TRENDS IN INSURANCE SECTOR

BACHELOR OF COMMERCE BANKING & INSURANCE SEMESTER VI (2012-13)

SUBMITTED BY: JIGAR P. VORA ROLL NO.111

PROJECT GUIDE: MRS. SHOBHA MATHEW

K.J SOMAIYA COLLEGE OF ARTS, & COMMERCE, VIDYAVIHAR (EAST), MUMBAI-400077

K.J SOMAIYA COLLEGE OF ARTS, & COMMERCE, VIDYAVIHAR (EAST), MUMBAI-400077

PROJECT ON: TRENDS IN INSURANCE SECTOR

BACHELOR OF COMMERCE BANKING AND INSURANCE

SEMESTER VI (2012-13)

SUBMITTED

In Partial Fulfillment of the requirements For the award of the Degree of Bachelor of Commerce-Banking & Insurance

By JIGAR P. VORA ROLL NO. 111

K.J SOMAIYA COLLEGE OF ARTS, & COMMERCE, VIDYAVIHAR (EAST), MUMBAI-400077

CERTIFICATE

This is to certify that JIGAR P. VORA of B.Com. Banking & Insurance Semester V (Academic Year) 2012-13 has successfully completed Project on TRENDS IN INSURANCE SECTORunder the guidance of MRS. SHOBHA MATHEW

_________________
(Mrs. SMITA DAYAL)

_______________
(Dr. SUDHA VYAS)

Course Coordinator

Principal

_________________
Internal Examiner

________________
External Examiner

___________________
(MRS. SHOBHA MATHEW)

Project Guide

DECLARATION

I, JIGAR P. VORA the student of B.Com-Banking & Insurance-Semester VI (2012-13) hereby declare that I have completed Project on Trends in Insurance Sector.

Wherever the data/information has been taken from any book or other

sources have been mentioned in bibliography.

The information submitted is true and original to the best of my knowledge

Students signature

______________

JIGAR VORA (ROLL NO.111)

ACKNOWLEDGEMENT

On the event of completion of my project TRENDS IN INSURANCE SECTOR. I take the opportunity to express my deep sense of gratitude towards all those people without whose guidance, inspiration, & timely help this project would have never seen the light of day.

Heartily thanks to Mumbai University for giving me the opportunity to work on this project. I would also like to thank my principal Dr. SUDHA VYAS for giving us this brilliant opportunity to work on this project.

Any accomplishment requires the efforts of many peoples and this project is not different. I find great pleasure in expressing my deepest sense of gratitude Towards my project guide MRS. SHOBHA MATHEW. Whose guidance & inspiration right from the conceptualization to the finishing stages proves to be very essential & valuable in completion of the completion of the project. I would like to thank library staff, all my classmates, & friends for their invaluable suggestions & guidance for my project work.

Lastly I would like to thanks my parents without whose consent and support it would have not been possible for me to this project.

Student Signature

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JIGAR P. VORA

INDEX

Sr. NoCONTENTSPg. No

1Executive Summary1

2Introduction To Insurance2

3Working of Insurance6

4Insurance Trends In India7

5Indian Insurance in 21stCentury14

6Classification Of Insurance15

7Private Sector v/s Public Sector19 8Indias Life Insurance Industry Changing Trends22 9Indias General Insurance Industry Changing Trends27

10Micro Insurance38

11Innovations in Insurance Products41

12Technology Trends in Insurance Market43

13Recent Innovation in Insurance Industry45

14Challenges taken by Insurance Sector50

15Impact of Budget on Insurance52 16Role Insurance in Indias Future54

17Vision of 2020 Insurance in India56

18Conclusion57

19Webliography / Bibliography58

Trends in Insurance Sector

EXECUTIVE SUMMARY

The huge and ever rising population levels in our country provide an attractive opportunity for the global insurance majors to seek their fortunes here. That is the reason why we find so many private players today competing with LIC the only life insurer prior to liberalization of our economy, for insuring Indian lives. In spite of the loud noises made by the various companies vying for a slice of the large Indian Insurance pie, the irony is that even today not more than 20% of the population of our country is aware about the very basic concepts regarding Life Insurance. This is the precisely the reason why we see a mandatory tag today with every advertisement that advertises for a insurance product, that goes INSURANCE IS THE SUBJECT MATTER OF SOLICITATION.

The INSURANCE REGULATORY DEVELOPMENT AUTHORITY OF INDIA (IRDA) is aware of the fact that many Indian consumers can be taken for a ride by fly by night operators who could seek to sell insurance as a pure investment instrument and make good with their hard earned money, promising them huge returns.

This project throws light on the emerging trend of the insurance sector in India.

Trends in Insurance Sector

INTRODUCTION TO INSURANCE

Insuranceis the equitable transfer of the risk of a loss, from one entity to another in exchange for payment. It is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss.

An insurer, or insurance carrier, is a company selling the insurance; the insured, or policyholder, is the person or entity buying the insurance policy. The amount to be charged for a certain amount of insurance coverage is called the premium. Risk management, the practice of appraising and controlling risk, has evolved as a discrete field of study and practice.

The transaction involves the insured assuming a guaranteed and known relatively small loss in the form of payment to the insurer in exchange for the insurer's promise to compensate (indemnify) the insured in the case of a financial (personal) loss. The insured receives a contract, called the insurance policy, which details the conditions and circumstances under which the insured will be financially compensated.

None of us know what is going to happen to us in the future but what we do know is that accidents happen. This is the simple idea that the insurance industry is founded on. You never know when you might crash your car or come home to find someone has broken into your home.

But what you can do is protect yourself financially against something going wrong at some point in the future. This protection is what we call insurance.

Trends in Insurance Sector

Definition of Insurance:

A promise of compensation for specific potential future losses in exchange for a periodic payment. Insurance is designed to protect the financial well-being of an individual, company or other entity in the case of unexpected loss. Some forms of insurance are required by law, while others are optional. Agreeing to the terms of insurance creates a contract between the insured and the insurer. In exchange for payments from the insured (called premiums), the insurer agrees to pay the policy holder a sum of money upon the occurrence of a specific event. In most cases, the policy holder pays part of the loss (called the deductible), and the insurer pays the rest.

The definition of insurance can be made from two points:

Functional definition

Contractual definition

Functional definition: Insurance is a co-operative device to spread the loss caused by a particular risk over a number of people, who are exposed to it & who agree to insurance themselves against the risk.

Contractual 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.

Trends in Insurance Sector

Pre-Liberalization Scenario of Insurance Industry:

Fifty years ago, India had a bustling, if somewhat chaotic, entirely private insurance industry. The year after Independence, 209 life Insurance companies were doing business worth Rs712.76 crore (which grew to an amazing Rs 295,758 crore in 1995-96). Foreign insurers had a large market share 40 per cent for general insurance but there were also plenty of Indian companies, many promoted by business houses like the Tatas and Dalmias. The first Indian-owned life insurance company, the Bombay Mutual Life Assurance Society, was set up in 1870 by six friends. It Insured Indian lives at the normal rates instead of charging a premium of 15 to 20 percent as foreign insurers did. Its general insurance counterpart, Indian Mercantile Insurance Company Ltd., opened in Bombay in 1907.

