1273578–Moushmi kumari – F1 - Q48-The alignment of economic incentives with distribution dynamics should be driven by market forces rather than regulatory intervention. Comment

Q.1  <1273578–Moushmi kumari – F1 – Shubhra sharma – MB F2>.  http://youtu.be/iggQWDIqOrQ

Q.2  <1273578 Moushmi kumari, F1, Q 48 – The alignment of economic incentives with distribution dynamics should be driven by market forces rather than regulatory intervention. Comment>

Introduction:-

The Indian insurance industry seems to be in a state of flux. After a decade of strong growth, the Indian insurance industry is currently facing severe headwinds owing to:

• Slowing growth
• Rising costs
• Deteriorating distribution structure
• Stalled reforms

In the long run the insurance industry is still poised for a strong growth as the domestic economy is expected to grow steadily. This will lead to rise in per capita and disposable income, while savings are expected to be stable.

The demand for insurance products is likely to increase due to the exponential growth of household savings, purchasing power, the middle class and the country’s working population growing of the financial industry as a whole.

• Growth of life and non-life industry
• Promoting innovation and removing inefficiency
• Competition and orderly growth
• Growth of specific insurance segments such as motor insurance.

Discussion:-

Emerging trends

• Multi-distribution
• Product innovation
• Claims management Profitable growth Regulatory

Life insurance: challenges

• Products strategy and design
• Cost
• Taxation
• Distribution
• Prospects and challenges of various channels
• Compensation
• Customer service
• Governance and regulatory issues

Non-life insurance: factors impacting growth

• Product pricing, innovation and simplicity
• Distribution
• Compensation
• Micro-insurance in non-life widening reach
• Governance and regulatory changes
• Health insurance
• Innovative products to counter the competition
• Improved fraud control mechanisms
• Standardization to reduce claims loss
• Reducing inefficiencies by revisiting third party administrator (TPA) agreements

The Indian insurance market is poised for strong growth in the long run. It stands at the threshold of moving towards a stable position, delivering “stable profitable growth.”

Significant latent market - The insurance market has a considerable amount of latent potential, given the fact that the Indian economy is expected to do well in the coming decades leading to increase in per capita incomes and awareness.

Channelizing industry focus - In meeting the significant potential, the industry has an increased role and responsibility. Three areas of focus could be — a) product innovation matching the risk profile of the policy holders b) reengineering the distribution and more significantly c) making sales and marketing more responsible and answerable.

Distribution - Distribution channels evolved in response to market dynamics and changing consumer preferences. The alignment of economic incentives with distribution dynamics should be driven by market forces rather than regulatory intervention.

Regulation - The industry should be given time to adjust to regulatory changes in a phased manner aligned with a regulatory impact assessment. Regulations need to drive transparency and simplification of products and services.

Conclusion:-

In my opinion IRDA always take the suggestion from the market and take instructions from market because the market is dynamic, its change fast, the rules and regulation always changes and the government policy always changes. The stakeholders should eventually work toward maintaining a favorable environment for stable growth, increasing the penetration of insurance to rural and underpenetrated areas and increasing the contribution to the economy.  So, the alignment of economic incentives with distribution dynamics should be driven by market forces rather than regulatory intervention. 

1273537 Gunbir Singh Saini, F1, Q22 – In FY12, the life insurance industry witnessed a decline in the first year premium collected which dropped from INR1, 258 billion in FY11 to INR1, 142 billion, a drop of approximately 10%.

Question 2-

v Introduction

Life Insurance is the fastest growing sector in India since 2000 as Government allowed Private players and FDI up to 26% and recently Cabinet approved a proposal to increase it to 49%. Life Insurance in India was nationalized by incorporating Life Insurance Corporation (LIC) in 1956. All private life insurance companies at that time were taken over by LIC. In 1993, the Government of India appointed RN Malhotra Committee to lay down a road map for privatization of the life insurance sector. While the committee submitted its report in 1994, it took another six years before the enabling legislation was passed in the year 2000, legislation amending the Insurance Act of 1938 and legislating the Insurance Regulatory and Development Authority Act of 2000. The same year the newly appointed insurance regulator - Insurance Regulatory and Development Authority IRDA—started issuing licenses to private life insurers.

v Discussion

In FY12, the life insurance industry witnessed a decline in the first year premium collected which dropped from INR1, 258 billion in FY11 to INR1, 142 billion, a drop of approximately 10%. This was owing to the following challenges that the industry faced in:-

Ø Products Strategy and design

At a time when the highest NAV guaranteed ULIP were selling aggressively in the market, the IRDA banned the product in order to keep a tab on life insurers resorting to riskier fund management to conform to their commitment of guaranteed returns. Not only did these products attract an increased premium, but they also offer little protection to policyholders.

