A

PROJECT REPORT
ON

PROBLEMS AND PROSPECTS OF AGRICULTURE

INSURANCE
IN
ICICI LOMBARD GENERAL INSURANCE, HYDERABAD
Submitted in partial fulfillment for the award of the Degree of
MASTERS OF BUSINESS ADMINISTRATION

SUBMITTED
BY

C.GOPINANDAN
(HT. NO. 11UD1E0007)
Under the esteemed guidance of

Ms. T.KOUSALYA SINGH

DEPARTMENT OF BUSINESS MANAGEMENT

TRINITY COLLEGE OF ENGINEERING & TECHNOLOGY

(Affiliated to Jawaharlal Nehru Technological University, Hyderabad)
PEDDAPALLY KARIMNAGAR-505172
(2011-2013)

ACKNOWLEDGEMENT
At the outset, I wish to thank the management of ICICI LOMBARD
GENERAL INSURANCE for their kind gesture of allowing me to undertake this
project, and its various employees who lent their helping hand towards the completion
of this study.
I sincerely thank my principal Dr K.RAVINDER REDDY and my HOD
Mr. B. VAMSIKRISHNA and my project guide T.KOUSALYA SINGH for his
support, cooperation and encouragement for timely completion of this project.
I am grateful to P.SRINIVAS (Finance manager) for according permission for
doing this project work at premier institution of ICICI LOMBARD GENERAL
INSURANCE
I am also thankful to the staff of ICICI LOMBARD for their cooperation and
support in completing in this project.

C.GOPINANDAN

DECLARATION

I, hereby declare that the project report entitled PROBLEMS AND

PROSPECTS OF AGRICULTURE INSURANCE at ICICI LOMBARD
GENERAL INSURANCE, HYDERABAD submitted by me to TRINITY
COLLEGE OF ENGINEERING & TECHNOLOGY, under the principal of

K.RAVINDER REDDY and guidance of T.KOUSALYA SINGH is my own and has

not been submitted to any other University or Institute for the award of any degree or
diploma.

Place: PEDDAPALLY
Date:
3

C.GOPINANDAN

(HT.NO.11UD1E0007)

CONTENTS

CHAPTER NO

CHAPTER-I

DESCRIPTION

INTRODUCTION TO TOPIC
OBJECTIVES
NEED
SCOPE
METHODOLOGY
LIMITATION
LITERATURE REVIEW
COMPANY PROFILE

PAGE NO

16

7 23

CHAPTER-II

CHAPTER-III

CHAPTER-IV

THEORETICAL FRAMEWORK

DATA ANALYSIS & INTERPRETATION

24 53

54 60

CHAPTER-V

FINDINGS CONCLUSION & SUGGESTIONS

61 - 63

BIBLIOGRAPHY

64

CHAPTER I
INTRODUCTION

INTRODUCTION:
AGRICULTURE INSURANCE:
Agriculture production and farm incomes in India are frequently affected by
natural disasters such as droughts, floods, cyclones, storms, landslides and
earthquakes. Susceptibility of agriculture to these disasters is compounded by the
outbreak of epidemics and man-made disasters such as fire, sale of spurious seeds,
fertilizers and pesticides, price crashes etc. All these events severely affect farmers
through loss in production and farm income, and they are beyond the control of the
farmers. With the growing commercialization of agriculture, the magnitude of loss
due to unfavorable eventualities is increasing.
The question is how to protect farmers by minimizing such losses. For a
section of farming community, the minimum support prices for certain crops provide
a measure of income stability. But most of the crops and in most of the States MSP is
6

not implemented. In recent times, mechanisms like contract farming and futures
trading have been established which are expected to provide some insurance against
price fluctuations directly or indirectly. But, agricultural insurance is considered an
important mechanism to effectively address the risk to output and income resulting
from various natural and manmade events.
Agricultural Insurance is a means of protecting the agriculturist against
financial losses due to uncertainties that may arise agricultural losses arising from
named or all unforeseen perils beyond their control (AIC, 2008).

Unfortunately, agricultural insurance in the country has not made much

headway even though the need to protect Indian farmers from agriculture variability
has been a continuing concern of agriculture policy. According to the National
Agriculture Policy 2000, Despite technological and economic advancements, the
condition of farmers continues to be unstable due to natural calamities and price
fluctuations. In some extreme cases, these unfavorable events become one of the
factors leading to farmers suicides which are now assuming serious proportions
(Raju and Chand, 2007).
Agricultural insurance is one method by which farmers can stabilize farm
income and investment and guard against disastrous effect of losses due to natural
hazards or low market prices. Crop insurance not only stabilizes the farm income but
also helps the farmers to initiate production activity after a bad agricultural year. It
cushions the shock of crop losses by providing farmers with a minimum amount of
protection.

It spreads the crop losses over space and time and helps farmers make more
investments in agriculture. It forms an important component of safety-net
programmes as is being experienced in many developed countries like USA and
Canada as well as in the European Union. However, one need to keep in mind that
crop insurance should be part of overall risk management strategy. Insurance comes
towards the end of risk management process. Insurance is redistribution of cost of
losses of few among many, and cannot prevent economic loss. There are two major
categories of agricultural insurance: single and multi-peril coverage.

