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1 2011 Compiled by Deepak Godbole Risk & Insurance Management Risk & Insurance Management 2011 Compiled by Deepak Godbole Risk & Insurance Management “A sound national insurance and reinsurance market is an essential characteristic of economic growth”. UNCTAD,1964

Godbole Sir

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Page 1: Godbole Sir

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2011 Compiled by Deepak GodboleRisk & Insurance Management

Risk & Insurance Management

2011 Compiled by Deepak GodboleRisk & Insurance Management

“A sound national insurance and reinsurance market is an essential characteristic of economic growth”.

UNCTAD,1964

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2011 Compiled by Deepak GodboleRisk & Insurance Management

� Professional qualifications in insurance

� Growth of actuarial science

� Scope for insurance consultants, brokers and new distribution channels

� Scope for IT development in insurance

� e-commerce, e-business

� Managed health care insurance

� Savings linked insurance, credit insurance, liability insurance,event insurance

� Emergence of financial supermarkets

Opportunities in the Indian insurance sectorOpportunities in the Indian insurance sectorOpportunities in the Indian insurance sectorOpportunities in the Indian insurance sector

2011 Compiled by Deepak GodboleRisk & Insurance Management

““““““““ The ability to take The ability to take The ability to take The ability to take The ability to take The ability to take The ability to take The ability to take

risks is an essential risks is an essential risks is an essential risks is an essential risks is an essential risks is an essential risks is an essential risks is an essential

element of economic element of economic element of economic element of economic element of economic element of economic element of economic element of economic

progress. progress. progress. progress. progress. progress. progress. progress.

The success lies in The success lies in The success lies in The success lies in The success lies in The success lies in The success lies in The success lies in

taking the right risk. taking the right risk. taking the right risk. taking the right risk. taking the right risk. taking the right risk. taking the right risk. taking the right risk. ””””””””

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2011 Compiled by Deepak GodboleRisk & Insurance Management

• Risk is a part of Uncertainty

• Uncertainty is the larger canvas.

• Risk is the quantifiable portion of uncertainty

• “Beyond the known is the unknown.”

• “What is unknown today will be known tomorrow.”

• The uncertainty associated with the outcome of an event is known as risk

Pure - Speculative

Fundamental- ParticularDynamic- Static

Peril

Hazard- Physical, Moral, Morale

2011 Compiled by Deepak GodboleRisk & Insurance Management

Personal–

Property–

Liability – ProductProfessionPublic

• Risk Neutral - Indifferent Toward Risk

• Risk Averse - Prefer to Avoid Risk

• Risk Seeker - Prefer Risk

R

A P L T A

Identification

Analysis/ Risk Assessment

Evaluation and review

Control and reduction

Retention

Transfer

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2011 Compiled by Deepak GodboleRisk & Insurance Management

Life insurance

Property and CasualtyNon LifeGeneral

Reinsurance

• Fire• Marine

• Miscellaneous

2011 Compiled by Deepak GodboleRisk & Insurance Management

Life insurance protects against financialdistress due to unexpected death.

medical costs are covered

Insured is hospitalized and receives treatment

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2011 Compiled by Deepak GodboleRisk & Insurance Management

HOMESANIMALSJEWELRY/WATCHESBUSINESSESCOMPUTERS/

ELECTRONICS

You are liable when you are legally bound to make good on a loss or damage that occurs in an interaction

2011 Compiled by Deepak GodboleRisk & Insurance Management

CONCEPT

Distributing costs among a large group of people

to share the losses experienced by a few

Insurance is said to have begun in ancient China.Merchants traveling on the dangerous Yangtze

River combined their loads so if one ship went

down, no one person would lose all of their goods.

Other stories: BIMA- Iran, protection from sea hawks

HIS

TO

RY

HIS

TO

RY

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2011 Compiled by Deepak GodboleRisk & Insurance Management

Security, indemnity, protection, guarantee, safeguard

A promise ensuring safety, convenience, reliability and comfort

premium

Insurance is a social device in which a group of

individuals (insureds) transfer risk to another party

(insurer) in order to combine loss experience, which

permits statistical prediction of losses and provides for

payment of losses from funds contributed (premiums)

by all members who transferred risk

2011 Compiled by Deepak GodboleRisk & Insurance Management

• Insurance is an important element of financial services and is complimentary to direct financing

