Progress Of Life insurance in India since 2000WHAT IS LIFE INSURANCE IN INDIA?

Life insurance made its debut in India well over 100 years ago. Its salient features are not as widely understood in our country as they ought to be. What follows is an attempt to acquaint readers with some of the concepts of life insurance, with special reference to life insurance. It should, however, be clearly understood that the following narration is by no means an exhaustive description of the terms and conditions of a life insurance policy or its benefits or privileges. For more details, please contact our Branch or Divisional Office. Any life insurance Agent will be glad to help you choose the life insurance plan to meet your needs and render policy servicing.

Life Insurance sector is the fastest growing sector in India since 2000 when the Government allowed Private players and FDI [Foreign Direct Investment] up to 26%. Life Insurance in India was nationalized by incorporating Life Insurance Corporation (LIC) in 1956. All private life insurance companies at that time were taken over by LIC.

In 2000, the legislation amending the Insurance Act of 1938 and legislating the Insurance Regulatory and Development Authority Act of 2000 was passed, where in the newly appointed insurance regulator - Insurance Regulatory and Development Authority [IRDA] started to issue licenses to private life insurers.

What is Life Insurance?Life Insurance is a contract for payment of a sum of money to the person assured (or failing him/her, to the person entitled to receive the same) on the happening of the event insured against. Usually the contract provides for the payment of an amount on the date of maturity or at specified dates at periodic intervals or at unfortunate death, if it occurs earlier. Among other things, the contract also provides for the payment of premium periodically to the Corporation by the assured. Life insurance is universally acknowledged to be an institution which eliminates 'risk', substituting certainty for uncertainty and comes to the timely aid of the family in the unfortunate event of death of the breadwinner. By and large, life insurance is civilisation's partial solution to the problems caused by death. Life insurance, in short, is concerned with two hazards that stand across the life-path of every person: that of dying prematurely leaving a dependent family to fend for itself and that of living to old age without visible means of support.

Why is it superior to other forms of Savings?Protection: Savings through life insurance guarantee full protection against risk of death of the saver. In life insurance, on death, the full sum assured is payable (with bonuses wherever applicable) whereas in other savings schemes, only the amount saved (with interest) is payable.

Aid To Thrift: Life insurance encourages 'thrift'. Long term saving can be made in a relatively 'painless' manner because of the 'easy instalment' facility built into the scheme (method of paying premium either monthly, quarterly, half yearly or yearly). Take, for example, our Salary Saving Scheme popularly known as SSS. This scheme provides a convenient method of paying premium each month by deduction from one's salary. The deducted premium is remitted by the employer to the LIC. The Salary Saving Scheme can be introduced in an institution or establishment subject to specified terms and conditions.

Liquidity: Loans can be raised on the sole security of a policy which has acquired loan value. Besides, a life insurance policy is also generally accepted as security for even a commercial loan.

Tax Relief: Tax relief in Income Tax and Wealth Tax is available for amounts paid by way of premium for life insurance subject to Income Tax rates in force. Assessees can avail themselves of provisions in the law for tax relief. In such cases the assured in effect pays a lower premium for his insurance than he would have to pay otherwise.

Money When You Need It: A suitable insurance plan or a combination of different plans can be taken out to meet specific needs that are likely to arise in future, such as children's education, start-in-life or marriage provision or even periodical needs for cash over a stretch of time. Alternatively, policy moneys can be so arranged to be made available at the time of one's retirement from service to be used for any specific purpose, such as for the purchase of a house or for other investments. Subject to certain conditions, loans are granted to policyholders for house building or for purchase of flats.

Who Can Buy A Life Insurance Policy?Any person who has attained majority and is eligible to enter into a valid contract can take out a life insurance policy for himself and on those in whom he has insurable interest. Policies can also be taken out, subject to certain conditions, on the life of one's spouse or children. While underwriting proposals, factors such as the state of health of the life to be assured, the proponent's income and other relevant factors are considered by the Corporation.

Insurance On Women.Prior to nationalization (1956), many of the private insurance companies used to offer insurance to female lives with some extra premium or on restrictive conditions. After nationalization of life insurance, the terms under which life insurance is granted to female lives have been reviewed from time to time. At present, women with earned income are treated on par with male lives. In other cases, a restrictive clause is imposed and that too only if age of the female is up to 30 years and if she does not have an income attracting Income Tax.

Medical And Non-Medical Schemes.Life insurance is normally offered after a medical examination of the life to be assured. However, to facilitate greater spread of insurance and also as a measure of relaxation,

LIC has been extending insurance cover without any medical examination, subject to certain conditions.