Single peril coverage offers protection from single hazard while multiple 2
peril provides protection from several hazards. In India, multi-peril crop insurance
programme is being implemented, considering the overwhelming impact of nature on
agricultural output and its disastrous consequences on the society, in general, and
farmers, in particular. This present study looks at the genesis of agricultural insurance
in India, examines various agricultural insurance schemes launched in the country
from time to time and the coverage provided by them.
Major issues and problems faced in implementing agricultural insurance in the
country are discussed in detail. Farmers own mechanisms for loss management or
risk diffusion are very expensive in arid and semi-arid regions. The major role played
by insurance programs is the indemnification of risk averse individuals who might be
adversely affected by natural probabilistic phenomenon. The philosophy of insurance
market is based on large numbers where the incidence of risk is distributed over
individual. Insurance, by offering the possibility of shifting risks, enables individuals

to engage in risky activities which they would not undertake otherwise (Ahsan et al.,
1982).
Individuals cannot influence the nature and occurrence of the risky event. The
insurance agency has fairly good but generalized information about the insurer.
However, this does not hold true in the case of agriculture or crop insurance. Unlike
most other insurance situations, the incidence of crop risk is not independently or
randomly distributed among the insured. Good or bad weather may affect the entire
population in the area. Lack of data on yield levels as well as risk position of the
individual farmer puts the insurance company in tight spot.
As in the case of general insurance, agricultural insurance market also faces
the problem of adverse selection and moral hazard. The higher premium rates
discourage majority participation and only high risk clients participate leading to
adverse selection. Moreover, in crop insurance the individuals do not have control
over the event, but depending on terms of contract, the individuals can affect the
amount of indemnity. The study estimates risk associated with crop production at
national level and at disaggregate level.
The state of Andhra Pradesh was selected to represent disaggregate level.
Similarly, various aspects of crop insurance were studied at national level and by
undertaking a case study in the state of Andhra Pradesh. This state has a diverse set of
crops covered under insurance scheme of government and it is one of the few states
where private sector insurance for agriculture is also operating. Initially, new
Insurance product namely Rainfall Insurance was first started in the country in
Mahboobnagar district of Andhra Pradesh for castor and groundnut by ICICI

Lombard General Insurance Company. Risk associated with agriculture and various
crops was estimated by using instability index as an indicator of risk as below:
Instability index = Standard deviation of natural logarithm (Yt+1/Yt).

OBJECTIVES OF THE STUDY:

To estimate price / yield risk involved in different crops at A.P. State level.
To examine the performance of the existing and earlier national agricultural
insurance schemes implemented in state.
To look into the role of government in implementing various agricultural
insurance schemes.
To discuss and explore the problems and prospects of agriculture insurance in
the state.
To suggest effective agriculture insurance program for the region.

10

NEED OF THE STUDY:

Agriculture in India is subject to variety of risks arising from rainfall

aberrations, temperature fluctuations, hailstorms, cyclones, floods, and climate
change. These risks are exacerbated by price fluctuation, weak rural infrastructure,
imperfect markets and lack of financial services including limited span and design of
risk mitigation instruments such as credit and insurance. These factors not only
endanger the farmers livelihood and incomes but also undermine the viability of the
agriculture sector and its potential to become a part of the solution to the problem of
endemic poverty of the farmers and agricultural labor.

11

SCOPE OF THE STUDY:

Variability in agricultural production consists of variability in area and yield

and their interactions. Variation in area under a crop occurs mainly in response to
distribution, timeliness and variation in rainfall and other climatic factors, expected
prices and availability of crop specific inputs. All these factors also affect variations
in yield. Further, yield is also affected by outbreak of diseases, pests, and other natural
or man 18 made hazards like flood, drought and fire and many other factors. Different
events may affect area and yield in same way or in opposite or different way

12

RESEARCH METHODOLOGY:
The data collection methods include both the primary and secondary collection
methods.

Primary collection method

Primary collection method Updates of the company profile of ICICI
LOMBARD are referred by executives of the company.
Secondary collection method:
The secondary collection methods includes the lectures of the superintend
of the department of Finance. Managers and so on. Also the data collected from the
news, magazines of the Finance. And different books issues of this study.

13

LIMITATIONS OF THE STUDY:

This is a theoretical base study only based on various sources such as news
papers websites, articles, college faculty.
Study is to availability of secondary data
This study is very short term period i.e.45 days only
Data is very lowly available

14

LITERATURE REVIEW:

1.

Agriculture insurance in A.P. published on 2007 by S.S. Raju and Ramesh

Chand.

2.

Sharma H.R. Kamalesh Singh and Kumari 2006, extent source of instability
in food grains production in India journal of Agriculture Economics.

3.

M.J. Bhende 2005, Agriculture insurance in India. Problems and prospects

Department of economic analysis and research. National bank for Agriculture
and Rural Development occasional paper.

4.

Roberts Raj 2005, insurance of crops in developing countries FAO agriculture

service bulletin.

5.

Sinha Sidharth 2004, Agriculture insurance in India scope for participation of

Private insurers economic and Political.
15

CHAPTER II
INDUSTRY
&
16

COMPANY PROFILE

HISTORY OF INSURANCE IN INDIA

In India, insurance has a deep-rooted history. It finds mention in the writings
of Manu (Manusmrithi), Yagnavalkya( Dharmasastra ) and Kautilya( Arthasastra ).
The writings talk in terms of pooling of resources that could be re-distributed in times
of calamities such as fire, floods, epidemics and famine. This was probably a precursor to modern day insurance. Ancient Indian history has preserved the earliest
traces of insurance in the form of marine trade loans and carriers contracts. Insurance
in India has evolved over time heavily drawing from other countries, England in
particular.
1818 saw the advent of life insurance business in India with the establishment of
the Oriental Life Insurance Company in Calcutta. This Company however failed in
1834. In 1829, the Madras Equitable had begun transacting life insurance business in
the Madras Presidency. 1870 saw the enactment of the British Insurance Act and in
the last three decades of the nineteenth century, the Bombay Mutual (1871), Oriental
17

(1874) and Empire of India (1897) were started in the Bombay Residency. This era,
however, was dominated by foreign insurance offices which did good business in
India, namely Albert Life Assurance, Royal Insurance, Liverpool and London Globe
Insurance and the Indian offices were up for hard competition from the foreign
companies.
In 1914, the Government of India started publishing returns of Insurance
Companies in India. The Indian Life Assurance Companies Act, 1912 was the first
statutory measure to regulate life business.
In 1928, the Indian Insurance Companies Act was enacted to enable the Government
to collect statistical information about both life and non-life business transacted in
India by Indian and foreign insurers including provident insurance societies.
In 1938, with a view to protecting the interest of the Insurance public, the earlier
legislation was consolidated and amended by the Insurance Act, 1938 with
comprehensive provisions for effective control over the activities of insurers. The
Insurance Amendment Act of 1950 abolished Principal Agencies. However, there
were a large number of insurance companies and the level of competition was high.
There were also allegations of unfair trade practices. The Government of India,
therefore, decided to nationalize insurance business.
An Ordinance was issued on 19th January, 1956 nationalizing the Life Insurance
sector and Life Insurance Corporation came into existence in the same year. The LIC
absorbed 154 Indian, 16 non-Indian insurers as also 75 provident societies245
Indian and foreign insurers in all. The LIC had monopoly till the late 90s when the
Insurance sector was reopened to the private sector.

