Bharati Vidyapeeth University

Center for Health Management Studies and Research

Subject: Health Insurance and Hospital Management

Assignment 1

Submitted to Dr. Mangesh

Submitted by Vishakha Choudhari

Roll No: 3

Date: 25/7/2016

Course: Masters in Hospital Administration

Semester 3
Q.1 History of Insurance
Ans.
 With numerous inventions that ranged from the lighting rod to bifocals, it
shouldn't be too surprising that Benjamin Franklin was also one of the
forefathers of insurance in the United States.

 The roots of insurance might be traced to Babylonia, where traders were

encouraged to assume the risks of the caravan trade through loans that were
repaid (with interest) only after the goods had arrived safely—a practice
resembling bottomry and given legal force in the Code of Hammurabi (c.2100
B.C.). The Phoenicians and the Greeks applied a similar system to their
seaborne commerce. The Romans used burial clubs as a form of life insurance,
providing funeral expenses for members and later payments to the survivors.

 In London, Lloyd's Coffee House (1688) was a place where merchants,

shipowners, and underwriters met to transact business. By the end of the 18th
cent. Lloyd's had progressed into one of the first modern insurance companies.
In 1693 the astronomer Edmond Halley constructed the first mortality table,
based on the statistical laws of mortality and compound interest. The table,
corrected (1756) by Joseph Dodson, made it possible to scale the premium rate
to age; previously the rate had been the same for all ages.

 Insurance developed rapidly with the growth of British commerce in the 17th
and 18th cent. Prior to the formation of corporations devoted solely to the
business of writing insurance, policies were signed by a number of
individuals, each of whom wrote his name and the amount of risk he was
assuming underneath the insurance proposal, hence the term underwriter.

 The first stock companies to engage in insurance were chartered in England

in 1720, and in 1735.

 The first insurance company in the American colonies was founded at

Charleston; Fire insurance corporations were formed in New York City
(1787) and in Philadelphia (1794).

 The Presbyterian Synod of Philadelphia sponsored (1759) the first life

insurance corporation in America, for the benefit of Presbyterian ministers
 and their dependents. After 1840, with the decline of religious prejudice
against the practice, life insurance entered a boom period. In the 1830s the
practice of classifying risks was begun.

 The New York fire of 1835 called attention to the need for adequate reserves
to meet unexpectedly large losses. The Workmen's Compensation Act of
1897 in Britain required employers to insure their employees against industrial
accidents. Public liability insurance, fostered by legislation, made its
appearance in the 1880s; it attained major importance with the advent of the
automobile.

