Indian Insurance History
In India, insurance has a deep-rooted history. It finds mention in the writings of Manu ( Manusmrithi ), Yagnavalkya (Dharmasastra ) and Kautilya ( Arthasastra ). The writings talk in terms of pooling of resources that could be re-distributed in times of calamities such as fire, floods, epidemics and famine. This was probably a pre-cursor to modern day insurance. Ancient Indian history has preserved the earliest traces of insurance in the form of marine trade loans and carriers' contracts. Insurance in India has evolved over time heavily drawing from other countries, England in particular.
1818 saw the advent of life insurance business in India with the establishment of the Oriental Life Insurance Company in Calcutta. This Company however failed in 1834. In 1829, the Madras Equitable had begun transacting life insurance business in the Madras Presidency. 1870 saw the enactment of the British Insurance Act and in the last three decades of the nineteenth century, the Bombay Mutual (1871), Oriental (1874) and Empire of India (1897) were started in the Bombay Residency.
In 1914, the Government of India started publishing returns of Insurance Companies in India. The Indian Life Assurance Companies Act, 1912 was the first statutory measure to regulate life business. In 1928, the Indian Insurance Companies Act was enacted to enable the Government to collect statistical information about both life and non-life business transacted in India by Indian and foreign insurers including provident insurance societies. In 1938, with a view to protecting the interest of the Insurance public, the earlier legislation was consolidated and amended by the Insurance Act, 1938 with comprehensive provisions for effective control over the activities of insurers.
The Insurance Amendment Act of 1950 abolished Principal Agencies. However, there were a large number of insurance companies and the level of competition was high. There were also allegations of unfair trade practices. The Government of India, therefore, decided to nationalize insurance business.
An Ordinance was issued on 19th January, 1956 nationalizing the Life Insurance sector and Life Insurance Corporation came into existence in the same year. The LIC absorbed 154 Indian, 16 non-Indian insurers as also 75 provident societies --245 Indian and foreign insurers in all. The LIC had monopoly till the late 90s when the Insurance sector was reopened to the private sector.
The history of General Insurance dates back to the Industrial Revolution in the west and the consequent growth of sea-faring trade and commerce in the 17th century. It came to India as a legacy of British occupation. General Insurance in India has its roots in the establishment of Triton Insurance Company Ltd., in the year 1850 in Calcutta by the British. In 1907, the Indian Mercantile Insurance Ltd, was set up. This was the first company to transact all classes of general insurance business.
1957 saw the formation of the General Insurance Council, a wing of the Insurance Association of India. The General Insurance Council framed a code of conduct for ensuring fair conduct and sound business practices.
In 1968, the Insurance Act was amended to regulate investments and set minimum solvency margins. The Tariff Advisory Committee was also set up then.
In 1972 with the passing of the General Insurance Business (Nationalization) Act, General Insurance business was nationalized with effect from 1st January, 1973. 107 insurers were amalgamated and grouped into four companies, namely National Insurance Company Ltd., the New India Assurance Company Ltd., the Oriental Insurance Company Ltd and the United India Insurance Company Ltd. The General Insurance Corporation of India was incorporated as a company in 1971 and it commence business on January 1st 1973.
The process of re-opening of the sector had begun in the early 1990s and the last decade and more has seen it been opened up substantially. In 1993, the Government set up a committee under the chairmanship of RN Malhotra, former Governor of RBI, to propose recommendations for reforms in the insurance sector .The objective was to complement the reforms initiated in the financial sector. The committee submitted its report in 1994 wherein , among other things, it recommended that the private sector be permitted to enter the insurance industry. They stated that foreign companies be allowed to enter by floating Indian companies, preferably a joint venture with Indian partners.
Following the recommendations of the Malhotra Committee report, in 1999, the Insurance Regulatory and Development Authority (IRDA) was constituted as an autonomous body to regulate and develop the insurance industry. The IRDA was incorporated as a statutory body in April, 2000. The key objectives of the IRDA include promotion of competition so as to enhance customer satisfaction through increased consumer choice and lower premiums, while ensuring the financial security of the insurance market.
