Professional Documents
Culture Documents
Introduction
Every risk involves the loss of one or other kind. The function of insurance
is to spread the loss over a large number of persons who are agreed to co-
operate each other at the time of loss. The risk cannot is averted but loss
occurring due to a certain risk can be distributed amongst the agreed
persons. They are agreed to share the loss because the chances of loss, i.e.
the time, amount, to a person are not known. Anybody of them may suffer
loss to a given risk so; the rest of the persons who are agreed will share the
loss. The larger the number of such persons, the easier the process of
distribution of loss.
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IMPACT OF PRIVATIZATION ON INSURANCE SECTOR
Definition
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IMPACT OF PRIVATIZATION ON INSURANCE SECTOR
1818: the first life insurance company known as the oriental life
insurance company was established
1912: Indian life assurance companies act – first statute to regulate the
life insurance business.
1928: Indian insurance companies act – government to collect statistical
information about both life and non-life insurance business.
1938: protecting the interest of the insuring public.
1956: 245 Indian and foreign insurers and provident societies – central
government and nationalized
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Functions of Insurance
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3) Risk-Sharing: -
The risk is uncertain, and therefore, the loss arising from the risk is
also uncertain. All the persons who are exposed to the risk share when risk
takes place the loss. The risk sharing in ancient time was done only at the
time of damage or death; but today, on the basis of probability of risk, the
share is obtained from each and every insured in the shape of premium
without which the insurer does not guarantee protection.
4) Prevention of Loss: -
The insurance join hands with those in situation which are
engaged in preventing the losses of the society because the reduction in loss
causes lesser payment to the assured and so more saving is possible which
will assist in reducing the premium. Lesser premium invites more business
and more business cause lesser share to be assured. So again premium is
reduced to, which will stimulate more business and more protection to the
masses. Therefore the insurance assist financially to the health organization,
fire brigade, educational institutions, and other organization, which are
engaged in preventing the losses of the masses from death or damage.
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IMPACT OF PRIVATIZATION ON INSURANCE SECTOR
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Protection from
Risks arising Out of
Natural Calamities
Insurance has also been playing important role in protecting the industry and
commercial activities from natural calamities like fire, marine losses, floods,
earthquakes, cyclones etc.
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IMPACT OF PRIVATIZATION ON INSURANCE SECTOR
Financial Security
Insurance provides financial security also to industry and commerce.
Exports of goods to other countries by sea, storage of goods in safe godowns
and various other kinds of financial losses are secured by insurance policies.
Protection of Debts
A trader can protect himself by taking appropriate policy against the credit
sales or property kept on security against goods or property. Thus, the
insurance protests the trader even in case the debtor dies or of damages to
the goods.
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IMPACT OF PRIVATIZATION ON INSURANCE SECTOR
Meaning of Privatization
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Definition
History of Privatization
Privatization gathered momentum around mid 1980’s and since then has
become the hallmark of new wave of economic reforms sweeping
across the world. Today more than 10000 states owned enterprise has
been privatized in over 90 countries. The trends towards privatization
have been observed in developed and the developing economies, in
market oriented and socialist including communist countries.
The basic reason for privatization is the growing disappointment with the
functioning of the public sector undertaking and state owned enterprises.
Besides Uk, Argentina, Brazil, Germany, France, Italy, Japan, Mexico,
Nigeria, Spain, turkey etc has announced the policy of privatization. As far
as India is concerned it has deregulated or liberalized the industrial sector in
varying degree.
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IMPACT OF PRIVATIZATION ON INSURANCE SECTOR
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Benefits of Privatization
1. Creation of Jobs
New insurance companies are expected to help in expanding the
employment resulting in more employment opportunities. Greater the market
expands, higher the opportunity for new employment.
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IMPACT OF PRIVATIZATION ON INSURANCE SECTOR
7. Social Security
The new era of liberalized insurance sector will ensure over all economic
growth of the country and bring more and more people under the coverage
of insurance. This will ensure extending the benefits of social security to
large sections of our population. The left trade unions have expressed some
reservation and apprehensions in allowing private entry on the following
grounds.
