This Article is taken from Mrs. Kum Kum Tandon's book After 10+2 And Beyond - Humanities & Commerce chapter No. 7 titled Finance and Accounts
Insurance is an economic activity which provides financial security against a small regular payment for uncertain financial losses. It serves as a counter balance for all kinds of risks. In India the concept of life insurance is about a century old. During the British rule Bombay Insurance Company, founded in 1793, offered life insurance only to the British. Only in 1871 the Bombay Mutual Life Insurance Society Ltd. began the insurance services for Indians. By 1912 the concept had spread to other parts in the country and several offices opened. This, however, needed close monitoring, constant vigilance and careful management. With the enactment of Insurance Act, 1950 the entire life insurance business was nationalised. In 1956 the Indian Government took over various operating firms and formed a single corporation.
There were 245 private insurance companies when life insurance was nationalised in 1956 and 106 private insurance companies when general insurance was nationalised in 1972.
The Insurance sector is mainly comprised of insurance carriers, insurers, insurance agents and brokers.
Private Insurance sector
The opening of the insurance sector had potential benefits, catering to 300 million plus market being the most prominent one. The genesis of the Indian Insurance sector opening up to private competition lies in the Malhotra Committee recommendations for substantially increasing the reach of the insurance industry and for improving the customer service. The panel recommended privatisation of the insurance industry predicting growth in premiums (the insurance premium as a percentage of GDP was 2 percent for India as compared to much higher ones for other countries).
Private insurers have come out to offer services which are both innovative and flexible e.g. the HDFC Standard Life and ICICI Prudential in the Life Insurance arena offer assurance, endowment and money back products like the one offered by state-owned company. But private insurance products entail additional benefits for situations like critical illness.
Foreign Insurers
International insurers derive their business from carrying out their operations away from their home turf and so India offers the best potential for growth. Alliances- Some alliances between the Indian and International entrants based on distribution rather than on products or technology is envisaged to be more durable.
Regulatory Authority
The role of a regulatory authority has undergone changes over the years. The Insurance Act, 1938 had made it mandatory for setting up of the Controller of Insurance which would serve as a regulatory authority. But with the insurance sector having opened up and private competition creeping in, there was a need felt for an Insurance Regulatory Authority. In April 2000, IRDA came into being. It has been carrying on its twin objectives-framing regulations and registering private insurance companies-with utmost precision. Essentially, the IRDA Act provides for the establishment of an authority to protect the interests of holders of insurance policies and also regulate and promote the orderly growth of insurance industry. As part of its mandate, IRDA has come with some riders and this includes that the companies would have to invest a minimum capital of Rs.100 cr. The lock in period would be five years and profit generation can only begin from the sixth year. Some registered Insurers for Life are -
• HDFC Standard Life Insurance Company Ltd.
• Max New York Life Insurance Company Ltd.
• ICICI Prudential Life Insurance Company Ltd.
• Om Kotak Mahindra Life Insurance Company Ltd.
• Birla Sun Life Insurance Company Limited
• Reliance Life Insurance Company Limited.
• Tata AIG Life Insurance Company Limited.
• Tata AIG General Insurance Co.Ltd.
General
• New India Assurance Company Ltd.
• United India Assurance Company Ltd.
• National Insurance Company Ltd.
• Oriental Insurance Company Ltd.
• Royal Sundaram Alliance Insurance Ltd.
• Reliance General Insurance Company Ltd.
• IFFCO-Tokyo Marine Insurance Co.Ltd.
Private competition in the insurance sector has proved beneficial in providing improved services, better insurance products, more employment opportunities and last but not the least the flow of funds in financing the infrastructure projects.
Life Insurance Corporation & General Insurance Corporation
The central office of LIC is at Mumbai. There are five zonal offices located at Mumbai, Kolkota, Delhi, Kanpur, Hyderabad, Bhopal and Chennai. LIC has offices in Fiji, Mauritius and UK. LIC has insurance joint ventures abroad in Nairobi, Kuala Lumpur and Bahrain. While the head office is responsible for formulation of policies, zonal offices coordinate with and supervise divisional offices. There are 58 divisional offices with an allotted territorial jurisdiction. There are almost 1,200 branch LIC offices. The divisional office takes care of servicing of policies and supervises branch offices. LIC Branch offices work towards procuring fresh business. In the LIC the Chief Executive is the Chairman. There are two Managing Directors who oversee the work of sixteen Departmental Chiefs.
LIC employs almost 90,000 staff working in - the development department, publicity and public relations department, the personnel department, the actuarial department, the secretarial department, group and superannuation department, servicing PHS, accounts department, legal department, investment department, audit and inspection department, mortgages department, corporate planning department, foreign department, building department, and the vigilance department. While LIC deals with insurance of life, the General Insurance Company (‘GIC') is another insurance firm concerned with every thing but life - motor, marine, personal accident and fire insurance. They also participate in financing of industrial projects through term loans and direct subscription to shares and debentures of new and existing enterprises.
