WHAT IS INSURANCE

INTRODUCTION
After opening up of Indian economy in 1991, there was a huge scope available in every industry or in every business. Just like other industry liberalization of the Indian insurance market was recommended, indicating that the market should be opened to private-sector competition, and ultimately, foreign private-sector competition. It also investigated the level of satisfaction of the customers of LIC. Curiously, the level of customer satisfaction seemed to be high. The union of the LIC made political capital out of this finding.

Insurance, in law and economics, is a form of risk management primarily used to hedge against the risk of a contingent loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for a premium. Insurer, in economics, is the company that sells the insurance. Insurance rate is a factor used to determine the amount, called the premium, to be charged for a certain amount of insurance coverage. Risk management, the practice of appraising and controlling risk, has evolved as a discrete field of study and practice.

1.1 WHAT IS INSURANCE
The business of insurance is related to the protection of the economic value of assets. Every assets 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 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 lost earlier, being destroyed or made non-functional, through an accident or other unfortunate event; the owner and those deriving benefits there from suffer. Insurance is a mechanism that helps to reduce such adverse consequences. Insurance is basically a sharing device. The losses to assets resulting from natural calamities (life fire, flood, earthquake, accidents etc.) are met out of common pool contributed by a large number of persons who are exposed to similar risks.
· Insurance is the method of spreading and transfer for risks.
· The fortunate many that are exposed same or similar risk shares loss of the unfortunate few.
· Assets (created in expectation of future needs/benefits) have a value.
· Loss of assets deprives the owner of the expected benefits.
· Insurance in this context is a mechanism that helps to reduce the adverse consequences due to loss of assets.

1.2 PURPOSE AND NEED OF INSURANCE
a. Assets are insured because they are likely to be destroyed or made non-functional through an accidental occurrence. Such possible occurrences are called perils. Fire, Flood, Breakdown, Lighting, Earthquake etc. are perils. The damages that these perils may cause to the assets are the risk that the asset is exposed to.
b. Insurance is relevant only if there are uncertainties. There has to be uncertainty about the risk of loss of assets.
c. The risk is spread among the community and the likely big impact on one is reduced to smaller manageable impacts on all.
d. The manner in which the loss is to be shared can be determined before hand. It may be proportional to the likely loss that each person is likely to suffer, which is indicative of the benefit he would receive if the peril befell him.
e. Insurance only tries to reduce the impact of the risk on the owner of the asset and those who depend on the asset. It compensates, may not be fully, the losses. Only economic and financial losses can be compensated.
f. The purpose of insurance is to safeguard against misfortunate by making good the losses of the unfortunate few, through 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.

1.3 FUNCTIONS OF INSURANCE
People facing common risks come together and make their small contribution to a common fund. The contribution to be made by each person is determined on the assumption that while it may not be possible to say before hand, which person will suffer, it is possible to say on the basis of past experiences, how many persons, on an average may suffer losses.
The business of insurance pooling of risks and resources
The business of insurance is nothing, but one of sharing. It spreads losses of individual over the group of individuals who face common risk. People who suffer loss get relief because their loss is made good. People who do not suffer loss are relieved because they were spared the loss. Thus, insurance may be described as a method or a technique that provides for collection of small amount of premium. From many individuals and firms out of which losses suffered by the few are paid. The individual insured, which is exposed to large but uncertain loss, is able to buy protection through the payment of a small but definite cost viz. the premium.
The insurer is in the position of a trustee as it is managing the common fund for and on behalf of the community. It has to insure that nobody is allowed to take undue advantage of the arrangement. That is to say that the management of the business requires care to prevent entry into the group of people whose risk are not of the same kind as well as paying claims on losses that are not accidental. The decision to allow entry in the process of underwriting of risk. Both underwriting ad claim settlement have to be done with great care.

