TERM PAPER

SUBMITTED TO SUBMITTED BY
LECT. Manpreet kaur kaler Manpreet singh
Roll no E3004A84
Class M.C.A(1STSEM)

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 ACKNOWLEDGEMENT
I would like to express my gratitude to all those who gave me helping

hand incompleting this term paper. I want to thank my teacher

LECT.MANPREET KAUR KALER for helping me whenever I needed it the

most. My friends have also supported me in my work. I want to thank

them all for their help, support, interest and valuable hints.

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 INDEX
SRNO CONTENTS PAGE NO
1. Concept of insurance 4
2. Basic insurance terminologies 4
3. Origin of insurance 5
4. General insurance 6
5. Insurance sector 6
6. Development of general insurance 10
7. De tariffing of general insurance 11
8. Insurance products 12
9. General insurance council 13
10. Investment polcies of GIC 13
11. Current trend in insurance sector 14

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THE CONCEPT OF system by which the losses
INSURANCE
suffered by a few are spread over
Insurance is a contract between
two parties where by one party
many, exposed to similar risks.
called insurer under takes in
Insurance is a mechanism for
exchange for a fixed sum called
transferring risk and reducing risk
premiums, to pay the other party
by having a large number of
called insured a fixed amount of
individuals who share in the
money on the happening of a
financial losses of the group. Risk
certain event.
in hibitsaction and is highly
Insurance is a protection against
subjective on an individual basis.
financial loss arising on the
Insurance objectifies risk. People
happening of an unexpected event.
trade the possibility of financial loss
Insurance companies collect
for the relative certainty of the
premiums to provide for this
premium paid and reimbursement
protection. A loss is paid out of the
for loss. Insurance frees people to
premiums collected from the
take action even in the face of
insuring public and the Insurance
possible financial loss. Thus,
Companies act as trustees to the
insurance provides utility even if no
amount collected. For Example, in
loss ever occurs.
a Life Policy, by paying a premium
Some people believe insurance is
to the Insurer, the family of the
similar to gambling or opening a
insured person receives a fixed
savings account.
compensation on the death of the
insured. Similarly, in a car BASIC INSURANCE
insurance, in the event of the car TERMINOLOGIES

meeting with an accident, the Insured

insured receives the compensation The person known as the policy
to the extent of damage. It is a holder ,a person with insurance
coverage.
Insurer
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A company licensed to transact the
business of insurance and issue
insurance policies.
Policy
It's the written contract between an
A licensed person or organization
who sells insurance and represents
the insurance company to
the policy holder.
ORIGIN OF INSURANCE

insurance company and its insured. Whenever there is uncertainty

It defines what the company agrees there is risk. We do not have any

to cover for what period of time and control over uncertainties which

describes the obligations and involves financial losses. The risk

responsibilities of the insured. may be certain events like death,

pension, retirement or uncertain
Premium
events like theft, fire, accident, etc.
It's the amount of money a
Insurance is a financial service for
policyholder pays for insurance
collecting the savings of the public
protection.
and providing them with risk

Claim coverage. It comes under service

It's the notice to the insurance
company that under the terms ofa
policy, a loss maybe covered.
Indemnity
Legal principle that specifies an
insured should not collect more
than the actual cash value of a loss
but should be restored
approximately the same financial
position as existed before the loss.
Agent
sector and while marketing this
service due care is taken in quality
product and customer satisfaction.
The main function of the Insurance
is to provide protection against the
possible chances of generating
losses. The insurance sector in
India has come a full circle from
being an open competitive market
to
to nationalization and back to a
liberalized market again. Tracing
the developments in theIndian
insurance sector reveals the 360-

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 business was concentrated in
degree turn witnessed over a
urban area.
period of almost two centuries.
INSURANCE SECTOR
The opening up of Insurance sector
was a part of theon going
liberalization in the financial sector
GENERAL INSURANCE of India. The changing face of the

General (non life) insurance financial sector and the entry of

provide a short term coverage several companies in the field of

,ususall for a period of one year. life and non life Insurance segment
general insurance transact fire are one of the key results of these
insurance, motor insurance, marine liberalization efforts. Insurance
insurance, and miscellaneous business by way of generating
insurance business. Among these
premium income adds significantly
categories fire and motor
to be the GDP. Over the past three
insurance business are
years, more than thirty companies
predominant motor vehicle
have expressed interest in doing
insurance is compulsory in india
and the motor insurance portfolio business in India. The IRDA

constitutes around 40 percent of (Insurance Regulatory

the total gross premium collected
by the general insurance
industry .Moreover, motor
insurance due to third party liability
claims has substantially contributed
to underwriting losses.
The government nationalized the
general insurance business on 1
jan 1973, by passing the general
insurance business act, 1972.prior
to nationalization, insurance
Development Authority) is the
regulatory authority, which looks
over all related aspects of the
insurance business. The provisions
of the IRDA bill acknowledge many
issues related to insurance sector.
The IRDA bill provides guidance for
three levels of players - Insurance
Company, Insurance brokers and
Insurance agent. Life Insurance
sector is one of the key areas