A plethora of insufficiently regulated players was a sure recipe for abuse, especially because there was no separation between business houses and the insurance companies they promoted. The Insurance Act, 1938, introduced state controls on insurance, including mandatory investments in approved securities, but regulation remained ineffective. In 1949, Purshottamdas Thakurdas, chairman of the Oriental Assurance Company, admitted: "We cannot deny that, today, there is a tendency on the part of insurance companies in general to make illicit gains. Can

we overlook the cutthroat competition for acquiring business? And still worse is the dishonest practice of adjusting of accounts." After a 1951 inquiry, the government was dismayed that companies had high expense and premium rates, were speculating in shares, and giving loans regardless of security. No wonder that between 1945 and 1955, 25 insurers went into liquidation and 25 transferred their business to other companies.

Trends in Insurance Sector

Post-liberalization Scenario of Insurance:

While no aspect of the reform process in India has gone smoothly since its inception in 1991, no individual initiative has stirred the proverbial hornets' nest as much as the proposal to liberalize the country's insurance industry. However, the political debate that followed the submission of the report by the Malhotra Committee has presumably come to an end with the ratification of the Insurance Regulatory Authority (IRA) Bill both by the central Cabinet and the standing committee on finance. This section traces the evolution of the life insurance companies in the US from firms underwriting plain vanilla insurance contracts to those selling sophisticated investment contracts bundled with insurance products. In this context, it brings into focus the importance of portfolio management in the insurance business and the nature and impact of portfolio related regulations on the asset quality of the insurance companies. It also provides a rationale for the increased autornatisation of insurance companies, and the increased emphasis on agent-independent marketing strategies for their products. If politicized, regulations have potential to adversely affect the pricing of risks, especially in the non-life industry, hence the viability of the insurance companies. Finally, the backdrop of US experience provides some pointers for Indian policy makers.

Trends inin InsuranceInsurance SectorSectorTrends

WORKING OFOF INSURANCEWORKINGINSURANCE

Trends in Insurance Sector

INSURANCE TRENDS IN INDIA

Insurance was strictly dominated by Agents and Development officers till 2000. But IRDA has opened up new distribution channels such as Corporate Agent, Insurance Broker, Bancassurance, Mallasurance, Online Sale of Insurance, Direct Sale, etc. These new channels are growth engines of the insurance industry. One interesting aspect of this growth is that Insurance Sector is heading towards SERVICING from merely Selling. The mantra of Sell it and Forget it is now converting as Service & Retain Client. This requires Core insurance knowledge and not merely Selling Expertise.

* The commission rates of insurance agents are slowly getting downward trend. The servicing of client is now taken care by customer servicing department. The Technology has now key role in policyholders servicing and provides better knowledge and expertise than agents. Companies are now offering new gate ways for renewal commissions like through internet banking, ATMs, ECS, Mobile banking, etc. It has reduced the dependency of policyholders on agents for timely renewal of existing policies.

* Government is slowly removing the Income Tax rebates from insurance policies. It has already signaled the same and introduced few provisions in current budget by restricting the percentage of amount of premium with the sum assured of any policy.

* Product Development and new innovative policies has changed the olden rules of the selling game. Merely begging for insurance or forcing a policy will not exist anymore. The 35

% commissioned policy selling dominance will be eroded. .

Trends in Insurance Sector

* Insurance is Risk Cover or Investment is a matter of debate but common policyholder is now diverting to PURE Insurance products such as Term Insurance. The ULIP Story between IRDA and SEBI has focused on a need of domain insurance talent.

Trends in Insurance Sector

Background:

Insurance is an Rs 450 billion industry in India. The value of the market is determined by gross premium incomes. The life insurance segment writes about 80% of the overall market value. Indian Insurance market was at its all time high in 2003 with a growth of about 17.4% over the pervious year. Since 2001 Insurance is growing at the rate of 15-20 % annually. The growth in the insurance industry is affected by volatility in real estate rates, GDP rates and long term interest rates. Fluctuations in exchange rates also affect the growth in this sector. The gross premium as a percentage of the GDP has gone up from 2.3 in the year 2000 to 4.8 in 2006. Together with banking services, it adds about 7% to the countrys GDP.

Trends in Insurance Sector

History of Indian Insurance:

A] Ancient Historical Times:

Insurance is as old as human society itself. The ancient origin of insurance is Emerigon, whose brilliant and learned Traite des Assurances, first published in 1783, is still read with respect and admiration. The result shows that insurances were known to the ancients such as Romans, Phoenicians Rhodians, although the business of underwriting commercial risks was probably not highly developed. The histories of Livy and Suetonius shows that the contractors who undertook to transport provisions and military stores to the troops in Spain stipulated that the government should assume all risk of loss by reason of perils of the sea or capture and this was probably the first time when insurance process was known. There were friendly societies organized, for the purpose of extending aid to their unfortunate members from a fund made up of contributions from all. These societies undoubtedly existed in China and India in the earliest times. The earliest traces of Insurance in the ancient Indian history was in the form of marine trade loans or carriers contracts, which can be found in Kautilyas Arthashastra, Yajnyavalkyas Dharmashastra and Manus Smriti. These works show that the system of credit and the law of interest were well developed in India. They were based on clear appreciation of hazard involved and the means of safeguarding against it.

B] British-India Period:

Insurance in India without any regulations started in the nineteenth century. It was a typical story of a colonial era where a few British insurance companies dominated the market serving mostly large urban centers. Company started by Europeans in Calcutta was the first life insurance company on Indian Soil. Bombay Mutual Life Assurance Society indicated the birth of first

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Trends in Insurance Sector

Indian life insurance company in the year 1870, and covered Indian lives at normal rates. 1930s was the last of the old-style crises in the Indian economy because it marked the beginning of the end of the colonial state and an acceleration of the pace of industrialization as entrepreneurs moved their capital out of the countryside. Independent India reduced its vulnerability to external economic shocks by close control of foreign exchange and by promoting a massive change in the export schedule. Till the end of nineteenth century insurance business was almost entirely in the hands of overseas companies.

C] Post Independence era of Indian Insurance:

The insurance business grew at a faster pace after independence. Indian companies strengthened their hold on this business but despite the growth that was witnessed, insurance remained an urban phenomenon. During Mrs. Gandhis tenure (from 1966-1968), there was a split within the business community of protectionists and those who wanted more open trade. But what maintained the momentum was the commitment of Two Ministers, Ashok Mehta and Subramaniam towards liberalization of the economy. This was seconded with high hope of getting increased foreign aid. Deregulation actually helped the poorest in India as it would eventually create more employment and faster growth. Yet the intense fears of liberalization in the lower middle class and among working class employees of the state sector, pose serious risks in freeing the economy. It might be preferable to introduce liberalization during an economic

upswing when the risk of switching jobs is less traumatic. The three liberalization episodes in Indian economic policy have followed clear cyclical patterns. Economic policy has swung broadly between controls and greater openness, with a tendency toward decontrolling larger and more important segments of the economy.

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Trends in Insurance Sector

D] Nationalization Phase of Indian Insurance:

1944:The Nationalization of insurance industry gathered momentum in 1944 when a bill to amend the Life Insurance Act 1938 was introduced in the Legislative Assembly.

1956: 154 Indian insurance companies, 16 non-Indian companies and 75 provident societies were taken over by the central government and nationalised. LIC formed by an Act of Parliament, viz. LIC Act, 1956, with a capital contribution of Rs. 5 Crore from the Government of India.

1972:The General Insurance Business (Nationalisation) Act, which nationalised the general insurance business in India with effect from 1st January 1973. 107 insurers amalgamated and grouped into four companies viz. the National Insurance Company Ltd., the New India Assurance Company Ltd., the Oriental Insurance Company Ltd. and the United India Insurance Company Ltd. 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 was taken by means of a comprehensive bill. However, it was only in 1956, LIC was nationalised, with the objective of 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.And as of 2007, LIC is Indias leading Insurance company, with 2000 branches, which probably is the highest number of branches across India insurance sector.

