Progress Of Life insurance in India since

2000
WHAT IS LIFE INSURANCE IN INDIA?

Life insurance made its debut in India well over 100 years ago. Its salient features are not
as widely understood in our country as they ought to be. What follows is an attempt to
acquaint readers with some of the concepts of life insurance, with special reference to life
insurance. It should, however, be clearly understood that the following narration is by no
means an exhaustive description of the terms and conditions of a life insurance policy or
its benefits or privileges. For more details, please contact our Branch or Divisional
Office. Any life insurance Agent will be glad to help you choose the life insurance plan
to meet your needs and render policy servicing.

Life Insurance sector is the fastest growing sector in India since 2000 when the
Government allowed Private players and FDI [Foreign Direct Investment] up to 26%.
Life Insurance in India was nationalized by incorporating Life Insurance Corporation
(LIC) in 1956. All private life insurance companies at that time were taken over by LIC.

In 2000, the legislation amending the Insurance Act of 1938 and legislating the Insurance
Regulatory and Development Authority Act of 2000 was passed, where in the newly
appointed insurance regulator - Insurance Regulatory and Development Authority
[IRDA] started to issue licenses to private life insurers.

What is Life Insurance?

Life Insurance is a contract for payment of a sum of money to the person assured (or
failing him/her, to the person entitled to receive the same) on the happening of the event
insured against. Usually the contract provides for the payment of an amount on the date
of maturity or at specified dates at periodic intervals or at unfortunate death, if it occurs
earlier. Among other things, the contract also provides for the payment of premium
periodically to the Corporation by the assured. Life insurance is universally
acknowledged to be an institution which eliminates 'risk', substituting certainty for
uncertainty and comes to the timely aid of the family in the unfortunate event of death of
the breadwinner. By and large, life insurance is civilisation's partial solution to the
problems caused by death. Life insurance, in short, is concerned with two hazards that
stand across the life-path of every person: that of dying prematurely leaving a dependent
family to fend for itself and that of living to old age without visible means of support.

Why is it superior to other forms of Savings?

Protection: Savings through life insurance guarantee full protection against risk of death
of the saver. In life insurance, on death, the full sum assured is payable (with bonuses
wherever applicable) whereas in other savings schemes, only the amount saved (with
interest) is payable.
Aid To Thrift: Life insurance encourages 'thrift'. Long term saving can be made in a
relatively 'painless' manner because of the 'easy instalment' facility built into the scheme
(method of paying premium either monthly, quarterly, half yearly or yearly). Take, for
example, our Salary Saving Scheme popularly known as SSS. This scheme provides a
convenient method of paying premium each month by deduction from one's salary. The
deducted premium is remitted by the employer to the LIC. The Salary Saving Scheme
can be introduced in an institution or establishment subject to specified terms and
conditions.

Liquidity: Loans can be raised on the sole security of a policy which has acquired loan
value. Besides, a life insurance policy is also generally accepted as security for even a
commercial loan.

Tax Relief: Tax relief in Income Tax and Wealth Tax is available for amounts paid by
way of premium for life insurance subject to Income Tax rates in force. Assessees can
avail themselves of provisions in the law for tax relief. In such cases the assured in effect
pays a lower premium for his insurance than he would have to pay otherwise.

Money When You Need It: A suitable insurance plan or a combination of different
plans can be taken out to meet specific needs that are likely to arise in future, such as
children's education, start-in-life or marriage provision or even periodical needs for cash
over a stretch of time. Alternatively, policy moneys can be so arranged to be made
available at the time of one's retirement from service to be used for any specific purpose,
such as for the purchase of a house or for other investments. Subject to certain conditions,
loans are granted to policyholders for house building or for purchase of flats.

Who Can Buy A Life Insurance Policy?

Any person who has attained majority and is eligible to enter into a valid contract can
take out a life insurance policy for himself and on those in whom he has insurable
interest. Policies can also be taken out, subject to certain conditions, on the life of one's
spouse or children. While underwriting proposals, factors such as the state of health of
the life to be assured, the proponent's income and other relevant factors are considered by
the Corporation.

