innovative eye on in insurance
DESCRIPTION
innovationTRANSCRIPT
Project on
“INNOVATIVE EYE OF INSURANCE”
Bachelor of Commerce-
Banking and insurance,
Semester-VI
2006-07
Submitted by
ASHISH MESTRY
Roll no - 28
K.J.SOMAIYA COLLEGE OF ARTS AND COMMERCE
VIDYAVIHAR
1
Project on
“INNOVATIVE EYE OF INSURANCE”
Bachelor of commerce-
Banking and insurance,
Semester-VI
Submitted:
In part fulfillment of the requirements for the award of the degree of
Bachelor of Commerce
Banking & Insurance.
By
ASHISH MESTRY
Roll no - 28
K.J.SOMAIYA COLLEGE OF ARTS AND COMMERCE
VIDYAVIHAR
2
K.J. SOMAIYA COLLEGE OF ARTS AND COMMERCE
VIDYAVIHAR
CERTIFICATE
This is to certify that Mr. ASHISH MESTRY Of B.Com – Banking &
Insurance – Semester VI (2006 – 07) has successfully completed the project
on “Innovative Eye of Insurance” under the Guidance of Mohonty Sir.
Project Guide Principal
External examiner _________________
Internal Examiner Course Co-Ordinate
3
DECLARATION
I Ashish Mestry Student of B.Com – Banking and Insurance –
semester- VI (2006-2007) hereby declare that I have completed the project
on “Innovative Eye of Insurance”
Wherever the data/information have been taken from any book or
other sources the same have been mentioned in the Bibliography.
The information submitted is true and original to the best of my
knowledge.
Signature of the student
Name of the student
4
ACKNOWLEDGEMENT
A student always collects some bouquets & brickbats while collecting
information about the project he/she has undertaken. If there is a bouquet, I
would like to share them with those who have played a part in its making.
I wish to express my gratitude to my guide “Mr. Mohanty” who made
me confident to choose this topic & helped me to get the information & also
ahead with the preparation of the project. I am also thankful for the insight
that I have gained through numerous discussions with him.
I am grateful to our principal Mrs. Vaidehi Daftardar, course Co-
coordinator Mr. Kedarnath for there support. I would express my
indebtedness to my family member & friends for their constant support & for
infusing me with enthusiasm to achieve the task on hand successfully.
5
INDEX
CHAPTERNO.
TOPIC PAGE NO
I Introduction
II Methodology
IIIContents of the Project
1. Concept of Insurance2. Indian Insurance Industry3. Privatization Helps Indian Insurance to Produce
Innovative Product4. The Need for IT in Insurance5. Application of E-learning in the Insurance Sector6. Innovations In Indian Insurance 7. Past & Present for Bright Future
IV Case StudyInsurance Industry Supports Soccer -FIFA World Cup 2006
IV Conclusion
IIV Questionnaire
IIIVBibliography
6
I. INTRODUCTION
Insurance plays an important role in general life. Risk exist every
where, to cover these risk Insurance is very important. But the method or
procedure of insurance need to be change. As days goes needs &
requirements of the people get change. Insurance includes different-different
products to fulfill the need of the people.
The year 2000 was a landmark year in the history of Indian insurance
industry. The industry was thrown open for the private players. The year
2007 is going to be another watershed year for the industry. Detariffication
from January 1, 2007 will totally change the complexion of the non-life
industry. Coming close on the heels of the entry of private players, it is
going to be another significant development for the insurance industry. A
second wave of interest in the industry is already being talked about. Those
who missed the bus in the year 2000 may try to step in now.
As technology & life style of the people change, it is necessary for
innovation in insurance. This is very knowledgeable to do project on
“INNOVATIVE EYE OF INSURANCE”. This is the reason I have
chosen this topic.
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II. METHODOLOGY
In order to conduct research an appropriate methodology becomes
necessary. In this direction both primary & secondary data were attempted to
be collected.
The methodology for collecting data with reference to collecting data
was taken forms the different articles, books & journals published by
ICFAI’s & the relevant website. The different libraries of the colleges &
institutions were great help.
Thus methodology relied on both primary & secondary dada with the
help of discussion, observations as well as published work & unpublished
work.
8
Chapter: 1
CONCEPT OF INSURANCE
Definition of Insurance:
Insurance is an institution, which eliminates risk & which substitutes
certainty for uncertainty. Insurance is the protection of the economic value
of assets. The asset would have been created through the efforts of the
owner, in the hope that through the income generated there from or some
other output, some of her/his need would be met. If the assets gets lost
earlier, being destroyed or made functional or loss of life, through an
accident or other unfortunate event, those deriving benefits there from
suffers Insurance is mechanism that helps to reduce such adverse
consequences. Insurance is a contract between the (Insurance Company) &
the Insured (whose life or assets are covered) under which the insurer
undertakes to compensate the insured for the loss arising from the risk
insured against. The insurance is the elimination of the risk & replacement
of certainty for uncertainty of loss.
Categories of Insurance:
Insurance has two broad categories:
i) Life Insurance
ii) General Insurance or Non Life Insurance.
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i) Life Insurance: Life Insurance covers the human life, since it is
most important income earning capital & subject to vagaries of economic
fluctuations. It needs to be protected much before other assets, which the
human capital generates. Accident may or may not happen. Death will
happen, but the timing is uncertain If it happens around the time of one’s
retirement, when it could be expected that the income will be normally
cease, the person concerned could have made some other arrangement to
meet the continuing needs
ii) General Insurance Non-Life Insurance: In General Insurance
there are 7 sectors where insurance is required in addition to other
miscellaneous sectors which also are covered under insurance. Such sectors
are: Fire, Marin, Motor, Personal Accident, Health, Liability & Engineering
insurances.
While miscellaneous insurances are: Burglary, Fidelity
guarantee, House holders, Shopkeepers, Sports, Baggage Lost, Jewellary
Block, Bankers blanket, pet dogs, Executive Travel, Office Protection, crop,
flood, cattle etc.
10
Chapter No: 2
INDIAN INSURANCE INDUSTRY
1999-2000 was a landmark year in the history of Indian
insurance industry. The year 2007 is going to be another
watershed for the industry. The insurance industry will
have to play a vital role by providing health insurance
and other insurance products for the poor.
Insurance, it is oft quoted, is the art of the impossible and the science
of the implausible. The future is uncertain. The business environment today
is volatile and fast changing. Intentional, it is said, is the key to predict the
future. Insurance very aptly fills this slot. Insurance which originated in the
12th century AD as a concept has, over the years, grown in stature to evolve
as a full-fledged subject.
The demands of the changing environment have prompted the
insurance industry to mould its business in tune with the changing times. As
a result, the Indian insurance market gave itself a face lift. The entry of
private players saw a spate of new products and services on offer in the
insurance market. To cite an example, the latest kid on the block is temple
insurance. Temples with hefty incomes are becoming attractive targets for
insurance companies as the incidence of claims is low and the potential for
premium is high. Sabarimala and Guruvayur in Kerala are two examples that
come to mind. There is also talk of introduction of body parts policies.
Special medical insurance for students and group term cover for youth are
also a case in point.
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The convergence wave has caught up with the financial sector too.
The boundaries among insurance, banking and securities are fast vanishing.
Credit cards are increasingly offering various insurance products to
subscribers, often at competitive rates much below those available directly
from the insurer. Mobile phone firms are offering group term insurance free
for those in the age group of 18-35 years.
The year 2000 was a landmark year in the history of Indian insurance
industry. The industry was thrown open for the private players. The year
2007 is going to be another watershed year for the industry. Detariffication
from January 1, 2007 will totally change the complexion of the non-life
industry. Coming close on the heels of the entry of private players, it is
going to be another significant development for the insurance industry. A
second wave of interest in the industry is already being talked about. Those
who missed the bus in the year 2000 may try to step in now. The expected
rise in the FDI ceiling adds to this interest.
The year 2007 is going to be eventful also in many other ways for
insurance industry-providing event insurance for the World Cup Cricket
2007, greater business intelligence, increased M&A activity, adopting the
best underwriting practices and of course, product innovation to cap it all.
12
Chapter No: 3
PRIVATISATION HELPS INDIAN INSURANCE TO
PRODUCE INNOVATIVE PRODUCT
Privatization of Insurance Industry in India
The entry of private players helps in spreading and
deepening the operations in the Indian insurance sector
which in turn results in restructuring and revitalizing of
public sector companies. The article looks at the
business strategies of private insurance companies and
the future expectations of the insurance industry.
Emergence of Private Insurance Players in India:
The Government of India liberalized the insurance sector in March
2000, which lifted the entry restrictions for private insurance players,
allowing foreign players to enter into the Indian market and start their
operations in India. Each foreign company needs to have a 26% equity
capital to enter into the Indian insurance market. Many foreign companies
have joined their hands with the Indian companies and started their
operations in early 2001. Now there is a proposal to increase the equity
capital to 49%.
Currently, 15 life insurance and 11 non-life insurance companies are
operating in the private sector. However, overall private insurance
companies have three rimes more products than the public companies.
