The role of technology in life insurance companies of India

IN PARTIAL FULFILMENT OF THE REQUIREMENT UNDER SEMESTER BASEDCREDIT AND GRADING SYSTEM FOR POST GRADUATE SEMESTER II

Program under faculty of commerceMaster of commerce (morning )

SYDENHAM COLLEGE OF COMMERCE AND ECONOMICS

SUBMITTED BY :

RIDDHIMA PRAMOD SAWANTROLL NO: 102

PROJECT GUIDE :PROF. SMITA KUNTHESYDENHAM COLLEGE OF COMMERCE AND ECONOMIC

CONTENT

DECLARATION

I, RIDDHIMA PRAMOD SAWANT , Roll No. 102 student of SYDENHAM COLLEGE OF COMMERCE AND ECONOMICS in the FIRST year M.COM in Banking and In FINANCE (Semester II) , hereby declare that I have completed the research report on the topic of THE ROLE OF TECHNOLOGY IN LIFE INSURANCE COMPANIES OF INDIA in the academic year 2014-2015. The information submitted is herein is true, to the best of my knowledge.

Stamp of College Signature of student

Signature of Signature of Coordinator External Examiner

CERTIFICATE

I, RIDDHIMA PRAMOD SAWANT here by certify that the following student of SYDENHAM COLLEGE OF COMMERCE AND ECONOMICS of M.COM (Banking & FINANCE) Semester (II) has completed his research report on THE ROLE OF TECHNOLOGY IN LIFE INSURANCE COMPANIES OF INDIA for the academic year 2014-2015. Information submitted is true & original to the best of my knowledge.

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ACKNOWLEDGEMENT

It gives me immense pleasure in acknowledging the valuable & co-operative assistance extended to me by the various individuals who have helped me successfully in completing this project.

First of all I would like to show my gratitude to Professor SMITA KUNTHE for their assistance, encouragement and support on the topic THE ROLE OF TECHNOLOGY IN LIFE INSURANCE COMPANIES OF INDIA .

I would like to thank my parents, friends & colleagues who have supported me during the making of this research report. The information provided by them has helped me gain practical understanding of the subject.

I would like to thank the Mumbai University for giving me the opportunity to carry out the research.

It is the encouragement of all these people that has helped me proceed towards achieving my goals.

INTRODUCTION

NEED OF THE STUDY

OBJECTIVE

RESEARCH METHODOLOGY

RESEARCH METHODOLOGY:To conduct the market research first of all it is necessary to create a research design.A research design is basically a blue print of how a research is to be conducted, it may include;1. Choosingtheapproach2. Determiningthetypesofdataneeded.3. Locating the source of data.4. Choosingamethodofdata.

TYPES OF DATA USED:Both primary and secondary data is used in the research.Data Collection Methods:To conduct the market research the data is collected by two sources.SECONDARY DATA:Secondary data is one which already exists and is collected from the published sources. The sources from which secondary data was collected are:Newspapers and Magazines like Economic Times, Insurance Times, and Insurance Post. Internet.

CONCEPT OF INSURANCE

Life has always been an uncertain thing.

To be secure against unpleasant possibilities, always requires the utmost resourcefulness and foresight on the part of man. To pray or to pay for protection is the spirit of the humanity. Man has been accustomed to pray God for protection and security from time immemorial.

In modern days Insurance Companies want him to pay for protection and security. The insurance man says "God helps those who help themselves"; probably he is correct. Too many people in this country are not in employment; and work for too many no longer guarantees income security. Several millions are part-time, self employed and low-earning workers living under pitiable circumstances where there is no security cover against risk.

Further the inherent changing employment risks, the prospect of continual change in the work place with its attendant threats of unemployment and low pay especially after the adoption of New Economic Policy and the imminent life cycle risks - a new source of insecurity which includes the changing demands of family life separation, divorce and elderly dependents are tormenting the society.

Risk has become central to one's life. It is within this background life insurance policy has been introduced by the insurance companies covering risks at various levels.

Life insurance coverage is against disablement or in the event of death of the insured, economic support for the dependents. It is a measure of social security to livelihood for the insured or dependents.

This is to make the right to life meaningful, worth living and right to livelihood a means for sustenance. Therefore, it goes without saying that an appropriate life insurance policy within the paying capacity and means of the insured to pay premium is one of the social security measures envisaged under the Indian Constitution.

Hence, right to social security, protection of the family, economic empowerment to the poor and disadvantaged are integral part of the right to life and dignity of the person guaranteed in the constitution.

Man finds his security in income (money) which enables him to buy food, clothing, shelter and other necessities of life. A person has to earn income not only for himself but also for his dependents, viz., wife and children.

He has to provide legally for his family needs, and so he has to keep aside something regularly for a rainy day and for his old age. This fundamental need for security for self and dependents proved to be the mother of invention of the institution of life insurance.

WHAT IS INSURANCE

The business of insurance is related to the protection of the economic values of assets. Every asset has a value. The asset would have been created through the efforts of the owner. The asset is valuable to the owner, because he expects to get some benefit from it. The benefit may be an income or some thing else. It is a benefit because it meets some of his needs. In the case of a factory or a cow, the product generated by is sold and income generated. In the case of a motor car, it provides comfort and convenience in transportation. There is no direct income. Every asset is expected to last for a certain period of time during which it will perform. After that, the benefit may not be available. There is a life-time for a machine in a factory or a cow or a motor car. None of them will last for ever. The owner is aware of this and he can so manage his affairs that by the end of that period or life-time, a substitute is made available. Thus, he makes sure that the value or income is not lost. However, the asset may get lost earlier.

An accident or some other unfortunate event may destroy it or make it non functional. In that case, the owner and those deriving benefits from there, would be deprived of the benefit and the planned substitute would not have been ready. There is an adverse or unpleasant situation. Insurance is a mechanism that helps to reduce the effect of such adverse situations. Insurance, in law and economics, is a form of risk management primarily used to hedge against the risk of a contingent loss.

Insurance is defined as the equitable transfer of the risk of a potential loss, from one entity to another, in exchange for a premium. Insurer, in economics, is the company that sells the insurance. Insurance rate is a factor used to determine the amount, called the premium, to be charged for a certain amount of insurance coverage. Risk management, the practice of appraising and controlling risk, has evolved as a discrete field of study and practice.

ORIGIN OF INSURANCE

PRACTICE OF INSURANCE IN INDIA: 1818-1956

It is claimed that insurance was practiced in India even in Vedic times in one form or the other. The Sanskrit term "Yogakshema" in the Rigveda meant some kind of insurance, which was practiced by the Aryans in India nearly 3000 years ago. During the Mughal period insurance took firm roots.

There are even references to the cover against war risks. Losses due to the passage of royal troops through farms were compensated by the State as a gesture of goodwill.

The year 1818 is an epoch -making year in the history of our country. The first Life Insurance Company on India soil appears to have been started in this year.

A group of Europeans pioneered the establishment of the Oriental Life Insurance Society to afford relief to the distressed relatives of European. The venture was not quite successful but the company was reformed in 1829.The renewed Company also got into trouble in 1833 when Agency House of Calcutta, partners of the same, fell.

Prince Dwarkanath Tagore was the only solvent partner & the sole responsibility for carrying on the institution developed on him. Meanwhile, early in Janury1834, the Government made up its mind to establish a Public Insurance Company & a Committee was set up for this purpose .A number of foreign Insurance Companies then operating in the country viewed this move with alarm. They set up Committees of their own enquire into their individual affairs.

Dwarkanath Tagore, too, had a Committee appointed to look into the affairs of the Oriental.As a result, another company was born out of the previous one in the name of "New Oriental Company"

In the reorganization of the "Oriental" in the year 1834, two other gentlemen were associated. One was Ramtanu Lahiri and the other Rustamjee Cowasjee. The latter was another prominent figure of the business world. Rustamjee entered insurance business in 1828, he was already known to the community and the Government as a wealthy Parsi merchant.

