Insurance Sector

RISK: WHAT IS IT?  Risk = the possibility of financial loss/ Assets/ life 

Why is risk important for insurance?RISK IS WHAT MAKES YOU DECIDE WHETHER OR NOT YOU NEED INSURANCE.

RISK IS WHAT INSURANCE COMPANIES MEASURE WHEN DETERMINING WHETHER TO OFFER YOU INSURANCE AND HOW MUCH IT WILL COST.

HOW DO WE HANDLE RISK?

1.  Avoidance: Choosing not to participate in an activity because of the risk involved, e.g. not getting a driver’s license;

2.  Retention: Saving money in case of future losses, e.g. putting $1000 in a savings account in case of a car accident;

3. Transfer: Passing the risk on to an insurance company, e.g. paying a monthly fee for an insurance policy and expecting the insurance company to protect your assets.

What is Insurance?INSURANCE IS A LEGAL CONTRACT THAT TRANSFERS RISK FROM A POLICYHOLDER TO AN INSURANCE PROVIDER.

Insurance is created when people like you and your neighbors pool their resources to protect themselves from loss

If the risk of loss can be spread over a large enough group, the effects of the loss to any one individual can be minimized

Introduction and History of Insurance

Introduction and History of Insurance

Where did insurance come from?

Introduction and History of Insurance

Created by the Babylonians around 2100 B.C. to guarantee safe arrival of

their goods by caravan

Weather

What types of perils would the caravan have faced?

• Theft • Breakdowns

Introduction and History of Insurance

As history progressed, the need for insurance increased

The Phoenicians and Greeks used insurance for their seaborne commerce

The Romans were the first to use burial insurance

Introduction and History of Insurance

The first Insurance Company was formed in 1688 in London

(Lloyds of London)

Merchants, Ship-owners, and Underwriters met at a coffeehouse to discuss how to

protect the sea voyages

Introduction and History of Insurance

Modern insurance traced back to the “Great Fire of London” in 1666

13,200 houses were destroyed

Societies were formed to pool money for losses

Also created the need for modernizing fire fighting

Introduction and History of Insurance

The first American Insurance Company was formed in Charleston,

South Carolina in 1735

Fire Insurance Companies began spreading to New York City and

Philadelphia

Introduction and History of InsuranceBenjamin Franklin

Founded America’s first successful insurance company

Founded the first mutual insurance company

Encouraged prevention by educating the public about fire hazards

Refused to insure wooden buildings

“An ounce of prevention is worth a pound of cure”

Introduction and History of Insurance

Insurance is Big Business

United States Insurance Industry

Trillion dollar business

Employs over 2.5 million people in US

As the population ages and wealth grows the industry will continue to expand

WHAT TYPES OF RISKS DOES INSURANCE COVER?

Risk Insurance Coverage

 1. You lose your job Mortgage and Credit

Will cover your debts for a fixed period while you are unemployed

2.      Your stocks lose value None None

3.      You have a car accident Auto Will pay for damage to your car and other damaged vehicles and property. Will pay for medical expenses for you and other parties.

WHAT TYPES OF RISKS DOES INSURANCE COVER? (Cont.)Risk Insurance Coverage

1.  Your friend falls in your home and breaks his leg

Homeowners, renters, condo owners

Will pay fixed amount for his medical expenses

2. A pipe bursts in your apartment building and ruins your sofa

Renters Will pay to replace your sofa or for the sofa’s value

3.      The police give you a speeding ticket

None None

4.      You are hurt on the job

Disability; workers’ compensation

Disability: Will pay your lost wages and medical expenses

WHAT TYPES OF RISKS DOES INSURANCE COVER? (Cont.)Risk Insurance Coverage

1.      A necklace is stolen from your home

Homeowners; renters/ condo; mobile home

Will pay to replace your necklace up to a fixed amount

2.      You die Life Insurance Will distribute money to your benefactors and cover household expenses

3.      Other suggestions? ??? ???

Risk factors determine whether you will be able to buy a policy and how much it will cost.

Generally speaking:> Risk = > Cost

Risk Factors: Auto Insurance

AGE OF DRIVERGENDER OF DRIVERNUMBER OF DRIVERS ON POLICYACCIDENT / INCIDENT HISTORYWHERE AUTO IS PARKEDANNUAL MILEAGENUMBER OF TRAFFIC VIOLATIONSPRIOR INSURANCE RECORD YEARS OF DRIVING EXPERIENCE

Zip code / stateHow auto is used (commute, business, pleasure)Mileage per yearYear, make and model of carSpecial safety features in carOwned or financedAcademic performance (if currently in school)Credit rating of policyholder **Amount of coverage required**

Risk Factors for Homeowners/Renters InsuranceTYPE OF HOME (SINGLE FAMILY, TOWN HOME, HIGH-RISE)SQUARE FOOTAGENUMBER OF ROOMSFLOOR LEVEL (IF IN HIGH-RISE)ADDRESS (CITY, STATE, COUNTY)PETSPOOLPROXIMITY TO FIRE STATION AND FIRE HYDRANTBUSINESS BEING CONDUCTED ON PREMISES?