13
Previously, insurance was considered as a savings instrument in India
rather than a product which offers protection and security to the person. who
is insured. According to a LIC survey in 1996, more than 40% of the
insurance buyers felt that insurance is a means of savings. Risk coverage is
only a secondary objective.
Analysts found that the private insurance players have established
their own identities in the Indian market in a short period of time. India has
the world's top companies like AIG, New York Life, lNG, Lombard, Aviva,
Chubb, MetLife, etc., competing in the same market.
The private sector players have seen 200% growth in the second year
of liberalization. This has doubled their share from 3-4% in the first year
itself. The current annual growth in the average insurance premium in India
has been 8.2% compared with the global average of 3-4%.
Growth of Life Insurance:
Before the private players entered into the market, LIC was the only
dominant player in the public sector. LIC enjoyed over 98% of the market
share in the early stage of liberalization and private players suffered losses in
the first year of their operations. But LIC's market share has drastically
reduced in 2-3 years.
We can say that the Indian life insurance industry is still an
underdeveloped one, as 80% of the Indian population is still not under the
insurance coverage, and 80% of LlC's business procured by 20% of its ill-
trained agent future. Therefore, there is ample scope for the growth of the
life insurance sector in India. Customers are looking for innovative products
and are even ready to take insurance from private players.
14
Increase in the Size of the Policy:
The average size of a life insurance policy in the public sector was
around Rs. 50,000 before liberalization, now it has risen up to Rs. 80,000.
But in the private sector, the average size of their policies is around Rs. 1.1
lakh to Rs. 1.2 lakh which is bigger than the average of the industry.
Increase in Market Share:
When the sector was opened, it was expected that LIC would loose
just about 10% market share in the five-year period. But now LIC's market
share is nearly 78%, this means that it has lost 22% of the market share and
the private sector has gained 22% of the market share in a five- year period.
Flexibility and Transparency of Product:
Previously, customers were insured with public insurance companies
with no flexibility and transparency in the products. They have visualized
the life insurance as a tax saving device only. As the private players entered,
the change has taken place in terms of offering flexibility and transparency.
Even the customers have started to look for new and innovative products and
are turning to the private sector.
According to Shivaji Dam, CEO of Om Kotak Mahindra Life, private
players are becoming an alternative to LIC. If a customer's first policy is
from LIC, his second policy is most likely to be bought by the private
insurance sector due to various reasons-more specifically because of
flexibility and transparency.
15
Growth of Non-life Insurance:
The general insurance industry has recorded a growth of 20% in the
first five months of 2006-07, when compared to a growth of 16% in the
financial year of 2005-06. The data compiled by IRDA states that the
premium collected by 12 non-life insurance players during April-August
2006 is Rs. 10,427 cr as compared to Rs. 8,668 cr in the corresponding
period last year. At present, the eight private players together have about
35% of the market share.
The market share of public sector reduced to 74% in the financial year
2005-06 and premium collections rose 7% to Rs. 14,951.74 cr regardless of
the industry wide premium growth of 16.25%. Premium collections for the
private sector grew by 52.54% to Rs. 5,426 cr with an improved market
share of 26.6% when compared to the previous year's market share of
20.2%.
IRDA Chairman C S Rao said, the non-life insurance industry has
seen 80% growth in these five years, writing the gross premium of
Rs. 18,095.25 cr in 2004-05, up from Rs. 10,087.03 cr in 2000-01. Weather
index-based crop insurance policies, health insurance policies, liability
products, etc., are some of the innovative products of private players.
Business Strategies:
Innovative products, smart marketing, and aggressive distribution
have enabled fledgling private insurance companies to sign up Indian
customers faster than expected. To retain their positions and to stand with
the competition, the private players are looking for various methods and are
also following a variety of strategies.
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The private players are mainly concentrating on customer service. For
this, they are looking at delivery channels like call-centers, Internet,
telemarketing and direct marketing. By using these approaches, companies
can effectively market their products and provide better service to the
customers.
Distribution Channels:
The distribution channel is one of the best ways to increase the growth
of the insurance industry. These distribution channels like corporate agents,
brokers and bancassurance are playing a greater role in distribution.
The general way of selling insurance products are through agents and
brokers. But the companies are now looking at a new distribution channel
"Work-site marketing", which is nothing but selling of financial products
and other services to employees through workplace participation and is
entirely on a voluntary basis. In this, the employee has to pay for the
products through a payroll deduction.
The private players perforce are looking for alternative channels to
market their products as they are facing difficulty in training new agents
with skill sets and this is also a time-consuming and costly activity. The
private players are mainly concentrating on bancassurance model; through
this, they are concentrating on providing the service to rural and semi-urban
sector. In the bancassurance model, the insurance companies have tie-ups
with the banks and sell their products to the bank's customers. The potential
in smaller cities has been increased and these are becoming profitable with
the rise in agricultural income, so companies are moving to smaller cities
and towns which results in an increase in the growth opportunity for
17
insurance companies.
According to a Fitch report on the insurance sector, the bancassurance
channel has contributed about 20% of the total insurance business in the
financial year 2005. Whereas all the alternative distribution channels
together have contributed 25-30% of sales in private insurance companies.
These distribution channels include corporate brokers, bancassurance, the
Internet and corporate agents.
Every private player is following different strategies to increase their
market share and to get the rap position in the insurance industry.
For example:
Aviva CEO, Stuart Purdy said that the bancasurance channel with tie-ups
with four banks contributes almost 70% of the total sales of Aviva.
According to Anuroop Singh, CEO and MD of Max New York Life
Insurance Co. Ltd (MNYL), over 90% of the life insurance schemes ill
the world are sold through individual agents only. He also states that
agents are the primary channel for selling insurance policies and MNYL
have invested substantially in training the life insurance advisers.
AMP Sanmar is following a different strategy when compared to other
private players, where it is tied up with transport finance companies and
chit fund companies to sell its life policies on the back of fixed deposits
and bonds.
In order to strengthen its position further in India, Bajaj Alliance Life
Insurance Co. has introduced some aggressive strategies like introducing
new products and tapping the rural markets. Apart from the tie-ups with
seven Regional Rural Banks (RRBs), it has also introduced the new
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micro-insurance products and come out with a new capital guaranteed
producer.
Tata AIG is looking at all modes of distributing the products. They are
concentrating on brokers, who can source products from a cross-section
of players, and solicit insurance on behalf of the insured, which have
been successful. They are also looking at corporate agents to sell a range
of company's products. They even have tie-ups with HSBC and Thomas
Cook in India.
Birla Sun Life Insurance, one of the top private players in India expects
to bring in another Rs. 150-200 cr of additional capital for its growth
projections in and over the next two years.
ICICI Prudential, is the No.1 among the private insurance players in
India from the past five years. It has expanded the scope of its five-year
old bancassurance partnership with Bank of India to tie-up with 10 RRBs
sponsored by the bank across the country. Those 10 banks have nearly
1,000 branches across rural and semi-urban areas, which include some
specific rural products and also expands ICICI Prudential's distribution.
When it comes to General Insurance Products, for expanding their
operations, private companies start tying up with manufacturers and dealers.
The manufacturers and dealers are also concentrating on their non-core
businesses. Already, eight non-insurance private players have the market
share of 19.65%. This will increase further. Even IRDA is insuring its assets
with the private insurer.
As per the recent market research report named "Indian Insurance
Industry Forecast (2007 -09)" published by RNCOS, the present growth in
the non-life insurance sector is anticipated to continue in the years to come.
19
The report also states that currently insurance is growing at 13%
compounded annual growth rate and expected to touch the mark of $9 bn by
2006.
Future Developments:
The insurance industry in India is undergoing a major change. As the
private players entered into the market, the competition has risen for the
public sector companies. The competition has also increased among the
private players and the main competition lies in a variety of products
provided to customers, in the pricing of the products and the service they are
providing.
Nowadays, the customer is not only looking into the products, they
are also looking at price, service of the company, the returns they are
offering and the total protection. Private insurers have increased their efforts
to increase consumer awareness about the benefits and importance of
insurance and offer a variety of products and services, which helps them to
grab the higher market share. Several players are expected to enter India's
rapidly growing insurance market in the next few years, especially, if the
foreign direct investment limit is raised to 49%.
IRDA has recently given permission to Bharti Enterprises to enter in
to the life insurance business by joining its hands with French major AXA
and becoming Bharti AXA Life Insurance Company, which occupies the
16th position in the life insurance segment. IRDA has been authorized to
permit insurance companies to setup liaison offices in the country, which are
registered within and outside the country.
Aviva's CEO Smart Purdy sees new players cornering over half the
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market. He also forecast the state player LIC loosing about 50% share over a
span of 15 years or more. With the entry of more private players, the
competition has become very high in the life insurance segment. Banks life
Punjab National Bank and Vijaya Dank are planning to enter into the life
insurance segment and the IRDA is looking into their application.
Conclusion:
Already, the insurance sector is recording a growth much more than
what was expected. Every life or non-life insurance company is looking for
ways to expand their operations in India. Insurance companies are spending
a huge amount to identify the needs of the customers and are providing a
variety of products to attract them. The top most public sector insurance
players are also identifying new ways to satisfy the needs and will be
competing with the private players in the near future. As more new players
enter the fray there will be ample scope for growth and the industry will
become highly competitive.