 In the 19th century many friendly or benefit societies were founded to insure
the life and health of their members, and many fraternal orders were created to
provide low-cost, members-only insurance. Fraternal orders continue to
provide insurance coverage, as do most labour organizations. Many employers
sponsor group insurance policies for their employees; such policies generally
include not only life insurance, but sickness and accident benefits and old-age
pensions, and the employees usually contribute a certain percentage of the
premium.
 In 1912 the Insurance for fire, cargo and life but this only for British. Then in
1947 the life insurance and fire, cargo and marine comes in India.
 Since the late 19th century there has been a growing tendency for the state to
enter the field of insurance, especially with respect to safeguarding workers
against sickness and disability, either temporary or permanent, destitute old
age, and unemployment (see social security). The U.S. government has also
experimented with various types of crop insurance, a landmark in this field
being the Federal Crop Insurance Act of 1938. In World War II the
government provided life insurance for members of the armed forces; since
then it has provided other forms of insurance such as pensions for veterans and
for government employees.
 After 1944 the supervision and regulation of insurance companies, previously
an exclusive responsibility of the states, became subject to regulation by
Congress under the interstate commerce clause of the U.S. Constitution. Until
the 1950s, most insurance companies in the United States were restricted to
providing only one type of insurance, but then legislation was passed to permit
fire and casualty companies to underwrite several classes of insurance. Many
firms have since expanded, many mergers have occurred, and multiple-line
companies now dominate the field. In 1999, Congress repealed banking laws
that had prohibited commercial banks from being in the insurance business;
 this measure was expected to result in expansion by major banks into the
insurance arena.
 In 1950 the birth of LIC deals only life insurance policy. Privatization of LIC
stops. The rules and regulation by autonomous body of LIC. Each &
everything is reported to central government of India.
 1971 Nationalization act, Decided to regularize the non life sector rule is
applied since 1973. All private insurance company dealing with insurance
business and stop their business and merge in one company which is
government own. Nationalization divided into life and non life insurance.
 In India first insurance launched by NIA (New India Assurance) in 1986 by
standard med claim policy rules and regulation completely decided by NIA.
 In 1990 all Oriental Insurance Company (OIC), National Insurance Company
(NIC), United Insurance Company (UIC) launched the insurance replication of
all new India company.
 In 1993 government open door for foreign economy at this times all private
investor.
 Malhotra committee form and proposed IRDA (Insurance regulatory
development authority) separate body for Insurance. In 1999, amended foe
Malhotra committee passed & worth of IRDA. Foreign direct investor (FDI) is
approved for insurance sector for 26%.
 TPA proposed in 2002 for settlement of health insurance under the guidance of
IRDA. TPA fees divided into individual policy 5.4% of total amount and
corporate policy 5.7% of total premium. TPA comes for motor, travel, personal
accident.
 Many blame the insurance conglomerates, contending that U.S. citizens are
paying for bad risks made by the companies. Insurance companies place the
burden of guilt on law firms and their clients, who they say have brought
unreasonably large civil suits to court, a trend that has become so common in
the United States that legislation has been proposed to limit lawsuit awards.
Catastrophic earthquakes, hurricanes, and wildfires in late 1980s and the 90s
have also strained many insurance company's reserves.
 In 2010 government has proposed 49% foreign direct investor (FDI) in
insurance. It is passed in 2015.

Q.2 Briefly Explain

1.GIC
General Insurance Corporation (GIC) it is the type of insurance which covers
all entity other than life. GIC do the aviation.

History:

The entire general insurance business in India was nationalized by

the Government of India (GOI) through the General Insurance Business
(Nationalization) Act (GIBNA) of 1972. 55 Indian insurance companies and
52 other general insurance operations of other companies were nationalized.
The General Insurance Corporation of India (GIC) was formed in pursuance
of Section 9(1) of GIBNA. It was incorporated on 22 November 1972 under
the Companies Act, 1956 as a private company limited by shares. GIC was
formed to control and operate the business of general insurance in India.
After a process of mergers among Indian insurance companies, four
companies were left as fully owned subsidiary companies of GIC

 National Insurance Company (NIC)

 New India Assurance (NIA)
 Oriental Insurance Company (OIC)
 United Insurance Company (UIC)

The next landmark happened on 19th April 2000, when the Insurance
Regulatory and Development Authority Act, 1999 (IRDAA) came into force.

TYPES OF GENERAL INSURANCE

The types of General Insurance are as follows:

 Ship & consignment
 Vehicle
 Fire
 Health
 Personal accident
 Theft
 Gold
 Liability
 Crop
 Precious
 Industry
 Property
 Instrument
 Education
 Travel
 Aviation
 Cattle
 Miscellaneous

Personal accident includes permanents or temporary disability, Injury death,

Child education, Home loan expenses, Hospital, Vehicle, Third party. It is type
of policy in which they covers the any expense arising from the accident.

4 main benefits are Death (100%), Permanent disability (100%), Temporary

disability, Partial disability (50%).
Add on benefits are Home loan, Vehicle, Third party, Hospital expenses,
child education.