• Insurance industry is a key component of the

economy by virtue of the amount of premiums it collects, the scale of its investments and the essential

socio-economic role it plays in covering personal and business risks. Insurance services not only mobilize

and channelize savings but also support trade, commerce and entrepreneurial activities in other

sectors

• Insurance services are, therefore, of major significance in relation to trade and development

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2011 Compiled by Deepak GodboleRisk & Insurance Management

• Insurance would ensure less volatility and risk of failure in businesses and thus provide for greater financial and societal

stability

• Facilitates trade, business and commerce by flexible adaptation to changing risk needs particularly of the industry

& infrastructure• Insurance sector generates savings and directs the same to

deserving investments • It enables risk to be managed more efficiently through risk

pricing and risk transfers and this is an area which provides

unlimited opportunities in the Indian context for consulting, broking and employment

• The basic interest of an insurance industry being loss minimization, its expertise in understanding losses assists it to

share the experience across the economy, thus, enabling

better loss control and preservation of national assets

2011 Compiled by Deepak GodboleRisk & Insurance Management

State Monopoly

Private Entry allowedLicensing/ Controls/ Regulation

Liberalisedcontrols/ regulations

No BarriersSelf Regulation

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2011 Compiled by Deepak GodboleRisk & Insurance Management

� Duration of contract� Uncertainty� Time factor� Use of statistics and probability� Claims- volume and periodicity� Reinsurance

• Large Number of Similar Exposure Units

• Definite/ calculable Losses

• Fortuitous/ Accidental Losses which cause financial burden

• Catastrophe Unlikely

• Determinable Probability Distribution

• Economic Feasibility/ affordability

2011 Compiled by Deepak GodboleRisk & Insurance Management

0.604.605.202009

0.604.004.602008

0.604.004.702007

0.604.104.802006

0.612.533.142005

0.652.533.172004

0.562.152.712001

NLLT

IP (%) - World

3.04.07.02009

2.94.17.12008

3.434.557.992007

IP (%) - India

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2011 Compiled by Deepak GodboleRisk & Insurance Management

6.647.754.32009

6.241.247.42008

6.240.446.62007

5.233.238.42006

4.418.322.72005

4.015.719.72004

2.49.111.502001

NLLT

ID (Premium per capita in USD- India

ID - World

253.9341.2595.12009

264.2369.7633.92008

220.0291.5511.52007

2011 Compiled by Deepak GodboleRisk & Insurance Management

Country (US$ Mln) (%) Japan 505,956 12.44 China 163,047 4.01 India 65,085 1.60 Hong Kong 23,201 0.57 Singapore 14,245 0.35 Malaysia 8,840 0.22 Thailand 10,460 0.26 Indonesia 7,285 0.18 Philippines 2,399 0.06

Country IP WR

TAIWAN 16.8 1

HONG KONG 11.0 5

KOREA 10.4 6

SINGAPORE 6.8 22

INDIA 5.2 31

MALAYSIA 4.4 35

THAILAND 4.0 38

CHINA 3.4 44

PHILLIPPINES 1.6 70

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2011 Compiled by Deepak GodboleRisk & Insurance Management

Growth in trade, Socio-economic environment, Changing risk perception (political/ business), Legislative and Regulatory requirements, Propensity

to save, Product availability, Premium rates, Information/ Education, Aggressive marketing and customer service

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

(%) (%) (%) (%)

P G NL L

North America Western Europe Japan Latin America

Eastern Europe South & East Asia Rest

2011 Compiled by Deepak GodboleRisk & Insurance Management

Agent DevelopmentOfficer/ Broker

PublicityProspective Customer

Insurers

P C

Insurance Company

Claimant Surveyor

Loss assessor Courts

C M

Serviceprovider/

TPAIns

ur

er

Ins

ur

er

Ins

ur

er

Ins

ur

er

’’ ’’ s

s

s

s

Int

er

na

l

Int

er

na

l

Int

er

na

l

Int

er

na

l

Ma

na

ge

me

nt

Ma

na

ge

me

nt

Ma

na

ge

me

nt

Ma

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me

nt

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2011 Compiled by Deepak GodboleRisk & Insurance Management

