presentation on general insurance companies

8/13/2019 Presentation on General Insurance Companies

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GENERAL INSURANCE COMPANIES

& NON-LIFE INSURANCE

Presented by –

ANKUR VASHISTHA

DEEPAK KASHYAPKAUSHAL CHAWDA

(Section I – Group XI)



Contents

• Introduction to General Insurance

• Features of General Insurance

• Types of General Insurance products

• List of General Insurers

•

History of General Insurance in India• Post independence developments

• IRDA

• Business structure, Policy developments & Current state of General Insurancecompanies

• Micro Insurance

• Tariffing & Detariffing

• Investment Pattern

• Risk in Insurance

• Future prospects in General Insurance



What is Insurance?

A promise of compensation for specific potential future purelosses in exchange for a periodic payment(premium). Insuranceis designed to protect the financial well-being of an individual,company or other entity in the case of unexpected loss.

Insurance is classified into Life and General(non life) insurance

What is General Insurance?

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



Features of General Insurance

• Any insurance other than human life comes under thescope of General Insurance

• Provides short term coverage, usually for a period of oneyear

• Pooling of losses

• Pays for losses that are unforeseen, unexpected and occuras a result of chance

• Risk transfer

• Indemnification



Features of General Insurance

• General insurers offer fire insurance, health

insurance, motor insurance, marine insurance and

miscellaneous insurance products

• Fire and motor insurance are predominant and

constitute 60% of total gross premium collected by

general insurance companies



Types of General Insurance products

• Fire insurance

• Motor insurance

•

Health insurance• Marine insurance

• Miscellaneous insurance products



Fire Insurance

• Fire insurance is a comprehensive policy whichcovers loss on account of fire, earthquake,riots, flood, strikes and malicious intent

• Scope – building

– plant and machinery

–

stocks – furniture, fixtures and contents

– loss of profit or consequential loss



Fire Insurance

• Most lucrative as fire rates are governed by

tariffs

• Bulk of the premium comes from corporate

clients

• Accounts for 20% of the business for general

insurance companies



Motor Insurance

• It is insurance purchased for cars, trucks, twowheelers and other type of vehicles

• Its primary use is to provide protection againstlosses incurred as a result of traffic accidents andagainst liability that could be incurred in anaccident

• Motor insurance is of two types – Third party insurance which only insures the

party/parties other than the owner in an accident – Comprehensive insurance which insures the owner as

well as the third party involved



Motor Insurance

• Motor insurance is mandatory leading to a

good amount of premium collection

• Largest and fastest growing business line for

insurance companies

• Accounts for 40% of the business of non life

insurers



Health Insurance

• A type of insurance coverage that pays formedical and surgical expenses that areincurred by the insured

• Health insurance policies• Can be broadly classified into

• Indemnity based : provide for reimbursement ofexpenses incurred necessarily as a result of

hospitalisation necessitated by a covered disease,illness or injury.

• Benefit type : provide for lump sum payment onhappening of an event insured against by the policy



Health Insurance

Standard health insurance policy

Indemnifies the insured against hospitalisation expensesincurred by him at a hospital or nursing home upon the adviceof a duly qualified medical practitioner as a result of an illness,disease or an injury contracted during the policy period

Reimbursement and cashless policy

The insured initially bears all the expenses which is later onreimbursed by the insurance company provided the claim is

admissible as per the policy

Cashless policy allows a policy holder to avail medicaltreatment at a network hospital of the insurer without payingcash



Health Insurance

Floater policy

Provides for a sum insured for the entire family against medical expenses

Group mediclaim policy

Provides cover to the members of any

group/institution/association/corporate body

Other health insurance covers

Cancer medical expenses insurance policy

Hospital cash policies

Critical illness coversJan arogya bima policy

Community based universal health insurance schemes

Nagrik suraksha policy

Personal accident policy

Overseas medical insurance



Marine Insurance

Marine cargo insurance covers

• Cargo in transit

• Cargo declaration policy

Marine hull insurance covers

• Physical damage to ship or vessel

• Collision liability

• Owners legal liability



Insurers licensed by IRDA

PRIVATE SECTOR GENARAL INSURERS

• Bajaj Allianz

• ICICI Lombard

• Iffco-Tokio

• Reliance

• Royal Sundaram Alliance

• TATA-AIG• Cholamandalam MS

• HDFC ERGO

• Star Health & Allied

• Apollo Munich

• Future Generali

• Universal Sompo

•

Shriram• Bharti AXA

• Raheja QBE

• Max Bupa

• L&T

• Religare Health

• Magma HDI

• Liberty Videocon

PUBLIC SECTOR GENERAL INSURERS

• National Insurance Co. Ltd.

• The New India Assurance Co. Ltd.

• The Oriental Insurance Co. Ltd.

• United India Insurance Co. Ltd.

