INSURANCE

MODULE - 1

WHAT IS INSURANCE?
1. Protection from Financial Loss
2. Risk Management
3. Unexpected Eventuality

WITHIN FRACTION OF A SECOND…

New Office Fire in Office

New Two Wheeler Two Wheeler after Accident

Healthy Person Sick Person

Person Person after Accident

House Fire in House

INSURANCE POLICY

LIC

INSURER

INSURED

PREMIUM

TYPES OF INSURANCE
Hence Types of Insurance
LIFE INSURANCE GENERAL INSURANCE(Non-Life)  Life
 Health  Non-Life
 Accident  Motor Insurance
 Two Wheeler  Health Insurance
 Car  Accident Insurance
 Travel  Travel Insurance
 Office
 House Insurance

LIFE INSURANCE COMPANIES

 245 Indian and Foreign Insurers and Provident Societies taken over by Central Govt.  ICICI Prudential
 LIC Act of 1956  BAJAJ Allianz
 Rs. 5 crore capital contribution from GoI  India First Life Insurance
 SBI Life Insurance
NOTE
FDI allowed in insurance sector is 49%

LIFE INSURANCE COMPANIES

BAJAJ Allianz Allianz … Munich, Germany

Birla Sun Life Insurance Sun Life Financial … Toronto, Canada

HDFC Standard Life Standard Life … Edinburgh, UK

ICICI Prudential Prudential … New Jersey, USA

TATA AIG Life AIG … Hongkong

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 LIFE INSURANCE COMPANIES

Bharti AXA AXA / redefining / standards … Paris, France

India First Life Insurance Bank of Baroda Andhra Bank Legal & General … London, U.K.

SBI Life Insurance State Bank of India BNP PARIBAS CARDIF … Paris, France

HISTORY OF LIFE INSURANCE IN INDIA

1818 1870
“Oriental Life Insurance Company” by Europeans at Calcutta. “Bombay Mutual Life Assurance Society” was the first Indian
Initially for Europeans, but later on extended to cover Indians with Life Insurance Company
more premium

1896AND LATER 1912

Several insurance companies were born with the advent of “Life Insurance Companies Act” and “Provident Fund Act” were
Nationalism/Swadeshi movements brought

1928 1938
“Indian Insurance Companies Act” enabled the Govt. to collect Insurance Act was amended to protect the interests of the insuring
statistical information about both life and non-life insurance public
businesses

1956
 245 Companies were taken over
 154 Indian insurance companies
 16 Non-Indian insurance companies
 75 Provident Fund companies
 At first, management was taken over and then ownership was also taken over
 Parliament passed LIC Act on 19th June, 1956
 LIC was born on 1st Sept, 1956

“INSURANCE IS THE SUBJECT MATTER OF SOLICITATION”

“ Insurance has to be requested or asked for, not sold”

LIC
PERSON X
SHOULD
BAJAJ ALLIANZ PERSON X UNDERSTAND
AND ASK FOR
LIFE INSURANCE
HDFC STANDARD LIFE
POLICY

SOLICITATION
It means “to ask for”, i.e., the buyer has to ask for

MIS-SELLING
“It is misrepresenting or misleading the person about the characteristics of the policy”

TAKEN ONLY AS AN EXAMPLE

LIC
If person “X” took the
policy based on
BAJAJ ALLIANZ PERSON X misleading explanation by
the insurance companies,
it is “Mis-selling”
HDFC STANDARD LIFE
If companies mislead the person with
more than actual benefits and not
explaining the risks properly, it
comes under mis-selling

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WHY JOINT VENTURES WITH FOREIGN FIRMS?
1994
1. To get expertise required in insurance business  ICICI Bank
2. To get desired capital from foreign land  HDFC BAnk

DEVELOPMENTS SINCE 2000

1. Allowed private sector participation in insurance sector  HDFC Standard Life
2. FDI allowed initially 26% and now 49%, in insurance sector  BIRLA Sun Life Insurance
 BAJAJ Allianz
 ICICI Prudential

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 INSURANCE
MODULE - 2

HISTORY OF GENERAL INSURANCE IN INDIA

1850 1907
“The Triton Insurance Company Ltd”, the first The Indian Mercantile Insurance Ltd” is the first company
General Insurance Company, established by British to transact all classes of general insurance business”

1972
 The General Insurance Business (Nationalization) Act, 1972 was brought
 107 insurers were amalgamated
 GIC was born on 22nd Nov, 1972
 It was formed for the purpose of superintending, controlling and carrying the business
of General Insurance.
 107 insurance companies became 4 group companies and became subsidiaries of GIC
from 1st Jan, 1973