Rustamjee's connection with insurance also started with "Laudable Societies", but he was later on associated with Companies like "Sun Life Office (1834) ", New Oriental (1835),Universal Life (1835) , New Laudable (1840) , and Indian Laudable (1841) .

He was also on the Committee of the Union Insurance Company which was formed by a group of five persons. This Company was issuing policies covering river-risks only. He was intimately connected with the Committee of Insurance Offices in Calcutta.

Rustamjee Cowasjee & Dwarkanath Tagore was probably the first Indians to join in partnership business with the Europeans & in the field of insurance they were pioneers on this side of the country.

Apart from Calcutta, several enterprising people in Bombay started in 1823 the "Bombay Life" Assurance Company. The company went into liquidation soon and could not revive. In 1829, the "Madras Equitable "was formed. It finally ceased to function in 1921 due to financial difficulties after the First World War.

The effort to set up a public insurance company at the government level also went in vain, mainly from objection of private operators. Majority of the early attempts to form insurance offices were in the province of Bengal. This was due to its political & economic importance at that time.

The contribution of Raja Ram Mohan Roy, one of the greatest social reformers of India, to the development of life insurance is very great. He was deeply concerned about the sad plight of desperate widows and helpless orphans

THE BIRTH OF INDIAN INSURERS

With the advent of the 20th century, the glorious renaissance of swadeshi days dawned. At the same time, well- to do Indians realized the potentiality of Indian Insurance business.

The Swadeshi movement of 1905-1907 gave rise to more insurance companies. The United India in Madras, National Indian and National Insurance in Calcutta and the Co-operative Assurance at Lahore were established in 1906.

In 1907, Hindustan Co-operative Insurance Company took its birth in one of the rooms of the Jorasanko House of the great poet Rabindranath Tagore, in Calcutta. The Indian Mercantile (1907) was started in Bombay.

General Assurance (1908) at Ajmer and the Swadeshi Life (Later Bombay Life) in Bombay in 1908. The end of the First World War (1914-18) witnessed an influx of insurance companies in India. Famous Indian business houses started new insurance companies.

Industrial and Prudential Bombay, Western India, Satara, were floated before the war, but by 1919, companies like Jupiter General, New India, Vulcan Insurance Company etc. came into being.

Pandit K.Santhanam with blessing of Lala Lajpat Rai and Pandit Motilal Nehru started Laxmi Insurance Co. Similarly, Andhra Insurance was started in Masulipatnam, with the initiative of stalwarts like Dr. Pattabhi Sitaramaiah.

From political platforms also, national leaders supported this cause. It is duty to every Indian to support only Indian Insurance. The keynote of our Swaraj is in placing all our insurance with our Indian companies", said Mahatma Gandhi in his message. "I hope Indians will realize the importance of patriotism only through Indian insurance institution", stated Pandit Jawaharlal Nehru.

Thus, the cause of Indian insurance became a national issue. The pursuit to boost Indian insurance represented a crusade to extricate the Indian economy from foreign domination.

PROGRESS IN INSURANCE BUSINESS

The growth of Life Insurance in concrete terms could be said to being during the first two decades of twentieth century when most of the major companies were founded. They grew in terms of rise in the number of companies, in terms of number of policies and sum assured as well as total life fund. Indian Insurance Year Book, published for the first time in 1914, gives the figure of the total business-in -force as 22.44 crore which grew to Rs. 298 crore in 1938.

In 1914, there were only 44companies transacting insurance business in India, and during the next 25 years their number rose to 176. The total progress on all the primary heads, viz. Life fund (Rs. 50.50 crore), premium income (Rs. 10.50 crore) and new business (Rs. 43.30 crore) indicate that Indian Insurance Business had been making a definite headway during this years. The inter-war -years thus saw rapid growth life insurance in India.

The promotion of new life insurance companies continued to be almost a craze and insurance companies mushroomed. In this period, 176 insurance companies were formed and many of them failed. Thus unhealthy growth was harmful to the interest of the policy holders and insurance business in India. Feeling concerned about it, the All India Life Assurance Offices'

Association urged upon the Government in 1932 to undertake the insurance legislation to

(a) Compulsorily register all Life Insurance companies.

(b) Secure a deposit of Rs.2 lakh from all Life Insurance companies.

(c) Compel foreign companies doing business in India to keep sufficient fundsin India securities to meet their liabilities under all policies issued in India.

INSURANCE ACT, 1938

The Insurance Act, 1938, was the first comprehensive legislation governing not only life butalso non- life branches of insurance to provide strict state control over insurance business. Insub- sections to dealt with provident companies, mutual offices and co-operative societies aswell.

The silent features of the Act were as follows:

(A) Constitution of a Department of Insurance under a superintendent vested with wide powers of supervision and control over all kinds of insurance companies.

(B) Regulation for the compulsory registration of insurance companies and for filing of returns ofinvestment and financial conditions.

(C) Provisions for deposit, to prevent insurers of inadequate financial resources of speculative concerns for commencing business.

(D) Provisions that 55% of the net life fund of an Indian or non- Indian insurer should invested in Indian Government and approved securities with at least 25% in Indian Government Rupee securities.. All other companies, i.e., foreign companies must invest 100% of their Indian liabilities in Indian Government and approved securities, with at least 33.3% Indian Government securities.

(E) Prohibition of rebating, restriction of commission, licensing of agents etc. Maximum rates of commission were fixed at 40% of the first premiums and 5% of the renewal premium in respect of life assurance business. The agent must be licensed, to improve the status of the profession.

(F) Periodical valuation of Indian Insurance business of foreign companies and the business of Indian companies.

(G) Provision for policyholders' directors, making it possible for the representatives of policyholders to be on the Board of directors.

(H) Standardization of policy conditions required all companies to file standard forms and tables of premium approved by an Actuary. Under this requirement, the initial deposit for life insurance business was raised from Rs. 25000 in Government securities to Rs. 50000 in cash approved securities, which was subsequently to be raised by installments to Rs. 2 lakh within a specified time limit.

Nationalization

THE LIFE INSURANCE CORPORATION OF INDIA: 1956

This was the first step taken towards the nationalization of life insurance business in India.

On 20th January, 1956 all life insurance companies were taken over by 43 nominated custodians. The custodians were experienced senior executives of private insurance companies, reporting directly to the Finance Ministry. From the word go, the complex task of running the industry on a permanent basis and continuing the services to policy holders without interruption were their major concerns.

The actual work of integration had to await legislation. The custodians managed the insurance companies till 1-09-1956, when Life Insurance Corporation was established under the general direction and control of the Ministry of Finance.

The Ordinance provided for the transfer of the control of 154 Indian insurers, 16 non Indian insurers and 75 provident societies.

These arrangements were designed to ensure that no inconvenience whatsoever was caused to the policy holders. With the Government take over the management aimed towards the evolution of a common uniform premium rate, policy conditions and service and working procedures and above all to help promote team spirit.

The corporation, a body corporate shall consist of not more than 15 members appointed by the Central Government, one of them being appointed by the government as chairman.

The capital of the corporation was at Rs 5 crore provided by the central government.

INSURANCE SECTOR REFORMS

In 1993, Malhotra Committee, headed by former Finance Secretary and RBI Governor R.N.Malhotra was formed to evaluate the Indian Insurance industry and recommended its futuredirection.

The Malhotra committee was set up with the objective of complementing the reformsinitiated in the financial sector.

The reforms were aimed at "creating a more efficient and competitive financial systemsuitable for the requirements of the economy keeping in mind the structural changes currentlyunderway and recognizing that insurance is an important part of the over all financial systemwhere it was necessary to address the need for similar reforms...".