With Profit And Without Profit Plans.An insurance policy can be 'with' or 'without' profit. In the former, bonuses disclosed, if any, after periodical valuations are allotted to the policy and are payable alongwith the contracted amount. In 'without' profit plan the contracted amount is paid without any addition. The premium rate charged for a 'with' profit policy is therefore higher than for a 'without' profit policy.

Keyman Insurance.Keyman Insurance is taken by a business firm on the life of key employee(s) to project the firm against the finance loss which may occur due to the premature demise of the Keyman.

Life Insurance is the fastest growing sector in India since 2000 as Government allowed Private players and FDI up to 26%. Life Insurance in India was nationalised by incorporating Life Insurance Corporation (LIC) in 1956. All private life insurance companies at that time were taken over by LIC.

In 1993 the Government of Republic of India appointed RN Malhotra Committee to lay down a road map for privatisation of the life insurance sector.

While the committee submitted its report in 1994, it took another six years before the enabling legislation was passed in the year 2000, legislation amending the Insurance Act of 1938 and legislating the Insurance Regulatory and Development Authority Act of 2000. The same year that the newly appointed insurance regulator - Insurance Regulatory and Development Authority IRDA -- started issuing licenses to private life insurers.

List of Life Insurers (as of Sept, 2008)

Apart from Life Insurance Corporation, the public sector life insurer, there are 20 other private sector life insurers, most of them joint ventures between Indian groups and global insurance giants.

Life Insurer in Public Sector1. Life Insurance Corporation of India

Life Insurers in Private Sector1. SBI Life Insurance 2. Metlife India Life Insurance 3. ICICI Prudential Life Insurance 4. Bajaj Allianz Life 5. Max New York Life Insurance 6. Sahara Life Insurance 7. Tata AIG Life

8. HDFC Standard Life9. Birla Sunlife 10. Kotak Life Insurance 11. Aviva Life Insurance 12. Reliance Life Insurance Company Limited - Formerly known as AMP Sanmar

LIC13. ING Vysya Life Insurance 14. Shriram Life Insurance15. Bharti AXA Life Insurance Co Ltd 16. Future Generali Life Insurance Co Ltd17. IDBI Fortis Life Insurance 18. AEGON Religare Life Insurance 19. DLF Pramerica Life Insurance20. CANARA HSBC Oriental Bank of Commerce LIFE INSURANCE

Foreign Direct Investment (FDI) Policy in Insurance Sector

As per the current (Mar 06) FDI norms, foreign participation in an Indian insurance company is restricted to 26.0% of its equity / ordinary share capital. The Union Budget for fiscal 2005 had recommended that the ceiling on foreign holding be increased to 49.0%.

The government approved the much-awaited comprehensive Insurance Bill that seeks to raise foreign direct investment (FDI) cap in private sector to 49 per cent from 26 per cent.

Indian life insurance industry overview

All life insurance companies in India have to comply with the strict regulations laid out by Insurance Regulatory and Development Authority of India (IRDA). Therefore there is no risk in going in for private insurance players. In terms of being rated for financial strength like international players, only ICICI Prudential is rated by Fitch India at National Insurer Financial Strength Rating of AAA(Ind) with stable outlook indicating the highest claims paying ability rating.

Life Insurance Corporation of India (LIC), the state owned behemoth, remains by far the largest player in the market. Among the private sector players, ICICI Prudential Life Insurance(JV between ICICI Bank and Prudential PLC) is the largest followed by Bajaj Allianz Life Insurance Company Limited (JV between Bajaj Group and Allianz).Among others, Kotak Life Insurance emerging as a one of the best product provider in the current market.It has been estimated that customer growth of Kotak Life Insurance is better than any private insurance company in India. The private companies are coming out with better products which are more beneficial to the customer. Among such products are the ULIPs or the Unit Linked Investment Plans which offer both life cover as well as scope for savings or investment options as the customer desires.Further, these type of plans are subject to a minimum lock-in period of three years to prevent misuse of the significant

tax benefits offered to such plans under the Income Tax Act. Hence, comparison of such products with mutual funds would be erroneous.

Commission / intermediation fees The maximum commission limits as per statutory provisions are:

Agency commission for retail life insurance business:

o 7- 90% for 1st year premium if the premium paying term is more

than 20 years 7- 10% for 1st year premium if the premium paying term is more

than 15 years 7- 10% for 1st year premium if the premium paying term is less

than 10 years 7% - yr 2 and 3rd year and 3.5% - thereafter for all premium

paying terms.