Insurance On Women.
Prior to nationalization (1956), many of the private insurance companies used to offer
insurance to female lives with some extra premium or on restrictive conditions. After
nationalization of life insurance, the terms under which life insurance is granted to female
lives have been reviewed from time to time. At present, women with earned income are
treated on par with male lives. In other cases, a restrictive clause is imposed and that too
only if age of the female is up to 30 years and if she does not have an income attracting
Income Tax.

Medical And Non-Medical Schemes.

Life insurance is normally offered after a medical examination of the life to be assured.
However, to facilitate greater spread of insurance and also as a measure of relaxation,
LIC has been extending insurance cover without any medical examination, subject to
certain conditions.

With Profit And Without Profit Plans.

An insurance policy can be 'with' or 'without' profit. In the former, bonuses disclosed, if
any, after periodical valuations are allotted to the policy and are payable alongwith the
contracted amount. In 'without' profit plan the contracted amount is paid without any
addition. The premium rate charged for a 'with' profit policy is therefore higher than for a
'without' profit policy.

Keyman Insurance.
Keyman Insurance is taken by a business firm on the life of key employee(s) to project
the firm against the finance loss which may occur due to the premature demise of the
Keyman.

Life Insurance is the fastest growing sector in India since 2000 as Government allowed
Private players and FDI up to 26%. Life Insurance in India was nationalised by
incorporating Life Insurance Corporation (LIC) in 1956. All private life insurance
companies at that time were taken over by LIC.

In 1993 the Government of Republic of India appointed RN Malhotra Committee to lay

down a road map for privatisation of the life insurance sector.

While the committee submitted its report in 1994, it took another six years before the
enabling legislation was passed in the year 2000, legislation amending the Insurance Act
of 1938 and legislating the Insurance Regulatory and Development Authority Act of
2000. The same year that the newly appointed insurance regulator - Insurance Regulatory
and Development Authority IRDA -- started issuing licenses to private life insurers.

List of Life Insurers (as of Sept, 2008)

Apart from Life Insurance Corporation, the public sector life insurer, there are 20 other
private sector life insurers, most of them joint ventures between Indian groups and global
insurance giants.

Life Insurer in Public Sector

1. Life Insurance Corporation of India

Life Insurers in Private Sector

1. SBI Life Insurance

2. Metlife India Life Insurance
3. ICICI Prudential Life Insurance
4. Bajaj Allianz Life
5. Max New York Life Insurance
 6. Sahara Life Insurance
7. Tata AIG Life
8. HDFC Standard Life
9. Birla Sunlife
10. Kotak Life Insurance
11. Aviva Life Insurance
12. Reliance Life Insurance Company Limited - Formerly known as AMP Sanmar
LIC
13. ING Vysya Life Insurance
14. Shriram Life Insurance
15. Bharti AXA Life Insurance Co Ltd
16. Future Generali Life Insurance Co Ltd
17. IDBI Fortis Life Insurance
18. AEGON Religare Life Insurance
19. DLF Pramerica Life Insurance
20. CANARA HSBC Oriental Bank of Commerce LIFE INSURANCE

Foreign Direct Investment (FDI) Policy in Insurance Sector

As per the current (Mar 06) FDI norms, foreign participation in an Indian insurance
company is restricted to 26.0% of its equity / ordinary share capital. The Union Budget
for fiscal 2005 had recommended that the ceiling on foreign holding be increased to
49.0%.

The government approved the much-awaited comprehensive Insurance Bill that seeks to
raise foreign direct investment (FDI) cap in private sector to 49 per cent from 26 per cent.

Indian life insurance industry overview

All life insurance companies in India have to comply with the strict regulations laid out
by Insurance Regulatory and Development Authority of India (IRDA). Therefore there is
no risk in going in for private insurance players. In terms of being rated for financial
strength like international players, only ICICI Prudential is rated by Fitch India at
National Insurer Financial Strength Rating of AAA(Ind) with stable outlook indicating
the highest claims paying ability rating.