Ø Cost

The Insurance Act, 1938, prescribes a ceiling on management expenses, which include administration expenses such as commissions, fund management fees, custodial fees, and expenses on marketing and advertising. The percentage varies from insurer to insurer and primarily depends on the new business premium garnered in a year and the age of the company. According to a recent amendment, this rule is applicable to only those companies that have been The limit on expenses is set to protect the long-term interest of the policy holders and ensure that reckless expenditure by insurance companies might not hurt their companies have accumulated losses running into millions of rupees.

Ø Taxation

The insurance industry is facing challenges with respect to taxation on both the demand and supply side. On one hand, the service tax charged to insurance companies has been increased to 12% from the existing 10% rate on life insurance policies where entire premium is not toward risk covered maintained at 1.5% for subsequent years’ policies at a time when mutual funds are exempt from such tax.

Ø Distribution

The main distribution channels in life insurance are the traditional individual agency channel, corporate agency (banks and others), broking channel and direct selling (which includes online selling). From an industry perspective, it is an agency-dominated business with 90% of the total premium being sourced from the agency channel. This trend is primarily a result of LIC’s agency dominated (at 98% of business) business model. Private sector insurers have a more balanced channel distribution, with agencies contributing 47%, banks contributing 33%, corporate agents 9%, brokers 5% and direct sales 6%.

Ø Compensation

The trend in operating expense ratio of life companies shows a marginal overall decrease. However, the actual cost for LIC has increased by 35% to INR122.45 billion in FY10 from INR90.64 billion in FY09; private companies have managed to slightly reduce costs. Overall the industry’s total expense ratio has also decreased, which when looked at with the growth in premium indicates better cost management and improved productivity.

Ø Prospects and challenges of various channels

Life insurance, being a high involvement product, agency is the strongest channel for most product segments. Individual agents have been the dominant channel in acquiring business; however, their share has fallen from around 88% in FY2005 to 79% in FY11. The IRDA issued stringent licensing guidelines and new persistence norms in order to protect policyholders interests’ in November 2010. This led to high turnover of individual agents and reduction of corporate agents of life insurers who suffered huge financial drain as a lot of money was spent on prospecting, appointing and training of these agents.

Ø Customer servicing

Customer service assumes primary importance in any industry, and insurance is not different. The regulator believes that in order that there is perceptible improvement in customer service, and therefore customer satisfaction. Insurers should identify areas, which are most vulnerable to frequent critical comments, analyze the reasons for such under performance. If the Indian insurance industry is to make rapid strides of progress efficient service delivery to the policyholder in its truest sense is the need of the hour.

Ø Governance and regulatory issues

There are a number of regulatory changes and their likely implications on the growth of the life insurance industry.

1273558, japjot kaur, F1, Q34-comment on distribution in non life insurance

General insurance or non-life insurance policies, including automobile and homeowners policies, provide payments depending on the loss from a particular financial event. General insurance typically comprises any insurance that is not determined to be life insurance Insurance is a way of risk management used to cover in case of loss. In insurance the insured pays a fixed amount of premium and in return the insurer guarantees to compensate the loss of the insured`s property or life or the insured thing in case of any damage. The premiums are being determined with insurance rate. There are many types of insurance available to insure your valuable things. But in general you can find 6 types of insurancepolicies that are available in the market to suit your needs.

The types of insurance meant to be understood as important and necessary by the common public entails a number of aspects where personal property can be lost or damaged. General insurance is a term that is used for policies that cover for occasions other than death, in which case life insurance policies do the needful. General insurance policies can including covering valuables, property, cargo and miscellaneous goods. Since life insurance policies do not cover for damage and death together, incidents like cyclones, accidents and other mishaps should be considered for general insurance policies as they can cause, both death and damage.