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Trends in Insurance Sector

E] Liberalization of Indian Insurance:

1994:Insurance sector invited private participation to induce a spirit of competition amongst the various insurers and to provide a choice to the consumers.

1997:Insurance regulator IRDA was set up as there felt the need:

a) To set up an independent regulatory body, that provides greater autonomy to insurance companies in order to improve their performance,

b) To enable them to act as independent companies with economic motives.

c) To protect the interest of holders of insurance policies.

d) To Amend the Insurance Act, 1938, the Life Insurance Corporation Act, 1956 and the General insurance Business (Nationalizations) Act, 1972

e) To end the monopoly of the Life Insurance Corporation of India and General Insurance Corporation and its subsidiaries.

In the first year of insurance market liberalization (2001) as much as 16 private sector companies including joint ventures with leading foreign insurance companies have entered the Indian insurance sector. Of this, 10 were under the life insurance category and six under general insurance. Thus in all there are 25 players (12-life insurance and 13-general insurance) in the

Indian insurance industry till date.

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Trends in Insurance Sector

Indian Insurance in 21st Century

2000:IRDA starts giving licenses to private insurers: ICICI prudential and HDFC Standard Life insurance first private insurers to sell a policy

2001:Royal Sundaram Alliance first non life insurer to sell a policy

2002:Banks allowed selling insurance plans. As TPAs enter the scene, insurers start setting nonlife claims in the cashless mode

2007:First Online Insurance portal, www.insurancemall.in set up by an Indian Insurance Broker, Bonsai Insurance Broking Pvt Ltd.

The Government of India liberalized the insurance sector in March 2000 with the passage of the Insurance Regulatory and Development Authority (IRDA) Bill, lifting all entry restrictions for private players and allowing foreign players to enter the market with some limits on direct foreign ownership. Minimum capital requirement for direct life and Non-life Insurance company is INR1000 million and that for reinsurance company is INR 2000 million. In the 200405 budgets, the Government proposed for increasing the foreign equity stake to 49%, this is yet to be effected. Under the current guidelines, there is a 26 percent equity cap for foreign partners in direct insurance and reinsurance Company. (World Bank Economic Review-2000).

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CLASSIFICATION OF INSURANCE

MOTOR LIFE INSURANCEINSURANCE

INSURANCE INDUSTRY IN INDIAFIRE GENERAL INSURANCE INSURANCE MARINE INSURANCE

HEALTH INSURANCE

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SOME GENERAL INFORMATION ABOUT LIFE INSURANCE IN INDIA:

The Life Insurance market in India is an underdeveloped market that was only tapped by the state owned LIC till the entry of private insurers. The penetration of life insurance products was 19 percent of the total 400 million of the insurable population. The state owned LIC sold insurance as a tax instrument, not as a product giving protection. Most customers were underinsured with no flexibility or transparency in the products. With the entry of the private insurers the rules of the game have changed. Innovative products, smart marketing and aggressive distribution. Thats the triple whammy combination that has enabled fledgling private insurance companies to sign up Indian customers faster than anyone ever expected. Indians, who have always seen life insurance as a tax saving device, are now suddenly turning to the private sector and snapping up the new innovative products on offer.

The growing popularity of the private insurers shows in other ways. They are coining money in new niches that they have introduced. The state owned companies still dominate segments like endowments and money back policies. But in the annuity or pension products business, the private insurers have already wrested over 33 percent of the market. And in the popular unit-linked insurance schemes they have a virtual monopoly, with over 90 percent of the

customers.

The private insurers also seem to be scoring big in other ways- they are persuading people to take out bigger policies. For instance, the average size of a life insurance policy before privatisation was around Rs 50,000. That has risen to about Rs 80,000. But the private insurers

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are ahead in this game and the average size of their policies is around Rs 1.1 lakh to Rs 1.2 lakhway bigger than the industry average.

Buoyed by their quicker than expected success, nearly all private insurers are fastforwarding the second phase of their expansion plans. No doubt the aggressive stance of private insurers is already paying rich dividends. But a rejuvenated LIC is also trying to fight back to woo new customers.

Market Share of Private Sector life Insurance Companies:

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Trends in Insurance Sector

SOME INFORMATION ABOUT GENERAL INFORMATION IN INDIA

General Insurance provides much-needed protection against unforeseen events such as accidents, illness, fire, burglary et al. Unlike Life Insurance, General Insurance is not meant to offer returns but is a protection against contingencies. Almost everything that has a financial value in life and has a probability of getting lost, stolen or damaged, can be covered through General Insurance policy. Property (both movable and immovable), vehicle, cash, household goods, health, dishonesty and also one's liability towards others can be covered under general insurance policy. Under certain Acts of Parliament, some types of insurance like Motor Insurance and Public Liability Insurance have been made compulsory.

Major insurance policies that are covered under General Insurance are:

Motor Insurance

Marine Insurance

Fire Insurance

Health Insurance

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PRIVATE V/S PUBLIC INSURANCE SECTOR

Private players in the life insurance business are growing at a scorching pace. Within three years of their inception, they have seized about 14 per cent of the market.

Compare this to new generation private-sector banks, which took nine years for 20 per cent share in the Indian banking industry. And after seven years in the industry, in 2000, private mutual funds accounted for just 9 per cent of a market that had been dominated by the Unit Trust of India.

There's another dimension to the insurance numbers game. While the private insurance companies have attained 13 to 14 per cent share of the overall insurance market, their share in the key metros (Mumbai and Delhi) is as high as 30 to 40 per cent. Private insurance companies are essentially joint ventures with global insurance companies holding a maximum of 26 per cent stake. The foreign partners are investing heavily in the Indian market and, thereby, driving sales, because they see India emerging as one of the biggest markets in the Asian region.

"India will become the biggest marketfor us in the next three to four years,"predicts Dan Bardin, Prudential Corporation Asia managing director south Asia and greater China.

Private players have certainly done their bit to increase the penetration levels of insurance, mainly by creating alternative distribution channels--such as associations with banks, brokers

and corporate agents. OM Kotak Mahindra Life, which is ranked eighth among private players, is also leaning towards alternative distribution channels that will contribute to 45 per cent of total sales, in line with the contribution from its tied agency force.

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Trends in Insurance Sector

In sharp contrast, most of the LIC's policies continue to be sold through its tied-agency network. The state life corporation acknowledges that it is unable to maintain its lead in some metros: penetration by the private-sector insurers has come of age and they are giving the LIC a run for its money. The multi-channel approach adopted by private insurance companies has proved to be a boon in terms of costing and their ability to capture business. Earlier, most private insurance companies focused their energies on the top 20 cities. Today they are moving to smaller cities.

"The potential in smaller cities is increasing and companies are moving to smaller cities and towns because these are increasingly becoming more prosperous with a rise in agricultural income. With the increase in buying power, this has fuelled growth opportunities for us," says Max New York Life CEO Anuroop Tony Singh.

AMP Sanmar, another private player, has tied up with various chit funds and transport finance companies in the country, where it is selling life policies on the back of fixed deposits and bonds. A senior company official cites the example of Vijaywada where a significant portion of the income is derived from farming activities.

"The rural populace is managing their money well and no longer keeping it under their beds. They have mobile phones and have opened bank accounts. They are not very different from their urban counterparts when it comes to purchasing life insurance covers," he points out. And that's making the private sector optimistic about its future in the Indian insurance market. "We [private

insurers] are becoming an alternative to LIC. If a customer has already bought an LIC plan, his second policy is likely to be bought by the private insurance sector on account of various reasons--more specifically flexibility and transparency," says OM Kotak Mahindra Life CEO Shivaji Dam.

