INDIAN INSURANCE MARKET

INDIAN INSURANCE MARKET

  • Insurance is listed in the Union list in the Seventh Schedule.
  • It is a form of hedging and risk management system against uncertain losses.
  • Insurance refers to a legal contract by which an individual/firm/entity receives protection from financial loss/any other kind of damage.

 

 

Principles of Insurance are:

 

Uberrima fides- Good faith, hide nothing.
Indemnity- Only “real and actual” loss, not imaginary.
Subrogation- Insurer can recover from negligent third party.
Causa Proxima – Direct loss link.
Insurable interest

 

HISTORY OF INSURANCE IN INDIA IN BRIEF

 

1818 Life Insurance Business came to India with the establishment of Oriental Life Insurance company in India
1912 Indian Life Assurance Company Act was the first statutory measure to regulate life business.
1956 Nationalization of Life Insurance sector and LIC came into existence
1993 Malhotra committee for insurance sector reforms.
2000 The Indian Government liberalized the insurance sector and opened it up for the private sector.

 

R N MALHOTRA COMMITTEE (1993):
  • The LIC functioning should be decentralized.
  • The private sector companies should be allowed to enter the insurance sector.
  • No company should be allowed to deal both in the life insurance business and the general insurance business through a single entity.
  • Setting up an independent regulatory body for the Insurance sector on lines of SEBI.

 

  • Insurance penetration: Refers to premiums as a percentage of GDP, whereas insurance density (measured in $) refers to per capita premium or premium per person.
  • DPIIT has allowed 100% FDI for insurance intermediaries, which includes insurance brooking, insurance companies, third party administrators, surveyors and loss assessors. FDI for insurance company is still capped at 49%.

 

BANKING SECTOR VS INSURANCE SECTOR

 

BASIS BANKING SECTOR INSURANCE SECTOR
REGULATOR RBI IRDAI
1948-49 Nationalization of RBI.
1955-56 Nationalization of SBI. Nationalization of LIC and LIC came into existence.
Reforms in 1990s Narasimham committee I (1991) and II (1998) + privatization and liberalization of

banking sector.

Malhotra Committee (1993) + Private insurance companies were allowed + FDI was liberalized.
Safeguards CRR, SLR, BASEL Several Investment restrictions.
Financial Inclusion Priority Sector Lending (PSL) norms, 25% branches in unbanked rural areas Rural & Social Obligation Norms – example-every year “specified” number

of policies must be sold in rural areas,

PH/backward etc.

 

TYPES OF INSURANCES

 

LIFE INSURANCE

  • Life Insurance is that pays out a sum of money either on the death of the insured person or after a set period.
  • Endowment Insurance
  • Whole Life Insurance
  • Term Insurance
  • Unit Linked Insurance Policy
GENERAL INSURANCE

  • Any insurance policy other than life insurance
  • Health Insurance
  • Motor Vehicle Insurance
  • Crop Insurance
  • Fire Insurance
Endowment Insurance An endowment policy pays a lump sum on its maturity or on death.
Whole Life Insurance Provides coverage for the life of the insured. In addition to paying a death benefit, whole life insurance also contains a savings component in which cash value may accumulate. It is long term policy compared to endowment policy.
Term Insurance Provides coverage for a specified period. It is short policy with low premium e.g., PM Jeevan Jyoti Bima Yojana
Unit Linked Insurance It is a product that combine insurance coverage and investment exposure.

 

INSURANCE PROVIDERS
  • LIC à LIC was founded on 1956. Motto – “Yogakshemam Vahamyaham” (From Gita “I carry what you require”).

 

GENERAL INSURANCE CORPORATION OF INDIA(GIC):

  • GIC is the ONLY reinsurer in India. It is state owned. A reinsurer is a company that provides financial protection to insurance companies.

 

AGRICULTURE INSURANCE COMPANY OF INDIA LIMITED (AICIL):

  • Established on 2002 under the Companies Act 1956
  • It is a government owned Crop Insurance Company. It is the largest crop insurer in the world in terms of the number of farmers.
  • Different Crop Insurance schemes provided by AICIL are-Pradhan Mantri Fasal Bima Yojana, restructured weather-based Crop Insurance Scheme etc.

 

DEPOSIT INSURANCE AND CREDIT GUARANTEE CORPORATION (DICGC):

  • Deposit insurance means providing insurance protection to the depositor’s money by receiving a premium. The premium paid by the insured banks to the DICGC is not to be passed on to depositors.
  • DICGC was established under RBI for deposit insurance.
  • DICGC cover is now ₹5 lakh, earlier it was ₹1 lakh
  • It does not deal directly with depositors but through official liquidator.

 

 

 

DICGC does not includes:

  •         Deposits of foreign governments.
  •         Deposits of central/state governments.
  •          Inter-bank deposits.
  •          Deposits of the state land development banks with the state co-operative bank.
  •          Any amount due on account of any deposit received outside India.
  •          Any amount specifically exempted by the DICGC with previous approval of RBI.