One of the policies covered under general insurance is fire insurance. If you feel there is reason to believe that your property can be destroyed by fire, owing to usage of certain appliances, dry storms, electrical wiring or other reasons, fire insurance is one of the policies to vouch for in a general insurance scheme. Most insurance policies protecting against fire damages are an area of primary interest for owners of property in the oil, aircraft, civil, and adventure sport sectors.

Many large and expensive goods are known to be transported by ships. Such items may include expensive antiques, jewellery, expensive machinery, large shipments of cargo and freight, and other such items. These items are understood to face a large amount of risk, which mainly include sea-storms, ship accidents and other such perils of the sea, which are known for a long time to humanity. Companies that deal in expensive goods and export often buy shipping insurance policies.

Cargo (marine) policies pertain to the loss of goods due to severe damage or accident on the sea, due to the various possible risks. The other type of insurance related with marine transportation includes the marine hull policy, which protects one against the damages caused to the ship owing to various perils. These are mainly the two kinds of general insurance policy schemes that are associated with shipping of goods. Most companies dealing in factory equipments, machinery, antiques and other shipping goods invest in such policies.

General life insurance policies entail a wide array of miscellaneous policies, which include theft, burglary, health, personal injury accidents, intellectual rights insurance etc. Investors in general insurance policies include business owners, as well as private property owners and individuals, who attempt to gain a certain assurance against having to incur the loss of money in expensive goods, rights and services. While choosing a general insurance policy scheme it is important to check the policies, you require. Consultation services for buying insurance are also available and they can help you realise the amount of money you need to invest in a general insurance policy.

Lets have a look at the 6 basic types of insurance that you can afford.

Life Insurance : The most valuable thing in the world is our life. So to insure life is given topmost priority while talking about the 6 types of insurance. In this insurance plan the insurer company gives the financial coverage in case of loss of life of the insured and his family. The policy holder have to pay a premium to get the coverage.

Health Insurance : Health insurance covers the health related expenses that needs in an emergency. This insurance can cover your all expenses regarding the treatment, fees of doctors, Hospital charges, medicine and also other charges in case of mishaps.

Auto Insurance : 3rd type among the 6 types of insurance is Auto insurance. You can opt for it. In auto insurance policy insurer provides cover for damage caused by motor accident. The insured pays a monthly or yearly payment to get the coverage. In return the insured gets compensation in case of any mishaps. The insured Insurance premiums are decided on basis of age, gender, marital status, distance traveled, Vehicle classification, etc.

Disability insurance: Disability insurance provides cover an individual financially, if the person looses the work ability and unable to earn his living due any illness or accident. Two types of coverage are available, one is STD or Short Term Disability and LTD or Long Term Disability. In case of STD you can get compensation for a period of maximum 2years. In LTD the compensation will be provided for the life time.

Home Insurance : The 5th among the basic 6 types of insurance is Home Insurance. It provides coverage for your home against all the mishaps. Many different plans are now available in this section to suit your needs.

Business Insurance : Businesses can also be insured from any mishaps however its big or small. In business insurance policies the insurance company provides coverage for business property and liability. The most popular business insurance is BOP or business owner's policy, it’s a kind of bunch of policies with many kinds of coverages.

These are the basic 6 types of insurance. Although outside these 6, there are bunch of other types of insurance is also available in the market like: Travel insurance, Pet insurance, Financial loss insurance etc.

<1273525- Chandandeep Kaur-f1-Nikhil Bansal-MBA f2>
http://youtu.be/4WKGfS6JyfA

1  <1273525 Chandandeep Kaur, F1, Q17-Comment on Product innovation i.e. increased levels of customization through product innovation?>

                            INTRODUCTION

Innovation may be among the most desired but least understood of corporate goals. As shown in figure 1, interest in innovation, as measured by the relative frequency with which it is mentioned in the millions of books cataloged and digitized by Google, rose steadily from the immediate post-World War II era up until 2008, the last date covered by Google Books.