The IRDA opened up the market in August 2000 with the invitation for application for registrations. Foreign companies were allowed ownership of up to 26%. The Authority has the power to frame regulations under Section 114A of the Insurance Act, 1938 and has from 2000 onwards framed various regulations ranging from registration of companies for carrying on insurance business to protection of policyholders' interests.
In December, 2000, the subsidiaries of the General Insurance Corporation of India were restructured as independent companies and at the same time GIC was converted into a National Re-Insurer. Parliament passed a bill de-linking the four subsidiaries from GIC in July, 2002.
Today there are 28 general insurance companies including the ECGC and Agriculture Insurance Corporation of India and 24 life insurance companies operating in the country.
The insurance sector is a colossal one and is growing at a speedy rate of 15-20%. Together with banking services, insurance services add about 7% to the country's GDP. A well-developed and evolved insurance sector is a boon for economic development as it provides long- term funds for infrastructure development at the same time strengthening the risk taking ability of the country.
Types of General Insurances
Insurance of property means insurance of buildings,machinery, stocks etc against Fire and Allied Perils,Burglary Risks and so on. Goods in transit via Sea,Air, Railways, Roads and Courier can be insured under Marine Cargo Insurance. Hulls of ship and boats can be insured under Marine Hull Insurance. Further, there are specialized policies available such as Aviation Insurance Policy for insurance of planes and helicopters. Thus Property Insurance is a very vast category of General Insurance and the type of cover that you need depends upon the type of property you are seeking to cover.
Package or Umbrella policies
There are package or umbrella covers available which give, under a single document, a combination of covers. For instance there are covers such as Householders Policy, Shopkeepers Policy, OfficePackage policy etc that, under one policy, seek to cover various physical assets including buildings, contents etc. Such policies, apart from seeking to cover property may also include certain personal lines or liability covers. Make sure you understand the complete details of cover and exclusions contained in the policy you are considering.
Package or Umbrella covers could have common terms and conditions for all sections as also specific terms for specific sections of the policy
The most popular property insurance is the standard Fire insurance policy. The Fire insurance policy offers protection against any unforeseen loss or damage to/destruction of property due to fire or other perils covered under the policy. The different types of property that could be covered under a fire insurance policy are dwellings, offices, shops, hospitals, places of worship etc and their contents; industrial/manufacturing risks and contents such as machinery, plants, equipment and accessories; goods including raw material, material in process, semifinished goods, finished goods, packing materials etc in factories, godowns and in the open; utilities located outside industrial/manufacturing risks; storage risks outside the compound of industrial risks; tank farms/gas holders located outside the compound of industrial risks etc.
What a Fire Policy covers:
Though it is called 'Fire Insurance', apart from the risk of fire, it also offers cover against lightning, explosion/implosion, aircraft damage, riot, strike and malicious damage, storm, cyclone, typhoon, hurricane, flood and inundation, impact damage, subsidence and landslide including rockslide, bursting and/or overflowing of water tanks, apparatus and pipes, missile testing operations, accidental leakage from automatic sprinkler installations, bush fire etc.
What a Fire Policy excludes:
A fire insurance policy usually does not cover a certain amount known as 'excess' under the policy.
Loss or damage caused by war and warlike operations, nuclear perils, pollution or contamination, electrical/mechanical breakdown, burglary and housebreaking are excluded. Certain perils like earthquake, spontaneous combustion etc can be covered on payment of additional premium. Fire insurance policies are issued for one year except for dwellings, where a policy may be issued for long term (with a minimum period of three years).
A Burglary Insurance policy may be offered for a business enterprise or for a house. The policy coversproperty contained in the premises including stocks/goods owned or held in trust if specifically covered . It also covers cash, valuables, securities kept in a locked safe or cash box in locked steel cupboard if you specifically request for it. Apart from offering cover for the contents in the premises, a Burglary Insurance policy covers damage to your house or premises caused by burglars during burglary or attempts at burglary. The Policy pays actual loss/damage to your insured property caused by burglary/house breaking subject to the limit of Sum Insured. If Sum Insured is not adequate, Policy pays only proportionate loss. Hence, you must ensure that you value the property covered correctly to ensure that there is no underinsurance.