 

EXPORT CREDIT GUARANTEE CORPORATION OF INDIA:
  • The ECGC Limited is a company wholly owned by the Government and is controlled by the Ministry of Commerce.
  • It provides export credit insurance support to Indian exporters to facilitate exports from the country.
  • To protect exporters against losses due to non-payment of export dues by overseas buyers due to political and / or commercial risks.

 

 

 

ECGC:

  •         Offers insurance protection to exporters against payment risks
  •          Provides guidance in export-related activities
  •          Makes available information on different countries with its own credit ratings
  •          Makes it easy to obtain export finance from banks/financial institutions
  •          Assists exporters in recovering bad debt
  •         Provides information on credit-worthiness of overseas buyers

 

NIRVIK SCHEME OF ECGC:

  • To give a boost to export lending and insurance cover for export credit.
  • Insurance will cover up to 90% of the principal and interest.
  • Will include both pre and post-shipment credit.
  • The banks shall pay a premium to ECGC monthly on the principal and interest as the cover is offered for both.

 

NATIONAL EXPORT INSURANCE ACCOUNT (NEIA):

  • NEIA is a fund set up with an approved corpus of Rs. 2000 Crore.
  • to facilitate medium and long-term exports, which are not covered by ECGC.
  • It is maintained and operated by a Public Trust set up jointly by the Department of Commerce and ECGC.

 

DOMESTIC SYSTEMATICALLY IMPORTANT INSURER (D-SII)
  • D-SIIs are perceived as insurers that are ‘too big or too important to fail’ (TBTF).
  • They refer to insurers of such size, market importance and domestic and global interconnectedness whose distress or failure would cause a significant dislocation in the domestic financial system.
  • Requirements for D-SIIs:
  • The three public sector insurers have been asked to raise the level of corporate governance.
  • Identify all relevant risks and promote a sound risk management culture.
  • The D-SIIs will also be subjected to enhanced regulatory supervision of the IRDAI.
  • The Life Insurance Corporation of India (LIC), General Insurance Corporation of India and the New India Assurance have been identified as Domestic Systemically Important Insurers (D-SIIs) for 2020-21 by insurance regulator, the Insurance Regulatory and Development Authority of India (IRDAI).
  • The IRDAI would identify D-SIIs on an annual basis.

 

INTERNATIONAL FINANCIAL SERVICES CENTRES AUTHORITY
  • The first IFSC in India has been set up at the Gujarat International Finance Tec-City (GIFT City) in Gandhinagar.
  • It was established to regulate financial services such as securities, deposits or contracts of insurance, financial services, and financial institutions .
  • It will consist of nine members, appointed by the central government.
  • Members
  • Chairperson ,
  • A member each from the RBI, SEBI, the Insurance Regulatory and Development Authority of India (IRDAI), and the Pension Fund Regulatory and Development Authority (PFRDA),
  • Two members from the Ministry of Finance,
  • In addition, two other members will be appointed on the recommendation of a Selection Committee.
  • Term: All members of the IFSC Authority will have a term of three years, subject to reappointment.

 

MICRO INSURANCE

IRDA Micro-insurance Regulations, 2005 defines micro-insurance as-

  • A general or life insurance policy with a sum assured of Rs 50,000 or less.
  • It is targeted towards low-income households or to individuals who have little savings
  • Micro- insurance business is done through the intermediaries: Non-Government Organisations, Micro-Finance Institution, Self-Help Groups etc.

 

INSURANCE SCHEMES

 

PRADHAN MANTRI JEEVAN JYOTI BIMA YOJANA (PMJJBY) PRADHAN MANTRI SURAKSHA BIMA YOJANA (PMSBY)
It is a life insurance scheme. It is accident insurance scheme. (General insurance)
NRIs are eligible but payment to be done in rupee only NRIs eligible but payment to be done in rupee only
It offers a renewable one-year term life cover of Rupees Two Lakh. It offers a renewable one-year accidental death cum disability cover of-

Rs. Two Lakh for accidental death or total permanent disability and

Rs One Lakh in case of permanent partial disability.

Age group is18 to 50 years. Age group is 18 to 70 years.
Covers death due to any reason. Covers accidental death cum disability.

Suicide, alcohol, drugs related death will not be eligible

Premium of Rs. 330/- per annum per subscriber. Premium of Rs. 12/- per annum per subscriber.
 This is on self-subscription basis and involves no Government contribution This is on self-subscription basis and involves no Government contribution
Doesn’t cover Hospitalization cost Doesn’t cover Hospitalization cost

 

PM JAN AROGYA YOJANA (PMJAY) – 2018
  • It is a component of Ayushmann Bharat announced in Budget 2018.
  • It has subsumed Rashtriya Swasthya Bima Yojana and Senior Citizen Health Insurance Scheme.

 

 

 

 

FEATURES:

  •          Cashless and paperless
  •          Covers pre and post hospitalisation and medicine expenses
  •          Pre-existing diseases are covered
  •          A free insurance cover upto Rs 5 lakh per family per year for secondary and tertiary hospitalisation.
  •          Imposes no limit on family size or age of family members
  •          Access in empanelled hospitals both private and government.
  •          Beneficiary identification through socio economic caste census, 2011 data.