1.4 LIFE INSURANCE : OVERVIEW
Life Insurance is a contract binding a life insurance company to compensate a beneficiary for a death of a person insured. If the insured dies the company will provide a cash payment to the beneficiary. Life Insurance is used to protect the economic value of a human life with regards to those who may be financially dependent upon it.
USEFULNESS OF THE LIFE INSURANCE
Life Insurance has many uses for both individuals and businesses.
INDIVIDUAL USES of Life Insurance
Funeral – Life Insurance proceeds can ensure that there is enough money for proper funeral and burial expenses.
Debt – Personal bills, credit card debt, student loans, and personal notes can be covered by Life Insurance in the event of an individual’s death.
Mortgage Protection – The proceeds of Life Insurance policy can pay off the balance of a mortgage or provide an income stream to pay monthly mortgage or rent payments.
Income Replacement – In the event of an individual’s death, Life Insurance proceeds can provide a supplemental income stream to insure that the surviving family members are able to maintain the same standard of living.
Education – Life Insurance proceeds can ensure that the education costs of the insured children are covered.
Taxes – Federal estate and state inheritance taxes can be pre-funded using Life Insurance to preserve the value of an estate.
Donation/Gifts – An individual can use a Life Insurance policy to fund a donation to a charity or leave a gift to a family member.
BUSINESS USES of Life Insurance
Key-Person – A life Insurance policy can be used to protect a business from the loss of income and profits caused by the death of a key employee.
Business Continuation - Life insurance can be used to fund buy/sell agreement or stock redemption plan to determine enable a partner or group of employees to buy the business interest of a decreased partner.
Business Loans – Life Insurance protection on a key employee or business owner can be used to pay off the debts of a business in the event of that individual’s death.
Employee Benefits – Life insurance protection for an employee is commonly included in company employee benefits plans.

INDUSTRY PROFILE OF LIFE INSURANCE
Insurance is a Rs. 400 billion business in India, and together with banking services add about 7% to India’s GDP. Gross premium collection is about 2% of GDP and has been growing by 15-20% per annum. India also has the highest number of Life Insurance policies in force in the world, and total investible funds with the LIC are almost 8% of GDP. Yet more than three-fourths of India’s insurable population has no life insurance or pension cover. Health Insurance of any kind is negligible and other forms of non-life insurance are much below International standards.
To tap the vast insurance potential and to mobilize long-term savings we need reforms which include revitalizing and restructuring of the public sector companies, and opening up the sector to Private players. Statutory bodies need to be made to regulate the market and promote a healthy market structure. Insurance Regulatory Development Authority (IRDA) is one such body, which checks on these tendencies. IRDA role comprises of the following three functions :
a. Protection of consumer’s interest
b. To insure financial soundness and solvency of the insurance industry, and
c. To ensure healthy growth of the insurance market.
As there huge potential exist in insurance industry, government felt the need for opening the insurance industry.

1.6 WHAT IS LIFE INSURANCE?
Life Insurance is an agreement between the person insured and the insurer. Under the term of a Life Insurance Contract, the insurer promises to pay a certain sum on the happening of the event insured against (to a beneficiary), in exchange for premium payments.
Usually, the insurance contract provides for the payment of an amount on the date of maturity or at specified dates at periodic intervals; or in the event of unfortunate death, if it occurs earlier. Life Insurance is universally acknowledged as a tool to eliminate risk, replace uncertainty with certainty and timely aid for the family breadwinner. In other words, it is the civilized world’s partial solution to the financial solution to the financial problems caused by death.
WHY LIFE INSURANCE IS REQUIRED?
Life Insurance cannot be and should not be compared with any other form of investment. It provides a life long benefits, with returns when it is most required at the right time.
· Replacement of Income : One prime reason for buying life insurance is to replace the income lost in the event of untimely death of the life insured. When the regular income stops, the proceeds from a life insurance policy can be use to support the family members.
· Maintenance of Lifestyle : In case of the death of the life insured, family members are often hand-pressed trying to arrange for funds that can maintain the standard of living that they have grown accustomed to. Life Insurance offers protection against such an unfortunate eventuality.
· Expenses due to premature death : Life Insurance can play a crucial role to pay off any debts left behind by the person insured. For example, car loans, medical bills, mortgages, credit and payments, etc. are often left unpaid in case of sudden death. These obligations can be met with Life Insurance, without any depletion in family assets.
· Planning for important events like Children’s Marriage, etc. with the cost of living going up day by day, prudent people would go for Life Insurance as the most cost effective means to ensure that the important milestones in their children’s lives are not hampered by the uncertainties of life.
· Investment : Life Insurance can also be an investment instrument. Apart from the tax benefits that are also allowable by the Government of India for investing in Life Insurance, some Life Insurance policies offer returns on investment along with the cover for life. This can help you with long term financial goals.
· Charity : Life insurance is a great avenue to help a charitable cause. For people with philanthropic desire but short of means, Life Insurance provides the option to contribute much more than is possible by the life insured.