2008, as we may remember, was the year when a number of exciting innovations in financial services ended in a crisis from which we are only now recovering. In hindsight, it may be hard to remember how innovative ideas like credit default swaps (CDS) and similar derivatives were expected to increase profits and lead to a new world of low-risk investments and continued economic growth.

Top 10 Most Innovative Insurance Products

·      Pay-As-You-Park

·      GreenMaker

·      Commercial Specific Liability (CSL)

·      Vanishing Coverage

·      Home Business Interruption Protection (HBIP)

·      No-Show Coverage

·      Global Scoring

·      Relationship Breakdown Coverage

·      Homeworkers’ Compensation

·      Hoosier Daddy Policy

BARRIERS TO SUCCESSFUL INNOVATION IN LIFE INSURANCE

·      Failure to Recognize Innovation Management as a Bona Fide Company Function

·      Failure to Distinguish Innovation Management from Product Development 

·      Failure to Distinguish Innovation Management from Continuous Improvement

·      Failure to Define and Communicate Expectations for Innovation

·      Failure to Recognize the Bias that Sales Organizations Bring to the Process

·      Failure to Focus One’s Innovation Efforts

·      Failure to Staff One’s Innovation Efforts with the Right People

·      Failure to Properly Position Innovation Management in the Organization

·      Failure to Recognize that Innovation Management is More than Idea Generation

·      Failure to Evaluate the Effectiveness of an Innovation Management Process

                            

                      CONCLUSION

The Business Store proudly provides over fourteen years of valuable experience to bring the company a customized employee benefit package that can:

·       Meet the specific needs with innovative products and services.

·       Reduce the costs as much as 30%-40%

·       Provide  with the very best rated carriers, to ensure a comprehensive application and underwriting service.

If we bring to you employee benefits that are

·       As good, or better than, those currently provided.

·       At the same, or lower price.

·       With better service for you and your employees.

Then, we would like to include the company among our satisfied clients.

1273520 Avneet singh sandhu, F1, Q13 – Comment on Competition and orderly growth in the sector.

BRIEF INTRODUCTION

The future of the Indian insurance sector looks bright. The sector which stood at a strong US$ 72 billion in 2012 has the potential to grow to US$ 280 billion by 2020. This growth is driven by India’s favourable regulatory environment which guarantees stability and fair play. This environment has given rise to an insurance market which encourages foreign investors to tap into the sector’s massive potential.

Ever since the Indian government liberalised the insurance sector in 2000 and opened the doors for private participation, the sector has gone from strength to strength. The resultant competition has provided the consumer with a never-before-seen range of products and providers, and also enhanced service levels markedly.

The health of the insurance sector reflects a country’s economy. This sector not only generates long-term funds for infrastructure development, but also increases a country’s risk-taking capacity. India’s economic growth since the turn of the century is viewed as a significant development in the global economy. This view is helped in no small part by a booming insurance industry.

INDUSTRY DYNAMICS

Consistent growth in the insurance sector depends on a few factors. Some of these are:

• Effective distribution channels – The efficiency and cost of the various distribution strategies used by companies are significant to their success in the insurance business. This particularly holds true for the retail business.
• Focus on overall financial inclusion – As time evolves, so must the approach of the insurance sector in India. The objective of the insurance sector should ideally be to offer a broader range of activities to a wider populace.
• Consumer needs and preferences – The growth of India’s insurance industry can be attributed to product innovation, dynamic distribution channels, and vibrant publicity and promotional campaigns run by insurance companies. Benefits attached to the products and the manner in which they are delivered (through various marketing tie-ups) have helped bring customers and insurance companies closer to each other and made the latter more relevant.

Health insurance is an up-and-coming segment in this sector. Currently, it caters for 10 per cent of the overall US$ 30 billion healthcare expenditure in India. Consequently, there is plenty of scope for players in this area.

The life insurance segment contributes about 4 per cent to India’s gross domestic product (GDP) in terms of total premiums underwritten annually. There are 23 private companies in the segment. The state-owned Life Insurance Corporation (LIC) dominates the field, with about 71 per cent of the market share, according to Insurance Regulatory and Development Authority (IRDA).