 

PRADHAN MANTRI FASAL BIMA YOJANA (PMFBY):
  • It provides comprehensive crop insurance cover against non-preventable natural risks at an affordable rate to farmers.
  • Uniform maximum premium of only 2%, 1.5% and 5% of the sum insured to be paid by farmers for all Kharif crops, Rabi crops and commercial/horticultural crops.

 

PMFBY 2.0:
  • Enrolment under the Scheme to be made voluntary for all farmers.
  • Central Subsidy under to be limited for premium rates upto 30% for un-irrigated areas/crops and 25% for irrigated areas/crops.
  • Central Share in Premium Subsidy to be increased to 90% for North Eastern States from the existing sharing pattern of 50:50
  • Single event coverage insurance can be taken. E.g., fire only.
  • Government allotted a district/area to an Insurance company for Minimum 3 years. In case of extraordinary performance by company, then more years may be granted.
  • Flexibility to States/UTs to implement the Scheme.

 

MOTOR VEHICLE THIRD PARTY INSURANCE

Under the provisions of The Motor Vehicles Act, 1988, any motorized vehicle operated on public roads should be insured against third party liability.

 

  • The vehicle owner is the first party
  • The insurance company they buy the policy from is the second party
  • anybody who faces a loss due to the actions of the former while operating the vehicle is the third party

Under the law, this liability is unlimited in the case of death of injury, and hence, it is mandatory to purchase a Motor Third Party Liability Policy (TP Policy).

 

PUBLIC LIABILITY INSURANCE ACT, 1991
  • Public liability insurance policy covers a policyholder from claims from third parties for death or injury or property damage caused by hazardous substances handled in a factory.
  • The compensation payable is irrespective of the company’s neglect.
  • The victims who are exposed to hazardous substance used by an industry may file a claim with the Collector within 5 years of the accident.
  • Maximum compensation of Rs 25,000, in addition to a maximum of Rs. 12,500, as reimbursement for medical expenses.

 

PENSION

It is a regular payment made by the state to people of or above the official retirement age and to some widows and disabled people.

 

 

 

Employee Provident Fund Organisation (EPFO):

 

  •          It is a statutory organization with Ministry of Labour and Employment as its nodal ministry.

·         3 areas are administered under it:

1.       Provident Fund

2.       Deposit Linked Insurance

3.       Pension

 

Universal Account Number (UAN):

 

  •          UAN is 12-digit long unique identification number. This number is assigned by the EPFO.
  •         Both the employer and employee are assigned this number (one each), so that they can contribute to the EPF account. It remains unchanged even after switching jobs.
 

Labour Identification Number (LIN):

 

  •          a unique identification number issued to employers
  •          Shram Suvidha, under Ministry of labour, is the unified portal developed to issue LINs and manage our inspections and submission of returns.

 

PENSION SCHEME FOR OLDER PERSONS

 

 

 

Pradhan Mantri Vaya-Vandana Yojana:

 

  •         It is a Pension Scheme exclusively for the senior citizens aged 60 years and above.
  •         They can join, latest by 31 March 2023.
  •          LIC operates the scheme.
  •         Investment of minimum Rs1.5 lakhs to maximum Rs 15 lakhs.
  •         The scheme is exempted from GST.
  •         At the end of the policy term of 10 years, Purchase price along with final pension installment shall be payable.
  •        Loan upto 75% of Purchase Price shall be allowed after 3 policy.
  •         The scheme also allows for premature exit with a refund of 98% of the Purchase Price.
  •         On death of the pensioner during the policy term of 10 years, the Purchase Price shall be paid to the beneficiary.

 

INSURANCE SECTOR REGULATORS

 

 

 

 

Insurance Regulatory Development Authority (IRDA)

 

  •         IRDA is a statutory autonomous body set up by the IRDA Act, 1999, established after the recommendations of Malhotra Committee report of 1994.
  •          It has responsibility to regulate and control the Insurance sector in India.
  •          IRDAI is a member of Financial Stability and Development Council.
  •         Securities Appellate Tribunal (SAT) is a statutory body established under the Securities and Exchange Board of India Act, 1992- To hear and dispose of appeals against orders passed by the Insurance Regulatory Development Authority of India (IRDAI).
 

 

 

Pension Fund Regulatory and Development Authority (PFRDA)

 

  •         It is a statutory body.
  •          6 members- One Chairman (5yrs or 65 yrs) and5 members (5yrs or 62 yrs)
  •         They are eligible for re-appointment.
  •         It has Powers of civil court.
  •          Functions –
  •          Implement National pension system (NPS), select its fund-managers.
  •        Regulate all public and private pension funds except EPFO, Seaman, Coal miners, Assam tea plantations related pension schemes as they’ve their separate acts / mechanisms.
  •         Prescribe liquidity, auditing, investment norms for Pension funds.
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