In case of Mutual fund related - Unit linked policies it varies between 1.5% to6% on the premium paid.

o Agency commission for retail pension policies

7.5% for 1st year premium and 2.5% thereafter

Maximum broker commission - 30%

Referral fees to banks – Max 55% for regular premium and 10% for single premium. However in any case this fee cannot be more than the agency commission as filed under the product.

However, the above commission may be further subject to the product wise limits specified by IRDA while approving the product

Miscellaneous insuranceMiscellaneous Insurance exists to help people gain a good understanding of the various kinds of insurance coverage's that are available to people today. Insurance has become a very important part of many people's lives as they realize the need to provide protection for different areas of their everyday life. There is a wide variety of types of insurance coverage available today.

The dictionary defines insurance as "coverage by contract whereby one party undertakes to indemnify or guarantee another against loss by a specified contingency or peril". This means that an individual enters into an agreement with an insurance company that will pay a set amount of money in case of a loss in a specified area. There are a number of inclusions and exclusions involved in each insurance policy with all kinds of variables that must be taken into consideration before purchasing the policy.

One of the most important things to remember is that an insurance policy is a contract between the insurance company and their customer. The insurance company agrees to pay certain amounts of money in case of loss and the customer agrees to pay the insurance premiums that are required to keep the policy in place. If the customer fails to pay the premiums due, the insurance may be revoked, leaving the customer vulnerable.

The contract specifically makes the insurance company liable to pay for any loss that is specifically stated in the insurance policy. Most policies will accurately describe the types of losses covered and the amount of money that the company will pay for those losses.

With the increase in public awareness and the consequent thrust of the Insurance Industry in the areas of Health Insurance, Liability Insurance and other personal lines of insurances, the miscellaneous portfolio of Insurance is poised to be a sunrise portfolio of General Insurance.

Glass Insurance Personal Accident Insurance

Money Insurance Golfer Insurance

Burglary Insurance General Public Legal Liability Insurance

Electronic Equipment Insurance Contract Works Insurance

Workmen Compensation Insurance Fidelity Guarantee Insurance

Machinery Insurance Aviation Insurance Travel Accident Insurance All Risks Insurance Boat Insurance  

Thus miscellaneous insurance is an addition to your existing insurance giving you an extra security.

Management of Miscellaneous Insurance Business

Background With the increase in public awareness and consequent thrust of the Insurance Industry in the areas of Health Insurance, Liability Insurance and other personal lines of insurances, the miscellaneous portfolio of Insurance is poised to be the sunrise portfolio of General Insurance business. This programme has been designed keeping in mind these developments in the market and attempts to address the need for increased awareness of the multidimensional miscellaneous portfolio.   

Objectives To enhance the participants understanding of the miscellaneous portfolio To acquaint them with various aspects of Health and Liability Insurance in context with

the Current scenario Help them explore the potential of rural insurance in line with the regulatory guidelines.

To emphasize the importance of and explore the potential of personal line of business under miscellaneous portfolio.

  

Contents

Analysis of the miscellaneous insurance products Health Care Management - Indian and Global Perspective TPA’s an Effective Service Provider Legal framework and Liability Insurance Products Rural and Social Sector - regulations, product and marketing Personal line products - potential and marketing, distribution channels Scope and Coverage of New Products Credit Default Cover Bankers Indemnity Insurance/ Jewelers Block Covers; Stock Brokers / Insurance

Brokers Indemnity Packaging & Product Development

Special Contingency Covers   

Participants’ ProfileExecutives handling Technical Departments and Office In-charge of operating offices of General Insurance Companies.

Accident InsuranceAccident insurance provides a cash cover to a policyholder when s/he suffers injuries as a result of an accident. While insurance helps a policyholder pay off hospital and medical bills in case of accident injuries, it provides cash benefits to family members if the policyholder dies in the accident. This insurance, applicable 24 hours a day, 365 days a year, is also commonly referred to as personal accident insurance.

Types of Personal Accident Insurance Policies

Under personal accident insurance, the policyholder, if injured, receives cash benefits every month, just like income, for as long as s/he is unable to work due to the accidental injuries. This income is non-taxable and does not exceed the policyholder’s after-tax earnings minus the state benefits s/he can claim. In case of death of the policyholder due to an accident, the family receives a specific lump-sum amount.

There are eight common types of personal accident insurance policies:

Individual: This policy can be taken by any individual. The benefits usually enclose partners and children. Since several activities are excluded from this policy, it is not as useful for people who love adventurous sports, like mountaineering and rock climbing.

Children: The purpose of this policy is to provide financial help to parents if they are unable to work or if they incur expenses as a result of an accident.

Group: This policy is used by companies to cover employees for expenses related to accidents.

