Intro to Life Insurance

8/9/2019 Intro to Life Insurance

1/285

LIFE INSURANCE


2/285

MODULE : IINTRODUCTION TO LIFE INSURANCE


3/285

Life Insurance

A contract in which the insurer in

consideration of a certain premiumagrees to pay to the assured or to theperson for whose benefits the policyis taken, a stated sum of money on

the happening of the particularinsured event


4/285

History of Life Insurance

o Life insurance had its origins in

ancient Romeo where citizens formed burial clubs

o that would meet the funeral expenses

of its memberso and help survivors by making some

payments


5/285

o In India, in the year 1818 the Oriental

Life Insurance Company was started atKolkata.

o In 1938, the Insurance Act was

passed, that looked into investments,expenditure and management of thecompanies' funds


6/285

o In 1956, the LIC of India was formedunder the LIC Act,1956

o In 1999, the Insurance Regulatory andDevelopment Authority popularlyknown as IRDA was created by an act

of the Parliament to regulate allinsurance companies and businesses inIndia


7/285

o IRDA has evolved into an effective

regulator and it has facilitated the entry

and growth of private players in theinsurance sector

o Since then the growth of the insuranceindustry in India has never been thesame again.


8/285

o Many major international players areoperating in collaboration with Indianpartners. The Joint Ventures arebacked by strong capital base andlatest technology

o The sector was opened up for privateplayers in the year 2000


9/285

Insurance Legislation The Insurance Act 1938:

o Principal enactment relating to insurance

o Contains provisions regarding;

Licensing of agents & their remuneration

Protection of policyholders interests Use of funds & patterns of investments

Constitution of Insurance Associations


10/285


11/285

Life Insurance Act, 1956

o Basis for the establishment of LIC asa corporate body

o Members of LIC are appointed byCentral Govt

o The no cannot exceed 16

o One of them is appointed asChairman


12/285


13/285

o The 4 Companies (The National Ins. Co. Ltd, TheNew India Assurance Co Ltd., The Oriental Ins. Co.Ltd., and The United India Ins. Co. Ltd.) were giventhe exclusive privilege of carrying on Gen. Ins.

Business in India

o This privilege was removed by the amendment madein the IRDA Act of 1999

o Subsequent to the changes in 1999, the above 4

companies became independent companies

o GICs role has become that of a National Reinsurer


14/285

Insurance Regulatory and DevelopmentAuthority (IRDA) Act 1999

Passed in Dec 1999

Provided for the establishment of IRDA

To protect the interests of policy holders

Aimed at opening up the ins. sector for Pvt.companies with a foreign equity of 26%

Also aimed at ending the monopoly of LIC &GIC

in the ins. Sector

Amended the Ins Act 1938, the LIC Act 1956 &The Gen. Ins. Business Nationalisation Act 1973


15/285

o Constitution of IRDA

A Corporate body

Not more than 10 members (Chairperson+ 9 other members)

Advised by an Insurance Advisorycommittee, of not more than 25 members


16/285

o Duties & Powers of IRDA Replaces the Controller of Insurance to

administer the provisions of the Ins. Act,like registration, licensing, laying down

regulations

To regulate, promote & ensure orderlygrowth of Ins. Business

To exercise all powers and functions ofthe controller of insurance


17/285

To protect the policy holders interests

To promote & regulate professionalorganisations connected with ins.Business

To call for information from, undertakeinspections and conduct investigationsincl. audit of the insurers


18/285

To control & regulate the terms &conditions offered by the insurers

To prescribe the manner & form in whichthe accounts will be maintained by theinsurers

To regulate the investment of funds

To adjudicate disputes between insurersand intermediaries


19/285

Consumer Protection Act 1986(COPA)

Consumer can approach the variousforums prescribed under the Act for

redress, if he is not satisfied

Consumer dispute redressal forums areestablished in each district and in each

state

The COPA applies to ins. Business as well


20/285

Policy holders have the right to seekredress against unfair practices or

unsatisfactory services from theinsurers

Majority of disputes in insurance ariseout of repudiation and delays inclaims


21/285

Ombudsman

Appointed by the Governing body of Ins.Council

Function : To resolve the complaints inrespect to disputes between the insurersand policy holders in cost effective,efficient & impartial manner


22/285

The complaints to the Ombudsman mayrelate to;

Partial or Total repudiation of Claims

Any dispute regarding premium paid or

payable in terms of the policy

Any dispute on the legal construction of thepolicy relating to claims

Delay in settlement of claims

Non-issue of any insurance document tocustomers after receipt of premium


23/285

Ombudsman Counsel & mediator

Has to make decision on the basis of docssubmitted

The complainant & the insurer can makepersonal submissions

But lawyers are not permitted to arguethe case


24/285


25/285

Ombudsman should makerecommendation within one month

from the date of receipt of complaint

If the complainant accepts this

recommendation, the insurer has tocomply within 15 days and inform theOmbudsman accordingly


26/285

If the complainant does not accept theOmbudsman's recommendation, theOmbudsman shall pass an award inwriting stating the amount awarded

The award has to be passed within 3months


27/285

The complainant has to intimate hisacceptance of the award within one monthby a letter of acceptance to the insurer,

and the insurer has to comply within 15days and inform the Ombudsman

If the complainant does not intimate theacceptance, the award cannot beimplemented


28/285

The Arbitration & Conciliation Act 1996

Provide for the settlement of disputes thruArbitration

Arbitration is a recognized & valid processfor the resolution of disputes

Speedier than proceedings in a court oflaw


29/285

Disputes regarding admissibility of claim is not subject toarbitration

Differences with regard to the amount of the loss to bepaid can be referred to arbitration

The sole arbitrator may be agreed to by the parties inwriting

Otherwise, each party will appoint one arbitrator and thetwo arbitrators will appoint a third called the Umpire

Any disagreement between the 2 arbitrators shall bereferred to an umpire


30/285

Other Laws:

The WC Act 1923

The Employee State Ins. Act 1948

The Marine Ins. Act 1963

Motor Vehicles Act, 1988

The Public Liability Ins Act 1991


31/285

Lok Adalats:

The Motor vehicle Act provided for theconstitution ofMACT (Motor Accidents ClaimsTribunals) by the State Govts.