18

The history of general insurance dates back to the Industrial Revolution in the
west and the consequent growth of sea-faring trade and commerce in the 17th century.
It came to India as a legacy of British occupation. General Insurance in India has its
roots in the establishment of Triton Insurance Company Ltd., in the year 1850 in
Calcutta by the British. In 1907, the Indian Mercantile Insurance Ltd was set up. This
was the first company to transact all classes of general insurance business.
1957 saw the formation of the General Insurance Council, a wing of the
Insurance Association of India. The General Insurance Council framed a code of
conduct for ensuring fair conduct and sound business practices.
In 1968, the Insurance Act was amended to regulate investments and set
minimum solvency margins. The Tariff Advisory Committee was also set up then.
In 1972 with the passing of the General Insurance Business (Nationalization)
Act, general insurance business was nationalized with effect from 1st January,
1973. 107 insurers were amalgamated and grouped into four companies, namely
National Insurance Company Ltd., the New India Assurance Company Ltd., the
Oriental Insurance Company Ltd and the United India Insurance Company Ltd. The
General Insurance Corporation of India was incorporated as a company in 1971 and it
commence business on January 1st 1973.
This millennium has seen insurance come a full circle in a journey extending to
nearly 200 years. The process of re-opening of the sector had begun in the early
1990s and the last decade and more has seen it been opened up substantially.
In 1993, the Government set up a committee under the chairmanship of RN
Malhotra, former Governor of RBI, to propose recommendations for reforms in the

19

insurance sector. The objective was to complement the reforms initiated in the
financial sector. The committee submitted its report in 1994 wherein, among other
things, it recommended that the private sector be permitted to enter the insurance
industry. They stated that foreign companies are allowed to enter by floating Indian
companies, preferably a joint venture with Indian partners.
Following the recommendations of the Malhotra Committee report, in 1999, the
Insurance Regulatory and Development Authority (IRDA) was constituted as an
autonomous body to regulate and develop the insurance industry. The IRDA was
incorporated as a statutory body in April, 2000.
The key objectives of the IRDA include promotion of competition so as to
enhance customer satisfaction through increased consumer choice and lower
premiums, while ensuring the financial security of the insurance market.
The IRDA opened up the market in August 2000 with the invitation for application
for registrations. Foreign companies were allowed ownership of up to 26%. The
Authority has the power to frame regulations under Section 114A of the Insurance
Act, 1938 and has from 2000 onwards framed various regulations ranging from
registration of companies for carrying on insurance business to protection of
policyholders interests.
In December, 2000, the subsidiaries of the General Insurance Corporation of
India were restructured as independent companies and at the same time GIC was
converted into a national re-insurer. Parliament passed a bill de-linking the four
subsidiaries from GIC in July, 2002. Today there are 14 general insurance companies
including the ECGC and Agriculture Insurance Corporation of India and 14 life
insurance companies operating in the country.
20

The insurance sector is a colossal one and is growing at a speedy rate of 1520%. Together with banking services, insurance services add about 7% to the
countrys GDP. A well-developed and evolved insurance sector is a boon for
economic development as it provides long- term funds for infrastructure development
at the same time strengthening the risk taking ability of the country.

Vision:
To be the leading provider of financial services in India and a major global
bank.

Mission:
We will leverage our people, technology, speed and financial capital to:

be the banker of first choice for our customers by delivering high quality,
world-class products and services.

expand the frontiers of our business globally.

play a proactive role in the full realization of Indias potential.

maintain a healthy financial profile and diversify our earnings across

businesses and geographies.

maintain high standards of governance and ethics.

contribute positively to the various countries and markets in which we operate.

21

About ICICI Lombard General Insurance Company Ltd:

ICICI Lombard GIC Ltd. is a 74:26 joint venture between ICICI Bank
Limited, Indias second largest bank with consolidated total assets of over USD 100
billion at March 31, 2010 and Fairfax Financial Holdings Limited, a Canada based
USD 30 billion diversified financial services company engaged in general insurance,
reinsurance, insurance claims management and investment management.
ICICI Lombard GIC Ltd. is the largest private sector general insurance
company in India with a Gross Written Premium (GWP) of 36,948 million for the
year ended March 31, 2010. The company issued over 44 Lakh policies and settled
over 62 Lakh claims and has a claim disposal ratio of 96% (percentage of claims
settled against claims reported) as on March 31, 2010. The company has 4,634
employees and 350 branches as on March 31, 2010
The company has been assigned a domestic rating of iAAA by ICRA (an
associate of Moodys Investors Service) for highest claim paying ability and a
fundamentally strong position, for the fourth consecutive year. ICICI Lombard Auto

22

Insurance has been rated highest in customer satisfaction by J.D. Power Asia Pacific
in India among 11 auto insurance providers. The company has been conferred the
Golden Peacock- Eco Innovation Award of 2009 for weather insurance and the
Customer and Brand Loyalty award in the Insurance Sector - Non-Life at the 3rd
Loyalty awards, 2010.
It was awarded the General Insurance Company of the Year at the 11th Asia
Insurance Industry Awards.
The company also won the NDTV Profit Business Leadership Award 2007
and was adjudged as the most Customer Responsive Company in the Insurance
category at the Economic Times Avaya Global Connect Customer Responsiveness
Award 2006.
It has the Gold Shield for Excellence in Financial Reporting by the ICAI
(Institute of Chartered Accountants of India) for the year ended March 31, 2006.
ICICI Lombard allows instant policy issuance and renewal through its website
www.icicilombard.com for all retail insurance products including Car Insurance,
Health Insurance, Travel Insurance, Two Wheeler Insurance and Home Insurance.
There are multiple payment options available including internet banking, credit card,
debit card and cash card.