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Trends in Insurance Sector

Of course, the private insurance sector has also been steadily increasing its ad spend, from Rs 29 crore (Rs 290 million) in fiscal 2001 when the industry opened up, to Rs 92 crore (Rs 920 million) the following year. In fiscal 2003, private insurers spent Rs 143 crore (Rs 1.43 billion) on advertising. But it's not the increased spend on advertising alone that has helped private players in grabbing market share. One of the key differential factors responsible for their growing market is the 150,000-odd life insurance advisors of the private insurance companies.

"The private insurance agents sell better than their counterparts at the LIC. Life insurance advisors of private sector insurance companies adopt the need-based selling approach, unlike the LIC's agency force that pushes the number of policies," says Dam.

This also gets reflected in the average sum assured by private insurance companies being higher than that of the LIC. Policies sold by the private players tend to be of a higher value.

For instance, Birla Sun Life's average premiumstands at Rs 24,500,while that of OM Kotak Mahindra Life is equally high at Rs 20,400.Against this is the LIC's average premium of Rs 3,200.

Of course, there's also a difference in the target client of the private and the state-run insurance companies. While the private players are targeting the upper middle-class and high networth individuals, the LIC aims for the masses through its 2,048 branches spread across semi-rural and rural towns.Meanwhile, private insurance companies are capitalizing on global

relationships. "Business deals are often a call away since we capitalize on AIG's global relationship with multinational companies such as GE and Kodak," says Tata AIG Life Ian Watts.

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INDIAS LIFE INSURANCE INDUSTRY THE CHANGING TRENDS

In oct.2000, IRDA (Insurance Regulatory and Development Authority) issued license paper to three companies, which are HDFC Life Standard, Sundaram Royal Alliance Insurance Company and Reliance General Insurance. At the same time Principal approval was given to Max New York Life, ICICI Prudential Life Insurance Company and IFFCO Tokio General Insurance Company. Today total 22 life insurance companies including one public sector are successfully operating in India. Total life insurance market premiums in India is likely to more than double from the current US$ 40 billion to US$ 80-US$100 billion by 2012.

Changing Competitive Environment: With the opening of insurance sector in India, the share of private insurer was very less. total share of private insurer was just 2% in 2001-02. It was because of any reason which includes credibility on private players.

Change in Trend in LIC: Along with the other objectives of insurance like financial security, tax benefits etc. one of the major objectives is saving and investment. Traditional life insurance policies like endowment

were becoming unattractive and not meeting the aspirations of the policyholders as the policyholder found that the sum assured guaranteed on maturity had really depreciated in real value because of the depreciation in the value of money. The investor was no longer content with the so called security of capital provided under a policy of life insurance and started showing a

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preference for higher rate of return on his investments as also for capital appreciation. It was, therefore found necessary for the insurance companies to think of a method whereby the expectation of the policyholders could be satisfied. The objective of providing a hedge against the inflation through a contract of insurance pushed insurer to link the insurance policy with market and thus the industry observed the beginning of Unit linked insurance policy (ULIP).

Unit Linked Insurance Policy Unit Linked Insurance Policies (ULIPs) offer a combination of investment and protection and allow you the flexibility and choice on how your premiums are invested. IN UNIT LINKED PLANS, THE INVESTMENT RISK PORTFOLIO ISBORNE BY YOU AS YOU ARE THE INVESTOR Typically, the policy will provide you with a choice of funds in which you may invest. You also have the flexibility to switch between different funds during the life of the policy. The value of a ULIP is linked to the prevailing value of units you have invested in the fund, which in turn depends on the funds performance. In the event of death or permanent disability, the policy will provide the Sum Assured (to the extent you are covered) so that you can take comfort in knowing that your family is protected from sudden financial loss. A ULIP has varying degrees of risk and rewards. There are various charges applicable for Unit Linked

Policies and the balance amount out of the premium is only invested in the fund/funds chosen by you. It is important to ask your insurer or agent or broker questions to understand the sum total of charges that you have to incur. It is important to assess your risk appetite and investment horizon before deciding to buy a ULIP policy. You must also read the terms and conditions of the policy carefully to understand the features of the policy including the lock-in period, surrender value, surrender charges etc.

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UNIT LINKED VS NON LINKED INSURANCE PLANS:

FeaturesULIPsTraditional Policies Insurer allows policy holder to direct Insurer takes decision and usually part of their premiums into different invests into low risk return option. Descriptiontype of funds like equity, dept, insurer also offers guaranteed money market, hybrid etc. and risk maturity proceeds along with of investment is borne by policy declared bonuses holder Flexibility ofPolicy allowed choosing their Policy holders are not allowed investmentinvestment avenues as per their risk to choose their investment avenues profile. Policy holder can track their Individual cannot track their Transparencyportfolio. They are also informed portfolio. about the value and number of fund units they hold At the time of maturity, policy At the time of maturity policy Maturity benefitholder redeems the unit collected at holder get the sum assured plus payoutsthe then prevailing unit prices. Some bonuses(if applicable) plan also offers royalty or additional units annually or at the time of maturity. Subjected to some condition, policy Policy holders are not allowed to Partial withdrawalholders are allowed to withdraw withdraw part of their funds. from their fund.Instead, some policy provides facility of loan against the investment. Switching optionsAvailable (with some charges)Not available

The flexibility, transparency, liquidity and fund options available with ULIPs made it the

preferred choice of customers and gradually it changed the trend of insurance policy.

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TRENDS IN KINDS OF LIFE INSURANCE POLICIES:

Term Insurance:

You can choose to have protection for a set period of time with Term Insurance. In the event of death or Total and Permanent Disability if the benefit is offered), your dependants will be paid a benefit. In Term Insurance, no benefit is normally payable if the life assured survives the term.

Whole Life Insurance:

With whole life insurance, you are guaranteed lifelong protection. Whole life insurance pays out a death benefit so you can be assured that your family is protected against financial loss that can happen after your death. It is also an ideal way of creating an estate for your heirs as an inheritance.

Endowment Policy

An Endowment Policy is a savings linked insurance policy with a specific maturity date. Should an unfortunate event by way of death or disability occur to you during the period, the Sum Assured will be paid to your beneficiaries. On your surviving the term, the maturity proceeds on the policy become payable.

Money back plans or cash back plans:

Under this plan, certain percent of the sum assured is returned to the insured person periodically

as survival benefit. On the expiry of the term, the balance amount is paid as maturity value. The life risk may be covered for the full sum assured during the term of the policy irrespective of the survival benefits paid.

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Trends in Insurance Sector

Children Policies:

These types of policies are taken on the life of the parent/children for the benefit of the child. By such policy the parent can plan to get funds when the child attains various stages in life. Some insurers offer waiver of premiums in case of unfortunate death of the parent/proposer during the term of the policy

Annuity (Pension) Plans:

When an employee retires he no longer gets his salary while his need for a regular income continues. Retirement benefits like Provident Fund and gratuity are paid in lump sum which are often spent too quickly or not invested prudently with the result that the employee finds himself without regular income in his post - retirement days. Pension is therefore an ideal method of retirement provision because the benefit is in the form of regular income. It is wise to provide for old age, when we have regular income during our earning period to take care of rainy days. Financial independence during old age is a must for everybody.

