18-08-2014, 12:47 PM
LIFE INSURANCE
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INTRODUCTION
Life insurance is a form of insurance that pays monetary proceeds upon the death of the insured covered in the policy. Essentially a life insurance policy is a contract between the named insured and the insurance company wherein the insurance company agrees to pay an agreed upon sum of money to the insured's named beneficiary so long as the insured's premiums are current. With a large population and the untapped market area of this population insurance happens to be a very big opportunity in India.
Today it stands as a business growing at the rate of 15-20% annually. Together with banking services, it adds about 7 percent to the country’s GDP. In spite of all this growth statistics of the penetration of the insurance in the country is very poor. Nearly 80% of Indian populations are without life insurance cover and the health insurance. This is an indicator that growth potential for the insurance sector is immense in India.
It was due to this immense growth that the regulations were introduced in the insurance sector and in continuation “Malhotra Committee” was constituted by the government in 1993 to examine the various aspects of the industry. The key element of the reform process was participation of overseas insurance companies with 26% capital. Creating a more competitive financial system suitable for the requirements of the economy was the main idea behind this reform.
Since then the insurance industry has gone through many changes. The liberalization of the industry the insurance industry has never looked back and today stand as one of the most competitive and exploring industry in India.
The entry of the private players and the increased use of the new distribution are in the limelight today. The use of new distribution techniques and the IT tools has increased the scope of the industry in the longer run. Insurance is the business of providing protection against financial aspects of risk, such as those to property, life health and legal liability. It is one method of a greater concept known as risk management –which is the need to manage uncertainty on account of exposure to loss, injury, disadvantage or destruction.
The business of insurance is related to the protection of the economic values of assets. Every asset has a value. The asset would have been created through the efforts of the owner. The asset is valuable to the owner, because he expects to get some benefit from it. The benefit may be an income or in some other form.
In India, insurance began in 1818 with life insurance being transacted by an English company. The first insurance company was the Bombay mutual assurance society ltd, formed in 1870 in Mumbai. Insurance helps to reduce the consequences of adverse situation. Insurance is the method of spreading and transfer of risk. The fortunate many who are exposed to some or similar risk shares loss of the unfortunate. Insurance does not protect the assets but only compensates the economic or financial loss.
In insurance the insured makes payment called “premiums” to an insurer, and in return is able to claim a payment from the insurer if the insured suffers a defined type of loss. This relationship is usually drawn up in a formal legal contract.
Insurance companies also earn investment profits, because they have the use of the premium money from the time they receive it until the time they need it to pay claims. This money is called the float. When the investments of float are successful they may earn large profits, even if the insurance company pays out in claims every penny received as premiums. In fact, most insurance companies pay out more money than they receive in premiums. The excess amount that they pay to policyholders is the cost of float.
An insurance company will profit if they invest the money at a greater return than their cost of float. An insurance contract or policy will set out in detail the exact circumstances under which a benefit payment will be made and the amount of the premiums.
Marine insurance is the oldest type of insurance and one of the earliest records of a marine policy relates to a Mediterranean voyage in 1347. This was followed by life insurance some 300 years later. Fire insurance, however, did not begin until after the Great fire of London in 1666. In India all the three insurance developed as under:
HEALTH INSURANCE
A Health Insurance policy can provide financial relief to a person undergoing medical treatment whether due to a disease or an injury. Industries also need to protect themselves by obtaining insurance covers to protect their building, machinery, stocks etc. They need to cover their liabilities as well. Financiers insist on insurance. So, most industries or businesses that are financed by banks and other institutions do obtain covers. But are they obtaining the right covers? And are they insuring adequately are questions that need to be given some thought. Also organizations or industries that are self-financed should ensure that they are protected by insurance.
Insurance In India-History
The insurance sector in India has come a full circle from being an open competitive market to nationalization and back to a liberalized market again. Tracing the developments in the Indian insurance sector reveals the 360 degree turn witnessed over a period of almost two centuries.
A brief history of the Insurance sector
The business of life insurance in India in its existing form started in India in the year 1818 with the establishment of the Oriental Life Insurance Company in Calcutta. Some of the important milestones in the life insurance business in India are:-
FUNCTION OF ADVISORS:
Advisors provide ongoing financial advice for his /her client/prospect. In our official term prospect is a person who can buy life insurance from us. The advisors study the prospects needs and persuade them to buy a policy.
DISTRIBUTION CHANNEL
Distribution channels such as agents are licensed by the IRDA. To get an agency license, one has to have certain minimum qualifications; practical training in insurance subjects and pass an examination conducted by the Insurance Institute of India.
IRDA regulations on licensing of agents/brokers lay down the code of conduct for individual agents, corporate agents and brokers. A separate note on the code of conduct is appended to this note.
Thus it is seen that the dos and don’ts for these intermediaries are given clearly at the point of sale as well as in the event of a claim. Service does not end with the customer receiving his document; it in fact only begins here. After sales service is as important or even more important – like when a refund has to be made or when a claim has to be made.
CONCLUSION:
India is at a fast pace of development. In a recent study India’s PPP index (Purchasing Power Parity) is forth only after U.S.A and China. So, India’s dominance in the world market cannot be denied.
This fact is clear from the fact, though Indian Government giving only 26% entry through F.D.I (Foreign Direct Investment) these vast multinational companies like Prudential Plc, MetLife, Allianz, etc, are pumping in millions of dollar in this industry in India.
India’s insurance market has been tapped to the tune of 15% and out of this nearly 7-8% have done their policies not by their will. So, there is a vast open market in front of all the companies.
So, these multinationals are trying to tap this more than 100 crore market by population and earn in the long run. Now here in the world lies such a big untapped market by potential in any sector. So all these companies are preparing for the long run.
So, Kotak life insurance has also to think about in the long run, so that it can maintain its position in the long run.
As we are watching, That no fixed policies are going to be effective in this open market as this is clear from the example of L.I.C, which has been constantly losing its market share to these private life insurance companies, so it has also made changes in its policies and trying to mould up according to the demands of the customer.
And in this cat race the biggest gainer is the consumer because more the competition more better products for the consumer. This is the rule of the service sector. The consumer before this liberalization of the insurance sector had not much a choice, which they today have.
So, in the long run survival of the fittest will be the main theme.
So, understanding of human psychology and consumer demands would be a key factor and the agency sales force of the company can best do this work. The onus will be on them to get the data collected and give necessary information to the company thus providing valuable inputs and also giving advice to the clients on how the existing policies can be beneficial to them. The advisors will rather have to become and don the hat of “Financial Planners”, whose work will be to plan the future for his client.
So, it is my great experience and pleasure working in a company like kotak Mahindra. It was a great learning experience about recruitment strategy of an advisor, about the business, about the fulfillment of the business and so on. After going through the whole project for two months. I have got different issues like motivation, encouragement from the senior. Career path and so on.
It was also a great experience of meeting various kinds of people like CA, FD, LAWYER Service, persons etc. It was a great learning experience of how, to approach different kind of people.
Thus it can say that these have been a great two months of learning and growth.