Promoters:
Introduction:
ICICI Lombard is a 74:26 joint venture between ICICI Bank Limited, Indias second
largest bank with USD 75 billion in assets and Fairfax Financial Holdings Limited, a
Canada based USD 27 billion diversified financial services company engaged in

23

general insurance, reinsurance, insurance claims management and investment

management.

ICICIBank:
ICICI Bank is India's second-largest bank. ICICI Bank offers a wide range of
banking products and financial services to corporate and retail customers through a
variety of delivery channels and through its specialized subsidiaries and affiliates in
the areas of investment banking, life and non-life insurance, venture capital and asset
management.
The Bank currently has subsidiaries in the United Kingdom, Russia and Canada,
branches in United States, Singapore, Bahrain, Hong Kong, Sri Lanka, Qatar and
Dubai International Finance Centre and representative offices in United Arab
Emirates, China, South Africa, Bangladesh, Thailand, Malaysia and Indonesia. Our
UK

subsidiary

has

established

branches

in

Belgium

and

Germany.

ICICI Bank's equity shares are listed in India on Bombay Stock Exchange and
the National Stock Exchange of India Limited and its American Depositary Receipts
(ADRs)

are

listed

on

the

New

York

Stock

Exchange

(NYSE).

Fairfax:
Lombard Canada Ltd, a group company of Fairfax Financial Holdings Limited,
is one of Canada's oldest property and casualty insurers. It is a leading insurance
management company responsible for providing insurance management services for
all of the Lombard group's commercial, personal, and specialized insurance
companies. Lombard Canada Ltd. has its head office in Toronto, Canada and has
annual sales in excess of $977 million and is a wholly owned subsidiary of Fairfax
Financial Holdings Limited (FFH on Toronto Stock Exchange). It has received an A24

rating from A.M. Best Company and claims paying ability received an A+ rating from
Duff & Phelps Credit Rating Co.

Genesis:
ICICI Lombard General Insurance Company Limited is a 74:26 joint venture
between ICICI Bank, India's largest private sector bank and Fairfax Financial
Holdings Limited, a Canada based $26 billion diversified financial services company
engaged in general insurance, reinsurance, insurance claims management.
Lombard Canada Limited, a group company of Fairfax Financial Holdings Limited, is
one of Canada's oldest property and casualty insurers.

ICICI Lombard Corporate Highlights:

Strong Parentage:
ICICI Lombard leverages ICICI Bank's strong brand equity, extensive
distribution network and sound technological infrastructure to service customer
needs. Lombard Canada assists on domain knowledge, product innovation, business
processes based on cutting edge technology and international best practices in the
insurance business.

Resourceful Customer Service:

ICICI Lombard services a wider foot-print of customers with its offices
located in 127 cities across India. With a network of 3500 hospitals in 200 cities and
around 1500 garages in 255 cities, ICICI Lombard offers cashless claim settlement to
its customers. We also have an online customer support system which allows

25

customers to track their claim status and facilitate quick response to service requests.
Click here

Highest Levels of Security:

Security and privacy for customers remain our highest concern.

Strong Claims paying ability:

We have been assigned the AAA rating, indicating highest claims paying
ability. As of 2005-06, over 14,51,000 policies have been issued across India and
over 2.4 lakh claims settled.

Comprehensive Products: We have over 32 customised and innovative

insurance solutions in the offering.

ICICI Lombard Milestones:

Progressive Growth at ICICI Lombard:
Aug 6, 2001 - ICICI Lombard commences Business
2002 - 2003 - Becomes one of the first private sector general insurance players
to achieve break-even levels in the first full year of its operations
2003 - 2004 - Achieves underwriting breakeven in the second year of

26

operations
Sept 7, 2004 - Becomes first general insurer to be ISO certified
Nov 2005 - Crosses the Rs. 10 billion GWP mark
March 31, 2006 - Ranked as the largest private sector General Insurance
Company of India
February 12th, 2009 - General Insurance Company has won a one year contract
to insure 134 of Air Indias aircraft for Rs 122 crore,

February 12th, 2010- ICICI Lombard General Insurance Company, has been
conferred with the Best CFO award in the Financial Services sector by the
Institute of Chartered Accountants (ICAI).

July 26, 2005 ICICI Lombard's Strong Disaster Response Mechanism that put
Mumbai back to its feet:
The devastating floods that severely affected Mumbai on July 26, 2005
resulted in the largest insurance loss India has witnessed till date. This unprecedented
catastrophic floods in Mumbai tested ICICI Lombard on five parameters:
Robust Reinsurance Program:
The gross claim impact amounted to Rs.200 crores, of which 90% were
settled due to the robust and conservative reinsurance support.
Responsiveness:
The very next day after the flood, in-house customer service managers from

27

around the country were brought in and teams were deployed on the ground.
Reach:
A special help desk was set up whose contact numbers were prominently
advertised in mainline news channels and calls to ICICI Lombards Mumbai call
centre were diverted to the back-up call desks in Hyderabad to maintain 24x7
accessibility.

Service: Teams were present at various garages to speedily approve repair estimates.

Claims Settlement:
A number of low lying houses that were flooded were assessed and customers
home insurance claims were finalized on the spot with minimal paperwork. Proactive
contact was made, damages were assessed and claims settled at the earliest.
ICICI Lombard is known for introducing path-breaking revolutions in each of
the industry it operates. Click on the image to know more about each of the initiatives.
Rural Development Initiatives:
Through intermediaries like NGOs, Self-help groups, the State Government, ICICI
Lombard has reached out to the rural population.
Online Initiatives:
From being adjudged as the amongst the best insurance websites to having the highest
standards in security, www.icicilombard.com has seen unmatched performance and

28

growth.
Product Innovation Initiatives:
Be it in Travel, Motor, Home or Health, ICICI Lombard is renowned for
introducing continuous product innovations, each considered as unique in its
respective industry.
IT Initiatives:
The approach has constantly been to adopt a customer-centric strategy with greater
speed, higher accuracy and delivering highest value.