Life Insurance Corporation of India (LIC), the state owned behemoth, remains by far the
largest player in the market. Among the private sector players, ICICI Prudential Life
Insurance(JV between ICICI Bank and Prudential PLC) is the largest followed by Bajaj
Allianz Life Insurance Company Limited (JV between Bajaj Group and Allianz).Among
others, Kotak Life Insurance emerging as a one of the best product provider in the current
market.It has been estimated that customer growth of Kotak Life Insurance is better than
any private insurance company in India. The private companies are coming out with
better products which are more beneficial to the customer. Among such products are the
ULIPs or the Unit Linked Investment Plans which offer both life cover as well as scope
for savings or investment options as the customer desires.Further, these type of plans are
subject to a minimum lock-in period of three years to prevent misuse of the significant
tax benefits offered to such plans under the Income Tax Act. Hence, comparison of such
products with mutual funds would be erroneous.

Commission / intermediation fees

• The maximum commission limits as per statutory provisions are:

Agency commission for retail life insurance business:

•
o
 7- 90% for 1st year premium if the premium paying term is more
than 20 years
 7- 10% for 1st year premium if the premium paying term is more
than 15 years
 7- 10% for 1st year premium if the premium paying term is less
than 10 years
 7% - yr 2 and 3rd year and 3.5% - thereafter for all premium
paying terms.

In case of Mutual fund related - Unit linked policies it varies between 1.5% to6% on the
premium paid.

•
o Agency commission for retail pension policies
 7.5% for 1st year premium and 2.5% thereafter

• Maximum broker commission - 30%

• Referral fees to banks – Max 55% for regular premium and 10% for single
premium. However in any case this fee cannot be more than the agency
commission as filed under the product.

• However, the above commission may be further subject to the product wise limits
specified by IRDA while approving the product
Miscellaneous insurance
Miscellaneous Insurance exists to help people gain a good understanding of the various
kinds of insurance coverage's that are available to people today. Insurance has become a
very important part of many people's lives as they realize the need to provide protection
for different areas of their everyday life. There is a wide variety of types of insurance
coverage available today.

The dictionary defines insurance as "coverage by contract whereby one party undertakes
to indemnify or guarantee another against loss by a specified contingency or peril". This
means that an individual enters into an agreement with an insurance company that will
pay a set amount of money in case of a loss in a specified area. There are a number of
inclusions and exclusions involved in each insurance policy with all kinds of variables
that must be taken into consideration before purchasing the policy.

One of the most important things to remember is that an insurance policy is a contract
between the insurance company and their customer. The insurance company agrees to
pay certain amounts of money in case of loss and the customer agrees to pay the
insurance premiums that are required to keep the policy in place. If the customer fails to
pay the premiums due, the insurance may be revoked, leaving the customer vulnerable.

The contract specifically makes the insurance company liable to pay for any loss that is
specifically stated in the insurance policy. Most policies will accurately describe the
types of losses covered and the amount of money that the company will pay for those
losses.

With the increase in public awareness and the consequent thrust of the Insurance Industry
in the areas of Health Insurance, Liability Insurance and other personal lines of
insurances, the miscellaneous portfolio of Insurance is poised to be a sunrise portfolio of
General Insurance.
  Glass Insurance  Personal Accident Insurance
 Money Insurance  Golfer Insurance
 General Public Legal Liability
 Burglary Insurance
Insurance
 Electronic Equipment
 Contract Works Insurance
Insurance
 Workmen Compensation
 Fidelity Guarantee Insurance
Insurance
 Machinery Insurance  Aviation Insurance
 Travel Accident Insurance  All Risks Insurance
 Boat Insurance

Thus miscellaneous insurance is an addition to your existing insurance giving you an

extra security.