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where enormous business potential a better Chance to save as well as
exists. InIndia currently the life insure. The regulatory system in
insurance premium as a India is relatively new and takes
percentage of GDP is 1.3 % some more time to make the
against, 5.2 per centin the US. Insurance sector a perfectly
General Insurance is another
competitive one. Insurance
segment, which has been growing
Regulatory Authority of India issued
at a faster pace. But as per the
regulations on 15 subjects which
current comparative statistics, the
general insurance premium has included appointed. Actuary,

been lower than life insurance. actuarial report, Insurance agents,

General Insurance premium as a solvency margins, reinsurance

percentage of GDP was a mere 0.5 registration of Insurers, and
'per cent in 1996. In the General obligation of insurers to rural and
Insurance Business , General social sector, investment and
Insurance Corporation (GIC) and
accounting procedure. The reform
its four subsidiaries viz. New India
in Insurance in India is guided by
Insurance, Oriental Insurance,
factors like availability of a variety
National Insurance and United
of products at a competitive price,
India Insurance, are
doing major business. The General improvement in the quality of

Insurance Industry has been customer services etc. Also the

growing at a rate of 19 percent employment opportunities in the
per year. Insurance sector wil1increase as

The entry of several private major players set their business

insurance companies, particularly plans in India. The policy of the

international insurance companies, government to openup the financial

through joint ventures, will speed sector and the Insurance sector is

up the process of insurance expected to bring greater FDI

mobilization. The competition will inflow into the country. The

unleash new schemes and increase in the investment limit in

benefits, which will give consumers this vital sector has generated

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 The private sector general
considerable business interests
insurance companies are:
among the foreign Insurance
companies" Their entry wil1  The general Royal sundram

certainly change the Insurance alliance insurance company

limited.
sector considerably

 Reliance general insurance

Sector and companies in general company limited.
insurance:
 IFFCO Tokio general
There are four nationalized and insurance company
nine private general insurance limited.
companies:
 TATA AIG general
The government notified the insurance company limited.
general insurance corporation of
india (GIC) as an Indian reinsurer  Bajaj Allianz general

in November 2000. With this the insurance company limited.

four public sector companies which  ICICI Lombard general

were subsidiaries of GIC have insurance company limited.
been delinked from it and are noe
broadly run as board managed  Cholamandalam general

companies. the four public sector insurance company limited.

companies are:
 HDFC-Chubb general

 The oriental insurance insurance company limited.

company limited.  Star health and allied

 The new india assurance insurance company limited.

company limited. Two new public sector entrants in

general insurance business are:
 The national insurance
company limited.  Export credit guarantee
corporation limited.
 The united india insurance
company limited.

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  Agriculture
company of india Ltd.
The minimum paid up capital of the
general insurance companies was
raised to Rs 100 crore under the
modified insurance Act.the four
nationalised general
companies enhanced their paid up
capital from 40 crore to Rs 100
crore.
insurance insurance segment is the most
lucrative as fire rate as govern by
tariff.the compitation is maximum in
the segment .bulk of the premium
comes from corporate clients with
large industrial assets. fire
insurance today accounts for a fifth
insurance
of business for non-life insurance
companies and brings in most of
their profits.

The general insurance market is

not big as the life insurance market. Motor insurance
While life insurance accounts for 81
The coverage is for the following:
per cent of the insurance market in
india, general accounts for the  Various types of cars,
remaining 19 per cent. trucks, two-wheelers, and
three –wheelers.
General insurance products

Fire insurance  There are two types of motor

insurance namely:
This cover the following:
 Third party insurance which
 Bulding or flat. only insure the party other
than the owner in an
 Furniture fixtures and other
accident.
contents.