� Proposal Form

� Policy/ Certificate of insurance

� Endorsement

� Renewal Notice

� Claim Form

� Survey Report

� Discharge Voucher

� Insurable interest

� Utmost good faith

� Indemnity

� Contribution

� Subrogation

� Proximate cause

New Business

Underwriting

Policy Holder Service

Billing and Collections

Agency

Taxation

Accounting

Valuation

Reinsurance

Claims

2011 Compiled by Deepak GodboleRisk & Insurance Management

� Indian Contract Act 1872

� Insurance Act 1938

� IRDA 1999

� LIC Act 1956

� GIBNA 1972

� Marine Insurance Act 1963

� Carriage of Goods by Sea Act 1925

� The Merchant Shipping Act 1958

� The Carriers Act 1965

� The Carriage by Air Act 1898

� The Motor Vehicle Act 1988

� Public Liability Insurance Act 1991

� The Workmen’s Compensation Act 1923

� The Indian Stamp Act 1899

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2011 Compiled by Deepak GodboleRisk & Insurance Management

� Catering to select urban elitist industrial clientele

� Driven solely by “profiteering” motives

� Reckless competition in rates and terms

� Lack of scientific underwriting skills

� Lack of investment safeguards

� Excessive reinsurance abroad

� Preferential claim settlements

� Unethical business practices

� Little will or direction to develop insurance as a ‘national

service sector’

� Little efforts to design need based low cost covers

2011 Compiled by Deepak GodboleRisk & Insurance Management

• Extensive state control of economic activity

• License regime

• Inward looking development strategy

• Heavy regulation

• Less use of technology

Pre

• Extensive participation of the private sector

• Competitive

Environment

• Exports as a key factor in development strategy

• Directions through supervisory authorities

• Increasing deployment of technology

Post

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2011 Compiled by Deepak GodboleRisk & Insurance Management

� Committee on insurance reforms set up- (1992-1994)� Investment norms for LIC and GIC revised. (1995)� Indication of opening up of the Indian insurance sector.

(1996)� Broad basing of Boards of State owned insurance

companies. (1997)� Passing of IRDA Bill. Up to 26% foreign equity allowed.

(1999), IRDA notified. (2000)� Announcement of opening up of window for issuing

licenses. (May 2000)� Insurance Advisory Committee constituted. (June 2000)� First few licenses issued. (January 2001)� GIC directed to act exclusively as a Reinsurer.� General Insurers’ Public Sector Association formed.� New companies launch the products.

2011 Compiled by Deepak GodboleRisk & Insurance Management

� Opening the insurance sector to both domestic and foreign private investors

� Reduce govt. stake in LIC & GIC to 50%, Restructuring the operations of LIC and GIC

� Strengthening the capital base of the existing players and reducing mandatory investments

� Setting up a statutory autonomous regulatory body and revising insurance act

� Pay interest on delayed claims payment and make optimum use of IT

� Introducing intermediaries between the insurance companies and the customer in line with worldwide practices

CRIS(Malhotra Committee)

STRUCTURE, COMPETITION, INVESTMENTS, REGULATION, CUSTOMER SERVICE

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2011 Compiled by Deepak GodboleRisk & Insurance Management

[Subsidiaries of GIC : Fully owned by GIC up to 2001][Subsidiaries of GIC : Fully owned by GIC up to 2001]

GOIGOIGOI

GICGIC

Fully owned by GOIFully owned by GOI

NationalNational OrientalOriental UnitedUnited

IndiaIndiaNewNew

IndiaIndia

LICLIC

IRDAIRDA

GIPSAGIPSA

New Players

Fully owned by GOIFully owned by GOI

Fully owned by GOIFully owned by GOI

2011 Compiled by Deepak GodboleRisk & Insurance Management

LIFE INSURANCE COMPANIES LICENSED BY IRDA (Sep 2011)Life Insurance Corporation of India

SBI Life Insurance Co. Ltd

Birla Sun Life Insurance Co. Ltd

HDFC Standard Life Insurance Co. Ltd

ICICI Prudential Life Insurance Co. Ltd

ING Vysya Life Insurance Company Pvt. Ltd.

Max New York Life Insurance Co. Ltd

Met Life India Insurance Company Ltd.

Kotak Mahindra Old Mutual Life Insurance Limited

Tata AIG Life Insurance Company Limited

Reliance Life Insurance Company Limited.

Aviva Life Insurance Co. India Ltd.

Bajaj Allianz Life Insurance Co. ltd.