A Burglary Insurance Policy can generally be extended to cover Riot, Strike, Malicious Damage and Theft.
What is not covered in a Burglary Insurance Policy
Generally, the Policy will not pay for loss/damage to goods held in trust/commission unless specifically covered, jewellery, curios, title deeds, business books unless specifically insured; any amount that is recoverable under Fire/Plate glass insurance policy; loss from a safe using a key or duplicate key, unless it is obtained by violence or threat; Due to shop lifting, acts involving you/your family members/ your employees; due to War perils, Riot & Strike ( covered by payment of additional premium), Acts of God, Nuclear perils
All Risks Insurance
All Risks Insurance generally offers cover for jewellery and/or portable equipment etc. This cover is generally offered selectively. The design of the policy may vary from company to company. It is important to note that an All Risks policy is not free from exclusions. So, the term All Risks' doesn't mean that anything and everything is covered.
What is generally excluded in All Risks Insurance:
Lookout for the exclusions - generally actions of moth, vermin, mildew, wear and tear or repairs, dyeing or bleaching or any gradually operating cause, Mere breaking/ scratching or cracking of fragile items unless caused by accident to the means of conveyance and Any mechanical or electrical breakdown/derangement except due to accidental external means, Over winding, denting or internal damage to watches or clocks Thefts from cars except fully closed saloons Consequential losses, any legal liability, War perils, nuclear risks, any government/local authority action and Any loss due to insured's action which has contributed to increase in risk are excluded from the scope of the policy. On payment of additional premium mechanical and/or electrical/ electronic breakdown extension may be offered.
Marine Cargo Insurance
Marine Cargo Insurance covers transits by Water, Air, Road or Rail, Registered Post Parcel, Courier or a combination of two or more of these. Who can take a Marine Cargo Insurance Policy: Buyers, Sellers, Import/Export merchants, Buying Agents, Contractors and Banks etc.
Marine Cargo Policies cover the interest in the cargo and also extend to cover the interests of any third party who has acquired interest upon transfer of ownership, as determined by the Terms of Sale.
How Marine Cargo Insurance helps:
Cargo can be damaged on exposure to a wide variety of risks, including an accident of the vehicle carrying the cargo, damage due to jolts, jerks etc. Decide whether you want to take a Basic Cover or a wider cover. Read and understand the terms and conditions of the policy. Check whether there are any Deductibles'.
What is generally excluded in a Marine Cargo Insurance Policy:
Loss or damage due to Inherent Vice , Delay, Insufficiency of packing, loss or damage due to financial default or insolvency of the ship owner etc.
What are the other types of property insurance available?
Some of the other property insurances available are Engineering insurance policies like the Electronic Equipment Insurance, Machinery Breakdown insurance etc.
Launched in 1986, the health insurance industry has grown significantly mainly due to liberalization of economy and general awareness. According to the World Bank, by 2010, more than 25% of India's population had access to some form of health insurance. There are standalone health insurers along with government sponsored health insurance providers.
Health insurance in India typically pays for only inpatient hospitalization and for treatment at hospitals in India. Outpatient services were not payable under health policies in India. The first health policies in India were Mediclaim Policies. In 2000 government of India liberalized insurance and allowed private players into the insurance sector. The advent of private insurers in India saw the introduction of many innovative products like family floater plans, top-up plans, critical illness plans, hospital cash and top up policies.
The health insurance sector hovers around 10 % in density calculations. One of the main reasons for the low penetration and coverage of health insurance is the lack of competition in the sector.