Personal property (including furniture, electronics, high value items, etc.)Special safety features (security, alarms, sprinklers) Credit rating of policyholderPrior insurance history (claims filed, etc.)Construction type (brick, frame, etc.)Roof type (shingle, tile, metal, flat, etc)**Amount of coverage required**

Risk Factors: Life Insurance

AGEGENDERHEIGHT & WEIGHTMEDICAL RECORDPERSONAL HABITS (SMOKER, DRINKER, DRUG USE)OCCUPATIONCREDIT RATING OF POLICYHOLDER**AMOUNT OF COVERAGE REQUIRED**

Types of insurance

Insurance Provider

Premiums

Claims

HOW INSURANCE WORKS

Insurance companies

Insurance companies may be classified into two groups:

Life insurance companies, which sell life insurance, annuities and pensions products.

Non-life, general, or property/casualty insurance companies, which sell other types of insurance.

Insurance trend across the world

Global insurance premiums grew by 2.7% in inflation-adjusted terms in 2010 to $4.3 trillion, climbing above pre-crisis levels. The return to growth and record premiums generated during the year followed two years of decline in real terms. Life insurance premiums increased by 3.2% in 2010 and non-life premiums by 2.1%. While industrialized countries saw an increase in premiums of around 1.4%, insurance markets in emerging economies saw rapid expansion with 11% growth in premium income.

Regulatory differences

In the United States, insurance is regulated by the states under the McCarran-Ferguson Act, with "periodic proposals for federal intervention", and a nonprofit coalition of state insurance agencies called the National Association of Insurance Commissioners

In the European Union, the Third Non-Life Directive and the Third Life Directive, both passed in 1992 and effective 1994, created a single insurance market in Europe and allowed insurance companies to offer insurance anywhere in the EU and allowed insurance consumers to purchase insurance from any insurer in the EU.

The insurance industry in China was nationalized in 1949 and thereafter offered by only a single state-owned company, the People's Insurance Company of China, which was eventually suspended as demand declined in a communist environment.

In India IRDA is insurance regulatory authority. As per the section 4 of IRDA Act 1999, Insurance Regulatory and Development Authority (IRDA), which was constituted by an act of parliament. National Insurance Academy, Pune is apex insurance capacity builder institute promoted with support from Ministry of Finance and by LIC, Life & General Insurance companies.

INSURANCE IN INDIA

In India, Modern Life Insurance as an actuarial concept, was introduced in 1818 when Oriental Life Insurance Company began its operations in India.

General Insurance was however a comparatively late entrant in 1850 when Triton Insurance company set up its base in Kolkata.

Milestones in Life insurance industry in India

1912 - The Indian Life Assurance Companies Act enacted as the first statute to regulate the life insurance business.

1928 - The Indian Insurance Companies Act enacted to enable the government to collect statistical information about both life and non-life insurance businesses

1938 - Earlier legislation consolidated and amended to by the Insurance Act with the objective of protecting the interests of the insuring public.

1956 - 245 Indian and foreign insurers and provident societies taken over by the central government and nationalised. LIC formed by an Act of Parliament, viz. LIC Act, 1956, with a capital contribution of Rs. 5 crore from the Government of India.

Milestones in the general insurance industry in India

1907 - The Indian Mercantile Insurance Ltd. set up, the first company to transact all classes of general insurance business.

1957 - General Insurance Council, a wing of the Insurance Association of India, frames a code of conduct for ensuring fair conduct and sound business practices.

1968 - The Insurance Act amended to regulate investments and set minimum solvency margins and the Tariff Advisory Committee set up.

1972 - The General Insurance Business (Nationalization) Act, 1972 nationalized the general insurance business in India with effect from 1st January 1973.107 insurers amalgamated and grouped into four companies viz. the National Insurance Company Ltd., the New India Assurance Company Ltd., the Oriental Insurance Company Ltd. and the United India Insurance Company Ltd. GIC incorporated as a company.

Top 10 Insurance Companies in India

Life Insurance Corporation of India (LIC) SBI Life Insurance Birla Sun life Insurance  Reliance Life Insurance (RLIC) ICICI Prudential Life Insurance Tata AIG Life Insurance   Bajaj Allianz Life Insurance Max Life Insurance HDFC Standard Life Insurance