The objective was to ensure speedy settlement ofTP claims

To clear the backlog of claims in the MACTs, LokAdalats were formed

From the pending cases, claims upto certainlimits are submitted to the lok Adalats

The selection of cases is made by MACT inconsultation with the insurer


32/285

Essential Features of Life

Insuranceo Elements of a valid contract

o Insurable interest

o Utmost Good Faith

o Warranties

o Assignment & Nomination

o Cause is certain

o Premium

o Terms of Policy

o Return of Premium


33/285

Peculiar Nature of Life Ins.: Thecontracted event is bound to happen

Life insurance is a longtime contract


34/285

Important activities in a Life

Insurance Organisation

o Procuring applications or proposals

o Scrutinising & making decisions onthe proposals

o Issuing the policy documents,incorporating the terms & conditions


35/285

o Keeping track of the performance of theinsurance contract by either party, likepayment of premium or payment of benefits

o Attending to various requirements during theduration of contract

o Other supporting activities (like advertising,maintenance of accounts, management ofpersonnel, compliance with regulations andlaws)


36/285

Modern concepts of LifeInsurance

o Economic Concepts

o Actuarial Concepts

o Legal Concepts


37/285

o Economic Concept:

Based on the economic principle. I.e.,Spreading of risks


38/285

o Actuarial Concept:

Based on the actuarial ormathematical principle

I.e., How much should be paid.(Premium)

Premium should be proportional to therisk

This process of fixing premium is donethru the Actuarial principle


39/285

o Legal Concept:

Based on Legal Principles Restrict the members of the pool to

enjoy the benefits of insurance withoutviolating the laws


40/285

Module II

LIFE INSURANCE PRODUCTS


41/285

The 2 basic needs of all individuals are;

Risk Coverage

Savings for Future

Basic Elements of Life InsuranceProducts


42/285

Risk here means Death

The first basic need is to provide alump sum amount to the family in theevent of untimely death of the breadwinner

Here the amount is payable only if

the death of the insured occursduring the selected period

TERM INSURANCE


43/285

The second is accumulation ofsavings for a specific purpose.

Here the amount is payable only ifthe insured survives till the end of theselected period

PURE ENDOWMENT


44/285

These 2 concepts Basic elements ofevery Life Ins. Product

Basic Building Blocks in all LifeInsurance Product design

Life Ins. Products are developed bycombining these 2 elements in differentproportions, according to the needs ofindividuals


45/285

Types of Life Insurance Products

Conventional Plans

Unit Linked Plans Annuities & Pensions

Besides there are Group Insurance

Plans & other special plans


46/285

Conventional Plans:

Oldest types of plans available

Cater to customers with a low riskappetite

Steady and almost assured returnsover the long term

Premium to Sum Assured ratios are

fixed for each plan and age. Generally withdrawals are not

allowed before maturity


47/285

Conventional Plans-Types

Conventional Plans:

a) Participating Plans

a) Non Participating Plans


48/285

Conventional Plans - Types

a) Participating Plans:

Share of profits are distributed to thePolicy holders

Also called With Profit Policies


49/285

a) Participating Plans:

i. Endowment Plansii. Money Back Plans

iii. Whole life Plans

iv. Childrens Plans

v. Joint Life Plans


50/285

i. Endowment Plans:

Primarily Provides a living benefit

More of an investment Benefits are paid after the specified

period

The period for which the policy is taken

is called the Endowment Period


51/285


52/285

ii. Money Back Policies:

Part of the Sum Assured is paid tothe policy holder in the form ofsurvival benefits, at fixed intervals,before the maturity date


53/285

Risk cover on life continues for the

full Sum Assured

Bonus is also calculated on the fullSum Assured


54/285

If the policyholder survives till theend of the policy term, the survivalbenefits are deducted from thematurity value

Money Back Policies give Money in

hand + Insurance cover


55/285

Money back policies are normally fora fixed tenure, normally up to 25years or so

The policy holder pays a fixedpremium periodically during the

paying period


56/285

iii. Whole Life Policies

Cover extends to the whole life Premiums are paid till death

Premium rates are comparatively

lower


57/285

iv. Children's Plans

Insurance can be taken on the lives of

children, who are minors

The proposal will have to be made bya parent or guardian

Generally, in these plans risk on thelife of the insured child will begin onlywhen the child attains a specified age


58/285

iv. Joint Life Policies

Cover the risk of two or more lives

Under a single policy Usually cover Husband & Wife,Partners etc

SA becomes payable;

Either at maturity Or during the death of one of the

assureds


59/285

b) Non Participating Plans

i. Pure Endowment Plansii. Term Insurance Plans


60/285

b) Non Participating Plans

Not entitled to share the profits ofthe insurer

The policy holders get only the SumAssured, without any bonus

Also known as Without ProfitPolicies


61/285

Bonus Loading is not charged in

Non Participating policies

The amount of insurance to be paid iscertain in Non Participating policies


62/285

i. Pure Endowment Plans

To Pay the insurance money in theevent of the insured surviving till theend of the endowment term

Provides only Survival Benefits


63/285

Pays the face value of the policy onlyif the insured survives the period ofinsurance

In case of death of the insured duringthe period of insurance, nothing

becomes payable


64/285

Pure Endowment is for the benefit ofthe policy holder

Pure Endowment has the element ofinvestment

Pure Endowment grants protectionagainst living long

Pure Endowment provides old ageprotection


65/285

ii. Term Insurance Plans

A contract that furnishes lifeinsurance protection for a limited no.of years


66/285

The face value of the policy becomespayable only if death occurs duringthe stipulated term