Broadly we can divide the health insurance plans in India today can be classified into three categories:
Hospitalization plans are indemnity plans that pay cost of hospitalization and medical costs of the insured subject to the sum insured. The sum insured can be applied on a per member basis in case of individual health policies or on a floater basis in case of family floater policies. In case of floater policies the sum insured can be utilized by any of the members insured under the plan. These policies do not normally pay any cash benefit. In addition to hospitalization benefits, specific policies may offer a number of additional benefits like maternity and newborn coverage, day care procedures for specific procedures, pre- and post-hospitalization care, domiciliary benefits where patients cannot be moved to a hospital, daily cash, and convalescence. There is another type of hospitalization policy called a top-up policy. Top up policies have a high deductible typically set a level of existing cover. This policy is targeted at people who have some amount of insurance from their employer. If the employer provided cover is not enough people can supplement their cover with the top-up policy. However, this is subject to deduction on every claim reported for every member on the final amount payable.
Hospital daily cash benefit plans:
Daily cash benefits is a defined benefit policy that pays a defined sum of money for every day of hospitalization. The payments for a defined number of days in the policy year and may be subject to a deductible of few days.
Critical illness plans:
These are benefit based policies which pay a lump sum (fixed) benefit amount on diagnosis of covered critical illness and medical procedures. These illnesses are generally specific and high severity and low frequency in nature that cost high when compared to day to day medical / treatment need. eg heart attack, cancer, stroke etc now some insurers have come up with option of staggered payment of claims in combination to upfront lump sum payment.
Pro active plans:
Some companies like Cigna TTK offer Pro active living programs. These are designed keeping in mind the Indian market and provide assistance based on medical, behavioral and lifestyle factors associated with chronic conditions. These services aim to help customers understand and manage their health better.
Auto Insurance in India deals with the insurance covers for the loss or damage caused to the automobile or its parts due to natural and man-made calamities. It provides accident cover for individual owners of the vehicle while driving and also for passengers and third party legal liability.
Auto Insurance in India is a compulsory requirement for all new vehicles used whether for commercial or personal use. The insurance companies have tie-ups with leading automobile manufacturers. They offer their customers instant auto quotes. Auto premium is determined by a number of factors and the amount of premium increases with the rise in the price of the vehicle. There are different types of Auto Insurance in India :
Private Car Insurance - In the Auto Insurance in India, Private Car Insurance is the fastest growing sector as it is compulsory for all the new cars. The amount of premium depends on the make and value of the car, state where the car is registered and the year of manufacture.
Two Wheeler Insurance - The Two Wheeler Insurance under the Auto Insurance in India covers accidental insurance for the drivers of the vehicle. The amount of premium depends on the current showroom price multiplied by the depreciation rate fixed by the Tariff Advisory Committee at the time of the beginning of policy period.
Commercial Vehicle Insurance - Commercial Vehicle Insurance under the Auto Insurance in India provides cover for all the vehicles which are not used for personal purposes, like the Trucks and HMVs. The amount of premium depends on the showroom price of the vehicle at the commencement of the insurance period, make of the vehicle and the place of registration of the vehicle.
The auto insurance generally includes:
- Loss or damage by accident, fire, lightning, self ignition, external explosion, burglary, housebreaking or theft, malicious act.
- Liability for third party injury/death, third party property and liability to paid driver
- On payment of appropriate additional premium, loss/damage to electrical/electronic accessories The auto insurance does not include:
- Consequential loss, depreciation, mechanical and electrical breakdown, failure or breakage
- When vehicle is used outside the geographical area
- War or nuclear perils and drunken driving.
This type of business insurance provides very broad cover for damage to electrical and mechanical machinery and can include engineering inspection, a statutory requirement for certain items of plant; this may also be referred to as Machinery Breakdown or Plant All Risks.
Types of Engineering Insurance Policies
- Erection All risks Insurance
- Contractor's All Risks Insurance
- Machinery Breakdown Insurance
- Boiler Explosion
- Electronic Equipment Insurance
continues during the Erection All Risks Insurance
Erection All Risks is a comprehensive insurance policy designed to cover the contingencies arising from the time the materials stored at the project site. The cover entire period until the project is completed, tested, commissioned and handed over to the insured. The policy has two sections viz, Section 1- Material Damage and Section II Third Party Liability.