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INDIAS GENERAL INSURANCE INDUSTRY THE CHANGING TRENDS

At present, the general insurance market has 20+ players already and some more large international ones are expected to enter shortly. Companies today are coming up with new ideas to stand out and they are offering the existing and prospective customers, new technology platforms that would streamline the business and would also be beneficial to them.

The industry is going through a challenging phase now because of the general economic slowdown and this phase is expected to continue for some time. According to industry experts, the market will grow by 18% a year and is expected to reach Rs. 900 billion by 2015.

Despite there being over 30 players (in both general and life), the market is still under penetrated. In the general insurance sector, the penetration level is just about 0.65%. In India, the urban market is the major contributor for general insurance. Though the rural market does not have any significant contribution to this sector, it is growing rapidly over the past few years and is slowly becoming a huge potential market for general insurance in India. To capture the rural market, companies are adopting strategies to increase awareness levels among the people. This, they are achieving through increasing the distribution levels and access points. Business generation through multiple distribution channels is the main agenda for these companies. Some of them are

even adopting the cutting-edge technologies like e-marketing and institutional marketing for deeper penetration in the rural market

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Trends in Insurance Sector

The recent development in the general insurance sector is the activities by the insurance regulator. The IRDA has been very stringent and has been keeping a close-watch on the functioning of all the insurance companies. The latest regulation from IRDA is on health insurance portability. In the future, general insurance industry will be very much in the limelight than any other industry facing recession now.

Online selling of insurance policies to discerning customers, who access the Internet, will gain momentum. Typically motor, travel and health policies will be sold more online. Many insurers have already realized this and are creating separate verticals to exploit this segment. The interplay of technology & telecom solutions will be a major factor determining the growth of the industry in the future.

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Trends in Insurance Sector

TRENDS IN HEALTH INSURANCE: The term Health Insurance relates to a type of insurance that essentially covers your medical expenses. A health insurance policy like other policies is a contract between an insurer and an individual / group in which the insurer agrees to provide specified health insurance cover at a particular premium subject to terms and conditions specified in the policy.

A Health Insurance Policy would normally cover expenses reasonably and necessarily incurred under the following heads in respect of each insured person subject to overall ceiling of sum insured (for all claims during one policy period).

Trends In Types Of Health Insurance Policy

Cashless Facility

Insurance companies have tie-up arrangements with a network of hospitals in the country. If policyholder takes treatment in any of the net work hospitals, there is no need for the insured person to pay hospital bills. The Insurance Company, through its Third Party Administrator (TPA) will arrange direct payment to the Hospital. Expenses beyond sub limits prescribed by the policy or items not covered under the policy have to be settled by the insured direct to the Hospital. The insured can take treatment in a non-listed hospital in which case he has to pay the

bills first and then seek reimbursement from Insurance Co. There will be no cashless facility applicable here.

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Trends in Insurance Sector

Hospitalization Policy:

A Hospitalization policy covers, fully or partly, the actual cost of the treatment for hospital admissions during the policy period. This is a wider form of coverage applicable for various hospitalization expenses, including expenses before and after hospitalization for some specified period. Such policies may be available on individual sum insured basis, or on a family floater basis where the sum insured is shared across the family members.

Hospital Daily Cash benefit policy:

The Hospital Daily Cash Benefit policy provides a fixed daily sum insured for each day of hospitalization. There may also be coverage for a higher daily benefit in case of ICU admissions or for specified illnesses or injuries.

Critical Illness benefits policy: A Critical Illness benefit policy provides a fixed lump sum amount to the insured in case of diagnosis of a specified illness or on undergoing a specified procedure. This amount is helpful in mitigating various direct and indirect financial consequences of a critical illness. Usually, once this lump sum is paid, the plan ceases to remain in force.

Surgical Cash Benefit Policy:

This Product Offers offer lump sum payment on undergoing a specified surgery (Surgical Cash Benefit), and others catering to the needs of specified target audience like senior citizens.

Tax Benefit from Health Insurance

Health insurance comes with attractive tax benefits as an added incentive. There is an exclusive section of the Income Tax Act which provides tax benefits for health insurance, which is Section 30

Trends in Insurance Sector

80D, and which is unlike the section 80C applicable to Life Insurance wherein other form of investments/ expenditure also qualify for the deduction. Currently, purchasers of health insurance who have purchased the policy by any payment mode other than cash can avail of an annual deduction of Rs. 15,000 from their taxable income for payment of Health Insurance premium for self, spouse and dependent children. For senior citizens, this deduction is higher, and is Rs. 20,000. Further, since the financial year 2008-09, an additional Rs 15,000 is available as deduction for health insurance premium paid on behalf of parents, which again is Rs 20,000 if the parents are senior citizens.

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Trends in Insurance Sector

TRENDS IN MOTOR INSURANCE

The practice of motor insurance is influenced, to a large extent, by the Motor Vehicle Act, 1939. This Act makes provision for various matters relating to the use, maintenance and operation of motor vehicles, registration of motor vehicles, construction equipment and maintenance of motor vehicles, control of traffic, etc. Chapter VII -A and Chapter VIII of the Act provide for insurance of motor vehicles against third party risks.

Another Act which has influenced most is the IRDA Act, 1999. IRDA who is the regulatory body of insurance has made certain changes in the field of Motor Insurance. The Regulator has withdrawn the Tariff with effect from 1st January, 2007. However the wordings of 'Liability Only Policy' will continue and the rates for 'Liability Only' are regulated by the IRDA. With regard to "Own Damage" cover the existing policy wordings are to be continued but insurers are given freedom of pricing and permitted to provide additional covers after obtaining the Regulators clearance to the changes. The erstwhile tariff wordings will remain as standard cover.

The two policy forms i.e. Liability only and Package policycontinue to be used. The authority has prescribed proposal forms for third party 'Liability only Policy for private car, two wheelers and commercial vehicles. Motor TP Pool:

Another significant change taken place in the field of motor insurance is the creation of Motor TP Pool. This TP pool is administered by the GIC and all non-life insurance companies who are transacting the Motor insurance business have to compulsorily join the TP Pool.

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Trends in Insurance Sector

This pool is an arrangement to share the Third Party losses of Commercial vehicles (only) in proportion of the Gross premium of the insurers. Insurers have to transfer their entire TP premium of commercial Vehicles to TP Pool. This experiment has not been proved successful and most of the private insurers have sought withdrawal from the pool. General insurers have introduced new "Add-ons" to their motor policies to provide extra benefits at extra cost. Policy wordings as per the erstwhile tariff are to be continued, however additional covers as add-ons to the main policy are permitted to be devised by the insurers and filed with IRDA before introduction into the market-this is known as the File & Use system. It is also required for any deviations from the erstwhile tariff rates for the standard products. Based on this leeway to insurers the following extra cover or Add-ons are now being offered by insurers: 1. Depreciation reimbursement 2. Return to Invoice 3. No Claim Bonus protection 4. Repair of Glass, rubber, fiber & Plastic parts 5. Emergency transport and Hotel expenses 6. Loss of personal belongings 7. Key Replacement 8. Daily allowance 9. Engine Protector 10. Spot Assistance, etc.

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Trends in Insurance Sector

TRENDS IN FIRE INSURANCE

A fire insurance policy involves an insurance company agreeing to pay a certain amount equivalent to the estimated loss caused by fire to the insured, within the time specified in the contract. The indemnity is subject to change depending upon the policy. One should confirm with the insurer about the types of risks covered, since one cannot insure the property against all types of risks of fire.

Trends in Policy of Fire Insurance:

Specific Policy: The insurer is liable to pay a set amount lesser than the propertys real value. In this policy, the propertys actual value is not considered to determine the indemnity. The average clause, which requires the insured to bear the loss to some extent, does not play a role in this policy. In case the insurer inserts the clause, the policy will be known as an average policy.