In case of survival, nothing will bepaid

Provides only death cover


67/285

Advantage Low cost (since only

death is covered)

Suitable where risk coverage isneeded for a restricted period


68/285

Disadvantage The Insurance Moneyis payable only in case of death

If death occurs later, i.e. after theexpiry of the selected term, nothingbecomes payable, irrespective of how

long the original term might havebeen


69/285

Term Insurance Similar to theGeneral insurance Policies

Provides Risk cover only for the termselected

These plans are not very popular, asthere is no saving content


70/285

Term Insurance is for the benefit ofothers

Term Insurance has the element ofProtection

Term Insurance grants protectionagainst living too short

Term Insurance provides Familyprotection


71/285

Term Insurance Provides protectionagainst death during a specifiedperiod (Unlike Whole life policies,which provide protection againstdeath at any time)


72/285

ii. Term Insurance Plans - Types

Level Term Insurance Decreasing Term Insurance

Increasing Term Insurance

Renewable Term Insurance

Convertible Term Insurance


73/285

Level Term Insurance

Uniform premium & benefit through out

the term of the policy

In the event of death anytime during theterm, the SA is payable

Most popular amongst the TermInsurance plans, because of its simplicity


74/285

Decreasing Term Insurance

From an initial amount of insurance,the risk protection decreases yearafter year, becoming zero at the endof the period of insurance

Premium is constant, but the benefitdecreases


75/285


76/285

Increasing Term Insurance

Generally added as rider to another policy

contract

At the option of the insured, the SumAssured increases by fixed percentage orby fixed amount periodically under thecontract

This amount will be available as deathbenefit


77/285

Renewable Term Insurance

Have built in automatic renewal feature

At the end of the fixed period, thepolicy can be renewed automatically bythe policy owner

Without the necessity of medicalexamination / irrespective of the statusof his health


78/285

Premiums will be for a given period,based on the age at beginning of theperiod

At the time of each renewal, premiumwill be the at the rate applicable to the

age attained at the beginning of eachsuch renewal


79/285

Hence, the premium payable will be

increasing with each renewal

At advanced ages, the premium willbe very high


80/285

Convertible Term Insurance

Insured has the option to exchangehis term insurance policy for apermanent type of policy viz, Whole Lifeor Endowment, without having to

produce evidence for continuedinsurability


81/285

Such conversion is allowed during the

period of insurance, and effected forthe AttainedAge or OriginalAge

No further medical examination or

underwriting decisions, when theright of conversion is exercised


82/285

Conversion at the Attained Age:

Premium rate for the new policy will befor the age attained on the date ofconversion


83/285

If the method of Conversion is at the Original Age:

Conversion will take effect from the dateof commencement of the original terminsurance policy

Premium for the converted policy, isrelated to the age at the original date ofcommencement


84/285

Suitable for young people, in theearly stages of their careers

These policies are also useful forpeople who have low income todayand hence cannot afford to pay high

premium in the initial years


85/285

Unit Linked Plans

Combination of Life insuranceprotection + Investment

Offers the benefits of Life Insurance

Provides option to participate in the

growth of capital market


86/285

ULIPs : An endeavor of IRDA toenable the buyer to make the mostinformed decision possible whenplanning for financial security


87/285

ULIP - abbreviation for Unit LinkedInsurance Policy

The dynamics of the capital markethave a direct bearing on theperformance of the ULIPs.


88/285

IN ULIPS THE INVESTMENT RISK ISGENERALLY BORNE BY THEINVESTOR.

ULIPs contribute nearly 50% of thepremium for some insurers


89/285

Out of the Premium, amounts areadjusted towards

Cost of Insurance (Death Cover)

Adjustment towards charges

Allocated Premium Invested in a

fund chosen by the investor


90/285

In ULIPs,

Death Benefits Fixed

Maturity Benefits Not Guaranteed

Maturity Benefits:

Based on Market Conditions Fund in which premium has been

invested


91/285

ULIPs provide flexibility to the PolicyHolders

Option of switching

Policy Holders can make lump sumadditional contribution at any time

Top up the expression used to refer to thepolicyholder increasing the contribution forinvestment. There could be a top up charge


92/285

As per IRDA guidelines;

Top up is allowed only if the regularpremium is paid up to date


93/285

Policyholders may not pay thepremium in a year, subject to certainconditions

If that happens, no new units will be

added to this funds Some units will be reduced to pay for

the annual charges for cover, foradministration, for fund managementetc.

This is called Premium Holiday


94/285

Net Assets Value (NAV)

Represents the net value of the fundon a particular date

Reflects the total value of the assetsof that fund, after some adjustmentsfor expenses


95/285

Surrender Value:

Cash Value payable on voluntarytermination of the policy contract at

the desire of the policy holder, butbefore the expiry term

A policy can be surrendered, providedit is kept in force for atleast 3 years

Mode of calculating surrender valuediffers from company to company


96/285

Lock in Period:

Period during which withdrawals arenot allowed

It is 3 years, according to IRDAGuidelines

Surrender value will be allowed onlyafter 3 years

Diff b t ULIP &


97/285

Differences between ULIPs &Traditional Plans

ULIPS TRADITIONAL PLANS

The Premiums, in excess ofRisk Cover, is invested as

desired by the policy holder

Investment - InsurersDiscretion

Investment returns varybased on the marketmovements.

