Life Insurance Operations

February, 2009CONFIDENTIALCopyright 2008 by Infosys Consulting, Inc.

*CONFIDENTIALCopyright 2008 by Infosys Consulting, Inc.

Course AgendaQuick recap

Module 1: Financial aspects of Insurance

Module 2: Value Chain

Module 3: Insurance Departments and Process

Module 4: Reinsurance & Coinsurance

*CONFIDENTIALCopyright 2008 by Infosys Consulting, Inc.

Risk and InsuranceOnly Pure Risks are insurable

Insurance results in the risk being transferred to the insurance company

Sharing of risk among large groups is the basis for insuranceLoss of some, when borne by many, will not break any

*CONFIDENTIALCopyright 2008 by Infosys Consulting, Inc.

Characteristics of Insurable RisksOccur by chance

Quantifiable (measurable)

Not against Public policy

Not Illegal

Not be catastrophic to the insurer (example: Terrorism)

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Essential elements of Insurance

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Principles of InsuranceUtmost Good FaithInsurableInterestProximateCauseIndemnityContributionSubrogation

*CONFIDENTIALCopyright 2008 by Infosys Consulting, Inc.

Insurance industry segmentsLife & AnnuitiesProperty & CasualtyHealthLoss of Life

Savings for future

Retirement benefits

Individual and group Loss of Assets / Property

Loss due to Liability

Personal / Commercial

Individual and group Health Risks

Disease & Disability

Healthcare in old age

Individual and group

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Insurance jargonInsuredInsurer / Insurance CompanyLiabilityInsurable InterestInsurable RiskAgentApplication Broker PerilPhysical hazardMoral HazardPolicyCover NoteCoverageEndorsementIndemnityExclusion

*CONFIDENTIALCopyright 2008 by Infosys Consulting, Inc.

Course AgendaQuick recap

Module 1: Financial aspects of Insurance

Module 2: Value Chain

Module 3: Insurance Departments and Process

Module 4: Reinsurance & Coinsurance

*CONFIDENTIALCopyright 2008 by Infosys Consulting, Inc.

Financial model of InsurersPremiumWhere Moneycomes fromInvestment incomeClaims OutgoCost of operationTaxesReserve funds Operating Surplus = Premium Claims - Operational Costs - Reserves Where Money goes

*CONFIDENTIALCopyright 2008 by Infosys Consulting, Inc.

What is Premium?For the Customer: The cost of securing insurance benefits

For the Insurer: The cost of providing insurance cover

The consideration for an insurance ContractYear 1Year 2Year 3Year 0Year nFirst YearPremiumRenewal Premiums.

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What determines premium? (Components)AgeSexPhysical conditionPersonal HistoryFamily HistoryOccupational detailsHabitsPremiumInterest AssumptionsExpensesMortality Assumptions

*CONFIDENTIALCopyright 2008 by Infosys Consulting, Inc.

Course AgendaQuick recap

Module 1: Financial aspects of Insurance

Module 2: Value Chain

Module 3: Insurance Departments and Process

Module 4: Reinsurance & Coinsurance

*CONFIDENTIALCopyright 2008 by Infosys Consulting, Inc.

Insurance Value ChainInsurance CompanyBusiness Associates BrokersReinsurersTPAsBanks /FSIsConsumersDevelop MarketsDevelop & Enhance ProductsSell BusinessWrite New BusinessMaintain Personal RelationsManage Contracts & Administer AccountsPay Claims & BenefitsFinancial & Actuarial ManagementHR ManagementInvestment ManagementInformation & Technology ManagementCompliance Management

*CONFIDENTIALCopyright 2008 by Infosys Consulting, Inc.

Course AgendaQuick recap

Module 1: Financial aspects of Insurance

Module 2: Value Chain

Module 3: Insurance Departments and Process

Module 4: Reinsurance & Coinsurance

*CONFIDENTIALCopyright 2008 by Infosys Consulting, Inc.