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IMPACT OF PRIVATIZATION ON INSURANCE SECTOR
R. N.Malhotra
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necessary to address the need for similar reforms. In 1994, the committee
submitted the report and some of the key recommendations included:
I) Structure
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.
II) Competition
IV) Investments
V) Customer service
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Mukherjee Committee
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The insurance industry in India has seen lot of changes since the opening of
this sector for private population. Innovation on the service front include
providing call centre facilities, providing personalized planning looks,
servicing of product and the most recent one is the introduction of third party
administrations.
The various insurance intermediaries from and marketers perspective is:
(1) brokers.
(2) third party administrators
Brokers
IRDA’s annual report 2001-2002 describes brokers an “insurance brokers”,
as are expected to fill the void in of providing for specific insurance needs of
the clients by assessing the risk on behalf of client, advise on the mitigation
of the specified risk, identifying the optimal insurance policy structure,
being together the insured and the insures, carry out work preparatory to
insurance contracts and where necessary to assist in the administration and
performance of such contracts, in particular when the claim arises.
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IMPACT OF PRIVATIZATION ON INSURANCE SECTOR
As per the said guidelines brokers are divided into following categories;
(1) Direct broker
(2) Reinsurance broker
Direct Broker
Direct broker means an insurance broker who for the time being
licensed by the authority to act as such, for the remuneration carries out
the function as specified under the regulation in the field of life insurance
or on behalf of his clients.
Re-insurance Broker
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IMPACT OF PRIVATIZATION ON INSURANCE SECTOR
They run a 24-hour toll-free number, which can be accessed form anywhere
in the country .third party administrators license is granted to companies
registered under companies’ act, 1956 having a minimum paid up capital of
Rs 1.00 crores with foreign participation not exceeding 26%. License is
usually granted for period of three years.
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IMPACT OF PRIVATIZATION ON INSURANCE SECTOR
Product:
Endowment
plans
Term Money
assurance back plans
Investment Handicapped
plans policy
2) Pricing
In the insurance business the pricing decisions are concerned with:
The premium charged against the policies.
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3) Promotion
The insurance services depend on effective promotional measures. The
magnitude of dependence in case of insurance services is high. Creation of
awareness is found very much instrumental in the generation of impulsing
buying. In a country like India the rate of illiteracy is very high and the rural
economy has dominance in the national economy. It is essential to have both
personal and impersonal promotion strategies. The selection of agents and
rural career agents and imparting them proper training facilities to create
impulse buying is important.
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4) Physical Distribution
Distribution is a key determinant of success for all insurance companies.
Today the nationalized insurers have large reach and presence in India. New
entrants cannot duplicate such a network. Building a distribution network is
very expensive and time consuming. If the insurers are willing to take
advantage of India’s large population and reach a profitable mass of
customers then new distribution avenues and alliance will be necessary. This
is true for nationalized corporation which have to find fresh avenues to reach
new and existing customers.
5) Physical Evidence
Physical evidence is the environment in which the service is delivered and
where the company and the customers interact and any tangible goods that
facilitate the performance and communication of the service. Services are
intangible and heterogeneous. Intangibility means that services cannot be
displayed, physically demonstrated or illustrated; heterogeneity means that
consumers cannot be certain about performance on any given day. It plays a
major role in enhancing customers’ perception of the service quality.
However, in case of insurance sector, the customer rarely visits the insurance
company. The customer comes mostly only in contact with the service
provider.
1 Policy documents
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2 Brochures
3 Periodic statements
4 Renewal notices
5 Business cards
6 Stationary
7 Calendar, diaries
8 Letters/cards
9 Website
5) Process
The process should be customer friendly in insurance industry. The speed
and accuracy is of great importance. The processing method should be easy
and convenient to the customers. Installment schemes should be streamlined
to cater the ever-growing demands of the customers. It and data warehousing
will smoothen the process flow. Information technology will help in
servicing large number of customers efficiently and bring down overheads.