In 1994, the committee submitted the report and some of the key recommendations included:

(1) STRUCTURE

Government stake in the Insurance Companies to be brought down to 50%.Government should take over the holdings of GIC and its subsidiaries so that thesesubsidiaries can act as independent corporations.All the insurance companies should be given greater freedom to operate

(2) COMPETETION

Private Companies with minimum paid up capital of Rs.1 bn should be allowed to enter the industry.No Company should deal in both Life and General Insurance through a single entry.Foreign Companies may be allowed to enter the industry in collaboration with the domestic companies.Postal Life Insurance should be allowed to operate in the rural market.Only one State Level Life Insurance Company should be allowed to operate in each state.

(3) REGULATORY BODYThe Insurance Act should be changedAn Insurance Regulatory Body should be set up.Controller of Insurance (Currently a part from the Finance Ministry)should be madeindependent

(4) INVESMENTSMandatory Investments of LIC Life Fund in government securities to be reduced from75% to 50%.GIC and its subsidiaries are not to hold more than 5% in any company (There currentholdings to be brought down to this level over a period of time).

(5) CUSTOMER SERVICELIC should pay interest on delays on payments beyond 30 days.Insurance Companies must be encouraged to set up unit linked pension plansComputerization of operations and updating of technology to be carried out in theinsurance industry.

Liberalization

OPENING UP OF INSURANCE SECTOR 1999 THE INSURANCEREGULATORY AND DEVELOPMENT AUTHORITY

Reforms in the Insurance sector were initiated with the passage of the IRDA Bill in Parliament in December 1999. The IRDA since its incorporation as a statutory body in April 2000 has fastidiously stuck to its schedule of framing regulations and registering the private sector insurance companies.

The other decision taken simultaneously to provide the supporting systems to the insurance sector and in particular the life insurance companies was the launch of the IRDA's online service for issue and renewal of licenses to agents.The approval of institutions for imparting training to agents has also ensured that the insurance companies would have a trained workforce of insurance agents in place to sell their products, which are expected to be introduced by early next year.

Since being set up as an independent statutory body the IRDA has put in aframework of globally compatible regulations. In the private sector 14 lifeinsurance companies have been registered.

ENTRY OF PRIVATE COMPANIES

Under the IRDA Act, private companies can now operate in India's insuranceindustry. However, they must obtain a license from the IRDA before beingpermitted to write business.

To have its license application considered, a domestic private company must beregistered in accordance with the Companies Act of 1956 and have approximately US$ 20 million of investment capital. The specific licensing requirements that Private Indian Companies must fulfill are set forth in the Registration on Indian Insurance Companies Regulations, published by the IRDA 2000.

LIFTING OF BARRIERS TO FOREIGN INVESTMENT

The IRDA Act also lifts certain barriers to foreign direct investment in Indianinsurance industry.

Global insurers are now permitted to set up and register a domestic company inorder to write business in India. However, regulations stipulate that they have acapital base of at least US $ 20 million, and their investment in such company iscapped at 26 percent. Thus, to participate in the market, they must form a jointventure with an Indian partner that is able to invest the remaining funds.

The equity investments limit is the same for global reinsures seeking to writebusiness in India, but they are required to put up a capital of approximately US$ 45 million in order to establish a domestic company.

Since the IRDA first enacted these rules, 13 new life insurance companies haveentered the market.

On the other hand, no global reinsurer has established a domestic company.Instead, most of the top international reinsurance companies operate from theiroverseas offices by sharing the reinsurance risks picked up by the GIC. A recentproposal has been put forward to increase foreign direct investment to 49 percent.

In addition, global companies are pushing for the right to establish branch offices in India. These changes are likely to substantially increase the presence of international insurers, reinsurers, and brokers in India.

The IRDA Insurance Brokers Act in India 2002 permitted overseas insurance and reinsurance brokers to enter the market, but with the same equity cap as thatgoverning the operations of foreign insurers and reinsurers. Thus, foreign brokers must also form a joint venture with an Indian partner in order to establish an Indian broking house.

The 2002 IRDA legislation established four broker categories, one of whichbrokers must select when applying for a license:

1. Category 1A : Direct General Insurance Broker2. Category 1B : Direct Life Insurance Broker3. Category 2 : Reinsurance Broker4. Category 3: Composite Broker5. Category4: Others, for example Insurance Consultants and RiskManagement Consultants.

Each category has different solvency margins and capital adequacy ratios, and all categories need to carry professional indemnity insurance at different minimum levels.

In the years since market liberalization was initiated, the insurance sector haswitnessed some impressive changes. The needs of insurance and reinsurancebuyers have grown; the market is introducing new products to address these needs; and the services of brokers are now seen as critical to making informed insurance and reinsurance decisions.

Purpose and Need of Insurance :

Assets are insured, because they are likely to be destroyed through accidental occurrences.

Such possible occurrences are called perils. Fire, floods, breakdowns, lightening, earthquakes, etc, are perils. If such perils can cause damage to the asset, we say that the asset is exposed to that risk. Perils are the events. Risks are the consequential losses or damages.

The risk to a owner of a building, because of the peril of an earthquake, may be a few lakhs or a few crores of rupees, depending on the cost of the building and the contents in it.

The risk only means that there is a possibility of loss or damage. The damage may or may not happen. Insurance is done against the contingency that it may happen. There has to be an uncertainty about the risk. Insurance is relevant only if there are uncertainties. If there is no uncertainty about the occurrence of an event, it cannot be insured against. In the case of human being, death is certain, but the time of death is uncertain. In the case of person who is terminally ill, the time of death is not uncertain, though not exactly known. He cannot be insured.

Insured does not protect the asset. It does not prevent its loss due to peril. The peril cannot be avoided through insurance. The peril can sometimes be avoided through better safety and damage control management. Insurance only tries to reduce the impact of the risk on the owner of the asset and those who depend on that asset. It only compensates the losses and that too, not fully.

Only economic consequences can be insured. If the loss is not financial, insurance may not be possible.

Example of non-economic losses are love and affection of parents, leadership ofmanagers, sentimental attachments to family heirlooms, innovative and creative abilities, etc.

How Insurance Works?

The mechanism of insurance is very simple.

People who are exposed to the same risks come together and agree that, if any one of them suffers a loss, the others will share the loss and make good to the person who lost. All people who send goods by ship are exposed to the same risks, which are related to water damage, ship sinking, piracy, etc.

Those owning factories are not exposed to these risks, but they are exposed to different kinds of risks like, fire, hailstorms, earthquake, lightning, burglary, etc. Like this, different kinds of risks can be identified and separate groups made, including those exposed to such risks. By this method, the heavy loss that any one of them may suffer (all of them may not suffer such losses at the same time) is divided into bearable small losses by all. In other words, the risk is spread among the community and the likely big impact on one is reduced to smaller manageable impacts on all.

If a Jumbo Jet with more than 350 passengers crashes, the loss would run into several croresof rupees. No airline would be able to bear such a loss. It is unlikely that many Jumbo Jetswill crash at same time. If 100 airline companies flying Jumbo Jets, come together into aninsurance pool, whenever one of the Jumbo Jets in the pool crashes, the loss to be borne byeach airline would come down to a few lakhs of rupees. Thus, insurance is a business ofsharing.

There are certain principles, which make it possible for insurance to remain a fairarrangement. The first is that it is difficult for any one individual to bear the consequences ofthe risks that he is exposed to. It will become bearable when the community shares theburden.

The second is that the perils should occur in an accidental manner. Nobody should bein a position to make the risk happen. In other words, none in the group should set fire to hisassets and ask others to share the costs of damage. This would be taking unfair advantage ofan arrangement put into place to protect people from risks they are exposed to.

The occurrence has to be random, accidental, and not the deliberate creation of the insured person. The manner in which the loss is to be shared can be determined before-hand. It may beproportional to the risk that each person is exposed to. This would be indicative of the benefithe would receive if the peril befell him.

