Documente Academic
Documente Profesional
Documente Cultură
CHAPTER 1
INTRODUCTION OF INSURANCE
1.1 INTRODUCTION
Insurance is a system to alleviate financial losses by
transferring risk of loss from one entity to another.
Insurance is basically a sharing device. The losses to assets
resulting from natural calamities like fire, flood, earthquake,
accidents, etc. are met out of the common pool contributed by large
number of persons who are exposed to similar risks. This
contribution of many is used to pay the losses suffered by
unfortunate few. However the basic principle is that loss should
occur as a result of natural calamities or unexpected events which
are beyond the human control. Secondly insured person should not
make any gains out of insurance.
It is natural to think of insurance of physical assets such as motor
car insurance or fire insurance but often we forget that creator of all
these assets is the human being whose efforts have gone a long
way in building up the assets. In that sense, human life is a unique
income generating assets. Unlike the physical assets, which
decrease in value with passage of time, the individual becomes
more experienced and more matured as he advances in age. This
raises his earning capacity and the purpose of life insurance is to
protect the income in the event of his premature death. The
1
individual himself also needs financial security for the old age or on
his becoming permanently disabled when his income will stop.
Insurance also has an element of savings in certain cases.
DEFINITIONS:Functional definition
Insurance is a co-operative device to spread the loss caused by a
particular risk over a number of persons who are exposed to it and
who agree to insure themselves against the risk.
General Definition
Insurance has been defined to be that in which a sum of money as a
premium is paid in consideration of the insurers incurring the risk of
paying a large sum upon a given contingency.
In the words of John Magee, Insurance is a plan by themselves
which large number of people associate and transfer to the
shoulders of all, risks that attach to individuals.
Fundamental Definition
In the words of D.S. Hansell, Insurance accumulated contributions
of all parties participating in the scheme.
Contractual Definition
In the words of Justice Tindall, Insurance is a contract in which a
sum of money is paid to the assured as consideration of insurers
incurring the risk of paying a large sum upon a given contingency.
persons
who
are
exposed
to
similar
risks,
collect
Products and pricing are cleared by IRDA, which looks into the
financial visibility of the product and the financial implication.
MGIMFL
OAENAI
TRNSDRF
OIEUIE
RNC
EALI
VILNAN
EICIS
HNEMU
ISR
CUNA
LRDN
EAUC
NSE
CT
ER
Y
I.
LIFE INSURANCE:
This is provided for the payment of sum money on the death of the
insured person due to natural causes or on the expiry of a certain
number of years if the insured person is then alive. Life insurance
aims to compensate the Income Earning Capacity of the person. In
Life Insurance, income earning capacity of the person is covered.
The loss of the income earning capacity can be on the happening of
the following events when the life is assured.
1.
2.
3.
4.
Death.
Sickness (critical illness).
Accident (Death or permanent disability due to accident).
Retirement.
II.
GENERAL INSURANCE:
Insurance other than life fall under general insurance. It covers loss
of every other physical or no possession. The loss may be due to
fire, theft, accident etc. The general insurance is further classified
into1.
2.
3.
4.
Fire insurance.
Marine Insurance.
Mediclaim
Vehicle Insurance.
PRODUCTS
Insurance Plans:
Plans:
Childrens Plan
Back Plans
Endowment Plans
Term Assurance
Special Plan:
Plan:
Jeevan Rekha
Jeevan Anand
Pension Plan:
Plan:
Money
Joint
10
11
More competitive
12
13
14
4. Call Centers and SMS services:Almost all the insurance companies have their own call
centres which cater to the phone based queries of the
policyholders. This service is 24x7 and they have the
Interactive Voice Response (IVR) systems at all the branches.