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Chapter No: 4
THE NEED FOR INFORMATION TECHNOLOGY IN
INSURANCE
The rapid innovations in the field of information technology and
communication technology have posed serious challenges for the insurance
industry in India. The use and application of information technology in wide
variety of insurers operations has now become strategic in the sense that it
has direct impact on the productivity of resources, and a sweepening impact
on reducing the cost of various activities.
With the arrival of private insurance players, the competition has
become more intense and an important role is being played by insurance
sector. Even though the use of information technology is not new to the
insurance sector, yet we may find tight compartmentalization regarding the
use of information technology in various departments of the insurance
companies including the major players since last 50 years. The most visible
of these departments are accounting, policy issue and servicing, claim
processing, sales management etc.
Therefore the imperative for all insurers, especially LIC and GIC is
to build up an efficient interface between the various departments and
segments. This would reduce the paper work, improve efficiency of service
delivery and provide competitive advantage to the insurance companies.
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Technologies for Insurance:
There has never been a time when the effective use of information
technology has been more crucial to the success of the insurance industry.
The insurance markets are being revolutionized by technology at a high
speed pace. IT and software solutions, allowing cross-border trade to
become electronic and paperless, are increasingly on offer to importers,
exporters, shipping companies and financial institutions. Following
technological advancements can really enhance the performance of
insurance companies.
Database Management Systems:
The principles of tracking and measuring responses can pay off for
the conventional insurance industry. To find more clients, insurer needs to
consider many factors, including lapsation, cash value, premium and
competition. But the need to record and study the characteristics of
persistency the length of time we retain policies, customers and agents is
most important for insurance companies.
In order to find out profitable combinations of households or clients,
products and agents, a database with five to ten years history is of immense
importance. Such historical retention was prohibitively expensive in the
past. But the clear advantages of new PC (Personal Computer) and RISC
(Reduced Instruction Set Computing) technology gives companies power to
keep tens of millions of policies on a device with thousands of bytes of data
per policy / client / agent. Analyzing a 10 year database is not effective.
Reviewing the database provides information on how many clients have
23
actually migrated not just how many policies have lapsed or surrendered.
Using database technology companies can get a comprehensive,
performance, loyalty, and lost opportunity.
Data Warehouse:
Data warehousing technology is based on integrating a number of
information systems into ‘one stop shopping’ database to achieve vision of
making company national in scope, but regional in focus. Traditionally, the
sale of policies and the claim settlement are two separate areas for the
insurance companies. Data warehousing allows managing by profit levels
with an integrated approach rather than by limiting losses. Data mining can
be used as means to control costs and increase revenue resulting in
enormous earning for effective users.
Decision Support Systems:
The path of business applications of computers, computer based
information systems (CBIS), encompasses many stages including the very
early applications like transactions processing systems (TPS) followed by
the management information systems (MIS). The computer applications like
decision support systems (DSS), expert systems (ES) and executive
information systems (EIS) are still awaited in insurance business. Office
automation (OAS) happens to be continuously ongoing, dynamic process for
any business. Companies to utilize decision support systems by
implementing data warehouses that pull information from existing legacy
systems into a customer information database. Such decision support
systems will equip the insurance managers with ability to allow for
24
customized products and services that are more in line with what customers
want.
Group Linking Software:
Group-linking software enables sharing of information and
particularly suits document heavy insurance business. Tracking of policy
application shows how information that is input and accessed from a number
of locations can increase efficiency.
Imaging and Work-flow Technologies:
The proposal forms may be scanned into an imaging system; data
may be extracted for update to computer and for automated underwriting
workflow may be implemented.
Mapping:
Insurers to meet different needs, such as identifying loss prone areas or
geographic claim analysis, can use mapping technology. It helps the insurer
to analyse the extent of its network i.e. the insurer can determine whether it
has too many or too few agency force in a particular area.
Call Centre Technology:
Good customer service is a crucial element in gaining, maintaining
and retaining profitable customer. Call centre concept based on interactive
voice response services (IVRS) is gaining importance in this aspect.
Employees based the primitive concept of call centre on an enquiry system
providing information services to customers through telephone line answers.
25
The totally automated computerized exchange but lacks in flexibility i.e.
only predefined queries are serviced.
Video Linking:
A video linking facility between two remote units of an insurance
company or between an insurer and a broker allows underwriters at one
place and brokers at other unit to discuss risk inherent in a proposal face to
face.
Cat Models:
Catastrophic models use data from the recent spate of natural disasters
that helps develop more predictions of insurer’s property exposures in future
disasters. Using this data curious “what-if” scenarios of probable maximum
loss (PML) using the best estimate available at an insurers exposures are
tested. Finally an underwriting policy that limits the company’s exposure to
catastrophic losses is implemented. Intranet is the network connecting
different offices of the same business to permit the internal data within the
business.
Extranet is a network allowing the business to communicate with
business partners like suppliers, vendors, banners, regulations etc. on the
electronic channel. Internet is a global network of many computer networks.
Any user, who would like to exchange some information with other user at a
remote location, can log into the computer of Internet provider via modem or
an Internet access CPU (IAC). The Internet and online service providers are
providing opportunities to create new forums that can be utilized by
everyone worldwide. Insurers can browse through many useful sites on the
Internet.
26
IT Applications in Functional Areas
Even though the information technology in all the spheres of the
insurance business, yet following are the most important ones in respective
functional areas.
Marketing:
The scope for use of Information Technology in marketing function is
tremendous. It may start from the consumer acquaintance to an insurance
product to claims settlement or further selling of new products or developing
consumers for the products.
Information technology can be integrated with almost all the P’s of
marketing. It may help in formulation and implementation of various
marketing strategies including pricing, promotion and customization
strategies. Some of these areas are discussed below.
Customer Awareness:
The use of Information Technology may be path breaking for the
insurance companies since conventionally the awareness of the insurance
products in India is low. With the use of Internet the information about the
products and pricing policies can be made available to the public in few
seconds and much transparency in operations can be established. There are
numerous websites available which can help the prospective customers to
compare the insurance products of various issuers and decide the product
suited to his needs. Also, the information about the new products changes in
27
the existing ones and of course, the information on various discounts and
incentives can be provided at a much faster rate and lower rate.
Customer Services:
The insurance being a service needs high concerns in terms of services.
Customer service requires maximum attention and should span the entire
gamut of activities in the purchase of a product i.e. right from the
dissemination of information, documentation to policy administration and
claim settlement. The service quality standards of the new private insurance
players have posed a threat to the giants viz. the LIC and GIC. The
investments in the personnel and knowledge systems have helped private
players companies build significant domain expertise.
1) Market Research
2) Consumers targeting and segmentation
3) Customizations of products
4) Easy procedures like premium payments, claims settlements,
tracking of brokers and agents
5) Complaints management / grievance handling
6) Intermediary analysis.
Finance:
Information technology can be effectively used for internal
management viz. Accounting, treasury management, financial performance
reporting etc. and as well as in resource mobilization, portfolio management,
investment planning etc.
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Human Resource Management:
Application of IT in Human Resource Management is obvious. It can
be effectively utilised in
1) Recruitment and selection
2) Training
3) Performance Apprisal
4) Promotions, transfers and dismissals
5) Valuation etc.
Research and development:
R & D has been made an easy task with the increasing use of IT.
Surveys and research on market potential, analysis of markets, tracking with
international norms and developments are the profound areas of IT
applications.
The various applications of information technology in life and non-
life insurance companies broken into identifiable areas are given in annexure
30A.
29
IT Department In An Insurance Company
Functions:
The IT department in an insurance company performs the following
functions:
Provision of hardware and software resources.
Adoption of latest technologies for competitive advantage.
Training of employees – at operating, head and controlling offices
on office automation and networks.
Advise the top management on Business Process Re-engineering
(BPR).
Develop, maintain and implement insurance related application.
Maintenance of networks.
Technology Manager:
Evaluation and acquisition of new technologies in hardware,
software, networking and packaged solutions.
Recruitment and supervision of system and network engineers
Conducting of various training programmes
Systems Manager:
Systems analysis and design
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Functional specifications
Development of application and user manuals
Assignment of work to project leaders, system analysis and
programmers
Evaluation of studies
Network Manager:
Network Administration
User administration, systems security, e-mail etc.
Controlling and supervision of network administrators
Operations Manager:
Maintenance of hardware
Job scheduling, backups and file control
Assigning work to operators and DEOs
Training of users
Controlling of data flow
31
Chapter No: 5
Applications of E-Learning In the Insurance Sector
Employment in the insurance industry today requires
multiple skills and needs constant learning and
training. E-Learning is an ideal method of learning
for agents who are in the field all the time.
Some industries and markets, which are tech-savvy and have quickly
embraced e-learning, have certain characteristics. These characteristics are
linked to the advantage that can be gained from e-learning. The most
tangible advantages of e-learning are:
Faster, focused and economical learning with minimal lead time;
Consistency, timeliness and repetitive learning, possible at minimum cost.
Transcending geographical barriers, business groups and segments.
