CHAPTER - I INTRODUCTION AND DESIGN OF THE STUDY

Transcription

1 CHAPTER - I INTRODUCTION AND DESIGN OF THE STUDY INTRODUCTION Insurance is the backbone of a country s risk management system. Risk is an inherent part of our lives. The insurance providers offer a variety of products to businesses and individuals in order to provide protection from risk and to ensure financial security. They are also an important component in the financial intermediation chain of a country and are a source of long-term capital for infrastructure and long-term projects. Through their participation in financial markets, they provide support in stabilizing the markets by evening out any fluctuations. Insurance may be described as a social device to reduce or eliminate risk of loss to life and property. 1 The business of insurance is related to the protection of the economic value of assets. Every asset has a value. The asset would have been created through the efforts of the owner, in the expectation that, either through the income generated there from or some other output, some of his needs would be met. In the case of a factory or a cow, the production is sold and income is generated. In the case of a motor car, it provides comfort and convenience in transportation. There is no direct income. There is a normally expected life time for the asset during which time it is expected to perform. The owner, aware of this, can so manage his affairs that by the end of that life time, a substitute is made available to ensure that the value or income is not lost. However, if the asset gets lost earlier, being destroyed or made non-functional, through an accident or other unfortunate event, the owner and those deriving 1

2 benefits there from suffer. Insurance is a mechanism that helps to reduce such adverse consequences. It promises to pay to the owner or beneficiary of the asset, a certain sum if the loss occurs. MECHANISM OF INSURANCE Insurance companies sell Promises. The Promise to indemnify a loss on a future date arising out of a defined contingency 2. The mechanism of insurance is very simple. People who are exposed to the same risks come together and agree that, if any one of them suffers a loss, the others will share the loss and make good to the person who has met with a loss. All people who send goods by ships are exposed to the same risks, which are related to water damage, sinking of the vessel, piracy etc., Those who own factories are not exposed to these risks, but they are exposed to different kinds of risks like fire, hailstorms, earthquakes, lightning, burglary etc., Like this, different kinds of risks can be identified and separate groups are made, including those exposed to such risks. By this method, heavy loss if any one of them in the group suffers, is divided into bearable small losses by all the others in the group. For example, In a village there are 400 houses, each valued at ` 2,00,000. Every year, on the average, 4 houses get burnt resulting into a total loss of ` 8,00,000. If all the 400 owners come together and contribute ` 2,000 each, the common fund would be ` 8,00,000. This is enough to pay ` 2,00,000 to each of the 4 owners whose houses got burnt. Thus the risk of 4 owners is spread over 400 house-owners of the village. Insurance is pooling of risks. In a contract of insurance, the insurer (insurance company) agrees, in consideration of a sum of money (premium), to make good the loss suffered by the insured against a specified risk such as fire 2

3 and any other similar contingency or to compensate the insured on the happening of a specified event such as accident or death. Thus, there are two parties to an insurance contract: (1) insurer / assurer / underwriter and (2) insured/assured/beneficiary. The document laying down the terms of the contract is called insurance policy. The property which is insured is the subjectmatter of insurance. It may be insured against loss arising from uncertain events in the form of destruction of or damage to the property or death of a person. The interest which the insured has in the subject- matter of insurance is known as insurable interest. IMPORTANT TERMS IN INSURANCE: 1. Insurer The person undertaking the risk is called the insurer, assurer or underwriter. All the insurance companies are insurers. They undertake the risk of the insured and pay claim in the event of loss. For example the National Insurance Company Ltd., is an insurer. 2. Insured The person whose loss is to be made good is called the insured or assured. The policyholders of life insurance and general insurance are called the insured or assured. The relationship between the insurer and the insured is based on the period of the insurance policy. 3. Policy The instrument in which the contract of insurance is generally embodied is called the policy. The policy is not the contract; it is the evidence of the contract. Different types of policies are available for both life and general insurance. 4. Perils insured against 3

4 Destruction of or damage to the property or the death or disablement of a person are called perils insured against. 5. Premium It is the consideration for payment of sum assured or the cost of an insurance contract which purports to assure the payment of specified sum or to make good the actual loss sustained by the policy holders by the happening of events beyond his/her control. It is the main source of income to the insurance company. 6. Claim It refers to the amount due by the insurance company to various persons who have suffered loss on account of the events insured against. A general insurance policy can become a claim only, if a loss has been suffered by the insured as a result of a risk insured against. The payment of claims may be regarded as the primary service of insurance to the public. The prompt and fair settlement of claims is the hallmark of good service to the insuring public. 7. Reinsurance When the management of an insurance company is of the opinion that it has undertaken risks more than its risk bearing capacity, it resorts to reinsurance of that property or risk by another company. In case of loss of the property reinsured, the insurance company shall get claim for reinsurance, but its liability to the original insured remains intact. The company which accepted reinsurance policy pays commission to the client company based on the premium involved. Reinsurance is more popular in general insurance business. In India the only reinsurance company for general insurance business is the 4

5 General Insurance Corporation of India. 8. Reserve for unexpired risk Policies in general insurance are only for one year and there is no question of liability after the year is over. Risks taken by insurance companies do not expire on the date of Balance-sheet since the term of many policies extends beyond this date. 3 A provision must be made to meet the claims which may arise under such policies which mature after the close of the accounting year of the company. Such a provision is known as Reserve for unexpired risks. Under Section 64v(i)(ii)(b) of the IRDA Act, the Reserve for unexpired Risk should be ad under: i) Fire and Miscellaneous Business 50% of premium earned. 4 (ii) Marine Cargo business 50% of premium earned. (iii) Marine Hull business 100% of the premium earned. However, income tax authorities accept a provision up to 50% of the net premium. Good companies maintain additional reserve also over and above the minimum required. 9. Bonus in reduction of premium In case of general insurance, the policy is normally taken for one year. It has to be renewed after the expiry of one year. Whether the policy is renewed with the same insurance company or a new policy is taken with some other company, it is a standard practice that the company usually grants a reduction in premium at the prescribed rate if the insured has not made any claim. The maximum rate of reduction is generally 50%of the gross premium due. Such premium is known as Bonus in reduction of premium. 10. Commission on reinsurance accepted 5

6 The insurance company is to pay commission to its agents according to the terms of business. But when a company gets reinsurance business from other companies, it has to pay them commission. Such commission is known as commission on reinsurance accepted. It is an expense of the company paying the commission. 11. Commission on reinsurance ceded On taking reinsurance, the original insurance company is selling a part of its business to the company called re-insurer. 5 Here some risk is transferred to reinsurer. Whatever commission is received by the original insurer in this connection, it is called commission on reinsurance ceded. It is an income for the general insurance company which receives the commission. 12. Double insurance Taking more than one policy on the same subject matter with many insurance companies is called double insurance. A person may get his property insured with as many companies as he likes for reasons of security for the total value of property and when loss takes place he can realize the actual from any one or all the companies. In this case, all the companies will meet the actual loss jointly. MAJOR ROLES IN INSURANCE SECTOR: 1. The underwriter He is employed by insurance companies to assess the risk and dictate the terms of the policy, including the premium. Early in their careers underwriters work off established data but may find themselves assessing risks based just on their skill and experience later in their careers. 2. The surveyor 6

7 The surveyor is contracted by the insurer to act as an intermediary between the insurance company and the policyholder over claims. The loss adjuster s role is to help settle the claim fairly and speedily. This type of jobs is not popular in India but found elsewhere in the world. 3. The broker The broker is an independent intermediary, who uses his knowledge and experience to assess the client s risk and finds appropriate policies 6. A broker must put the interests of a client first even though they receive a commission from the insurance company. 4. The claims adviser They are the members of an insurance company s claims department. They are the first port of call when anyone comes in. They deal directly with the public over the claim and, depending on the complexity of the claim and the adviser s experience, they will either resolve or help to process the claim. 5. The actuary They provide the formula which is used to calculate premiums and surrender values. The appointed actuary of a company has the legal responsibility of certifying that the millions invested in life insurance policies are safe. 6. The financial adviser Most companies offer investment opportunities to clients such as endowments and life assurance. Job opportunities exist in sales, consultancy or investment analysis. The differences between life insurance and general insurance: 7

8 Life insurance, is an insurance in which a specified amount becomes payable on the death of the insured or upon the expiry of a specified period of time, whichever is earlier. General insurance, is an insurance which covers losses caused by fire, accident and marine adventures and so on. 1. There is absolute certainty as to the happenings of the event insured in life insurance. The uncertainty is only about the timing of the event. The insurer has, therefore, a fixed obligation to compensate the insured. In the case of general insurance, the event insured against may not happen and the insurance company does not have necessarily to always compensate the other party to the contract. 2. The contract of life insurance is not a contract of indemnity. The insurance may be for any amount for which no proof of actual loss is necessary presumably because loss of human life cannot be measured in terms of money. General insurance, is a contract of indemnity the assured can only recover the actual loss subject to the maximum amount of the policy. 3. Insurable interest of the assured in the subject matter in the general insurance must be amenable to monetary measurement which is not possible in life insurance. Moreover, the insurable interest must be present both at the time of contract as well as at the time of loss in fire insurance, but only at the time of loss in marine insurance. The life insurance stipulates such interest only at the time of the contract. 4. A contract of the general insurance is an annual contract (fire, 8

9 accident and so on) or for a particular period/voyage (marine). The life insurance is continuing contract and comes to an end only on default in payments of premium. KINDS OF GENERAL INSURANCE POLICIES: 1. Marine insurance Travelers by sea and land were very much exposed to the risk of losing their vessels and merchandise because the piracy on the open seas and highway robbery of caravans were very common. Besides there were several risks 7. Marine insurance provides protection against loss of marine perils. The marine perils are collision with rock, or ship attacks by enemies, fire and capture by pirates etc. These perils cause damage, destruction or disappearance of the ship and cargo and non-payment of freight. So marine insurance insures ship (Hull), cargo and freight. Now the scope of marine insurance has been divided into two parts (i) Ocean Marine Insurance (Hull) and (ii) Inland Marine Insurance (Cargo). The former insures only the marine perils while the latter covers inland perils which may arise with the delivery of cargo (goods) from the godown of the insured and may extend up to the receipt of the cargo by the buyer (importer) at his godown. Marine cargo insurance plays an important role in domestic trade as well as in international trade. Most contracts of sale require that the goods must be covered, either by the seller or the buyer, against loss or damage. The marine insurance business probably started in North Italy by the end of 12 th century. It is said that the first marine insurance policy called Polliza was issued in 1300 in Italy. In 1300, Charter of Insurance was established in Belgium. Similar developments took place in other European countries like 9

10 Spain, France, Germany and Holland. In England, the marine insurance was introduced by Italian merchants who settled in England and controlled a large portion of British trade in 15 th and 16 th centuries. Lombards were great traders and in addition to their goods, they brought with them the marine insurance practice. They were doing their business in the street of London which was later on called the famous Lombard street a popular place for marine insurance transactions. The present form of marine insurance was developed with the formation of Lloyds Association in 1692 in London by Mr. Edward Lloyd, a coffee merchant, with the publication of Lloyds News. In 1906 the Marine Insurance Act was enacted in England. In India, Marine Insurance Act was enacted in Fire insurance Fire insurance covers risks of fire. In the absence of fire insurance, the fire waste will increase not only to the individual but to the society as well. With the help of fire insurance, the losses arising due to fire are compensated and the society is not losing much. 8 The individual is protected from such losses and his property or business or industry will remain approximately in the same position in which it was before the loss. The examples of insurable property in fire insurance policy are 1) buildings, 2) electrical installation in buildings, 3) contents of buildings such as machinery, plant and equipment, accessories, 4) goods in factories and godown, 5) goods in open, 6) utilities such as boiler house, water treatment plant, electric sub-station, pump house etc., 7) contents in dwellings, shops, hotels etc., 8) furniture, fixture and fittings, 9) pipelines located inside or outside the compound etc., The origin of fire insurance can be traced to the 16 th century in 10

11 Germany. In 1609, in Oldenburg, a scheme was made to indemnify the fire victims by collecting a certain premium. The real development in the field of fire insurance took place after the great fire in London in 1666 which lasted for 4 days and 4 nights and destroyed over 13,200 out of 15,000 houses and devastated 373 of the 460 acres of the city of London, besides many public buildings. Fire insurance office was established in 1681 in England 9. The Industrial Revolution gave impetus to the fire insurance business because there was a great expansion of material, wealth, machinery etc. For the protection of these, the necessity for fire insurance arose. In India, the fire insurance was started during British regime. The oldest of these companies include the Sun Insurance Office, Calcutta (1710), London Assurance and Royal Exchange Assurance (1720), Phoenix Assurance Company (1782), etc. 3. Motor insurance Motor insurance accounts for a major portion of the miscellaneous premium income of insurance companies. For the purpose of insurance, motor vehicles are classified into three broad categories. (a) Private cars, (b) Motor Cycles and motor scooters, (c) Commercial vehicles Passenger carrying vehicles (motorized rickshaw, taxis, buses, etc.,), Miscellaneous vehicles (hearses, ambulances, cinema film recording and publicity vans, mobile dispensaries etc.,) Two types of losses arise in respect of motor vehicles: Loss of damage to the vehicles and third party liability. The insurance of third party liability arising out of the use of motor 11

12 vehicles in public places is made compulsory. No motor vehicle can ply in a public place without such insurance. This provision does not apply to any vehicle owned by the Central Government or State Government and used for Government purposes. 4. Miscellaneous insurance Due to the increasing demand, different forms of insurance have been developed. Industrial Revolution of 19 th century had facilitated the development of accidental insurance, theft, fidelity insurance, etc., in the 20 th century, many types of social insurance have started operating viz., unemployment insurance, crop insurance, cattle insurance etc 10. This way the business of insurance has developed simultaneously with human and social development. Today, the use of computers in the field of insurance is frequently increasing. Insurance is becoming an inseparable part of human development and its scope is increasing with the advancement of society. PURPOSE OF INSURANCE: 1. Assets are insured, because they are likely to be destroyed or made nonfunctional, through an accidental occurrence. Such possible occurrences are called perils. Fire, floods, breakdowns, lightning, earthquakes, etc., are perils. The damage that these perils may cause the asset, is the risk that the asset is exposed to that risk. 2. The risk only means that there is a possibility of loss or damage. It may or may not happen. There has to be an uncertainty about the risk. Insurance is done against the contingency that it may happen. Insurance is relevant only if there are uncertainties. If there is no uncertainty about the occurrence of an event, it cannot be insured. 3. Insurance does not protect the asset. It does not prevent its loss due to 12

13 the peril. The peril cannot be avoided through insurance. The peril can sometimes be avoided through better safety and damage control management 11. Insurance only tries to reduce the impact of the risk on the owner of the asset and those who depend on that asset. It compensates, may not be fully, the losses. Only economic or financial losses can be compensated. 4. The concept of insurance has been extended beyond the coverage of tangible assets. Exporters run the risk of the importers in the other country defaulting as well as losses due to sudden changes in currency exchange rates, economic policies or political disturbances. These risks are now insured. Doctors run the risk of being charged with negligence and subsequent liability for damages. The amounts in question can be fairly large, beyond the capacity of individuals to bear. These are insured. Thus, insurance is extended to intangibles. In some countries, the voice of a singer or the legs of a dancer may be insured, even though the advantage of spread may not be available in these cases. 5. Satisfaction of economic needs requires generation of income from some source. If the property, which is the source of such income is lost fully or partially, permanently or temporarily, the income too would stop. The purpose of insurance is to safeguard against such misfortunes by making good the losses of the unfortunate few, through the help of the fortunate many, who were exposed to the same risk but saved from the misfortune. Thus the essence of insurance is to share losses and substitute certainty by uncertainty. 6. There are certain basic principles which makes it possible for insurance 13

14 to remain popular and a fair arrangement. The first is the fact that people are exposed to risks and that the consequences of such risks are difficult for any one individual to bear. It becomes bearable when the community shares the burden. The second is that no one person should be in a position to make the risk happen. In other words, none in the group should set fire to his assets and ask others to share the costs of damage. This would be taking unfair advantage of an arrangement put into place to protect people from the risks they are exposed to. The occurrence has to be random, accidental, and not the deliberate creation of the insured person. IMPORTANCE OF INSURANCE FOR ECONOMIC DEVELOPMENT: 1. For economic developments, investments are necessary. Investments are made out of savings. A life insurance company is a major instrument for the mobilization of savings of people, particularly from the middle and lower income groups. These savings are channeled into investments for economic growth. 2. An insurance company s strength lies in the fact that huge amounts are collected and pooled together. These amounts come by way of premiums. Every premium represents a risk that is covered by that premium. In effect, therefore, these vast amounts represent pooling of risks. The funds are collected and held in trust for the benefit of the policyholders. The managements of insurance companies are required to keep this aspect in mind and make all its decisions in ways that benefit the community. This applies also to its investments. That is why successful insurance companies would not be found investing in 14