15
CHAPTER 2
FOREIGN DIRECT INVESTMENT
2.1 INTRODUCTION
The Insurance sector reforms have open in the door for private
players, private insurance companies in the beginning of life
insurance business with public sector company (LIC). Foreign Direct
Investment (FDI) has allowed in private life insurance companies in
India, under an act of IRDA with a limit of foreign equity of 26%.The
life insurance sector is playing a pivotal role in both Indian and
Global markets. Those factor we have taken for the analysis of
private life insurance companies performance are premium growth,
market share of the companies, portfolio Investment, equity share
capital etc. It is use for a measure of positive or negative impact of
FDI investment in Indian private life insurance companies. It has
investigated for a sample of five selected private life insurance
companies and one public company for the purpose to comparison
with selected companies it is using a panel data for analysis in
between the period of 2002-10. Different key variable is use to
analysis yearly premium income, infrastructure development,
employee facilities, business expansion etc. it was examined to
identify cause for any significant impact on the life insurance sector.
16
17
18
19
21
22
23
24
25
26
27
28
29
31
(ii)
32
33
E. Euro-Bonds
These are basically debt instruments denominated in a
currency issued outside the country of that currency for
examples yen bond floated in France. Primary attraction of
these bonds is the refuge from tax and regulations and
provide scope for arbitraging yields. These are usually bearer
bonds and can take the form of Traditional fixed rate bonds,
floating rate notes or Convertible bonds.
F. Foreign Bonds:
Foreign bonds are denominated in a currency which is foreign
to the borrower and sold at the country of that currency. Such
bonds are always subject to the restrictions and are placed by
that country on the foreigners funds.
G. Euro Commercial Papers:
These are short term money market securities usually issued
at a discount, for maturities less than one year.
H. Credit Instruments:
The foregoing discussion relating to foreign exchange risk
management and international capital market shows that
foreign exchange operations of banks consists primarily of
purchase and sale of credit instruments. There are many types
of credit instruments used in effecting foreign remittances.
They differ in the speed, with which money can be received by
the creditor at the other end after it has been paid in by the
debtor at his end. The price or the rate of each instruments,
therefore, varies with extent of the loss of interest and risk of
loss involved. There are, therefore, different rates of exchange
applicable to different types of credit instruments.
34
2.7 FOREIGN
(FIPB)
PROMOTION
INVESTMENT
BOARD
APPROVALS
FOR
CASES
UNDER
35
36
CHAPTER 3
FDI IN INSURANCE
37
3.2 PROBLEMS
COMPANIES
OF
FDI
IN
INDIA
INSURANCE
39
40
41
42
cent whereas it declined by 2.25 per cent for public insurers.29 The
position has now gradually changed after the opening of the
insurance sector markets, where in the first 2 years most of the
private companies suffered losses and had a very small share of the
insurance market. Now slowly the private companies by offering
better products in a competitive environment have established their
market share and even though LIC still is the market leader, but its
share is gradually decreasing and private insurers are gaining the
confidence of the consumers.
In the light of these facts, I feel that it is now high time that cap on
FDI in the insurance sector should be increased to 49%.
45
46
CHAPTER 4
FOREIGN INSTITUTIONAL INVESTORS
48
51
52
53
54
55
56
57
4.3 CURRENT
AREAS
CHALLENGES
AND
IMPROVEMENT
but
still
not
are
a)
Political risk: Amongst the top items is the political instability
of the country. On one hand the fact that India is the worlds largest
democracy does add a sense of pride and security, but the hard
reality is that there is insurmountable instability present. Just the
fact that the past two governments have been based on coalitions
between a few parties is reason enough to be skeptical. Moreover,
each new government has certain policies which are different from
the ruling government and if there is frequent change in
government, this will lead to changes in policy and increased
uncertainty. Just take the example of the last elections in 2004,
where by a sudden change of event the Indian National Congress
was able to come into power by forming a coalition government, by
soliciting the vast majority of the poor people of the country,
surprising the incumbent government which was relying heavily on
a fast growing economy, increased privatization and a thriving
middle class.
b)
Bureaucracy:
Another very important factor that affects
Indias competitiveness on the world standing is the Bureaucracy.