To impart continuous and constant training to a large number of
personnel employed by the insurance companies, resorting to e-learning is
must to sharpen their knowledge and skills, so that the employees can work
tactfully and be more productive to the companies. When the relevance of
e-learning is assessed, it should be done in terms of the people who can
adopt e-learning. The business functional areas where the application of e-
learning can be highly useful include new business, policy management,
customer management, claims management, reinsurance, etc. The support
functions include accounting, certification of agents and employees,
32
handling, etc. The e-learning activity in the insurance industry covers all
segments of people-employees, agents, partners and customers.
Agents are the primary channels for selling insurance. Hence, training
of agents is a high priority. E-learning is an ideal method for agents who are
spread across the country and are in the field all the time. Employment in
the insurance industry today requires multiple skills and need constant
learning and consequently the bottom line. This training has to be achieved
cost-effectively. Fro an insurance company to introduce online initiatives
like marketing, claims, settlement and self-service, the customer has to be
technology receptive. Customer education can decrease the incidences of
risk in many areas. For example, and online risk management tool can help
corporate customers with increased risk prevention and risk control
techniques resulting in reduced loss occurrences. Business associates have
an important role in the marketing and servicing of insurance. Training of
such partners is essential for insurers to maintain excellent service levels to
the customers. E-learning is the most feasible and practical method to
educate the customer and the business associate.
According to a study conducted by the Internet and Online
Association of India (IOAI), the online consumer’s B2C transactions in
India, during the fiscal year 2004-05, amounted to Rs. 5.70 bn which shows
a dramatic increase over the previous fiscal year. The study estimates that
this figure will reach Rs. 23 bn by the fiscal year 2006-07. The number of
Internet users is also expected to increase by four times by March 2007. It is
well-known that computer education has been made compulsory at the
School level so that every child should be computer literate. E-
business is helping Indian organizations to integrate better with the global
markets. To encourage B2 insurance transactions, employees must be
33
educated with regard to various e-learning applications so that they, in turn,
can help the public in general to get the required information and other
details they are interested through the e-learning processes.
Business Benefits of E-Learning
The benefits of e-learning can be categorized as follows:
Benefits to Agents:
Reduced lead time to market new products;
Learn and earn without losing customer facing time;
Continuous upgradation of education at their own pace helping their
career path;
Update on regulatory changes or competitor information, giving the
marketing edge;
Ideal method to overcome inability and aversion to classroom session;
Potential to move into an interactive mode for feedback and resolving
customer issues.
Benefits of Employees:
Employees have to be updated with all changes in the policy plans and
processes to provide efficient post-sales service to their respective
customers.
High level of motivation, leading to good service and high
customer retention;
High level of accuracy in work due to constant upgradation of
skills and knowledge;
Consistency in work across the organization;
34
Saving on lost revenue and productivity when people are away
from workplace.
Benefits to Customers:
E-learning is the most feasible and practical method to educate the
customer, providing tangible and intangible benefits.
An educated customer is open to technological innovations and
receptive to online tools that reduce customer service costs;
Reduce incidence of losses and claims;
Increase knowledge and awareness about products and quicker
and more efficient making.
Benefits to Business Associates:
Business associates need constant training to be on the same
frequency as that of the Parental company and it is not feasible to get that
sort of training by way of traditional methods of classroom. What is ideally
required is:
Better interface with customers;
Avoiding gaps between the company and the fronting
partner;
Multiple sessions on business and systems at minimal cost.
Customer Service-Challenges Ahead:
The greatest customer service can be accomplished only when the
levels of awareness of insurance are raised in general. Unfortunately, this
has not been happening, although a beginning has been made. But a great
deal need to be done in this regard. Unless, there is a strong desire to
improve the understanding of the common public about the needs, concepts
35
and nuances of insurance, any amount of advertising would not be of much
use. If insurance is such a strong risk management tool in the developed
markets, it is only because of the understanding that people possess about
insurance. Customer service in its real sense would be deemed to have been
achieved, when the awareness of people is taken to further heights from
where other service like need-based products, investment-linked policies and
other flexible options would follow as a matter of course.
Conclusion:
To conclude, e-learning is a suitable model for the insurance industry
as the requirements of the industry match closely with e-learning concepts.
The next step will be to assess suitability from a geographical and individual
organizational perspective. Fro a geographical perspective, e-learning is
probably tougher to implement in the Asian region due to multiple
languages, smaller budgets, lower volumes of business, etc. It is a well
known fact that in India, the amount of premium towards the policy plans is
quite high as compared to European and western countries. The basic reason
is that in other countries, the policy plans are purchased and less amount is
spent by the insurance companies in selling the policy plans, whereas in
India, extensive efforts are made by the field staff of the insurance
companies to sell the policies. Another reason is that in India the
administrative expenses per policy plan are quite high as the lapsation ratio
of the policies is high, that is, policy plans are discontinued even before one
year of their purchase. However, in other advanced countries, the situation
is just the opposite; it keeps the administrative expenses low. Considering
all these factors, if e-learning is practiced and companies are resorting more
36
to B2C transactions, the administrative and selling expenses can be brought
down and the benefits can be passed on to the policyholders.
Considering the present status, we need to understand that e-learning
is yet to be accepted as a complete replacement for classroom learning, it is
rather a complementary measure. The strategy is to have an optimal mix of
multiple learning methodologies depending on the overall knowledge
management strategy.
37
Chapter No: 6
Innovations In Indian Insurance
The opening of Indian Insurance market to private players has
expanded the market & laid to experimentation in policy designs. As s part
of these, many innovations have been tried out in insurance distribution.
Aggressive pursuit of growth necessitated new initiatives-opting for affinity
& point-of-sale channels, besides rural thrust. The article focuses on these
innovations.
Ever since insurance was nationalized in the fifties, Indian life
insurance had been monopolized by LIC till the sector was opened up about
three years back. As for general insurance the market was carved up among
four government entities. LIC operated nationally through its network of
agents armed with tables & scheme details to promote insurance policy.
Economic liberalization brought in its wake multiple private players,
which resulted in competition. Indian corporate groups ventured into the
arena, armed with their MNC partners’ global expertise. Almost all major
corporate groups ventured into this market, spotting great potential for
market expansion.
Taking on LIC nationwide, well-entrenched network of agents was
going to be obviously a time-consuming exercise. LIC’s national network of
agents, guided by its team of ‘Development Officers’ has been put in place
over three decades.
Being a competitor to this erstwhile monopoly player and succeeding
in the market would mean effectively countering its field presence. Rivaling
38
that established network would definitely be a very long-term proposition.
Though all private players set up their own IRDA qualified agent networks,
they encashed on other immediately available channels for distributing the
policies.
Indian companies had a majority stake (74 percent) in the private
insurance companies. Their national reach was an obvious starting point to
spread out. Being promoted by major corporate entities, the private
insurance players were quick to utilize their promoting company's retail
presence. ICICI Prudential, for example, leveraged the widespread.
National presence of its Indian promoter ICICI. ICICI bank expanded
aggressively among private banks. Cross-selling insurance at its bank
branches did help ICICI Prudential in reaching out to a larger audience. SBI
Life also benefited from such a background.
When insurance is one of the many activities of the promoting
corporate, the entire group's businesses can be exploited. HDFC Standard
Life is a prime example for this. Spanning housing finance, banking,
securities, and mutual funds, the parent group's wide network of more than
300 combined branches provided a great platform for making effective use
of the network for its foray into insurance.
Bancassurance opened up another distribution channel for the
insurance companies. A spate of tie-ups followed, with both regional and
national banks finding eager insurance partners. For insurance firms, these
associations provided a good chance to establish their presence in different
regions, based on the bank with which they tied-up. Selective partner (bank)
choice did enable many insurance companies to advance their business
interests and strengthen their national bas2. Some regional banks such as
Lord Krishna Bank (with ICICI Prudential and Bajaj Allianz) and
39
Development Credit Bank (with Birla Sun Life and Tata AlC) entered into
tie-ups with multiple insurance players. The result of this channel's
popularity: between 15 percent and 30 percent of aggressive insurance
players' policy distributions are coming from this intermediary route. To
extract greater commitment from their bank partners and extend support to
them, some insurance companies are entering into mutually exclusive
agreements. Such agreements prohibit the partners from entering into a
similar understanding with any other organization. Om Kotak Mahindra has
such a tie-up with Dena Bank, by which the former doesn't entertain
bancassurance with any other bank and the latter also doesn't distribute
policies of any other insurance company.
Besides their own initiatives, players are also benefiting from
intense competition in other industries. In their bid to add value to their
offerings, marketers in some categories are resorting to providing
insurance cover to their customers. Vardhaman Chemicals, marketer of
ayurvedic toothpaste brand Amar, faces a well-entrenched rival Vicco
Vajradanti. Adding new variants (cinnamon and fennel seeds) and
offering a wide basket of products from low to high price points,
Vardhaman telt it wasn't enough to stir up interest in its brand. A
creative route it adopted was to tie up with Tata AIG, to offer Rs.25,000
personal accident cover with its 200 gm pack. For Tata AIG, this was a
new avenue, through an FMCG marketer. Pepsodent took a cue and
tied-up with New India Assurance for dental insurance for its
customers.