15 speculative ventures. Their investments benefit the society at large. 3. The system of insurance provides numerous direct and indirect benefits to the individual and his family as well as to industry and commerce and to the community and the nation as a whole. Those who insure, both individuals and corporate, are directly benefited because they are protected from the consequences of the loss that may be caused by the accident or fortuitous event. Insurance, thus, in a sense protects the capital in industry and releases the capital for further expansion and development of business and industry. 4. The very existence of risk, that is uncertainty concerning the future, is a severe handicap in economic activities. Insurance removes fear, worry and anxiety associated with this future uncertainty and thus encourages free investment of capital in business enterprises and promotes efficient use of existing resources. Thus insurance encourages commercial and industrial development and thereby contributes to a vigorous economy and increased national productivity. 5. Present day organization of industry, commerce and trade depend entirely on insurance for their operation. Banks and financial institutions lend money to industrial and commercial undertakings only on the basis of the collateral security of insurance. No banks or financial institution would advance loans on property unless it is insured against loss or damage by insurable perils. 6. Insurers are closely associated with several agencies and institutions 15

16 engaged in fire loss prevention, cargo loss prevention, industrial safety and road safety. The loss Prevention Association of India established in 1978 by the GIC and Public Sector insurance companies, has the objectives of creating an awareness of the need for loss prevention and implementing loss prevention measures in the various sectors of the economy, thereby increasing productivity and saving national wealth. 7. Before acceptance of a risk, insurers arrange survey and inspection of the property to be insured, by qualified engineers and other experts 12. The object of these survey is not only to assess the risk for rating purposes but also to suggest and recommend to the insured, various improvements in the risk, which will attract lower rates of premium and what is more important, reduce the loss potential. For example, burglary surveyors make recommendation in regard to security measures such as better locking system, appointment of watchmen, etc., Engineering surveys play the most useful part in accident prevention as valuable technical advice is provided in respect of plant and machinery. 8. Insurance ranks with export trade, shipping and banking services as earner of foreign exchange to the country. Indian insurers operate in more than 30 countries through agencies, branches and subsidiary/ associate companies 13. These operations earn foreign exchange and represent invisible exports. 9. Cattle and other livestock as also equipment like pump sets etc., are important for rural economy. The various rural insurance schemes provide necessary financial protection against loss or damage. WHO CAN INSURE (Non-Life): 16

17 Every person can t obtain a non-life insurance policy. Only persons who are having insurable interest in the subject matter of insurance can obtain this policy. (a) Absolute owner of property, (b) wife can insure property of her husband and vice versa till such time they are living together, (c) 1/6 th owner of a ship can insure ship up to his interest in the ship. 14 INSURANCE CONTRACT: Insurance may be defined as a contract between two parties of whereby one party called insurer undertakes, in exchange for a fixed sum called premium, to pay the other party called insured a fixed amount of money on the happening of a certain event. Since insurance is a contract, certain sections of Indian Contract Act are applicable. Sec.10 of this Act says, All agreements are contract if they are made by free consent of the parties, competent to contract, for a lawful consideration and with a lawful object and which are not hereby declared to be void. The insurance contract involves (I) the elements of general contract, and (II) the element of special contract relating to insurance. (I) GENERAL CONTRACT: The valid contract, according to Sec.10 of the Indian Contract Act 1872, must have the following essentialities. 1. Offer and Acceptance The offer for entering into contract may generally come from the insured 15. The insurer may also propose to make the contract. Whether the offer is from the side of insurer or from the side of insured, the main fact is acceptance. Any act that precedes it is an offer or a counter-offer. All that precedes the offer or counter-offer is an invitation to offer. In insurance, the 17

18 publication of prospectus, the canvassing of the agents are invitations to offer. When the prospect (the policy-holder) proposes to enter the contract it is an offer and if there is any alteration in the offer that would be counter-offer. If this alteration or change will accepted by the proposer, would be an acceptance. In absence of counter-offer, the acceptance of offer will be an acceptance by the insurer. At the moment, the notice of acceptance is given to other party, it would be a valid acceptance. 2. Legal consideration The promise to pay a fixed sum at a given contingency of the insurer who must have some return or his promise. It need not be money only but it must be valuable. It may be sums, right, interest, profit or benefit. Premium being the valuable consideration must be given for starting the insurance contract. The amount of premium is not important to begin the contract. The fact is that without payment of premium, the insurance contract cannot start. 3. Competent to make contract Every person is competent to contract (a) who is of the age of majority according to the law. A minor is not competent to contract. A contract by a minor is void excepting contracts for necessaries. A minor cannot sign a contract. (b) who is of sound mind. A person is said to be of sound mind for the purpose of making a contract if at the time when he makes it, he is capable of understanding it and of forming a rational judgments as to its effect upon his interests. A person who is usually of unsound mind, or occasionally of sound mind may make a contract when he is of sound mind, and (c) who is not disqualified from contracting by any law to which he is subject. An alien 18

19 enemy, an undischarged insolvent and criminals cannot enter into contract. Contract by incompetent parties will be void. 4. Free consent Parties entering into the contract should enter into it by their free consent. The consent will be free when it is not caused by (i) coercion, (ii) undue influence, (iii) fraud, (iv) misrepresentation, or (v) mistake 16. When there is no free consent except fraud the contract becomes voidable at the option of the party whose consent was so caused. In case of fraud the contract would be void. The proposal for free consent must sign a declaration to this effect, the person explaining the subject matter of the proposal to the proposer must also accordingly make a written declaration on the proposal. 5. Legal object In order to make a valid contract, the object of the agreement should be lawful. An object is (i) not forbidden by law, or (ii) is not immoral, or (iii) opposed to public policy, or (iv) which does not defeat the provisions of any law, is lawful. In proposal form, the object of insurance is asked which should be legal and the object should not be concealed. If the object of an insurance, like the consideration, is found to be unlawful, the policy is void. (II) PRINCIPLES OF INSURANCE LAW: Insurance contracts are subject to certain special principles evolved under common law in U. K. and are generally followed by Indian Courts. These principles are known as fundamental or basic principles of law of insurance. These are: 1. Good faith 19

20 A contract of insurance is a contract uberrimae fidei i.e., a contract of utmost good faith 17. This is fundamental principle of insurance law. Both the parties to the contract are required to observe utmost good faith and should disclose every material fact known to them. There is no difference between a contract of insurance and any other contract except that in a contract of insurance there is a requirement of utmost good faith. The duty of good faith is of a continuing nature in as much no material alteration can be made to the terms of the contract without the mutual consent of the parties. The insurer cannot subsequently demand additional premium nor can he escape liability by contending that the situation does not warrant the insurance cover. The insurer may avoid the contract if the assured fails to make necessary disclosure or if the representation made is untrue. The duty of discloser of material information regarding a proposal or policy also applies to agents or insurance intermediaries, as provided in IRDA Regulations (Protection of Policyholders Interests) The proposer has a legal duty to disclose all material informations about the subject matter of insurance to the insurers. Some examples for material facts: Fire insurance: Constructing of the building, occupancy (office, residence, shop, godown, manufacturing), the nature of goods (nonhazardous and extra- hazardous) etc. Marine Insurance: Method of packing, nature of goods, the vessel carrying the goods, the ports of shipment and destination etc. Motor insurance: Cubic capacity of engine, year of manufacture, carrying capacity of truck, the purpose for which the vehicle is used, the geographical area in which it is used, the owner s or driver s convictions 20

21 for traffic offences etc., Personal accident insurance: The exact nature of occupation, age, height, weight, physical disabilities etc. 2. Misrepresentation Representations are statements, made by one party to the other either prior to or while entering into an insurance contract, of some matter of circumstances relating to it and which is not an integral part of the contract. These statements are said to have fulfilled their obligations when the final acceptance on the policy is conveyed. The Insurance Act lays down the conditions to establish that the misrepresentation was willful: (a) the statement must be on a material matter or must suppress facts which it was material to disclose, (b) the suppression must be fraudulently made by the policy holder, and (c) the policy holder must have known at the time of making the statement that it was false or that it suppressed facts which it was material to disclose. 3. Warranties A warranty may be distinguished from a representation in as much a representation may be equitably and substantially answered but a warranty must be strictly complied with. A breach of warranty will avoid the policy, although not relate to a matter material to the risk insured. Warranties may be expressed or implied, if it is condition implied by law. However implied warranties are mostly confined to marine insurance. The warranty should be in the policy or must be incorporated by reference. 4. Conditions 21

22 Conditions are terms which prescribe the limitations under which an insurance policy is granted and which specify the duties of the assured. They can be either conditions precedent or subsequent. Conditions precedent are those, which are essential for the creation of a valid contract, the nonsatisfaction of which makes the contract void ab intio. Conditions subsequent relate to the continuance of a valid contract, the non-fulfillment of which leads to the avoidance of the contract from the date of breach. They can further be classified into express conditions and implied conditions. Implied conditions are those, which are implied by law to apply for every contract of insurance irrespective of any specific inclusion or reference to them such as insurable interest, good faith etc. A condition, which seeks to reduce or curtail the period of limitation and prescribes a shorter period than the one prescribed by law is void. 5. Indemnity and Subrogation Most kinds of insurance policies other than life and personal accident insurance are contracts of indemnity whereby the insurer undertakes to indemnify the insured for the actual loss suffered by him as a result of the occurring of the event insured against. Even within the maximum limit, the insured cannot recover more than what he establishes to be his actual loss. Although the insured is to be placed in the same position as if the loss has not occurred, the amount of indemnity may be limited by certain conditions: 22

23 (1) Injury or loss sustained by the insured has to be proved. (2) The indemnity is limited to the amount specified in the policy. (3) The insured as indemnified only for the proximate causes. (4) The market value of the property determines the amount of indemnity The measure of indemnity for loss of or damage to the insured property is generally the intrinsic market value of the property at the place and on the date of loss or damage. The measure of indemnity applied to some types of property is explained below: Buildings: The cost of reinstating the building or repairing the damaged portion, is assessed and an appropriate allowance is made towards depreciation. The reinstatement or repair may bring about some improvement in the condition of the building that existed prior to the loss. Machinery: The measure of indemnity is the market value, at the place and date of loss or damage, of the machinery of similar age, model and condition. In practice the measure of indemnity is the replacement value at the place and date of loss or damage, less an appropriate allowance towards depreciation. Stocks: In respect of stocks of wholesalers and retailers, the measure of indemnity is not the selling price of the wholesalers or the retailers, but it is the price at which he can replace the goods. Motor: The subject matter of motor insurance could be physical property and/or legal liability for third party injury or property damage. The principle of indemnity is strictly applicable to both the subject 23

24 matters. The indemnity shall not exceed (a) for total loss of the vehicle (b) for partial losses, costs of repair/replacement as per depreciation limits specified in the policy. Marine: Almost all the marine insurance policies are issued as valued policies or agreed value policies. The agreed amount is payable in the event of total loss, irrespective of considerations of depreciation, etc. Indemnity is a fundamental principle of insurance law, and the principle of Subrogation is a corollary of this principle in as much the insured is precluded from obtaining more than the loss he has sustained. The most common form of subrogation is that an insurance company pays a claim caused by the negligence of another. The doctrine of subrogation confers two specific rights on the insurer. Firstly, the insurer is entitled to all the remedies which the insured has against the third party incidental to the subject matter of the loss, such that the insurer has indemnified the insured. Secondly, the insurer is entitled to the benefits received by the assured from the third party with a view to compensate himself for the loss. For example an insured property may be destroyed by fire caused by the negligence of a third party who is at law responsible to make good the loss. The insurer having indemnified the insured is entitled to the insured s right of recovery against the third party. 6. Proximate cause The doctrine of proximate cause is expressed in the maxim Causa Proxima non remota spectatur, which means that the proximate and not the remote cause, shall be taken as the cause of loss. The insurer is thus has to 24

25 make good, the loss of the insured that clearly and proximately results, whether directly or indirectly, from the event insured against in the policy. The burden of proof that the loss occurred on account of the proximate cause, lies on the insured. For example, if stocks are burnt, the cause of loss is fire which is covered under a fire policy and hence the claim is payable. If stocks are stolen, the loss is not payable under the fire policy, as burglary is not a peril covered. 7. Insurance and consumer protection The Consumer Protection Act, 1886 is one of the most important socioeconomic legislation for the protection of consumers in India. The provisions of this Act are compensatory in nature, unlike other laws, which are either punitive or preventive. Insurance services fall within the preview of the Consumer Protection act, in as much, any deficiency in service of the insurance company would enable the aggrieved to make a complaint. Disputes between policyholders and insurers generally pertain to repudiation of the insurance claim or the matters connected with admission of the claim or computation of the amount of claim. In case of assignment of all rights by the insured to the insurer, the consumer forum and the courts generally refuse to accept the locus standi of the insured. 8. Insurable interest To constitute insurable interest, it must be an interest such that the risk would by its proximate effect cause damage to the assured, that is to say, cause him to lose a benefit or incur a liability. The validity of an insurance contract in India is dependent on the existence of an insurable interest in the life or property to be insured, in the absence of which, the insurance policy would amount to a wager and consequently void in nature. 25

26 The test for determining is that if there is an insurable interest, is whether the insured will in case of damage to the life or property being insured, suffer pecuniary loss. A person having a limited interest can also insure such interest. Insurable interest varies depending of the nature of the insurance. The controversy as to the existence of an insurable interest between spouses was settled by the court, which held that such an interest could exist as neither was likely to indulge in any mischievous game. The same analogy may be extended to parents and children. Further, the courts have also held that such insurable interest would exist for a creditor (in a debtor) and for an employee (in an employer) to the extent of the debt incurred and the remuneration due respectively. A bank has insurable interest in the goods on the mortgage of which loans have been given. The interest is limited to the amount of the loan. Usually, under such circumstances, the policies are issued in the joint names of the insured and the bank. A ship owner has insurable interest in the ship owned by him. Cargo owners, both sellers and buyers, have insurable interest in the goods owned by them. The owner of a motor vehicle has insurable interest in the vehicle, he has insurable interest in a potential third party liability. If a third party is injured it would be a financial loss to the insured. Hence, he can insure his third party liability. 9. Commencement of policy The general rule on the formation of a contract, as per the Indian Contract Act, is that the party to whom the offer has been made should accept it 26

27 unconditionally and communicate his acceptance to the person making the offer. Whether the final acceptance is to be made by the insured or insurer really depends on the negotiations of the policy. Acceptance should be signified by some act as agreed upon by the parties or from which the law raises as presumption of acceptance. The mere receipt or retention of premium until after the death of the applicant or the preparation of the policy document is not acceptance. When the policy is of a particular date, it would cover the liability of the insurer from the previous midnight preceding the same date. However, where there is a special contract to the contrary in the policy, the terms of the contract would prevail. Hence where the time of the issue of the insurance policy is mentioned, then the liability would be covered only from the time when it was issued. ABOUT SALEM: Salem Division covers Divisional office and Branches located in Salem. Salem is a city in Tamil Nadu State of southern India. It is the headquarters of Salem District. Salem is the 5 th largest city in Tamil Nadu and it is situated on the banks of Thirumanimuthar river. The name Salem appears to have been derived from Sela or Shalya by which the term refers to the country around the hills, as in the inscriptions. Local tradition claims Salem as the birth of Tamil Poetess Avvaiyar. Salem is known as the Mango City, in Tamil Nadu. It is also known as the Steel City. Salem is famous for sago factories, bauxite, lorry body building, handloom weaving and steel plant. Salem is Geologist s paradise, surrounded by hills and the landscape dotted with hillocks. It is connected with main cities by rail and road networks. 27

28 STATEMENT OF THE PROBLEM: The awareness about general insurance is less in India when compared with foreign countries. Indians are more eager to take life insurance policies as life insurance is the best investment method and a tax saving device. But in case of general insurance, it is only a risk bearing process. The risk which has been increasing in our day to day life needs more insurance services. The general insurance companies offer a variety of policies to the society. The services of public sector general insurance companies are much needed by the country not only for the economic development but also for the risk free and safer society. The number of private sector general insurance companies which have been granted registration to underwrite business within the country with foreign partners have increased. It is necessary to analyze the performance of the public sector general insurance companies, as the competition is very high. The past performance by the insurance companies is much needed by them to plan for their future performance. The class wise insurance business performance helps to know the operating result of each class. This will help the insurance companies for taking necessary measures for improving their particular insurance business where there is a negative operating result (loss). This study is based upon the performance of the public sector general insurance companies in Salem division. Salem Division includes its branch offices and its Divisional Office in Salem. Salem city is one of the developing cities in Tamil Nadu and two National Highways namely NH7 and NH47 are crossing the city, so it needs more insurance services. Hence, an attempt has been made by the researcher to analyze the performance of the existing public sector general insurance companies in Salem Division. 28

