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.|
|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|
|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
|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,
|TYPES OF INSURANCES|
|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.|
- 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:
|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.
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.
- 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.
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.
|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.
|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.
- 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.
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.
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):
· 3 areas are administered under it:
1. Provident Fund
2. Deposit Linked Insurance
Universal Account Number (UAN):
Labour Identification Number (LIN):
|PENSION SCHEME FOR OLDER PERSONS|
Pradhan Mantri Vaya-Vandana Yojana:
|INSURANCE SECTOR REGULATORS|
Insurance Regulatory Development Authority (IRDA)
Pension Fund Regulatory and Development Authority (PFRDA)