Important functions of General Insurance Corporation (GIC)

a) Enhancing Social Security: GIC promotes social security in the country. It

sells various policies to mitigate the risks involved in the social sector. It
provides opportunity to take insurance at a reasonable cost.

b) Expanding the Periphery of General Insurance: It remains engaged in

spreading awareness about general insurance throughout the country. It has been
functioning very actively and efficiently to spread the insurance business.

c) Providing Financial Assistance: GIC provides financial assistance to

industries issue shares and debentures of corporate sector.
d) Underwriting: GIC acts as an underwriter. When corporate organizations
issue shams and debenture to the public GIC provides guarantee to subscribe
certain number of securities which are not subscribed by public.

e) Making Participation in Stock Market: GIC actively participates in the

share market by acquiring shares and debentures. It also invests in shares of
government companies.

f) Setting Claims at the Earliest Opportunity: GIC undertakes necessary

measures to settle the claims of the insured.

g) Assisting other Financial Institutions: GIC provide loans to other financial

institution. It also purchases shares and debentures of these organizations.

h) Economic Development: It plays an important role in the economic

development of the country. It provides long term loans to the industries. GIC
also helps towards the creation of infrastructural facilities in the country.
2. Nationalization Act

 Decided to regularize the nonlife sector. All provide insurance company

dealing with insurance business and stop their business and merge in one
company which is government own.

 The General Insurance Business Nationalization Act was passed in 1972 to set
up the general insurance business. It was the nationalization of 107 insurance
companies into one main company called General Insurance Corporation of
India and its four subsidiary companies with exclusive privilege for
transacting general insurance business.

 This act has been amended and the exclusive privilege ceased on and from the
commencement of the insurance regulatory and development authority act
1999. General Insurance Corporation has been working as a reinsurer in India.
Their subsidiaries are working as a separate entity and plays significant role in
the public sector of general insurance.

 An Act to provide for the acquisition and transfer of shares of Indian insurance
companies and undertakings of other existing insurers in order to serve better
the needs of the economy by securing the development of general insurance
business in the best interests of the community and to ensure that the operation
of the economic system does not result in the concentration of wealth to the
common detriment, for the regulation and control of such business and for
matters connected therewith or incidental thereto.

Transfer of shares of Indian insurance companies:

1) On the appointed day all the shares in the capital of every Indian
insurance company shall, by virtue of this Act, stand transferred to and vested
in the Central Government free of all trusts, liabilities and encumbrances
affecting them.

2) Out of the shares so transferred and vested, the Central Government shall,
immediately thereafter, by notification, provide for the transfer of not less than
ten shares of every such company to such persons as may be specified in the
notification to enable the Indian insurance company to function as a
Government company.

Transfer of undertakings of other existing insurers

 On the appointed day, the undertaking of every existing insurer who is not an
Indian insurance company shall stand transferred to and vested in the Central
Government and the Central Government shall immediately thereafter
provide, by notification, for the transfer to and vesting in such Indian
insurance company, as it may specify in the notification, of that undertaking.

 Any notification made under sub- section (1) may provide that any of the
undertakings aforesaid may be transferred to and vested in more than one
Indian insurance company in such manner and subject to such conditions as
may be specified in the notification.

Effect of transfer of undertakings

 The undertaking of every such existing insurer as is referred to in section 5

shall be deemed to include all assets, rights, powers, authorities and privileges
and all property, movable and immovable, cash balances, reserve funds,
investments and all other rights and interests in, or arising out of, such
property as were immediately before the appointed day in the ownership,
possession, power or control of such existing insurer in relation to the
undertaking, whether within or without India, and all books of accounts,
registers, records and all other documents of whatever nature relating thereto,
and shall also be deemed to include all borrowings, liabilities and obligations
of whatever kind then subsisting of the existing insurer in relation to the
undertaking.

 Unless otherwise expressly provided by this Act, all deeds, bonds, agreements,
powers of attorney, grants of legal representation and other instruments of
whatever nature subsisting or having effect immediately before the appointed
day and to which any such insurer as is referred to in section 5 is a party or
which are in favour of such existing insurer shall be of as full force and effect
against or in favour of the Indian insurance company in which the undertaking
or the part to which the instrument relates has vested and may be enforced or
acted upon as fully and effectually as if, in the place of the existing insurer
referred to in section 5, the Indian insurance company in which the
undertaking or any part thereof has vested had been a party thereto, or as if
they had been issued in its favour.
Provident, superannuation, welfare and other funds.