29 OPERATIONAL DEFINITIONS: Performance The result of the activities of an organization or investment over a given period of time. 18 Financial performance A subjective measure of how well a firm can use assets from its primary mode of business and generate revenues. This term is also used as a general measure of a firm s overall financial health over a given period of time, and can be used to compare similar firms across the same industry or to compare industries or sectors in aggregation. Insurance According to Justice Tindle, Insurance is a contract through which the insurer agrees to pay a stipulated amount to the insured on the occurrence of an eventuality in lieu of a sum of premium. Prof. R. S. Sharma: Insurance is a co-operative device to spread loss caused by a particular risk over a number of persons who are exposed to it, who agree to insure themselves against that risk. Thomson, Insurance is a provision which a prudent man makes against fortuitous or inevitable contingencies, loss or misfortunes. It is a form of spreading risks. Britannica Encyclopedia, Insurance is a social device whereby a large group of individuals through a system of equitable contributions may reduce or eliminate certain measurable risks of economic loss common to all members of the group

30 Business F.C. Hooper defines business is, Whole complex field of commerce and industry, the basic industries, process and manufacturing and the network of ancillary services, distribution, banking, insurance, transport and so on which serve and interpenetrate the world of business as a whole. 20 Company A company is An artificial person created by law having a perpetual succession and a common seal. Public sector The Public Sector is that portion of society controlled by National, State or Provincial and Local Governments. It is the part of the economy concerned with providing basic government services. The composition of the Public Sector varies by country, but in most countries the Public Sector includes such services as the police, military, public roads, public transit, primary education and healthcare for the poor. In India the companies fully owned by government are called Public Sector Companies. Banks, Insurance Companies, Financial Institutions, Mines, Transport, Telecommunication etc., are fully owned by the Government of India. The business of insurance The business of insurance is to (a) bring together persons with common insurance interests (sharing the same risks), (b) collect the share or contribution (called premium), from all of them, and (c) pay out compensations (called claims) to those who suffer from the risks. 30

31 Net premium earned Premium relating to a particular year is termed as Net premium earned. It is calculated by taking Gross premium received during a year, with that we have to add the premium received during the previous for the current year and deduct the premium received during the current for the next year. Net claim incurred Claim relating to a particular year is called as Net claim incurred. For calculating the Net claim incurred we should take claim paid by the insurance company during a particular year with that we add the outstanding claim at the end of the year and deduct the outstanding claim at the beginning of the year. Management expenses It has been defined to mean all direct and indirect charges, wherever incurred, including commission payments of all kinds. Expenses of the management are in the nature of usual operating expenses such as employee costs, travel costs, printing and stationery, audit fees, interest, depreciation etc., Operating result The net result of an insurance company during a year is called operating result. If the net result is positive, it means the company has earned profit and if it is negative, it indicates loss incurred by the company. The general insurance companies has to calculate the operating result for each class of business. 31

32 REVIEW OF LITERATURE Several studies have been made on Insurance at the international level. But the studies relating to General insurance are limited. However, an attempt has been made to summaries the results of some important studies made with regard to Insurance. Thomas Moller, (2000) 21, in his thesis analyzed the quadratic hedging approaches, in difference pricing principles and their applications in insurance. He mainly emphasized on analyzing the insurance contracts which combine traditional actuarial risk and financial risk. He focused on the problem of hedging and pricing payment streams generated by unit-linked minimization. The two classical actuarial premium calculation on pricing in financial transformation was also dealt. Scott Johnson, (2001) 22, in his article title Insurance coverage for power outage losses, published in the Journal of Insurance coverage, Autumn 2001, analyzes the coverage under property insurance policies for power outage losses. Property insurance policies provide coverage for power outage losses only where a covered cause of loss causes direct physical loss or damage to covered property. Power outages have occurred when utility companies shut off power to rotating areas when the demand for electricity exceeds the supply. Business owners may take property insurance policies to recover for their power outage losses. 32

33 Nitya Kalyani. K., (2002) 23, in her cover story pointed out the consumer protection measures have been implemented by IRDA. The mission statement of IRDA includes the following, (1) To protect the interest of and secure fair treatment to policyholders, (2) To bring speed growth of the insurance industry for the benefit of the common man, (3) To ensure that the insurance customers receive precise, clear and correct information about products and services, (4) To ensure speedy settlement of genuine claims to prevent insurance frauds, and (5) To bring about optimum amount of selfregulation in day to day working of the industry. Samarth. R. D., (2003) 24, explains the role of Indian Insurance sector in 21 st Century. Development of new products which will motivate deeper penetration of market in middle income sector with significant saving trend. Development of basic broad based medical health insurance for community at large. Schemes for meeting technology development needs with advanced forms of All Risk Covers for protection of community through exposure to risks of hi-tech sectors of nuclear power generation and petrochemical production. Sethi S. K., (2003) 25, observes that brokers enjoy a place of prominence in the domain of insurance distribution owing to the fact that it is the only channel which can come out with a complete suite of insurance solutions. The increase in number of intermediaries has resulted in the increase of penetration and the same is reflected in the increase of premium collected by life and nonlife insurance companies. In future all the insurers whether life or non-life have to introduce more products which are sold through a proper and effective channel. 33

34 Amitesh Chowdhury, (2004) 26, brings the importance of Bancassurance. Banc assurance is an important tool in the hands of bankers, insurers and customers to maximize their benefits at a time. The SWOT analysis STRENTHS: India has a large untapped potential insurance markets for LIC and GIC, WEAKNESSES: lacking implementation of information technology, OPPORTUNITIES: merger and acquisition or setting up joint venture, THREATS: success of banc assurance requires change in approach. SBI has the largest banking network in the country. It has a joint venture with Cardiff for selling insurance products. The concept is gaining worldwide acceptance gradually. But proper implementation faces some problems. Jagendra Kumar, (2004) 27, brings out the changing scenario of Insurance Industry. The need for Detariffing premium for the sake of removing unfair trade practices, has been stressed upon by all the private players. Insurance companies are today looking at different segments where there is business potential and are trying to customize policies to suit the specific needs of their clients. All the insurers are expanding the targets and concentrating on most profitable personal and health segment. Vijayakumar. A., (2004) 28, gives some hurdles in Indian insurance sector like 1) the insurers do not create the products that the market wants, 2) insurance awareness is low, 3) term-insurance plans are not products, 4) unit-linked assurance are not available, 5) returns from insurance products are low, etc., The issues in the globalization of Indian sector were 1) the reason for opening up the insurance industry, 2) market structure, and 3) role of IRDA. The emerging areas for the same were a) demand for pension plans, b) separateness of banking and insurance companies, c) role of information 34

35 technology, d) using postal network, e) creating insurance awareness, and f) innovative products. The Indian Insurance Industry is likely to play an important role in changing the economic landscape of the country. The potential can be tapped only by a large number of insurance companies. Venkatesh. G., (2004) 29, discussed the role of general insurance companies with regard to road safety. The general insurance industry has played an indirect role in the promotion of road safety so far. They have a role to play in creating awareness and highlighting road safety issues. The insurance companies have to put pressure on State Governments and Central Government in their quest for promoting road safety. Goswami. S., (2005) 30, analyzed the marketing trends in banking and insurance sector. He says that the insurance service providers require consultancy in CRM revenue growth and speed for marketing. In order to retain customers constantly high service levels are required either through a conscious CRM type strategy, or through any other means. Alok Mittal and Swaphil Dabli, (2005) 31, compares the products and services of the two companies in Indore and nearby regions by which the consumers have to select the products which give maximum returns. In their research they found out that ICICI was providing better services, schemes and products as compared to Allianz Bajaj. And there is significant difference in product, services, schemes and working procedure of the two companies. They concluded that the consumers have to look upon the factors like products, services, procedure etc., before making a final selection between the two companies. 35

36 Rajeev Ahuja and Basudeb Guha Khasnobis, (2005) 32, analyzed the factors leading to the development of micro-insurance in India, and supply and demand sides of micro-insurance. The rural obligation of the general insurers is in terms of percentage of total gross premium collected. The micro-insurance needs a further push and guidance from the regulator as well as the government. Tapen Sinha, (2005) 33, in his research paper studied the evolution of insurance business before and after nationalization in India. This paper examined the insurance industry in India through different regulatory regimes. It also examined the new legal structure introduced after the industry which was denationalized in It gives the features of the Insurance Regulatory and Development Act. This paper concludes that the rural sector has potential for both life and general insurance. To realize this potential designing suitable products is important. Indrani Grupta and Mayur Trivedi, (2006) 34, discussed the initiatives regarding health insurance. The IRDA passed the Micro-Insurance Regulations 2005 that aims to promote rural insurance. It also allows the life and non-life insurers to tie up to offer a combined policy that cover crop, life, huts and health. The piecemeal approach of the policy-makers towards a problem that essentially needs coordinated thinking. It is strongly recommended that planners to set up an apex body that would be in charge of implementing health in India. Yuji Maeda, (Jan 2006) 35, in his thesis focused the advantages of captives like reducing their total cost of risks, meeting exactly their risk 36

37 transfer needs, accumulating emergency funds in a tax efficient environment, having future profit opportunities among others. Japanese companies are likely to achieve a greater reduction of the current risk costs than the U. S. companies. Nirmala Choudhury, (2006) 36, gave the current status of Indian General Insurance market. The paper also discusses the marketing opportunities of Indian Insurance Industry under competitive scenario. The insurers have been found less effective because they do not properly evaluate their strength and weaknesses. It is, therefore, critically important for insurers to periodically evaluate their strength and weaknesses. (strength and weakness given) The conclusion is organizational restructuring which is absolutely essential in order to face competition. Rationalization of the industry and strengthening the industry are the need of the hour. Strategies of the GIC should adequately focus on standardization, communalization, diversification and globalization. Das S. C., (2007) 37, in his study discussed the cost management practices of three general insurance companies (National Insurance company Ltd., New India Assurance company Ltd and Tata - AIG General Insurance company Ltd). In public sector cost can be brought down by down sizing, accompanied by better utilization of the workforce. The public sector companies have certain constraints to cut down certain costs. They are expected to implement several socially oriented schemes which bring down any surplus generated. 37

38 Jawaharlal. U., (2008) 38, in his editorial page said that the various attempts to spread awareness among the common people seem to be bearing fruit and this is an achievement over the past few years. As a part of the continuing progress of this class, more and more policyholders should clearly understand the basic concepts of insurance and more specifically the various clauses applicable in the health insurance contracts. People must realize that taking health insurance policy at an early age always gives them the advantages of reaping the fruits more easily. Kannan. N and Thangavel. N., (2008) 39, gave the history of Insurance sector in India. They stated some areas for future growth 1) The new life insurance policies would be the main line of business. 2) In India failure in public health care system creates opportunity for the new insurance companies which are offering health products. 3) Huge scope for development of pension funds in India. This paper also gives the present scenario of Insurance Industry.1) Many customers turning to the private sector that are providing them new products and variety for their choice. 2) Improvement in customer service in the industry as foreign players bring international best practices in service. 3) The insurance agents still remain main source through which insurance products are sold. 4) Customers buying products and services based on their true needs and not just traditional products. 5) The rural customer is now exhibiting an increasing propensity for insurance products. Mahesh Chand Garg and Deepti, (2008) 40, compared the technical and scale efficiency of 12 general insurance companies in India from the financial year to using Data Envelopment Analysis. Among public insurers New India is turned out to be technically efficient on both Constant 38

39 Returns to Scale and Variable Returns to Scale. The average efficiency results indicate that though private insurers lag behind public insurers, they are fast catching up and the efficiency scores of public private insurers seem to converge. Paramasivan. T., (2008) 41, discussed the applications of Information Technology in Insurance Sector. Information Technology (IT) has become a indispensable part of the insurance business. Today all the insurance companies are using IT for managing various processes. Software solution providers enable automation and improved performance in areas like marketing, client management, underwriting, claims, reinsurance accounting of management information. Facilities are available to purchase certain insurance schemes online and getting the policy printed immediately after making online payment of premium within a span of few hours. Adrian Gould and Andrew Awok, (2009) 42, analyzed the past levels of insurance profits and make a comparison with recent and prospective future levels for both Australia and other jurisdictions. Insurance profit defined as underwriting profit plus investment earnings, appears to have become the measure of financial performance of general insurance companies in Australia. The authors regard insurance profit as a superior measure of profit abilities of insurance operations. Fredrick S. Odoyo, Richard Nyangosi and Gupta. H.P., (2009) 43, in their empirical study stated that Information and Communication Technology (ICT) has been implemented to varying proportions in various levels of the insurance sector. In their findings it is clear that the private sector is more 39

40 acquainted with ICT systems than the public sector. The implementation of information and communication technologies is more in private sector. The obstacles hindering ICT implementation are 1) Technological Obstacles and 2) Corporate Obstacles hindering ICT Implementation. They concluded their study stating that the traditional attitudes have to be changed if insurance firms want to capture the niche in the modern competitive market. Laws would be properly defined to implicate the cyber criminal who may be out to crack and hack the network supporting the provisions of insurance services. Manjit Singh and Rohit Kumar, (2009) 44, in their study evaluated the emerging trends in the growth and financial performance of General Insurance Companies in India. The study reveals that the private sector general insurance companies results present better efficiency in terms of expenses of management ratio, combined ratio underwriting results ratio, whereas the performance of public sector general insurance companies in terms of bet earnings, and return of net worth ratio is better than that of private sector companies. The study concludes that the entry of private sector insurance companies has contributed to the strengthening of general insurance business. Ramadevi KPGL and Nimisha Srivastava, (2009) 45, discussed the growth of health insurance industry. Mediclaim was introduced in the year 1986 by the subsidiaries of General Insurance Corporation of India. There are a number of health insurance policies available in the market which have been more publicized after the advent of the private insurance players. Health insurance is still a small component of the overall health financing system and pays less than one tenth of the hospitalization. The growth level of insurance penetration and density in general insurance remains very low. 40

41 Ramadoss. M., (2009) 46, gave the impact of second phase of detarrification. The first phase initiated from 1 st January 2007 allows the insurers the freedom in pricing all policies except motor TP policies. The second phase of detarrification which was scheduled to commence from finally took off partially from 1 st January The challenges for the insurers are pricing the policies properly, collecting segment wise claims data and adequate training of underwriters and the sales staff. Sridharan. G and Allimuthu. S., (2009) 47, discussed the benefits of the Bancassurance for the bankers, insurance companies and customers. Due to heavy competition, the insurers incur heavy distribution expenses. Banking sector was a potential channel useful for the insurance companies for selling their products. The union of the two sectors is known as Banc assurance. World over, both life and non-life insurance companies seek to engage bank branches, non-life products have featured less prominently in Bancassurance distribution. This paper also discussed the factors that appear to be critical for the success of Bancassurance. It concluded that success of the Bancassurance would mostly depend on how well insurers and banks understand each other businesses and seize the opportunity present dwelling out differences that are likely to crop up. Sukumar Vellakkal, (2009) 48, examined the determinants of the scaling-up process of health insurance by analyzing the rational behavior of an insurance agent. Two concepts insurance habit and asymmetric information on health insurance schemes were discussed. The current market structure cannot ensure universal and equitable health insurance coverage. Education about insurance in the school curriculum and insurance awareness campaigns for the public are highly recommended. 41

42 Suganalakshmi. P and Kiruthiga. S., (2009) 49, highlighted the performance of social sector schemes of New India Assurance Company. The public sector organizations have to bear the social cost in order to justify their existence in the society besides pursuing their primary objectives of achieving profit In their paper they bring out the features of social sector schemes cattle insurance, live stock insurance, agriculture pumpset, Janata personal accident, Mediclaim, Gramin personal accident, universal health insurance scheme and Jan arogya Bima policy for the period of 5 years from Vijayalakshmi. B., (2009) 50, discussed the impact of globalization of Indian insurance business. The foreign investment in insurance sector is important in promoting financial stability, it also helps to facilitate the trade and commerce in developing economies. India is an attractive destination for global insurers. She also explained the effects of global insurance. (1) It might have positive signals on creating more number of job opportunities. (2) There would be huge inflow of funds into the country with foreign capital. (3) There will be a deep fall in the outward reinsurance, India would receive inflow of funds from the neighboring countries. (4) Revolution in the transfer of technologies and knowledge from the global participants in the market. (5) The distribution channel will be widened when the products offered are many. Venkatachalam. A and Sivakumar. M., (2010) 51, focused the level of satisfaction derived by the policyholders from rural insurance schemes like cattle insurance, poultry insurance, and crop insurance which are the products of general insurance companies. The policyholders awareness has been found to influence their level of satisfaction. The insurance companies should come forward to present advertisements in regional language. 42

