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The banking and insurance industry have changed rapidly in the changing and

challenging economic environment through out the world. In the competitive and
liberalised environment everyone is trying to do better than others and consequently
survival of the fittest has come into effect. Insurance companies are also to be
competitive by cutting cost and serving in a better way to the customers. Now the time
has come to choose and adopt appropriate distribution channel through which the
insurance companies can get the maximum benefit and serve. customers in manifolded
ways. The intermediaries in the insurance business and the distribution channels used by
carriers will perhaps be the strongest drivers of growth in this sector. Multi channel
distribution and marketing of insurance products will be the smart strategy of continue to
play an important role in distribution, alternative channels like corporate agents brokers
and bancassurance will play a greater role in distribution. The time has come for the
industry to gradually move from traditional individual agents towards new distribution
channels with a paradigm shift in creating awareness and not just selling products. The
game is old but the rules are new and still developing. Ensconed in a monopoly run from
the nationalized days beginning in 1956, the insurance industry has indeed awakened to a
deregulated environment in which several private players have partnered with
multinational insurance giants. However despite of its teaming one billion population,
India still has a low insurance penetration of 1.95 percent, 51st in the world. Despite the
fact that India boosts a saving rate around 25 percent, less than 5% is spent on insurance.
To streamline the saving into insurance, bancassurance is the best channel to tackle four
challenges facing the industry :- product innovation, distribution, customer service and
investments

Meaning of Economic Environment:- Those Economic factors which have their affect
on the working of the business is known as economic environment. It includes system,
policies and nature of an economy, trade cycles, economic resources, level of income,
distribution of income and wealth etc. Economic environment is very dynamic and
complex in nature. It does not remain the same. It keeps on changing from time to time
with the changes in an economy like change in Govt. policies, political situations.

What role does insurance play in economic development? Considerable


attention has been devoted to evaluating the relationship between
economic growth and financial market deepening. Most of what we
have learned relates to banking systems and securities markets – with
insurance receiving only a passing mention. Yet, while insurance,
banking, and securities markets are closely related, insurance fulfills
somewhat different economic functions than do other financial
services, and in turn requires particular conditions to flourish and to
make a full economic contribution. Fortunately, in the past few years,
several interesting lines of research have begun to map the specific
contributions of insurance
to the economic growth process as well as to the well-being of the
poor. The evidence suggests that insurance contributes materially to
economic growth by improving the investment climate and promoting
a more efficient mix of activities than would be undertaken in the
absence of risk management instruments. This contribution is
magnified by the complementary development of banking and other
financial systems. Empirical studies suggest that nonlife insurance
contributes to growth in countries at many different levels of
development. Life insurance makes a substantial contribution to
growth mostly in wealthier countries, since life insurance is typically a
smaller part of the total insurance market in low income countries. The
relationship between per capita income levels and insurance
penetration is also strong in the reverse direction – with rising income
a strong driver of life insurance coverage. However, it is difficult to
disentangle whether lower insurance consumption at lower income
levels reflects reduced demand for life insurance products or
constraints on the supply side associated with weak regulatory and
supervisory environments and high costs of insurance provision.

Economic Environment
The economic environment consists of factors that affect consumer purchasing power and
spending patterns. Economic factors include business cycles, inflation, unemployment,
interest rates, and income. Changes in major economic variables have a significant
impact on the marketplace. For example, income affects consumer spending which
affects sales for organizations. According to Engel's Laws, as income rises, the
percentage of income spent on food decreases, while the percentage spent on housing
remains constant.

