products & services offered - ppt 24-09-10

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Products and service offered and Channels of distribution, Banc assurance model and Fund

Management in insurance sector

By K.Viswanathan

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Various categories of Insurance Types of Insurances available

1. Life Insurance2. Non- Life Insurance: Pension Health care Personal Accident Motor vehicles Various Types of Properties Miscellaneous:

- Fire- Marine - Agricultural & Cattle- Others

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Products under Life Insurance

Life Insurance Products:Life insurance is a contract of utmost good faith- uberrimafideTerm insurance : Scope to insure life for a huge sum. Amount payable only if death occurs. Otherwise forefeited.Endowment Assurance: This is a bit expensive. If death happens, the assured sum and eligible bonuses are paid. If not it is paid at the end of the period.Whole Life Assurance: Costlier than Term assurance ; cheaper than Endowment. If death occurs, the sum assured and bonus are paid. If not, sum assured is paid, if policy holder survives till age of 100 or 35th policy anniversary whichever is later.Insurance is called immediate estate; the estate not existing till the death comes into existence.

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Life Insurance Products:Living benefits or Accelerated Death benefits: A certain percentage or full sum is made available during the life of the insured, if he contacts any of the major illness or killer diseases. This is to meet the urgent financial burden of hospitalisation. Waiver of premium , extension of life cover after expiry of policy etc are sometimes allowed. They are living benefits.In Accelerated Death benefit policy, terminally ill patients get the amounts between 50-80% during their period of illness itself. Viaticum Settlements: Only way for terminally ill patients, for urgent requirements, was to surrender policy at surrender value. Viaticum settlement is sale of an existing insurance policy at a discounted rate to a third party- Legal angle-right or wrongSecondary market in US for such policies.

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Life Insurance Products:Life settlement is modified form of viaticum policies. There is no life threatening disease here. Policies are sold to third parties. IRDA has imposed certain restrictions on such policies- only term benefits and no savings benefits.Tradable Insurance Contracts: Under this a policy can be assigned to another person. Lapsed policies are identified and revived. An affluent person revives the policy. In turn the policy is assigned to him. The investor a higher consideration than an insurance company would offer. As assignee the investor gets all the benefits under the policy and gains more if the policy holder dies.

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Life Insurance Products:Tradable Insurance Contract :Arguments in support:- Assignment is not illegal- doctrine of insurable interest is not violated as it is required only at the time of insurance.- Assignee gets better offer.- Policy gets revived; company’s lapse ratio comes down. Precautions taken by Insurance Companies: - Assignments to be permitted only within family- Assignments where the policy holder dies within two years of such assignments, should be treated as early claims and investigated. - Claims settled in favour of Assignees should be subject to income tax. - Separate data of such claims and settlement is to be maintained.

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Life Insurance Products:Annuities: Pension payments to the annuitants. Two Types- Deferred annuities and immediate annuities.In deferred annuities, either you pay lump sum and received the periodical payments later or pay in instalments and receive the sums later.In immediate annuities, annuity payment starts from the next month after you purchase the annuity. Individual and group annuities are available.Participating Policies: Policies eligible for bonus. Policies become eligible for bonus after a minimum period of time- in the case of LIC, after 3yrs.

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Life Insurance Products:Other important Life Insurance Products:Critical Illness insurance:The policy pays out a lump sum if the insured is diagnosed with any of the major illnesses such as cancer, heart disease, stroke, multiple sclerosis, Alzheimer’s disease, Parkinson’s disease etc. In mediclaim policies the indirect costs incurred in hospitalisation are not covered. But in critical illness policies, these get covered. Different companies provide different benefits, as under:1. Payment of the agreed amount in one lump sum.2. No payment if not suffering from any critical illness.3. Payment of 50% on diagnosis and 50% on death.4. Annual payment of 10% after affliction.

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Life Insurance Products:Other important Life Insurance Products:Keyman insurance Policy:To protect a company from losses arising out of the unforeseen death of a key person in the organisation. It is on these persons technical savvy, administrative prowess and vision the organisations are run. The exit or death of such a person will have repercussions on the corporate bottom line, stock prices and customer loyalty.The sum assured will be very high. To arrive at this the insured takes into account not only the present contribution by the key person but also the replacement cost.Some companies use this as add on to super annuation payment to the employee to retain him. Income tax deduction available as business expense on premium paid by Co.