WHAT ARE THE BENEFITS OF LIFE INSURANCE?
· Superior to any other saving plan : Life Insurance policies offer protection against the risk of death, which is not available in any other contemporary saving plan. In the event of death of a policyholder, the insurance company makes available the full sum assured to the policyholders near and dear ones. In comparison, any other saving plan would amount to the total savings accumulated till date. If the death occurs prematurely, such savings can be much lesser than the sum assured.
· Encourage Thrift : A saving deposit can easily be withdrawn. The payment of Life Insurance premiums, however, is considered sacrosanct and is viewed with the same seriousness as the payment of interest on mortgage. Thus a Life Insurance policy in fact brings about compulsory savings.
· Easy settlement and protection against creditors : A Life Insurance Policy is the only financial instrument the proceeds of which can be protected against the claims of the creditor of the assured by effecting a valid assignment of the policy.
· Administering the legacy for beneficiaries : Speculative or unwise expenses can quickly cause the squandered. Several policies have foreseen this possibility and provide for payments over a period of years or in a combination of installments and lump sum amounts.
· Ready marketability and suitability for quick borrowing : A Life Insurance policy can, after a certain time period (generally three years), be surrendered for a cash value. The policy is also acceptable as a security for a commercial loan, for example, a student loan.
· Disability benefits : Death is not the only hazard that is insures; many policy also include disability benefits. Typically, these provide for waiver of further premiums and payments of monthly installments spread over certain time period.
· Accidental death benefits : Many policies can also provide for an extra sum to be paid (typically equal to the sum assured) if death occurs as a result of accident.
· Critical illness benefits : Many policies can also provide for cover against critical illness.
· Hospital cash benefit : Many policies can also provide for covering the hospitalization expenses, along with cover for life.
· Tax relief : Under the Indian Income Tax Act, tax relief under section 88 is available for premiums paid and section 10(10D) benefits are available for death/maturity/surrender proceeds from a Life Insurance Policy.
· Loans for policy : A Life Insurance policy grants the policy holder the right to obtain policy loan on certain policies.

1.7 RATIONALE BEHIND OPENING OF THE INSURANCE INDUSTRY?
An insurance policy protects the buyer at some cost against the financial loss arising from a specified risk. Different situations and different people require a different mix of risk cost combinations. Insurance companies provide these by offering schemes of different kinds.
Unfortunately the concept of Insurance is not popular in our country. As per the latest estimates, the total premium income generated by life and general insurance in India is estimated at around a meager 1.95% of GDP. However, India’s share of world insurance market has shown an increase of 10% from 0.31 in 1996-97 to 0.34% in 1997-98. India’s market share in the life insurance business showed a real growth of 11% thereby outperforming the global average of 7.7%. Non-life business grew by 3.1% against global average of 0.20%. In India insurance spending per capita was amongst the lowest in the world at $7.6 compared to $7 in the previous year. Amongst the emerging economies, India is one of the least insured countries but the potential for growth is phenomenal, as a significant portion of its population is in services and the life expectancy has also increased over the years.
Some of the important milestones in the Life Insurance Business in India are :

1.8 MAJOR MILESTONES

1912 : The Indian Life Insurance Companies Act enacted as the first statute to regulate the Life Insurance business.
1928 : The Indian Insurance Companies Act enacted to enable the government to collect statistical information about both life and non-life insurance business.
1938 : Earlier legislation consolidated and amended to the Insurance Act with the objective of protecting the interests of the insuring public.
1956 : 245 Indian and foreign insurers and provident societies taken over by the central government and nationalized. LIC formed by an act of Parliament, viz. LIC Act.
1993 : Setting up of Malhotra Committee.
1994 : Recommendations of Malhotra Committee.
1995 : Setting up of Mukherjee committee.
1996 : Setting up of (interim) Insurance Regulatory Authority (IRA) Recommendations of the IRDA.
1997 : Mukherjee Committee reports submitted but not made public.
1997 : 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.
1998 : The cabinet decides to allow 40% foreign equity in Private Insurance Companies, 26% to foreign companies and 14% to NRI’s, OCB’s and FII’s.
1990 : The Standing committee headed by Murali Deora decides that foreign equity in private insurance should be limited to 26%. The IRA bill is renamed the Insurance Regulatory and Development Authority (IRDA) Bill.
1999 : Cabinet clears IRDA Bill.
2000 : President gives assent to the IRDA Bill