 Comprehensive insurance
 Loss of profit, that is,
which insure the owner as
consequently loss.
well as the third party
Fire insurance is comprehensive involved.
policy which covers loss on
In motor insurance, the rates were
account of fire, earthquakes, flodd,
revised upwards twice,once in1982
strike. It can be taken only by
and then in 1990 as the high cost
premises to be insured.fire
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of repairs coupled with third party
claims had adversely affected the
incurred loss ratio.motor insurance
is mandatory leading to good
amount of premium collection but it
is not financed upon as it could
lead to litigation problem.motor
insurance is the single largest and
the fastest growing business line
for insurance companies .
Marine cargo insurance
This covers:
 Cargo in transit.
 Cargo declaration policy.
 Marine hull insurance.
Inland vessels, ocean going
vessels,fishing and scaling vessels,
freight at risk,construction of
ships,ship breaking insurance.the
marine hull portfolio is a Rs 400
crores business and detarifing the
competition among general
insurance to offer cheaper prices
wil increase,as a result the shiping
industry will be the beneficiary.
Some of the General Rules:
1.
Mis-description :
The insurance policy shall be void
and all the premiums paid by
insured may beforfeited by the
insurance company in the event of
mis-presentation or mis-declaration
and/or non-disclosure of any
material facts.
2.
Reasonable care :
The insured shall take all
reasonable steps to safeguard the
property insuredagainst any loss or
damage. Insured shall exercise
reasonable care that
onlycompetent employees are
employed and shall take all
reasonable precautions toprevent
all accidents and shall comply with
all statuary or other regulations
3.
Fraud :
If any claim under the policy may
be in any respect fraudulent or if
any fraudulentmeans or device are
used by the insured or any one
acting on the insured’s behalfto
obtain any benefit under the
insurance policy, all the benefits
under theinsurance policy may be
forfeited.
4.
Few basic principles of general
insurance are :
1. insurable interest
2. utmost good faith
3. subrogation
4. contribution
5. indemnity
5
Risks of loss not covered under
general insurance are:
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 The loss or damage or for insuring fair transaction of
liability or expenses whether direct general insurance business. A
or indirect occasion byhappening
through or arising from any controller of insurance was
consequences of war, invasion, act appointed to implement this code of
of foreignenemy, hostilities(whether conduct.
war be declared or not), civil war,
rebellion revolution, civilcommotion
In 1965 , insurance floated a
or loot or pillage in connection
therewith and loss or damage reinsurance company,Indian
caused bydepreciation or wear and reinsurance corporation limited, for
tear.
However the risk of loss or damage retention of the general insurance
by war can be insured by payment business in india. In 1961,the
of additional
premium in some cases only Indian guarantee and general
insurance company limited ,a
government company along with
Development of general insurance: Indian reinsurance corporation
were notified as Indian reinsurance.
British and other foreign insurance
The insurance companies
companies transacted general
voluntary ceded to each of them 10
insurance business in india through
percent of their gross direct
their agents. Subsequently,they
premium. In 1960,the govt of made
established their companies
it mandatory for every insurer to
inindia. The triton insurance
ceded 20 percent in fire and marine
company limited was the first
cargo,10 percent in marine hull and
general insurance company
miscellaneous insurance and 5
established in Calcutta in
percent in credit and solvency
1850.Foreign companies had a
business to these two
monopoly in the insurance
reinsurancers.
business upto the close of
nineteenth century.the first Indian In1966 , Indian reinsurance
company to transact general companies are formed the
insurance business was Indian reinsurance pools in fire and hull
mercantile insurance company department for retention of higher
limited in Bombay in 1907.in premiums in the country. The
1957,the general insurance members companies ceded a
council .Framed a code of conduct specified percentage of premium to
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the respective pools which were premium dominates the total
managed by two statutory premium portfolio.the growth of
reinsurance. general insurance business is
hampered by lack of product
The government nationalized the
innovation,lack of quality data on
general insurance business Act
risks and associated parameters
1972. One hundered and seven
handicaps product innovation.
insurer including the branches of
foreign companies operating in De-tariffing of non-life insurance
india were amalgamated and group products:
into four companies, namely the
Most of the non-life insurance
national insurance company limited
business transacted in india was
,the new india assurance company
governed by tariffs. Tariffs are
limited ,the oriental insurance
documents that prescribe the rates
company limited,the united india
as well as policy coverage and
assurance limited..the general
condition pertaining to a class of
insurance corporation as a holding
insurance. This had resulted in a
company of these four companies
very little room for competition in
in November 1972.
these areas. This also left very
The general insurance company is less incentives for a rating better
smaller than the life insurance managed risks, thus resulting in
company. The total market size in avoidable claim costs for the
annual premium is about half of insurers. To add fuel to fire
that life insurance. The general ,features like adverse selection and
insurance in nidia has currently moral hazard ensured that bottom
about Rs20,000 crores of premium lines of insurance always under
income with a five year pressure regardless of volume of
compounded annual growth rate in business. The year 2007 will
the 16 percent range. The demand witness a switch over to atariff-free
for general insurance is still pricing regime for non life
generated by some of mandatory insurance. This is excepted to bring
or regularitybrequirements. Motor about hectic competition in pricing
vehicle insurance is compulsory of non life insurance
and hence motor insurance products.hoeever,with a view to
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ensuring a gradual transition to a  The third party premium
free market regime,the regulator would go into a special pool
has put on hold the freedom which will be managed by
tomodify coverage or policy general insurance council
conditions. and claims will be paid out of
this pool.
De=tariffing of motor insurance
from 1 january, 2007,will be the  If the premium in the pool is
biggest deregulation in the inadequate to meet all
insurance industry since claims,the claim shortfall be
nationalization. Motor insurance shared by the insurer in
today accounts for over 35 percent proportion of their overall
of the premium income of non life business size.
insurance companies . IRDA
 Insurance companies will
adopted a phased approach to
receive 10 percent of the
detariffing in motor insurance.
premium as management
 With a view to pre-empting a expenses,while general
rate war in motor insurance council will get2.5
insurance,the regulator has percent for managing the
asked companies not to pool.
offer vehicle cover at rates
 In the first phase,companies
lower then 10 percent of the
will issue polcies and settle
tariff.
claims through their
 If the companies want to branches.the claims shortfall
offer higher discount after
 Would be shared by the
jan 2007,they would have to
industry at the end of the
explain their pricing
year.
rationale.