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Life Insurance Products:Other important Life Insurance Products:Linked Assurances: The sum assured and bonus are linked to select capital market instruments/ basket of instruments. UTI was the pioneer in this to start Unit linked insurance plan in 1971. Under this, the subscribers are given a term life insurance cover and the premium for the same is deducted from the contribution made to the insurance co. for the group life cover. Unit plans are designed to offer security of life cover along with prospect of high growth. Option is exercised by the investor in choosing the pattern and extent of investment- Secured funds, debt funds, Gilts, Risk Funds, Equity funds and various combinations of the above. Premium paid are utilised to purchase units at current offer price. The Units may be encashed at current bid price.

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Life Insurance Products:Other important Life Insurance Products:Rural Life Insurance Plan:Started by Post office as Postal Life Insurance plan to cover the life of people in rural areas.LIC also started offering rural insuranceNow many companies are offering rural plans to tap the potential there.Micro Insurance:To cover micro financed industries. The Act of Micro insurance Regulations 2005 has been passedNGOs, SHGs and Micro Finance Institutions are permittted to sell micro insurance products. Insurance for weaker sections Insurance for NRIs:

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Products under Non-Life Insurance

Other Non- Life Products:Pension Schemes :Every body needs financial support in their old age.By 2050 20 % of the population is expected to be over 60 yrs.Employees’ Provident Fund:Tatas were the first to introduce in 1920s.Provident Fund Act was passed in 1925.Rate of statutory contribution is 12%. The employee may contribute any amount over it.Dave Committee was set up to address the issues in Provident Fund. It suggested several measures like withdrawal to be allowed only in case of permanent disability or for construction/Purchase of a house etc: Rate should be market driven. For those in unorganised and self- employed sector PPF was introduced.

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Other Non- Life Products:Pension Schemes :Public Provident Fund:Started in 1968 with annual interest rate of 4.5%.Minimum Rs. 500 and maximum Rs. 70,000 for a period of 15 yrs.S.A Dave Committee recommended some changes:Scheme to be called Individual retirement FundTax-free contribution to be raised to Rs. 120,000/ including employers contribution if any.Permissible withdrawals to be taxed 10% .Rate of interest to be market driven.All Commercial Banks and Post Offices to accept PPF contributions.

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Other Non- Life Products:Pension Schemes :Small Savings or Postal Savings Schemes:•Postal department plays a significant role in mobilising savings.•Small Savings Instruments are :-PO Savings A/cs- PO Time Deposits- PO Recurring Deposits- National Savings Certificates- Indira Vikas Patras ( Discontinued)-Kisan Vikas Patras- National Savings Scheme 87-PO Monthly Income SchemePost Office schemes get some tax exemptions. There is debate on that. The matter is subject to review.

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Other Non- Life Products:Pension Schemes :Small Savings or Postal Savings Schemes:•Postal department plays a significant role in mobilising savings.•Small Savings Instruments are :-PO Savings A/cs- PO Time Deposits- PO Recurring Deposits- National Savings Certificates- Indira Vikas Patras ( Discontinued)-Kisan Vikas Patras- National Savings Scheme 87-PO Monthly Income SchemePost Office schemes get some tax exemptions. There is debate on that. The matter is subject to review.

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Other Non- Life insurance Products:Pension Schemes :Pensions:The dictionary meaning is it is an allowance or stipend in consideration of past services to the one retired from service, especially a regular stipend by the Govt to retired officers, disabled soldiers and families of soldiers killed in service. In India only 6% of the persons retiring have any type of pension benefits. More than 15% of the old age population contributes to one or other pension schemes marketed by LIC or by Pvt Co.s There is low coverage of pensioners in India. Pension reforms were started in India after independence. The Pvt Insurance co.s have taken up this seriously. Entrusting the management of pension funds to professional managers will enhance the efficiency and prudence in the management of these funds. If an element of compulsory contribution to pension funds is introduced , it will enhance the savings of the people.

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Other Non- Life Products:Pension Schemes :Social Security Pension:Many attempts were made to make this possible. Many of the state govt.s have pension schemes for those who have no one to look after them. The amount varies from Rs. 75 to Rs. 300 a month. On an average each state pays Rs. 150 to its destitute senior citizens. Pension liabilities of US and other European governments show that the same has to be funded by contributions. Whether such contributions will be made in India is a question. Even Insurance Co.s do not have any product to support this. Reister Pension:Germany introduced this first. Pvt contribution pension fund with voluntary contributions, commencing as low as 1% of the gross salary and finally going upto 4% . The contributions are tax deductible with some contributions from employers as well.