Shareholders Joint Venture Partners:

ICICI Lombard General Insurance Company Limited is a 74:26 joint venture
between ICICI Bank Limited and the US-based $ 26 billion Fairfax Financial
Holdings Limited. ICICI Bank is India's second largest bank; while Fairfax Financial
Holdings is a diversified financial corporate engaged in general insurance,
reinsurance, insurance claims management and investment management.
Board Members:

Mr K V Kamath, Chairman
Mr R Athappan, Director

Mr B V Bhargava, Director

Mr Dileep Choksi, Director

Mr James F Dowd, Director

Ms Kalpana Morparia, Director

Mr S Mukherji, Director

Mr Chandran Ratnaswami, Director

Mr H N Sinor, Director
29

Mr. V. Vaidyanathan, Director

Mr Sandeep Bakhshi, Managing Director & CEO

Audit Committee:

Mr. S Mukherji, Chariman

Mr. Dileep Choksi, Director

Mr. James F Dowd, Director

Mr. H.N. Sinor, Director

Investment Committee:

Mr. Chandran Ratnaswami, Chairman.

Ms. Kalpana Morparia, Director.

Mr. Sandeep Bakhshi,, Managing Director & CEO.

Mr. S Gopalakrishnan, Head Investments.

Mr. Rakesh Jain, Head-Finance & Accounts.

Mr. Liyaquat Khan, Appointed Actuary.

Board Governance Committee:

Ms. Kalpana Morparia, Chairperson.

Mr. Chandran Ratnaswami, Director.

Mr. H. N. Sinor, Director.

Brief History of Insurance:

The story of insurance is probably as old as the story of mankind. The same
instinct that prompts modern businessmen today to secure themselves against loss and
disaster existed in primitive men also. They too sought to avert the evil consequences
of fire and flood and loss of life and were willing to make some sort of sacrifice in
order to achieve security. Though the concept of insurance is largely a development
of the recent past, particularly after the industrial era -past few centuries - yet its
beginnings date back almost 6000 years.
Life Insurance in its modern form came to India from England in the year

30

1818. Oriental Life Insurance Company started by Europeans in Calcutta was the first
life insurance company on Indian Soil. All the insurance companies established
during that period were brought up with the purpose of looking after the needs of
European community and Indian natives were not being insured by these companies.
However, later with the efforts of eminent people like Babu Muttylal Seal, the
foreign life insurance companies started insuring Indian lives. But Indian lives were
being treated as sub-standard lives and heavy extra premiums were being charged on
them. Bombay Mutual Life Assurance Society heralded the birth of first Indian life
insurance company in the year 1870, and covered Indian lives at normal rates.

Starting as Indian enterprise with highly patriotic motives, insurance companies

came into existence to carry the message of insurance and social security through
insurance to various sectors of society. Bharat Insurance Company (1896) was also
one of such companies inspired by nationalism. The Swadeshi movement of 19051907 gave rise to more insurance companies.
The United India in Madras, National Indian and National
Insurance in Calcutta and the Co-operative Assurance at Lahore were established in
1906. In 1907, Hindustan Cooperative Insurance Company took its birth in one of the
rooms of the Jorasanko, house of the great poet Rabindranath Tagore, in Calcutta. The
Indian Mercantile, General Assurance and Swadeshi Life (later Bombay Life) were
some of the companies established during the same period. Prior to 1912 India had no
legislation to regulate insurance business. In the year 1912, the Life Insurance
Companies Act, and the Provident Fund Act were passed.

31

The Life Insurance Companies Act, 1912 made it necessary that the premium
rate tables and periodical valuations of companies should be certified by an actuary.
But the Act discriminated between foreign and Indian companies on many accounts,
putting the Indian companies at a disadvantage.
The first two decades of the twentieth century saw lot of growth in insurance
business. From 44 companies with total business-in-force as Rs.22.44 crore, it rose to
176 companies with total business-in-force as Rs.298 crore in 1938. During the
mushrooming of insurance companies many financially unsound concerns were also
floated which failed miserably.

The Insurance Act 1938 was the first legislation governing not only life insurance but
also non-life insurance to provide strict state control over insurance business. The
demand for nationalization of life insurance industry was made repeatedly in the past
but it gathered momentum in 1944 when a bill to amend the Life Insurance Act 1938
was introduced in the Legislative Assembly.
However, it was much later on the 19th of January 1956 that life insurance in India
was nationalized. About 154 Indian insurance companies, 16 non-Indian companies
and 75 provident were operating in India at the time of nationalization.
Nationalization was accomplished in two stages; initially the management
of the companies was taken over by means of an Ordinance, and later, the ownership
too by means of a comprehensive bill. The Parliament of India passed the Life
Insurance Corporation Act on the 19th of June 1956, and the Life Insurance
Corporation of India was created on 1st September, 1956, with the objective of

32

spreading life insurance much more widely and in particular to the rural areas with a
view to reach all insurable persons in the country, providing them adequate financial
cover at a reasonable cost.

Indian Insurance Industry:

With a large population and untapped market, insurance happens to be a big
opportunity in India. The insurance business is growing at an annual rate of 21.9 per
cent. Together with banking services, it accounts for about 7.1 per cent to the
countrys GDP. However Insurance penetration tends to rise as income increases,
particularly in life insurance.