Sahara India Life Insurance Co. Ltd.

Sriram Life Insurance

Bharti AXA Life Insurance

Future Generali India Life Insurance Company Limited

IDBI Fortis Life Insurance Company

Canara HSBC Oriental Bank of Commerce Life Insurance Company Ltd.

AEGON Religare Life Insurance Company Limited.

DLF Pramerica Life Insurance Company Ltd.

Star Union Dai-ichi Life Insurance Company Ltd.

India First Life Insurance Company Ltd.

Edelweiss Tokio Life Insurance Company Ltd.

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2011 Compiled by Deepak GodboleRisk & Insurance Management

NON-LIFE INSURANCE COMPANIES LICENCED BY IRDA (Sep 2011)National Insurance Co. Ltd.

The New India Assurance Co. Ltd.

The Oriental Insurance Co. Ltd.

United India Insurance Co. Ltd.

Bajaj Allianz General Insurance Co. Ltd.

ICICI Lombard General Insurance Co. Ltd.

IFFCO Tokio General Insurance Co. Ltd.

Reliance General Insurance Co. Ltd.

Royal Sundaram Alliance Insurance Co. Ltd

Tata AIG General Insurance Co. Ltd.

Cholamandalam MS General Insurance Co. Ltd.

HDFC Ergo General Insurance Co. Ltd.

Export Credit Guarantee Corporation Ltd.

Agriculture Insurance Co. of India Ltd.

Star Health & Allied Insurance Company Ltd.

Apollo Munich Insurance Company Limited

Future Generali India Insurance Company Limited

Universal Sompo General Insurance Company

Shriram General Insurance Company Limited

Bharti AXA General Insurance Company Limited

Raheja QBE General Insurance Company Limited

SBI General Insurance Company Limited

Max Bupa Health Insurance Co. Ltd.

L&T General Insurance Co. Ltd.

2011 Compiled by Deepak GodboleRisk & Insurance Management

Term insuranceMoney BackWhole Life InsuranceUniversal life insuranceULIPSPension & AnnuitiesHealth InsurancePersonal Accident InsuranceMoney InsuranceFidelity Guarantee Insurance

Life Insurance Products

Fire InsuranceConsequential Loss InsurancePublic Liability InsuranceMarine InsuranceMotor InsuranceMachinery Breakdown InsuranceMachinery and Equipment All Risks InsuranceContractors All Risks InsuranceWorkmen's Compensation Insurance

General Insurance Products

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2011 Compiled by Deepak GodboleRisk & Insurance Management

Autonomous body constituted on 19th April 2000 under IRDA Act,1999

IRDA

Mission

• Ensure protection of policyholders’ interest• Ensure orderly growth of insurance industry• Enforce high standards• Ensure speedy claims settlement• Promote fairness, transparency and orderly conduct• Take action against inadequacies• Bring about optimum amount of self regulation

� Developmental/ Promotional (Direct & Indirect) Facilitator, stimulator

� Regulatory (Concurrent)Statutory, Regulatory, Checks and balances, guidelines, clarifications

� Supervisory (off-site & on-site examination)Market size, scope of coverage, types of customers, funds position, litigations pending

Role

2011 Compiled by Deepak GodboleRisk & Insurance Management

� Issue Certificate of Registration� Protection of interests of policyholders� Requirements of norms for intermediaries� Promoting and regulating professional organisations� Calling for information/ inspection� Control and regulate rates, terms� Specifying form and manner of maintaining books of accounts� Regulating investment of funds� Regulating maintenance of margin of solvency

Draft guidelines Discussions Regulations

Major duties, powers and functions

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2011 Compiled by Deepak GodboleRisk & Insurance Management

IRDA: Regulations

Regulations notified in July 2000

Appointed Actuary Actuarial Report and Abstract

Assets, Liabilities, and Solvency Margin of Insurers

Licensing of Insurance Agents /IRDA(Licensing Of Insurance Agents )

(Amendment) Regulations, 2002

General Insurance - Reinsurance

Registration of Indian Insurance Companies

Insurance Advertisement and

Disclosure

Obligations of Insurers to Rural Social

Sectors

The IRDA (Meetings) The Insurance Advisory Committee

(Meetings)

Investments (Life and General)