GIC WAS BORN ON 22nd NOV, 1972 and On 1st JAN, 1973, these 4 companies became subsidiaries

NATIONAL INSURANCE THE NEW INDIA ASSURANCE CO. LTD

"THODA SIMPLE SOCHO” Headquarters : Mumbai
Headquarters : Kolkata (oldest GIC) (1906) Founded by Sir Dorabji Tata

The Oriental Insurance Company Limited UNITED INDIA INSURANCE COMPANY LTD
Headquarters : New Delhi Headquarters : Chennai

Subsequently GIC became GIC Re in the year 2000

GENERAL INSURANCE COMPANIES OWNED BY GOVT. OF INDIA SINCE 2003

"THODA SIMPLE SOCHO”
 Incorporated in Kolkata on 5th Dec, 1906
 It is India’s oldest General Insurance Company
 It has also got its presence in Nepal
 It is India’s second largest General Insurance Company by its Gross Direct Written Premiums (GDWPs)
 It has got the highest share in motor insurance
THE NEW INDIA ASSURANCE CO. LTD

 Market leader in India in Non-Life business for the past 40 years

 Started by Dorabji Tata in 1919
 It is being operated in 28 countries
 It is the largest not only in terms of premium, but also in terms of reserves & net worth for several years
 It’s London branch is in operation for more than 95 years
 It has got subsidiaries in several countries
The Oriental Insurance Company Limited
 It was incorporated at Bombay on 12th Sept, 1947, as wholly owned subsidiary of the “Oriental Government Security Life Assurance
Company Ltd”
 It was formed to carry on General Insurance Business
 It was a subsidiary to LIC of India from 1956 to 1973
 Became the subsidiary of GIC from 1973 to 2003
 Now, it is owned by GoI since 2003
 Headquarters is in New Delhi
 Operations in Nepal, Kuwait & Dubai
UNITED INDIA INSURANCE COMPANY LTD
 It was incorporated as a Company on 18th Feb, 1938
 Subsequent to the nationalization, it became the subsidiary of GIC in 1973
 Since 2003, it is owned by GoI
 Headquarters is in Chennai

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DEVELOPMENTS SINCE 1990
 In 1993, Committee headed by former RBI Governor R.N. Malhotra was appointed
 It gave recommendations in 1994
1. To establish IRDAI
2. To allow private sector in insurance
3. To allow foreign companies by floating JV with Indian companies

Hence, Insurance Regulatory Development Authority Act (IRDAA) was brought in 1999

DEVELOPMENTS SINCE 1999

INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY ACT, 1999 CAME INTO FORCE ON 19th APRIL, 2000

1. AMENDMENTS TO 2. AMENDMENTS TO 3. AMENDMENTS TO

LIC ACT, 1956 GIBNA, 1972 INSURANCE ACT, 1938

Exclusive privilege of General

Exclusive privilege of Life
Insurance of GIC and its 4
Insurance Business by LIC has
subsidiaries have gone
gone

GIC became GIC Re in 2000 Through an Amendment in 2002, GIC ceased to

be holding company of 4 subsidiaries

Now all are owned by GOI

IRDAI
 In 1993, Committee headed by former RBI Governor R.N. Malhotra was appointed
Insurance
 It gave recommendations in 1994, based on which IRDAA was brought based on which IRDAI was established.
Regulatory and
 Headquarters is in Hyderabad, got offices in Delhi & Mumbai
Development
 IRDAI will have a Chairperson, not more than 5 full time members & not more than 4 part time members
Authority of India
 Tenure is 5 years& Chairperson & full time members – maximum age limit is 65 years
(IRDAI)
MISSION
TS Vijayan,
“To protect the interests of the policyholders, to regulate, promote and ensure orderly growth of the insurance industry” Chairman

NOW, AS PER IRDAI WEBSITE

GENERAL INSURANCE COMPANIES … 29
LIFE INSURANCE COMPANIES … 24
REINSURANCE COMPANIES … 1

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 INSURANCE
MODULE - 3

TYPES OF LIFE INSURANCE POLICIES

1. ENDOWMENT POLICY
DEATH BENEFITS
MATURITY BENEFITS
Note PERSON X LIVED
20 years period is taken only as an example TILL THE END OF
POLICY

