GENERAL INSURANCE COMPANIES & NONLIFE INSURANCE

Presented by ANKUR VASHISTHA DEEPAK KASHYAP KAUSHAL CHAWDA (Section I Group XI)

Contents
Introduction to General Insurance Features of General Insurance Types of General Insurance products List of General Insurers History of General Insurance in India Post independence developments IRDA Business structure, Policy developments & Current state of General Insurance companies Micro Insurance Tariffing & Detariffing Investment Pattern Risk in Insurance Future prospects in General Insurance

What is Insurance?
A promise of compensation for specific potential future pure losses in exchange for a periodic payment(premium). Insurance is designed to protect the financial well-being of an individual, company or other entity in the case of unexpected loss.
Insurance is classified into Life and General(non life) insurance

What is General Insurance?

Insurance contracts that do not come under the ambit of life insurance are called general insurance

Features of General Insurance

Any insurance other than human life comes under the scope of General Insurance Provides short term coverage, usually for a period of one year

Pooling of losses
Pays for losses that are unforeseen, unexpected and occur as a result of chance Risk transfer Indemnification

Features of General Insurance

General insurers offer fire insurance, health insurance, motor insurance, marine insurance and miscellaneous insurance products

Fire and motor insurance are predominant and constitute 60% of total gross premium collected by general insurance companies

Types of General Insurance products

Fire insurance Motor insurance Health insurance Marine insurance Miscellaneous insurance products

Fire Insurance
Fire insurance is a comprehensive policy which covers loss on account of fire, earthquake, riots, flood, strikes and malicious intent Scope
building plant and machinery stocks furniture, fixtures and contents loss of profit or consequential loss

Fire Insurance
Most lucrative as fire rates are governed by tariffs Bulk of the premium comes from corporate clients Accounts for 20% of the business for general insurance companies

Motor Insurance
It is insurance purchased for cars, trucks, two wheelers and other type of 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 Motor insurance is of two types
Third party insurance which only insures the party/parties other than the owner in an accident Comprehensive insurance which insures the owner as well as the third party involved

Motor Insurance
Motor insurance is mandatory leading to a good amount of premium collection Largest and fastest growing business line for insurance companies Accounts for 40% of the business of non life insurers

Health Insurance
A type of insurance coverage that pays for medical and surgical expenses that are incurred by the insured Health insurance policies
Can be broadly classified into
Indemnity based : provide for reimbursement of expenses incurred necessarily as a result of hospitalisation necessitated by a covered disease, illness or injury. Benefit type : provide for lump sum payment on happening of an event insured against by the policy

Health Insurance
Standard health insurance policy Indemnifies the insured against hospitalisation expenses incurred by him at a hospital or nursing home upon the advice of a duly qualified medical practitioner as a result of an illness, disease or an injury contracted during the policy period Reimbursement and cashless policy The insured initially bears all the expenses which is later on reimbursed by the insurance company provided the claim is admissible as per the policy Cashless policy allows a policy holder to avail medical treatment at a network hospital of the insurer without paying cash

Health Insurance
Floater policy Provides for a sum insured for the entire family against medical expenses Group mediclaim policy Provides cover to the members of any group/institution/association/corporate body Other health insurance covers Cancer medical expenses insurance policy Hospital cash policies Critical illness covers Jan arogya bima policy Community based universal health insurance schemes Nagrik suraksha policy Personal accident policy Overseas medical insurance

Marine Insurance
Marine cargo insurance covers Cargo in transit Cargo declaration policy Marine hull insurance covers Physical damage to ship or vessel Collision liability Owners legal liability

Miscellaneous Insurance business

Agriculture insurance Rural insurance Travel insurance Liability insurance Aviation insurance Satellite insurance Credit risk insurance

Insurers licensed by IRDA

PRIVATE SECTOR GENARAL INSURERS PUBLIC SECTOR GENERAL INSURERS

Bajaj Allianz ICICI Lombard Iffco-Tokio Reliance Royal Sundaram Alliance TATA-AIG Cholamandalam MS HDFC ERGO Star Health & Allied Apollo Munich Future Generali Universal Sompo Shriram Bharti AXA Raheja QBE Max Bupa L&T Religare Health Magma HDI Liberty Videocon

National Insurance Co. Ltd. The New India Assurance Co. Ltd. The Oriental Insurance Co. Ltd. United India Insurance Co. Ltd. Export Credit Guarantee Corporation of India Ltd. Agriculture Insurance Co. of India Ltd. SBI General Insurance Co. Ltd.

History of General insurance companies in India

1. The history of general insurance dates goes back to the Industrial Revolution in the west and the consequent growth of sea-faring trade and commerce in the 17th century. 2. It came along with the British occupation in India 3. British established Triton Insurance Company Ltd. In Kolkata in the year 1850, which introduced the concept of general insurance in India. 4. In 1907, the Indian Mercantile Insurance Ltd, was set up. This was the first company to transact all classes of general insurance business.