 Where an existing insurer has established a provident, superannuation, welfare

or any other fund for the benefit of his employees and constituted a trust in
respect thereof (hereafter in this section referred to as an existing trust), the
moneys standing to the credit of such fund on the appointed day, together with
any other assets belonging to such fund, shall stand transferred to and vested
in the Indian insurance company on the appointed day free from any such
trust.

 Where all the employees of the Life Insurance Corporation or any other
existing insurer do not become employees of an Indian insurance company,
the monies and other assets belonging to any such fund as is referred to in sub-
section (1), shall be apportioned between the trustees of the fund and the
Indian insurance company in the prescribed manner; and in case of any
dispute about such apportionment the decision of the Central Government
thereon shall be final.

Formation of General Insurance Corporation of India.

 As soon as may be after the commencement of this Act, the Central

Government shall form a Government company in accordance with the
provisions of the Companies Act, to be known as the General Insurance
Corporation of India for the purpose of superintending, controlling and
carrying on the business of general insurance.

 The authorised capital of the Corporation shall be rupees two hundred and
fifty crores, divided into two hundred and fifty lakhs fully paid- up shares] of
one hundred rupees each, out of which rupees five crores shall be the initial
subscribed capital of the Corporation.

Mode of payment

Where the amount referred to

 to the members of an Indian insurance company, the amount due to each such
member shall be paid in full, where it does not exceed twenty- five thousand
 rupees, and where it exceeds twenty- five thousand rupees, each such member
shall be paid twenty- five thousand rupees and the balance of the amount due
to such member shall be paid to him in three equal annual instalments, the first
of which shall fall due on the appointed day

 to a foreign insurer, it shall be given to him in cash within three months from
the appointed day

 to the Life Insurance Corporation, it shall be given to it in three equal annual

instalments, the first of which shall fall due on the appointed day

 to an existing insurer who is a co- operative society, it shall be distributed as

soon as may be after the appointed day in accordance with the rules of the
society which will apply in case of dissolution of the society
 3. LIC
The Life Insurance is defined as the coverage which covers your life, future
aspects of your life, secure your liability within the time frame of maturity.

Life Insurance Corporation of India (LIC) was established in 1956 to spread

the message of life insurance in the country and to mobilise people's savings
for nation-building activities.

Types of LIC include:

 Term Plan (After death only get money )

 Maturity
Death
Partial disability
Permanent disability
Maturity covers maturity amount, life cover, health benefit, risk cover.
 Education policy

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

The main features of LIC are given below:

1. Saving Institution:
Life insurance both promotes and mobilises saving in the country. The income
tax concession provides further incentive to higher income persons to save
through LIC policies. The total volume of insurance business has also been
growing with the spread of insurance-consciousness in the country. The total
new business of LIC during 1995-96 was Rs. 51815 crore sum assured under
10.20 lakh policies.

The LIC business can grow at still faster speed if the following improvements
are made:

The organisational and operational efficiency of the LIC should be increased.

(i) New types of insurance covers should be introduced.

(ii) The services of LIC should be extended to smaller places.

(iii) The message of life insurance should be made more popular.

(iv) The general price level should be kept stable so that the insuring public
does not get cheated of a large amount of the real value of its long-term saving
through inflation.

2. Term Financing Institution:

LIC also functions as a large term financing institution (or a capital market) in
the country. The annual net accrual of investible funds from life insurance
business (after making all kinds of payments liabilities to the policy holders)
and net income from its vast investment are quite large. During 1994-95, LIC's
total income was Rs. 18,102.92crore, consisting of premium income of Rs.
1152,80crore investment income of Rs. 6336.19crore, and miscellaneous
income of Rs. 238.33crore.