43 Nidheesh. K. B., (2010) 52, in his article examined the performance of national agriculture insurance schemes offered by the general insurance companies implemented in India. Some issues related to agriculture insurance in India were discussed. He concluded that the compensation will be paid to all the affected farmers and all the agriculture insurance schemes should be reachable by the rural people, for this good communication system is needed. Rohit Kumar, (2010) 53, in his thesis titled Performance Evaluation of General Insurance Companies: A study of Post-reform Period analyzed the reform process of insurance sector in India. He suggested that both public and private insurers should go for full computerization including latest technology and also appoint trained computer experts to handle the insurance service. The public sector companies focus on improving the procedure of claim settlement. Vikas Gautam, (March 2011) 54, gave some suggestions for service quality improvement in Indian insurance companies. The insurance companies shall have to reorient themselves in terms of the customer service parameters to instill the concept of quality service. The insurance companies in the public sector should focus more on improving the infrastructure. The customers trust the public sector insurance companies since these insurance companies have existed in the market for a longer period. The above studies have not looked into the performance of the public sector general insurance companies. Hence, a careful study is essential in this regard. With this background, the present study is an attempt to fill the research gap. 43

44 IMPORTANCEC OF THE STUDY Insurance plays an important role in our country. The insurance companies promise to pay the owner of the asset a certain sum if the loss occurs. Insurance particularly the general insurance is much needed by all in our country. The performance of the public sector companies in India is very useful for the economic development of our country. The government has to know the business performance of the public sector general insurance companies for its future development. Salem is the 5 th largest city in Tamil Nadu. It is known as mango city and steel city. Salem is also famous for sago factories, bauxite, lorry building, handloom weaving and steel plant. It is connected with the main cities by rail and road networks. The two National Highways namely NH7 and NH47 are crossing across the city. So the possibility of occurrence of loss in the form of fire, marine, motor and other types is high in Salem. The study about the performance of General Insurance Companies is essential to know how much to bear the risk of losses due to happening of some unexpected events occurring in the future by the four Public Sector General Insurance Companies in Salem Division. The class-wise insurance business performance helps to know which class of business gives more profit and which kind of insurance business gives less profit or incurs a loss. So this will help the company to improve the business in future. Hence, the researcher has undertaken the topic entitled, A Study on the Performance of Public Sector General Insurance companies in Salem division, Tamil Nadu in order to know about the profitability and efficient performance of the four kinds of general insurance business of the public sector general insurance companies in Salem Division. 44

45 SCOPE OF THE STUDY There are four public sector general insurance companies in Salem Division. The business performance of such four public sector general insurance companies in Salem Division were only taken into consideration for the study purpose. The names of such four public sector general insurance companies are as follows: 1. National Insurance Company Limited, 2. New India Assurance Company Limited, 3. Oriental Insurance Company Limited and 4. United India Insurance Company Limited, For analyzing the business performance of the four companies, the four class wise general insurance business performances were studied. Such four class wise businesses are (1) Fire insurance business, (2) Motor insurance business, (3) Marine insurance business and (4) Miscellaneous insurance business. The Salem Division includes its Branch offices and its one Divisional office in Salem. The number of branches of four public sector general insurance companies in Salem Division are given in the following table. TABLE 1.1 Number of branches of public sector general insurance companies in Salem division S. No. Name of the public sector general insurance companies in Salem division 45 No. of branches in Salem division 1 National Insurance Company Limited 3 2 United India Insurance Company Limited 4 3 New India Assurance Company Limited 4 4 Oriental Insurance Company Limited 3 Source: Web Site

46 Locations of the branch offices of the public sector general insurance companies in Salem division: 1. National insurance company limited 1. Branch I: Thanthai periyar market complex 2 nd floor, Govindasamy pillai Street, Salem. 2. Branch II: F-215, Omalur Main road, Maruti Complex 2 nd floor, Salem. 3. Branch III: 266, Suramangalam Main road, Salem. 2. United India insurance company limited: 1. Branch I: Junction Main Road, Salem. 2. Branch-II: Oriented Complex, Salem. 3. Branch Ii: Cherry road, Salem. 4. Micro Office: Mettur Road, Omalur. 3. New India assurance company limited 1. Shevapet, Salem. 2. Sankari Micro Office, Sankari. 3. Gugai, Salem. 4. Attur Micro Office, Salem Main Road, Attur. 4. Oriental insurance company limited 1. Gugai, Salem. 2. Shevapet, Salem. 3. Hosur Branch, Hosur. 46

47 OBJECTIVES OF THE STUDY The study is based on the following objectives: 1. To review the origin and growth of insurance business in the Indian context. 2. To study about the profile of four public sector general insurance companies. 3. To study about the overall business performance of four public sector general insurance companies in Salem division. 4. To analyze the class wise general insurance business performance of four public sector general insurance companies in Salem division. 5. To suggest measures based on findings for improving the business performance of the public sector general insurers in Salem Division. HYPOTHESES: The main hypotheses of the thesis are as follows: I. Ho: There is no significant difference between the Net Premium earned and the Net claim incurred by the public sector general insurance companies in Salem division.(null) II. Ho: There is no significant difference between the Net Premium earned and the Management expenses of the public sector general insurance companies in Salem division.(null) III. Ho: There is no significant difference between the Net Premium earned and the Operating Result (Profit/Loss) of the public sector general insurance companies in Salem division.(null) 47

48 IV. Ho: There is no significant difference between the Net claim incurred and the Operating Result (Profit/Loss) of the public sector general insurance companies in Salem division.(null) V. Ho: There is no significant difference between the Total performance of the four public sector general insurance companies in Salem division and their individual performance.(null) PERIOD OF THE STUDY For the purpose of the study, secondary data for the past ten years have been used i.e., the financial years from to RESEARCH METHODOLOGY COLLECTION OF DATA Secondary data The study is based on secondary data only. So, primary data are not used for the study purpose. Hence the researcher does not follow any sampling techniques for the collection of primary data. The secondary data consists of annual reports and records about the performance of four public sector general insurance companies in Salem Division and also data collected from text books, newspapers, journals, magazines, seminars, Thesis and web sites. Statistical tools used: The secondary data collected from the four Public Sector General Insurance Companies in Salem Division are analyzed and interpreted by using the following statistical tools. 48

49 1. CORRELATION AYALYSIS: Correlation analysis is used to determine the degree of relationship between two or more variables. 2. t TEST: It is used to test of hypothesis about coefficient of correlation 3. ANOVA: Analysis of Variance is used to test for the significance of the difference between more than two sample means. 4. PARTIAL CORRELATION: Partial correlation is used to measure the correlation between a dependent variable and one particular independent variable. 5. MULTIPLE REGRESSION: In multiple regression analysis two or more independent variables are used to estimate the values of a dependent variable. LIMITATIONS OF THE STUDY The study is subject to the following limitations: 1. The study is based on secondary data only, which are provided by the companies that are taken as authentic. 2. The study relates to the performance of the public sector general insurance companies in Salem Division. The performance of Private Sector general insurance companies are not considered for the study purpose. 3. The collected data are related to a period of ten years only i.e., from to The important items of insurance business are Net premium earned, Net claim incurred, Management expenses and the Operating results (profit/loss) which are taken in the study for analysis purpose. 49

50 SCHEME OF CHAPTERISATION The first chapter deals with introduction, statement of the problem, operational definitions, review of literature, importance of the study, scope of the study, objectives of the study, hypotheses, period of the study, research methodology, statistical tools used, limitations of the study, and scheme of chapterisation. The second chapter mainly concentrates on the origin and growth of insurance in Indian context. The third chapter deals with the profile of the four public sector general insurance companies. The fourth chapter deals with the overall performance of the four public sector general insurance companies in Salem Division. The fifth chapter deals with the analysis and interpretation of data about the overall performance of the four public sector general insurance companies in Salem Division. The sixth chapter deals with the analysis and interpretation of the class wise general insurance business performance of the four public sector general insurance companies in Salem Division. The seventh chapter summarizes the findings of the study, suggestions and conclusion with scope of further research. 50

51 END NOTE 1. Sajid Ali, Riyaz Mohammad and Masharique Ahamad, Insurance in India, Regal Publications NewDelhi (2007), P Qaiser. R, Reserving in General Insurance Business in India and its Implication, Bimaquest vol.6, Issue2, July P Kamal Gupta, Audit of General Insurance companies and Co-operative Societies. Contemporary Auditing, McGraw Hill Publishing Co. Ltd., New Delhi,(2005). P Reddy. T. S. and Murthy. A, Corporate Accounting, Margham Publications, Chennai,(2010) p Ganesan. S and Kalavathi. S. R., Corporate Accounting, Thirumalai Publication, Nagercoil, (2006). P Joseph Anbarasu,. Boominathan V. K., Manoharan. P,,Gnanaraj. G, Financial Services, Sultan Chand & sons, New Delhi, (2006) P Premavathy. N, Elements of Insurance, Srivishnu Publications, Chennai, (2007) P Mishra. M. N., Mishra. S. B., Insurance Principles and Practice, S. Chand & Company, New Delhi, (2009) P Premavathy. N, Elements of Insurance, Srivishnu Publication, Chennai, (2007), P Ibid. P Balachandran. S, General Insurance IC-34, Insurance Institute of India, Mumbai August P Ibid P Ibid. P Kamalpal,. Bodla. B. S., Garg. M. C., Non-life Insurance Procedures, Insurance Management-Principles and Practices, Deep & Deep Publications Private Limited, New Delhi, (2007) P

52 15. Mishra. M. N. and Mishra. S. B., Insurance Principles and Practice, S. Chand & Company, New Delhi (2009), P Ibid. P www. nishithdesai.com 18. www. investorwords. com 19. Murthy. A Elements of Insurance,, Margham Publications, Chennai (2009) P Rosy Joshi & Sangamkapoor, Business Environment, Kalyani Publishers New Delhi (2008) P Thomas Moller, Quadratic Hedging Approaches and Indifference Pricing in Insurance Thesis, University of Copenhagen, Denmark, May www. rkmc.com. 23. Nitya Kalyani. K, Insurance, for the Insurance Customer, IRDA Journal, Dec P Samarth R.D, Transformation of Indian Insurance Industry in the 21 st Century, The Journal of Insurance Institute of India, July-December 2003, P Sethi. S. K., Role of the Intermediaries in Insurance, IRDA Journal, Oct P Amitesh Chowdhury, Banc assurance - The most challenging Insurance Distribution channel with special reference to SBI, The Management Account, March,2004. P Jagendra Kumar, Changing Scenario of Insurance Industry, The Journal of Insurance Institute of India, Jan-June2004. P Vijayakumar. A, Globalization of Indian Insurance Sector Issues and Challenges, The Management Accountant, March P

53 29. Venkatesh. V, Road Safety Role of Insurance Companies, The Journal of Insurance of Institute of India, Vol. XXX, July December P Vernekar S. S., Sandeep Goel and Bhardwai B. R., Marketing of Services Strategies or Growth, Deep & Deep Publications Pvt. Ltd., New Delhi. (2005). P Vernekar S. S., Sandppe Goel. Bhardwai B. R., Marketing of Services Strategies for growth, Deep & Deep Publications Pvt. Ltd.,New Delhi, (2005) P Rajeev Ahuja, Basudeb Guha Khasnobis, Micro Insurance : Trends and Strategies for further Extension, Working paper No.162, ICRIER, New Delhi, June Tapen Sinha, An analysis of the Evolution of Insurance in India, CRIS Paper series, 2005, III, The University of Nottingham. 34. Indrani Gupta, Mayur Trivedi, Health Insurance- Beyond a Piecemeal Approach, Economic and Political Weekly, June 24, P Yuji Maeda, An empirical Analysis of Captive Insurance Companies and Risk and Management Unpublished Thesis, Jan Shiga University, Japan. 36. Nalini Prava Tripathy, Prabir Pal, General Insurance Industry in India Issues and challenges, Insurance Theory and Practice, Prentice Hall of India Private Limited, New Delhi. (2006) P Das S. C., Cost Management practices of non-life Insurance companies: A comparative study, The Journal of Insurance Institute of India, Jan- June2007. P Jawaharlal. U, Progress of Health Insurance, IRDA Journal, May, P www. Acadjournal. Com vol.22, (2008) 53

54 40. Mahesh Chand Garg and Deepti, Efficiency of General Insurance Industry in India in the Post Liberalization Era; A Data Envelopment Approach Icfai Journal of Risk & Insurance, Vol.5, No.1. Jan P Paramasivan. T, Business Strategies Planning and Information Technology in Insurance Sector, Committee on Insurance and Pension of the Institute of Chartered Accountants of India, New Delhi October,2008. P Adrian Gould and Andrew Kwok, Insurance Profit as Measure of Profitability, BienNIACl convention (2009) 19 th -22rd April 2009, Perth, Western Australia. 43. Fredrick s. Odoyo, Richard Nyangosi and Gupta. H. P., Factors Hindering ICT Implementation in India Insurance Industry: An empirical Study, Indian Journal of Finance, Sep Vol:III, No.9. P Manjit Singh and Rohit Kumar, Emerging Trends in Financial Performance of General Insurance Industry in India, Indian Management Studies Journal, 13(2009). P Ramadevi KPGL and Nimisha Srivastava, Innovative Trends in Health Insurance, IRDA Journal Sep,2009, Vol:VII, No.9, P Ramadoss. M, Impact of Second Phase of Detarrifing, IRDA Journal, Feb.2009, Vol:VII, No.2, P Sridharan. G and Allimuthu. S, Banc assurance Prospects, Strategies, challenges and Mutual Benefits, Indian Journal of Finance, July 2009, Vol-III. P Sukumar Vellakkal, Adverse Selection and Private Health Insurance coverage in India, ICRIER, New Delhi, Working Paper No.233, Feb Suganalakshmi andkiruthiga, A study on the Performance of Social Secor schemes of New India Assurance company Ltd., An International conference on International challenges of Global Business in the 21 st Century, Rev. Jacob Memorial Christian College, Ambilikkai, Tamilnadu, 4thand5th Feb

55 50. Vijayalakshmi. B, Impact of Globalization : An Overview of Insurance Industries in India, Indian Journal of Finance, January Vol: III, No.1, P Venkatachalam,. A, Sivakumar. M, A study on Rural Insurance Policyholders Satisfaction in Dindigul, Tamil Nadu, Indian Journal of Marketing, vol:40, No.3, March,2010. P Nidheesh K. B., Agriculture Insurance in India, Indian Journal of Finance, Vol.4, No.3, March,2010. P Rohit Muar, Performance Evaluation of General Insurance Companies : A Study of Post reform Period., Thesis, Punjabi University, Patiala, India, Oct Vikas Gautam, Service Quality Perceptions of Customers about Insurance companies: An Empirical Study. Indian Journal of Marketing, March P

56 CHAPTER II THE ORIGIN AND GROWTH OF INSURANCE IN THE INDIAN CONTEXT This chapter deals with the history of insurance. It explains the origin and growth of insurance business in the Indian context. The concept of insurance has been prevalent in India since ancient times amongst Hindus. Overseas traders practiced a system of marine insurance. The joint family system, peculiar to India, was a method of social insurance of every member of the family on his life. The law relating to insurance has gradually developed, undergoing several phases from nationalization of the insurance industry to the recent reforms permitting entry of private players and foreign investment in the insurance industry. History of insurance: Insurance probably made a beginning in the ancient land of Babylonia in the 18 th century B.C., Babylonia king Hammurabi developed a code of law, known as the Code of Hammurabi, which codified many specific rules governing the practices of early risk-sharing activities. For instance, the code dictated that traders had to repay merchants who financed trading voyages unless thieves stole goods in transit, in which case debts would be cancelled. This was similar to the system of insurance known as bottomry which existed in Phoenicia in 1200 B. C. In this system, backers loaned money to 56