Management of Miscellaneous Insurance Business

Background
With the increase in public awareness and consequent thrust of the Insurance Industry in the
areas of Health Insurance, Liability Insurance and other personal lines of insurances, the
miscellaneous portfolio of Insurance is poised to be the sunrise portfolio of General Insurance
business. This programme has been designed keeping in mind these developments in the
market and attempts to address the need for increased awareness of the multidimensional
miscellaneous portfolio.

Objectives
• To enhance the participants understanding of the miscellaneous portfolio
• To acquaint them with various aspects of Health and Liability Insurance in context with
the Current scenario
• Help them explore the potential of rural insurance in line with the regulatory guidelines.

• To emphasize the importance of and explore the potential of personal line of business
under miscellaneous portfolio.
Contents
• Analysis of the miscellaneous insurance products
• Health Care Management - Indian and Global Perspective
• TPA’s an Effective Service Provider
• Legal framework and Liability Insurance Products
• Rural and Social Sector - regulations, product and marketing
• Personal line products - potential and marketing, distribution channels
• Scope and Coverage of New Products
• Credit Default Cover
• Bankers Indemnity Insurance/ Jewelers Block Covers; Stock Brokers / Insurance
Brokers Indemnity
• Packaging & Product Development

• Special Contingency Covers

Participants’ Profile
Executives handling Technical Departments and Office In-charge of operating offices of
General Insurance Companies.

Accident Insurance
Accident insurance provides a cash cover to a policyholder when s/he suffers injuries as a
result of an accident. While insurance helps a policyholder pay off hospital and medical
bills in case of accident injuries, it provides cash benefits to family members if the
policyholder dies in the accident. This insurance, applicable 24 hours a day, 365 days a
year, is also commonly referred to as personal accident insurance.

Types of Personal Accident Insurance Policies

Under personal accident insurance, the policyholder, if injured, receives cash benefits
every month, just like income, for as long as s/he is unable to work due to the accidental
injuries. This income is non-taxable and does not exceed the policyholder’s after-tax
earnings minus the state benefits s/he can claim. In case of death of the policyholder due
to an accident, the family receives a specific lump-sum amount.

There are eight common types of personal accident insurance policies:

• Individual: This policy can be taken by any individual. The benefits usually
enclose partners and children. Since several activities are excluded from this
policy, it is not as useful for people who love adventurous sports, like
mountaineering and rock climbing.
• Children: The purpose of this policy is to provide financial help to parents if they
are unable to work or if they incur expenses as a result of an accident.
• Group: This policy is used by companies to cover employees for expenses related
to accidents.
• Self-employed: Since self employed individuals are not eligible for employee
benefits, they are worse off when injured in an accident.
• Team: Through a team accident insurance policy, organizers can seek cover for
all the members of a sports team.
• Professional: This policy is specifically for self employed professionals, such as a
sportsperson, actor, lawyer or doctor, who have special requirements.
• Over 50: This policy targets people over 50 years of age, as accidents can cause
more grievous injuries to them.
• Travel accidents: This policy offers benefits in case the policyholder meets with
an accident while traveling.

There are varied accident insurance policies to suit different needs. One should
understand and choose the policy with utmost care.

Burglary Insurance

With the increase in materialistic wealth and booming economy, the chances of burglary
in business premises are also increasing. To counteract the situation and protect the hard
earned wealth of the businesspersons, many insurance companies have come up with
attractive insurance plans that promise to provide cover against the rise of loss or damage
in the business premises, due to burglary. In India, a burglary insurance (business
premises) policy generally covers contents of business premises, against the risk of loss
or damage by burglary and housebreaking. It is very important to know the basic clause
of the insurance plans, although they may vary from company to company. In this article,
we have provided the basic information that you need to know, before opting for a
burglary insurance plan.
Burglary Insurance Policy