• Export Credit Guarantee Corporation of India

Ltd.• Agriculture Insurance Co. of India Ltd.

• SBI General Insurance Co. Ltd.



History of General insurance

companies in India

1. The history of general insurance dates goes back tothe Industrial Revolution in the west and theconsequent growth of sea-faring trade and commercein the 17th century.

2. It came along with the British occupation in India

3. British established Triton Insurance Company Ltd. InKolkata in the year 1850, which introduced theconcept of general insurance in India.

4. In 1907, the Indian Mercantile Insurance Ltd, was setup. This was the first company to transact all classes ofgeneral insurance business.



Post Independence developments in

general insurance

• With further Liberalization of the economy, in 1957,the

General Insurance Council was formed as , a wing of the

Insurance Associaton of India.

• In 1972 with the passing of the General Insurance Business

(Nationalisation) Act, general insurance business was

nationalized with effect from 1st January, 1973.

• 107 insurers were amalgamated and grouped into four

companies, namely National Insurance Company Ltd., the

New India Assurance Company Ltd., the Oriental InsuranceCompany Ltd and the United India Insurance Company Ltd.

• The GIC was given charge of overall control , superintendence

and policy making for smooth operation of general insurance

business.



• In early 90’s, Government identified the increasing market scope in

general insurance business.

• Thus, in 1993, the Government set up a committee under thechairmanship of RN Malhotra, former Governor of RBI, to propose

recommendations for reforms in the insurance sector

• The objective was to complement the reforms initiated in the

financial sector.

• The committee submitted its report in 1994 wherein its prime

recommendation was that the private sector be permitted to enter

the insurance industry.

• It also stated that foreign companies be allowed to enter Indian

insurance sector, preferably a joint venture with Indian partners.



Insurance Regulatory Development

Authority

• Following the recommendations of the Malhotra Committee report,

in 1999, the Insurance Regulatory and Development Authority

(IRDA) was constituted as an autonomous body to regulate and

develop the insurance industry.

• The key objectives of the IRDA include promotion of competition soas to enhance customer satisfaction through increased consumer

choice and lower premiums, while ensuring the financial security of

the insurance market.

• In Aug 2000, IRDA opened up the market with the invitation for

application for registrations and the Foreign companies were

allowed ownership of up to 26%.



Types and Structures of General

Insurance Business

• General insurance business is widely classified as MARINE, FIRE andMISCELLANEOUS.

• The general policies rarely run over a span of a year unlike the Life

insurances. Thus we can say that there is no guarantee of policyrenewals on the same term.

• The general insurance companies do not collect savings, yet theyaccumulate pools of funds from premium and investment incomeout of which they meet the claims.

• Thus, their liabilities are short-term in nature and the claims areunpredictable, their assets are held in liquid form.

• They have a greater need of Liquidity and Higher returns, which istaken care by their Investment pattern*.



• Apart from the conventional general insurance types, GIC hasintroduced new policies like;

1. Personal accident policies for visitors in bank premises2. Rejection insurance on marine products.

3. Personal accident insurance etc.

•

Also, other activities of GIC include;1. GIC Mutual fund

2. GIC Grih Vitta Ltd

3. Loss prevention association of India Ltd.

4. National Insurance Ltd



Policy developments

• De - tariffing* of general insurance industry

•

Obligations towards rural and social sectors.• Restriction on FDI up-to 26% earlier.

• Every insurer shall maintain a required solvency margin as per

Section 64VA of Insurance act 1938

Further to above , currently foll. are new developments wrtinsurance sectors;

• A meeting of senior cabinet ministers chaired by Prime

Minister has decided to hike foreign direct investment (FDI)

limit in the insurance sector to 49 per cent from the existing26 per cent.

• The move is expected to ripe benefits soon, in terms of more

foreign investments into the country.

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



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

• To enhance financial inclusion and boost bank assurance as

a business, banks to sell insurance policies, subject to prior

approval from the Reserve Bank of India (RBI) before

applying for a license to act as an insurance broker.• Banks to apply under the direct broker category. The

license, once granted, will be valid for three years.

• Banks can now offer their customers policies from various

life and non-life insurance companies. Until now, brokersincluded only exclusive intermediaries for insurance

distribution. The new regulation now allows this business to

be carried departmentally within a bank.



Micro Insurance

• protection of “low-income people” (those living on between

approximately $1 and $4 per day) against specific perils in exchangefor regular premium payment proportionate to the likelihood andcost of the risks involved.

• Target population : persons ignored by mainstream commercial andsocial insurance schemes, persons who have not previously hadaccess to appropriate insurance products.

• Critical Features :

a) transactions are low-cost (and reflect members’ willingness topay);

b) clients are essentially low-net-worth (but not necessarily uniformlypoor);

c) the essential role of the network of micro insurance units is toenhance risk management of the members of the entire pool ofmicro insurance units over and above what each can do whenoperating as a stand-alone entity.