57 merchants to finance voyage. Merchants offered their ships (the hull was known as the ship s bottom ) as collateral for such loans. When a trip succeeded, the merchant would pay the trip s backer the original loan plus interest, the equivalent of a premium. If a ship went down on its voyage, the trip s backer would cancel the merchant s loan. The Greeks and Romans developed the earliest systems of life insurance. They formed societies which paid dues that went toward paying for the burial of members. Sometimes these societies also paid for the living expenses of deceased members of the families. During the Middle Ages (5 th to 15 th centuries A. D.), workers joined together for helping the families in the group in the event of death or illness of the group members. Insurance as we know it today took its shape in 17 th century England. The policy of life of William Gybbons on June 18, 1633 was the first recorded evidence. There was a place called Lloyd s Coffee House in London, owned by Edward Lloyd, where merchants, ship-owners and underwriters met to discuss and transact business. In 1871, Lloyd s Act was passed incorporating the members of the association into a single corporate body with perpetual succession and corporate seal. It extended from marine insurance to other insurance and guarantee business. Today, Lloyd s has become the world s best known insurance brand. It is commonly misunderstood that Lloyd s is an insurance company. Actually, it is a society of members, known as underwriters, both corporate and individual, who underwrite in syndicates on 57

58 whose behalf professional underwriters accept risk. Thus, supporting capital is provided by investment institutions, specialist investors, international insurance companies and individual. History of India s Insurance Business: In Rigiveda we find the term Yogakshema Bahamayam which is more or less akin to the well being and security of people. This makes it clear that the traces of sharing the future losses were available even in ancient India 1. This suggests that a form of community insurance was prevalent around 1000 BC and practiced by the Aryans. Life insurance was first set up in India through a British company called the Oriental Life Insurance company in 1818 followed by the Bombay Assurance company in 1823, the Madras Equitable Life Insurance Society in 1829, the Bombay Mutual Life Assurance Society 1871 and the Oriental Life Assurance Company in All of these companies operated in India but did not insure the lives of Indians. They were insuring the lives of Europeans living in India. The first General Insurance Company viz., Triton Insurance Co. Ltd., was established in Calcutta in 1850 whose shares were held mainly by the Britishers 2. Insurance business was conducted in India without any specific regulation for the insurance business. They were subject to Indian companies Act1866. After the start of the Be Indian Buy Indian Movement (called Swadeshi Movement) in 1905, indigenous enterprises sprang up in many 58

59 industries. Not surprisingly, the Movement also touched the insurance industry leading to the formation of dozens of life insurance companies along with provident fund companies (provident fund companies are pension funds). The first indigenous general insurance company was the Indian Mercantile Insurance company Limited set up in Bombay in In 1912, two sets of legislation were passed: 1) The Indian Life Assurance Companies Act and 2) The Provident Insurance Societies Act. The features of the legislation: (a) They were the first legislations in India that particularly targeted the insurance sector. (b) They left general insurance business out of it. The Government did not feel the necessity to regulate general insurance. (c) They restricted activities of the Indian insurers even though the model used was the British Act of The birth of the Insurance Act 1938: In 1937, the Government of India set up a consultative committee. Mr. Sushil C. Sen, a well known solicitor of Calcutta, was appointed the chair of the committee. He consulted a wide range of interested parties including the industry. It was debated in the Legislative Assembly. Finally, in 1938, the Insurance Act was passed. This piece of legislation was the first comprehensive one in India. It covered both life and general insurance companies. It clearly defined what would come under the life insurance business, the fire insurance business and so on. It covered deposits, supervision of insurance companies, 59

60 investments, commissions of agents, directors appointed by the policyholders among others. General insurance business is defined to mean fire, marine and miscellaneous insurance business whether carried on singly or in combination with one/more of them 3. To implement the 1938 Act, an insurance department was first set up in the Ministry of Commerce by the Government of India. Later, it was transferred to the Ministry of Finance. Nationalization of Insurance in India: After India became independent in 1947, National Planning modeled after the Soviet Union was implemented. The genesis of nationalization of life insurance came from a document produced by Mr. H. D. Malaviya called Insurance business in India on behalf of the Indian National congress. The Finance Minster C. D. Deshmukh announced nationalization of the life insurance business in Life insurance business was nationalized on 19 th January The Government brought together life insurers under one nationalized monopoly corporation and Life Insurance Corporation of India was born. At that time there were 154 Indian life insurance companies. In addition there were 16 non-indian companies and 75 provident societies issuing life insurance policies. Most of these companies were centered in the metropolitan areas like Bombay, Calcutta, Delhi and Madras. The reasons behind the nationalization of life insurance were (1) the government wanted to channel more resources to national development programmers. (2) it sought to increase insurance market penetration through 60

61 nationalization. (3) the government found the number of failures of insurance companies to be unacceptable The government argued that the failures were the result of mismanagement and nationalization would help to better protect policyholders. General insurance was not nationalized in 1956 along with the life insurance. The reason was addressed by the then Finance Minister C.D.Deshmukh, in his budget speech of I would also like to explain briefly why we decided not to bring in general insurance into the public sector. The consideration which influenced us most is the basic fact that general insurance is a part and parcel of the private sector of trade and industry and functions on a year to year basis. Errors and omissions in the conduct of its business do not directly affect the individual citizen. Life insurance business, by contrast, directly concerns the individual citizen whose savings, so vitally needed for economic development, may be affected by any acts of folly or misfeasance on the part of those in control or be retarded by their lack of imaginative policy. Nationalization of General Insurance Business: Sixteen years later, in 1972, non-life insurance was finally nationalized (with effect from 1 st January 1973). At that time there were 107 general insurance companies. They were mainly large city-oriented, operating at different levels of sophistication. Upon nationalization, these businesses were assigned to the four subsidiaries (roughly of equal size) of the General 61

62 Insurance Corporation of India (GIC). The General Insurance Business (Nationalization) Act 1972 provides that the Central Government shall form a Government company in accordance with the provisions of the companies Act 1956, to be known as General Insurance Corporation of India for the purpose of superintending, controlling and carrying on the business of general insurance. The authorized capital of ` 75 crores of the Corporation, out of which ` 5 crores is the subscribed capital wholly contributed by the Central Government. 5 The General Insurance Corporation was incorporated as a holding company in November1972 and it commenced business on January 1, It had four subsidiaries: (1) the National Insurance Company, (2) the New India Assurance Company, (3) the Oriental Insurance Company, and (4) the United India Insurance Company with head offices in Calcutta (now Kolkata), Bombay (now Mumbai), New Delhi and Madras (now Chennai) respectively. Collectively these subsidiaries are known as the NOUN for their initials. All the five entities are government companies registered under the Indian Companies Act, Here were several goals in setting up this structure: (1) The subsidiary companies were expected to set up standards of conduct, sound practices and provision of efficient customer service in general insurance business. (2) The GIC was to help control the expenses of the subsidiaries. (3) It was to help with the investment of funds for its four subsidiaries. (4) It was to bring general insurance to the rural areas of the country, by distributing business to the four 62

63 subsidiaries, each operating in different areas in India. (5) The GIC was also designated the national reinsurer. By law, all domestic insurers were to cede 20% of the gross direct premium in India to the GIC under the section 101A of the Insurance Act of The idea was to retain as much risk as possible domestically. This was in turn motivated by the desire to minimize the expenditure on foreign exchange. (6) All the four subsidiaries were supposed to compete with one another. Insurance Sector Reforms: In 1993, Malhotra committee, headed by former Finance Secretary and RBI Governor R.N.Malhotra, was formed to evaluate the Indian insurance industry and recommended its future direction. The Malhotra Committee Report strongly recommended that the General Insurance Corporation should cease to be the holding company and concentrate on reinsurance business only. The four subsidiaries should become independent companies. The report also noted that the subsidiaries were overstaffed. 7 In 1994, the committee submitted the report and suggested some of the key recommendations. (1) Structure Government s stake in the insurance companies to be brought down to 50% Government should take over the holdings of GIC and its subsidiaries so that these subsidiaries can act as independent corporations All the insurance companies should be given greater freedom to operate. 63

64 (2) Competition Private companies with a minimum paid up capital of ` 1 billion should be allowed to enter the industry. No company should deal in both life and general insurance through a single entity. Foreign companies may be allowed to enter the industry in collaboration with the domestic companies. Postal Life Insurance should be allowed to operate in the rural market. One State Level Life Insurance Company should be allowed to operate in each state. (3) Regulatory body Insurance Act should be changed. An Insurance Regulatory body should be set up. Controller of Insurance (currently a part from the Finance Ministry) should be made independent. (4) Investments Mandatory Investments of LIC Life Fund in government securities to be reduced from 75% to 50%. GIC and its subsidiaries are not to hold more than 5% in any company (Their current holdings to be brought down to this level over a period of time). 64

65 (5) Customer service LIC should pay interest on delays in payments beyond 30 days. Insurance companies must be encouraged to set up unit linked pension plans. Computerization of operations and updating of technology to be carried out in the insurance industry. After the report of the Malhotra Committee, changes in the insurance industry appeared imminent. Unfortunately, instability of the Central Government in power slowed down the process. The dramatic climax came in On March 16, 1999, the Indian Cabinet approved an Insurance Regulatory Authority (IRA) Bill designed to liberalize the insurance sector. The government fell in April 1999 just on the eve of the passage of the Bill. The deregulation was put on hold once again. On December 7, 1999, the new government passed the Insurance Regulatory and Development Authority Act. This act repealed the monopoly conferred to the Life Insurance Corporation in 1956 and to the General Insurance Corporation in The authority created by the Act is now called the Insurance Regulatory and Development Authority. New licenses are being given to private companies. The Insurance Regulatory and Development authority has separated out life, non-life and reinsurance insurance businesses. Therefore, a company has to have separate licenses for each line of business. 65

66 The Insurance Regulatory and Development Act 1999 was set up. To provide for the establishment of an authority to protect the interests of holders of insurance policies, to regulate, promote and ensure orderly growth of the insurance industry and for matters connected therewith or incidental thereto and further to amend the Insurance Act, 1938, the Life Insurance Corporation Act, 1956, and the General Insurance Business (Nationalization) Act, With the General Insurance Business (Nationalization) Amendment Act 2002 coming into effect from March , GIC of India ceased to be a holding company of its subsidiaries, their ownership was vested with the Government of India. The GIC was doing only reinsurance business in India. The effect of the US economic meltdown was not felt in the Banking and Insurance Sectors in India because majority of them were with the government. 8 The following table shows the number of life and non-life insurance companies in India. TABLE 2.1 Number of Insurance Companies in India Type of insurance Life insurance General insurance Reinsurance others Total Public Sector Companies Private sector Companies Total Source: Website. 66

67 Life Insurance Companies in India 9 1. Life Insurance Corporation of India (Public Sector) 13.Reliance Life Insurance Company Limited - Formerly known as AMP Sanmar LIC 2. MetLife India Life Insurance 14. ING Vysya Life Insurance 3. ICICI Prudential 15. Shriram Life Insurance 4. Bajaj Allianz Life Insurance 16. Bharti AXA Life Insurance Co Ltd 5. Max New York Life Insurance 17.Future General Life Insurance Co Ltd 6. Sahara Life Insurance 18. IDBI Fortis Life Insurance 7. TATA AIG Life Insurance 19. AEGON Religare Life Insurance 8. HDFC Standard Life 20. DLF Pramerica Life Insurance 9. Birla Sunlife 21. CANARA HSBC Oriental Bank of Commerce LIFE INSURANCE 10.SBI Life Insurance Company Limited 22. Star Union Dai-ichi Life Insurance Co. Ltd. 11. Kotak Life Insurance 23. India First Life Insurance Company 12. Aviva Life Insurance 24. Edelweiss Tokio Life Insurance Co.Ltd 67

68 General Insurance Companies in India: 1) New India Assurance Co Ltd (Public Sector) 2) United India Insurance Co Ltd (Public Sector) 3) Oriental Insurance Co Ltd (Public Sector) 11) Tata AIG General 12) Cholamandalam MS 13) Shriram General Insurance 4) National Insurance Co Ltd (Public Sector) 14) Future Generali 5) ICICI Lombard 15) Bharti AXA 6) Bajaj Allianz 16) Universal Sompo 7) Reliance General Insurance 17) Raheja QBE General 8) IFFCO Tokio 18) SBI General Insurance 9) HDFC ERGO 19) L & T General Insurance 10) Royal Sundaram Standalone Health Insurance Companies: 20) Star Health Insurance 21) Apollo Munich Health Insurance 22) Max Bupa Health Insurance Export Credit Guarantee Insurance: 23) Export Credit Insurance (Public Sector) 68

69 Agriculture Insurance Company: 24) Agriculture Insurance (AIC) (Public Sector) Re-Insurance: GIC-Re (Re-Insurer) (Public Sector) REGULATORY AUTHORITIES: 1. The Insurance Regulatory and Development Authority (IRDA) Reforms were initiated with the passage of Insurance Regulatory and Development Authority (IRDA) Bill in IRDA was set up as an independent regulatory authority, which has put in place regulations in line with global norms. IRDA has been framing regulations and registering the private sector insurance companies. It launched of the IRDA online service for issue and renewal of licenses to agents. Anyone income of the Insurance Regulatory and Development Authority established under the relevant Act 1999 is fully exempt from the A. Y Powers, Duties and Functions of IRDA The IRDA Act, 1999 lays down the duties, powers and functions of IRDA. The Authority shall have the duty to regulate, promote and ensure orderly growth of the insurance business and re-insurance business. The powers and functions of the Authority shall include, Issue to the applicant a certificate of registration, renew, modify, withdraw, suspend or cancel such registration 69

70 Protection of the interests of the policy holders in matters concerning assigning of policy, nomination by policy holders, insurable interest, settlement of insurance claim, surrender value of policy and other terms and conditions of contracts of insurance Specifying requisite qualifications, code of conduct and practical training for intermediary of insurance intermediaries and agents Specifying the code of conduct for surveyors and loss assessors Promoting efficiency in the conduct of insurance business Promoting and regulating professional organizations connected with the insurance and re-insurance business Levying fees and other charges Calling for information from, undertaking inspection of, conducting enquiries and investigations including, audit of the insurers, intermediaries, insurance intermediaries and other organizations connected with the insurance business Control and regulation of the rates, advantages, terms and conditions that may be regulated by the Tariff Advisory Committee Specifying the form and manner in which books of account shall be maintained and settlement of accounts shall be rendered by insurers and other insurance intermediaries Regulating investment of funds by insurance companies Regulating maintenance of margin of solvency Adjudication of disputes between insurers and intermediaries or insurance intermediaries 70

71 Supervising the functioning of the Tariff Advisory Committee Specifying the percentage of premium income of the insurer to finance schemes for promoting and regulating professional organizations engaged in insurance and reinsurance business Specifying the percentage of the life insurance and general insurance business to be undertaken by the insurer in the rural or social sector, and Exercising such other powers as may be prescribed 2. Tariff Advisory Committee 11 The Tariff Advisory committee is a body corporate, which controls and regulates the rates, advantages, terms and conditions offered by insurers in the general insurance business. The Advisory committee has the authority to require any insurer to supply such information or statements necessary for discharge of its functions. Any insurer failing to comply with such provisions shall be deemed to have contravened the provisions of the Insurance Act. Every insurer is required to make an annual payment of fees to the Advisory Committee of an amount not exceeding in case of reinsurance business in India, one percent of the total premiums in respect of facultative insurance accepted by him in India, and in case of any other insurance business, one percent of the total gross premium written direct by him in India. 71

72 3. Insurance Association of India, Councils and Committees All insurers and provident societies incorporated or domiciled in India are members of the Insurance Association of India and all insurers and provident societies incorporated or domiciled elsewhere than in India are associate members of the Insurance Association. There are two councils of the Insurance Association, namely the Life Insurance Council and the General Insurance Council. The Life Insurance Council, through its Executive Committee, conducts examinations for individuals wishing to qualify themselves as insurance agents. It also fixes the limits for actual expenses by which the insurer carrying of life insurance business or any group of insurers can exceed from the prescribed limits under the Insurance Act. Similarly, the General Insurance Council, through its Executive Committee, may fix the limits by which the actual expenses of management incurred by an insurer carrying on general insurance business may exceed the limits as prescribed in the Insurance Act. 4. Ombudsman 12 The Ombudsman are appointed in accordance with the Redressal of Public Grievances Rules, 1998, to resolve all complaints relating to settlement of claims on the part of insurance companies in a cost-effective, efficient and effective manner. Any person who has a grievance against an insurer may make a complaint to an Ombudsman within his jurisdiction, in the manner specified. 72