3. Investment Institutions:

LIC is a big investor of funds in government securities. Under the law, LIC is
required to invest at least 50% of its accruals in the form of premium income in
government and other approved securities.

LIC funds are also made available directly to the private sector through
investment in shares, debentures, and loans. LIC also plays a significant role in
developing the business of underwriting of new issues.
4. Stabiliser in Share Market:

LIC acts as a downward stabiliser in the share market. The continuous inflow of
new funds enables LIC to buy shares when the market is weak. However, the
LIC does not usually sell shares when the market is overshot. This is partly due
to the continuous pressure for investing new funds and partly due to the
disincentive of the capital gains tax.
Q.3 Explain in detail Insurance sector

Ans.

Insurance means transfer of risks of an individual (unexpected and uncertain)

that is Death, old age. Disability, illness or business risks (unexpected and
uncertain) that is fire, earthquake, theft and liability to an insurance company.

 The Insurance sector in India governed by Insurance Act, 1938, the Life
Insurance Corporation Act, 1956 and General Insurance Business
(Nationalisation) Act, 1972, Insurance Regulatory and Development Authority
(IRDA) Act, 1999 and other related Acts. With such a large population and the
untapped market area of this population Insurance happens to be a very big
opportunity in India.
 This is an indicator that growth potential for the insurance sector is immense
in India. It was due to this immense growth that the regulations were
introduced in the insurance sector and in continuation “Malhotra
Committee” was constituted by the government in 1993 to examine the
various aspects of the industry. The key element of the reform process was
Participation of overseas insurance companies with 26% capital. Creating a
more efficient and competitive financial system suitable for the requirements
of the economy was the main idea behind this reform.

INSURANCE SECTOR REFORMS:

 In 1993, Malhotra Committee headed by former Finance Secretary and RBI

Governor R.N. Malhotra was formed to evaluate the Indian insurance industry
and recommend its future direction. The Malhotra committee was set up with
the objective of complementing the reforms initiated in the financial sector.

 The reforms were aimed at “creating a more efficient and competitive

financial system suitable for the requirements of the economy keeping in mind
the structural changes currently underway and recognizing that insurance is an
important part of the overall financial system where it was necessary to
address the need for similar reforms…” In 1994, the committee submitted the
report.
 The Authority has notified 27 Regulations on various issues which include
Registration of Insurers, Regulation on insurance agents, Solvency Margin,
Re-insurance, Obligation of Insurers to Rural and Social sector, Investment
and Accounting Procedure, Protection of policy holders’ interest etc. Some of
the important milestones in the life insurance business in India are:

 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 nationalise

INSURANCE SECTOR: STATUSAND GROWTH

 After privatization, insurance industry has seen significant growth. Due to low
penetration and huge potential, many foreign and domestic players have entered
the sector. Moreover, several reforms and policy measures have provided a
favorable environment for insurance companies to flourish in the country.

 The insurance sector in India is primarily divided into life and non-life, apart
from a very small segment comprising reinsurance.

 Both the life and non-life insurance segments, which were nationalized in the
1950s and 1960s, respectively, witnessed an across-the-board liberalization
process in 2000. After the reforms, the number of players has increased from
one in life insurance and four in non-life insurance in 2000 to 23 players in each
segment till May 2010 (including one re-insurer in the non-life segment) (as per
the IRDA website).
 The reasons for the strong foundation for insurance services in India are:
growing middle class segment, rising incomes, increasing awareness of
insurance, as well as investments and infrastructure spending.

Life insurance deals with only human lives and non-life deals with other than
human life. Insurance is divided into two segments i.e. Life and non-life/general
and each segment have developed independently.
LIFE INSURANCE

The Life Insurance is defined as the coverage which covers your life, future
aspects of your life, secure your liability within the time frame of maturity.

In 1870 two British life insurance companies entered in India and attempted to
do life insurance business on Indian lives. After that many Indian & foreign
companies started business in India and by the year 1955 there were 255
insurance companies operating in India and transacting the business to the
extent of Rs 200 corers.