India with about 200 million middle class households shows a potential for insurance
industry. Saturation of markets in many developed economies has made in the Indian
market even more attractive for global insurance majors. The insurance sector was
opened up for private participation four years ago and the private players are active in
the liberalized environment. The insurance market have witnessed dynamic changes
which includes presence of a fair number of insurers both life and non-life segment.
Most of the private insurance companies have formed joint venture partnering well
with recognized foreign players across the globe. The Indian insurance market
accounts only for 0.59 per cent of USD 2,627 billion global insurance market.
Insurance may be described as a social device to reduce or eliminate risk of
loss to life and property. Insurance is a collective bearing of risk. Insurance spreads
the risks and losses of few people among a large of people as people prefer small

33

fixed liability instead of big uncertain and changing liability. Insurance is a scheme of
economic cooperation by which members of the community share the unavoidable
risks. The risks which can be insured against include fire, the perils of sea, death,
accidents, and burglary. The members of the community subscribe to a common pool
or fund which is collected by the insurer to indemnify the losses arising out of risks. It
is a scheme which covers large risks by paying small amount of capital. Insurance is
also a means of savings and investment.

CHAPTER III
THEORETICAL FRAME WORK OF STRESS
MANAGEMENT

34

Role of Insurance in Economic Growth:

With the growth of a countrys economy, there is an increase in the facilitating role
played by the financial services sector; financial services play a supportive role in the
basic activity of production. Insurance frees industries from, the worries of unforeseen
losses and uncertainties. Insurance helps the process of the countrys growth in
various ways:
1. Insurance covers many economic risks. It protects entrepreneurs against the
risk of damage to or loss of the goods and other assets, which they employ in
manufacturing, marketing, transport and other related activities. This
protection offers a kind of stability to business.
2. With the cover of insurance on their assets, businessmen and industrialists are
able to take bold decisions in enlarging their field of activity, and take
financial risks which they cannot otherwise take. Hence, insurance plays a

35

promotional role in nation-building and also increasing the number of jobs for
the people.

3. Again, there is life insurance, which plays the most useful role in the lives of
individuals. Life insurance offers economic safety at reasonable cost to
millions of families in the country. In a way, this helps the government also as
it lightens the governments burden of providing social welfare to affected
families.

4.

Insurance companies collect premium from policy holders and invest this
money in government bonds, corporate securities and other approved channels
of investment. In this way, insurance companies are helpful in providing
capital for new ventures or expansion of old units. Moreover, these funds are
also used for financing the infrastructure projects with long gestation period.
Also, this lending of funds for infrastructure and other development favorably
influences the decision-making process in the government.
Thus insurance aids in the growth of modern economy . By promoting

safety against personal losses it not only improves the individuals quality of life but
also provides smoothness in the working of the affairs of business and industry.

Some of the important milestones in the life insurance business in

India are:
1818: Oriental Life Insurance Company, the first life insurance company on
Indian soil started functioning.

36

 1870: Bombay Mutual Life Assurance Society, the first Indian life insurance
company started its business.
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 are taken over
by the central government and nationalized. LIC formed by an Act of
Parliament, viz. LIC Act, 1956, with a capital contribution of Rs. 5 crore from
the Government of India.
The General insurance business in India, on the other hand, can trace its roots to
the Triton Insurance Company Ltd., the first general insurance company
established in the year 1850 in Calcutta by the British.

Crop insurance:
Is purchased by agricultural producers, including farmers, ranchers, and
others to protect themselves against either the loss of their crops due to natural
disasters, such as hail, drought, and floods, or the loss of revenue due to declines in
the prices of agricultural commodities. The two general categories of crop insurance
are called crop-yield insurance and crop-revenue insurance.

37

 Crop-yield insurance: There are two main classes of crop-yield insurance:

Crop-hail insurance is generally available from private insurers (in countries

with private sectors) because hail is a narrow peril that occurs in a limited
place and its accumulated losses tend not to overwhelm the capital reserves of
private insurers. In early 1820s, crop-hail insurance were available to farmers
in France and Germany. That is among the earliest forms of hail insurance
from an actuarial perspective. It is possible to implement the hail risk into
financial instruments since the risk is isolated.

Multi-peril crop insurance (MPCI): Coverage in this type of insurance is not

limited to just one risk. Usually multi-peril crop insurance offers hail,
excessive rain and drought in a combined package. Sometimes, additional
risks such as insect or bacteria-related diseases are also offered. The problem
with the multi-peril crop insurance is the possibility of a large scale event.
Such an event can cause significant losses beyond the insurer's financial
capacity. To make this class of insurance, the perils are often bundled together
in a single policy, called a multi-peril crop insurance (MPCI) policy. MPCI
coverage is usually offered by a government insurer and premiums are usually
partially subsidized by the government.

U.S. Department of Agriculture is known to implement the earliest

Multi Peril Crop Insurance program in 1938. Federal Crop Insurance
Corporation managed this multi-peril insurance program since then. The Risk
Management Agency (RMA) is active in calculating the premiums based on
individual risk factors since 1996.

Specialty crops:
38

A farmer or grower may desire to grow a crop associated with a particular

defined attribute that potentially qualifies for a premium over similar
commodity crops, agricultural products, or derivatives thereof. The particular
attribute may be associated with the genetic composition of the crop, certain
management practices of the grower, or both. However, many standard crop
insurance policies do not differentiate between commodity crops and crops
associated with particular attributes. Accordingly, farmers have a need for
crop insurance to cover the risk of growing crops associated with particular
attributes.

Federal crop insurance:

In the United States, a subsidized multi-peril federal insurance program,

administered by the Risk Management Agency, is available to most farmers.
The program is authorized by the Federal Crop Insurance Act (which is
actually title V of the Agricultural Adjustment Act of 1938, P.L. 75-430), as
amended. Federal crop insurance is available for more than 100 different
crops, although not all insurable crops are covered in every county.

With the amendments to the Federal Crop Insurance Act made by the Federal
Crop Insurance Reform Act of 1994 (P.L. 103-354, Title I) and the
Agriculture Risk Protection Act of 2000 (P.L. 106-224), USDA is authorized
to offer basically free catastrophic (CAT) coverage to producers who grow an
insurable crop. For a premium, farmers can buy additional coverage beyond
the CAT level. Crops for which insurance is not available are protected under
the Noninsured Assistance Program (NAP). Federal crop insurance is sold and
serviced through private insurance companies. A portion of the premium, as
well as the administrative and operating expenses of the private companies, is
39

subsidized by the federal government. The Federal Crop Insurance

Corporation reinsures the companies by absorbing some of the losses of the
program when indemnities exceed total premiums. Several revenue insurance
products are available on major crops as a form of additional coverage.

