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8/3/2019 Essential Functions of a Financial Intermediary - Insurance
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ESSENTIAL FUNCTIONS
OF
A FINANCIAL INTERMEDIARY
INSURANCE
2005AnandAvaknavar2007AshishBaghel
2027SandeepKBiswal
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What is in store
Origin and history
Global scenario
Indian context Essential functions
Indian insurance market
Case studies
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What is Insurance?
Insurance is a contract in which a sum of
money is paid to the assured asconsideration of insurers incurring the risk
of paying a large sum upon a givencontingency
- Justice Tindal
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Category
Insurance
Life General
Auto Health
Business Fire
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Life Insurance
Life insurance is a written contractbetween the insured and the insurer, thatprovides for the payment of the insuredsum on the date of the maturity of thecontract or on the unfortunate death of the
insured, whichever occurs earlier.
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General Insurance
General insurance or non-life insurancepolicies, including automobile andhomeowners policies, provide paymentsdepending on the loss from a particularfinancial event. General insurance typically
comprises any insurance that is notdetermined to be life insurance.
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Health Insurance
Just like one looks to safeguard oneswealth, these policies ensure guarding theinsurer's health against any calamities that
may cause long term harm to ones life andeven hamper ones earning ability for alifetime. Some examples of this type of
policy are mediclaim policy, personalaccident, group accident, traffic accident,etc.
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Business Insurance
Risks of loss of profits/business, goods, plant andmachinery are most profound in case of business.
Under this head they cover the most widely usedpolicies that cover a business from any loss of theabove kind. Some of these policies are burglaryinsurance, shopkeepers insurance, key-man
insurance, marine insurance, public liabilityinsurance, workmen compensation insurance, airtransit insurance, fidelity guarantee insurance etc.
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Automobile Insurance
Auto Policy is required to be taken to coverthe risks that arise to the owner, vehicle
and third party. This includes theCompulsory Vehicle Policy (In India, by theMotor Vehicles Act, every car owner is
required to covered against Act risks) andthe Comprehensive Vehicle Policy.
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Fire Insurance
This policy is required to be taken
to prevent any loss of profits /property from incidental fire. Eg:fire insurance and fireconsequential loss policy.
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The beginning and thereafter
1688, Lloyds coffee house, London
1753, birth of first insurance company
1759, the Presbyterian synodofPhiladelphia sponsored the first life
insurance corporation
1840, insurance took off in a big way, afterthe infamous New York fire
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Global insurance industry
Asset under management in the globalinsurance sector is more than $19 trillion and itsclose to 12% of global financial assets
Insurance premium volume is 7% of global GDP Life insurance accounts for 58.2% of total
premium
Europe is the worlds largest market forinsurance
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5/2/201213
Phase Period Industry
Phase Ia. Life Insurance
b. General Insurance
1818 to 1956
(about 138 yrs)
1850 to 1972
(about 122 yrs)
Many (245) private sector companies only,
competitive market.
Many (107) private sector companies only,
competitive market.
Phase II
a.Life Insurance
b.General Insurance
1956 to 2000
(about 44 yrs)
1972 to 2000
(about 28 yrs)
Nationalization, public sector or State
monopoly, only one company.
Nationalization, public sector monopoly, only
one company with its four subsidiaries.
Phase III
Life Insurance and
General Insurance
After 2000
Opened to the entry of private domestic and
foreign companies, mixed sector of public and
private sector units, oligopoly of public sector
companies (14 life insurance and 12 general
insurance companies)
Insurance in India - History
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Overview
Total asset under management is around $334bn
Total premium collection stood at $28.24 bn
Over all growth rate is around 16%
Close to 24.6% of expenses by GoI is funded byLIC
Industry penetration rate is about 20% in lifesegment
Insurance density stood at around $70
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Major players
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Six essential functions
Transfer of resources across time andspace
Allocation of risk
Economics of pooling
Payment system
Informational role of asset prices Managerial incentives and decision
making
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Collection ofpremium upfront
Deposits
Customer
(Surplus unit)
Calculating risk Hold cash in hand Make investment
Decisions
Insurer Secured
Investments Loan and
DevelopmentSector
Financial Markets
(Deficit unit)
Transfer of resources across time and space
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Allocation of risk
Diversification is the main tool
Reinsurance
Hedging Insurance linked securities
Asset-Liability management
Regulatory requirements
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Economics of pooling
Law of Large Numbers
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Payment System
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Providing information on asset prices
Terms and conditions of the policy
Investment Return calculation on term tomaturity policies
Risk and probability description tocustomers
Tax benefits
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Dealing with incentive problems
Misusing confidential information andcolluding with fraudsters
In india 29% fraud are in collusion withagents and 24% are due to fakedocuments
insurance\intermediaries\agents
Fake claims (cashless transactions)
Introduction of non regulated products
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Too big to fail
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Case Study 1
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Case Study 2
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THANK YOU
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