The share could be collected from the members after the loss has occurred or the likely shares may be collected in advance, at the time of admission to the group. Insurance companies collect in advance and create a fund from which the losses are paid.

The collection to be made from each person in advance is determined on assumptions. Whileit may not be possible to tell beforehand, which person will suffer, it may be possible to tell,on the basis of past experiences, how many persons, on an average, may suffer losses.

Thefollowing two examples explain the above concept of insurance:

Example 1In a village, there are 400 houses, each valued at Rs. 20000. Each year, on the average, 4 houses get burnt, resulting into a total loss of Rs. 80000. If all the 400 owners come together and contribute Rs. 200 each, the common fund would be Rs. 80000. this is enough to pay Rs. 20000 to each of the 4 owners whose houses got burnt. Thus, the risk of 4 owners is spread over 400 house-owners of the village.

Example 2There are 1000 persons who are all aged 50 and are healthy. It is expected that of these, 10 persons may die during the year. If the economic value of the loss suffered by the family of each dying person is taken to be Rs. 20000, the total loss would work out to Rs. 200000. If each person in a group contributed Rs. 200 a year, the common fund would be Rs. 200000.

This would be enough to par Rs. 20000 to the family of each of the ten persons who die.

Thus, the risks in the case of 10 persons, are shared by 1000 persons.

Insurance of Human Asset

A human being is an income generating asset. Ones manual labour, professional skills and business acumen are the assets.

This asset also can be lost through unexpectedly early death or through sickness and disabilities caused by accidents. Accidents may or may not happen.

Death will happen, but the timing is uncertain. If it happens around the time of ones retirement, when it could be expected that the income will normally cease, the person concerned could have made some other arrangements to meet the continuing needs.

But if it happens much earlier when the alternate arrangements are not in place, there can be losses to the person and dependents. Insurance is necessary to help those dependent on the income.

A person, who may have made arrangements for his needs after his retirement, also would need insurance.

This is because the arrangements would have been made on the basis of some expectations like, likely to live for another 15 years, or that children will look after him.

If any of these expectations do not become true, the original arrangement would become inadequate and there could be difficulties. Living too long can be as much a problem as dying too young.

Both are risks, which need to be safeguarded against. Insurance takes care.

Advantages of Life Insurance

Life insurance has no competition from any other business. Many people think that life insurance is an investment or a means of saving. This is not a correct view.

When a person saves, the amount of funds available at any time is equal to the amount of money set aside in the past, plus interest. This is so in a fixed deposit in the bank, in national savings certificates ,in mutual funds and all other savings instruments. If the money is invested in buying shares and stocks, there is the risk of the money being lost in the fluctuations of the stock market.

Even if there is no loss, the available money at any time is the amount invested plusappreciation. In life insurance, however, the fund available is not the total of the savingsalready made (premiums paid), but the amount one wished to have at the end of the savingsperiod (which is the next 20 or 30 years). The final fund is secured from the very beginning.

One is paying for it later, out of the savings. One has to pay for it only as long as one lives orfor a lesser period if so chosen. There is no other scheme which provides this kind of benefit.Therefore life insurance has no substitute.

Even so, a comparison with other forms of savings will show that life insurance has thefollowing advantages.

In the event of death, the settlement is easy. The heirs can collect the moneys quicker,because of the facility of nomination and assignment. The facility of nomination is nowavailable for some bank accounts. There is a certain amount of compulsion to go though the plan of savings. In other forms, ifone changes the original plan of savings, there is no loss. In insurance, there is a loss. Certain cannot claim the life insurance moneys. They can be protected against attachmentsby courts. There are tax benefits, both in income tax and in capital gains. Marketability and liquidity are better. A life insurance policy is property and can betransferred or mortgaged. Loans can be raised against the policy.The following tenets help agents to believe in the benefits of life insurance. Such faith willenhance their determination to sell and their perseverance. Life insurance is not only the best possible way for family protection. There is no otherway. Insurance is the only way to safeguard against the unpredictable risks of the future. It isunavoidable. The terms of life are hard. The terms of insurance are easy. The value of human life is far greater than the value of property. Only insurance canpreserve it. Life insurance is not surpassed by many other savings or investment instrument, in terms ofsecurity, marketability, stability of value or liquidity. Insurance, including life insurance, is essential for the conservation of many businesses, justas it is in the preservation of homes. Life insurance enhances the existing standards of living. Life insurance helps people live financially solvent lives. Life insurance perpetuates life, liberty and the persuit of happiness. Life insurance is a way of life.

Life insurance

Life Insuranceis a contract where insurers have to pay a designated beneficiary amount of money upon the death of the insured person. The policy holder has to pay a premium regularly or as a lump-sum amount. Depending on the contract, various sorts of expenses such as terminal illness or critical illness or funeral expenses are covered in the premium. There are various types of insurance policies in the market, mentioned below are the few amongst them:

Term insurance policyThis policy protects the person insured for a specific period of time.Whole life policy-The policy covers a policyholder against death, throughout his life term. Premiums paid under the whole life policies are tax exempt.Endowment PolicyThis is the policy in which the beneficiary gets the sum assured in case of death or if insurer survives then also premiums are paid back with other investment returns and benefits.Universal life coverage- It is a new insurance product that has permanent insurance coverage as well as wealth creation options.Money Back Policy-This insurance policy gives periodic payments during the term of policy.Retirement and Pension-The policy provides protection against financial risks and money in the form of pension at regular intervals.

LIST OF LIFE INSURANCE PLAYERS IN INDIA PUBLIC SECTOR LIFE INSURANCE COMPANYLIFE INSURANCE COMPANY (LIC)PRIVATE SECTOR LIFE INSURANCE COMPANY Bajaj Allianz Life Insurance Company Ltd. Birla Sun-Life Insurance Company Ltd. HDFC Standard Life Insurance Co. Ltd. ICICI Prudential Life Insurance Co. Ltd. ING Vysya Life Insurance Company Ltd. Max New York Life Insurance Co. Ltd. MetLife Insurance Company Ltd. Kotak Mahindra Old Mutual Life Ins. Co. Ltd. SBI Life Insurance Company Limited TATA AIG Life Insurance Co. Ltd. Reliance Life Insurance Co. Ltd. Aviva Life Insurance Co. Pvt. Ltd. Sahara India Life Insurance Co. Ltd. Shriram Life Insurance Co. Ltd. Bharti AXA Life Insurance Co. Ltd. Future Generali India Life Insurance Co.Ltd. IDBI Fortis Life Insurance Co. Ltd. Canara HSBC Oriental Bank of Commernce Life Insurance Corp.ltd. AEGON Religare Life Insurance company limited. DLF Pramerica Life Insurance Co.ltd. Star Union Dai-ichi Life Insurance Co.ltd. India First Life Insurance Company Limited Edelweiss Tokio Life Insurance Company LimitedINFORMATION TECHNOLOGY APPLICATION IN LIFE INSURANCE SECTOR INTRODUCTION

In the present scenario everyone is using computer one way or the other and whenever you go to the market for shopping in any departmental store there you will find billing is computerized. The most common item now a days is a Mobile phone which uses the information technology to send the data or store the data like phone numbers or the messages.

In the latest mobile sets songs can also be stored and the mobile phone instrument can be used as computer. The innovation in the computer field is taking at very high pace. We are going to explain how the computer can be useful in the insurance sector.

MEANING OF INFORMATION TECHNOLOGY

The devices and techniques used to store, process, manage transit and communicate information, encompass various technologies such as computing, microelectronics and telecommunication is known as Information Technology

There is revolution in the Information Technology after the advent of computers starting with first Generation Computers to the latest Pentium microprocessor based Personal computer.

It has been further revolutionized with the development of software packages for specific area from stand alone personal Computers to Local Area Network and ~Wide Area Network~ and Main Frame computers. These computers can be used by many users simultaneously known as Multi-user environment.