Agricultural insurance in India:

In India a multiperil crop insurance called National Agriculture Insurance

Scheme (NAIS) was implemented. This scheme is being implemented by
Agriculture Insurance Company of India, an Indian government owned
company.

The scheme is compulsory for all farmers who take agricultural loans from
any financial institution. It is voluntary for all other farmers. The premium is
subsidized for farmers who own less than two hectares of land. This insurance
follows the area approach. This means that instead of individual farmers, a
specific area is insured. The area may vary from gram panchayat (an
administrative unit containing 8-10 villages) or block or district from crop to
crop or state to state. The claim is calculated on the basis of crop cutting
experiments carried out by agricultural departments of respective states. Any
shortfall in yield compared to past 5 years average yield is compensated.

40

The methodology which was adopted for regular crop cutting experiments was
followed under this project without any modifications. The district wise number of
units constituted and experiments planned during kharif 2011 is as follows,

No.of
SL.NO.

DISTRICT

CROP SELECTED

No.of I.U

expts

Srikakulam

Paddy

924

3936

Vizianagaram

Paddy

675

2928

Vishakapatnam

Paddy

664

3766

East Godavari

Paddy

671

2936

West Godavari

Paddy

632

2528

Krishna

Paddy

678

2778

Guntur

Paddy

492

2034

Prakasham*

Paddy

231

1284

Nellore*

Paddy

176

1034

10

Mahabubnagar

Maize

489

2142

11

Ranga Reddy

Maize

175

916

41

12

Medak

Maize

406

1846

13

Nizamabad

Maize

253

1102

14

Adilabad

Soyabean

396

1920

15

Karimnagar

Paddy

700

2830

16

Warangal

Paddy

573

2334

17

Khammam

Paddy

634

2638

18

Nalgonda

Paddy

548

2312

9,317

41,264

TOTAL

CHAPTER IV
DATA ANALYSIS AND INTERPRETATION

42

1)

Educational Qualification?

a) Primary School

b) high School

S. No.

Options

1.

c) Graduation

d) PG

Percentage (%)

Primary School

No. of
Respondents
50

2.

High School

25

25%

3.

Graduation

15

15%

4.

PG

10

10%

Total

100

100

50%

10%
15%
50%

25%

43

Interpretation:

The above chart showing the educational qualifications of the

farmers.

50% of farmers having the primary education

25% of the farmers having high school education.

15% of the farmers having Graduation

10% of the farmers having PG

And in the survey most of the farmers having the primary education.

2.

Annual Income:
a) 20,000

b) 20,000 to 30,000

c) 30,000 to 40,000

S. No

Options

1.

d) 40,000 to 50,000

Percentage (%)

20000 /-

No. of
Respondents
50

2.

20,000 to 30,000

15

15%

3.

30,000 to 40,000

25

25%

4.

40,000 to 50,000

10

10%

Total

100

100

44

50%

10%

25%
50%

15%

Interpretation:
Above chart showing annual income level of the farmers in that
50% of the earnings the annual income of Rs. 20,000
15% of the respondents annual income e between Rs. 20,000 to 30,000.
25% of the farmers having the Rs, 30,000 to Rs. 40,000 annual income
10% of the respondents getting income of above Rs.40,000.

3.) Do you have agriculture income in annual ?

a). Yes
S. No

b). No
Options

No. of

Percentage (%)

Respondents
1.

Yes

85

85%

2.

No

15

15%

Total

100

100

45

15%

85%

Interpretation:
The survey 85% of the farmers get the annual income
Remaining farmers having the 15% annual income way
Because they are daily labours.

4)

What is Annual agriculture income percentage (%) ?

a) <100

b) <75

c) <50

S. No

Options

Percentage (%)

1.

<100%

No. of
Respondents
5

2.

<75%

15

15%

3.

<50%

30

30%

4.

<25%

50

50%

Total

100

100

46

d) <25

5%

5%
15%

50%

30%

Interpretation:

The above chart shows proportion of the people having the

annual income below 5% of people having the

5)

Are you farming in your own or leased land?

a) Own land

b) Leased land

c) Both A and B

S. No

Options

No. of
Respondents

Percentage
(%)

1.

Own land

45

45%

2.

Leased land

30

30%

3.

Both A and B

25

25%

Total

100

100

47

23%

50%

27%

Interpretation:

6)

45% of the farmers farming their own land

30% of the farmers are farming leased land and

Remaining 25% farmers farming own and leased hand.

In how many acres of land you are farming?

a) 20 acres

b) 20-15 acres

c) 15-10 acres d) 10-5 acres

S. No

Options

No. of
Respondents

1.

20 acres

11

2.

20-15 acres

3.

15-10 acres

20

4.

10-5 acres

60

Total

100

48

Percentage (%)
11%
9%
20%
60%
100

11%
9%

60%

20%

Interpretation: the above chart showing number of farmers the land details.

20 acres of the land for 11% of the famers farming

20-15 acres of the land for 9% of the farmers farming

10-5 acres of the land for 60% pf the farmers farming because of the
money is not available.

Majority of the proportion of respondents (i.e., 60%) are having their own land of
between 5-10 acres so, that we can analyze for less annual income for their people.

7)

Are you aware of agriculture insurance?

a) Yes
S. No

b) No
Options

No. of

Percentage (%)

Respondents
1.

Yes

75

75%

2.

No

25

25%

Total

100

100

49

25%

75%

Interpretation: the chart showing aware of agriculture insurance

85% of the aware of agriculture insurance and remaining farmers not aware of
insurance .

Majority of the farmers havce the knowledge about the various insurance
benefits related with agriculture. (ie.,) 75% of farmers aware of it).

8).Which insurance component to scheme you have adopted ?

a) ICICI

b) AP Government Organization

S. No

Options

1.