Comprehensive policy:

This all-in-one policy indemnifies for loss arising out of fire, burglary, theft and third party risks. The policyholder may also get paid for the loss of profits incurred due to fire till the time the business remains shut.

Valued policy:

This policy is a departure from the standard contract of indemnity. The amount of indemnity is fixed and the actual loss is not taken into consideration.

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Trends in Insurance Sector

Floating policy: This policy is subject to the average clause. The extent of coverage expands to different properties belonging to the policyholder under the same contract and one premium. The policy may also provide protection to goods kept at two different stores.

Replacement or Re-instatement policy:

This policy is subject to the re-instatement clause, which requires the insurance company to pay for replacing the damaged property. So, instead of giving out cash, the insurer can re-instate the property as an alternative option

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TRENDS IN MARINE INSURANCE

Marine insurancecovers the loss or damage of ships, cargo, terminals, and any transport or cargo by which property is transferred, acquired, or held between the points of origin and final destination. Types of Marine Insurance Cargo Insurance: Cargo insurance caters specifically to the cargo of the ship and also pertains to the belongings of a ships voyagers. Hull Insurance:Hull insurance mainly caters to the torso and hull of the vessel along with all the articles and pieces of furniture in the ship. This type of marine insurance is mainly taken out by the owner of the ship in order to avoid any loss to the ship in case of any mishaps occurring. Liability Insurance:Liability insurance is that type of marine insurance where compensation is sought to be provided to any liability occurring on account of a ship crashing or colliding and on account of any other induced attacks. Freight Insurance:Freight insurance offers and provides protection to merchant vessels corporations which stand a chance of losing money in the form of freight in case the cargo is lost due to the ship meeting with an accident. In addition to these types of marine insurance, there are also various types of marine insurance policies which are offered to the clients by insurance companies so as to provide the clients with flexibility while choosing a marine insurance policy. The availability of a wide array of marine

insurance policies gives a client a wide arena to choose from, thus enabling him to get the best deal for his ship and cargo.

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Trends in Insurance Sector

The different types of marine insurance policies are: Voyage Policy:A voyage policy is that kind of marine insurance policy which is valid for a particular voyage. Time Policy: A marine insurance policy which is valid for a specified time period generally valid for a year is classified as a time policy. Mixed Policy: A marine insurance policy which offers a client the benefit of both time and voyage policy is recognized as a mixed policy. Open (or) Un-valued Policy: In this type of marine insurance policy, the value of the cargo and consignment is not put down in the policy beforehand. Therefore reimbursement is done only after the loss to the cargo and consignment is inspected and valued. Valued Policy:A valued marine insurance policy is the opposite of an open marine insurance policy. In this type of policy, the value of the cargo and consignment is ascertained and is mentioned in the policy document beforehand thus making clear about the value of the reimbursements in case of any loss to the cargo and consignment. Port Risk Policy:This kind of marine insurance policy is taken out in order to ensure the safety of the ship while it is stationed in a port. Wager Policy:A wager policy is one where there are no fixed terms of reimbursements mentioned. If the insurance company finds the damages worth the claim then the reimbursements are provided, else there is no compensation offered. Floating Policy:A marine insurance policy where only the amount of claim is specified and all other details are omitted till the time the ship embarks on its journey, is known as floating policy. For clients who undertake frequent trips of cargo transportation through waters, this

is the most ideal and feasible marine insurance policy.

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MICRO INSURANCE

Micro Insuranceis the protection of low-income people against specific perils in exchange for regular premium payment proportionate to the likelihood and cost of the risks involved. This definition is exactly the same as one might use for regular insurance except for the clearly prescribed target market: low-income people. The target population typically consists of persons ignored by mainstream commercial and social insurance schemes, as well as persons who have not previously had access to appropriate insurance products.

Definition

Micro Insurance is a financial arrangement to protect low-income people against specific perils in exchange for regular premium payments proportionate to the likelihood and cost of the risk involved. The author of this definition adds that micro-insurance does not refer to: (i) the size of the risk-carrier (some are small and even informal, others very large companies); (ii) the scope of the risk (the risks themselves are by no means micro to the households that experience them); (iii) the delivery channel: it can be delivered through a variety of different channels, including small community-based schemes, credit unions or other types of microfinance institutions, but also by enormous multinational insurance companies, etc.

Micro Insurance Products

Micro insurance, like regular insurance, may be offered for a wide variety of risks. These include both health risks (illness, injury, or death) and property risks (damage or loss). A wide variety of micro insurance products exist to address these risks, including crop insurance, livestock/cattle insurance, insurance for theft or fire, health insurance, term life insurance, death insurance, disability insurance, insurance for natural disasters, etc. 38

Trends in Insurance Sector

Micro Insurance Scheme A micro insurance scheme is a scheme that uses, among others, an insurance mechanism whose beneficiaries are (at least in part) people excluded from formal social protection schemes, particularly, informal economy workers and their families. The scheme differs from others created to provide legal social protection to formal economy workers. Membership is not compulsory (but can be automatic), and members pay, at least in part, the necessary contributions in order to cover benefits.

The expression "micro insurance scheme" designates either the institution that provides insurance (e.g., a health mutual benefit association) or the set of institutions (in the case of linkages) that provide insurance or the insurance service itself provided by an institution that also handles other activities (e.g., a micro-finance institution).

The use of the mechanism of insurance implies:

Prepayment and resource-pooling: the regular prepayment of contributions (before the insured risks occur) that are pooled together.

Risk-sharing: the pooled contributions are used to pay a financial compensation to those who are affected by predetermined risks, and those who are not exposed to these risks do not get their contributions back.

Guarantee of coverage: a financial compensation for a number of risks, in line with a pre-

defined benefits package.

Micro insurance schemes may cover various risks (health, life, etc.); the most frequent micro insurance products are:

Life micro insurance (and retirement savings plans)

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Health micro insurance (hospitalization, primary health care, maternity, etc.)

Disability micro insurance Property micro insurance assets, livestock, housing

Crop micro insurance

Micro Insurance and development

Micro Insurance is recognized as a useful tool in economic development. As many low-income people do not have access to adequate risk-management tools, they are vulnerable to fall back into poverty in times of hardship, for example when the breadwinner of the family dies, or when high hospital bills force families to take out loans with high interest rates. Furthermore, micro insurance makes it possible for people to take more risks. When farmers are insured against a bad harvest (resulting from drought), they are a in a better position to grow crops which give high yields in good years, and bad yields in year of drought. Without the insurance however, they will be inclined to do the opposite; since they have to safeguard a minimal level of income for themselves and their families, crops will be grown which are more drought resistant, but which have a much lower yield in good weather conditions

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INNOVATION IN INSURANCE PRODUCTS

All of us know about Insurance. It is a contract in which an individual or entity receives financial compensation against losses from an insurance company. The insurance company collects all payments towards insurance so that claims can be reimbursed, and at the same time since the company has so many clients, the payments for insurance is affordable for individual entities. Most of us would have bought some form of life insurance. The organization one works for many times provides medical insurance. People owning four wheelers would have purchased car insurance. Apart from these, there are some innovative products in the insurance arena which one should look at and buy if it is suitable. We have listed some here

Disability Insurance

If you are the key breadwinner for your family, it is important that you are insured against disability. Disability might make you unable to work and in this case, your familys living expenses would be difficult to take care of. You can take a policy for disability insurance to cover yourself and your family against such unfortunate risks.