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Other Non- Life Products:General Insurance :Covers many items , the following are the important ones:Contingencies arising out of•Accidents• Sickness•Livestock insurance etc.Covers risks like:•Fire, floods, earthquake •Marine•Motor cars•Other Vehicles like scooter, bikes etc.•Personal accidents, fidelity, burglary,Reinsurance :•Insurers Insurance : A major initiative to spread the risk of insurance among many insurers.•In India GIC does reinsurance

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Other important Insurance matters

Bancassurance :Bancassurance simply means selling of insurance products by banksInsurance Cos and Banks tie up to sell insurance products to the Banking customersBank acts as the corporate agency to sell insurance productsIt originated in India in the year 2000 when the Government issued notification under Banking Regulation Act which allowed Indian Banks to do insurance distribution. It started picking up after Insurance Regulatory and Development Authority (IRDA) passed a notification in October 2002 on 'Corporate Agency' regulations. As per the concept of Corporate Agency, banks can act as an agent of one life and one non-life insurer. Currently bancassurance accounts for a share of almost 25-30% of the premium income amongst the private players in India.

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Bancassurance :Advantages :For Banks:1. Non-Interest income2. Providing additional services , so cost reduction of channels. 3. Multi products availability to customers4. Home Loans and insurance as a combined product5. Improving sales culture of employeesFor Insurance Co.s:6. Improved geographical reach without additional cost.7. Managing with smaller sales team.8. Bank referral – data base of customers is given to insurance companies.9. Tapping rural potential.10. Penetration level of banks is better.For Customers: 11. Insurance and banking facilities in one place.12. Lesser trouble due to organisational unification.

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A SWOT Analysis Bancassurance :Strengths:1. Huge potential for Life coverage due to population.2. Similarly for Household policies, mediclaim and Travel Insurance.3. Large pool of skilled professionals good at selling insurance .4. Variety of products Weaknesses:5. IT developments are not upto the mark- WAN and LAN are required for

greater marketing.6. Middle class is overburdened with inflation and tax.7. Products are not flexible.8. Life and medical insurance gets tax exemptions. Others like travel , house

holder etc., do not.

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A SWOT Analysis Bancassurance :Opportunities: 1. Enormous data base of customers. This needs to be properly dissected and

used.2. Mergers and acquisitions between banking and insurance are allowed in other

countries. We may allow here also. Threats:3. Change in approach is not easy.4. Change of work will be resisted.5. Possible non-response from target customers.- various reasons.6. Higher investor expectation in the face of competition may not be fulfilled.Regulatory Issues:1.Insurance Amendment Act 2002 cleared certain barriers.2. Prior to that directors were required to undergo 100 hrs of agency training .3. Now the requirement is on one person- corporate Insurance executive-and not

all directors .4. Profit sharing is still not there- only commission

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Regulations for investment in Insurance Sector:1. Regulations under the Insurance Regulatory and Development Authority

(Investment) (Amendment) Regulations, 2001 passed.2. Regulations have been laid down on the amount of investment an insurance

co. can make out of its Life Funds and other funds in the following areas:• Govt securities -25%• Approved securities, including above -50%• Infrastructure and Social Sector - 15% ( Not less than )• Other sectors -35% ( Not more than)

3. Pension and General Annuity Business:• Govt Securities - 20%• Govt / approved securities - 40%• Other approved Investments - 60%

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3. General Insurance :• Central Govt Securities - Not less than 20%• State Govt and other guaranteed Securities - Not less than 30%• Housing and Loans to State Govt.s for housing - Not less than 5%• Infrastructure and Social Sector - Not less than 10%• Others ( unapproved not to exceed 25%) - Not exceeding 55% There are specific regulations as to the minimum required rating of the

securities in which only these funds can invest. Norms are also laid down for constitution of the Investment Committee. Necessary certifications to be provided by the investment Committee of the

Institution Reasons for exceptions, if any, have to be explained.

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Products and service offered and Channels of distribution, Banc

assurance model and Fund Management in insurance sector

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products & services offered - ppt 24-09-10

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