Essay Insurance Sector

The Insurance Sector in India

The insurance sector in India has been traditionally dominated by state owned Life Insurance Corporation and General Insurance Corporation and its four subsidiaries. The government of India allows FDI in the insurance sector up to 26%. As a result, a number of new joint venture private companies have entered into life and general insurance sectors and their share in the insurance market in rising. Insurance Development and Regulatory Authority (IRDA) is the regulatory authority in the insurance sector under the Insurance Development and Regulatory Authority Act, 1999.

The post-liberalized insurance industry in India is also witnessing dramatic changes in terms of new channels of distribution, greater use of information technology as a service facilitator, innovative marketing of insurance products etc. There is also the phenomenon of noticeable shifts in consumer preferences impacting the product mix being offered by insurers. The market structure, which is a combination of a few stabilized public sector players and the 'new' players in the market, is in a state of flux.

In addition, there are rising trends of convergence of financial services, especially in the areas like wealth management and evolution of newer risk management tools, particularly in the context of reinsurance management. Greater attention is also being bestowed on the areas like Agricultural Insurance and risk coverage of export-import trade. There is also the impact of visible socio-economic changes like greater urbanization, greater job mobility, growth of the services industry, weakening of traditional family structure, impact of globalization etc. All this makes for an interesting period for the insurance sector in India.

Over the next two decades India is likely to witness high growth in the insurance sector for three reasons. Financial deregulation always speeds up the development of the insurance sector. Growth in income also helps the insurance business to grow. In addition, increased longevity and an aging population will also spur growth in health and pension segments.

FACTFILE

SIZE

• US$30 billion industry in India

• Life Insurance - US$25 billion industry with US$14 billion accounting for First Year Premium (inclusive of Single Premium) Non-Life insurance - US$4.8 billion industry; Motor and Health segments account for 54% of total business

STRUCTURE

• Indian Insurance market was opened to private & foreign investment in 1999-2000

• The Indian Insurance industry consists of a total of 31 players

• Life: 1 Public sector player; 15 private players

• Non-Life: 6 public sector players; 9 private players

• Major international players like AIG, Aviva, MetLife, New York Life, Prudential, Allianz, Sun Life, Standard Life and Lombard are already present with minority stakes in joint ventures with Indian companies for both Life and Non-life segments

• Life Insurance market is still dominated by Life Insurance Corporation

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Insurance Sector In India Essay

CHAPTER 1

INSURANCE INDUSTRY-An overview

The insurance industry provides protection against financial losses resulting from a variety of perils. By purchasing insurance policies, individuals and businesses can receive reimbursement for losses due to car accidents, theft of property, and fire and storm damage; medical expenses; and loss of income due to disability or death.

Insurance business is divided into four classes :

1) Life Insurance business

2) Fire

3) Marine

4) Miscellaneous Insurance.

Life Insurers transact life insurance business; the rest is transacted by General Insurers. No composites are permitted as per law.

The business of Insurance essentially means defraying risks attached to any activity over time (including life) and sharing the risks between various entities, both persons and organisations. Insurance companies (ICs) are important players in financial markets as they collect and invest large amounts of premium. Insurance products are multi purpose and offer the following benefits :

1. Protection to the investors

2. Accumulate savings

3. Channelise savings into sectors needing huge long term investments.

ICs receive, without much default, a steady cash stream of premium or contributions to pension plans. Various actuary studies and models enable them to predict, relatively accurately, their expected cash outflows. Liabilities of ICs being long-term or contingent in nature, liquidity is excellent and their investments are also long-term in nature. Since they offer more than the return on savings in the shape of life-cover to the investors, the rate of return guaranteed in their insurance policies is relatively low. Consequently, the need to seek high rates of returns on their investments is also low. The risk-return trade off is heavily tilted in favour of risk. As a combined result of all this, investments of insurance companies have been largely in bonds floated by GOI, PSUs, state governments, local bodies, corporate bodies and mortgages of long term nature. The last place where Insurance companies are expected to be over-active is bourses.

Lately ICs have ventured into pension schemes and mutual funds also. However, life insurance, constitutes the major share of insurance business. Life Insurance depends upon the laws of mortality and there lies the difference between life and general insurance businesses. Life has to extinguish sooner or later and the claim in respect of life is certain. In case of general insurance, however, there may never be a claim and the amount can never be ascertained in advance. Hence, Life Insurance includes, besides covering the risk of early happening of an event, an element of...

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