Investment Risk borne bythe policy holder

Guaranteed benefits Insurer bears the investmentRisk

Non Guaranteed benefits likebonuses based on theperformance of insurers


98/285

ULIPS TRADITIONAL PLANS

Withdrawals are allowed

Loss, if any, depends on NAV

Surrenders are allowed, butat a loss

No bonuses (there are fewexceptions)

Bonuses are payable inparticipating policies

Benefits are variable Benefits are pre determinedGains likely, depending onmarket movements

Gains unlikely, exceptthrough bonuses


99/285

Charges applicable in ULIPs

These charges are subject to various conditions& vary between insurers

Accident Benefit Charges : If the accidentrider is availed of

Administration or Fixed charges: Fees forthe administration of the plan

Flat Fee: charged every month, regardless ofthe size of the premium


100/285

Fund Administration Charges: Being apercentage of the fund & deducted daily

Fund Switching Charges : Levied whenthere is a switch from one fund to another

Insurance or Risk Cover Charges:Premium for the death cover


101/285

Service Tax

Surrender Charges: May be charged forpartial or full encashing of units before acertain period of time


102/285

Attractive Features of ULIPs

Flexibility

Flexibility to choose Sum Assured.

Flexibility to choose premium

amount.

Option to change level of Premiumeven after the plan has started (Topup facility).

Flexibility to change asset allocationby switching between funds.


103/285

Transparency

Changes in the plan & net amountinvested are known to the customer

Convenience of tracking ones

investment performance on a dailybasis.


104/285

Liquidity

Option to withdraw money after few

years

Low minimum tenure

Partial / Systematic withdrawalallowed


105/285


106/285

Module III

ANNUITIES & PENSIONSGROUP INSURANCE

SPECIAL PLANS


107/285


108/285

Annuities form of pension

Practically the same as Pensions

Provide periodical payments


109/285


110/285

Insurance Company makes a series ofperiodic payments to a person(annuitant)

Or to his dependants

Over a No of years (Term)

In return of the money paid to theInsurance Company


111/285

Annuities start where Life Insuranceends

Called the reverse of Life insurance

Annuity stops at death of a person

No part of the premium is returnableon death

Differences Annuities & Other Life


112/285

Differences Annuities & Other LifeInsurance Contracts

Annuity Contracts Other LifeInsurance Policies

Liquidates gradually

the accumulated funds

Provides gradual

accumulation of funds

Taken for ones ownbenefit

Generally for benefitsof dependants

The insurers paymentstops at death The insurers paymentis usually given atdeath


113/285

Annuity Contracts Other LifeInsurance Policies

Premium is calculatedon the basis oflongevity of theannuitant

Premium is based onthe mortality of thepolicy holder

Provides protectionagainst living long

Protection againstliving short


114/285

Conventional pension plans

In these, major portion of thepremium monies is invested in bondsand government securities

The returns are on the lower side


115/285

Unit Linked Pension Plans

Play an important role in the

retirement planning exercise

These Plans invest a portion of the

premium in the stock market apartfrom bonds and governmentsecurities


116/285

Immediate Annuity:

Provides income for a guaranteedperiod of time

Payments begin within one year of

purchase


117/285

Begins at once or immediately onexpiry of the designated period

Immediate annuity is purchasedwith a single premium calledPurchase Price


118/285

Deferred Annuity

Annuity payments to the annuitantcommence at some specified time orspecified age of the annuitant

This specified period is calledDeferment Period


119/285


120/285


121/285

During the life time of the annuitantor his spouse, whichever is longer(Joint Life Annuity)


122/285

For a fixed no of years like 5, 10, 15,20 etc.

This is called Annuity Certain


123/285

As long as the annuitant lives, andthereafter at 50% to the spouse aslong as the spouse lives


124/285

On any of the above terms, but withannuity increasing every year by afixed rate or amount


125/285

Benefits of Annuities

Long Term Savings

Maximize the retirement income

Regular income for the lifetime

Tax benefits


126/285

GRO

UP INSURANCE


127/285

Group Insurance

A large no. of individuals are coveredunder a single policy called the

Master Policy

The contract is between the insurerand a body that represents the group

of individuals, may be employer orthe association


128/285

Since the contract is with the body,that body is the policy holder

The individuals in the group arebeneficiaries

The amount and terms are negotiatedwith the policy holder and not withthe individual beneficiaries


129/285

The premium will be paid to theinsured by the policyholder who mayor may not collect the same from the

individuals concerned

As many persons are covered under a

single contract, the administrativecosts are low

Essential Features of a Group


130/285

Essential Features of a GroupInsurance Scheme

The Group must not have beenformed for the purpose of taking

advantage of the Insurance Scheme.The group must have some otherreasons for bonding


131/285

There must be a minimum no. ofmembers in a group

The individual beneficiary will not beallowed to choose the amount of theinsurance cover. The amount will bedetermined by certain criteria, which

are applied uniformly to all the Groupmembers


132/285

Generally, the individual lives are notseparately assessed for the risks. Theunderwriting or selection is of the

group as a whole.

The terms, amount of cover & thepremium will vary from year to year,

based on the exits, new entrants andthe mortality experience

Types ofGroup Insurance


133/285

yp pSchemes

One year Renewable Group TermInsurance Scheme:

Members are covered for specificamounts, payable on their deathwithin the year

Simplest and cheapest of theschemes


134/285

Group Savings Linked InsuranceSchemes:

Offered to Employers for the benefit

of employees Part of the premium is used for Term

Insurance Cover of the agreedamount

Balance is credited to a Savingsscheme


135/285

Group Gratuity Schemes

Offered to the employers

Related to the Gratuity of theemployees

The scheme guarantees a certainamount of gratuity

Make easier to fund the gratuityliability of the employer


136/285

In Group Gratuity Scheme, the fundsare transferred to the insurer who

have better capabilities for managingthe funds


137/285

Group Superannuation Schemes:

Offered to employers

Related to the payment of pensionsto employees

Help employers in administering thepension funds

Easier administration and availabilityof actuarial and investment expertise


138/285

Reasons for opposition to Group


139/285

pp pInsurance Schemes in India

There is perceptible opposition fromAgents &Development Officersbecause;

