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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
2
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. ””””””””
3
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
4
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
5
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
6
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
7
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
8
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
9
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
10
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
na
ge
me
nt
11
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
12
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
13
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
14
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.
15
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
16
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
17
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
18
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
19
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