Major players in Life Insurance Sector
a. LIFE INSURANCE CORPORATION
b. ICICI PRUDENTIAL
c. BAJAJ ALLIANZ
d. HDFC STANDARD LIFE
e. MAX NEW YORK
f. BIRLA SUN LIFE
g. SBI LIFE INSURANCE
h. KOTAK MAHINDRA
i. RELIANCE LIFE INSURANCE
j. AVIVA LIFE INSURANCE
k. MET LIFE
l. SAHARA
m. TATA AIG
n. ING VYASYA
CHAPTER TWO

HIGHLIGHTS OF ALLIANZ AG
1. Allianz is one of the leading global insurance companies headquartered in Munich, Germany.
2. Established in 1890, more than 110 years of experience in insurance.
3. Allianz has over 700 subsidiaries and approximately 1,81,000 employees worldwide.
4. Allianz global network extends to over 70 countries in :
Europe, South and Northern Americas, Africa, Middle East, Asia Pacific.
5. Allianz shares are traded at the 5 leading international stock exchanges: Frankfurt, London, Paris, Zurich and New York.
6. Gross Written Premium at 82.6 billion euros* [Rs 4,44,883 crores]
7. Number two by gross written premium in the world
8. One of Europe’s most highly valued stock corporations
9. ‘A+’ rating by A.M. Best.
10. Assets under management at approximately 989 billion.
11. By end 2002, allianz is one of the world’s premier fund managers with around 989 billion euros*[Rs 5,32,675 crores] worth of assets under management.

ABOUT BAJAJ AUTO
1. A Bajaj group, a Rs. 8000 crores group, a household name in India with a strong brand image and brand loyalty. Bajaj group is synonymous with quality and customer focus.
2. Largest 2 & 3 wheeler manufacturer in India.
3. Bajaj auto is Rs. 400 crores auto giant.
4. Forth largest in the world. Has over 15,000 employees.

BAJAJ ALLIANZ LIFE INSURANCE CO. LTD.
Is a joint venture between two leading conglomerates – Allianz AG, one of the worlds largest insurance companies, and Bajaj Auto, one of the biggest 2 & 3 wheeler manufacturer in the world.
Bajaj Allianz Life Insurance Company has developed insurance solutions that cater to every segment age-income profiles. Its products include invest gain [a unique life insurance plan where sustenance of income is combined in the same plan that pays a lump sum], cash gain [money back], term care [term with return of premium], swarna vishranti [retirement plan], protector [mortgage term insurance plan], unit gain [unit linked whole of life plan], unit gain single premium, unit gain plus & unit gain plus SP & Lifelong gain plan.
Bajaj Allianz is balanced for an accelerated growth in markets and has already become the fastest growing private life insurance company in India. Bajaj allianz has a wide pan India presence of office network in 156 cities of the country and is aided with a strong and trained agency network of over 29,000 agents. Bajaj allianz has forget strong banassurance and corporate agency relationships and continues to build on new tie-ups for fast track growth and deep market penetration.
Bajaj Allianz has launched a slew of need-based products to cater to each varied needs of that customer. Currently bajaj allianz has a product portfolio of 199 products and more need-based products are in the pipelines.

Bajaj Allianz Life Insurance
· Is the fastest growing private life insurance company in India.
· Currently has over 400,000 satisfied customers.
· A network of 228 customer care centers spanning 55 locations across the country backs.
· One of India’s leading private insurance companies.
· Products tailored to suit your needs.
· Decentralized organization structure for faster response.
· Wide reach to serve you better – a network of 228 branches spanning 55 locations nationwide.
· Specialized departments for banc assurance, corporate agency and group business.
· Highest standard of customer service in the industry.
· Swift and easy claim settlement process.

COMPANY’S VISION
To be the best life insurance company in India to buy from, work for, and invest in.

Alternate Channels
The strategic alliances department at Bajaj Allianz is involved with “Group Insurance” and “Corporate Agency” activities.
Corporate agents and brokers
· A constantly growing nationwide network of corporate agents and brokers.
· A decentralized, dedicated team of professionals to recruit develop and support Corporate agents and brokers.