Self-employed: Since self employed individuals are not eligible for employee benefits, they are worse off when injured in an accident.

Team: Through a team accident insurance policy, organizers can seek cover for all the members of a sports team.

Professional: This policy is specifically for self employed professionals, such as a sportsperson, actor, lawyer or doctor, who have special requirements.

Over 50: This policy targets people over 50 years of age, as accidents can cause more grievous injuries to them.

Travel accidents: This policy offers benefits in case the policyholder meets with an accident while traveling.

There are varied accident insurance policies to suit different needs. One should understand and choose the policy with utmost care.

Burglary Insurance

With the increase in materialistic wealth and booming economy, the chances of burglary in business premises are also increasing. To counteract the situation and protect the hard earned wealth of the businesspersons, many insurance companies have come up with attractive insurance plans that promise to provide cover against the rise of loss or damage in the business premises, due to burglary. In India, a burglary insurance (business premises) policy generally covers contents of business premises, against the risk of loss or damage by burglary and housebreaking. It is very important to know the basic clause of the insurance plans, although they may vary from company to company. In this article, we have provided the basic information that you need to know, before opting for a burglary insurance plan.

Burglary Insurance Policy The loss of materialistic wealth in a business organization, due to burglary, is

reimbursed by a burglary insurance policy.

The insurance companies provide insurance against nothing but burglary, in the business premises.

The property insured is covered only if loss or damage takes place, while contained in the insured premises and not in any other premises.

Loss of or damage to deeds, bonds, bills of exchange, promissory notes, cash, treasury notes and bank notes, cheque, securities for money stamps, stamp collections, books of account, documents of any kind, manuscripts, medals and coins, motor vehicles, and live stock cannot be claimed under office burglary insurance policy in India.

Damage to property by burglars is covered only when the insured is made good. In other words, damage to own premises are not covered.

With regard to cash in locked safe, the key to the safe or strong room should not be left in the premises overnight or at least anywhere near the safe.

Applicants need to submit the proposal form furnishing detailed information on the location of the risk and claims history.

Often inspection of the premises and its neighborhood is carried out by agents or brokers or marketing officers of the insurance company.

Premises located in isolated areas or the adjoining premises are those, which are not occupied in the night. These may include educational institution or a place of worship, which usually do not find favor with the insurers.

In order to substantiate a burglary insurance claim, one must produce the FIR and non-detection report from the police.

The insurers will depute and obtain a survey report even on the stolen goods, to determine the proximate cause of the loss and the quantum.

Stock books and other accounts are also verified before furnishing the insurance cover.

In some insurance plans, the theft is not valid, if it has been conducted by an internal staff, or a person who didn't break into the business premises.

Motor insurance

Vehicle insurance (also known as auto insurance, car insurance, or motor insurance) is insurance purchased for cars, trucks, and other vehicles. Its primary use is to provide protection against losses incurred as a result of traffic accidents and against liability that could be incurred in an accident.

Legally, no motor vehicle is allowed to be driven on the road without valid insurance. Hence, it is obligatory to get the vehicle insured. Motor insurance policies cover against any loss or damage caused to the vehicle or its accessories due to the following natural and man made calamities.

Natural Calamities: Fire, explosion, self-ignition or lightning, earthquake, flood, typhoon,

hurricane, storm, tempest, inundation, cyclone, hailstorm, frost, landslide, rockslide.

Man made Calamities: Burglary, theft, riot, strike, malicious act, accident by external means, terrorist activity, any damage in transit by road, rail, inland waterway, lift, elevator or air.

Motor insurance provides compulsory personal accident cover for individual owners of the vehicle while driving. One can also opt for a personal accident cover for passengers and third party legal liability.

Third party legal liability protects against legal liability arising due to accidental damages. It includes any permanent injury / death of a person and damage caused to the property.

The vehicles are insured at a fixed value called the Insured's Declared Value (IDV). IDV is calculated on the basis of the manufacturer's listed selling price of the vehicle (plus the listed price of any accessories) after deducting the depreciation for every year as per the schedule provided by the Indian Motor Tariff. If the price of any electrical and / or electronic item installed in the vehicle is not included in the manufacturer's listed selling price, then the actual value (after depreciation) of this item can be added to the sum insured over and above the IDV.

In case the vehicle is fitted with CNG / LPG, the CNG/LPG kit fitted to the vehicle is to be insured separately at an additional premium.

GENERAL INSURANCEWhat is General Insurance?