Post Independence developments in general insurance

With further Liberalization of the economy, in 1957,the General Insurance Council was formed as , a wing of the Insurance Associaton of India. In 1972 with the passing of the General Insurance Business (Nationalisation) Act, general insurance business was nationalized with effect from 1st January, 1973. 107 insurers were amalgamated and grouped into four companies, namely National Insurance Company Ltd., the New India Assurance Company Ltd., the Oriental Insurance Company Ltd and the United India Insurance Company Ltd. The GIC was given charge of overall control , superintendence and policy making for smooth operation of general insurance business.

 In early 90s, Government identified the increasing market scope in general insurance business. Thus, in 1993, the Government set up a committee under the chairmanship of RN Malhotra, former Governor of RBI, to propose recommendations for reforms in the insurance sector The objective was to complement the reforms initiated in the financial sector. The committee submitted its report in 1994 wherein its prime recommendation was that the private sector be permitted to enter the insurance industry. It also stated that foreign companies be allowed to enter Indian insurance sector, preferably a joint venture with Indian partners.

Insurance Regulatory Development Authority

Following the recommendations of the Malhotra Committee report, in 1999, the Insurance Regulatory and Development Authority (IRDA) was constituted as an autonomous body to regulate and develop the insurance industry. The key objectives of the IRDA include promotion of competition so as to enhance customer satisfaction through increased consumer choice and lower premiums, while ensuring the financial security of the insurance market. In Aug 2000, IRDA opened up the market with the invitation for application for registrations and the Foreign companies were allowed ownership of up to 26%.

Types and Structures of General Insurance Business

General insurance business is widely classified as MARINE, FIRE and MISCELLANEOUS. The general policies rarely run over a span of a year unlike the Life insurances. Thus we can say that there is no guarantee of policy renewals on the same term. The general insurance companies do not collect savings, yet they accumulate pools of funds from premium and investment income out of which they meet the claims. Thus, their liabilities are short-term in nature and the claims are unpredictable, their assets are held in liquid form. They have a greater need of Liquidity and Higher returns, which is taken care by their Investment pattern*.

 Apart from the conventional general insurance types, GIC has introduced new policies like; 1. Personal accident policies for visitors in bank premises 2. Rejection insurance on marine products. 3. Personal accident insurance etc. Also, other activities of GIC include; 1. GIC Mutual fund 2. GIC Grih Vitta Ltd 3. Loss prevention association of India Ltd. 4. National Insurance Ltd

Policy developments
De - tariffing* of general insurance industry Obligations towards rural and social sectors. Restriction on FDI up-to 26% earlier. Every insurer shall maintain a required solvency margin as per Section 64VA of Insurance act 1938 Further to above , currently foll. are new developments wrt insurance sectors; A meeting of senior cabinet ministers chaired by Prime Minister has decided to hike foreign direct investment (FDI) limit in the insurance sector to 49 per cent from the existing 26 per cent. The move is expected to ripe benefits soon, in terms of more foreign investments into the country.
Source - http://www.ibef.org/industry/insurance-sector-india.aspx

 To enhance financial inclusion and boost bank assurance as a business, banks to sell insurance policies, subject to prior approval from the Reserve Bank of India (RBI) before applying for a license to act as an insurance broker. Banks to apply under the direct broker category. The license, once granted, will be valid for three years. Banks can now offer their customers policies from various life and non-life insurance companies. Until now, brokers included only exclusive intermediaries for insurance distribution. The new regulation now allows this business to be carried departmentally within a bank.

http://www.ibef.org/industry/insurance-sector-india.aspx

Current State of General Insurance Corporation

At present, the direct general insurance business is been mostly done by the Four subsidiaries of GIC. The premium income of GIC is obtained mainly thru obligatory reinsurance premium from its subsidiaries. In December 2000, the subsidiaries of the General Insurance Corporation of India were restructured as independent companies and at the same time GIC was converted into a national re-insurer. Re-insurance is a form of an insurance cover for insurance companies. It is a process whereby one entity (the re-insurer) takes on all or part of the risk covered under a policy issued by an insurance company in consideration of a premium payment. Main Functions of reinsurance are risk sharing/transfer, income smoothing. GIC is the only re-insurer in India w.r.t. public sector. GICs current direct business is only in form of Aviation insurance.

Growth of GIC and its Subsidiaries

Year 1973 1977 1991-92 2000-01 2003-04 2004-05 2005-06 2006-07 2013-14 Gross total premium (in crores) 184 338 3503 10492 14284 14948 15976 17283 21901 Investments (in crores) 355 654 6109 9837 10880 12529 14349 16145

Source - IRDA, Annual reports

Micro Insurance
protection of low-income people (those living on between approximately $1 and $4 per day) against specific perils in exchange for regular premium payment proportionate to the likelihood and cost of the risks involved. Target population : persons ignored by mainstream commercial and social insurance schemes, persons who have not previously had access to appropriate insurance products. Critical Features : a) transactions are low-cost (and reflect members willingness to pay); b) clients are essentially low-net-worth (but not necessarily uniformly poor); c) the essential role of the network of micro insurance units is to enhance risk management of the members of the entire pool of micro insurance units over and above what each can do when operating as a stand-alone entity.