Sell Business / Write New Business process flowNeeds AnalysisApplicationCollectionApplicationData CaptureUnderwritingPremiumCollectionPolicyIssueCommissionReleaseReinsuranceAccountingEntriesPre-sales Quote

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UnderwritingAssessment and classification of riskStandard, Sub-standard, Preferred RisksNeed for underwritingAvoid anti-selectionPrice product optimallyDetect Moral HazardEnsure existence of Insurable InterestUnderwriting methodsNumerical MethodJudgmental Method

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Customer services (aka Policy owner services)End customersConsultants/Service providersIntermediaries Regulator /Financial Institutions/StockholdersInsurer

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Span of Customer Services Information to all interested stakeholders Customer initiated changes to the policy recordsChange of premiumAddition of a riderInsurer initiated changes to the policy recordsLapsing of a policy for non-payment of premiumExpiry of a benefit at the end of its termFinancial MovementsChange of sum assuredAdministrative MovementsChange of address

*CONFIDENTIALCopyright 2008 by Infosys Consulting, Inc.

Claims process flowClaims Notification(Maturity, Installment, Death, Disability Claims)ClaimsRegistrationRequirementsgatheringClaims Investigation Claims PaymentClaimsAdjustments (O/s Premiums,Loans etc) Policy UpdationClaims ApprovalIntimation toMarketing/NBClientDetailsUpdationAccounting Entries

*CONFIDENTIALCopyright 2008 by Infosys Consulting, Inc.

ActuarialConduct research on trends in mortalitypolicy lapsecompany expensesDevelop products based on market feedback financial feasibilityCalculate Legal reserve, Liabilities & Premium ratesLiaise with regulators, Prepare and submit all relevant reports to RegulatorsReview product /company performance Suggest course correction, if needed

*CONFIDENTIALCopyright 2008 by Infosys Consulting, Inc.

Finance & AccountingBill and Collect premiumsMonitor the flow of fundsDisburse approved paymentsMaintain General Ledger (GL) for various financial transactionsPrepare Revenue AccountsBalance Sheets MIS Reports Statutory reports

*CONFIDENTIALCopyright 2008 by Infosys Consulting, Inc.

InvestmentsCollect and pool funds at Home Office level

Invest funds in multiple investment vehicles

Maintain & update books of accounts

Prepare & submit financial statements and reports

Deal with fund managers

Comply with regulatory requirements

*CONFIDENTIALCopyright 2008 by Infosys Consulting, Inc.

Course AgendaQuick recap

Module 1: Financial aspects of Insurance

Module 2: Value Chain

Module 3: Insurance Departments and Process

Module 4: Reinsurance & Coinsurance

*CONFIDENTIALCopyright 2008 by Infosys Consulting, Inc.

ReinsuranceTransfer of RiskBetween Insurer and ReinsurerTwo basic arrangementsFacultativeTreaty Various TypesProportionalSurplusQuota ShareNon-proportionalExcess of Loss etcInsuranceReinsuranceInsurerInsuredReinsurerRetrocessionaireRetrocession

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CoinsuranceJoint assumption of the same risk Usually on percentage basis

Between more than one insurerOne insurer acts as the leading insurerLead insurer responsible for policy administrationProportionate sharing of premiums & claims

Between insured & insurerPercentage of total value is insuredReduced premium ratesProportionate claims

*CONFIDENTIALCopyright 2008 by Infosys Consulting, Inc.

The contents of this document are proprietary and confidential to Infosys Consulting Inc. and may not be disclosed in whole or in part at any time, to any third party without the prior written consent of Infosys Consulting Inc.

2008 Infosys Consulting Inc. All rights reserved. Copyright in the whole and any part of this document belongs to Infosys Consulting Inc. This work may not be used, sold, transferred, adapted, abridged, copied or reproduced in whole or in part, in any manner or form, or in any media, without the prior written consent of Infosys Consulting Inc.