• The loss of materialistic wealth in a business organization, due to burglary, is

reimbursed by a burglary insurance policy.
• The insurance companies provide insurance against nothing but burglary, in the
business premises.
• The property insured is covered only if loss or damage takes place, while
contained in the insured premises and not in any other premises.
• Loss of or damage to deeds, bonds, bills of exchange, promissory notes, cash,
treasury notes and bank notes, cheque, securities for money stamps, stamp
collections, books of account, documents of any kind, manuscripts, medals and
coins, motor vehicles, and live stock cannot be claimed under office burglary
insurance policy in India.
• Damage to property by burglars is covered only when the insured is made good.
In other words, damage to own premises are not covered.
• With regard to cash in locked safe, the key to the safe or strong room should not
be left in the premises overnight or at least anywhere near the safe.
• Applicants need to submit the proposal form furnishing detailed information on
the location of the risk and claims history.
• Often inspection of the premises and its neighborhood is carried out by agents or
brokers or marketing officers of the insurance company.
• Premises located in isolated areas or the adjoining premises are those, which are
not occupied in the night. These may include educational institution or a place of
worship, which usually do not find favor with the insurers.
• In order to substantiate a burglary insurance claim, one must produce the FIR and
non-detection report from the police.
• The insurers will depute and obtain a survey report even on the stolen goods, to
determine the proximate cause of the loss and the quantum.
• Stock books and other accounts are also verified before furnishing the insurance
cover.
• In some insurance plans, the theft is not valid, if it has been conducted by an
internal staff, or a person who didn't break into the business premises.

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.
Legally, no motor vehicle is allowed to be driven on the road without valid insurance.
Hence, it is obligatory to get the vehicle insured. Motor insurance policies cover
against any loss or damage caused to the vehicle or its accessories due to the
following natural and man made calamities.

Natural Calamities: Fire, explosion, self-ignition or lightning, earthquake, flood,

typhoon, hurricane, storm, tempest, inundation, cyclone, hailstorm, frost, landslide,
rockslide.

Man made Calamities: Burglary, theft, riot, strike, malicious act, accident by external
means, terrorist activity, any damage in transit by road, rail, inland waterway, lift,
elevator or air.

Motor insurance provides compulsory personal accident cover for individual owners
of the vehicle while driving. One can also opt for a personal accident cover for
passengers and third party legal liability.

Third party legal liability protects against legal liability arising due to accidental
damages. It includes any permanent injury / death of a person and damage caused to
the property.

The vehicles are insured at a fixed value called the Insured's Declared Value (IDV).
IDV is calculated on the basis of the manufacturer's listed selling price of the vehicle
(plus the listed price of any accessories) after deducting the depreciation for every
year as per the schedule provided by the Indian Motor Tariff. If the price of any
electrical and / or electronic item installed in the vehicle is not included in the
manufacturer's listed selling price, then the actual value (after depreciation) of this
item can be added to the sum insured over and above the IDV.

In case the vehicle is fitted with CNG / LPG, the CNG/LPG kit fitted to the vehicle
is to be insured separately at an additional premium.

GENERAL INSURANCE
What is General Insurance?

Insurance other than ‘Life Insurance’ falls under the category of General Insurance.
General Insurance comprises of insurance of property against fire, burglary etc, personal
insurance such as Accident and Health Insurance, and liability insurance which covers
legal liabilities. There are also other covers such as Errors and Omissions insurance for
professionals, credit insurance etc.
Non-life insurance companies have products that cover property against Fire and allied
perils, flood storm and inundation, earthquake and so on. There are products that cover
property against burglary, theft etc. The non-life companies also offer policies covering
machinery against breakdown,there are policies that cover the hull of ships and so on. A
Marine Cargo policy covers goods in transit including by sea, air and road. Further,
insurance of motor vehicles against damages and theft forms a major chunk of non-life
insurance business.

In respect of insurance of property, it is important that the cover is taken for the actual
value of the property to avoid being imposed a penalty should there be a claim. Where a
property is undervalued for the purposes of insurance, the insured will have to bear a
rateable proportion of the loss. For instance if the value of a property is Rs.100 and it is
insured for Rs.50/-, in the event of a loss to the extent of say Rs.50/-, the maximum claim
amount payable would be Rs.25/- ( 50% of the loss being borne by the insured for
underinsuring the property by 50% ). This concept is quite often not understood by most
insureds.