Both LIC and GIC have branches all over the country. GIC has four subsidiaries - Oriental Insurance, United India Insurance, New India Assurance and National Insurance.
The insurance sector has 3 main divisions : life insurance, health insurance, property and accident insurance. Companies may specialize in one or all the three types of insurance coverage.
Nature of Work
In the Private Sector
In India with the liberalisation of the insurance sector the number of private global insurance companies setting up offices is on the rise. Insurance is becoming an essential part of every one's life. Insurance provides protection against financial losses resulting from a variety of perils. Insured individuals/business/industry, etc. can receive reimbursement for losses due to car accidents, theft of property, fire and storm damage, medical expenses and loss of income due to disability or death.
The private sector insurance industry comprises of insurance companies, their agents, insurance surveyors, actuaries and development staff. The agents market the agency's services and underwriters review applications from willing customers. Actuaries determine premium sales and lay down operating standards based an risk analysis. Development staff oversee the operations in defined territories.
In the Government sector
Each department in an Insurance Corporation performs the special task it is constituted for. However, there are four levels of employees with specific roles - Class I, II, III, IV level employees.
Administrative officer (AO) and assistant administrative officer (AAO) [Class I Officer]
Just as Probationary Officer (‘POs') are banking professionals, Administrative Officer (‘AOs') or Assistant Administrative Officers (‘AAOs') are identified with the insurance services in India.
The AAO can choose from three areas : Administration, Development or Accounts. In administration the AAO deals with registry of claims till a certain permissible financial limit. They deal with policy making, checking various clauses and details, and file official returns and statements to higher regional offices. The Development AAO deals with marketing and procurement of business, meeting prospective clients, promoting the policies and getting contracts. Accounts AAO deals with management of funds and their disbursal including staff salaries, etc.
The job begins with a probation-cum-training period of 6 months where the candidate is placed anywhere in the country in the branches of GIC and LIC for hands-on-exposure of the workings of the company.
The AAOs have a time bound promotion. After 3 years of working as AAOs they can be promoted to AOs. AOs have more authority and financial powers. The promotions and scales are thereafter regular. They get benefits like provident fund, house rent allowance, leave travel advance, and even subsidised interest loans on housing and purchase of vehicles. Essentially the job is compatible with class one government jobs. They can be posted anywhere in India.
Development officer [Class II Officer]
The Development Officer is in charge of the overall development and sale of Insurance policies in the territorial jurisdiction he is appointed. The main job the Development Officer does is to recruit and train agents for the procurement of new business and the servicing of old policies. Since it is a field job, friendly, out going persons - those who have potential for assessing the market, who can meet people to explain to them the various policies and schemes of the LIC and who have an aptitude for selling - are best suited for the job. Agents recruited by Development Officers can also earn promotion to the rank of development officers.
Class III and IV level workers
The posts in group III are those of assistants, stenographers, typists, machine operators, telephone operators and record clerks.
Agents for Insurance
An insurance agent is a person who has taken up agency for selling life insurance policies after completion of his training and has been awarded a certificate of proficiency. Insurance is sold, never bought. Therefore, insurance sales is one of the most aggressive in the world. Insurance sales workers sell one or more of the three basic types of insurance : Life insurance, property-liability and health.
Most people have their first contact with an insurance company through an insurance sales worker. These professionals help individuals or companies select the right policy for their needs. They plan for the financial security of individuals, families, and businesses, advise about insurance protection for an automobile, home, business, or other property; prepare reports and maintain records; and help a policy holder obtain settlement of an insurance claim.
Insurance agents have to undergo training. Initial stipends and pocket expenses form part of the initial packet to the agent in addition to the commission.
ICICI Prudential Life Insurance has the largest number of advisor (agent) amongst the private life Insurers from different backgrounds. A large number advisers are women, mostly housewives ; the remainder comprises fresh graduates, individuals with their own business, those from the service sector, or professionals. Many of ICICI Prudential's advisers hold advanced degrees such as an MBA, legal degrees, etc. Nevertheless the induction and training is open to anyone who is 18 years of age, or over, and has passed the standard 12 examination.
The company extensive gives in training in specific skills, product training, communication skills, domain knowledge, sales management and other financial skills.
Max New York Life offers 152 hours of training even after 100 hours of mandatory IRDA approved training to agents. The company has its own IRDA approved training institutes at each of its centres.
Surveyors of Insurance
The growth of specialised industry and engineering and the heavy finances involved in such sectors has had a positive impact on the insurance business. Every practical businessman gets his risks insured. Bigger ventures which involve loans from financial institutions like banks and other fiscal corporations, must have an insurance cover, so that in the event of any mishap, damage or loss, the sufferers can easily seek reimbursement.