Technology can either complement or supplement the channels of
distribution cost effectively; it can also help to improve customer service
levels.
6) People
Understanding the customer better allows designing appropriate products.
Being a service industry, which involves a high level of people interaction, it
is very important, to use this resource efficiently in order to satisfy
customers. Training, development and strong relationships with
intermediaries are the key areas to be kept under consideration. Training the
employees, use of information technology for efficiency both at the staff and
agent level is one of the important areas to look into.
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7) Place
Place mix can be defined as the “physical distribution i.e. the delivery
of goods/ services at the right time at the right place to the
customers.” Place decisions involve building relationships with the
wholesalers, retailers and through these intermediaries building
relationships with the customers. Products and services must be at the
right place, at the right time in order to be consumed. Probably the
best way to perceive place is to think of the flow of products from
manufacturer through intermediaries to the consumer or user. This
flow can be thought of as a channel used to move goods and services.
The channel of distribution is a component of the place mix:
Channels:
According to Philip Kotler, “channels are sets of interdependent
organizations involved in the process of making the product or service
available for use or consumption” marketing channel decisions are
among the most critical decisions facing the management.”
The channels chosen intimately affect all the other marketing
decisions.
Channels
Direct selling Agents
Financial advisors
Call centres
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IMPACT OF PRIVATIZATION ON INSURANCE SECTOR
Direct Selling:
Agents:
The agents are selected and recruited by the development officer of
the insurance company. These agents inform the customers about the
various insurance policies offered by the company and convince them
to buy these policies.
Financial Advisors:
The customers regarding their financial matters also consult the
financial advisors. These advisors suggest their clients to get their
goods insured against any calamity or risk. Hence they act as a
channel in distribution of insurance.
Call Centres:
The people who require insurance call up the call centres. These call
centres send their direct marketing agents who go to the customer’s
place and sell the insurance policy.
Financial Services
Partner Selling:
Banc assurance:
Banking Insurance
Banc assurance
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Bancassurance
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Brand: -
The consumers give most preference to the popular brand that has achieved
the highest safety in the insurance market. Consumers feel trust about the
popular brands and more inclined towards them among the surveyed mostly
people are branding aware and the most recalled brand was LIC after that
ICICI Prudential, Birla Sun Life, Bajaj Allianz were the few one.
Life stage: -
Life stage plays an important part in the purchasing decision of the customer
as youngsters are more inclined towards short term policies while middle
age people are inclined towards family safety.
Service:-
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Some of the important acts, which have been passed in India to regulate
insurance industry, are mentioned here:
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Life insurance business in India was nationalized with effect from January
19, 1956.on the date, 16 non Indian insurers operating in India and 75
provident societies were taken over by government of India. This act came
into effect from July 1st 1956. Life Insurance Corporation of India
commenced its functioning as a corporate body.
Under this act, LIC shall be a body having perpetual succession and a
common seal with power, subject to the provisions of this act to acquire,
hold and dispose of property and may by its name sue and be used.
The original capital of the corporation shall be Rs 5 crores provided by the
government and the terms and conditions relating to the provisions of capital
shall be determined by the central government.
It is the general duty of the corporation to carry on life insurance business
whether in India or outside, and the corporation shall exercise its powers
under this act towards the development of life insurance business to the best
of the advantage of the community.
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Reforms in the insurance sector were initiated with the passage of the IRDA
bill in December 1999. It was set up as an independent body and it has been
able to frame globally compatible legislations. The IRDA was set up to
protect the interests of holders of insurance policies, to regulate, promote
and insure orderly growth of the insurance industry and for matters
connected therewith or incidental thereto.
This act extends to whole of India. With the establishment of this act,
government amended insurance act 1938, life insurance act 1956 and general
insurance act 1972.irda was formed on the recommendations of Malhotra
committee. In 1999 government of India has set up Malhotra committee to
examine the structure of insurance industry and recommend changes, under
R.N Malhotra –former governor of RBI.
Role of IRDA.