Personal insurance covers include policies for Accident, Health etc. Products offering
Personal Accident cover are benefit policies. Health insurance covers offered by non-life
insurers are mainly hospitalization covers either on reimbursement or cashless basis. The
cashless service is offered through Third Party Administrators who have arrangements
with various service providers, i.e., hospitals. The Third Party Administrators also
provide service for reimbursement claims. Sometimes the insurers themselves process
reimbursement claims.

Accident and health insurance policies are available for individuals as well as groups. A
group could be a group of employees of an organization or holders of credit cards or
deposit holders in a bank etc. Normally when a group is covered, insurers offer group
discounts.

Liability insurance covers such as Motor Third Party Liability Insurance, Workmen’s
Compensation Policy etc offer cover against legal liabilities that may arise under the
respective statutes— Motor Vehicles Act, The Workmen’s Compensation Act etc. Some
of the covers such as the foregoing (Motor Third Party and Workmen’s Compensation
policy ) are compulsory by statute. Liability Insurance not compulsory by statute is also
gaining popularity these days. Many industries insure against Public liability. There are
liability covers available for Products as well.

There are general insurance products that are in the nature of package policies offering a
combination of the covers mentioned above. For instance, there are package policies
available for householders, shop keepers and also for professionals such as doctors,
chartered accountants etc. Apart from offering standard covers, insurers also offer
customized or tailor-made ones.

Suitable general Insurance covers are necessary for every family. It is important to
protect one’s property, which one might have acquired from one’s hard earned income. A
loss or damage to one’s property can leave one shattered. Losses created by catastrophes
such as the tsunami, earthquakes, cyclones etc have left many homeless and penniless.
Such losses can be devastating but insurance could help mitigate them. Property can be
covered, so also the people against Personal Accident. A Health Insurance policy can
provide financial relief to a person undergoing medical treatment whether due to a
disease or an injury.

Industries also need to protect themselves by obtaining insurance covers to protect their
building, machinery, stocks etc. They need to cover their liabilities as well. Financiers
insist on insurance. So, most industries or businesses that are financed by banks and other
institutions do obtain covers. But are they obtaining the right covers? And are they
insuring adequately are questions that need to be given some thought. Also organizations
or industries that are self-financed should ensure that they are protected by insurance.

Most general insurance covers are annual contracts. However, there are few products that
are long-term.

It is important for proposers to read and understand the terms and conditions of a policy
before they enter into an insurance contract. The proposal form needs to be filled in
completely and correctly by a proposer to ensure that the cover is adequate and the right
one.
General insurance or non-life insurance policies, including automobile and homeowners
policies, provide payments depending on the loss from a particular financial event.
General insurance typically comprises any insurance that is not determined to be life
insurance. It is called property and casualty insurance in the U.S. and Non-Life Insurance
in Continental Europe.

In the UK, General insurance is broadly divided into three areas: personal lines,
commercial lines and London market.

The London market insures large commercial risks such as supermarkets, football players
and other very specific risks. It consists of a number of insurers, reinsurers, [P&I Clubs],
brokers and other companies that are typically physically located in the City of London.
The Lloyd's of London is a big participant in this market. The London Market also
participates in personal lines and commercial lines, domestic and foreign, through
reinsurance.

Commercial lines products are usually designed for relatively small legal entities. These
would include workers' comp (employers liability), public liability, product liability,
commercial fleet and other general insurance products sold in a relatively standard
fashion to many organisations. There are many companies that supply comprehensive
commercial insurance packages for a wide range of different industries, including shops,
restaurants and hotels.

Personal lines products are designed to be sold in large quantities. This would include
autos (private car), homeowners (household), pet insurance, creditor insurance and
others.