0 10 15 20
DEATH BENEFITS PERSON X DIED MATURITY BENEFITS
AFTER 8 YEARS

PREMIUM DEPENDS ON
 Age at Entry
 Term of the Policy
Here the insured amount is payable at the end of the
 Specified year or at death whichever is earlier

PREMIUM

Expense Component Mortality Component Investment / Savings

Component

1. (b) M0NEY BACK POLICY

 DEATH BENEFITS
 MATURITY BENEFITS
 SURVIVANCE BENEFITS

In addition to paying insured amount at the end of the term, one will get periodic “Survivance Payments” at every 4/5 years. They
became very popular

2. TERM POLICY
DEATH BENEFITS
MATURITY BENEFITS
Note PERSON X LIVED
20 years period is taken only as an example TILL THE END OF
POLICY

0 10 15 20
DEATH BENEFITS PERSON X DIED MATURITY BENEFITS
AFTER 8 YEARS

Only death benefits, i.e., sum assured will be paid only in case of death during the policy term. No maturity benefits i.e., on survival to the
end of the term, no benefits will be payable.

PREMIUM

Expense Component Mortality Component

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3. UNIT LINKED INSURANCE PLANS

DEATH BENEFITS 
MATURITY BENEFITS 
(Depends on share values)

PERSON X LIVED
TILL THE END OF
0 20 POLICY
10 15
PERSON X DIED
DEATH BENEFITS  AFTER 8 YEARS MATURITY BENEFITS 
(Depends on share values)

Here money is invested in shares, bonds, mutual funds etc.

Hence, maturity benefit depends on the policyholders fund value i.e., uncertain.

4. PENSION PLANS

DEATH BENEFITS 
ANNUITY DURING OLD AGE

PERSON X LIVED
TILL THE END OF
POLICY
0 10 15 20
DEATH BENEFITS  PERSON X DIED MATURITY BENEFITS 
AFTER 8 YEARS (Paid annually after certain
age to take care of old age)

After certain age (vesting age), annual payments (annuities) will be made to take care of old age.

WHAT IS REINSURANCE?
REINSURANCE
“It is the arrangement by which insurance companies spread their risk with reinsurance companies”

TYPES OF GENERAL INSURANCE

 HEALTH INSURANCE
 ACCIDENT INSURANCE
 HOUSEHOLD INSURANCE
 SCOOTERS / MOTOR CYCLES INSURANCE
 CARS / 4 WHEELERS INSURANCE
 ALL TYPES OF COMMERCIAL VEHICLE INSURANCE
 SHOPKEEPERS POLICY
 MARINE CARGO POLICY
 FIRE POLICY IN INDUSTRIES
 BURGLARY POLICY

NOTE
As per the Motor Vehicles Act, 1988, it is mandatory for every owner of a vehicle plying on the public roads, to take an insurance policy, to
cover the amount, which the owner legally liable to pay as damages to third parties as a result of accident.

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 INSURANCE
MODULE - 4

INSURANCE OMBUDSMAN

1. Created by GoI on 11th Nov 1998

2. For quick disposal of the grievances of the insured customers i.e., protection of interests of the customers
3. Governing Body of Insurance Council issues orders of appointment
4. But, based on the recommendations of the Committee consisting of Chairman, IRDAI, Chairman, LIC, Chairman, GIC and a
representative of Central Govt
5. Governing body of Insurance Council consists of representatives of Insurance companies
6. Ombudsmen are drawn from Insurance industry, civil services and judicial services
7. Appointed for a period of 3 years or till one attains the age of 65 years
8. 12 Ombudsmen in the country are working with territorial jurisdictions

Total expenses of Ombudsmen and Maximum Award is

their staff are incurred by the insurance restricted to Rs. 20 Lakhs
companies
PROCEDURE
 First apply to the insurer, wait for one month for getting the reply.
 If the insured is not satisfied with the reply or no reply for one month, then within 1 year, insured can approach ombudsman.
 The complaint may relate to
 Any partial or total repudiation of claims by the insurers
 Dispute with regard to the premium paid
 Dispute on the legal construction of the policy wordings.
 Delay in settlement of claims
COMPLAINT BY INSURED
TO OMBUDSMAN

CONCILIATION AWARD

 If it is settled through mediation,  Ombudsman shall pass an Award

Ombudsman will make within 3 months.
recommendation to both the parties  The Award is binding upon the
within 1 month insurance companies.
 Complainant (Insured) should  If the complainant is not satisfied,
accept within 15 days by sending a he can approach other channels like
written communication. Consumer Forums, Courts of Law
 Then the matter is treated as etc.
settled.
KEY TERMINOLOGY