73 The Ombudsman act as a counselor and mediator and make recommendations to both parties in the event, that the complaint is settled by agreement between both the parties. However, if the complaint is not settled by agreement, the Ombudsman may pass an award of compensation within three months of the complaint, which shall not be in excess of which is necessary to cover the loss suffered by the complainant as a direct consequence of the insured peril, or for an amount not exceeding rupees two million, whichever is lower. Territorial Jurisdiction of Ombudsman 13 The governing body has pointed twelve Ombudsman across the country allotting them different geographical areas as their areas of jurisdiction. The Ombudsman may hold sitting at various places within their area of jurisdiction in order to expedite disposal of complaints. The offices of the twelve insurance Ombudsmen are located at (1) Bhopal, (2) Bhubaneswar, (3) Cochin, (4) Guwahati, (5) Chandigarh, (6) New Delhi, (7) Chennai, (8) Kolkata, (9) Ahmedabad, (10) Lucknow, (11) Mumbai, and (12) Hyderabad. Legislative and regulatory matters: The Insurance Act, 1938 was brought into force from 1 st July, 1938 as an Act to consider and amend the law relating to the business of insurance It applies to both life and general insurance business. 73

74 The Act has been amended a number of times notably by the passing of the Insurance Regulatory and Development Authority Act, The various laws which have a direct or indirect bearing a practice of insurance are: 1. Marine Insurance Act, The Carriage of Goods by Sea Act, The Merchant Shipping Act, The Bill of Lading Act, The Indian Ports (Major Ports) Act, The Carriers Act, Indian Railways Act, The Indian Post Office Act, The Workmen s Compensation Act, Employee s State Insurance Act, Sale of Goods Act, The Indian Stamp Act, Exchange Control Regulations 19. Consumer Protection Act, The Carriage By Air Act, Multi-Modal Transportation Act, The Motor Vehicles Act, The Inland Stem-Vessels (Amendment) Act, Public Liability Insurance Act, Investments: 1. Life Insurance Business: Every insurer is required to invest and keep invested certain amount as determined under the Insurance Act. The funds of the policyholders cannot be invested (directly or indirectly) outside India. An insurer involved in the business of life insurance is required to invest and keep invested at all times, assets, the value of which is not less than the sum of the amount of its liabilities 74

75 to holders of life insurance policies in India on account of matured claims and the amount required to meet the liability on policies of life insurance maturing for payments in India. The following table shows the Investment regulations of life insurance business in India. TABLE 2.2 Investment Regulations of Life Insurance Business Type of Investment Percentage Government Securities At least 25% Government Securities or other approved securities including the aforesaid Approved investments (a) Infrastructure and social sector (b) Others to be governed by exposure/prudential income 20 % Other than in approved investments to be governed by exposure/prudential norms Not less than 50% Not less than 15% 15% Source: Gazette of India Extraordinary Part III Section 4. IRDA (Investment) Regulations, General Insurance Business: An insurer carrying on general insurance business is required to invest and keep at all times his total assets in approved securities in the following manner. The investment should be made not less than 20% on Central government securities and 30% on State government securities. On Housing and loans to Statement government not less than 5%, on investment in approved investments not less than 40% and not less than 25% on other than in approved investments. 75

76 TABLE 2.3 Investment Regulations of Non- life Insurance Business Type of investments Percentage Central government securities Not less than 20% State government securities and other guaranteed securities including the aforesaid Not less than 30% Housing and loans to state government for housing and firefighting equipment Not less than 5% Investments in approved investments (a) Infrastructure and social sector (b)others to be governed exposure / prudential norms Not less than 10% Not exceeding 30% Other than in approved investments to be governed by exposure/prudential norms Not exceeding25% Source: Gazette of India Extraordinary Part III Section 4. IRDA (Investment) Regulations, Important events in the History of Indian Insurance Industry: First piece of insurance regulation promulgated Indian Life Insurance Company Act, Promulgation of the Indian Insurance Companies Act Insurance Act 1938 introduced, the first comprehensive legislation to regulate insurance business in India Nationalization of life insurance business in India 76

77 Nationalization of general insurance business in India Setting-up of the Malhotra committee Recommendations of Malhotra Committee released Setting-up of Mukherjee committee Setting-up of an (interim) Insurance Regulatory Authority (IRA) Mukherjee committee Report submitted but not made public The government gives greater autonomy to LIC, GIC and its subsidiaries with regard to the restructuring of boards and flexibility in investment norms aimed at channeling funds to the infrastructure sector The cabinet decides to allow 40% foreign equity in private sector companies - 26% to foreign companies and 14% to non-resident Indians, overseas corporate Bodies and foreign institutional investors The standing committee headed by Murali Deora decides that foreign equity in private insurance should be limited to 26%. The IRA Act was renamed the Insurance Regulatory and Development Authority (IRDA) Act Cabinet clears IRDA Act President gives assent to the IRDA Act Delinking of four Public Sector General Insurance companies from the holding Company General Insurance Corporation of India Detariffication 77

78 END NOTE 1. Jha. S. M., Services Marketing, Himalaya Publishing House, Mumbai, (2003) P Sajid Ali, Mohammad, Masharique Ahmad, Insurance in India, Regal Publications, New Delhi (2007) P Khan. M. Y., Insurance Services, Financial Services, Tata McGraw-Hill Publishing Co. Ltd., New Delhi, (2003) P Kapoor. N. D., Elements of Mercantile Law, Sultan Chand & Company, New Delhi, 21 st edition P Periasamy. P, General Insurance, Principles and Practice of Insurance, Himalaya Publishing House Mumbai, (2003) P Palande. P. S., Shah. R. S., Lunawat M. L., Insurance in India, Response Books, New Delhi, (2008) P Malhotra, 1994, Chapter XII, P THE HINDU, Thiruchirapalli, Monday, Feb.16, 2009 P Reddy. T. S. and Hariprasad Reddy. Y, Income Tax Theory, Law & Practice, Margham Publication, Chennai, (2011), P Insurance Law Regulations in India, Research Paper, Nishith Desai Associates, Mumbai, (2002) p www. nishithdesai.com. 13. www. irda. gov. in. 78

79 CHAPTER - III PROFILE OF THE PUBLIC SECTOR GENERAL INSURANCE COMPANIES This chapter deals with the profile of the four public sector general insurance companies in India. They are given below. 1. The Oriental Insurance Company Limited (OIC) The OIC Ltd., was incorporated at Bombay on 12 th September The company was a wholly owned subsidiary of the Oriental Government Security Life Assurance Company Limited., and was formed to carry out General Insurance business. The company was a subsidiary of LIC from 1956 to In 2003 all shares of the company held by the GIC of India had been transferred to Central Government. The company in a pioneer is laying down systems for smooth and orderly conduct of the business. The strength of the company lies in its highly trained and motivated work force that covers various disciplines and has vast expertise. Oriental specialize in devising special covers for large projects like power plants, petrochemical, steel and chemical plants. The company has developed various types of insurance covers to cater to the needs of both the urban and rural population of India. OIC Ltd., made a modest beginning with a first year premium of ` 99,946 in The goal of the company was Service to clients and achievement thereof was helped by the strong traditions built up overtime. OIC Ltd., with its Head Office at New Delhi has 26 Regional Offices and more than 79

80 nine hundred operating offices in various cities of the country. The company has overseas operations in Nepal, Kuwait and Dubai. The company has a strength of around fifteen thousand employees. From less than a lakh at inception, the gross premium went up to ` 58 crores in 1973 and during the figure stood a mammoth ` crores. Corporate mission To contribute to the socio economic objectives of the nation by being a vibrant and viable organization, and cater to the growing insurance needs of the community, the company will strive for effective management of business operations. Corporate objectives 1. To serve better the insurance needs of the entire community, keeping customer as the focus. 2. To strengthen our tradition of being customer- friendly, in order to provide quality service. 3. To manage business profitably, manage funds judiciously and deploy investible funds for optimum yield. 4. To optimize the retention of Indian business and conduct reinsurance and international operation in the best interest of the country. 5. To work towards minimization of losses and develop Risk Management Technologies. 6. To function as a strong and dynamic non-life insurer. Management OIC Ltd., is a professionally managed independent Board - run - Company. Illustrious personalities like Shri T. A. Pai (who later became 80

81 cabinet minister in the union government), Shri K. R. Puri, who rose to be the Governor of RBI and Shri B. D. Pande (who later became the Governor of West Bengal) were among past chairmen. Financial resources The company s gross direct premium income in India during the year (audited) was ` crores and the premium income outside India was ` crores. The gross direct premium in India and abroad showed a growth of 4.55%. The net premium income (domestic and foreign), on the other and grew by 12.38% from ` crores in to ` crores in An integrated Non-life Insurance Application Software (INLIAS) has been implemented in all the 1018 offices. This will ensure that the customer service parameters grow by leaps and bounds. The company has been enjoying the highest rating from leading Indian credit rating agencies CRISIL and ICRA. The company has also been rated as B++ very good by A. M. Best an international rating agency. Popular polices The following are some of the popular policies offered by OIC. Motor Policies, Comprehensive Health Insurance Schemes, Electronic Equipment Insurance Policy, Group Mediclaim Policy, Householders Insurance Policy, Individual Mediclaim Policy, Kissan Package Policy, Motor Cycle Package Policy, Nagrik Suraksha Policy, Office Umbrella Policy, Overseas Mediclaim Business and Holiday policy, Pedal Cycle Insurance Policy, Shopkeeper s Insurance Policy, Universal Health Insurance Schemes. 81

82 Rural insurance policies Bhagyasree Child Welfare Policy, Cattle Insurance, Dog Insurance, Insurance of Fish in Ponds, Gramin Accident Insurance, Janata Personal Accident Policy, Khalihan Insurance Package Policy, Kissan Agriculture Pumpset Insurance, Poultry Insurance, Rabbit Insurance, Sericulture Insurance 2. National Insurance Company Limited (NIC) NIC Ltd., was incorporated in 1906 with its Registered Office in Kolkata. Consequently to passing of the General Insurance Business Nationalization Act in 1972, 21 foreign and 11 Indian companies were amalgamated with it and NIC became a subsidiary of GIC of India which is fully owned by the Government of India. After the notification of General Insurance Business (Nationalization) Amendment Act, on 7 th August 2002, NIC has been de-linked from its holding company GIC and presently operating as a government of India undertaking. NIC is one of the leading public sector insurance companies of India, carrying out non-life insurance business. Headquartered in Kolkata, NIC is network of about 1,000 offices, manned by more than 16,000 skilled personnel, is spread over the length and breadth of the country, covering remote rural areas townships and metropolitan cities. NIC s foreign operations are carried out from its branch office in Nepal. Befittingly the product ranges, of more than 200 policies offered by NIC cater to the diverse insurance requirements of its 14 million policyholders. Innovative and customized policies ensure that even specialized insurance requirements are fully taken care of. 82

83 The paid up share capital of NIC is ` 100 crores. Starting off with a premium base of 500 million rupees (50 crores) in 1974, NIC s gross direct premium income has steadily grown to ` 42,799 million rupees (4,279.9 crores) in the financial year NIC transacts general insurance business fire, marine and miscellaneous insurance. The company offers protection against a wide range of risks to its customers. The company is privileged to cater its service to almost every sector or industry in the Indian Economy viz., Banking, Telecom, Aviation, Shipping, Information Technology, Power, Oil and Energy, Agronomy, Plantations, Foreign Trade, Healthcare, Tea, Automobile, Education, Environment, Space Research etc. NIC is the second largest non-life insurer in India having a large market presence in Northern and Eastern India. NIC has been accorded AAA/STABLE financial strength rating by CRISIL rating agency, which reflects the highest financial strength to meet policyholders obligations, NIC recognized internationally as one of the 5 general insurance companies in the Asia Pacific. Products and services offered by NIC: Personal Motor Policy, Householders Policy, Personal Accident Policy, Critical Illness Policy, NRI Accident Policy, Amartya Siksha Yojana Policy, Traffic Accident Policy, Niwas Yoana Policy, Baggage Policy, Mediclaim Policy, Professional Indemnity for Doctors, Overseas Mediclaim Policy, Baroda Health Policy. 83

84 Rural Cattle/Livestock Insurance, Sheep and Goat Insurance, Elephant Insurance, Dog Insurance, Brackish Water Prawn Insurance, Silkworm Insurance, Janata Personal Insurance, Horticulture/Plantation Insurance, Kissan Agriculture Pumpset Insurance. Industrial Erection all Risks Insurance, Contractors all Risks Insurance, Machinery Insurance, Electronic Equipment Insurance, Consequential loss(fire) Policy, Standard Fire and Special Perils Policy, Workmen compensation Insurance, Product Liability Insurance, Public Liability Insurance. Commercial Burglary (Business Premises) Policy, Shopkeepers Policy, Bankers Indemnity Policy, Office Package Policy, Glass Insurance, Money Insurance, Jewellers Block Policy, Extended Warranty Policy, Directors and Officers Liability Policy, Fidelity Guarantee Policy, Marine Cargo Insurance. 3. United India Insurance Company (UIIC) United India Insurance Company Limited (UIIC) is a leading General Insurance Company of India. The company has more than three decades of experience in Non-life Insurance business. It was formed by the merger of 22 companies, consequent to nationalization of General Insurance. Its Head Quarters is at Chennai. United India Insurance Company Limited was incorporated as a Company on 18 th February General Insurance Business in India was nationalized in Indian Insurance Companies, 4 Cooperative Insurance 84

85 Societies and Indian operations of 5 Foreign Insurers, besides General Insurance operations of southern region of Life Insurance Corporation of India were merged with United India Insurance Company Limited. After nationalization United India has grown by leaps and bounds and has 18,300 work force spread across 1,340 offices providing insurance cover to more than one Crores of policy holders. The Company has variety of insurance products to provide insurance cover from bullock carts to satellites. United India has been in the forefront of designing and implementing complex covers to large customers, as in cases of ONGC Ltd, GMR- Hyderabad International Airport Ltd, Mumbai International Airport Ltd, Tirumala-Tirupati Devasthanam etc. It has been also the pioneer in taking Insurance to rural masses with large level implementation of Universal Health Insurance Programme of Government of India & Vijaya Raji Janani Kalyan Yojana (covering 45 lakhs women in the state of Madhya Pradesh), Tsunami Jan Bima Yojana (in 4 states covering 4.59 lakhs of families), National Livestock Insurance and many such schemes. It has also made its presence in more than 200 tier II & II towns and villages through its innovative Micro Offices. The company earned a gross premium of ` 4, crores in the financial year which was ` 3, in the financial year The net premium earned by the company during was ` 2, crores and increased to ` 3, crores in the financial year

86 Corporate mission 1. To provide insurance protection to all 2. To ensure customers satisfaction 3. To function on sound business principles 4. To help minimize national waste and to help develop the Indian economy. Popular policies: Commercial insurance Marine Insurance, Fire Insurance, Motor Insurance Industrial insurance Contractors Plant and Machinery Insurance, Deterioration of stock Insurance, Electronic Equipment Insurance, Machinery Break down Insurance, Industrial All Risk Insurance. Liability insurance Workmen s Compensation Insurance, Public Liability Insurance, Product Liability Insurance, Professional Indemnity Policy. Miscellaneous insurance Accident and Hospitalization Insurance, Social Insurance, Rural Insurance, Travel Insurance, Package Insurance. Business Insurance. 4. The New India Assurance Company limited (NIAC) Founded by the House of Tata founder member Sir Dorab Tata. The New India Assurance Company came into being on July 23, 1919 and is today, ranked as number one Insurance Company in the Indian market. Consequent to 86

87 passing of the General Insurance Business Nationalization Act in 1972, wherein 21 foreign and 11 Indian companies were amalgamated. The NIAC was one of them. It was nationalized in The company is credited with a lot of first in its 90 years of service. A pioneer in satellite insurance, it holds a large number of offices both in India and abroad. The NIAC boasts of having highly skilled personnel and a total of 1,068 fully automated offices across India. With a superior capital position, strong operating performance and strong market position as its base. NIAC with its Head Office at Mumbai has a network 26 Regional Offices, 393 Divisional Offices, 614 Branches Offices, 34 Direct Agent Branches and 16 Extension counters. The NIAC gas become the sole company to extend noteworthy operations in the international forum. Initiated its overseas operations in 1920, the company has gone a long way, since then. Presently the company is functioning in 24 countries such as Japan, UK, Middle East, Fiji, Australia and so on. With a network of 19 branches, 12 agencies, 3 associate companies and 3 subsidiary companies. The company earned a gross premium of ` 5, crores during in Indian business, and in the case of foreign business the company earned ` crores as gross premium. The global gross premium earned by the company for the financial year was ` 6, crores. The net premium earned by the company during the financial year was totally ` 5, crores. It includes ` 4, crores in India and ` 1, crores in Foreign. 87