Statements of Accounts

I

2011 Compiled by Deepak GodboleRisk & Insurance Management

IRDA: Regulations

Regulations notified in September 2000: The IRDA (Staff)

Regulations notified in November 2000: Surveyors and Loss Assessors-

Regulations notified in December 2000: Reinsurance -Life

Revised Investment Regulations in April 2001: Modified Investment

Regulations

Regulations notified in October 2001: Third Party Administrators

IRDA( Preparation of financial statements and auditor's report of

insurance Companies) Regulations, 2002

Regulations notified in April 2002: IRDA( Protection of Policyholders' Interests) Regulations, 2002

IRDA( Protection Of Policyholders' Interests) (Amendment) Regulations,

2002

Regulations notified in October 16th, 2002:

IRDA( Insurance Brokers) Regulations, 2002

IRDA(Licensing of Corporate Agents) Regulations, 2002 IRDA( Manner of Receipt of Premium ) Regulations, 2002

IRDA( Obligations of Insurers to Rural Social Sectors ) Regulations, 2002

II

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2011 Compiled by Deepak GodboleRisk & Insurance Management

12-07-2010 IRDA (Sharing of Database for Distribution of Insurance Products) Regulation

12-07-2010 IRDA (Treatment of Discontinued Linked Insurance Policies) Regulations

12-07-2010 IRDA (Licensing of Corporate Agents) (Amendment) Regulations, 2010

12-07-2010 IRDA (Insurance Advertisements and Disclosure) (Amendment) Regulations, 2010

22-08-2008 IRDA (Investment) (Fourth Amendment) Regulations, 2008

18-02-2008 IRDA (Registration of Indian Ins.Cos.)(Second Amendment Reg)-2008

11-02-2008 IRDA (Obligations of insurer's to Rural or Social Sector) (Fourth Amendment)

11-02-2008 IRDA(Obligations of insurer's to Rural or Social Sector) (Third Amendment)

02-01-2008 IRDA ( Insurance Brokers) (Amendment ) Regulations' 2007

26-12-2005 IRDA (Obligations of Insurers to Rural or Social Sectors) Regulations, 2005

24-11-2005 IRDA ( Micro-Insurance ) Regulations' 2005

10-11-2005 IRDA (Conditions of Service of Officers and Other Employees) (Amendment)

06-06-2005 Insurance Advisory Commitee (Amendment), 2005

30-07-2004 IRDA (Obligations of Insurers to Rural and Social Sectors) (Amendment)

01-03-2004 IRDA (Qualification of Actuary)'2004

01-01-2004 IRDA(Investment) Amendment Regulations'2004

26-02-2003 IRDA(Registration of Indian Insurance Companies ) (Amendment) Reg'2000

IRDA: Regulations III

2011 Compiled by Deepak GodboleRisk & Insurance Management

One of the more recent examples of financial diversification is ‘bancassurance’, the term given to the distribution of insurance products through branches or other distribution channels of the banks. The concept that originated in France, now constitutes the dominant model in a number of European and other countries and the same is fast catching up in India as well.In India, this scheme, until now, operates largely through strategic alliances or joint ventures.

Bancassurance

Population of low-income consumers “at the base of the pyramid” has substantial purchasing power globally. This market is significantly underpenetrated and, thus, presents a huge opportunity. Today, half of the world’s population comprises the market for micro insurance. The way to capitalize on this massive and growing demand is via microinsurance: insurance policies sold in high volumes at low prices to low-income people. In recognition of this immense market opportunity, a number of commercial insurers have entered this space globally, forming partnerships with large distributors to meet the strong demand.

Micro Insurance

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2011 Compiled by Deepak GodboleRisk & Insurance Management

Health insurance is an important mechanism to finance the health care needs of the people. To manage problems arising out of increasing health care costs, the health insurance industry had assumed a new dimension of professionalism with TPAs.

TPAs were introduced by the IRDA in the year 2001. The core service of a TPA is to ensure better services to policyholders. Their basic role is to function as an intermediary between the insurer and the insured and facilitate cash less service at the time of hospitalization.

A minimum capital requirement of Rs.10 million and a capping of 26% foreign equity are mandatory requirements for a TPA as spelt by the IRDA. License is usually granted for a minimum period of three years. Ideally, The TPA functions by collaborating with the hospitals in order for the patient to enjoy hospitalization services on a cashless basis.

Third Party Administrators