The commission rates offered toAgents is low

Development officers are not givencredit for the no. of lives covered under

Group scheme nor the premiumcollected, while calculating Incentives


140/285

SPECIAL PLANS


141/285

Social Security Schemes

Industrial Assurance Plans

Salary Savings Scheme Policies

Riders

Plans Covering handicapped

Key-man Insurance


142/285

Social Security Schemes

Social Security a major concern inall the countries

Most of the social welfare measures

are administered by the Govt


143/285

Govts find it difficult to administerthese schemes

Insurers take over these functions

Social welfare schemes elementarylevel in India

In India, few social security schemesare available for poorer sections


144/285


145/285

Disadvantage High administrativecosts

Agents have to be remunerated

differently Janata Policies Industrial Assurance

plans introduced in India in the earlydays of LIC

In India, Janata policies did notbecome popular


146/285

Salary Savings Scheme (SSS)Policies

Also called Payroll insurance

To cater to the needs of workingclasses

Insurer arranges with the employer to

deduct premium from the salary ofthe workers


147/285

Beneficial for the policyholder: as thepremium is deducted making the premiumpayment easy

Beneficial for the insurer : he is assuredof the premium, less administrative costs

Beneficial for the agent : as the chancesof lapses are less and he gets regular renewalcommission


148/285

Riders:

Clause or condition that is added onto a basic policy providing anadditional benefit

Riders add variety and attractivenessto the nature of the policy


149/285

Riders are added at the choice of theproposer

Riders allow lot of flexibility

Riders enable customization of theproduct

Some of the riders offered by insurers


150/285

in India are;

Increased Death benefit

Accident Disability Benefit Rider: ifthe death is due to accident

Permanent Disability benefits

Premium waiver in child plans in caseof parents death

Dreaded disease or critical illnesscover


151/285

Major Surgical Assistance BenefitRider : Cover to meet major surgical

expenses Cover to continue beyond maturity

age for same or higher SA

Option to increase cover

Option to cover spouse withoutmedical examination


152/285

IRDA Regulations on Riders

The premium on all the riders relatingto health or critical illnesses, in the

case of term or group products shallnot exceed 100% of the premium ofthe mail policy


153/285

The premium on all the other ridersput together should not exceed 30%of the premium on the main policy

The benefits arising under each of theriders shall not exceed the SA under

the basic product


154/285

Plans covering handicapped:

To insure physically handicappedpersons

Extras are charged in some cases

Partially handicapped persons are

mostly accepted without extrapremium


155/285

Key Man Insurance:

Insurance taken by a company on thelife of important employee key man of the company against financialloss that may occur from the

employees premature death


156/285

The Key-man can be;

an Expert

a Technocrat

a Director

a Shareholder

a Executive


157/285

A key man may be defined as anemployee whose death would resultin a financial loss to the company,

including replacement

There can be more than one key man

in a company


158/285

Ad t f K I


159/285

Advantages ofKey-man Insurance

Company is protected against financialloss in the event of key mans death

Gives substantial income tax savings tothe company

An asset for the company in the form ofpremiums paid and added bonus

Generates confidence, sense of securityand loyalty in the minds of key-men


160/285

MODULE IV

INSURANCE OPERATIONS


161/285

INSURANCE ORGANISATION


162/285

INSURANCE ORGANISATION

Marketing

Underwriting

Claims Loss control

Premium auditing

Reinsurance

Actuarial

Investments

Marketing:

f l k l d


163/285

A successful marketing program includes;

Market Research To determine buyersneeds

Advertising & Public relations programs Training programs

Setting production goals and strategies

Effective motivation & management

Underwriting:


164/285

Underwriting:

Underwriting Dept decides;Price

Terms and conditions

Which applicants will be insured

No of applicants

Primary purpose to ensure

profitability Acts as counterbalance to the

marketing dept


165/285

Loss Control:


166/285

Loss Control:

To prevent and minimize losses

Provides necessary information

Assists the Underwriting dept

Actuarial:


167/285

Actuarial:

Performs the mathematical functions

Calculation of rates

Development of rating plans

Estimation of loss reserves


168/285

Objectives of Insurers


169/285

Objectives of Insurers

Earning Profit

Meeting Customer Needs

Complying with legal requirements

Fulfilling humanitarian and societalduties

Measurement of InsurersPerformance


170/285

Profit Measurement:

Financial figures to be considered to measureinsurers profits include;

Reserves

Premiums

Expenses

Losses

Combined Ratios

Investment Income

Operating profit or loss

Reserves


171/285

Reserves

For losses that have already happened butnot paid

Reserves include an amount for IBNR Losses

IBNR Incurred but not reported losses(losses that have already happened, but notyet reported to the insurer)

Premium :


172/285

Premium :

Creates funds for investment

Determines insurers profits

Growth in premiums should be real andshould result from new business

Expenses:


173/285

Expenses:

Expense Ratio : Ratio of expenses topremiums

Expense Ratio varies among variousline of business

Expense ratio varies over time

Also varies among distribution systems

Losses:


174/285

Losses:

Loss Ratio: Ratio of incurred lossesto earned premiums

Earned Premium=(Total Premium/365)*Expired days


175/285

Investment Income:


176/285

Main source of profit for manyinsurers

Most stable source

Operating profit or loss:


177/285

Operating profit or loss:

Sum of Underwriting profit/loss andInvestment profit/loss



178/285


Evaluation of complaints

No of complaints indicates onecompanys success of failure inrelation to other companies in theindustry