You know very well that the volume of transaction is very large in any insurance organization. The data and information are to be stored for a Longer period because insurance contracts are long term especially life Insurance contracts.

The Insurance organizations have the network all over. the countries even in foreign countries. Moreover, the transactions are of repetitive nature therefore, it has become necessary to seek the help of machines to process the data. Initially, the Insurance companies used adrena machines and punch card equipment for creating, storing and processing data.

But these machines were severely limited in their capacity. These were mechanical machines or Electra mechanical machines therefore, their speed, capacity and flexibility was much limited, But even the computers had some limitations initially, But these difficulties have been overcome with the help of the recent developments in telecommunication, which are used to aid computer technology.

INSURANCE RELATED APPLICATIONS

Life Insurance Applications

(a) Life Administration Module:

Policy Servicing of existing policies: The existing policyholders may require various services after taking the insurance policy

For eg: Change of Nominee, Change of address, of change in mode of payment, assignment of the policy, Claims payment etc. These changes or payment can be made very easily through computers.

Information Technology (IT) Application in Insurance

DIPLOMA IN INSURANCE SERVICES

New Business: As and when the new business is acquired the initial data of a policyholder is quite large and as stated above the data is to be maintained for longer period therefore storage of data in computer is useful

Renewal notice/Billing: Renewal notices to be sent for the payment of the premium and with a no. Of policyholders are very large and the renewal is on different dates. The computer generates the renewal notice at very high speed and does it automatically. The inter-mediatory bills are generated very fast and quickly

Loans: The Policyholders do take loans and the insurer has to maintain the records as the insurer has to recover the loan from the policyholder along with the interest. The recovery of loan may be regular or recovery at the time of payment of claim

(b) Statistics and MIS Claims: As the data in computer can be stored for longer period the data may be useful for the insurer to prepare the type of policies are sold in the market and type of claim arisen in the particular region. These types of data will be useful for management to take any decision.

(c) Archiving of historical data and imaging Systems: As the past data is available with life insurer therefore they can design the new products and price them accordingly.

General Insurance Applications

a) Front Office System Policy Management and underwriting system Co-insurance Reinsurance Claims Management System Financial Accounts and Audit Statistics and MIS

b) Reinsurance System . Inward insurance

DIPLOMA IN INSURANCE SERVICES

Outward Insurance Reinsurance Account MIS.

c) Risk Management System

Other Applicationsa) Investment Term Loan . .. Money market . Investment Accounts . Market Operations

(b) Personnel System. Payroll system Performance Appraisals Attendance and leave system PF .

(C) Office Services Purchases Inventory Tours and Travels etc Corporate Accounting System General Insurance Applications

Let us discuss about Front Office System In the General Insurance Industry.These applications can be written in any language and they may differ from Office to Office of The different. The software namely

GENESIS~ is being used by General Insurance Companies.On-line Front Office System is the first step towards computerization of any insurance Company and a well designed system at the front offices has following advantagesto the company.

To carry out business transactions efficiently Easy to handle growing volume of business and variety of Business

(No. of documents processed, Variety of policies issued, Volume of business)

Efficient customer services Reduction in office expenses MIS for the Branch Managers .

A good Front Office System should allow Insurer, Underwriters, and agents to manage the day to day operations of the office. The system should be capable of administering all stages of policy development from questions to new business, through adjustments by way of endorsements and renewals of policies. Coinsurance, Claims re-insurance and all accountingfunctions. The main components of the Front office System are given below:

Policy Management including Underwriting (Policy acceptance and printing and customer services)

co-insurance

Re-insurance.

Claims. Statistics & MIS

Accounts

POLICY MANAGEMENT INCLUDING UNDERWRITING

Policy Management has provisions for policy acceptance, client interaction window and policy printing. They should be able to store policies and the system should allow immediate access to a client portfolio. The policy management system generally has provisions for dealing directly through a broker or an agent or branch office. Generally in a good Policy Management system The Policy is able to handle multiple and mixed risks even if these risks are located at multiple locations. Policy management system has following additional

features:

User configured screens Provision for questions Policy production (including printing) Renewals Endorsements Coinsurance

The front office system should have the facility to handle Coinsurance policies. The provisions should be such that underwriter simply states whether the insurer is acting as lead insurer or follower. They should then automatically pass the retained premium to the relevant reinsurance. Claims payment should activate co-insurer recoveries wherever necessary.

Reinsurance: The Front Office system generally has facility to handle all types of proportional reinsurance including Surplus and Quota Share Treaties: The system should be capable of setting up treaty layers by class of business with exposure levels varied according to the EML (estimated maximum ion). The system generally has the provision to incorporateproportional reinsurance ceding automatically into any claim payments or recoveries. The reinsurance module automatically produces reinsurance Bordeaux for each cedant.

ClaimsThe Front Office System includes an integrated claims system to record, progress and monitor claims, experience by Policy Clients brokers, Branch and risk covered.

Some of the features of a claims module are given below

Movement history or duration of claim Analysis of claims with user defined screens . Automatic recovery from reinsurers Incurred but not Reported (IBNR) causation and catastrophe recording and exception reporting Other routine enquiries.

Generally the claims system provides all the facilities required to manage reserves, payments. recovery, accounting, claims history recording, statistics, various kinds of ratios, and run off. The claims system also provides claims experience information at the time of renewals and monitors motor claims in order to accurately manage no claims bonus.

DIPLOMA IN INSURANCE SERVICES

AccountingFront Office System allows accounting for all transactions, which occur in the operating office. The accounting is generally integrated to policy management system and shouldautomatically produce debit/credit notes, renewals notices, cover notes, reminders, statements, Bordeaux, remittance advices etc. The system should be able to handle taxes~ duties, reporting requirements as well as automatic calculation of midterm adjustments:

Statistics & MIS

The statistics module should allow production of comprehensive statistical, analytical and management information, Reports should be in any different formats and should include detailed audits, performance reports for management, should have provisions for exception reports for underwriting purposes and cumulative reports for statutory returns.

LIFE INSURANCE APPLICATIONS

The Operational OfficesThe Operational Office is engaged in procuring of new business and servicing of policies, Hence it has to maintain three types of data in respect of the policies being serviced by it.

BillingRecords containing policy number, name and address, installment premium etc. for printing receipts and notices.

PremiumRecords containing policy number, name and address, agency code number, instalment premium, commission etc. For preparing commission bills.

ValuationMaster Records containing necessary information for assessing the liability under a policy at any point of time and providing necessary statistical information to management.

When, under a policy, some alterations in policy conditions are effected and the instalment premium consequently gets

altered! all the three files or the Policy Servicing Database have to be corrected. During mid fifties it was difficult as the only way of correcting a punched card was to punch a new card, reproducing the unaltered information from the old card and punching only the altered information. There was always chance of errors creeping into the systems.

In order to avoid errors creeping into the system, the Insurance Industry was therefore continuously on the look out for a system wherein the particulars pertaining to a policy can bemaintained on a single record. So when the electronic computers were introduced, the Insurance lndustry was in the safeguard of its users, Since the length of a record onmagnetic media can be fairly large almost all the information pertaining to a policy could be contained in single record This eliminated the problem of inter-file consistency and alsosimplified the process of making any alterations. After liberalization of insurance sector there are 29 insurers of life and general insurance and apart from Public sector undertaking all are using independent computer software keeping in their marketing strategy. The private players are controlling centrally therefore their module is quite different from the PSUs who are in the field for the more than 50 year.

We are discussing in brief the module followed by Life Insurance Corporation (LIC) for the Front End Application for the branches:

1. NEW BUSINESSMODULE (N B Module).2. CASH COUNTER MODULE .3. POLICY SERVICING MODULE.4. CLAIM MODULE.

1. NB Module:

The NB Module takes care of premium calculation, adherence to policy terms and conditions such as minimum or maximum age at entry maximum age at maturity, policy term, sum assured, mode of payment of premium etc.

