Presentation on insurance

SHIKHA RAJPUT (0141PG016)

ANKITA JINDAL (0141PG026)

What does insurance means

An arrangement by which a company or the state undertakes to provide a guarantee of compensation for specified loss, damage, illness, or death in return for payment of a specified premium

Sum assured is the amount that your beneficiary will get if you die during the policy term. Therefore, choosing a sum assured is very important because through insurance you create a financial cushion for your family

Premium an amount to be paid for a contract of insurance

Basic Terms

Insurer: The party to an insurance arrangement who undertakes to indemnifies for loses.

Insured: A person whose interest are protected by the insurance policy.

Premium: The amount of money to be charged for a certain amount of insurance coverage is called the premium.

Premium: A written contract between two parties.

Nominee: A person who receives the benefit in case of death of the insured person is a nominee.

Importance of insurance

Insurance provides security and safety

Insurance reduces business risk or losses

Insurance provides peace of mind

Life insurance encourages saving

The insured gets tax benefit in life insurance.

Life insurance provides profitable investments.

When you buy a policy you make regular payments, known as premiums, to the insurer. If you make a claim your insurer will pay out for the loss that is covered under the policy.

If you don’t make a claim, you won’t get your money back; instead it is pooled with the premiums of other policyholders who have taken out insurance with the same insurance company. If you make a claim the money comes from the pool of policyholders’ premium

Types of insurance

Life insurance

A life insurance policy is a contract with an insurance company. In exchange for premiums (payments), the insurance company provides a lump-sum payment, known as a death benefit, to beneficiaries in the event of the insured's death.

MARKET SHARE OF LIFE INSURANCE COMPANIES

MARKETING CHANNELS

Direct Marketing

(9 - 10 % )

Agency Selling

(28 - 30 % )

Bancassurance

(60%)

HUMAN LIFE VALUE

Total income that individual is expected to earn over the remainder of his life.

HLV concept considers human life as a kind of property or asset that earns an income.

HLV help to determine how much insurance one should have for full protection.

Calculation- 1) Net earnings of person is calculated

2) These earnings are capitalized, using appropriate

interest rate to discount them

ILLUSTRATION

MR RAM EARNS 120000 PER ANNUM

HE SPENDS 24000 ON HIMSELF,

NET EARNINGS – 96000

SUPPOSE RATE OF INTREST IS 8%

HLV = 96000/8%

= 1200000

TYPES OF LIFE INSURANCE POLICIES

• Cheapest insurance plan.• No maturity benefit, only death benefits.• Used for income and liabilities protection.

TERM INSURANCE

• Offer both death and maturity benefits.• Bonus available.• Higher premium.

Endowment plans

• Performance of ULIP is linked to markets.• Individual can choose the allocation for investment

in stock and debt markets.• Pay out – sum assured or NAV whichever is higher.

ULIP

• Periodic payment over the policy terms.• Portion of sum assured is paid at regular intervals.• In case of death policy holder get full sum

assured.Money back policy

• Cover the policyholder over his life.• No pre defined policy term.• Policyholder pays regular premium until his death.

Whole life policy

POLICY CLAIM

Life insurance claim can arise either:

On the maturity of policy – MATURITY CLAIM

On death of the policy holder – DEATH CLAIM

Survival up to specified period during the term – SURVIVAL BENEITS

Life insurance may be divided into two basic classes: temporary and permanent; or the following subclasses: term, universal, whole life, and endowment life insurance.

Types of life insurance

Term life insurance

Insurance regulatory development authority

The Insurance Regulatory and Development Authority (IRDA) is a national agency of the Government of India, based in Hyderabad. It was formed by an act of Indian Parliament known as IRDA Act 1999, which was amended in 2002 to incorporate some emerging requirements.

Mission "to protect the interests of the policyholders, to regulate, promote and ensure orderly growth of the insurance industry and for matters connected therewith or incidental thereto.

FDI cap in insurance sector has increased from 26% to 49%

Types of life and general insurance companies

Life Insurance Corporation of India

New Entrance:

Aviva India

Bajaj Allianz Life Insurance

HDFC Standard Life Insurance Company Limited

Birla Sun Life Insurance

IDBI Federal Life Insurance

Bharti AXA Life Insurance

ICICI Prudential Life insurance

National insurance company ltd

The Oriental insurance ltd.

United India insurance company

New India Assurance Company ltd.

Share of insurance companies in insurance sector

General insurance

General insurance or non-life insurance policies, including automobile and homeowners policies, provide payments depending on the loss from a particular financial event. General insurance is typically defined as any insurance that is not determined to be life insurance.

The risks that are covered by general insurance are:

Property loss

Liability arised from damaged caused by yourself to third party

Accidental death or injury

the main products of general insurance includes

Fire insurance

Travel insurance

Personal accident insurance

marine insurance

Fire insurance

Fire insurance is a specialized form of insurance beyond property insurance, and is designed to cover the cost of replacement, reconstruction or repair beyond what is covered by the property insurance policy.

Marine insurance

Marine insurance covers the loss or damage of ships, cargo, terminals, and any transport or cargo by which property is transferred, acquired, or held between the points of origin and final destination.

Media claim policy

Med claim policy is a hospitalization benefit that is offered by both public and private sector general insurance companies in India. The media claim insurance policy takes care of expenses following hospitalization/domiciliary hospitalization in case of any of the following situations-

In case of sudden illness or surgeryIn case of an accidentIn case of any surgery during the policy tenure

Motor insurance

Vehicle insurance (also known as, GAP insurance, car insurance, or motor insurance) is insurance purchased for cars, trucks, motorcycles, and other road vehicles.