LIC

INSURER
INSURED

LAPSE & REINSTATEMENT

5 YEARS 7 YEARS
LIC
20 YEARS
0
IF X FAILED TO PAY
B IF IT IS BROUGHT INTO FORCE
PREMIUM AFTER 5 YEARS, A
AFTER 2 MORE YEARS, IT IS
THE POLICY WILL LAPSE
CALLED REINSTATEMENT

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BENEFICIARY

LIC X Y

BENEFICIARY
INSURER INSURED
20 YEARS
0

X DIED

BENEFICIARY Y WILL GET ASSURED AMOUNT, IF X DIES DURING THE POLICY TIME

ASSIGNMENT

LIC X
Y
X

INSURED Proceeds of policy can be transferred by X to Y

INSURER
through endorsement on the policy document or
as a separate deed

COVERAGE GRACE PERIOD

Scope of protection provided under the Policy holders are expected to pay premium
contract of insurance.i.e., it is the risks by due date.However, grace period of up to
covered under the policy 30 days is allowed to make payment of
premium

DEPRECIATION
 New Car Rs.10 Lakhs
 After 1 year Rs. 8 Lakhs
 After 5 years Rs. 3 Lakhs
“Decrease in the value of property over a period of time due to wear and tear”

LIFE ASSURED MATURITY MATURITY CLAIM

The person whose life is insured by an The date upon which the sum assured The payment to the policy holder at the end
individual life policy is called life (face amount) of a life insurance policy of the stipulated term of the policy is
assured is paid to the policy holder maturity claim

RISK NOMINATION VESTING AGE

“The obligation assumed by the An act by which the policy holders The age at which the receipt of pension
insurer, when it issues a policy” authorizes another person to receive starts in an insurance-cum-pension plan
policy moneys.
The person so authorized is nominee

0 SURRENDER VALUE 20 YEARS

LIC After 12 years,

X
The policy holder decided to terminate the policy
The value payable to the policy holder in the event of his deciding to terminate the policy before the maturity of the policy is known
as Surrender Value

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 ACTUARIES
 They are just like brain in human body.
 They deal with the measurement and
management of risk.
 They help design and price insurance policies.
 They set guidelines for each risk class and
category.
 They extensively use analytics, economics and
mathematical skills and tools to evaluate risks.
 They develop general pricing structure for a
product.
© Learning Space, Vijayawada
UNDERWRITERS
 They decide the category in which each
customer falls, based on the table / matrix
created by the actuaries.
 They look at the data of the individual
customers.
 They decide in which risk class a customer
falls.
 They also decide how much coverage a client
can be given and how much premium.
3
 INSURANCE
MODULE - 5

ECGC:
 It is Export Credit Guarantee Corporation of India Ltd.
 Based on the T. C. Kapur Committee recommendations, Export Risk Insurance Corporation was established in 1957 with
Headquarters in Mumbai.
 Name changed to Export Credit & Guarantee Corporation Ltd. In 1964.
 Renamed as Export Credit Guarantee Corporation of India Ltd in 1983.
 Primarily for insurance against export credit risks and trade related services.

Agriculture Insurance Company of India Limited

 It was formulated in 2002 with authorized capital of Rs. 1,500 cr
 It commenced its business from 1st April, 2003.
 It was started with subscription from NABARD (30%), GIC of India (35%), NICL, OICL, NIACL & UIICL (8.75% each).

INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY OF INDIA

 Headquarters is in Hyderabad, got offices in Delhi & Mumbai

 IRDAI will have a Chairperson, not more than 5 full time members & not more than 4 part time members
 Tenure is 5 years& Chairperson & full time members – maximum age limit is 65 years

INSTITUTE OF INSURANCE AND RISK MANAGEMENT

 It is “Institute of Insurance and Risk Management”
 The institute claims that it is the only dedicated institution for education in Insurance and Actuarial Science in the world.
 It is promoted by IRDAI.
 Headquarters is in Hyderabad

INTERNATIONAL INSURANCE SOCIETY

 It is headquartered in New York, USA.
 It is the forum for insurance executives to engage in active collaboration with all concerned stake holders.
 Mission is international collaboration.
 It consists of executives from leading insurance / reinsurance companies, brokers, regulators etc.

INTERNATIONAL ASSOCIATION OF INSURANCE SUPERVISORS

 It is in Basel, Switzerland.
 Established in 1994.
 It represents insurance regulators and supervisors of more than 200 jurisdictions in nearly 140 countries.