The program checks the validity of individual entry and does consistency checks . date of birth and age, data of commencement age, term, and date of maturity, plan, mode of payment etc as expected in the policy conditions end underwriting rules, The Arithmetical part of the Underwriting process, as referred to above, having been taken care of in the Module, the underwriter is free to concentrate on other areas such as Medical Report, Moral Hazard Report.

Special Report etc, thereby enhancing the quality of Underwriting Standards. Many jobs manually done previously, such as proposal review slip typing, writing of proposal register and completion advice, outstanding deposit schedule etc has been taken over by the Computer.

2. CASH Module: The cash module mainly caters to the needs of the cashier and some of the function of the Accounts Department. The premium receipts, policy and proposal deposit receipts, 555, Loan and interest receipts, and Miscellaneous receipts are printed through the use of the Computers.

The receipts are generated on-line and there is no need to generate Special Premium receipts (as was the practice earlier). There is no need to keep the pre printed renewal premium receipts. The Renewal Premium history file is updated, This eliminates the ledger posting (i.e. posting of the collection of the premium in the individual ledger, which is a laborious, time consuming job).

The cash book, cash and cheques collection list policy deposit schedules etc could now be printed under the CASH MODULE, thereby eliminating the manual preparation of the cash books and Outstanding Policy Deposit schedule.

3. Policy Service Module:

This module enables recording of the Change of Address, furnishing Revival and Surrender Value quotations, Requested File Maintenance (RFM) actions, displaying Policy Deposit position, displaying premium history refunding policy deposits etc.

4. Claim Module:

This module mechanizes all the jobs related with claims that are currently done manually starting from printing discharge voucher, data sheet to the final printing of various MIS statement.

TECHNOLOGIES FOR INSURANCEThere 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 revolutionised 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 SystemsThe 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 cash value, medium 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 in 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 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. Analyisng a 1O-year database is cost effective.Reviewing the database provides information on how many clients have 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 WarehouseData warehousing technology is based on integrating a number of information systems into a 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 a means to control costs and increase revenue resulting in enormous earning for effective users.Decision Support SystemsThe 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 a continuously ongoing, dynamic process for any business. Such decision support systems will provide the insurance managers with a tool for customised products and services that are more in line with what customers want.Group Linking SoftwareGroup-linking software enables sharing of information arid partieular1v 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 Workflow TechnologiesThe 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.MappingInsurers 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 TechnologyGood customer service is a crucial element for gaining, maintaining and retaining profitable customers. Call centre concept based on interactive voice response services (IVRS) is gaining importance in this aspect. Video LinkingA 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 ModelsCatastrophic models use data from the recent natural disasters that helps develop more predictions of insurers 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 companys 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 utilised by everyone worldwide. Insurers can browse through many useful sites on the Internet. Technology & Cyber Insurance in IndiaThe opening up of the Insurance industry in India would boost competition, facilitate technology transfer and lead to new products, better customer service, deeper and wider insurance coverage and many more opportunities for employment. As new private sector entrants enter into India, opportunities in the insurance industry are up for grabs. One important aspect of the insurance industry, which is gaining prominence tile world over, is the development of technology and cyber-insurance strategies. Cyberspace is a risky place. Companies conducting business over the internet are exposed to a variety of new, unpredictable and serious exposures such as servers crashing, computer viruses, destruction of data, e-mails disappearing and attack from hackers for which there are few precedents in terms of risk management and even less actual insurance coverage. Cyberspace presents unique challenges to risk managers for several reasons; the foremost being that there is no Standard risk profile.The wide variety of internet-related businesses, such as ISPs, content aggregators, certification authorities, online merchants and software developers, all contribute to the difficulty of developing a single risk profile. Enacting appropriate insurance policies for ensuring cover for security issues and intellectual property rights issues is vital.For safe business transaction, what is needed is a secure legal environment and while legislation in India is providing this environment with the enacting of laws dealing with the Internet, Insurance companies in India should provide comprehensive protection policies for a business against web-related risks, such as hackers and viruses, credit card and employee fraud, business interruption losses, and legal action. Essentially, the policy can fill the gaps in coverage that have opened up between standard insurance policies due to the fact the way business is done has changed. Intellectual property infringements: content providers who use content of others without permission can trigger these risks. Errors and Omissions liability: these risks are typically triggered by the programmers, web hosts & web-designers, who, through negligence in their work cause injury/damage to a third party. Personal injury & advertising Liability: As e-commerce grows, these risks can be triggered by worldwide web sites, and trade publishers who publish illegal content or content which may be constructed as libel. Directors liability: Directors and officers often face the risk of litigation due to numbers of factors, such as consumer protection laws, securities related laws, and certain provisions in the corporate laws that place additional responsibilities on directors. Employee liability: These risks would arise from the breach of confidentiality and rights of privacy arising out of confidential client information stored on a particular system or website. In addition, employee can initiate sexual harassment charges from an employee due to disturbing e-mail content. Legal fees: Fees incurred for litigation arising out of various claims, such as intellectual property. Many businesses on the internet mistakenly think their internet- related exposures are covered by their existing policies. IT APPLICATIONS IN FUNCTIONAL AREAS

Even though the information technology has wide application in all the spheres of the insurance business, yet following are the most important ones in respective functional areas:MarketingThe 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 Ps of marketing. It may help in formulation and implementation of various marketing strategies including pricing, promotion and customisation strategies. Some of these areas are discussed below:Consumer AwarenessThe 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 the existing ones and of course, the information on various discounts and incentives can be provided at a much faster rate and lower cost.Customer ServicesThe 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-then giants viz. the LIC and GJC.The investments in the personnel and knowledge systems have helped private players companies build significant domain expertise. The emerging areas of IT applications are:(1) Market Research(2) Consumers targeting and segmentation(3) Customisations of products(4) Easy procedures like premium payments, claims settlements, tracking of brokers and agents(5) Complaints management! grievance handling(6) Intermediary analysisFinanceInformation technology can be effectively used for internal management viz. Accounting, treasury management, financial performance reporting etc. and as well as in resource mobilisation, portfolio management, investment planning etc.Human Resource ManagementApplication of IT in Human Resource Management is obvious. It can be effectively utilised in: (1) recruitment and selection, (2) training, (3) performance appraisal, (4) promotions, transfers and dismissals, (5) valuations etc.Research and DevelopmentR&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.

Impact of Technology on InsurersAny new adoption needs time to get acquainted with the users until they gain enough confidence & knowledge in that system. Recent studies reveal that consumers lack passion for insurance because of its complexity, but despite these push backs, a growing number of insurers are intrigued by the significant cost saving & customer-retention benefits to be gained through online self-service. Although carriers think that by encouraging insurers to do transactions by online services, which would reduce operational costs vastly, they are very cynical of investing in web technology with dot-corn collapse.The trick lies in educating insurers about the concept and benefits of eservices in this sector. Driving client to initial online self-service experience into something more interactive by call services that would involve human interactions will certainly have a greater impact. This balanced approach is how most insurers are enabling online self-service that not only make sense for policyholders, but also provides support for intermediaries and agents. The main challenge for any health companys website would be bringing all sections of people to view their site.They should show some positive incentives to bring customers to their websites. Online services have own advantages like accessibility of information 24/7, visualization of information, providing interactive plan finder tools, adding useful links to the websites, live chat technologies etc. An online activity helps to give necessary knowledge to consumers, which is very positive, because it implies that when people learn more they establish a deeper relationship and a broader dialogue with the carrier. Agents and brokers also enjoy the efficiencies that come with writing new businesses and servicing their customers on websites. About 55% to 60% of customers take booklets electronically. In order to enable efficient online self-service functions, companies typically have to update their legacy systems.Despite the current limits to online self-service, as the Internet continues to gain acceptance, customers probably will become more open for using it as a conduit for insurance services. In the past year, the portion of insurers offering customers service websites has been growing dramatically.