58
nuclear weapons to the brink of war. The other security risks would
include incidences of domestic terrorism, not only in the Kashmir
valley but also in Assam, Manipur and Nagaland, where numerous
separatists group operate.
d)
Cost advantage: One of the attractions of India is the lower
cost advantage as compared to most western economies. The Indian
Government would have to work on creating an atmosphere where
this advantage can be maintained else it might result in India not
seem as attractive. One of the key drivers would be to try and
control inflation because if there is increased level of inflation then
there would be increased costs and reduced returns. Other factors
which would act in similar respects would be increased tax
incentives and reduced tariffs.
e)
Intellectual Property (IP) Rights & Piracy: With the increased
instances of Piracy around the world and the extreme importance
placed by Investors on maintaining their IP rights, this is definitely
an area which needs improvement in India. India has begun instilling
intellectual property rules and regulations into the country but there
is still a long road ahead. The main area for improvement in this
59
respect is the enforcement, which is the most crucial part but the
weakest at present in the country. The enforcement of IP rights
included the increased crackdown in the market on pirated and
knock-downed good.
f)
Privatization and deregulation: Increased privatization of
various sectors would definitely enhance the attractiveness of India
as an FDI destination. India has already taken steps to privatize
areas such as electricity, telecommunication etc. and increase the
foreign holding capacity in sectors such as banking and insurance
which is a first step.
g)
Infrastructure: It definitely is an added bonus to the investor if
there is adequate infrastructure present in the country. In India there
is substantial lack of robust infrastructure around the country, e.g.
proper roads, highways, adequate supply of clean water,
uninterruptible supply of electricity etc. But there is a flipside to this
lack of Infrastructure. Quoting the prime minister Dr. Manmohan
Singh on a recent speech at the NYSE ,
When I talk to business people, they tell me, Well, Indias
infrastructure is a problem. I do agree with them that infrastructure
is our biggest problem and also the biggest opportunity. In the next
10 years we must invest at least $150 billion to modernize and to
expand Indias infrastructure, and we have major investments
needed in energy sector, in power sector, in oil exploration, in roads
programme, in modernizing our railway system, food system,
airports. This is where, I feel, we need a new experimentation with
public-private sector participation because the public sector may
have a role, but by itself it cannot meet all the requirements. As I
see an expanding and very profitable role of foreign direct
investment in meeting the challenge of modernizing Indias
infrastructure.
So the lack of infrastructure can definitely be seen as a blessing in
disguise and be a substantial source of FDI, but nevertheless if this
FDI does not materialize, the Government will have to invest their
own funds into it and try and attract other investments.
60
61
Exports;
bulk imports with ex-port/ex-bonded warehouse sales;
cash and carry wholesale trading;
Other import of goods or services provided at least 75% is for
procurement and sale of goods and services among the
companies of the same group and not for third party use or
onward transfer/distribution/sales.
62
63
A lot of research study in India finds out that historically the country
fails to attract a significant amount of FDI mainly because of
problems in infrastructure. But the scenario is changing. The Indian
government has taken huge projects in transportation and energy
sectors to improve the case. The projects for developing road
transport is worth of $90 billion, for rail it has undertaken several
projects each worth of $20 million and for ports and airports the
value of development projects is around $ 80 billion. In addition the
investment in energy development is worth of $ 167 billion and
investment in nuclear energy development is outside that
calculation. These huge investments are changing the investment
climate in the country and investors will benefit hugely by that
(Department of Industrial Policy and Promotion, 2005; Dua &
Rasheed, 1998).
Public Private Partnerships
Another significant advantage foreign investors experience in India
today is the opportunities of PPP or Public private Partnership in
different important sectors like energy, transportation, mining, oil
industry etc. It is advantageous in several ways as it has eliminated
the traditional tirade barriers and also joint venture with
government is risk free up to the great extent (GOI, 2007; IMF,
2005; Nagaraj, 2003).