In a bid to expand the net of potential customers, companies
explored new avenues. Insurance firms entered into arrangements with
other service providers having a similar customer profile such as credit
40
card companies, travel houses and telecom service providers. For the
service providers, the insurance company tie-up is a service
enhancement to their customers that differentiates them from their
competitors. Insurance companies benefit through a wider reach for
their products.
Credit card holders represent an option in both directions -
distribution of policies and premium collections. For luring more
customers into this competitive business, HDFC Bank launched a new
card (Health Plus) that was bundled with Mediclaim. ICICI Prudential
partnered Visa, which enjoys a big network of banks for collection of
premiums. In this 111utually beneficial arrangement, the former gets
access to the network of even those banks with which it has no formal
tie-ups. Visa gains through more utilization of its infrastructure, and of
course a fee. To utilize this channel better, LIC is even contemplating
launching its own credit card.
Post 9/11, inherent risk in air travel has attained higher
consciousness among tourists. Travel houses, in their attempt to get
travelers shed their inhibitions and take cover, have tied-up with
insurance providers. Galileo India, a solution provider
to travel industry, was co-opted by Bajaj Allianz and ICICI Lombard.
Innovative short-term schemes such as insuring baggage, targeting
students going abroad for their higher studies have also been designed.
Such policies targeted at students not only cover their medical expenses
but also sponsor a family member's trip to be with the student on
compassionate grounds. Moreover, options are available to cover fees in
the event of sponsor's death. Thomas Cook is distributing Tata AlG’s
travel related general insurance policy, through its subsidiary India Alive
41
Tours. Many such policies also cover the risk of falling ill and the
consequent medical treatment expenses abroad.
Telecom service providers, especially mobile players, also opened up
an avenue for insurance companies. Max New York provides a cover up to
Rs 4 lakh, to Escotel's subscribers under its Club Royale scheme. Personal
accident and hospitalization charges are covered for BPL mobile's
subscribers - thanks to an arrangement with Bajaj Allianz. lClCl Lombard
has a cover for Spice Telecom subscribers in Punjab.
A new channel has been opened up by 531 Life, through its
understanding with EPF (Employees Provident Fund) Commissioner. It has
designed a specific scheme, EDLI (Employees Deposit Life Insurance).
Though Mediclaim did establish the base for insuring medical
treatment costs, its reach and popularity isn't what was expected of it.
Hospitals are nowadays taking a proactive approach - designing health
insurance packages and approaching insurance players - opening up another
option for them. Chennai-based Apollo Hospitals and Hyderabad-based Care
Hospitals have ventured into health insurance, with the latter tying up with
National Insurance for a cover of Rs.1 lakh towards treatment expenses.
Rural Thrust:
Earlier, rural markets were looked at closely only when urban Indian
market showed signs of stagnation or saturation for many categories.
Insurance, however, is one category that's proving to be an exception. Rural
penetration is being attempted along with urban spread.
To make up for lack of infrastructure in rural markets, players are
entering into a spate of partnerships with groups operating there. While A
viva has partnered with Lakshmi Vilas Bank to reach out to rural SHGs
42
(Self-Help Groups), ICICI Prudential has tied-up with a spate of NGOs
(BASIX, Shepherd and CASPOR among others). Many of these SHGs and
NGOs aid villagers to pool their resources for everyone's benefit.
The government too, under sectoral targeting, has taken several
initiatives to spread the insurance basket to rural populace. To provide
cover to khadi weavers, the government owned KVIC (Khadi and Village
Industries Commission) has launched Khadi Karigar Janashree Bima
Yojana. Distributed and promoted by more than 30 Khadi Board across the
country, the institution and government contribute 87.5 percent of the
premium, the balance being the insured artisan's contribution.
When it comes to rural reach, post office network is difficult to
match. The department of posts, already operating its Rural Postal Life
Insurance scheme, has drawn up aggressive plane to spread the insurance
culture in rural pockets. It is expanding its portfolio of products by adding
money back & single premium policies to its existing endowment ones.
Hiring outside agents for the first time, the department is targeting a seven-
fold increase in rural premium income within four year
(it collected Rs. 101 crore premium In 2002-03).
Innovations:
Event-driven & focused target-oriented initiatives are forthcoming, as
competition forces insurance firms to experiment. Bajaj Allianz ventured to
cover Amarnath Yatra pilgrims in association with J & K bank (one of its
bankassurance partners). With large religious gatherings such as Kumbh
Mela, Puri Rath Yatra, quite common throughout the year in different parts
of the country, such covers have tremendous potential.
National Insurance has entered into agreements with the state
43
government of Haryyana, Jammu & Kashmir & Karnataka to provide
insurance to their governments employees.
To reach out to parents for promoting their children’s policies, ICICI
prudential hit off a novel medium. It tie-up with Derek O’Brien (quizmaster
of Borvita Quiz contest & Brand Equity Quiz ) to facilitate access to parents
of children studying in selected schools in 25 cities. Derek runs programs
‘KQ Schools Advantage’ that impart soft skills to student of schools that
enroll themselves. Due this link, ICICI prudential gains a foothold into
homes of students some 300 schools nationwide for it Smart-Kid policy.
With the growth in new channels & competition opening up more
alternative intermediaries, The share of agents contribution to insurance
companies sales will progressively come down. Already, alternate channels
contribute about 20 percent as much as 25 percent for some players, with
Birla Sun Life crediting 24 percent of its insurance business to alternate
channels.
44
Chapter No: 7
Past and Present for a Bright Future
Technology plays a vital role in today’s market. Business
intelligence involves arrangement of data that is needed
for taking strategic business decisions like launching a
new product for an insurance company by investing
huge amount, time and other resources. The article
explains how business intelligence could help insurance
companies to develop new and innovative products and
attain competitive advantage.
Insurance Industry
India is a great market for all products. With diversified culture and
preferences, diversified needs and changing trends, and increasing salary
made India a successful market globally. The insurance sector in India was
valued at nearly US$10 bn in the year 2005 and is now growing at a greater
pace.
With a big giant called the LIC, which by itself is a company formed
by enforcing an act called the Life Insurance Corporation of India Act of
1956 is a huge consolidated entry. Now with more number of insurance
companies having proliferated the life insurance industry in India, there is a
need for more innovative marketing scrategies, consolidation, new
distribution networks like bancassurance, brokers and more qualified agents
for its consistent growth.
That political system in India is very skeptical about the fact that
whether more participation by the multinational giants and more investment
45
by them in the form of capital can actually question the ethic of the industry
thereby destroying the local players and pave the way for videshi market in
India again. But it is true on our part to accept the new entries have actually
changed the rules of the game in the insurance industry.
One such change that has made a huge positive impact in the minds of
Indian consumers is the product innovation by the insurance companies.
When we had a monopoly era in the Indian Insurance market, insurance was
just a risk-cover mechanism. People also looked at the insurance agent as a
messenger of evil who threatens one by speaking about the perils of life and
ask them to safeguard against such perils. But now insurance plans are
perceived more of an investment plan that gives risk cover, tax benefit and
even good returns. The insurance advisors or financial consultants or
financial planners are now considered as true professionals.
Historical Data
The insurance company needs to study historical data like its past
performance, claims obligation in a specific market, premiums mobilized,
sales performance, etc.
Current Transaction Data
The insurance company also needs to understand its current stand and
performance by analyzing the current data, like do we have enough cash
reserves, how much can we allocate in marketing, which is our successful
channel partner for distribution, and do we have enough sales force to sell
this product.
46
Such information is available from the On-Line Transaction
Processing (OLTP) systems like;
1. HR management system.
2. Sales management system.
3. Channel management system.
Flat Files or Unorganized Data
The insurance company also needs to collect necessary data from
other companies, like their portfolio performance, research reports,
successful fund management, threats and opportunities, etc. Once we have
said that insurance is more seen as an investment plan it can also face
competition from mutual fund companies and real estate companies also.
Necessary data is available in their websites in an unorganized form and
such data are called as flat files.
Sources of any Data Warehouse
We have certain problems or challenges rather when we try to take
data from the sources directly. This is because we have various formats,
various names for data say your customer information can be client name in
premiums administration system and customer name in sales management
system and just customer with a flat file.
The other major challenge is to retrieve data from multiple
technologies. One part of your processing of core operations is done directly
by the insurance company and uses ORACLE as the database. Assume the
marketing operations are outsourced to another company and it uses DB2 as
the database. A query to retrieve data from ORACLE is totally different
from a query to retrieve data from DB2.
47
So taking such issues in mind we form a centralized database, which
stores all the necessary information from day 1 till date and all data from flat
files to operational files. It is an enterprise-wide repository of data and we
call this giant database as a data warehouse and hence the sources of a data
warehouse of an insurance company or any warehouse for the matter are
operational databases, historical data, external data like in newspapers and
flat files.
Assume that we have formulated a data warehouse for an insurance
company (for the other issues in constructing a warehouse is beyond the
scope of discussion in this article).
We now focus on the various types of reporting needed and remember
these reports are developed by OLAP reporting tools such as Cognos,
Business Objects, or Crystal reports available in the market. These tools
will use our data warehouse as their source of information.
OLAP Reporting and the Options Available
There are various options available that distinguishes an OLAP
reporting tools from that of a normal reporting tool.