Genesis of Tariff Advisory Committee

• Insurance Companies indulged in unfair practices

• Insurance Act amended in 1968 which provided for :

1. Regulation of investment of Assets

2. Setting up of TAC3. Minimum Solvency Margin

4. Licensing of surveyors, &

5. Payment of premium before commencement of risk.



Tariff Advisory Committee

• Statutory body created under Insurance Act, 1938.

• Controls and regulates the rates, advantages, terms &

conditions that may be offered by insurer.

• Looks into pricing of non-life insurance products.

• Prevents uneconomic competition & facilitates classification

of risks according to their special characteristics.

• Tariff mechanism provides floor rates for various products.

•

Large risks where sum insured at any one location is Rs 10,000Crore or above have been de-tariffed.



Functions of TAC

• Collection of data on premium and claims, analysis of data

and dissemination of information to insurer;

• Report to IRDA on underwriting health of market and any

aberrations in market behaviour;

• Constitution of expert group at the request of General

Insurance Council, to look into underwriting issues and

recommend necessary action;

• Organise training of underwriters at the market level; and

• Attend public grievances on non-availability of insurance.



Tariffing & De-tariffing

• Tariffs : governing documents prescribing rates as well aspolicy coverage and conditions pertaining to a class ofinsurance.

• Tariffs restricted competition in the market.

• De-tariffing : pricing of insurance products driven by marketforces.

• Uniform pricing continued for motor third party risks (poolcreation)

•

Benefits : price wars and fall in premium rates for profitableclasses of business like fire and engineering.

• Liberalising policy wordings : discretion of insurers’ tocustomise products as per clients requirement



Challenges Faced for Investing in

Private Securities

• Investment in Industrial securities a matter of considerable

public controversy due to:

• Ideological bickering rather than understanding of investment

principles, financial requirements of different sectors, etc.

• Ungenerous criticism from “Socialists” for investments in

Industrial Securities.

• Socialists overlooked the fact that certain portion of insurance

funds to be invested in assets yielding a high rate of return to

benefit policy-holders.



Portfolio Restrictions on GIC in Force in

2001-02

Type of Investments Percent

Central Government Securities being not less than 20

State Government Securities & other guaranteed

Government securities, including (i) above, being not less

than

30

Loans to HUDCO and to state governments for housing & fire

fighting equipment, not less than

5

In Approved Investments

a) Infrastructure and Social Sector Not less than 10%

b) Others to be governed by Exposure Norms. However the

investments in ‘Other than in Approved Investments’ in no

case exceed 25% of the Assets

Not exceeding 55%



Other Investment Guidelines

• Exposure/Prudential Norms

• Rural & Social Sector Obligations for new entrants

• Maintenance of Solvency Margins = free capital : total

business done

• Minimum solvency margin of ₹ 500 Million

• New Insurers 1.5 times the normal requirements.

• Funds to be set aside as reserves by GICs for :

1. “Unexplored risks” 2. “IBNR” claims

3. “IBNRE” claims



Equity Share Capital



Non-Life Insurers & Policies Issued



Gross & Net Premium Income Earned



Profitability of Sector



Risk Management

• Risk: situation which bears a probability of some financial loss

• In Insurance world : risk referred to a property or an individual

insured also called “Exposure Unit”.

• Risk Management : process of planning, organising, directing

and controlling resources to minimise the adverse effects of

potential losses at the least possible cost.



Types of Risks

• Portfolio Risk : means the mix of business done by an insurer

includes fire, health, motor, etc.

• Solvency Risk : Depends on backup in terms of capital

represented by assets of the insurer.

• Marketing Risk : Due to change in demographic structure

including consumer preferences.

• Market Risk : To maintain profitability, insurers have to be

aggressive in investing funds in high risk, high return securities

which give rise to market risk, volatility of financial markets

• Operational Risk : Due to more dependence on IT tools like

centralised servers and WAN (wider area networks).



Future of Insurance Industry in India

• Insurance Sector reforms proposed as to hike from 26% to

49% FDI and foreign players.

• For a country with a GDP that is about to touch USD 2 trillion,

insurance coverage is inadequate, adding only 6 per cent of

the 1.25 billion Indians have life insurance and only 5 per centhas health cover.

• India's insurance industry needs around USD 12 billion in

capital up to 2020

• Opening up the insurance sector to further higher FDI willgreatly enhance the industry's reach to semi-urban and rural

markets.

http://economictimes.indiatimes.com/topic/life%20insurance






References

• Financial Institutions and markets – Bhole &

Mahakud (5 th edition)

• The Indian Financial System: Markets,

Institutions and Services – Pathak (3rd edition)

presentation on general insurance companies

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