For this purpose a professional insurance surveyor is needed. They are technically qualified professionals deputed for the assessment of losses according to their qualifications and experience, e.g., in the case of a motor vehicle loss, a surveyor holding a degree or diploma in Automobile engineering assesses the loss while in case of an industrial accident, a surveyor with a background in Mechanical Engineering does the assessment. The surveyor plays a vital role. He is the only specialized link between the insurers and the insured. He helps insurers by minimising and avoiding false, exaggerated claims and on the other hand helps the insured who have suffered a genuine loss by indemnification of their loss.
The work of an insurance surveyor is not always a pleasant exercise. There are irregular timings, travelling and hard work. A surveyor needs to have the eye of a detective and the balance and tact of a diplomat. The surveyor doesn't just survey - he investigates, evaluates, assesses, adjusts, determines, liability, negotiates and finally reports.
Actuary
An actuary is a business professional who analyses the financial consequences of risk. An actuary uses mathematics, statistics, and financial theory to study uncertain future events, especially those of concern to insurance, investments and pension programmes. It is a number crunching job and involves handling statistical data to device the correct pricing of insurance policies. Actuaries work in a wide number of areas in life insurance, general insurance, reinsurance, pension funds, risk management, etc.
The job profile includes product design, policy pricing, asset liability management and also certifying the financial position of the company. In the pension sector, an actuary is involved in designing a scheme of benefits for members of the pension scheme, calculating the past and future service costs and benefits, certifying to the regulator that the fund assets are sufficient to meet liabilities and that the assets are invested as per the investment pattern prescribed, calculating and certifying the pension cost on acquisitions and merger of companies and others.
With the IRDA announcing that the appointed actuary system would be adopted for the sector, there will be a huge demand for actuaries. It mandates that life insurance companies must appoint actuary and general insurance companies can meet their needs with consultants.
The Actuarial Society of India, which is also affiliated to the Institute of Actuaries, UK, conducts exams in the country. It is also considering conducting actuarial exams for foreign institutions with the Casualty Actuarial Society and the Society of Actuaries in the US.
Underwriter
Underwriting is the other specialised area which assumes prominence with privatization in the sector. An underwriter stratifies that risk of an individual on behalf of the company, in other words, he assesses the applicant and identifies the risk profile. Underwriters decide whether to issue the policy and the appropriate premium rates. If the risk is not assessed properly, the insurance company runs the risk of high claims.
Though there are no specific qualifications required for this profession, education and training are vital. Anybody can become an underwriter, but it is preferable that he has some basic medical knowledge. There are two types of underwriters-medical and non-medical. The medical underwriter is one who assesses high risk of high premium applicants, whereas the non-medical underwriter will essentially look at the simpler applications.
Brokers
Insurance Brokers, Insurance Consultants and Reinsurance Brokers are few other insurance intermediaries who work gainfully in the insurance system. Insurance Brokers are independent intermediaries who represent the client and not the insurance company, unlike the insurance agent who represents an insurance company. The job involves evaluating risks, examining available options, negotiating with different insurance companies for the best rate and coverage and also handling claims recovery. Brokers generally focus on non life commercial segments with agents focusing on the retail segment.
Personal Characteristics.
It is important that people who sell the companies policies are well versed with the same. This will help them to sell the right kind of products to the consumer. And it is equally important that the people buying such products should be clear about their needs and make their decisions accordingly. The job requires good communication skills and the ability to persuade. An amiable disposition and patience will yield the best satisfaction. Insurance Brokers must be very professional, organised and technologically savvy than other intermediaries. Training in client relations and technical knowledge is vital.
Employment Avenues
Employment Avenues are in Insurance Companies, corporate sector, stock broking firms, finance and leasing firms, shipping firms.
Insurance firms provide work opportunities in the administrative cadres, as apprentice trainees and as agents. Self employment as agents and assessors is possible. LIC across its 8 zones plans to add over 1.5-2 lakh agents over the next two years to its existing roster of 8 lakh agents.
Specialisations
Marine , aviation and transport insurance, cargo insurance, reinsurance, commercial and risk management, motor insurance, property insurance, employment benefit schemes, health insurance etc. are areas of specialization The most lucrative choices are underwriting and actuaries, surveying, marketing, distribution , software and investment.
For Actuaries the opportunities are in Life insurance, general insurance, reinsurance, pension funds, risk management etc.With the IRDA mandate life insurance sector requires over a thousand actuaries in the next few years. Actuaries also fill jobs in Government, as consultants, risk management, projects management, software development and as back office staff.
Insurance Brokers work in marketing, underwriting, technical support, client relations, IT support etc. The larger Broking firms employ post graduates and MBAs for all the functions. IT professionals with or without insurance expertise are also in demand.
Earnings
In the administrative department pay scales match those of nationalised bank employees. Employees at the clerical level start at a salary of Rs. 5,000 and that for officers grade is around Rs. 10,000.
Actuaries - 6-20 lakhs per annum, Underwriters - Rs. 6-8 lakhs per annum. Underwriters from medical and life sciences background get a good deal.
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