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IRDA has recognized the actuarial society of India and insurance institute
of India as nodal organizations responsible for actuarial and insurance
education. IRDA has drafted separate bills of the actuarial society of
India and the institute of surveyors and loss assessors in order to grant
them statutory status.
IRDA has also entered into an mod with the Indian institute of
management, Bangalore, to further its objective of insurance research and
education. It has set up a risk management resource centre in Bangalore.
IRDA has come out with the insurance advertisement and disclosure
regulations to ensure that the insurance companies adhere to fair trade
practices and transparent disclosure norms while addressing the
policyholders or the prospects.
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The economy has grown at the rate of 5.6 per cent per annum during 1990’s.
The gross domestic savings are around 25 per cent, which has the potential
to grow to 45 per cent. The insurance business life and non life has been
showing growth rate of 17 and 12 percent respectively. Therefore, there is
need to have more players in the field.
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therefore, the private sector will work according to the guidelines given to
them.
ULIP stands for unit linked insurance plan. It 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
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IMPACT OF PRIVATIZATION ON INSURANCE SECTOR
The main intent of the guidelines was to ensure that they lead to greater
transparency and understanding of these products among the insured,
especially since the investment risk is borne by the policyholder. It is the
endeavor of IRDA to enable the buyer to make the most informed decision
possible when planning for financial security. We hope the following faqs
will enable a better insight to all buyers about the character and features of
unit linked products.
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1) HDFC-Standard Life
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standard life insurance company limited is the first private sector life
insurance company to be granted a license
Foreign Partner;
Standard life, UK founded in 1825, has been at the forefront of the UK
insurance industry for 175 years by combining sound financial judgment
with integrity and reliability. It is the largest life insurance company in
Europe and has total assets of Rs 5,50,000 crore. It is the very few insurance
companies in the world to have achieved ‘AAA’ rating from form two of the
leading international credit rating agencies, moody’s and standard & poor’s.
Products Offered
(i) Endowment assurance plan
(ii) Money back policy
(iii) Development insurance plan
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IMPACT OF PRIVATIZATION ON INSURANCE SECTOR
Foreign Partner
Established in 1848, prudential plc, of UK has grown to be the largest
life insurance and mutual fund company in UK. Prudential PLC has
had its presence in Asia for the past 75 years catering to over 1 million
customers across 11 Asian countries. Prudential is reputedly the
largest life insurance company in the United Kingdom.
With the initiation of the deregulation in the Indian insurance market, the
monopoly of big public sector companies in life insurance as well as general
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(non-life insurance) market has been broken. New private players have
entered the market and with their innovative approaches and better use of
distribution channels and technology, they are eating in to the shares of
established public sector companies in Indian insurance market.
Since the deregulation has been put in to place, the market share of LIC has
come down to 71.4% in life insurance market while the private players have
captured around 17% market in the general insurance segment. Having said
that, public sector insurance companies such as LIC and new India assurance
are registered impressive double-digit growths, which reflects on the overall
health of the Indian insurance sector. India is currently undergoing rapid
changes mainly because of the liberalization of the economy. Along with the
economic changes, political attitudes, social values, cultural patterns and
social structures are also rapidly changing and affecting one another.
Conclusion
It seems unlikely that the LIC and the GIC will shrivel up and die
within the next decade or two.
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The IRDA has taken a "slowly" approach. It has been very cautious in
granting licenses. It has set up fairly strict standards for all aspects of
the insurance business (with the probable exception of the disclosure
requirements). The regulators always walk a fine line.
Too many regulations kill the incentive for the newcomers; too
relaxed regulations may induce failure and fraud that led to
nationalization in the first place.
The market is now in an evolving phase where one can expect a lot
of actions in coming days. The current impediments for foreign
participation – like 26% equity cap on foreign partner, ill defined
regulatory role of (insurance regulatory development authority-
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BIBLIOGRAPHY
REFERENCES:
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Websites-
www.sbiindia.co.in
www.sbilife.co.in
www.irdaindia.org
www.liccouncil.org
www.businessconnect.com
ttp://en.wikipedia.org/wiki/consumer_psyche
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