Changing profile of Indian economic environment

India gained independence in 1947 paving the way for national leaders of the Indian
Government to build an economically independent new India. Policies between 1950-70
were implemented with a sincere belief in the efficacy of the socialist philosophy and
political democracy. Heavy investment by government in Steel plants, atomic energy,
hydroelectric power and irrigation projects laid the foundation of a strong industrial
edifice. The non-aligned movement at a time when the world was divided into two power
blocks with cold war between the Super-powers, prevented India from becoming a
satellite of any other nation and enabled it to protect Its economy and the Indian
Population.
Indian economy has made great strides in the years since independence. In 1947 the
country was poor and shattered by the violence and economic and physical disruption
involved in the partition from Pakistan. The economy had stagnated since the late
nineteenth century, and industrial development had been restrained to preserve the area as
a market for British manufacturers. In fiscal year (FY) 1950, agriculture, forestry, and
fishing accounted for 58.9 percent of the gross domestic product (GDP) and for a much
larger proportion of employment. Manufacturing, which was dominated by the jute and
cotton textile industries, accounted for only 10.3 percent of GDP at that time.
India's new leaders sought to use the power of the state to direct economic growth and
reduce widespread poverty. The public sector came to dominate heavy industry,
transportation, and telecommunications. The private sector produced most consumer
goods but was controlled directly by a variety of government regulations and financial
institutions that provided major financing for large private-sector projects. Government
emphasized self-sufficiency rather than foreign trade and imposed strict controls on
imports and exports. In the 1950s, there was steady economic growth, but results in the
1960s and 1970s were less encouraging.
Beginning in the late 1970s, successive Indian governments sought to reduce state control
of the economy. Progress toward that goal was slow but steady, and many analysts
attributed the stronger growth of the 1980s to those efforts. In the late 1980s, however,
India relied on foreign borrowing to finance development plans to a greater extent than
before. As a result, when the price of oil rose sharply in August 1990, the nation faced a
balance of payments crisis. The need for emergency loans led the government to make a
greater commitment to economic liberalization than it had up to this time. In the early
1990s, India's post-independence development pattern of strong centralized planning,
regulation and control of private enterprise, state ownership of many large units of
production, trade protectionism, and strict limits on foreign capital was increasingly
questioned not only by policy makers but also by most of the intelligentsia.
But too much of protection from the Government had its own disadvantages. Our quality
standards were not in tune with international competition. It had produced more traders
than industrialists. It was high time that Indian economy became more open and entered
the international market.
India embarked on a series of economic reforms in 1991 in reaction to a severe foreign
exchange crisis. Those reforms have included liberalized foreign investment and
exchange regimes, significant reductions in tariffs and other trade barriers, reform and
modernization of the financial sector, and significant adjustments in government
monetary and fiscal policies.
The reform process has had some very beneficial effects on the Indian economy,
including higher growth rates, lower inflation, and significant increases in foreign
investment. Foreign portfolio and direct investment flows have risen significantly since
reforms began in 1991 and have contributed to healthy foreign currency reserves ($32
billion in February 2000) and a moderate current account deficit of about 1% (1998-99).
India's economic growth is constrained, however, by inadequate infrastructure,
cumbersome bureaucratic procedures, and high real interest rates. India will have to
address these constraints in formulating its economic policies and by pursuing the second
generation reforms to maintain recent trends in economic growth.
India's trade has increased significantly since reforms began in 1991, largely as a result of
staged tariff reductions and elimination of non-tariff barriers. The outlook for further
trade liberalization is mixed. India has agreed to eliminate quantitative restrictions on
imports of about 1,420 consumer goods by April 2001 to meet its WTO commitments.
On the other hand, the government has imposed "additional" import duties of 5% on most
products plus a surcharge of 10% over the past 2 years. The U.S. is India's largest trading
partner; bilateral trade in 1998-99 was about $10.9 billion. Principal U.S. exports to India
are aircraft and parts, advanced machinery, fertilizers, ferrous waste and scrap metal, and
computer hardware. Major U.S. imports from India include textiles and ready-made
garments, agricultural and related products, gems and jewelry, leather products, and
chemicals.
Significant liberalization of its investment regime since 1991 has made India an attractive
place for foreign direct and portfolio investment. The U.S. is India's largest investment
partner, with total inflow of U.S. direct investment estimated at $2 billion (market value)
in 1999. U.S. investors also have provided an estimated 11% of the $18 billion of foreign
portfolio investment that has entered India since 1992. Proposals for direct foreign
investment are considered by the Foreign Investment Promotion Board and generally
receive government approval. Automatic approvals are available for investments
involving up to 100% foreign equity, depending on the kind of industry. Foreign
investment is particularly sought after in power generation, telecommunications, ports,
roads, petroleum exploration and processing, and mining.
As India moved into the mid-1990s, the economic outlook was mixed. Most analysts
believed that economic liberalization would continue, although there was disagreement
about the speed and scale of the measures that would be implemented. It seemed likely
that India would come close to or equal the relatively impressive rate of economic growth
attained in the 1980s, but that the poorest sections of the population might not benefit.
In the recent past, India has witnessed changes in several critical factors strengthening its
economy. With globalisation becoming the key word of the 90's, it seems to have paved
the way for India's entry in world markets. Economic reforms have been initiated to
facilitate stabilisation and structural -adjustments essential for the growth of the economy

main
The year 2008 has been a rocky one for the financial services sector. With a global
economic downturn beginning to bite, and the failure of some major financial institutions
worldwide, the sector has come under scrutiny as never before. The risk management and
governance practices of certain major banks and investment houses are under review,
emphasising the need for rigorous processes and implementation of good corporate
responsibility practices in the sector. As an office-based industry, banking and insurance
may not appear to have many sustainability impacts. But look a little closer, and you find
that the environmental and social reach of the sector is wide-ranging, particularly in the
context of investment practices and the financing of major projects around the world.

The indirect environmental impacts of a financial institution therefore include those


resulting from its commercial activities – those associated with financing, investment and
other business activities that may entail financial, legal, operational and reputational risks
1. In terms of direct environmental impact, this is mainly associated with internal

operating activities including energy, water and paper use, transport and procurement
activities. This diverse sector is also an important employer. In the UK, for example, the
banking sector employs nearly half a million people. Taking the wider financial industry
and related services into account, some three million people rely on the industry for their
jobs

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