179/285


180/285

State insurance depts. monitor;Sales & Advertising

Underwriting

Ratemaking

Claim settlement

Treatment of insureds

Applicants for insurance

Claimants

Meeting Social Responsibilities


181/285

Meeting Social Responsibilities

No. & type of benefits for itsemployees

Insurers expenditure on loss controlactivities

Contributions to medical, welfare andeducational institutions and

programs

Constraints in achieving theobjectives


182/285

j

Internal Constraints

Efficiency

ExpertiseSize

Financial Resources

Miscellaneous Internal constraints


183/285

External Constraints

Regulation

Public Opinion

Competition

Economic Conditions

Distribution Systems

Miscellaneous External Constraints


184/285

INSURANCE DOCUMENTS


185/285

Proposal Forms

Personal Statements

Premium Receipts

Covernotes Policy Documents

Endorsements

Claim forms

Renewal Notices

Double Insurance


186/285

When more than one policy is takento cover the same risk, it is called

double insurance

Subject matter is insured with two or

more insurers

Coinsurance


187/285

Splitting of risk among multipleparties

It is a way of spreading the risk on

larger insurances between two ormore direct insurers

Coinsurers - Two or more insurers

jointly covering the same risk


188/285

REINSURANCE

REINSURANCE


189/285

A contractual agreement under whichone insurer (Primary Insurer) transfersto another insurer (Reinsurer) some or

all of the loss exposures accepted bythe primary insurer, under insurancecontracts it has issued or will issue infuture

Portion kept by primary insurer Insurers Retention


190/285


191/285

Insurance Vs ReinsuranceInsurance Vs Reinsurance

Insurance Reinsurance


192/285

Contract between an

insurer & a member of

the public

Insurer deals with the

insured

Contract between two

insuring organizations

Reinsurer deals with

the insurer

Functions of Reinsurance


193/285

Stabilization of Loss Experience

Large line capacity

Financing

Catastrophe protection

Underwriting Assistance

Withdrawal from a Territory or Class

of Business

Types of Reinsurance


194/285

Facultative Reinsurance:

Primary insurer negotiates a separate

reinsurance agreement for each risk itwishes to reinsure

Primary insurer is not under obligation to

reinsure a policy it does not wish toreinsure, and reinsurer is not obligated toreinsure policies submitted to it


195/285


196/285

Primary insurers can underwrite, acceptand reinsure such businesses undertreaty without prior consultation withreinsurers

Reinsurer is obligated to accept allbusinesses that falls within the terms ofthe treaty

Prior negotiation is not required

Lower handling expenses


197/285

Factors determining Reinsuranceneeds


198/285

Kinds of insurance written

Exposures subject to catastrophic loss

Volume of insurance written

Available financial resources

Growth plans


199/285


200/285

UNDERWRITING & CLAIMSMANAGEMENT


201/285


202/285

Knowledge of individual riskpeculiarities

Assessing how the risk & a peril

produce potential losses Estimating magnitude of lossesperil-

wise

Estimating insureds systems &capabilities for prevention &minimization of losses


203/285


204/285

Underwriting audit:

Management control tool to check the

implementation of underwriting policy

To reveal whether the existing guidelinescause undesirable results

Classification of Risksin Life Insurance


205/285

Physical Hazards:Age

Gender

Build

Physical condition

Physical impairments

Personal History

Family

History

Increasing extra risk


206/285

Occupational Hazards

Moral Hazards

Claims Management


207/285

To fulfill the insurers obligations to itspolicy holders

Claim : demand that the insurershould redeem the promise made inthe contract

Claims personnel should check;


208/285

Occurrence of the insured event

Obligations under the contract, which should beperformed

Policy status

Persons entitled to demand performance

Objectives of Claims Dept.


209/285

Complying with the contractualpromise

Fair, prompt and equitable service

Achieving insurers profit objectiveOverpaid Claims Reduced profits

Underpaid Claims Decreasedgoodwill

Advantages of Insurance


210/285

Financial security to the family

Potent instrument for savings

Financial independence in old age

Collateral security for housing loan

Acts as emergency fund at times

Income tax benefits

Safe and profitable investment


211/285

Availability of policies of variousdurations (short term to long term)

Policy holder can be free of tensions

Economically and socially backwardsections can be benefited through

Group schemes

Privatization


212/285

After the IRDA Act of 1999, the ins. sectorwas opened for Pvt. companies with aforeign equity of 26%

Insurance sector witnessed substantialgrowth after privatization

If there is increase in FDI from 26% to

49% further entry of players can beexpected


213/285


214/285

International experience

Cutting edge technology

New products Expansion of insurance market

Social security

Developments in IndianInsurance industry


215/285

Entry of private players

Foreign collaboration

New products

New training institutions

New employment generation

Flexibility in products

New marketing channels


216/285

Establishment of InsuranceOmbudsman

New marketing concepts and

strategies Stand alone health insurers

FUTURE OF THE SECTOR


217/285

Indian insurance sector is likely to register agrowth of 200% and a size of Rs. 2000 billion

A private sector insurance business will achieve agrowth rate of 140% as a result of aggressive

marketing technique being adopted by themagainst 35-40% growth rate of state ownedinsurance companies.

In rural markets, the share of private insuranceplayers would increase substantially as these havebeen able to generate a faith among their ruralconsumers

217

India's insurance sector to see 500 per

cent growth by 2010: Study


218/285

India's insurance sector - 500 % growth over the nextthree years - 60 billion-dollar industry by 2010

India's more than one billion people are uninsured, thestudy by the Associated Chambers of Commerce and Industry(Assocham) said.

'A large part of rural India is still untapped due to poordistribution, large distances &high costs relative toreturns, said Assocham president Anil K Agarwal

He said the study had revealed that rural &semi-urbanIndia would contribute 35 billion dollars to the Indianinsurance industry by 2010.

The study added that the urban sector insurance wasestimated to reach 25 billion dollars by 2010, lifeinsurance 15 billion and non- life insurance 10 billiondollars.