All the basic options of formatting, conditional formatting, prefixing,
and suffixing is available in these reporting tools also. But beyond that we
have certain key options, which we will discuss now.
Score Carding
Score carding is the advanced reporting wherein we try to analyze the
key performance indicators of our business. One key performance indicator
can be sales volume.
* What is the sale volume generated by client X.
48
* What is the sales volume generated by channel X.
* What is the volume generated in the month of September by client X.
* What is the sales volume generated in the month of September by channel
X.
These key performance indicators are kept in a table called fact tables
in data warehouse and other information such as customer channel are kept
in dimension tables. The key performance indicators is analyzed from the
purview of multiple dimensional data and is called as multi-dimensional
analysis.
Drilling Up and Drilling Down
The OLAP reporting tool let us drill down from a level say sales
volume in children insurance plan in 2005, Q1 of 2005, January month of
Q1 of 2005, first week of January Q1 of 2005.
Thus, a BI reporting tools gives an in-depth analysis of data. Also
you can drill up from the level to sales volume 2005 the uppermost level.
Drilling Across
There are also means of drilling across in the same level like sales
volume competitive analysis in 2004 and 2005.
Automated Generation of Reports
A BI tool also allows automated generation of reports. Say if you
want to see month-end premium collected reports you can format is with all
your necessary data with the help of scheduler options can also schedule
your report to run every month-end.
49
24x7 – 360 Degree Analysis
OLAP reporting tool can also be Web-enabled and this makes the
employee of a company to access the corporate data anytime and from
anywhere in the globe. It also helps in complete analysis also called as 360-
degree analysis and a proper complete analysis results in effective decision.
Another study by Gautam and Ray done at The Ohio State University shows
that implementation of Web intelligence and information technology results
in a firm getting a competitive advantage.
Conclusion
Such advance options available in BI allows any company, in our case
an insurance company to do all complex analysis with all necessary
combinations of data and arrive at a better understanding on how the new
product should be. With business intelligence implemented companies of all
nature have a better chance of winning a competitive edge.
50
CASE STUDY
EVENT INSURANCE
Insurance Industry Supports Soccer
Once every four years, they say, comes the mother of all distractions,
the Soccer World Cup. It marks the beginning of a very special sporting
event-the quadrennial soccer tournament, where 32 teams compete for the
world’s most popular trophy. Overall, there will be 64 games is 12 different
cities, culminating with the final in Berlin on July 9. According to FIFA,
over 37 billion people (cumulative) watched the France 1998 tournament.
The numbers are expected to be much greater this year.
For every host of a major sporting event, the business of insurance is a
great challenge. The presence of the insurance industry will be evident
throughout the event as so many matches in the differing venues post both
security and other risks. The possibility of insuring a mega event like the
Would Cup against all risks including cancellation is quite remote. The
organizers have covered a large number of risks-but there are limits.
According to Swiss Re, a major insurer for the tournament besides
others, the World Cup and the Olympic Games are the most heavily insured
sporting events. The broadcasting rights alone will have an estimated value
of CHF2bn ($1.66 bn). There is also a great deal of anxiety with regard to
security. Germany’s Federal Bureau of Criminal Investigation has classified
21 of the 64 matches as “high risk”. The security problems range from
hooliganism to outright terrorist threats.
51
Both the local organizers and FIFA have purchased cover. It ranges
from protection against the risk of a terrorist attack or cancellation due to
some reason or the other. Moreover, other traditional risks such as the
organizers liability also have to be covered. The German organizers have
purchased protection for postponement and for total
cancellation/abandonment from a whole consortium of insurers. The value
of the cover is approximately €150 mn.
Liability cover up to €140 mn was also purchased to cover damages.
Accident covers have also been taken for indemnifying spectators in the
event of their death or disability. Additionally, in 2003, FIFA issued a
catastrophe bond worth US $260 mn to cover the risk of cancellation. The
bond covers the marketing income that FIFA would have to refund if the
matches in Germany were canceled due to natural calamities or terrorism.
For major sporting even such as the Would Cup 2006, a large
proportion of the revenues are generated by television broadcasting rights.
The value of these rights could be a whopping CHF2 bn. Naturally, such a
huge sum cannot be left uninsured.
The interest of FIFA and the local event organizers are not example, if
the World Cup is rescheduled or held in a different location, FIFA is not
likely to suffer any large loss as long as the event is rescheduled, the large
loss as long as the event ultimately takes place. However, if the event is
rescheduled, the local organizers incur additional costs and if it is held in
another location, they may sustain a total loss.
Each insured party therefore, has his own needs for coverage, and the
assessment is entirely exclusive. However, one important aspect to be noted
is that mega events like the FIFA World Cup are always covered by a whole
group of insurers and re-insurers who share and distribute the risk.
52
Against this backdrop, it is no wonder Hamburg-Mannheimer
Verisicerugs-AG, the German insurer is not only the event’s official insurer
but also one of the major national sponsors.
53
The Risks of Insuring the 2006
FIFA World Cup
The 2006 FIFA World Cup is a mega event. Billions of euros are at
stake. The event will be watched by millions of people all over the world.
Being such a high profile event it throws a myriad of risks. Right from the
world cup soccer trophy made of solid 18 carat gold to an incident such as a
carelessly installed flood light falling and injuring a player, has to be
insured. The risks involved could be disruption, cancellation, theft of the
cup, personal accident to the ticket holder, liability, bad weather,
infrastructure breakdown, hooliganism, threat of terrorism, etc. The article
deals with the various risks and the steps taken by FIFA and the host country
to insure these risks.
Football is a game in which a handful of fit men run around for ninety
minutes watched by millions of people who could really use the exercise.
Football at one time was just a passion of Europe’s industrial working
class. Today, its craze has spread all over the world and the game has
become an expression of a true global community. The play has become an
hotter over the years involving not merely elbows, toes, keens, shoves,
kicks, hard landings but also skillful and pleasing to the eye passes, over the
head scissor kicks, nimble foot work and deft little turns.
On July 9, 2006 the day of the finals about one in every five persons
on this earth will be glued to their television set. The viewers would be as
diverse as rich and poor, African and Asian, Islamic and Christian, black and
white and every other possible human mix-as noted by the Time magazine.
54
This article is not about the pleasures of this spectator sport. It is
more about the world’s greatest sporting event from the perspective of risks
involved and the steps being taken by the organizers to manage them.
A man of many words, Winston Churchill once noted that “If you
have an important point to make, don’t try to be subtle or clever. Use a pile
driver. Hit the point once. Then come back and hit it again. Then hit it a
third time-a tremendous whack.”
The point one would like to make “Is it possible to conduct a mega
event like the Quadrennial World up without insurance cover?” The answer
would be an emphatic, “No” Let us start with the Would Cup soccer trophy
itself. It is made up of solid 18 carat gold. Its disappearance or loss would
cost the insurer 350,000 euros ($440,000). The trophy is not the lone risk. It
is just one of the numerous risks covered by the official insurers, Hamburg-
Mannheimer. The coverage includes the tournament’s organizers, the
sponsored car convoy (900 Hyundai cars) and also the spectators at the
various stadiums. The exact premium amount the insurers will be paid to
provide the cover has been closely guarded.
For a purchaser of the World Cup ticket, the insurance package is a
personal accident cover that pays out 15,000 Swiss francs ($12,440) if the
ticket holder dies from an accident in any one of the stadiums where the
World Cup matches are conducted. In case, an injury renders the victims
invalid the payment would be 100,000 francs.
The insurance coverage also includes liability, contingency and
property insurance.
The risks involved are injury, team travel risks, absenteeism, brand
reputation, prize promotion, win bonuses, hooliganism and the big risk of
cancellation. It is beyond the scope of this article to cover all the risks. I
55
propose to deal with the bigger risks viz. Cancellation, terrorism, epidemic
and injury to the players.
The Big Risks:
Post September 11, 2001 any big event has to operate in a changed
world. As of today nothing can be much bigger than the FIFA World Cup
2006. September 2001 and thereafter, terrorist organizations have caused
mass casualties on innocent populations. These high profile strikes have
sent shock waves around the world. The World Cup, which will be a mega
event, offers the potential to be a probable target for those who align
themselves with the radical Islamic and other terrorist networks.
The trophy is Vulnerable to Theft
One version of the trophy had disappeared in the 76-year history of
the event. Called the Jules Rimet Cup and made of gold-plated silver, the
original trophy, was hidden in a shoe-box during World War II. It was
stolen at an exhibition in London in 1966. A mongrel dog, found it in
garden a week later.
After winning the trophy for the third time in 1970, Brazil earned the
right to keep it. In 1983, the cup was exhibition at Rio de Janeiro. This time
the cup disappeared forever.
For the insurer, the big risks would arise from TV broadcasting, the
World Cup’s biggest source of income. As against the loss of few millions
in gate sales, the losses to the broadcaster can run into hundreds of millions.
To exemplify, the 1980 Olympic Games in Moscow which took place at the
height the cold war was the costliest sports event for the insurance industry.
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Broadcasters and others filed claims to the tune of €75 mn for the
advertising revenue lost as the games were boycotted by most Western
countries.