Technical ChallengesA host of tech accompanies the task of insurance fraud and abuse detection. An abusive solution to the problem requires a comprehensive approach enabled by a variety of technologies that addresses these technical challenges head-on. Some of these design issues include; Ongoing reassessment of fraud riskBecause fraud may not exist at the time the claim is submitted, or because evidence of abuse may not yet be apparent, a system must each claim over and over on an ongoing basis. Understanding raw dataThe starting point is the raw mountain of data. A thorough understanding of this data requires careful analysis and domain expertise. Furthermore regardless of what technologies are employed, careful engineering is required to address issues of data being messy. missing or standardized Behavior from ongoing transactional dataCharacterizing claim activity involves the summarization of all transactional data (e.g. payments or medical service details). This summarization must not lose key aspects of activity. Complex pattern in dataIdentifying which claims are most suspicious requires a comprehensive analysis of many different features characterizing the claim and its activity. A detection system must be able recognize those patterns of behavior most indicative of fraud. Limited examples of confirmed fraudulent claimsIn many cases, only a small number of known examples of fraud may exist in the historical data. One must be able to handle such situations when developing the detection system.

Prioritization of suspectsIn order to match work level to staffing constraints, which may be different for different customers and may vary over time, a detection system must allow for prioritization of suspects. Scoring models provide a rank ordering of all suspects so that attention can be focused on those deemed most suspicious. Effective use of detection resultsIn order to effectively use the detection systems results, explanations for what makes a claim look suspicious should be provided, strategies for effective workflow assignment should be determined (e.g., match resources with suspects that are most beneficial to review) and tools to review the results should be available (these may already exist). System MaintenanceThe system performance must not deteriorate due to changing patterns of activity overtime. Because neural network models are built from data and automatically learn complex patterns within the data, they can be efficiently redeveloped. Indeed, as more examples of abuse become known, model performance can be expected to improve over time.

Internet & IntranetThe Internet is a worldwide system, accessible through computers. Information travels through the internet at incredible speeds. It cuts across national & international boundaries. While the internet allows access for anybody from anywhere, the internet is an in-house network, working on the same principle. The difference is similar to the difference between a national newspaper & in-house newsmagazine, which is for private circulation.If an insurer has an intranet system, the information in the intranet will be available only to its offices & personal. The policyholders will not be able to access the data in the intranet. Circulars meant for internal circulation can be posted on the intranet & everybody will have immediate access to it, however far away he may be located. In the intranet also, it is possible to restrict some information to certain categories of persons, who will be identified through passwords.Both internet & intranet enables users to do the following at any time (24 hours, 365 days) Send & receive letters, which are called e-mail. Every person will have an e-mail id, which is his address in the net. Search, read & retrieve data, files, and pictures. Buy & sell of policy Benefits to AgentsIf the insurer has an intranet, the agent can, sitting at his place of work, be attending the insurers office, making enquiries about status of proposals or claims or discussing with any other agent, for clarification or advice, whenever he wants to do it. The physical distance between the agent & the office will not be of any consequences at all. The benefits to agents will be:He can receive all circulars & instructions issued by any office. All delays on account of postal transmission, being forwarded from one level to another, dispatch department absence of peons, wrong addresses, misplaced through oversight, lost in transit etc., are avoided.

Any doubts with regard to proposal, benefit, premium, taxation, medical examination, insurability etc., can be discussed & got clarified directly from the person concerned.Communications to & from the office will be immediate through e-mail & at a low cost.Benefits to PolicyholderslProspects:Prospects can get benefit through the internet in the following ways- They can get details of the various policies, the benefits there under, the premiums payable etc., Prospects can get advice on the suitable insurance plan for themselves. Policyholders can get information with regard to the status of the policy, the premiums due, the bonuses attached, the surrender values or loans available, revival possibilities, nearest office for any further transactions. Premium can be paid without having to go to the office of the insurer, by direct debit to the policyholder credit card or bank accountThe LIC has included in its websites, for the benefit of the prospectus and the policyholder, information to health issues

KISOKSKiosks are unmanned information centers, placed strategically at public places. They are called Interactive Touch screen kiosks. A kiosk is a self- contained hardware & software to blend all current media including graphics, video, text & quality sound. It consists of a touch sensor& a monitor on which the sensor can be fitted. The user is expected to touch the relevant sensors, according to the choices offered by the kiosks visually on the monitor. The kiosks then takes him the required information or to transact the required business.The LIC has installed kiosks in more than 100 locations covering its divisional headquarters. The kiosks provide information on policy status, product information about all products including group insurance products. These can he used by persons, who do not have their own computers and cannot access the internet. They can be operated 24 hours a day and do not require any supervision like the ATMs of banks.The touch-screen kiosks were installed in some of the branch, divisional and zonal offices of LIC. By this facility the customers can obtain information about LIC, its performance, schemes and statuses of policies by the touch of the screen.The kiosks are interactive and user-friendly. Such kiosks are also to be installed in bus and railway stations and in busy thoroughfares of major towns and cities. In due course, payment of premium will also be made by dropping cheques and DDs in drop-in boxes.

DATA COMPROMISE COVERAGEThe breach of personal data stored in business files and computers is a serious risk for any company that controls the information. Customers and employees may become the victims of identity theft and fraud. With so many incidents of data loss being reported, companies are looking for solutions that include new insurance protection.All companies are responsible for personal information. Even a small business may have data on a large number of customers, clients and vendors. That information can be lost, stolen, or inadvertently disclosed. But the result is the sameanxious victims, unexpected business costs and damage to a companys brand and reputation.Laptop Thefts Increase RisksThe breach of personal information is a serious problem in the US. In the past two years alonc, data breaches have affected approximately 100 million Americans, a consumer watch group reports. Some people may have been affected more than once and not all of them were victims of identity fraud, of course, but the growing number of data losses points out the continuing exposure to consumers and businesses.Personal data may be stolen from physical records, or obtained by fraud such as the sale of information to a sham company It might be hacked from computers, mistakenly released or published, even posted to a website. A key factor in many of the recent high profile data breaches has been the theft or loss of laptop computers. ln fact, about a quarter of all reported data breaches may involve missing laptops.Its not surprising since laptops are a target of thieves. Cyber Angel Security Solutions, a national security technology firm, reports that 10% of all laptops are stolen in the first 12 months and 90% of those computers are never recovered. Half of the companies in the US had their laptops stolen in the last year and almost 90% of all corporate crimes are linked to stolen laptops.

Smaller Companies Can Be VulnerableSmall businesses can find it most difficult to respond to the breach of personal information. Yet it is particularly challenging to offer broad and affordable coverage for smaller businesses. Unlike larger companies, they may not have the knowledge, staff and resources to inform and protect potential victims. Smaller businesses might not recover as easily from the extra expense and had publicity. They should look for data compromise coverage that will arrange and pay for: The cost of notifying individuals; Legal reviews and forensic information technology exercises; Personal services for eligible insured such as a helpline, credit checks and case managers for the victims of ID fraud.Treating Claim Data CarefullyData compromise coverage raises sensitive issues for insurance professionals as well. One is the extreme sensitivity of claim data. How will a claim be adjusted? How much information do you need? The personal information of potential identity theft victims cant simply be faxed and dropped inside an inbox. It requires special handling and careful security procedures so that insurers are part of the solution, and not the problem.Another issue is for the insurance industry to take action so that we are not fooled ourselves. It can and does happen that insurance companies issue policies to people who are not who they claim to be. Worse yet, insurers may claim payments to imposters. Identity verification is not always easy, but our industry must take steps to protect personal information and prevent claim-related identity fraud.Insurance Professionals Can HelpIt is difficult enough to keep up with developments. As technology continues to advance, personal information becomes increasingly exposed and new coverage options for data breaches are evolving. The pain of being an identity theft victim is driving public reaction to data breach incidents. The insurance industry can help by taking good care of the data in its own control, offering high quality services to ID theft victims and developing new insurance programs for data breach exposures.