Card Protection

We all use plastic money, which means loss of a debit or credit card can lead to significant problems like misuse of cards. Many insurance companies offer card protection plans wherein for a small premium payment, the loss due to misuse of a credit/debit card is covered. Such plans

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Trends in Insurance Sector

protect the card owner from unauthorized charges made on the card up to a time limit prior to report of loss of card or provide assistance in terms of hotel stay/ticket purchase in case the card is lost during travel. TATA AIG and OneAssist offer protection plans for cards.

Wedding Insurance Wedding is an important milestone in every individuals life and a whole lot of effort from various people and a lot of money goes into making the event successful. Suppose due to unforeseen circumstances, the wedding is cancelled, there is a lot of monetary loss as well. Wedding insurance is a product that covers a period that starts a few days before the wedding and ends when the wedding is completed. It covers cancellation of wedding due to calamities like fire and earthquake or death/ accident of persons named in the policy. Bajaj Alliance and ICICI Lombard offer such wedding protection plans.

Student Travel Insurance

Young people from India go overseas to complete their education. Their travel can be insured for risks like loss of sponsorship, compassionate visit back home due to sickness/death of family members, personal sickness/accident reimbursement. TATA AIG provides student insurance.

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TECHNOLOGY TREND IN INSURANCE MARKET

Computerization: Initially, in the late 1950s the insurance companies used Unit Record Machines (Electro Magnetic Machines) to process data punched into cards. Computers were introduces in the mid 1960s and by the 1980s the Unit Phased Machines were phased out and the entire process was computerized. This brought about greater efficiency and quick service delivery

Internet:

Today, the internet has completely changed the service delivery process. Internet is today used to even sell insurance policies. Internet is, in fact, proving to be one of the widely used distribution networks for selling insurance policies. Also internet is used for sending premium notices to policy holders through e-mails

Companies like LIC (www.licindia.com), ICICI (www.iciciprudential.com) all have websites from which people can get the information about their products, prices, various schemes, and lots of other information. People can also purchase the product through this website

Electronic Clearance Service (ECS):

Almost all the big organizations today provide the ECS facility to its customers. A policy

holder having an account in any bank which is a member of the local clearing house can opt for ECS debit to pay premiums. The advantage here is that once the option is exercised, the policy holder need not visit a branch for paying the premium or collecting the receipts. On the day

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Trends in Insurance Sector

indicated by the policy holder, the premium amount will be directly debited to the bank account of the policyholder and the receipt will be issued by the designated branch office.

Call Centers and SMS services:

Almost all the insurance companies have their own call centers 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.

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RECENT INNOVATION IN INSURANCE INDUSTRY

Technological Changes

Historically, insurers were slow in adoption of the cutting-edge technology; be internet technologies of the past or mobile computing of the present. Only 25% to 30% of insurers adopt technology innovation early and they clearly emerge as leaders. The slower rate in adoption of technology was partly due to adequacy of old systems to manage lower transactions and mostly due to the basic conservative instincts of the insurers. Insurers, though initially started using information technology to save costs, are now moving beyond by embracing technology as an enabler. With more business from tech-savvy younger generations (Generation 'X', 'Y' and younger) in the radar insurers across the globe are gearing-up to take innovation through communication technology in their strides.

Self-service Portals

Self-service portals are built by consolidating disparate systems through web-service and enabling different set of functionalities to different types of users such as customers agents and employees (based on their profile) through single sign-on. Due to the increased appetite for quicker and quality service, coupled with the expectations on transparency from customers, sales

force and employees, insurers are striving to provide access to information on demand round the clock through self-service portals.

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Primary benefits of self-service portal are:

It increases satisfaction of stakeholder (customers, agents and employees) due to empowerment instant access to accurate information and request tracking capabilities.

Increases operational efficiency, productivity and retention of agents and employees efficiency and productivity in terms of information consolidation and Just-In-Time information and retention through empowerment.

Single sign-on that reduces security risk and multisystem hassles such as different user name and password for different systems

Increases revenue and profitability through crossselling and up-selling and retention through customer's willingness to maintain single portfolio.

Enables green offices through paperless processing

Unified Communication and Collaboration

Insurers need to extend the above concept of self-service portals and move to web unified communication and collaboration by providing more dynamic and interactive online contents to the customers, producers and employees. Also, availability and cost effectiveness of tools such as VOIP (Voice-Over Internet Protocol), instant messaging, and remote desktop connect

tools and VPN (Virtual Private Network) have increased ease in implementing unified communication.

E-mail facilities that are exclusive for the customers / producers / employees and are used to propagate reply / response-enabled general and customized messages.

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Online instant messaging supported by live sales / service representatives for online query resolution.

Wikis, Blogs and Forums promoted by the companies to bring together the users with similar profiles or who share similar interest that can be used for purposes that include knowledge sharing, training and creating awareness about products and services.

Virtual worlds like Second Life can also be used by the insurers to create cost effective virtual organizations and leverage on the market places.

Linking remote sales offices, global administrative canters and wide-spread tech-savvy customers are made possible through web collaboration.

Virtual offices lead to green organizations by reducing commutation related carbon footprints and eventually decreasing commutation expenses.

Serves as networking tool for people with similar interest and organizational affiliation which promotes knowledge sharing and organizing consumer groups.

By creating a habit of regularly visiting the websites, capturing the interests of the users and communicating based on user interest, sales can be increased through loyalty.

The participants will get more benefits including real-time service and query resolution due to the interactive nature of the concept.

Mobile Computing

Globalization has increased the number of trans-national organizations that incidentally operate through considerable number of globe trotters. Due to the very nature of mobility, time zone logistics and tight work schedule of the workforce and customers, mobile computing is one of the most sought over technology nowa- days in many domains of business. In the insurance 47

Trends in Insurance Sector

industry, the ever-mobile sales force is the flowing blood that sustains the life of the company through new business. Also, the current generation customers, who are always on the move, want access to the service points while mobile. Also, from a philanthropic perspective, insurers want to reach-out to the disaster areas, where they do not have office, for settling claims so that it showcases the insurers' social responsibility. These necessities will drive the insurance industry towards implementing mobile computing solutions that can provide self-service portal capabilities, unified communication and collaboration tools accessible through mobile devices. High-speed wireless internet access, recent improvements in devices such as tablet PCs and PDAs, and an industry-wide shift in focus toward customer satisfaction have all but forced insurers to develop mobile claims capabilities. In response, insurers large and small have started equipping their claims adjusters with mobile capabilities around everything from estimating to catastrophe response to cutting checks. And yet, while mobile technology in claims has become a must-have and implemented in silos, it is still largely uncharted waters in many other areas of the insurance enterprise -- most significantly, sales. But the affordability, accessibility and necessity will accelerate the implementation of integrated mobile computing by the insurers in the following business areas: Sales:Producers can prepare quick quotes and illustrations, download, forward and print forms through their mobile devices. Producers will get alerts and updates from the insurers in their mobile devices.

Customer Service:Producers and policyholders can access forms, forward, download and prints forms through their mobile devices. They can submit requests / complaints and receive acknowledgement and status update in the mobile devices.

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Claims:Apart from retrofitting the functional components of customer service to claims, some of the insurers have already implemented the concept of mobile claims bus / van, which house the full fledged systems / resources for settling claims that include remote connectivity to the policy administration system, requirements systems, accounting systems and banking systems that enable quick processing and payment of claims on the- spot when it is much needed to claimants. Insurers can increase quality and efficiency and reduce turnaround- time in all the above areas by implementing integrated systems that can enhance the above functionality further. The enhanced functionality can offer:

Enabling seamless integration of enterprise-wide systems to achieve Straight-through processing.