218

INSURANCE SECTOR - EMERGINGAREAS


219/285

Demand for Pension Plans

Separateness of Banking and Insurance-Bancassurance

Role of Information Techno-logy

Using Postal Network

Creating Insurance awareness

Innovative Products

219

Private Insurers in India-Growth Prospects and challenges


220/285


221/285


222/285

The total number ofgeneral insurersregistered with IRDA has gone up to

22, with registration of SBI GeneralInsurance Company Limited


223/285

New players have significantlyenhanced product awareness andpromoted consumer education and

information

The strong growth potential of thecountry has also made internationalplayers to look at the Indian insurancemarket

CHALLENGES


224/285

1. Industry Challenges

Commoditization in personal lineproducts

Customer requirementsHeightened competition

Global economic meltdown


225/285

2. Business Challenges

To reduce the turnaround time

To improve their speed to market theirproducts

Distribution Channel pressures

Emerging consumer demands for

mass customization and hybridproducts


226/285

3. Process Challenges

Lack of stream lined processes, changemanagement, automated processes,

central repository


227/285


228/285

Judicious Underwriting

Organizational Solutions: Providing

proper trainings to the employees etc Technology Solutions

Smart Marketing

Aggressive distribution

Insurance industry abroad


229/285

Japan, USA, UK and France are someof the leading countries in the worldinsurance market

At the global level, life insurancemarket has been bigger and growingfaster, compared to non life business


230/285

Regulations vary between thecountries

The UK, Chile, Hong Kong andNetherlands generally rely more onmarket forces

Germany, Japan, Korea, Switzerlandand majority of the developing

countries have historically practisedintensive regulation


231/285

As in the USA, regulation of theCanadian insurance market is sharedby the provincial governments andthe federal govt.

After the passage of North AmericanFree Trade Agreement (NAFTA),foreign investment was allowed in theinsurance industry in Mexico since1990. CNSF-Supervisory authority


232/285

Dept of Trade and Industry isresponsible for regulating the UKinsurance market

Japan dominates Asian insurancemarket.

Automobile insurance dominatesJapans non life insurance market


233/285

South Korea has also been growingsubstantially

The insurance market in South Korea isregulated by the Finance and Economic

Bureau and the Insurance SupervisoryBoard

Chinas premier national insurer is thePeoples Insurance Company of China

The African continent represents a minutepercentage of the worlds insurance market

Life insurance companies in India


234/285

Bajaj Allianz Life Insurance Company

Limited

Birla Sun Life Insurance Co. Ltd

HDFC Standard Life Insurance Co. Ltd

ICICI Prudential Life Insurance Co. Ltd

ING Vysya Life Insurance Company Ltd.

Life Insurance Corporation of India


235/285

Max New York Life Insurance Co. Ltd Met Life India Insurance Company Ltd.

KotakMahindra OldMutual Life Insurance

Limited

SBI Life Insurance Co. Ltd

Tata AIG Life Insurance Company Limited

Reliance Life Insurance Company Limited.

Aviva Life Insurance Company India Limited

Sahara India Life Insurance Co, Ltd.

Sh i if C d


236/285

Shriram Life Insurance Co, Ltd. Bharti AXA Life Insurance Company Ltd

Future Generali India Life Insurance CompanyLimited

IDBI Fortis Life Insurance Company Ltd., Canara HSBC Oriental Bank of Commerce Life

Insurance Company Ltd.

AEGON Religare Life Insurance CompanyLimited.

DLF Pramerica Life Insurance Co. Ltd.

Star Union Dai-ichi Life Insurance Co. Ltd.,

IndiaFirst Life Insurance Company Limited


237/285

R li G l I C L d


238/285

Reliance General Insurance Co. Ltd. Royal Sundaram Alliance Insurance Co. Ltd

Tata AIG General Insurance Co. Ltd.

United India Insurance Co. Ltd Cholamandalam MS General Insurance Co.

Ltd.

HDFC ERGO General Insurance Co. Ltd

Export Credit Guarantee Corporation of India

Ltd.

A i l I C f I di L d


239/285

Agriculture Insurance Co. of India Ltd.

Star Health and Allied Insurance Company

Limited

ApolloMunich Health Insurance CompanyLimited

Future Generali India Insurance Company

Limited Universal Sompo General Insurance Co.

Ltd.

Sh i G l I C


240/285

Shriram General Insurance Company

Limited,

Bharti AXA General Insurance Company

Limited Raheja QBE General Insurance Company

Limited,

SBI General Insurance Co. Ltd.


241/285

C tl 23 lif i i th


242/285

Currently 23 life insurers in thecountry

Share of LIC raising to 66%

Total life business growing by 22% Launching new products

Aviva Life launched 9 new ULIP products

Contributed to 4.1% of GDP 22 general insurance companies

Scope of the Indian InsuranceMarket

E t d t h 80 100% b 2012


243/285

Expected to reach 80-100% by 2012 Premium to increase between 5.1%

and 6.2% by 2012

Demand for pension plans increasing113 million Indians expected to be over

60 by 2016 and over 179 by 2026

Government planning to raise the FDI

cap to 49%

Innovative Marketing Techniques

O li h lth i b T t AIG


244/285

Online health quiz by Tata AIG The customers can take the interactive quiz and

the data will be stored in the database which willact as leads for the company

Starting of newsletters which are send tothe customers which will create morerapport with them

Volunteering and Supporting in local

society Innovative product development

Ente ing in local net o king e ents like


245/285

Entering in local networking events likethose conducted by CII etc.

Conducting seminars and distribution ofbusiness cards and newsletters Providing

emergency info wallet card

Automated voice message calls whichcan include customer appreciation message,renewal info etc.


246/285

Send Marketing Materials with every


247/285

Send Marketing Materials with everycustomer communication

Handwritten Letters for best customers

Annual policy reviews

Selecting an internet marketingspecialist

Highway advertisement


248/285

Highway advertisement

Advertising through eco friendliness


249/285

CREDIT INSURANCE

What is Credit Insurance

Credit insurance covers businesses and an


250/285

Credit insurance covers businesses and an

individuals family members against losses

resulting from the inability to repay a loan. A

credit insurance policy usually provides

security cover for a specific reason for which a

borrower defaults.

