Insurance Products and Investor Education

-B.V.Raghunandan, SVS College, Bantwal

National Seminar on

‘Emerging Trends in Indian Service Sector’

Srinivas Institute of Technology, Mangalore.

April 26, 2012

Insurance Products

• Risk Management Tools• Relatively Less Known Concept• Indian Philosophy is to absorb the risk by

providing and saving in good times• Low Penetration of Market (Health Insurance

covering only 0.2% of population compared to 75% of the population in the US)

Insurance in India

• Insurance Act, 1938: Investment Pattern, Commission of Agents, Appointment of Directors and Supervision of insurance companies

• 1956:LIC was formed by Nationalising private life insurance companies• 1972: General Insurance Business (Nationalisation) Act• 1993: Malhotra Committee Appointed• 1996: Setting up Insurance

Regulatory Authority• 1999: IRDA Act was passed

IRDA: Basic Agenda• Allowing Private Insurance

Companies• Allowing Foreign

Companies• Dispelling the Fear of the

Public about Foreign and Private Operators in such long term contracts as Life Insurance

• Investor Education was not Basic to the Passing of the Act

Functions of IRDA

• Ensure orderly growth of the Insurance industry• Protection of policyholder's interest• Issue consumer protection guidelines to insurance companies• Grant, modify, and suspend license for insurance companies• Lay down procedure for accounting policies to be adopted by the

insurance companies• Inspect and audit of insurance companies and other related agencies• Regulation of capital adequacy, solvency, and prudential requirements of insurance

business• Regulation of product development and their pricing including free pricing of products• Promote and regulate Self Regulating organizations in the insurance industry• Re-insurance limit monitoring• Monitor investments• Vetting of accounting standards, transparency requirements in reporting• Ensure the health of the industry by preventing sickness through appropriate action• Publish information about the industry• Prescribe qualification and training needs of agents• Monitor the charges for various services provided by insurance companies

Need for Investor Education

• Insurance is not Investment Product• There are Many Charges including Administrative

Charges• Many Ground for Denying the Settlement of Claims• Survival of The Insurance Companies in the Long

Run• Popularising Pure Insurance Products• Cannot be Used for Wealth Building

Insurance is not Investment Product

• Insurance is not Always Essential• Only a Portion of the premium is invested and

the rest goes towards risk coverage charge• No one can guarantee the return or the sum

assured• Money is invested in Corporate Securities• Possibility of negative Return• Do not decide on the Basis of the Relation

with the Agent

Charges including Administrative Charges

• Administrative Charges• Need for Reading the Entire Agreement• Specimen Copy of the Agreement Should

be Provided to the Customer before the decision is taken

• Important Points are to be Highlighted• All Reading Material should be in

Readable Size of Font

Ground for Denying the Claims

• All Medical Expenses are not Covered• Nexus Between Employees and Doctors• Fraudulent Claims are on the Increase

through Nexus between Fraudulent Customers and Employees

• Resulting in Denial of Genuine Claims

Survival of Insurance Companies

• Continuous Customer Support and Service• Permanence in the Appointment of Agents• Banks are not Effective Insurance Agents as

Individuals• Life Insurance Contracts are Long Term

Contracts• There is the Need for Backing preferably by the

Government

Popularising Pure Insurance Products

• In Life Insurance, Term Assurance Policy• It is wise not to expect any return on your

insurance products• Insurance Related to Housing Loan should

always be Pure Insurance Product• Agents do not Popularise them Due to Lesser

Commission for Them

Cannot be Used for Wealth Building

• Only a Portion of the Premium is Invested• Administrative Charges Reduce the Return• Hefty Agents Commission always Reduce the

Return• Capital Loss on the Investment made in

Corporate Securities• Investment by Insurance Companies are subject

to Charges at the point of investment and exit• Insurance Companies are not that Good in Asset

Management as Mutual Funds

Mode of Education

• IRDA must Have it as a Function as SeBI has done

• Institution established for this Purpose• Feedback from the Clients about the

Claims made by Agents• Stability in the Personnel and Agents

Appointed• Organisation of Policy Holders Meet• Public Interest Ads

THANK YOU