NATIONAL INSURANCE ACADEMY (NIA)

 It is the premier institution for training, education, research and consultancy services.
 Established in 1980, jointly by Ministry of Finance, LIC, GIC and its four subsidiaries.
 Headquarters finally shifted to Pune in 1990.

GIC HOUSING FINANCE LTD

 GICHFL was incorporated in 1989.
 Promoted by GIC and its subsidiaries.
 It is into the business of “granting housing loans”.

LIC HOUSING FINANCE LTD

 It was incorporated by LIC in 1985.
 It is one of the largest housing finance companies in India.

INTERNATIONAL ASSOCIATION OF INSURANCE PROFESSIONALS

 It is a professional association open to individuals in the insurance and risk management industries.
 It serves its members by providing professional education.
 It is headquartered in Atlanta, USA.

CHURNING “Only with a view to earn more

 SBI Life Insurance Note commission, if an agent sells new or
 LIC THESE ARE TAKEN replacement policies to a client, it is known
 ING Life Insurance ONLY FOR EXAMPLE as Churning”
Person X

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INSURANCE PERILS

“A specific risk or cause of loss covered by an insurance policy.”

Hence, a named peril policy covers only the risk named in the policy.
WHOLE LIFE POLICY
“It is the life insurance policy, which is guaranteed to remain in force for the insured’s entire life time.”
 It is mainly devised to create an estate for the heirs of the policy holder.
 However, due to the increased longevity of the people, the maturity is being paid at certain age, say 80 years.
BANCASSURANCE
“It is the selling of insurance products through Banks.”
Banks and insurance companies will come up in a partnership, where banks sell insurance companies’ insurance products to their clients.
TPAs
“They are Third Party Administrators, who will act as link between insurers and insured, primarily in Health Insurance

Licences for TPAs are issued by IRDAI

REPOSITORIES IN INSURANCE

“They are companies licensed by IRDAI for maintaining data of insurance policies in electronic form on behalf of Insurers”

An Insurance Repository will enable policy holders to buy and keep insurance policies in electronic form
Recently, LIC stated that it will have its own repository
CONTINGENT BENEFICIARY
“In a life insurance policy or annuity plans, contingent beneficiary gets proceeds from the policy in the event of demise of the primary
beneficiary at the same time as that of the insured.”

CONTINGENT
INSURED BENEFICIARIES

UNFORTUNATELY,
BOTH HUSBAND
AND WIFE DIED IN
AN ACCIDENT

UMBRELLA POLICY

“It is the policy, which was created to provide additional coverage than normal to cover lawsuits over injuries etc.”

Hence, Umbrella Policy is extra VIP

X
liability insurance Y

VIP Y died in a road

accident involving car
of person X

RIDERS IN INSURANCE

“It is to maximize the benefits of an insurance policy and to customize it to suit the needs of insured.”
A rider is an add-on to basic policy with payment of extra premium. For example, in life insurance, the riders can be critical illness, disability
etc.
UNIVERSAL LIFE INSURANCE PLANS
“Universal Life Insurance policies are flexible, not rigid”.
Here
 Death benefits
 Savings / investment element
 Premiums
Can be reviewed and altered depending on the circumstances of the policy holder
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DEFERMENT PERIOD

It is normally used for insurance-cum-pension plans

“It is the period between the date of subscription to the pension policy and the time at which the first instalment of pension starts”

Pension Started

0 20 years

Deferment Period

EXCLUSIONS
“Specific conditions and circumstances for which the policy will not provide benefits”
DOUBLE / TRIPLE COVER PLANS
“The beneficiaries will get double / triple the sum assured on death of life assured during the term of the policy”
If the life assured survives till the date of maturity, he will be paid the basic sum assured only

CONVERTIBLE WHOLE LIFE POLICY

“It is a flexible insurance contract.During the initial period, it can be a term policy with low premium and subsequently, it can be
converted into whole life policy with more premium”.
It is suitable for new entrants to the job.
COINSURANCE
This is the term normally used in Health Insurance
“Here the insurer and the insured will share the covered losses in a specified ratio”

BUSINESS INSURANCE
“A policy which primarily provides coverage of benefits to a business in contrast to an individual”
It is issued to indemnify a business for the losses.

KEYMAN INSURANCE POLICY

“A life insurance policy taken by a person on the life of another person, who is his employee / connected to his business in any manner
whatsoever”

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