopted for the entire policy, and this explains why many world schemes, besides the intrinsic DIS objective of bank run prevention, also Choose to follow the objective of small (unsophisticated) depositor protection. In practice, atrade-off between the ability of a DIS to prevent bank runs and the soundness of incentives it induces forces policymakers to choose between the twoobjectives. The review of the related literature helps to distinguish four basic approaches regarding the balance of the runprevention capacity and sound incentives in deposit insurance design. Further analysis also shows that three of the basic structuring options (the limited, partial, and selective guarantees) are likely to be employed in the ordinary (non-crisis) circumstances and the choice among them needs to be based on the country-specific factors. Guptahima (2007) Health insurance in India has shown little development. It has not been able to evoke enthusiasm among Indian insurers. Consequently, several reports on Indian health care insurance have been produced. The purpose of this paper is to offer a review of this matter. Almost 79 per cent of health expenditure is borne by private bodies and the rest by the public. Authors argue that to stimulate private health insurance growth, the Indian government should recognize health insurance as a separate line of business and distinguish it from other non-life insurance. Particular emphasis is placed on the present health care scenario in India and international field generally. A global comparison of selected Asian countries, regarding their national incomes and health expenditure in public and private sectors, generates insights. Third party administrators (TPAs) facilitate a cashless health services for their customers and offer back-up services to the insurance companies. Desired strategies and ways of furthering the role of the Insurance Regulatory and Development Authority in acting as a regulator for the purpose of ensuring the industry's smooth functioning is an issue for India's health services. Joyce et al. (2008).They look at the effect that the mandatory coverage of vaccinations had on the likelihood of children being up to date on vaccinations, and if coverage changed the number receiving all shots from a single private provider. Using the National Immunization Survey (NIS), they find that SCHIP only increased the use of the new vermicelli vaccine, and that instead of seeing more vaccines done bya single private provider, the percentage actually decreased.

Benefits of insurance
60 50 40 30 20 10 0 Future Uncertainty Future Investment Tax Deductions Any other

Fig 11 INTERPRETATION: It can be interpreted from above results that most of the people get insured for risk coverage and investment purposes.