 

Insurance other than ‘Life Insurance’ falls under the category of General Insurance. General Insurance comprises of insurance of property against fire, burglary etc, personal insurance such as Accident and Health Insurance, and liability insurance which covers legal liabilities. There are also other covers such as Errors and Omissions insurance for professionals, credit insurance etc.

 

Non-life insurance companies have products that cover property against Fire and allied perils, flood storm and inundation, earthquake and so on. There are products that cover property against burglary, theft etc. The non-life companies also offer policies covering machinery against breakdown,there are  policies that cover the hull of ships and so on. A

Marine Cargo policy  covers goods in transit including by sea, air and road. Further, insurance of motor vehicles against damages and theft forms a major chunk of non-life insurance business.

 

In respect of insurance of property, it is important that the cover is taken for the actual value of the property to avoid being imposed a penalty should there be a claim. Where a property is undervalued for the purposes of insurance, the insured will have to bear a rateable proportion of the loss. For instance if the value of a property is Rs.100 and it is insured for Rs.50/-, in the event of a loss to the extent of say Rs.50/-, the maximum claim amount payable would be Rs.25/- ( 50% of the loss being borne by the insured for underinsuring the property by 50% ). This concept is quite often not understood by most insureds.

 

Personal insurance covers include policies for Accident, Health etc. Products offering Personal Accident cover are benefit policies. Health insurance covers offered by non-life insurers are mainly hospitalization covers either on reimbursement or cashless basis. The cashless service is offered through Third Party Administrators who have arrangements with various service providers, i.e., hospitals. The Third Party Administrators also provide service for reimbursement claims. Sometimes the insurers themselves process reimbursement claims.

 

Accident and health insurance policies are available for individuals as well as groups. A group could be a group of employees of an organization or holders of credit cards or deposit holders in a bank etc. Normally when a group is covered, insurers offer group discounts.

 

Liability insurance covers such as Motor Third Party Liability Insurance, Workmen’s Compensation Policy etc offer cover against legal liabilities that may arise under the respective statutes— Motor Vehicles Act, The Workmen’s Compensation Act etc. Some of the covers such as the foregoing (Motor Third Party and Workmen’s Compensation policy )  are compulsory by statute. Liability Insurance not compulsory by statute is also gaining popularity these days. Many industries insure against Public liability. There are liability covers available for Products as well.

 

There are general insurance products that are in the nature of package policies offering a combination of the covers mentioned above. For instance, there are package policies

available for householders, shop keepers and also for professionals such as doctors, chartered accountants etc. Apart from offering standard covers, insurers also offer customized or tailor-made ones.

 

Suitable general Insurance covers are necessary for every family. It is important to protect one’s property, which one might have acquired from one’s hard earned income. A loss or damage to one’s property can leave one shattered. Losses created by catastrophes such as the tsunami, earthquakes, cyclones etc have left many homeless and penniless. Such losses can be devastating but insurance could help mitigate them. Property can be covered, so also the people against Personal Accident. A Health Insurance policy can provide financial relief to a person undergoing medical treatment whether due to a disease or an injury.

 

Industries also need to protect themselves by obtaining insurance covers to protect their building, machinery, stocks etc. They need to cover their liabilities as well. Financiers insist on insurance. So, most industries or businesses that are financed by banks and other institutions do obtain covers. But are they obtaining the right covers? And are they insuring adequately are questions that need to be given some thought. Also organizations or industries that are self-financed should ensure that they are protected by insurance.

 

Most general insurance covers are annual contracts. However, there are few products that are long-term.

 

It is important for proposers to read and understand the terms and conditions of a policy before they enter into an insurance contract. The proposal form needs to be filled in completely and correctly by a proposer to ensure that the cover is adequate and the right one.

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 typically comprises any insurance that is not determined to be life insurance. It is called property and casualty insurance in the U.S. and Non-Life Insurance in Continental Europe.

In the UK, General insurance is broadly divided into three areas: personal lines, commercial lines and London market.

The London market insures large commercial risks such as supermarkets, football players and other very specific risks. It consists of a number of insurers, reinsurers, [P&I Clubs], brokers and other companies that are typically physically located in the City of London. The Lloyd's of London is a big participant in this market. The London Market also participates in personal lines and commercial lines, domestic and foreign, through reinsurance.

Commercial lines products are usually designed for relatively small legal entities. These would include workers' comp (employers liability), public liability, product liability, commercial fleet and other general insurance products sold in a relatively standard fashion to many organisations. There are many companies that supply comprehensive commercial insurance packages for a wide range of different industries, including shops, restaurants and hotels.

Personal lines products are designed to be sold in large quantities. This would include autos (private car), homeowners (household), pet insurance, creditor insurance and others.