Enabling producers, customers, assessors and administrators to seamlessly connect through all the available mode of communication based on preference, availability and priority. For example, ordering forms through options available in IVRS (Integrated Voice Response System) can send the forms through fax or email.

Enabling multi-media communications including MMS,using which, the spot-reports, photos etc. can be submitted by the agent / assessors / customers themselves.

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CHALLENGES NEEDED TO BE TAKEN BY THE INSURANCE SECTOR TO IMPROVE THE SERVICES

(1) Detailed Standards:

As part of new frame work, detailed standards should be issued covering the constitution and methods of calculation of reserves and provisions and the amount of credit for amounts recoverable under reinsurance arrangements to ensure that all companies follow sound policies while accounting and actuarys practices used by most companies are line with best international practice.

(2) Capital Adequacy Standards:

Capital Adequacy Standards should be brought in line with best international practice. The solvency margin based on the average net claims over a specified period should be introduced to complement the solvency margin that is based on net premiums. A positive solvency margin requirement for long term business should also be used.

(3) Risk Management:

Consolidation of the insurance industry needs to be promoted to ensure sounder competition and grater safety. This can be achieved by raising the level of minimum capital and introducing risk

based capital requirements as well as by encouraging weak firms to merge with other firms or exit the market.

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(4) Insurance Information Bureau:

An Insurance Information Bureau should be created with data on underwriting policies, loss claims and incidents of insurance fraud. The bureau should facilitate sharing of these data by all licensed companies and should contribute toward higher underwriting standards. Competition policy should ban the practice of tide sales whereby customers of large companies are forced to buy several services from the same group.

(5) Special consideration:

Consideration need to be give to creation of a compensation fund to cover the unpaid claims of failing companies and protect policy holders especially in connection with life and annuity policies. Special provisions would be required to expedite the liquidation process, require the submission of reorganization plans and facilitate the reinsurance and or transfer of policies. These means would protect the assets of the failed companies from the expenses of protected liquidation and thus maximize the amounts available for distribution to policy holders and other clients.

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IMPACT OF BUDGET 2012-13 ON INSURANCE

The major changes in Last Budget 2012-2013 that affected the Insurance Industry are:

Lowered tax exemption:

The 2012-13 Budget instituted a major change in the life insurance sector: it introduced the highest ever tax exemption limit in the country by doubling the minimum coverage requirement for a life insurance policy. To be eligible for tax exemption under section 80C and 10 (10D) of the Income Tax Act, the sum assured would now have to be 10 times the annual premium, up from five times in previous fiscals. This doubled coverage requirement would reduce returns on investment: the insurer would now divert a larger portion of the annual premium towards mortality charges to account for the increased sum assured. While this move was welcomed from many quarters, it also meant that Indian insurance seekers would cease to look at insurance plans as tax-saving instruments. This policy change did not affect pension plans, however.

Other factors:

The 2 percent rise in sales tax also pushed up costs of all forms of insurance. Along with the reduced tax exemption, this may have resulted in lower insurance sales. On the plus side, the budget introduced tax breaks of Rs. 5,000 on pre-acceptance medical examinations, thereby reducing the costs of health insurance.

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That big changes in the insurance sector are likely is suggested by the fact that the finance ministry invited suggestions from insurers regarding direct and indirect taxes in the life insurance sector. The suggestions are to be considered in the upcoming budget.

Insurance sales:

The fiscal year 2011-12 saw an 8.22 percent drop in insurance sales compared to the previous year. This was largely blamed on the new IRDA regulations governing ULIPs that came into force in September 2010. The finance ministry will be looking to reverse this drop in sales. Hence, likelihood is high that the finance ministry will introduce tax sops to spur sales. Apart from tax benefits for policy buyers, insurers would also be hoping for service tax concessions. The Indian insurance market is largely untapped. LICs managing director Thomas Matthew T. was quoted in a December 2012 news report as saying, In India, insurance penetration as a per cent of GDP is only 4.1. In advanced nations, it is 11-12 per cent. So, there is huge potential. The insurance sector will thus be hoping for budgetary changes that help them exploit this potential.

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ROLE OF INSURANCE IN INDIA'S FUTURE

Insurance would assist business to operate with less volatility and risk of failure and provide for Greater financial and societal stability from the growth pangs of an estimated growth rate over 8% in GDP.

Government has arranged for disaster management and for funds. NGOs and public institution assists with fund raising and relief assistance. Beside government provides for social security programs. There is considerable impact upon government in these respects. Insurance substantially steps in to provide these services. The effect would be to reduce the strain on the tax payers and assist in efficient allocation of societal resources. Facilitates track, business and commerce by flexible adaptation to changing risk needs particularly of the services sector. Like any other financial institution insurance companies generate saving from the insurance sector. Within the economy and make available the same in well directed areas of the economy deserving investment, a sector with potential for business as is the case with Indian insurance provides incentive to develop it all the more faster.

It enable risk to be managed more efficiently through risk pricing and risk transfer and this is an area which provides unlimited opportunities in the Indian context for consulting, broking and education in the post privatization phase with newer employment opportunities. The insurance

industry on its own accord is interested in loss minimization. Its expertise in understanding losses assists it to share the experience across the economy thus enabling better loss control and preservation of national assets.

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In its risk pricing and investment decisions the insurance industry sets the tone for investment by others in the economy. Informed assessment by the insurance companies thus, signals allocation of resources by others contributing to efficiency in allocation. In India visibility of L.I.C. and G.I.C. has been dwarfed by governments actions and other high profile institutions like I.C.I.C.I., I.D.B.I., and U.T.I. Of late A.I.G. is visible in the media and its investment announcements are being followed keenly by institutional investors in India. I.N.G. saving trust and Zurich are active in asset management and are being keenly followed by retail investors.

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Vision for 2020 Insurance in India

According to a study, by year 2020, India will be among the top three life insurance markets and top fifteen general insurance markets. The Indian insurance industry will proceed to outperform the fast economic growth to reach 350-400 billion dollar in premium income.

The study also said that the penetration of insurance in India has increased from 2.3 percent in year 2001 to 5.2 percent in year 2011. Furthermore, insurance coverage of population has vastly increased in recent years.

The number running life policies has increased nearly twelve times in over ten years and health insurance policies nearly twenty-five times.

This increase has been helped by an increase in the availability of products. Over the past decade, the insurance industry has come a long way. The report also mentioned the growth of various multiple channels

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CONCLUSION

Competition will surely cause the market to grow beyond current rates, create a bigger "pie," and offer additional consumer choices through the introduction of new products, services, and price options. Yet, at the same time, public and private sector companies will be working together to ensure healthy growth and development of the sector.

Challenges such as developing a common industry code of conduct, contributing to a common catastrophe reserve fund, and chalking out agreements between insurers to settle claims to the benefit of the consumer will require concerted effort from both sectors. The market is now in an evolving phase where one can expect a lot of actions in coming days. The current impediments for foreign participation like 26% equity cap on foreign partner, ill defined regulatory role of IRDA (Insurance Regulatory development Authority- the watchdog of the industry) in pension business etc, are expected to be removed in near future. The earlyadopters will then have a clear advantage compared to laggards in gaining the market share and market leadership. The will need to make sure right now that their entire infrastructure is in place so that they can reap the benefit of an "unlimited potential."

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WEBLIOGRAPHY / BIBLIOGRAPHY

Webliography:

www.google.com

www.wikipedia.org

www.yahoo.com

Bibliography:

The Economic Times

Times of India

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