Another big risk in the current soccer world cup emanates from
liability insurance. If, for example, a carelessly, installed floodlight falls and
injures a player, the insurer would have to cough up his loss of earnings for
the rest of his career if the organizing committee is held liable for the
accident. To diversify such risks, the insurer Hamburg-Mannheimer is
cooperating with Allianz AG, Europe’s biggest insurer.
The World Cup is a mammoth project in which the Germans have
invested about 1.4 bn for a period of one month. Nobody would even like to
dream about the cancellation of such a major event but there could be risks
that could threaten the event. Topping the list, as per AON, a major insurer
in the UK is a major terrorist attack or pandemic threat.
Absenteeism
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Unlike the last World Cup in Japan and Korea, many of the matches
this summer take place at the end of the 9-5 working day. Experts reckon as
many as one is seven men (and one in 20 women) might phone in ill / sick to
watch or recover from match-related drinking the right before.
According to estimates by a UK-based accounting firm, British stand
to lose 500 million pounds this June due to World Cup related sick leave and
post-match sluggishness. This figure is expected to rise if England makes it
to the final rounds.
Dutch firms are insurance themselves against workers who stay away
en masse. Sez Assurantie, a Dutch insurance company, recently launched a
new insurance policy allowing employers in the country to insure
themselves against the sudden rise in applications for sick leave expected
during this month’s World Cup. The company has choose to offer a new
product for short absenteeism.
Whoever has a major financial stake in the event will take event
cancellation cover. This list will include not only FIFA, the local organizer
and the corporate sponsors but also local hotels and the makers of
commemoration mugs, t-shirts, footballs, sportwear and flags. In spite of the
cover the best protection against cancellation will be proper risk assessment
and risk management. The organizers have spent considerable years fine-
tuning their security plans to prevent a possible terrorist attack.
Even the German Minister of Health started preparing for the World
Cup 2004 itself. The Robert Koch Institute insisted an enhanced nationwide
infectious disease supervision campaign. Influenza will be on top of the
agenda. Also on the priority list will be the H5N1 stain of avian flue given
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the recent epidemic across Europe. The Institute is also on the look out for
other deadly diseases for example, the raging chorera epidemic in Angola as
foodball teams and fans congregate in Germany from around the world.
According to expert in event risks, insurance companies have
traditionally looked at factors like weather, political risks and risks arising
out of terrorism. The World Cup bearing one of the world’s most high risk
sporting event, it is natural for the hosts and FIFA to make it a trouble free
event.
The Risk of Cancellation:
Probably, the biggest risk to all the parties – fans, organizers,
sponsors, local and associated business – will be the risk of cancellation. It
can come in the form of interruption or cancellation of matches due to
terriorist threat, infrastructure breakdown or inclement weather. Fears also
exist over troublesome crowd behavior mostly from European hooligans.
When insurers shied away from managing the entire range of risk from
cancellation, FIFA had to seek cover elsewhere. It approached the financial
markets to cover the risk. To protect against cancellation of the tournament,
in October 2003 it issued so-called catastrophe bonds worth $260 mn. The
bonds' principal will be paid back to the investors on September 2006, if the
World Cup is successfully concluded.
Fan Insures Himself
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A football fan has taken a £ I mn insurance policy to cover himself
against the pain of seeing England defeated in the early stages of the World
Cup. The fan has paid £ I 05 for a World Cup All Risks Insurance policy
through the insurance broker britishinsurance.com. The fan said he had
taken out the policy to compensate for the agony of watching England lose
in the early stages of the cup. He insured himself against psychological
trauma.
The pressure of the World Cup, it is said, is not just on the players,
coaches and managers. The supporters are also under tremendous pressure
and suffer because of their nation's performance.
If England is defeated in the first round of the competition the insurer will
turn to five sports commentators to judge if its exit is premature. The fan
will then have to provide medical evidence showing that he has suffered
from severe mental tension to get his seven-figure claim amount. The policy
however, does not cover the team's failure to march to the next round as a
result of players being out due to metatarsal injuries.
The local German organizing committee has also gone the
conventional way and paid €5 mn in premiums for a contingency insurance
provided by Hareburg-Mannheimcr and backed by other insurers including
AIG Europe. The contract provides cover to the extent of €158 mn in case
the World Cup is postponed and has to be held later in another country.
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The Primary Insurer
Hamburg-Mannheimer Versicherungs-AG is the main insurer. The
insurance company is owned by the reinsurer Munich Re. Hamburg-
Mannheimer is said to have paid FIFA the soccer ruling body € 13.5 mn for
the rights of being the exclusive insurance provider for the World Cup in
Germany. The company is not only the tournament's official insurer but also
one of the official suppliers/National sponsors to the 2006 FIFA World Cup.
Hamburg-Mannheimer is not new to event insurance. It insured the
2004 European soccer championship in Portugal. For the FIFA World Cup
in Korea/Japan in 2002, Hamburg-Mannheimer had provided the FIFA with
a television contingency insurance. It also intends to cover the World
Handball Championships in Germany in 2007.
Hamburg-Mannheimer Sports GmbH also offers tailor-made
insurance solutions to professional teams besides organizing groups of major
sports events. For instance, it insured the German national team at the
European Championship 2000 and the World Cup 2002. The range of
services the insurer will be providing to the 2006 FlFA World Cup include
organizers' third party insurance, financial liability insurance. accident, legal
travel and electronic systems cover.
However, terrorism, as a reason for postponement of the tournament
obviously is not covered. In case of terror-related claims, Hamburg-
Mannheimer only provides cover via the liability insurance it has sold to the
German organizing committee. The insurer will not honor the claim if the
committee acts carelessly, for example, not searching the fans properly to
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check if they arc carrying hidden bombs.
As is the wont in property and casualty insurance, almost all the
insurers have been excluding terror related claims from their coverage post
September 11. The only option for [he stadium owners has been to buy
terrorism-related property insurance from specialized insurers like Extremus
Versicherungs-AG, a Cologne-based terrorism-insurance venture set up in
collaboration with insurers like Allianz, Munich Re and Swiss Re. Five of
the 12 World Cup stadiums are being insured for terror related property
claims. The remaining stadiums have to do without cover for terrorism-
related damages.
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The Injury to the Player Factor:
Football is an injury prone game. Metatarsal injury is relatively
common. Other frequent injuries include ruptures of the anterior cruciate
ligament, hamstring strains and injuries to the Achilles heels. When a player
is' injured the club not only loses a player but also big money. To obviate
these risks few football ? associations take insurance to cover their players
released for national duty This cover helps indemnify the clubs for the
player's weekly wages and professed marker value if they return injured
from the World Cup.
A few European sides and many developing nations have no such
cover. These clubs stand exposed should their players be injured while on
national duty. There are demands on FIFA to take a global insurance policy.
This would ensure adequate compensation to clubs if their players are
injured during the world cup or at other international tournaments. The G 14
group of the elite European clubs has already initiated legal action against
FIFA over this issue. However, there is a concern that this insurance would
be beyond the means of some countries.
The present regulations have put the insurance responsibility on the
clubs. The regulations also say that the national team should ensure that the
player is decently insured. FIF A has introduced a special insurance pool to
cover the costs if a player is injured at the World Cup. It amounts to 15 mn
Swiss francs/ $12.5 mn or 5% of the tournament's prize pool. This sum is
unlikely to appease the clubs, as they feel it is a mere pittance compared to
the $2.3 bn FIFA is expected to earn from this World Cup.
2006 World Cup will be a testing ground to establish a fund for the
players that would cover all competitions. The endeavor is to find a
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mechanism that ensures that all players participating in international
competitions are adequately insured.
Player versus player liability cover in the event a player injures
another in a reckless tackle is also an issue but its cover is difficult to secure.
Despite the risk factors, the wave of enthusiasm for the FIFA World
Cup 2006 all over the world is awe -inspiring. Thanks to the support of the
insurance industry, one of the greatest shows of this decade is on a firm
footing.
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Conclusion
The insurance sector is recording a growth much more than what was
expected. Every life or non-life insurance company is looking for ways to
expand their operations in India. Insurance companies are spending a huge
amount to identify the needs of the customers and are providing a variety of
products to attract them.
The top most public sector insurance players are also identifying new
ways to satisfy the needs and will be competing with the private players in
the near future. As more new players enter the fray there will be ample scope
for growth and the industry will become highly competitive.
Considering the present status, we need to understand that e-learning
is yet to be accepted as a complete replacement for classroom learning, it is
rather a complementary measure. The strategy is to have an optimal mix of
multiple learning methodologies depending on the overall knowledge
management strategy. With business intelligence implemented companies of
all nature have a better chance of winning a competitive edge.
65
INDIAN INSURANCE INDUSTRY
Entering the Big League of Global Insurance
In a candid interview to Insurance Chronicle IRDA
Chairman, C S Rao, IAS (Retd.) says the insurance
industry is expected-to have a great future in our country.
Given the potential India has, the industry is going to grow
rapidly.
1) What is your outlook for the insurance industry? Will 2007 mark
India's entry into the big league of global insurance? Where do
you expect the penetration: levels to be by 2010? At what rate is
the insurance sector (life and non-life) expected to grow in the
next 10 years. Do you foresee any big change in the reinsurance
industry in the country by that time?
