Insurance Sector (Part 1): For NICL Exam

NICL exam is around the corner and every student is looking for genuine notes for Insurance sector. Here I am starting a series on Insurance sector that might help you in NICL exam -2015.

DEFINITION:
In economic terms, anything used to cut down the risk is known as insurance.
Insurance is provided by an insurance company which covers a person's life (called life segment) or covers a loss of assets, property (called non-life or general segment).
The insurance policies are purchased at fixed premiums.

BASIC TERMINOLOGY:

• Insured: The party or the individual who seeks protection against a specified task and entitled to receive payment from the insurer in the event of happening of stated event is known as insured.

• Insurer: The party who promises to pay indemnity the insured on the happening of contingency is known as insurer. The insurer is an insurance company.

• Beneficiaries: The person or the party to whom the policy proceeds will be paid in the event of the death or happening of any contingency is called beneficiary.

• Contract: An agreement binding at law between two or more parties is called contract.

• Premium: The amount which is paid to the insurer by the insured in consideration to insurance contract is known as premium. It may be paid on monthly, quarterly, half yearly, yearly or as agreed upon. It is the price for an insurance policy.

• Insured sum: The sum for which the risk is insured is called the insured sum, or the policy money or the face value of the policy. This is the maximum liability of the insurer towards the insured.

• Indemnity: Compensation for actual loss suffered is call indemnity.

• Reinsurance: When an insurance company gets insurance coverage on its insurance policies, it is considered a case of reinsurance. General Insurance Corporation of India is the sole re-insurer in India, that too under Government.

HISTORY OF INSURANCE:

• The origin of insurance services may be traced back to 14th Century in Italy when ships carrying goods were covered under different perils. Thus marine insurance become oldest insurance practice. The systematic and orderly beginning of the insurance industry took place in UK at Lloyds coffee house in Tower Street in London.
• In India, insurance has deep rooted history. It finds mention in the writings of Manu (Manusmrithi) and Kautilya (Arthashastra). The writings talks in terms of pooling of resources that could be re-distributed in times of calamities such as fire, flood, epidemic and famines. This was probably a precursor to modern day insurance

History of Life Insurance:

The earliest reference of life insurance was available in the days of East India Company, when the policies were taken only by the British officers. 

Oriental was the first foreign insurance company established in India in 1818 in Calcutta. However this company failed in 1834. All the insurance companies established during that period were brought up with the purpose of looking after the needs of European community and Indian natives were not being insured by these companies. However, later with the efforts of eminent people like Babu Muttylal Seal, the foreign life insurance companies started insuring Indian lives.

Bombay Mutual Life Assurance Society heralded the birth of first Indian life insurance company in the year 1870, and covered Indian lives at normal rates.

In 1914, the Government of India started publishing returns of Insurance companies in India.

The Indian Life Assurance Companies Act, 1912 was the first statutory measure to regulate life business.

In the era of 50s there were large number of insurance companies and competition was high. There were also allegations of unfair trade practices. The Government of India, therefore, decided to nationalise the insurance business.

LIC

An ordinance was issued on 19th January, 1956 nationalising the Life insurance sector and Life Insurance Corporation (LIC) came into existence on 1st September, 1956. It amalgamated 245 Indian and foreign companies at that time.
Chairman: SK Roy
Headquarters: Mumbai 

History of General Insurance:

The history of general insurance can be traced back to era of Industrial revolution in the west. In India it came due to Britishers. In 1907, the Indian Mercantile Insurance Ltd. was set up. This was the first company to transact all classes of general insurance business. General Insurance Council, a wing of Insurance Association of India was set up in 1957.

GIC

In 1971, the government nationalised the private sector companies (107 Indian and foreign companies) in general segment and the government company the General Insurance Corporation of India (GIC) was formed in 1972.
Chairman: Ashol K Roy
Headquarters: Mumbai

The GIC started operation on January 1, 1973 with its four holding companies:

1. National Insurance Company Ltd.- Head office- Kolkata
2. New India Assurance Company Ltd.- Head office- Mumbai
3. Oriental Insurance Company Ltd- Head office- New Delhi
4. United India Insurance Company Ltd.- Head office- Chennai

Note: 

In 2000, GIC was notified as the Indian re-insurer.(it is the sole re-insurer in India)

In 2002 GIC was withdrawn from holding status of four public sector insurance companies. Now these companies are directly owned by the Government of India.

Today there are 28 general insurance companies and 24 life insurance companies operating in India.