Genesis of Tariff Advisory Committee

1. 2. 3. 4. 5. Insurance Companies indulged in unfair practices Insurance Act amended in 1968 which provided for : Regulation of investment of Assets Setting up of TAC Minimum Solvency Margin Licensing of surveyors, & Payment of premium before commencement of risk.

Tariff Advisory Committee

Statutory body created under Insurance Act, 1938. Controls and regulates the rates, advantages, terms & conditions that may be offered by insurer. Looks into pricing of non-life insurance products. Prevents uneconomic competition & facilitates classification of risks according to their special characteristics. Tariff mechanism provides floor rates for various products. Large risks where sum insured at any one location is Rs 10,000 Crore or above have been de-tariffed.

Functions of TAC
Collection of data on premium and claims, analysis of data and dissemination of information to insurer; Report to IRDA on underwriting health of market and any aberrations in market behaviour; Constitution of expert group at the request of General Insurance Council, to look into underwriting issues and recommend necessary action; Organise training of underwriters at the market level; and Attend public grievances on non-availability of insurance.

Tariffing & De-tariffing

Tariffs : governing documents prescribing rates as well as policy coverage and conditions pertaining to a class of insurance. Tariffs restricted competition in the market. De-tariffing : pricing of insurance products driven by market forces. Uniform pricing continued for motor third party risks (pool creation) Benefits : price wars and fall in premium rates for profitable classes of business like fire and engineering. Liberalising policy wordings : discretion of insurers to customise products as per clients requirement

Investment Pattern & Policy

Major Principles Guiding GICs Investment Policy Security of funds Avoiding investments for speculative purposes or in assets promising high capital gains. Financing priority sectors and socially desirable activities in India. Due to Indias Mixed Economic System, to meet the requirements of Private Sectors. Investing in Private Securities with simultaneous spread of such investments widely to minimise the risk.

Challenges Faced for Investing in Private Securities

Investment in Industrial securities a matter of considerable public controversy due to: Ideological bickering rather than understanding of investment principles, financial requirements of different sectors, etc. Ungenerous criticism from Socialists for investments in Industrial Securities. Socialists overlooked the fact that certain portion of insurance funds to be invested in assets yielding a high rate of return to benefit policy-holders.

Portfolio Restrictions on GIC in Force in 2001-02

Type of Investments
Central Government Securities being not less than
State Government Securities & other guaranteed Government securities, including (i) above, being not less than Loans to HUDCO and to state governments for housing & fire fighting equipment, not less than In Approved Investments a) Infrastructure and Social Sector b) Others to be governed by Exposure Norms. However the investments in Other than in Approved Investments in no case exceed 25% of the Assets Not less than 10% Not exceeding 55%

Percent
20
30

Other Investment Guidelines

Exposure/Prudential Norms Rural & Social Sector Obligations for new entrants Maintenance of Solvency Margins = free capital : total business done Minimum solvency margin of 500 Million New Insurers 1.5 times the normal requirements. Funds to be set aside as reserves by GICs for : 1. Unexplored risks 2. IBNR claims 3. IBNRE claims

Equity Share Capital

Non-Life Insurers & Policies Issued

Gross & Net Premium Income Earned

Profitability of Sector

Risk Management
Risk: situation which bears a probability of some financial loss In Insurance world : risk referred to a property or an individual insured also called Exposure Unit. Risk Management : process of planning, organising, directing and controlling resources to minimise the adverse effects of potential losses at the least possible cost.

Types of Risks
Portfolio Risk : means the mix of business done by an insurer includes fire, health, motor, etc. Solvency Risk : Depends on backup in terms of capital represented by assets of the insurer. Marketing Risk : Due to change in demographic structure including consumer preferences. Market Risk : To maintain profitability, insurers have to be aggressive in investing funds in high risk, high return securities which give rise to market risk, volatility of financial markets Operational Risk : Due to more dependence on IT tools like centralised servers and WAN (wider area networks).

Future of Insurance Industry in India

Insurance Sector reforms proposed as to hike from 26% to 49% FDI and foreign players. For a country with a GDP that is about to touch USD 2 trillion, insurance coverage is inadequate, adding only 6 per cent of the 1.25 billion Indians have life insurance and only 5 per cent has health cover. India's insurance industry needs around USD 12 billion in capital up to 2020 Opening up the insurance sector to further higher FDI will greatly enhance the industry's reach to semi-urban and rural markets.

References
Financial Institutions and markets Bhole & Mahakud (5 th edition) The Indian Financial System: Markets, Institutions and Services Pathak (3rd edition)