Contractor's All Risks Insurance
Contractor's Insurance is designed to insulate independent contractors from financial liability. Since contractors are engaged separately for each individual project, the nature of the insurance varies according the specific requirement. For example, the engineering risks involved in the construction of a small residential complex differ greatly from those encountered to infra project. The Contractors All Risks policy covers the physical damage to the materials to be used for the project - whether in transit, storage or forming part of the contract works. Aside from risk management for the engineering aspects, contractors can also opt for additional insurance to provide holistic cover for the entire project.
- Liability Insurance - for physical injury and / or damage to property taking place as a result of the contractor's actions.
- Business Property Insurance - to protect valuable tools and construction equipment from theft / burglary.
- Workers' Compensation - for injuries or illnesses that occur to employees in the course of employment; may also include sub-contractors.
Machinery Breakdown Insurance
Machinery insurance is important for everyone who operates machinery, i.e. not only for large industrial enterprises using large units or fully automated production plants but above all for medium-sized and small enterprises where a machinery failure may have serious financial and economic consequences. Of course those lending credit for the purchase of machinery and plant also have a strong interest in the effective protection of the objects financed by them.
This is where Machinery Breakdown Insurance plays a critical role. It ought to be noted that different levels of coverage applies to different equipment -- mechanical equipment, production machinery, apparatus and auxiliary equipment -- may all be shielded against breakdown for repair and/ or replacement.
Boiler Explosion Insurance
Most factories and manufacturing plants contain pressure vessels, most commonly boilers. These are known to be sensitive machinery where the slightest fault in calibration can lead to an explosion or implosion. In some cases, government authorities mandate pressure vessels / boilers to be routinely inspected and certified safe. But such inspections may not always bring to light defects and problematic areas, which could prevent accidents. Thus, there is a need to be prepared for damage to surrounding properties and liabilities for injury and / or property damage to third parties.
It must be kept in mind that not only the Boiler and associated pressure vessels but also auxiliaries like economizers, super-heaters and steam / feed piping ought to be covered comprehensively. Insurance cover may be sought for fired and unfired vessels. It is also important to get coverage for both chemically induced explosions and physical explosions.
Electronic Equipment Insurance
Electronic equipment is a fundamental part of almost any commercial enterprise today. Few companies (limited to particular kinds of industries) would have sophisticated and high-level electronic equipment. However, electronic devices such as computers, cellular phones, Fax machines, UPS machines and printers are more or less omni-present. Besides this, there may also be data storage equipment which contains crucial to critical data. All of these risk-prone equipments ought to be insured to prevent unforeseeable incidents from affecting the business process.
Liability insurance is a part of the general insurance system of risk financing to protect the purchaser (the "insured") from the risks of liabilities imposed by lawsuits and similar claims. It protects the insured in the event he or she is sued for claims that come within the coverage of the insurance policy. Originally, individuals or companies that faced a common peril, formed a group and created a self-help fund out of which to pay compensation should any member incur loss (in other words, a mutual insurance arrangement). The modern system relies on dedicated carriers, usually for-profit, to offer protection against specified perils in consideration of a premium. Liability insurance is designed to offer specific protection against third party insurance claims, i.e., payment is not typically made to the insured, but rather to someone suffering loss who is not a party to the insurance contract. In general, damage caused intentionally as well as contractual liability are not covered under liability insurance policies. When a claim is made, the insurance carrier has the duty (and right) to defend the insured. The legal costs of a defense normally do not affect policy limits unless the policy expressly states otherwise; this default rule is useful because defense costs tend to soar when cases go to trial.
Liability insurers have two (or three, in some jurisdictions) major duties:
the duty to defend, the duty to indemnify and (in some jurisdictions),the duty to settle a reasonably clear claim.
Occurrence v. claims-made policies
Traditionally, liability insurance was written on an occurrence basis, meaning that the insurer agreed to defend and indemnify against any loss which allegedly "occurred" as a result of an act or omission of the insured during the policy period. This was originally not a problem because it was thought that insureds' tort liability was predictably limited by doctrines like proximate cause and statutes of limitations. In other words, it was thought that no sane plaintiffs' lawyer would sue in 1978 for a tortious act that allegedly occurred in 1953, because the risk of dismissal was so obvious.