Group Business
· A growing product range to meet generic and specific needs of various groups. Groups term life, group gratuity, group superannuating, group MRTA & GTL in lieu of EDLI are just some among many.
· A dedicated team to ensure nothing but the best in service delivery
· Flexibility to custom-design the claim settlement process

Financial Service Consultants
· A set of expert financial advisors to comprehensively address financial planning needs of clients with high net worth.
· Products designed to suit your requirements.

PRESENT SCENARIO IN THE MARKET
Bajaj Allianz life insurance is the fastest growing company in the year 2004-05 the company’s target was 750 crores but the company achieved more than its expectations and reached the figure of 1000 crores. Its growth rate was 480% in the year 2005-06, company has taken a target of 35000 crores and till now company has already achieved 600-700 crores.
The company attributes its growth to increase focus on customers needs launched 11 new products, so that the customer can choose the right product. The company garnered more than 60% of premium income for its newly launched unit link plan, units gain in the last 3 months for the financial year. The company planed to increase this channel by tying up with more banks.
It is the first company to such sophisticated IT system for quick decision-making. The company is planning to widen its distribution network adapting multi channel distribution like banc assurance, corporate agents besides strengthening our individual agency force.
It has a wide pan India presence with office network in 56 cities of the countries and added with a strong and trained agency network of over 27000 agnets. Currently it has a product portfolio of 18 products and more need-based products are in the pipeline.
CHAPTER THREE

Some of the products of Bajaj Allianz are as below :-
I) Individual life plans
a) Unit linked products
1) Bajaj Allianz unit gain plus plan
Key features of this plan are :
· Guaranteed death benefit
· Low operational cost
· Calculation of NAV on daily basis
· Provision for full/partial withdraws anytime after 3 full years premiums are paid.
2) Bajaj Allianz unit gain plus SP plan.
Key features of this plan are:
· Convenient single premium payment with option to pay top-ups later.
· Calculation of NAV on daily basis
· Attractive investment alternative to fixed – interest securities.
· Provision for full/partial withdrawals anytime after single premium is paid.
3) Bajaj Allianz unit gain plan
Key features of this plan are :
· Calculation of NAV on daily basis
· Attractive investment alternative to fixed – interest securities.
· Guaranteed death benefit
· You have the option to add the following four additional benefits :
1. Accidental death benefit
2. Accidental permanent total/partial disability benefit.
3. Critical illness benefit
4. Hospital cash benefit.
3) Bajaj Allianz unit gain SP Plan :
Key features of this plan are :
· It is like a tax free pension for life
· Whole life protection with premium payment term only 10 or 15 years
· Provision for full and partial withdrawals
· Calculation of NAV on daily basis

II) TRADITIONAL INSURANCE PRODUCTS :
a) Bajaj Allianz invest gain plan
· It is a participating endowment plan.
· Unique savings cum protection plan
· The only saving plan with a family income benefit.
· Convenient choice of terms – with limited premium payment options.
b) Bajaj Allianz cash gain plan
· Unique participating money back plan.
· Available in the widest range of terms : 15, 20, 25 and 30 years.
· 125% of the sum assured guaranteed as payouts.
c) Bajaj Allianz child gain plan
· It is a participating with profits children’s money back plan.
· Plan for education fund till graduation (21) or post graduation (24)
· Premium payable only till age 18 of the child.
· Payouts begins at age 18, when the child enters college.
d) Bajaj Allianz protector
· Joint life availability – the option to cover the co-applicant of the loan under this plan.
· It is an economical way to protect the family from the burden of repayment of the loan in case of death of the loanee.

Contents[hide]
1 Principles of insurance
2 Indemnification
3 When is a policy really insurance?
3.1 Does the contract contain adequate risk transfer?
3.2 Is there a brightline test?
3.3 "Safe harbor" exemptions
3.4 Risk limiting features
4 Insurer’s business model
5 Gambling analogy
6 History of insurance
7 Types of insurance
8 Types of insurance companies
9 Life insurance and saving
10 Size of global insurance industry
11 Financial viability of insurance companies
12 Controversies
12.1 Insurance insulates too much
12.2 Closed community self-insurance
12.3 Complexity of insurance policy contracts
12.4 Redlining
12.5 Health insurance
12.6 Dental insurance
12.7 Insurance patents
12.8 The insurance industry and rent seeking
12.9 Criticism of insurance companies
13 Glossary
14 References
15 See also
15.1 Lists
16 External links