TYPES OF CREDIT INSURANCE

Trade Credit Insurance


251/285

Trade Credit Insurance

For business entities

Both domestic & export business.

Credit Life Insurance

For individuals

To ensure family doesnt suffer

WHY NEED CREDIT INSURANCE


252/285

For Businesses;

Improved Financing Terms.

Credit Terms.

Cash Flow Problems.

Balance sheet protection.

Enter new markets safely.

For Individuals


253/285

For IndividualsFrees family from the responsibility of paying

your debt.

Reduces your monthly costs.

Provides you and your family with peace of

mind.

Protects you from using or losing your savings.

CREDIT INSURANCE IN INDIA

Rs 450 Cr Business


254/285

Rs 450 Cr Business

Expects to rise to Rs 600 Cr by 2010.

Still in its nascent stage.

Premium ranges from 0.35% to 1% of sum insured.

Main Player ECGC

Other players are also there like Bajaj Allianz, TATA

AIG, ICICI Lombard, IFFCO TOKIO & New India

Assurance.


255/285

E-learning


256/285

E-LEARNING IN INSURANCESECTOR

Participants


257/285

Participants

1)Customers

2)Agents

3)IRDA4)Insurance company

5)sales officers

ADVANTAGES OF E-LEARNING

For the trainer or insurance provider


258/285

For the trainer or insurance provider

Reduced overall cost

Learning times reduced

Increased retention Consistent delivery

Expert knowledge

Proof of completion and certification

Advantages for the Learner


259/285

On-demand availability

Self-pacing

Interactivity Confidence


260/285


261/285

Micro insurance in India

Micro-insurance is protection of poor


262/285

Micro insurance is protection of poorpeople and their families against specificperils like death, illness, weathercatastrophes, etc. In principle, micro-

insurance works like any typical insurancebusiness.

But there are several things thatdifferentiate it from normal insurance.


263/285

Micro Insurance Models


264/285

Partnership model

Agency model

Micro-agent model


265/285

Agency model

In this model the insurer uses its normal


266/285

In this model the insurer uses its normalagency office and sells microinsuranceproducts directly. The client comes to theagency office for sales and servicing of the

product.

Micro-agent model

It is the invention of Tata-AIG


267/285

It is the invention of Tata AIG The central building blocks of the model

are Rural Community Insurance Groups(CRIGs) supervised by rural organizations

such as churches, NGOs or MFIs.

The leader of the CRIG is licensed as anagent.

This practice reduces training costs.

Distribution Channels

Agents


268/285

Agents Formal Banks

Regional Rural Banks

Cooperative Bank

NGOs &MFIs

Post Office

Challenges in Micro Insurance

Penetration

Designing of products suiting the rural


269/285

Designing of products suiting the ruralmarket.

Using the right distribution channel mixto reach the potential customer at an

affordable cost.

Intermediaries being able to buildpersonal credibility with the clients.

Lack of products


270/285

Social Insurance


271/285

Characteristics

Based on law, and not on contract. Cost andbenefits set by the govt


272/285

,benefits set by the govt. Coverage is compulsory. Benefits cant be

chosen Objective is to provide some min level of

economic security and stress on freeenterprise and individual initiative

Focus on providing max benefits to the LIG Assures an interruption of income does not

happen in the case of death orunemployment

Social Insurance in India

UNICEF and World Bank provide


273/285

UNICEF and World Bank provideevidence that direct public support willlead to success of social securityprograms

Countries with primary social securitybecame rich. Eg: China, Cuba,Jamaica, Kuwait etc.

Need for SI in India

Large percentage employed in the


274/285

Large percentage employed in theunorganized sector

State support negligible

Social changes in the country

A comprehensive social security


275/285

A comprehensive social securitysystem includes social insurance,health insurance, disabilitycompensation, unemploymentcompensation, old-age pensionschemes, etc.

SI Schemes of GIC

Krishi Bima Yojana, Personal Accident


276/285

a oja a, o a dsocial security scheme, hut insurancescheme etc.

Most of them are failures due toincompatibility with the objectives.

SI Schemes of LIC

Landless Agricultural Laborers Scheme


277/285

Landless Agricultural Laborers Scheme,Group Insurance Schemes, KrishiShramik Samajik Suraksha Yojana etc.

Most of them failed due to lack ofawareness among people

Another scheme launched was JanashreeBima Yojana to replace older schemes

Objective was to provide LI to rural andurban poor


278/285

Shopassurance


279/285


280/285

Pantaloons, WestSide, Big Baazar,


281/285

, , g ,FoodWorld, Reliance Fresh, ShoppersStop, Spencers and Subhiksha havebuilt strong reputations on theshopassurance front.

Wal-Mart has been selling life andmortgage insurance in addition to

motor, travel and home insurance,through its stores worldwide.

Kishore Biyani's Future group, whichowns Pantaloons and Big Baazar is a


282/285

y g p,owns Pantaloons and Big Baazar, is astakeholder in Future Generali IndiaLife Insurance Company and FutureGenerali India Insurance Company

Ambani's Reliance Fresh is into lifeand non-life insurance

ITC has an insurance brokeringventure called ITC Choupal

ICICI Lombard has already entered


283/285

ICICI Lombard has already enteredinto an agreement with RelianceRetail

MetLife Insurance has tied up withMumbai's Apna Bazar co-operativestores

BenefitsFrom the view point of Insurer:-

Increase the volume of business.


284/285

Solve problems of price competetion &compensation need of agents.

Cover huge middle-class incomeholders.

Cost cutting leading to low premium.

Risk coverage through productdiversification.

BenefitsFrom the view point of Customer:-

Product innovation & distribution t ti f ti


285/285

customer satisfaction.

Low cost premium.

Easy accessibility of insuranceproducts.

l f i i h i i