KEY STATISTICS

• India’s life insurance segment collected new business premiums worth Rs 11,742.7 crore (US$ 1.84 billion) for April–May 2013. Indian insurance companies collected a combined Rs 107,010.7 crore (US$ 16.85 billion) worth of new premiums for FY 2012–13, according to data released by IRDA.
• Meanwhile, the general insurance industry grew by 19.6 per cent in April–May period of FY 2013–14. Non-life insurers collected premiums worth Rs 13,552.46 crore (US$ 2.13 billion) in the first two months of the current year, as compared to Rs 11,333.54 crore (US$ 1.78 billion) during the corresponding period of the previous year.

NEW DEVELOPMENTS/ PRODUCT LAUNCHES

• Insurance companies will now have more freedom to invest in sectors such as IT and pharmaceuticals. IRDA has increased the sector specific exposure limit for investments to 20 per cent of the insurer’s total investment, from the previous 15 per cent.
• The electronic know-your-customer (e-KYC) services used by the Unique Identification Authority of India (UIDAI) will be accepted as a valid verification process for insurance, according to IRDA. Through e-KYC, insurance companies can conduct electronic identity verification. The agencies can obtain an electronic identity document of the customer which is digitally signed by the UIDAI. This service enables a quicker and more efficient process for the customer as well as the insurance company.
• Private player Cognizant Technology Solutions has successfully acquired ValueSource, which is a subsidiary of KBC Group, a Belgium-based multi-channel bank insurance organisation. Under the initial five-year agreement, the Indian company will provide a number of services to KBC, including application development and maintenance, and software testing.
• • United India Insurance Co Ltd (UIICL), the second largest general insurance company in India, intends to open 530 new offices domestically in 2013. As of now, UIICL has 1,340 offices in the country, as per their website. In FY 2012–13, the company collected total premiums worth Rs 9,266 crore (US 1.45 billion) and has set a target of Rs 11,000 crore (US$ 1.73 billion) for FY 2013–14.

GOVERNMENT INITIATIVES

• The Government of India has passed the Pension Fund Regulatory and Development Authority (PFRDA) bill that allows foreign investors to hold 26 per cent stake in the insurance sector. The primary objective of the bill is to provide pension cover to a greater percentage of the country’s population. The PFRDA bill would also provide subscribers a wider range of investment choices. The bill will provide better regulation of the sector and provide more confidence to investors, according to Mr Yogesh Agarwal, Chairman, PFRDA.
• Aviation insurance is likely to emerge as an important segment in the near future with new players in the market operations and existing players seeking to increase fleet size, according to industry officials. At present, the current market size of aviation insurance hovers around Rs 500 crore (US$ 78.76 million), a figure that is almost certain to grow as the industry develops further.
• In order to enhance financial inclusion in the country and develop bancassurance as a business, IRDA has facilitated banks to sell insurance policies. Application for the licence required to act an insurance broker can only be obtained after prior approval from the Reserve Bank of India (RBI). Banks would be required to apply under the direct broker category. The licence will be valid for three years.

ROAD AHEAD

The insurance business in India is projected to reach Rs 4 trillion (US$ 63.01 billion) in FY 2013–14, according to Mr TS Vijayan, Chairman, IRDA. Total premiums collected by the general and the life insurance industry in FY 2012–2013 amounted to Rs 3.75 trillon (US$ 59.07 billion). The chairman believes that insurance penetration in India has the potential to rise to 5–6 per cent from the current 3.86 per cent.

Life Insurance Council, the industry body of life insurers in the country, has projected a compounded annual growth rate (CAGR) of 12–15 per cent over the next five years for the segment. India’s insurable population is expected to grow to 750 million by 2020, with life expectancy projected to reach 74 years around the same period. The council believes that this favourable Indian demography would result in more people seeking out life insurance. Also, the council predicts life insurance penetration – percentage of insurance premium to GDP – to reach 5 per cent by 2020 from its current 3.2 per cent.

Confederation of Indian Industry (CII) projects the growth rate for India’s insurance industry in FY 2013–14 to be around 5 per cent. It also anticipates 60 per cent of non-life insurance companies to record an average growth of more than 10 per cent. The raising of the foreign direct investment (FDI) limit from 26 per cent to 49 per cent in the sector is viewed as a key element to promote the insurance industry in India.