ICICI

2.

AP government
organization
NABARD

3.

c) NABARD d) Any other

No. of
Respondents
65

Percentage (%)

15

15%

15

15%

50

65%

4.

Any other

5%

Total

100

100

5%
15%

15%
65%

Interpretation:
Above chart shows that majority of farmers are choosing ICICI insurance
policy related with agricultural compare to all other available sources,

9. How customer are gets awareness of agriculture insurance policy?

a) Liquidity b) Reduction risk

c) Uncertainty d) Consistency
51

S. No

Options

Percentage (%)

Liquidity

No. of
Respondents
22

1.
2.

Reduction risk

28

28%

3.

Uncertainty

48

48%

4.

Consistency

8%

Total

100

100

22%

8%
21%

45%
26%

Interpretation:
As the India economy depends on agriculture and agriculture depends on
monsoon (weather conditions), here it is found that majority it is farmers have the fear
of uncertainty about weather conditions .

10)

Why do you prefer to take in ICICi Lombard?

a) Brand Name

b) Friend Name
52

c) Agent advice

d) Others

S. No

Options

Percentage (%)

Brand Name

No. of
Respondents
28

1.
2.

Friend Name

19

19%

3.

Agent advice

43

43%

4.

Others

10

10%

Total

100

100

28%

10%
28%

43%
19%

Interpretation:

The chart shows how many farmers prefer for to take the ICICI
Lombard.

28% of the farmers prefer to take about the brand name of the ICICI

48% of the farmers, prefer to take agent advice way because the agents to
explain about the policy and benefits of insurance in ICICI s more to prefer.

11.)

Expected compensation of the customers of their agriculture insurance

provided by ICICI
a) Up to 8%

b) 10 to 5 %

53

c) 15 to 20 %

d) Above 20%

S. No

Options

Percentage (%)

Up to 8%

No. of
Respondents
8

1.
2.

10 to 5%

19

19%

3.

15 to 20%

38

38%

4.

Above 20%

35

35%

Total

100

100

8%

8%

35%

19%

38%

Interpretation: The chart showing expected compensation of the customers of their

agriculture Insurance

8% of the farmers the chart showing customers compensation of agriculture

insurance above 20% of farmers have more compensations.

12)

In which type of the insurance scheme you have invested and duration.
a) <1 year
S. No

b) 1-2 years c) Above 2 years

Options

No. of
54

Percentage

Respondents

(%)

1.

<1 year

25

25%

2.

1-2 years

65

65%

3.

Above 2 years

6%

Total

100

100

6%
26%

68%

Interpretation:

65% the chart showing tell about the ICICI insurance schemes and
investment duration.

25% of farmers insured in 1 year scheme and 1-2 years scheme.

65% of farmers insured because in these policy they get more benefits.

13).Please give me your opinion of risk coverage by ICICI agriculture insurance

55

rate of insurance in ICICI.

a) Excellent

b) Good

S. No

Options

1.

c) Moderate

d) Bad

Percentage (%)

Excellent

No. of
Respondents
8

2.

Good

63

63%

3.

Moderate

32

32%

4.

Bad

3%

Total

100

100

3%

8%

8%

30%

59%

Interpretation: The above chart showing farmers opinion about the ICICI
agriculture insurance

2% of the farmers responds ICICI is excellent risk coverage Bank they tell

63% of the farmers responds ICICI Lombard is good Bank in these insurance
policy is more risk capability.

So the farmers are more respond.

14)

Customers risk taking capability ?

56

a) High Risk

b) Moderation

c) Low risk

S. No

Options

No. of
Respondents

Percentage
(%)

1.

High risk

11

11%

2.

Moderation

69

69%

3.

Low risk

20

20%

Total

100

100

11%

20%

69%

Interpretation:
From the above table showing the risk taking capability of the farmers 69% of
the farmers investing ICICI Lombard General Insurance so they are insurance , they
are having the low-risk capability , remaining 20% and 11 5 of the farmers investing
in other Banks.

57

CHAPTER V
FINDINGS,
CONCLUSIONS
AND
SUGGESTIONS.

58

FINDINGS:
1) Looking at the speed growth of ICICI LOMBARD it is quite clear that ICICI
LOMBARD

is heading towards becoming the worlds no 1 General

insurance company.
2) As the years passing on the investment of ICICI LOMBARD

in central

government is increasing compared to other avenues of investment.

3) The net investment in the securities has been increased.
4) ICICI LOMBARD has decreased giving loans, and the percentage decrease
by 27.3%.

59

CONCLUSIONS:
1. The investments in the private sector also raised drastically from the
year 2012-2013, which is 141.17%.
2. ICICI LOMBARD has increased investments in central government,
Housing, power generation. It has also increased the investment in
Municipal Corporation in year 2013.which is 14 crores.
3. A portion of the premium, as well as the administrative and operating
expenses of the private companies, is subsidized by the federal
government.
4. The Federal Crop Insurance Corporation reinsures the companies by
absorbing some of the losses of the program when indemnities exceed
total premiums. Several revenue insurance products are available on
major crops as a form of additional coverage.

60

SUGGESTIONS:
1) ICICI LOMBARD

of India is suggested to expand its portfolio to other

sectors.
2) Very good services provide to the agriculture insurance.
3) There is a need of increase it investments in Housing, Power generation etc.
4) More Insurance ICICI LOMBARD i.s., need to be introduced that suit all
classifications of people.
5) Well qualified Investment analyst need to be appointed in order to proper
allocation of portfolio for companys growth.
6) More plans have to be introduced by ICICI LOMBARD in order to compete
with competitors.

61

BIBLIOGRAPHY

62

BIBLIOGRAPHY

Books:
Agriculture insurance in A.P. published on 2007 by S.S. Raju and
Ramesh Chand.
Sharma H.R.Kamalesh Singh and Kumari 2006,extent source of
instability in food grains production in India journal of
Agriculture Economics.

Websites:
www.icici lombardindia.in
www.Irdaonline.org
www.moneycontrol.com

63