GENERAL INSURANCE
 Insurance are allowed to
marginally increase the rates COUNCIL:
for third party insurance.
The function of the general
insurance council include aiding
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and advising the insurer carrying
10. The Associated Chambers of
on general insurance business in
Commerce and Industry of
the matters of setting up standards
Indiahas clocked out the fact that
of conduct and sound practice and
in the matter of rendering efficient during this period, private players in

services to holders of policies of the industry will see a growth of

general insurance. The council has about 140 per cent, owing to the
deliberated on issues relating to de adoption of the aggressive
tariffing of the motor insurance marketing techniques in
business,review of the motor comparison of the growth rate of 35
vehicles Act and structure of
per cent-40 per cent achieved by
compensation/remuneration
the state owned insurance
payable to agents.
companies. The chamber is
expected to poise the business of
INVESTMENT POLICY OF GIC
insurance to reach at
Central Govt. securities being not
Rs.2000billion in coming 2 years
less than20%
from the present level of Rs. 500
State Govt. securities and other
billion. With the result of adoption
government guaranteed securities,
of the intense marketing strategies
including (1) above, being not
by the private players, the
less than
30% declination has been witnessed in
Loans to HUDCO/DDA/GIC-HF
respect of the share of the state
and to state govts. For housing and
firefighting equipment, not owned insurance companies
less than15%
Market sector not more than 55 captured in the market. The market
share fallout has been noticed in
context of such companies like
CURRENT TRENDS IN
GIC, LIC, which have comedown to
INSURANCE SECTOR
nearly 70 per cent in the past 4-5
India's insurance sector is zooming
years from the 97 per cent. The
to show an unprecedented
experts have forecasted the more
progressive growth of more
severe competition in the insurance
than200% by the period of 2009-
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sector likely to be occurred in the people lives. In1870, the Bombay
near future. Till recently, insurance Mutual Life Insurance Society
sector was majority driven by the started its insurance business and
government sector players but now it chargedthe same premium from
many private sector multinational all people irrespective of whether
players have come into the picture. they were Indian or English. In the
Like HDFC, ICICI, Kotak, Mahindra year 1912, insurance regulation
and Birla Sunlife. Insurance sector was started due to the passing of
has been characterized as the the Life Insurance Companies Act
booming sector of the Indian arena, and the Provident Fund Act. By the
which has shown the growth rate of year of 1938, in India there were
more than 15 per cent to 20 total 176 insurance. companies. In
percent. Insurance in India is put the year of 1938, with the passing
under the federal subject and is of Insurance Act, 1938 there was
governed by the Insurance the introduction of the first
Act,1938, the Life Insurance comprehensive legislation. It was
Corporation Act, 1956 and General passed with the aim of providing
Insurance the strict state control over the
Business(Nationalization). Act, insurance business. After the
1972, Insurance Regulatory and independence, insurance sector in
Development Authority(IRDA) Act, India grew at a much higher pace.
1999 and by various other acts. In the year 1956, Indian
The roots of the insurance sector government combined together 245
can be tracked down in the year Indian and foreign insurers and the
1818 in the formation of thelife provident societies under the name
insurance Corporation in Calcutta. of nationalized
The idea was to provide means to monopolycorporation. It was the
the English widows.During that same period when the life
time different premiums were insurance corporation (LIC)came
charged for the Indian and English into theexistence by the passing of

15
the Act of Parliament and through business got the India. Due to the
the contribution of capital around amalgamation of 107 private
Rs. 5 crore. Till 1972, private sector insurance companies, 4 new
has enjoyed somehow monopoly in companies, as the subsidiaries of
the general insurance sector. There the General Insurance Company,
were around 107 private came into effect- National
companies in the field. With the Insurance Company, New India
effect of the General Insurance Assurance Company, Oriental
Business (Nationalization) Act, Insurance Company and United
1972, the general insurance India Insurance Company.

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