How do insurance companies determine insurance premiums?

Insurance companies look at various characteristics to determine the premium that an individual is charged. Auto insurance premiums are based on factors such as where you live, your age, and your driving record. Homeowners insurance premiums are based on factors such as where you live and the value of your home and its contents. Health insurance premiums are based on factors such as your age, sex, where you live, and health status. Life insurance premiums are based upon your life expectancy, which can vary by your age, sex, tobacco usage and overall health condition. Each insurance company determines premiums differently since the rating plans differ. Talk to your insurance company or agent about the specifics of how your policy premium was determined. 

How premiums are calculated

Insurers use risk data to calculate the likelihood of the event you are insuring against happening. This information is used to work out the cost of your premium. The more likely the event you are insuring against is to occur, the higher the risk to the insurer and, as a result, the higher the cost of your premium.

An insurer will take two important factors into account when working out the premium they will charge.

How likely is it in general terms that someone will need to make a claim?

Is the person who wants to take out a policy a bigger or smaller risk than the ‘average’ policyholder (for example, a young person with a high-powered car may be charged a higher premium as they are statistically more likely to be involved in an accident than a mature, experienced driver)?

Only a proportion of policyholders will make a claim in any one year. 

REINSURANCE

Reinsurance occurs when multiple insurance companies share risk by purchasing insurance policies from other insurers to limit the total loss the original insurer would experience in case of disaster. By spreading risk, an individual insurance company can take on clients whose coverage would be too great of a burden for the single insurance company to handle alone. When reinsurance occurs, the premium paid by the insured is typically shared by all of the insurance companies involved.

Reinsurance can help a company by providing:

Risk Transfer - Companies can share or transfer of specific risks with other companies

Arbitrage- Additional profits can be garnered by purchasing insurance elsewhere for less than the premium the company collects from policyholders.

Capital Management - Companies can avoid having to absorb large losses by passing risk; this frees up additional capital.

Solvency Margins - The purchase of surplus relief insurance allows companies to accept new clients and avoid the need to raise additional capital.

Expertise - The expertise of another insurer can help a company obtain a proper rating and premium.

Top 10 reinsurance companies in 2013

The international reinsurance market reached USD 240 billion at the end of 2013, representing 5% of the global insurance business, according to a report presented during "Les Rendez-vous de September" main press conference in Monte-Carlo. Thus, in 2013, the reinsurers' business value increased by 5.7%, while the market grew by only 0.6%.

The global reinsurers' top 10 continues to be dominated by MUNICH Re and SWISS Re, which have been ranking 1st and 2nd since 1990. SCOR ranked 5th this year, as a result of the acquisitions made by the company on the American market. The top 10 players in the reinsurance industry now hold 62% of the business volume, compared with 56% in 2000 and 22% in 1980.

 Top 10 leading reinsurers worldwide in 2013

TYPES OF REINSURANCE

.

1. Facultative Coverage

This type of policy protects an insurance provider only for an individual, or a specified risk, or contract. If there are several risks or contracts that needed to be reinsured, each one must be negotiated separately. The reinsurer has all the right to accept or deny a facultative reinsurance proposal.  

2. Reinsurance Treaty 

Unlike a facultative policy, a treaty type of coverage is in effect for a specified period of time, rather than on a per risk, or contract basis. For the duration of the contract, the reinsurer agrees to cover all or a portion of the risks that may be incurred by the insurance company being covered.  

3. Proportional Reinsurance

Under this type of coverage, the reinsurer will receive a prorated share of the premiums of all the policies sold by the insurance company being covered. Consequently, when claims are made, the reinsurer will also bear a portion of the losses. The proportion of the premiums and losses that will be shared by the reinsurer will be based on an agreed percentage. In a proportional coverage, the reinsurance company will also reimburse the insurance company for all processing, business acquisition and writing costs. Also known as ceding commission, such costs may be paid to the insurance company upfront.

CONTD…

4. Non-proportional Reinsurance

In a non-proportional type of coverage, the reinsurer will only get involved if the insurance company’s losses exceed a specified amount, which is referred to as priority or retention limit. Hence, the reinsurer does not have a proportional share in the premiums and losses of the insurance provider. The priority or retention limit may be based on a single type of risk or an entire business category.

5. Excess-of-Loss Reinsurance 

This is actually a form of non-proportional coverage. The reinsurer will only cover the losses that exceed the insurance company’s retained limit. However, what makes this type of contract unique is that it is typically applied to catastrophic events.  It can cover the insurance company either on a per occurrence basis or for all the cumulative losses within a specified period.

6. Risk-Attaching Reinsurance

Under this type of contract, all policy claims that are established during the effective period of the reinsurance coverage will be covered, regardless of whether the losses occurred outside the coverage period. Conversely, no coverage will be given on claims that originate outside the coverage period, even if the losses occurred while the reinsurance contract is in effect. 

7. Loss-occurring Coverage

This is a type of treaty coverage where the insurance company can claim all losses that occur during the reinsurance contract period . The important factor to consider is when the losses have occurred and not when the claims have been made.

ADVANTAGE OF RE-INSURANCE

It is a security for the insurers.

It reduce the situation of uncertainty by distribution of risks among other insurers.

 The reinsurance has the effect of stabilizing income and losses over a period of years.

Reinsurance contract makes it possible to purchase only one policy from an insurer.

The reinsurance makes stability in underwriting and consistency in underwriting results over a period.