The insurance industry is expected to have a great future in our
country. Given the potential India has, the industry is going to grow
rapidly. The detariffing of general insurance in 2007 is going to be the
beginning of an important changeover in the history of general
insurance in the country. India is gaining a significant position in the
emerging markets and it is a question of time before India can enter
into the big league of global insurance. Penetration levels would
increase substantially in the coming years as greater savings and
material development will necessitate more insurance buying. Service
and prices will be highly competitive enabling consumers to buy
insurance for all their needs. Growth in the life insurance sector is
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expected to increase substantially. In the non-life sector, in a
detariffed scenario, volumes may even fall initially but it would be a
question of time before the market forces stabilize and the sector
expands. Substantial increase in insurance would no doubt have an
impact on reinsurance as the insurers have to hedge their risks.
2. There is talk about an insurance pool being created under the
aegis of the regulator and GIC Re. Will it help ward off the
apprehensions of the transporter community?
The pool mechanism is under consideration. It is intended to be
a consumer-friendly measure against the possibility of a very high
premium for Motor Third Party Insurance or denial of cover in respect
of vehicles having high claim ratios.
3. Is the insurance market in the country ready for the
detariffication scenario with effect from January 2007? The
grapevine says that the regulator is not going to stick to the
January 1,2007 deadline. Is it true?
The road map to detariffing was announced as long back as 15
months ago and since then the insurance industry has been working
towards getting ready for the whole exercise. I believe the industry is
not only ready but is looking forward to it.
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4. Can you throw some light on the reporting system to be
introduced with effect from January 1, 2007 to ascertain the
solvency of the insurance companies. Will this initiative take away
the freedom of decision making from insurance companies? Are
the Indian insurance companies meeting the stipulated solvency
norms or are they short of the fiat issued by IRDA?
The reporting systems regarding solvency margins have always
been there and it is not going to be different from January 1,2007. I do
not see any connection between this and decision making within the
companies. Insurance companies are mandated to maintain the
required solvency margins and where companies fall short of the
stipulations, the IRDA would step in to give the necessary directives.
C S Rao, Chairman. Insurance Regulatory and Development
Authority. India joined the Indian Administrative Service in 1967.
He worked as a generalist administrator and was involved in the
implementation of various developmental activities at the district and
State levels in the first decade of his years in the Administrative
Service. He later worked in the Finance Department at the State level
in various capacities rising to the highest level of Principal Secretary
to the State Government in the Finance Department. He later moved
to the Government of India and worked in the Ministry of Finance as
Secretary. Department of Expenditure and as Secretary Department
of Revenue. He retired from the government after 36 years of service
in the year 2003. He was then called on to I head the Insurance
Regulatory and Development Authority as its Chairman.
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5. What is the path the regulator is embarking upon for itself in the
days ahead? Will it be more and more regulation?
The regulator has never advocated more and more regulation. In
fact, we have always been encouraging self-regulation which is
reflective of a mature industry. Considering the changes, the industry
is going through in our country, I would advocate a right balance
between regulation by the authority and self regulation by the
industry. In certain areas such as micro-insurance or health, perhaps
the regulator could play a role to bring about a greater focus but in
certain other areas such as market conduct of intermediaries, etc., self-
regulation will go a long way in helping the industry develop in a
professional way. I have always held that the industry should behave
in a manner that does not give scope for regulatory intervention.
6. Has the regulator witnessed any questionable practices or market
misconduct among the players in the country's insurance sector?
If yes, what is the action contemplated?
In any industry, the chances of market misconduct are always
there. Cases of market misconduct are dealt with by the regulator in
terms of the provisions of the substantive legislation and applicable
regulations.
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7. What is the status of data mining in the insurance industry? Do
we have a repository of accurate data to help scientific pricing of
the products in the detariffed era?
Data is available to some extent with individual companies
though at the industry level, there is a need for creating a warehouse.
To this end, the regulator has made some efforts in that the Tariff
Advisory Committee (TAC) has been identified as a data repository
and some initiatives for collection and collation of industry-wide data
has been made in the areas of health insurance and motor insurance.
As far as individual companies are concerned, the data build up
over the last few years has taken place in a fairly organized manner
not only among the private companies but also in the public sector
companies. Pricing in the detariffed era is expected to be based on
proper assessment of risk and the available data. Coding and
collection of data by the TAC for the products to be detariffed is being
activated in cooperation with the insurers.
8. Your statement regarding the above 55 years bracket in the
context of health insurance has caused lot of disappointment to
the older population of the country. How do you react to this? As
a regulator, 'What are the changes you 'Wish to see in the health
insurance arena?
The point I have always tried to make is that it is necessary for
individuals to enter into health insurance schemes while they are
young. It would amount to selection against insurers if individuals
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decide to enter the schemes only when they are old and when they are
more vulnerable to diseases. It is left to the insurance companies to
follow their own underwriting guidelines when it comes to assessment
of risks and acceptance of a new proposal. The regulator would be
concerned with matters such as denial of a renewal or arbitrary
loading of premium or if the underwriting guidelines are not fair and
are discribinatory. The regulator has been giving special attention to
health insurance and has taken quite a few initiatives over the last
couple of years. As the fastest growing portfolio of the non life
insurance sector, health insurance is likely to develop in a big way in
the near future. I wish to see a lot more penetration of this class of
business and a uniform approach by all insurers on matters relating to
renewal, portability, etc. Regulations/guidelines in this important area
of non-life business are under consideration.
9. What are your views on bancassurance as a channel for
marketing life and non-life insurance products?
Bancassurance has been one of the emerging channels for
marketing of life and non-life products. Given the infrastructure and
wide networking banks have, marketing of insurance products by
banks has been a success story.
10. Are you in favor of raising the FDI cap in the insurance industry
from 26 to 49%?
I believe that an increase in the FDI cap will not only bring in
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the much needed capital into the insurance industry but also bring in
international know-how and skills thus expanding the industry's
capabilities. It will pave the way for a more competitive environment
as it will enable the existing joint ventures to expand as well. This is
good in the larger interest of the nation as it will see an increase in
investment in infrastructure and also have a tremendous impact on the
growth of the industry.
11. Can you throw some light on the move for a consolidated law on
insurance?
A comprehensive legislation for insurance is likely shortly. The
KPN Committee was set up to look into the proposals of the Law
Commission and supplement the m where necessary. The Committee
submitted its report after which IRDA has made certain comments and
communicated the same to the government.
12. As of now there is no appellate authority to whom one can appeal
against the order of the Insurance Ombudsman? Do you think
there is a need for one akin to' the Banking Ombudsman?
The basic objective in creating the Institution of Ombudsman is
to give a finality to litigation and thus provide relief to the insured.
The greatest advantage is that insurers cannot appeal against the
orders of Ombudsman and are duty bound to implement them. The
insured, however, can pursue other legal courses available to him if he
is not happy with the verdict of the Ombudsman. This is a consumer
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friendly dispensation.
13. There is a lot of talk about financial inclusion. What will be the
insurance industry's role in this endeavor? There is a huge deficit
in providing social insurance. What are the steps you would like
to initiate to bridge this gap?
Making insurance affordable and accessible to the rural masses
is the common objective of the regulator and the industry. Insurance
for the masses is being given special focus and several initiatives have
been taken on this front by regulator. The regulations on micro
insurance brought out recently by the IRDA have been one of the
major initiatives. The other is health insurance in which ate" several
initiatives have been taken. The IRDA is also having the regulations
relating to obligations of insurers towards the rural and social sector
reviewed.
14. One fact about which a prospective policyholder is always curious
about is the fine print at the bottom of every promotion endeavor
"Insurance is the subject matter of solicitation". Is this at the
behest of the regulator and what does it connote?
Yes, this caption was at the regulator's insistence. Insurance
being a complex service, it is in the interest of prospects to take the
advice of a professional before deciding to buy a product. The idea
also is to convey to prospects that "insurance" is solicited or sold
rather than bought, which is quite contrary to the case of most goods
or services today. Caveat emptor is no longer the maxim of most
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markets of the modern times. However, as far as insurance is
concerned, this is not the case.
15. Thanks to wealth management, insurance products are inevitably
included while selling a bouquet of financial products. In the light
of the growing insurance penetration do you see a great
opportunity in the insurance sector from the career perspective?
The insurance sector does offer great career opportunities. Take
the demand for actuaries for instance. Today, there is a dearth of
actuaries, both in life and the non-life sector. Students would do well
to seriously take to actuarial studies as it has a wonderful future.
Contribution of the financial services to the national economy is
substantial and here the contribution of the insurance industry is
significant. The insurance industry is growing so rapidly that the need
for technical expertise is ever increasing. With the kind of potential
that exists for the insurance industry in our country now, the career
prospects in this field are tremendous. Taking up a career as an
insurance agent is yet another are that offers vast opportunities. There
are several lakhs of agents in the market today who have made selling
insurance a full time career. Insurance broking too is gaining
significant position as a career opportunity. Survey and loss
assessment is yet another opportunity in the insurance field one could
look at.
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IIIV. Bibliography
Books
Articles/Research Material
Sites
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