Types of LIC include:

 Term Plan (After death only get money )
 Maturity
 Death
Partial disability
Permanent disability
Maturity covers maturity amount, life cover, health benefit, risk cover.
 Education policy

Due to the following reasons the Government decided to nationalize the life
insurance industry
1. No full guarantee to the Policyholders (who are insured).
2. The concept of trusteeship (confidence) was lacking.
3. Many insurance companies went into liquidation (bankrupt).
4. There was malpractice in the business.
5. Non-Spreading of life insurance.
6. No insurance in rural areas.
7. No group insurance
8. No social security

The main features of LIC are given below

1. Saving Institution: Life insurance both promotes and mobilises saving in the
country. The income tax concession provides further incentive to higher income
persons to save through LIC policies.

2. Term Financing Institution: LIC also functions as a large term financing

institution (or a capital market) in the country. The annual net accrual of
investible funds from life insurance business (after making all kinds of
payments liabilities to the policy holders) and net income from its vast
investment are quite large.

3. Investment Institutions: LIC is a big investor of funds in government

securities. Under the law, LIC is required to invest at least 50% of its accruals in
the form of premium income in government and other approved securities.

4. Stabiliser in Share Market: LIC acts as a downward stabiliser in the share

market. The continuous inflow of new funds enables LIC to buy shares when
the market is weak. However, the LIC does not usually sell shares when the
market is overshot.

General Insurance
 General Insurance Corporation (GIC) it is the type of insurance which covers all
entity other than life. GIC do the aviation.

The General Insurance Corporation of India (GIC) was formed in pursuance of

Section 9(1) of GIBNA. It was incorporated on 22 November 1972 under the
Companies Act, 1956 as a private company limited by shares. GIC was formed
to control and operate the business of general insurance in India.
After a process of mergers among Indian insurance companies, four companies
were left as fully owned subsidiary companies of GIC

 National Insurance Company (NIC)

 New India Assurance (NIA)
 Oriental Insurance Company (OIC)
 United Insurance Company (UIC)

TYPES OF GENERAL INSURANCE

The types of General Insurance are as follows:

 Ship & consignment
 Vehicle
 Fire
 Health
 Personal accident
 Theft
 Gold
 Liability
 Crop
 Precious
 Industry
 Property
 Instrument
 Education
 Travel
 Aviation
 Cattle
 Miscellaneous
 Personal accident includes permanents or temporary disability, Injury death,
Child education, Home loan expenses, Hospital, Vehicle, Third party. It is type
of policy in which they covers the any expense arising from the accident.

4 main benefits are Death (100%), Permanent disability (100%), Temporary

disability, Partial disability (50%).
Add on benefits are Home loan, Vehicle, Third party, Hospital expenses,
child education.

Important functions of General Insurance Corporation (GIC)

a) Enhancing Social Security: GIC promotes social security in the country. It

sells various policies to mitigate the risks involved in the social sector. It
provides opportunity to take insurance at a reasonable cost.

b) Expanding the Periphery of General Insurance: It remains engaged in

spreading awareness about general insurance throughout the country. It has been
functioning very actively and efficiently to spread the insurance business.

c) Providing Financial Assistance: GIC provides financial assistance to

industries issue shares and debentures of corporate sector.

d) Underwriting: GIC acts as an underwriter. When corporate organizations

issue shams and debenture to the public GIC provides guarantee to subscribe
certain number of securities which are not subscribed by public.

e) Making Participation in Stock Market: GIC actively participates in the

share market by acquiring shares and debentures. It also invests in shares of
government companies.

f) Setting Claims at the Earliest Opportunity: GIC undertakes necessary

measures to settle the claims of the insured.
g) Assisting other Financial Institutions: GIC provide loans to other financial
institution. It also purchases shares and debentures of these organizations.

h) Economic Development: It plays an important role in the economic

development of the country. It provides long term loans to the industries. GIC
also helps towards the creation of infrastructural facilities in the country.