INSURANCE AND ELECTRONIC COMMERCE - E-INSURANCEOn a global basis, there is mad rush of companies willing to enable their business. E-insurance is one of the growth areas in India. Enormous opportunities are being created by the Internets new connectivity such as improving customers service, reducing cycle time, becoming more cost effective, and selling goods, services, or information to an expanded global customer base. As entire industries are being reshaped and rules for competition are changing, enterprises need to rethink the strategic fundamentals of their business in order to be successful. Globally, insurance on the net has lagged behind other financial service products such as banking and brokerage. Of the total online users only 5% used insurance service online.This lag was due to lack of relevant and adequate content. Traditional insurers, while leveraging on new information technologies, have been slow to utilise the Internet as an alternative distribution channel. All the largest insurers have been focused on static marketing presence online, encompassing product information, FAQs and quotes. Only a few insurers have added the ability to submit applications online. This lack of participation in the e-business revolution is seen across lines. The insurance companies attribute two factors for the slow take off. First and foremost, insurance is a product that is sold and not bought. The Internet is perceived to be a buyers medium, with online customers able to search quickly and for the most competitive prices and variety of products. Insurance is one product that cannot be easily commoditized. The more personal the selling process, the greater the difficulty in using the net as a medium for selling. Insurance is one product, which involves personalised selling. The process of insurance sales requires a series of face-to-face interactions.

International TrendsThe convergence effect of IT is being felt by the insurance industry as well in developed countries. The insurance industry is expected to lose market share to banking and other financial institutions. Customers today expect enhance levels of service due to increased competition. This customer demand is likely to result in non-traditional access to specific information. The global online insurance market is expected to achieve an exponential growth in the near future. The Gartner Group in a study conducted by them says that in a year 25% of all customer contacts and enquiries for enterprises will come via the internet, e-mail and online forms. Bancassurance customer service, which has been almost exclusively done via the telephone (96% of all transactions), will become increasingly e-mail based in the next four years; decreasing telephone related service by 28%.In response to these trends in customer preference, insurers are mobilising their online sales and customer account management capabilities. This move towards building Internet based business solutions benefits the insured by providing greater flexibility, greater customisation of information and improved customer service for the insurance company. This drastically reduces the costs involved. Similarly, by essentially outsourcing administrative and cost intensive processes such as policy administration to customers, the cost of administration and servicing the insurance policy also decreases sharply.E-Insurance in IndiaThe intriguing question before all associated with the insurance industry is that will it be possible for private companies or even public sector monoliths to sell insurance online in India in the near future? Insurance companies will probably have to wait for Internet penetration to increase and the still ambiguous e-commerce rules to take concrete form. However, what is not debatable is that new private entrants will change the rules of the game for the Indian insurance business, both in the life and the non- life segment, unfolding opportunities for software engineers and professional agents.To peep into the possibilities and opportunities emerging out of the integration of insurance and information technology, various organisations have organised seminars and conferences in the recent past to explore the possibilities of selling insurance on the Net and gauge the opportunities for the growing Indian software industry.

According to T. Ramanan of Assocham, life insurers were among the first to go online with informative content and features like actuarial calculators. However, according to him, they have been relatively slow to embrace online commerce, which currently makes up about 1 per cent of the total term life market. Only 12 per cent of insurance companies globally sell policies online. Experts expect the percentage of term life sold over the Internet to increase from I per cent to 15 per cent by 2003, which in monetary terms works out to $21 billion. Although traditionally term life insurance has been sold through independent agents, the big shift will become manifest sooner than later. And more importantly Indians cannot watch from the sidelines as this paradigm shift in the insurance sector takes place. In the non-life sector, automobile policies are popular over the Internet. Premium income, points out the paper, is expected to rise to $18 billion from about $1 billion currently. The growth of global online insurance business augurs well for the Indian IT sector. The exponential growth in the online insurance business will unfold significant business opportunities for software companies/consultants. The opportunities that rise out of this will be both global and local, because new entrants will have to either fine tune or prepare customized packages for the Indian market.Online insurance will also help companies reduce costs and keep premiums low, a prerequisite in a price sensitive market like India. The government, however, will have to address problems relating to bandwidth on an urgent basis to make online insurance a reality in India. Other major challenges to face Indian insurers will be to design and develop strategies for delivering services to well segmented customers. The third challenge lies in developing the right combination of customer segments and applicable distribution channel strategies.Most Web sites offer contact numbers of their branch officers where we can get further details of the products on offer. The Agent locator feature, available on maxnewyorklife.com, iciciprulife.com and on bimaonline.com help one locate an insurance agent most accessible to you based on a search facility. One would expect downloadable proposal forms on insurance web sites, but these are missing in most cases. Only Iicindia.com seems to offer downloadable proposal and claim forms for a few of the schemes.Benefits of Electronic InsuranceE-insurance provides multiple benefits to the insurer and the existing and prospective insured: Information collected is better and cheaper Speed of response Issuance of policy and settlement of claims is faster Provides new ways of doing business in competitive market Flexible pricing and customised services Global accessibility i.e. lapse of physical boundaries Increased sales without additional sales force Immediate premium collection and funds transfer Reduced cost per transaction 24x7 availability i.e. round the clock availability of information Real time knowledge base buildingMajor Factors Affecting E-insurance Growth of net: it is estimated that India would have about 150 million net users by 2010. These figures represent a huge buying potential. Competition pressures: insurance companies because of competitive pressures would be driven into Internet rather than a clear ROT justification. Customer: the availability of net-based services will be a huge factor for customer retention. Cross sells: when linked with other financial products, a portfolio approach to investment, savings and risk coverage will increase cross sells and customer loyalty and retention. Costs: in the beginning c-insurance will be a cost factor rather than a profit driver, but in the long run it will be a cost reducing factor.

E-Insurance Business ChallengesElectronic insurance will not only provide many benefits but will also pose business and technological changes.Business Challenges Disintermediation increases business: Study has shown that the cost of distribution decreases with the increased value of connection. Products with relatively high fixed costs and low value such as travel, credit or burial insurance are relatively expensive to produce. Customers pay a high price per dollar of coverage for these products. The Internet allows the disintermediation of this relatively high overhead for these low face value products. This means that prices can be lowered and more insurance can be sold by reducing the transaction costs of the exchange. Reorganisation of companies-Virtual Companies: Many insurers will be prompted by the opportunities presented by E-commerce to restructure the packaging of insurance services. Insurance companies using c-commerce may re-engineer, outsource, and/or streamline their management functions, or marketing and distribution arms. To more efficiently deliver these services, some insurers will be able to reduce their significant investments in physical facilities and certain personnel. E-commerce will enable independent agency insurers to more easily adapt their distribution mechanism to market competition and expedite their transactions with intermediaries. Insurance customers what do they want: Customers could get better and different service through the Internet. It is possible to obtain quotes from a number of companies. In some cases, the Internet provides rating agencies evaluation of insurers. The Internet and outsourcing can provide additional cost savings to the consumer. Technology can bring the customer closer to the insurance contract, by removing layers of inefficiencies. Consumers will also obtain price comparisons for relatively generic contracts, such as life insurance and rates for a standard set of auto insurance coverage for given vehicle and driver characteristics. Consumers also could have access to internal records to see where their claims are in terms of payment, when their next annuity payment is due, and how their mutual fund is performing. This can be done without calling a burdensome voicemail system, being put on hold, or finding a person who can give them the desired information efficiently. The Death of Insurance Agent: One of the reasons why insurers have been slow to use electronic commerce could be the fear of swallowing up the agents business. The Internet does not nece