In the 1970s and 1980s, a large number of major toxic tort (primarily involving asbestos and diethylstilbestrol) and environmental liabilities resulted in numerous judicial decisions and statutes that radically extended the so-called "long tail" of potential liability chasing occurrence policies. The result was that insurers who had long-ago closed their books on policies written 20, 30, or 40 years earlier now found that their insureds were being hit with hundreds of thousands of lawsuits that potentially implicated those old policies. A body of law has developed concerning which policies must respond to these continuous injury or "long tail" claims, with many courts holding multiple policies may be implicated by the application of an exposure, continuous injury, or injury-in-fact trigger and others holding the policy in effect at the time the injuries or damages are discovered are implicated.
The insurance industry reacted in two ways to these developments. First, premiums on new occurrence policies skyrocketed, since the industry had learned the hard way to assume the worst as to those policies. Second, the industry began issuing claims-made policies, where the policy covers only those claims that are first "made" against the insured during the policy period. A related variation is the claims-made-and-reported policy, under which the policy covers only those claims that are first made against the insured and reported by the insured to the insurer during the policy period. (There is usually a 30-day grace period for reporting after the end of the policy period to protect insureds who are sued at the very end of the policy period.)
Claims-made policies enable insurers to again sharply limit their own long-term liability on each policy and in turn, to close their books on policies and record a profit. Hence, they are much more affordable than occurrence policies and are very popular for that reason. Of course, claims-made policies shift the burden to insureds to immediately report new claims to insurers. They also force insureds to become more proactive about risk management and finding ways to control their own long-tail liability.
Claims-made policies often include strict clauses that require insureds to report even potential claims and that combine an entire series of related acts into a single claim. They can timely report every "potential" claim (i.e., every slip-and-fall on their premises), even if those never ripen into actual lawsuits, and thereby protect their right to coverage, but at the expense of making themselves look more risky and driving up their own insurance premiums. Or they can wait until they actually get sued, but then they run the risk that the claim will be denied because it should have been reported back when the underlying accident first occurred.
Claims-made coverage also makes it harder for insureds to switch insurers, as well as to wind up and shut down their operations. It is possible to purchase "tail coverage" for such situations, but only at premiums much higher than for conventional claims-made policies, since the insurer is being asked to re-assume the kind of liabilities which claims-made policies were supposed to push to insureds to begin with.
Types of Life Insurance in India
Life insurance products come in a variety of offerings catering to the investment needs and objectives of different kinds of investors. Following is the list of broad categories of life insurance products:
Term Insurance Policies
The basic premise of a term insurance policy is to secure the immediate needs of nominees or beneficiaries in the event of sudden or unfortunate demise of the policy holder. The policy holder does not get any monetary benefit at the end of the policy term except for the tax benefits he or she can choose to avail of throughout the tenure of the policy. In the event of death of the policy holder, the sum assured is paid to his or her beneficiaries. Term insurance policies are also relatively cheaper to acquire as compared to other insurance products.
Money back policies are basically an extension of endowment plans wherein the policy holder receives a fixed amount at specific intervals throughout the duration of the policy. In the event of the unfortunate death of the policy holder, the full sum assured is paid to the beneficiaries. The terms again might slightly vary from one insurance company to another.
Unit-linked Investment Policies (ULIP)
Unit linked insurance policies again belong to the insurance-cum-investment category where one gets to enjoy the benefits of both insurance and investment. While a part of the monthly premium pay-out goes towards the insurance cover, the remaining money is invested in various types of funds that invest in debt and equity instruments. ULIP plans are more or less similar in comparison to mutual funds except for the difference that ULIPs offer the additional benefit of insurance.
Pension policies let individuals determine a fixed stream of income post retirement. This basically is a retirement planning investment scheme where the sum assured or the monthly pay-out after retirement entirely depends on the capital invested, the investment timeframe, and the age at which one wishes to retire. There are again several types of pension plans that cater to different investment needs. Now it is recognized as insurance product and being regulated by IRDA.