88 1. It was the first company to set up an Aviation Insurance Department in It was the first company to handle the Hull Insurance requirements of the Indian Shipping Fleet 3. It was the first company to establish its own Training School 4. It was the first company to introduce the concept of Model Office Training 5. It was the first company to create depart in engineering Insurance 6. It was the first domestic company to be rated A (Excellent) by an International Rating Agency, A. M. Best & Co. (Europe) 7. It was the first Indian non-life company to cross ` 5,000 crores gross premium. Mission 1. To develop general insurance business in the best interest of the community. 2. To provide financial security to individuals, trade, commerce and all other segments of the society by offering insurance products and services of high quality at affordable cost. Products: Personal Mediclaim Policy, Janata Mediclaim Policy, Senior Citizen Mediclaim Policy, Personal Accident Policy, Overseas Mediclaim Policy, Householders Policy, Motor Policy, Money Insurance, TV/VC R/V CP Insurance, Suhana Safar Policy, Mobile / Cellular Phone Policy, Group Mediclaim Policy. 88

89 Industrial Fire Policy, Burglary policy, Machinery breakdown Policy, Electronics Equipment Policy, Consequential Policy, Contractors all Risks Policy, Contractor Plant and Machinery Policy, Mega Package Policy. Commercial Jewelers Block Policy, Bankers Indemnity Policy, Shopkeepers Policy, Marine Cargo Policy, Plate Glass Insurance, Special Contingency Policy, Neon Sign Insurance, Multi Peril Policy for LPG dealers, Aviation Insurance. Liability Public Liability Policy, Products Liability Policy, Professional Indemnity Policy, Directors and Officers Liability Policy, Employers Liability Policy, carrier s Policy, Golfers Indemnity Insurance. Social Jan Arogya Bima Policy, Rai Rajeswari Mahila Kalyan Yojana, Bhagyshree Child Welfare Policy,Janata OPersonal AccidentInsurance, Student Safety Insurance, Ashrya Bima Yojana, rural Insurance. 89

90 CHAPTER-IV PERFORMANCE OF THE PUBLIC SECTOR GENERAL INSURANCE COMPANIES IN SALEM DIVISION This chapter deals with the performance of the public sector general insurance companies in Salem Division during the period of 10 years i.e., to For analysis purpose, the general insurance business is classified mainly into four heads namely (1) Fire insurance business, (2) Marine insurance business, (3) Motor insurance business and (4) Miscellaneous insurance business. The study deals with (a) Fire insurance-all types of losses caused by fire, (b) Marine insurance- it covers inland perils which may arise with the delivery of cargo (goods), (c) Motor insurance-it includes own damage and third party liability, (d) Miscellaneous insurance- it includes health insurance, personal insurance, rural insurance, group insurance etc., The main source of income for the general insurance companies is the Net premium earned during a particular year. And the liability of the general insurance companies is the Net incurred claim during a particular year. Net premium Earned = Opening Balance of Outstanding Premium + Premium Received during the year Closing Balance of Outstanding Premium. 90

91 Net Claim Incurred = Opening Balance of Outstanding claim + claims paid during the year Closing Balance of Outstanding Claim. Management Expenses = Operating expenses like commission, travel cost, printing and stationary, audit fee, interest, etc., Operating Result = Net Premium Earned (Net claim Incurred+ Management Expenses). 1. NATIONAL INSURANCE COMPANY LIMITED, SALEM DIVISION Year TABLE- 4.1 Overall performance of NIC ltd., Salem division Net premium earned Net claim incurred Mgt. Expenses (` In Lakhs) Operating result , , TOTAL 7, , , Source: Annual reports of NIC LTD., Salem Division The above table shows the overall performance of NIC Ltd., Salem division during the period of 10 years. The Net premium earned increased from ` lakhs during to ` 1, lakhs during The Net claim incurred increased from ` lakhs during to 91

92 ` lakhs during Similarly, the management expenses also increased from ` lakhs during to ` lakhs during The operating result for was a negative result (loss) of ` lakhs and the loss decreased to ` for The Net premium earned ` 1, lakhs during was higher than that of the other 9 years. The Net claim incurred during was ` lakhs which was the highest during the 10 years. The management expenses for was ` which was the highest in the period. The operating result (profit) in was ` which was higher than that of the other 9 years. It is understood from the above table that the total operating result (profit) of NIC Ltd., Salem Division during the period of study was ` In four years , , and the operating result was positive (profit), but for the remaining 6 years there was negative result (loss). 92

93 TABLE-4.2 Net premium earned by NIC Ltd., Salem division (` in Lakhs) Year Fire Marine Motor Mis. Total , , TOTAL , , Source: Annual reports of NIC LTD., Salem Division The above table explains the Net premium earned by the NIC Ltd., Salem division in each class of general insurance business during the period of 10 years from to In fire insurance business, the Net premium earned decreased from ` lakhs during to ` lakhs during In marine insurance business also the Net premium earned decreased from ` lakhs during to ` lakhs during In motor insurance business, the Net premium earned increased from ` lakhs during to ` lakhs during In Miscellaneous business also the Net premium earned increased from ` lakhs during to ` lakhs during

94 In fire insurance business, the Net premium earned ` lakhs in was the highest during the 10 years. In marine insurance business, the Net premium earned ` lakhs in is higher than that of the other 9 years. In motor insurance business, the highest Net premium earned was ` in In case of miscellaneous insurance business, the highest Net premium earned was ` in It is understood from the above table that the Net premium earned in motor insurance business by NIC Ltd., Salem Division was ` lakhs during and it was its highest Net premium earned during the period of study. And the lowest was ` lakhs in fire insurance business in The total Net premium earned by the division during the period of study fluctuated, it increased from ` lakhs in to ` 1, lakhs in It shows that the income of the division during the period of study was good. 94

95 TABLE-4.3 Net claim incurred by NIC Ltd., Salem division (` in Lakhs) Year Fire Marine Motor Mis. Total TOTAL , , Source: Annual reports of NIC LTD., Salem Division The above table shows the Net claim incurred by NIC Ltd., Salem division in each class of general insurance business during the period of study. In fire insurance business, the Net claim incurred decreased from ` lakhs during to ` 5.19 lakhs during In marine insurance business also the Net claim incurred decreased from ` lakhs during to ` 2.57 lakhs during In motor insurance business, the Net claim incurred increased from ` lakhs during to ` lakhs during But in miscellaneous insurance business, the 95

96 Net claim incurred decreased from ` lakhs during to ` 8.74 lakhs during In fire insurance business, the Net claim incurred ` lakhs in was the highest in the period of 10 years. In marine insurance business, the Net claim incurred ` lakhs in was higher than that of the other 9 years. In motor insurance business, the Net claim incurred ` lakhs in was the highest in the period of 10 years. In miscellaneous insurance business, the highest Net claim incurred was ` lakhs in It is understood from the above table that the Net claim incurred by NIC Ltd Salem division in motor insurance business during was ` lakhs and it was the highest during the period of study. And the lowest was ` 0.02 lakhs in fire insurance business during The total Net claim incurred increased from ` lakhs in during to ` lakhs during It shows that the liability of the division increased during the period of study. 96

97 TABLE 4.4 Management expenses of NIC ltd., Salem division (` in Lakhs) Year Fire Marine Motor Mis. Total TOTAL , Source: Annual reports of NIC LTD., Salem Division The above table explains the management expenses of NIC Ltd., Salem division in each class of general insurance business during the period of study. In fire insurance business, the management expenses decreased from ` lakhs during to ` 5.76 lakhs during In marine insurance business also, the management expenses decreased from ` lakhs during to ` 7.99 lakhs during But in motor insurance business, the management expenses increased from ` lakhs during to ` lakhs In miscellaneous insurance business, the 97

98 management expenses decreased from ` lakhs during to ` 9.56 lakhs during In fire insurance business, the management expenses of ` lakhs during was the highest in the period of 10 years. In marine insurance business, the management expenses of ` lakhs in was higher than that of the other 9 years. In motor insurance business, the management expenses of ` lakhs in was higher than that of the other 9 years. In miscellaneous insurance business, the management expense of ` lakhs in was higher than that of the other 9 years. It is understood from the above table that the management expenses of NIC Ltd., Salem Division in fire insurance business during was ` 0.05 lakhs, and it was the lowest management expense during the period of study. The management expenses in motor insurance business during was ` lakhs and it was the highest. The Management expenses increased from ` lakhs in to ` lakhs in It might have a direct impact on the profit. 98

99 TABLE 4.5 Operating result (profit or loss) of NIC Ltd., Salem division (` in Lakhs) Year Fire Marine Motor Mis. Total TOTAL Source: Annual reports of NIC LTD., Salem Division The above table shows the operating result (profit/loss) of NIC Ltd., Salem division in each class of general insurance business for the period of 10 years. In fire insurance business, the operating result was positive (profit) during the 10 years. The operating result (profit) in fire insurance business decreased from ` lakhs during to ` lakhs during In marine insurance business also the operating result was positive (profit) during the 10 years. The operating result (profit) in marine insurance business decreased from ` lakhs during to ` 4.31 lakhs 99

100 during In motor insurance business, the operating result was positive (profit) only for 3 years and for the remaining 7 years there was a negative (loss) result. The operating result (loss) for was ` lakhs and it decreased to a loss of ` lakhs during In miscellaneous insurance business, the operating result for 6 years was positive result (profit) and for the remaining 4 years it shows a negative result (loss). The operating result in miscellaneous insurance business was increased from ` 37.6 lakhs during to ` lakhs during The operating result (profit) in fire insurance business during was ` lakhs and it was the highest during the 10 years. In marine insurance business, the operating result (profit) of ` lakhs was higher than that of the other 9 years. In motor insurance business, the operating result (profit) of ` lakhs during was the highest in the period of study. It is understood from the above table that the profit earned by NIC Ltd., Salem division during was ` lakhs in motor insurance business and it was the highest positive operating result (profit) of the division during the period of study. The highest negative result (loss) was ` lakhs during in motor insurance business. The total Operating result (loss) decreased from ` lakhs in to a loss of ` 30.5 lakhs in It shows the profitability of the division during the period of study. 100

101 2. ORIENTAL INSURANCE COMPANY LIMITED, SALEM DIVISION TABLE- 4.6 Overall performance of OIC Ltd., Salem division (` in Lakhs) Year Net premium earned Net claim incurred Mgt. expenses Operating result , , , , , , TOTAL 9, , Source: Annual reports of OIC Ltd., Salem Division. The table shows the overall performance of OIC Ltd., Salem division during the period of study. The Net premium earned increased from ` lakhs during to ` 1, lakhs during The Net claim incurred decreased from ` during to ` lakhs during The management expenses also decreased from ` lakhs 101

102 during to ` lakhs during The operating result (profit) increased from ` 8.71 lakhs in to ` 1, lakhs during The Net premium earned ` 1, lakhs for was the highest during the 10 years. The Net claim incurred ` 1, lakhs for was higher than that of the other 9 years. The Operating result (profit) ` 1, lakhs for was the highest profit earned during the period of 10 years. It is understood from the above table that, the total operating result (profit) of OIC Ltd., Salem Division during the period of study was ` lakhs. The operating result was positive (profit) for the 5 years , , , and and for the remaining 5 years the total operating result was negative (loss). 102

103 TABLE 4.7 Net premium earned by OIC Ltd., Salem division (` in Lakhs) Year Fire Marine Motor Mis. Total , , , , , TOTAL , , , Source: Annual reports of OIC Ltd., Salem Division The above table shows the Net premium earned by OIC Ltd., Salem division in each class of general insurance business during the period of study. In fire insurance business, the Net premium earned decreased from ` lakhs during to ` 9.04 lakhs during In marine insurance business also, the Net premium earned decreased from ` 6.70 lakhs during to ` 3.12 lakhs during In motor insurance business, the Net premium earned increased from ` lakhs during to 103

104 ` 1, lakhs during In miscellaneous insurance business, the Net premium earned decreased from ` lakhs during to ` 9.48 lakhs during In fire insurance business, the Net premium earned was ` lakhs in and it was the highest during the period of study. In marine insurance business during the division earned a premium of ` lakhs and it was the highest during the 10 years. In motor insurance business, the net premium earned in was ` lakhs and it was higher than that of the other 9 years. In miscellaneous insurance business, the division earned a highest premium of ` lakhs in It is understood from the above table that the Net premium earned ` 1, lakhs during in motor insurance business was the highest, during the period of study. The lowest Net premium earned during the period of study was ` 3.12 lakhs in marine insurance business during The total Net premium earned by the division had climbed up the ladder from ` lakhs in to ` 1, lakhs in It shows that the income for period of study had increased. 104

105 TABLE 4.8 Net claim incurred by OIC Ltd., Salem division (` in Lakhs) Year Fire Marine Motor Mis. Total , , , , TOTAL , , Source: Annual reports of OIC Ltd., Salem Division The above table shows the Net claim incurred by OIC Ltd., Salem Division in each class of general insurance business during 10 years. In fire insurance business, the Net claim incurred decreased from ` lakhs during to ` 0.64 lakhs during In marine insurance business, the Net claim incurred decreased from ` 4.02 lakhs during to ` 0.24 lakhs during In motor insurance business also, the Net claim incurred decreased from ` lakhs during to ` lakhs 105

106 during In miscellaneous insurance business again the Net claim incurred decreased from ` lakhs during to ` 0.40 lakhs during In fire insurance business, the highest Net claim incurred by the division was ` lakhs in In marine insurance business, the Net claim incurred ` lakhs in was the highest one. In motor insurance business, the Net claim incurred ` 1, lakhs in was higher than that of the other 9 years. In miscellaneous insurance business, the net claim incurred ` lakhs in was the highest during the period of 10 years. It is understood from the above table that the Net claim incurred by the OIC Ltd., Salem division in marine insurance business was ` 0.24 lakhs in and it was the lowest during the period of study. The highest Net claim incurred was ` 1, lakhs during in motor insurance business. The total Net claim incurred decreased from ` lakh in to ` lakhs in It helps to reduce the liability regarding payment of claim. 106

107 TABLE 4.9 Management expenses of OIC Ltd., Salem division (` in Lakhs) Year Fire Marine Motor Mis. Total TOTAL Source: Annual reports of OIC Ltd., Salem Division The above table explains the management expenses of OIC Ltd., Salem Division in each class of general insurance business during 10 years. In fire insurance business, the management expenses decreased from ` lakhs during to ` 0.23 lakhs during In marine insurance business, the management expenses decreased from ` 1.07 lakhs during to ` 0.17 lakhs during In motor insurance business, the management expenses decreased from ` lakhs during to 107

108 ` 8.68 lakhs during In miscellaneous insurance business also, the management expenses decreased from ` 5.23 lakhs during to ` 1.29 lakhs during In fire insurance business, the management expenses for was ` lakhs and it was higher than that of the other 9 years. In marine insurance business, the management expenses for was ` 3.04 lakhs and it was the highest during the period of 10 years. In motor insurance business, the management expenses for was ` lakhs and it was higher than that of the other 9 years. In miscellaneous insurance business, the management expenses for was ` lakhs and it was higher than that of the other 9 years. It is understood from the above table that the management expenses of ` 0.17 lakhs in marine insurance business during , was the lowest management expenses of the division during the period of study. The highest management expenses was ` lakhs during in motor insurance business. The total management expenses during the study period decreased from ` lakh during to ` lakhs during. It helps the division to increase its profit. 108

109 TABLE 4.10 Operating result (profit or loss) of OIC Ltd., Salem division (` in Lakhs) Year Fire Marine Motor Mis. Total , , TOTAL Source: Annual reports of OIC Ltd., Salem Division The above table shows the operating result (profit/loss) of OIC Ltd., Salem division in each class of general insurance business during the period of 10 years. The operating result in fire insurance business during the 10 years was positive (profit). The operating result (profit) in fire insurance business increased from ` 2.44 lakhs during to ` 8.17 lakhs during In marine insurance business also the operating result for 10 years was positive (profit). The operating result in marine insurance business increased from ` 1.61 lakhs during to ` 2.71 lakhs during In motor insurance business, the operating result was positive (profit) only for 2 years and for the remaining 8 years the net result was negative (loss). The operating result in motor insurance business was 109