64
65
66
15000
10000
5000
0
41030
41091
41153
41214
41000
41061
41122
41183
41244
50000
45000
40000
35000
30000
25000
2010 - 11
20000
2011 - 12
15000
2012 - 13
10000
5000
0
67
68
CHAPTER 6
Data Analysis & Interpretation
Yes
No
ANSWER:As per the survey made it is concluded that 9 out of 10 people have
insurance. People having insurance take it as their security against
any unwanted happening or a catastrophe. The rest who do not
have an insurance consider that insurance many a times doesnt
help in critical situations. As they have to run behind fulfilment of
formalities to get their money which is very tiring for them.
69
10%
LIC
Others
90%
70
Mediclaim
Term Insurance
Endowment
ANSWER:-
71
Money Back
72
YE
N
S
O
Q5) Have you heard about FDI?
73
Yes
No
ANSWER:As per the survey maximum of the people know about FDI and have
a good knowledge about it. Whereas few people do not know about
it as they do not take insurance and are in no ways connected to the
insurance industry. So it can be concluded that all the people should
be given proper knowledge that what FDI is all about. How it works
and what are its benefits.
74
100%
90%
80%
70%
60%
Column1
Column2
50%
40%
30%
20%
10%
0%
Yes
No
75
FDI
is
allowed
in
4
2
6
9
%
ANSWER:Maximum of the people said that 49 % FDI is now allowed in the
insurance sector as they were aware of the latest reforms made in
the insurance sector whereas the rest of the people said that only
26% FDI is allowed which is the old reform that was made. Hence
from this we can conclude that the population in our country is not
well aware about the reforms made in Insurance sector.
76
N
Y
O
E
S
ANSWER:-
77
CHAPTER 7
Suggestions And Conclusion
It can be observed from the above analysis that at the sectoral level
of the Indian economy, FDI has helped to raise the output,
productivity and employment in some sectors especially in service
sector. Banking and insurance sector help in providing the strength
to the Indian economic condition and develop the foreign exchange
system in country. So, we can conclude that FDI is always helps to
create employment in the country. According to the projections of
IRDA, the life insurance industry will need capital of at least 40,000
crore to ensure that the industry grows enough to be 8% of GDP.
Indias cabinet approved a 49% FDI in insurance on Thursday (4 th
October 2012) & opened up the pension sector to foreign capital
investment, providing the much needed momentum to the Indian
economy. In the second round of economic reforms the government
cleared amendments to raise the FDI cap in the insurance sector to
49% from the existing 26% while it approved a 26% FDI in pension
sector.
FDI in the insurance sector is allowed under the automatic route
subject to the condition that the companies bringing in FDI obtain
the necessary license from IRDA for undertaking insurance
activities.
The process of economic reforms which was initiated in July 1991 to
liberalize and globalize the economy had gradually opened up many
sectors of its economy for the foreign investors. A large number of
changes that were introduced in the countrys regulatory economic
policies heralded the liberalization era of the FDI policy regime in
India and brought about a structural breakthrough in the volume of
the FDI inflows into the economy maintained a fluctuating and
unsteady trend during the study period. It might be of interest to
note that more than 50% of the total FDI inflows received by India
during the period from 1991-2007 came from Mauritius and the USA.
78
APPENDIX 1
Questionnaire
Name of
person:____________________________________________
_______
Contact number:- _________________________________
Email Id: ___________________________________
Date:____/____/_______
No
79
________________________________________________________
_____________
4. Is Insurance necessary for every person?
Yes
No
No
No
No
80
Signature
_______________________
_
APPENDIX 2
Bibliography
Internet Bibliography
Links:www.bis.org
www.livemint.com
www.policymantra.com
www.timesofindia.com
www.wikipedia.org
www.scribd.com
www.businesstoday.in
81
Friends
College Professors
Family relatives
Friends & relatives employed in insurance sector.
82