110 positively increased from a loss of ` lakhs during to a profit of ` 1, lakhs during In miscellaneous insurance business the operating result was positive (profit) for 8 years and for the remaining 2 years the net result shows a negative result (loss). The operating result (profit) decreased from ` lakhs during to ` 7.79 lakhs during The operating result in fire insurance business for was ` lakhs, which was higher than that of the other 9 years. The operating result in marine insurance business for was ` lakhs and it was the highest positive result (profit) during the period of 10 years. In motor insurance business the operating result (profit) of ` lakhs for was the highest during the period. The operating result (profit) in miscellaneous insurance business for was ` lakhs, which was higher than that of the other 9 years. It is understood from the above table that the operating result (profit) of ` 1, lakhs for in motor insurance business was the highest positive operating result (profit) during the period of study. The highest negative operating result (loss) was ` lakhs in motor insurance business during The total Operating result (profit) increased from ` 8.71lakhs during to a profit of ` 1,049.43lakhs during It shows that the profit of the division during the period of study was good. 110

111 3. NEW INDIA ASSURANCE COMPANY LIMITED, SALEM DIVISION TABLE 4.11 Overall performance of NIAC Ltd., Salem division (` in Lakhs) Year Net premium earned Net claim incurred Mgt. Expenses Operating result , , TOTAL 7, , , Source: Annual reports of NIAC Ltd., Salem division. The above table explains the overall performance of NIAC Ltd., Salem division during the period of study. The Net premium earned increased from ` lakhs during to ` 1, lakhs during The Net claim incurred increased from ` lakhs during to ` lakhs during The management expenses also increased 111

112 from ` lakhs during to ` lakhs during The operating result for was a loss of ` lakhs and for , the net operating result shows a positive result (profit) of ` lakhs. The Net premium earned ` 1, lakhs for was higher than that of the other 9 years. The Net claim incurred ` lakhs during was the highest among the 10 years. The Management expenses ` lakhs in was higher than that of the other 9 years. The Operating result for was ` lakhs which was the highest positive operating result (profit). It is understood from the above that the total operating result for the period of study was ` 2, lakhs. For and the operating result was negative (loss) and for the remaining 8 years the operating result was positive (profit). 112

113 TABLE Net premium earned by NIAC Ltd., Salem division (` in Lakhs) Year Fire Marine Motor Mis. Total , , TOTAL 1, , , , Source: Annual reports of NIAC Ltd., Salem division The above table shows the Net premium earned by NIAC Ltd., Salem division in each class of general insurance business during the period of study. It is clear from the above table that the Net premium earned in fire insurance business increased from ` lakhs during to ` lakhs during In marine insurance, business the Net premium earned increased from ` lakhs during to ` 39.7 lakhs during In motor insurance business, the Net premium earned increased from ` lakhs during to ` lakhs during In 113

114 miscellaneous insurance business, the Net premium earned increased from ` 8.51 lakhs during to ` lakhs during In fire insurance business, the Net premium earned ` lakhs in was higher than that of the other 9 years. In marine insurance business, the highest Net premium earned was ` 39.7 lakhs in was the highest during the 10 years. In motor insurance business, the Net premium earned ` lakhs in was higher than that of the other 9 years. In miscellaneous insurance business, the Net premium earned ` lakhs in was higher than that of the other 9 years. It is understood from the above table that the NIAC Ltd., Salem division earned a highest Net premium of ` lakhs during in motor insurance business. The lowest was ` 8.51 lakhs in miscellaneous insurance business during The total Net premium earned by the division during the period of study was ` 7, lakhs. The Net premium earned increased from ` lakhs in to ` 1, lakhs in It shows the positive result in the income of the division during the period of study. 114

115 TABLE 4.13 Net claim incurred by NIAC Ltd., Salem division (` in Lakhs) Year Fire Marine Motor Mis. Total TOTAL , , Source: Annual reports of NIAC Ltd., Salem division The above table explains the Net claim incurred by NIAC LTD., Salem division in each class of general insurance business during the period of study. The Net claim incurred in fire insurance business, increased from ` lakhs during to ` lakhs during In marine insurance business, the Net claim incurred increased from ` 9.98 lakhs during to ` lakhs during In motor insurance business, the Net claim incurred increased from ` lakhs during to ` lakhs 115

116 during In miscellaneous insurance business, the Net claim incurred increased from ` 43.95lakhs during to ` lakhs during In fire insurance business, Net claim incurred of ` lakhs in was the highest during the period of 10 years. In marine insurance business, the Net claim incurred ` lakhs in was higher than that of the other 9 years. In motor insurance business, the Net claim incurred ` in was the highest during the period. In miscellaneous insurance business, the Net claim incurred ` lakhs in was higher than that of the other 9 years. It is understood from the above table that the Net claim incurred in marine insurance business during was ` 1.20 lakhs and it was the lowest during the study period. The highest Net claim incurred was ` lakhs in motor insurance business during The total Net claim incurred during the period of study was ` 4, lakhs. The Net claim incurred from ` lakhs in to ` lakhs in It would have increased the liability of the division regarding the payment of claim. 116

117 TABLE Management expenses of NIAC Ltd., Salem division (` in Lakhs) Year Fire Marine Motor Mis. Total TOTAL Source: Annual reports of NIAC Ltd., Salem division The above table explains the management expenses of NIAC Ltd., Salem division in each class of general insurance business during the period of study. In fire insurance business, the management expenses decreased from ` lakhs during to ` lakhs during In marine insurance business, the management expenses increased from ` 5 lakhs during to ` 6.66 lakhs during In motor insurance business, the management expenses increased from ` lakhs during to 117

118 ` lakhs during In miscellaneous insurance business, the management expenses increased from ` 0.59 lakhs during to ` lakhs during In fire insurance business, the management expenses for was ` lakhs, it was higher than that of the other 9 years. In marine insurance business, the management expenses for was ` 6.66 lakhs which was higher than that of the other 9 years. In motor insurance business, the management expenses for was ` lakhs and it was the highest during the period of 10 years. In miscellaneous insurance business, the management expenses for was ` lakhs and it was higher than that of the other 9 years. It is understood from the above table that, the management expenses in marine insurance business during was ` 0.36 lakhs was the lowest management expenses during the study period. The highest was ` lakhs in motor insurance business during The total Management expenses during the period of study was ` lakhs. The Management expense increased from ` lakhs in to ` lakhs in

119 TABLE-4.15 Operating result (profit or loss) of NIAC Ltd., Salem division (` in Lakhs) Year Fire Marine Motor Mis. Total TOTAL 1, , Source: Annual reports of NIAC Ltd., Salem division The above table shows the Operating result (profit/loss) of NIAC Ltd., Salem division in each class of general insurance business for the period of 10 years. In fire insurance business, the operating result was positive (profit) for the period of 10 years. The operating result (profit) in fire insurance business increased from ` lakhs during to ` lakhs during In marine insurance business also the operating result was positive (profit) for the period of study. The net result (profit) in marine insurance 119

120 business decreased from ` lakhs during to ` 8.03 lakhs during In motor insurance business, the operating result was positive (profit) only for 4 years and for the remaining 6 years it was negative result (loss). The operating result (profit) in motor insurance business increased from a loss of ` lakhs during to a profit of ` lakhs during In miscellaneous insurance business the net result (profit) for 9 years was positive (profit), and only one year there was a negative result (loss). The operating result in miscellaneous insurance business was increased from a loss of ` lakhs in to a profit of ` lakhs in It is understood from the above table that the highest positive operating result (profit) was ` lakhs in motor insurance business during The highest negative operating result (loss) was ` lakhs in motor insurance business during The total Operating result had recovered from a loss of ` lakhs in to a profit of ` lakhs during

121 4. UNITED INDIA INSURANCE COMPANY LIMITED, SALEM DIVISION TABLE-4.16 Overall performance of UIIC Ltd., Salem division (` in Lakhs) Year Net premium earned Net claim incurred Mgt. Expenses Operating result , , , , , , , , , , , , , , , , , , , , , , , TOTAL 17, , , , Source: Annual reports of UIIC Ltd., Salem Division. The above table explains the overall performance of the UIIC Ltd. Salem division during the period of study. The Net premium earned increased from ` 1, lakhs during to ` 2, lakhs during The Net claim incurred decreased from ` 2, lakhs during to ` 1, lakhs during The Management expenses 121

122 increased from ` lakhs in to ` lakhs in The Operating result for was a negative result (loss) of ` 1, lakhs and it increased to a positive result (profit) of ` 1, in The Net premium earned ` 2, lakhs in was higher than that of the other 9 years. The Net claim incurred ` 2, lakhs in was the highest during the 10 years. The management expenses ` lakhs in was higher than that of the other 9 years. The operating result shows a profit of ` lakhs for which was the highest among the 10 years. It is understood from the above table that the total operating result during the period of study was negative (loss) and it was ` 3, lakhs. It shows that the company had incurred loss during the period of study. For three years i.e., , and the operating result was positive (profit) and for remaining 7 years the total operating result was negative (loss). 122

123 TABLE-4.17 Net premium earned by UIIC Ltd., Salem division (` in Lakhs) Year Fire Marine Motor Mis. Total , , , , , , , , , , , , , , , , TOTAL 1, , , , Source: Annual reports of UIIC Ltd., Salem Division The above table shows the Net premium earned by UIIC Ltd., Salem division in each class of general insurance business during the period of study. In fire insurance business, the Net premium earned decreased from ` lakhs during to ` lakhs during In marine insurance business, the Net premium earned decreased from ` lakhs during to ` lakhs during In motor insurance business, the Net Premium earned increased from ` lakhs during 123

124 to ` 1, lakhs during In miscellaneous insurance business, the Net premium earned increased from ` lakhs during to ` 1, lakhs during In fire insurance business the division earned a highest net premium of ` lakhs in In marine insurance business, the division earned a highest premium ` lakhs during In motor insurance business, the Net premium earned ` 1, lakhs in was higher than that of the other 9 years. In miscellaneous insurance business, the Net premium earned of ` 1, lakhs in was the highest. It is understood from the above table that the highest Net premium earned was ` 1, lakhs during in case of motor insurance business. The lowest Net premium earned was ` during in marine insurance business. The total Net premium earned during the period was ` 17, lakhs. The Net premium earned increased from ` 1, lakhs in to ` 2, lakhs in It shows the increase in the income during the period of study. 124

125 TABLE Net claim incurred by UIIC Ltd., Salem division (` in Lakhs) Year Fire Marine Motor Mis. Total , , , , , , , , , , , , , , , , , , , TOTAL , , , Source: Annual reports of UIIC Ltd., Salem Division The above table shows the Net claim incurred by UIIC Ltd., Salem division in each class of general insurance business during the period of 10 years. In fire insurance business, the Net claim incurred decreased from ` lakhs during to ` lakhs during In marine insurance business, the Net claim incurred decreased from ` 7.93 lakhs during to ` 5.06 lakhs during In motor insurance business, the Net claim incurred decreased from ` 1, lakhs during to 125

126 ` lakhs during In miscellaneous insurance business, the Net claim incurred increased from ` lakhs during to ` lakhs during In fire insurance business, the Net claim incurred ` lakhs in was the highest during the period. In marine insurance business, the Net claim incurred ` lakhs in was higher than that of the other 9 years. In motor insurance business, the Net claim incurred ` 2, lakhs during was the highest during the period of 10 years. In miscellaneous insurance business, the Net claim incurred ` 1, lakhs in was higher than that of the other 9 years. It is understood from the above table that the Net claim incurred in marine insurance business during was ` 0.18 lakhs, which was the lowest Net claim incurred during the period of study. The highest Net claim incurred was ` 2, lakhs in motor insurance business during During the period of study the total Net claim incurred by UIIC Ltd., Salem division was ` 19, lakhs. The Net claim incurred decreased from ` 2, lakhs in to ` 1, lakhs in It shows that the liability regarding the claim payment decreased during the period of study. 126

127 TABLE-4.19 Management expenses of UIIC Ltd., Salem division (` in Lakhs) Year Fire Marine Motor Mis. Total TOTAL , Source: Annual reports of UIIC Ltd., Salem Division The above table shows the management expenses of UIIC Ltd., Salem division in each class of general insurance business during the period of study. In fire insurance business, the management expenses increased from ` 0.59 lakhs during to ` lakhs during In marine insurance business, the management expenses increased from ` 0.55 lakhs during to ` 2.43 lakhs during In motor insurance business, the management expenses increased from ` lakhs during 127

128 to ` lakhs during In miscellaneous insurance business, the management expenses increased from ` 9.64 lakhs during to ` lakhs during In fire insurance business, the management expenses for was ` lakhs and it was higher than that of the other 9 years. In marine insurance business, the management expenses for was ` lakhs and it was higher than that of the other 9 years. In motor insurance business, the management expenses for was ` lakhs and it was the highest during the period of 10 years. In miscellaneous insurance business, the management expenses for was ` lakhs and it was higher than that of the other 9 years. It is understood from the above table that, the management expenses in marine insurance business during was ` 0.55 lakhs and it was the lowest management expenses of the division during the period of study. The management expenses in motor insurance business was ` lakhs during and it was the highest during the period of study. The total management expenses during the study period was ` 1, The management expenses increased from ` lakhs in to ` lakhs in It reduces the profit of the division. 128

129 TABLE Operating result (profit or loss) of UIIC Ltd., Salem division (` in Lakhs) Year Fire Marine Motor Mis. Total , , , , , TOTAL , , Source: Annual reports of UIIC Ltd., Salem Division The above table shows the operating result (profit/loss) of UIIC Ltd., Salem division in each class of general insurance business for the period of 10 years. In fire insurance business, the operating result was positive (profit) for 8 years and for the remaining 2 years it was negative (loss). The operating result in fire insurance business increased from a loss of ` lakhs during to a profit of ` lakhs during In marine insurance business also the operating result for 8 years was positive (profit) and for 2 years it was negative. The operating result in marine insurance business decreased from ` 11.6 lakhs during to ` 9.50 lakhs during In motor insurance business, the operating result was positive (profit) for 3 years and for the remaining 7 years it was negative (loss). The operating result in motor insurance business increased from a loss of `

130 lakhs during to a profit of ` lakhs during In miscellaneous insurance business, the operating result was positive for 5 years and negative for remaining 5 years. The operating result in miscellaneous insurance business was increased from a loss of ` lakhs during to a profit of ` lakhs during The Operating result (profit) in fire insurance business for was ` lakhs, which was higher than that of the other 9 years. The Operating result (profit) in marine insurance for was ` lakhs and it was the highest during the period. The operating result (profit) in motor insurance business for was ` lakhs was higher than that of the other 9 years. The operating result in miscellaneous insurance business for was ` lakhs and it was the highest during the period of 10 years. It is understood from the above table that, the operating result of ` lakhs in miscellaneous insurance business was positive during was and it was the highest profit during the period of study. The highest negative operating result (loss) was ` 1, lakhs in motor insurance business during During the period of study the total operating result was a loss of ` 3, lakhs. The operating result increased from a loss of ` 1, lakhs during to a profit of ` 1, lakhs during It shows the profitability of the division during the period of study. 130

131 CHAPTER V ANALYSIS AND INTERPRETAION I OVERALL PERPFORMANCE This chapter deals with the analysis and interpretation of overall performance of the Public Sector General Insurance Companies in Salem division for the period of 10 years from to For studying the relationships and testing the hypotheses Correlation analysis and t test are used. CORRELATION ANALYSIS: Correlation refers to the relationship of two or more variables. We can find some relationship between two variables; for example, there exists some relationship between the height of a father and the height of the son, price and demand, wage and price index, yield and rainfall, height and weight and so on. Correlation is the statistical analysis, which measures and analyses the degree or extent to which two variables fluctuate with reference to each other. The word relationship is of important and indicates that there is some connection between the variables under observation. The correlation measures the closeness of the relationship between the variables. Karl Pearson s Coefficient of Correlation: Karl Pearson, a great biometrician and statistician, suggested a mathematical method for measuring the magnitude of linear relationship 131

132 between two variables. Karl Pearson s method is the most widely used method in practice and is known as Pearson Coefficient of Correlation. It is denoted by the symbol r, the formula for calculating Pearson r is: r x 2 xy y 2 X x x, Y y y Student s t test: The t -distribution is used when sample size is 30 or less and the population standard deviation is unknown. For testing the significance of correlation coefficient the following formula is applicable. t r 1 r 2 N 2 Degrees of freedom V= N-2 I. There is no significant difference between the Net Premium Earned and the Net claim incurred by the public sector general insurance companies in Salem division. (Null) 1. H 0 : There is no significant difference between the Net premium earned and the Net claim incurred by NIC LTD., Salem division. (Null) The following table shows the Net premium earned and the Net claim incurred by NIC Ltd., Salem division during the period from to