Q 1.

Explain the Risk Management Process.

The Risk Management Process

Risk Management is defined in the standard (AS/NZS 4360:2004) as "the systematic application of management policies, procedures and practices to the tasks of establishing the context, identifying, analysing, assessing, treating, monitoring and communicating". It is an iterative process that, with each cycle, can contribute progressively to organisational improvement by providing management with a greater insight into risks and their impact. Risk management can be applied to all levels of an organisation, in both the strategic and operational contexts, to specific projects, decisions and recognised risk areas. Risk is defined as 'the chance of something happening that will have an impact on objectives'. It is, therefore, important to understand what the objectives of the University, Faculty, work unit or your position, are, prior to attempting to analyse the risks.

A simple process
Risk analysis is best done in a group with each member of the group having a good understanding of the tasks and objectives of the area being analysed. 1. Identify the Risks: as a group, list the things that might inhibit your ability to meet your objectives. You can even look at the things that would actually enhance your ability to meet those objectives eg. a fundraising commercial opportunity. These are the risks that you face eg. loss of a key team member; prolonged IT network outage; delayed provision of important information by another work unit/individual; failure to seize a commercial opportunity etc. 2. Identify the Causes: try to identify what might cause these things to occur eg. the key team member might be disillusioned with his/her position, might be head hunted to go elsewhere; the person upon whom you are relying for information might be very busy, going on leave or notoriously slow in supplying such data; the supervisor required to approve the commercial undertaking might be risk averse and need extra convincing before taking the risk etc etc.

3. Identify the Controls: identify all the things (Controls) that you have in place that are aimed at reducing the Likelihood of your risks from happening in the first place and, if they do happen, what you have in place to reduce their impact (Consequence) eg. providing a friendly work environment for your team; multi-skill across the team to reduce the reliance on one person; stress the need for the required information to be supplied in a timely manner; send a reminder before the deadline; provide additional information to the supervisor before he/she asks for it etc. 4. Establish your Risk Rating Descriptors: ie. what is meant by a Low, Moderate, High or Extreme Risk needs to be decided upon ahead of time. Because these are more generic in terminology though, you might find that the University's Strategic Risk Rating Descriptors are applicable. 5. Add other Controls: generally speaking, any risk that is rated as High or Extreme should have additional controls applied to it in order to reduce it to an acceptable level. What the appropriate additional controls might be, whether they can be afforded, what priority might be placed on them etc etc is something for the group to determine in consultation with the Head of the work unit who, ideally, should be a member of the group doing the analysis in the first place. 6. Monitor and Review: the monitoring of all risks and regular review of the unit's risk profile is an essential element for a successful risk management program.

Write about IRDA. Explain the functions and powers of IRDA.

The duties, powers and functions of IRDA have been specified under Section 14 of IRDA Act, 1999. The IRDA Authority has the duty to promote, regulate and ensure orderly growth of the insurance and reinsurance businesses across India, subject to the provisions of this Act and any other additional law that is being enforced.

Without prejudice to the generality of the provisions contained in sub-section (1) of IRDA Act, the powers and functions of the Authority shall include:

Issuing a certificate of registration to the applicant as well as modify, renew, withdraw, suspend or cancel any such registration that is deemed unfit.

Protecting the interests of the policyholders in matters concerning assigning of insurance policy, nomination by policyholders, settlement of insurance claim, insurable interest, surrender value of policy

and other terms and conditions based on contracts of insurance.

Specifying requisite qualifications, practical training and code of conduct for insurance intermediaries, insurance brokers and agents.

Specifying the code of conduct for surveyors and loss assessors.

Promotion of efficiency in the conduct of insurance business.

Promoting and regulating professional organizations connected with the insurance and re-insurance business across India.

Levying fees, commission and other charges for carrying out the purposes of this Act.

Calling for data or information from, undertaking inspection of, conducting enquiries and investigations, conducting audit of the insurers, intermediaries, insurance intermediaries and other organizations connected with the insurance business.

Under section 64U of the Insurance Act, 1938 (4 of 1938), controlling and regulation of the rates, advantages, terms and conditions etc that may be offered by insurers (or Insurance Companies) in respect of general insurance business not so controlled and regulated by the Tariff Advisory Committee.

Specifying the manner and form in which books of account shall be maintained and statement of accounts, financial statements etc shall be rendered by insurers and other insurance intermediaries.

Keeping a tab, exercising control and regulating investment of funds by insurance companies.

Regulating the maintenance of margin of solvency by the Insurers.

Adjudication of disputes between insurers and intermediaries or insurance intermediaries, hospitals, healthcare organizations or with customers.

To effectively supervise 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 referred to in clause (f);

Specifying the percentage of life insurance business and general (or non-life) insurance business to be undertaken by the insurance company in the rural or social sector.

Exercising any such other powers that may be prescribed with passage of time.

Write down about the objectives, purpose, functions and advantages of life insurance.

Objectives: After studying this unit, you should be able to: explain life insurance and its elements describe the features of life insurance and endowment assurance discuss the role of term and endowment in product designing explain the types of life insurance policies annuity and pension policies analyse the whole life policies, money back policies and other types of life insurances Purpose, Functions Life insurance is a policy that provides the basis of protection and financial stability after ones death in a family. Its function is to support the other family members with financial stability. So, it is important to understand the purpose, functions and advantages of life insurance. The primary objectives of life insurance are: Protection - The main objective of life insurance is to give protection. If a member in a family, particularly, the care taker of the family dies, the family faces many problems. Life insurance decreases the financial loss arising due to the death. After the death of insured member, the family is helped with the sum assured. People insure themselves with life insurance to make sure that their families do not face any difficulties upon their death. Investment - Life insurance not only protects a person from future risk, but also is a good mean of savings for the people. The insured person invests small amounts, in the form of premiums, with an insurance company. If the insured person dies before the maturity date of policy, then the nominees of deceased gets more amount than invested. It helps the family to maintain the same standard of living. Purpose of life insurance The purpose of life insurance is to provide financial protection against the losses that may be incurred due to uncertain difficulties caused by ill-health, death of an earning family member or financial losses. A life insurance policy on a non-working spouse is considered as an essential part of a family life insurance plan since it would deliver income for a living parent with children at home. The events that cause losses

may or may not occur during the running time of the contract of insurance. Insurance gives a kind of peace of mind to the insured. For example, Mr. X takes a life insurance policy, maturity period being 10 years. Annual premium for this policy is Rs.2000/-, while sum assured is Rs.25, 000/-. After paying premium for 4 years, the insured person dies. After his death, the total amount payable to his nominee would be Rs.25,000 + bonus, while he had paid only Rs.8000/- till his death as premium. On the other hand, if Mr. X lives for 10 years, then total amount payable to him, from that insurance company will be Rs.25,000 + bonus(which will be around 70% of the sum assured). In this manner, total amount received by insured will be Rs.42,500/- approximately, while he has paid premium Rs.20,000 only. Families need life insurance to: Provide financial security to their family members at the times of financial crisis. Protect the home mortgage. Plan their future financial requirements. Avail the benefit of retirement savings and other investments. Advantages of life insurance Life insurance provides major benefits to the society. The following are the advantages of life insurance: Reduces Worries - Life insurance reduces stress due to the financial security it offers. Investment opportunity - Life insurance contracts provide double benefits of both protection and investment, as the event assured against is sure to happen. In fact, a life insurance investment offers attractive returns. Credit enhancement - Businessmen would enjoy a better credit standing as they transfer the risks to the insurance company. Employment opportunity - Insurance companies are playing a very important role in challenging the problem of unemployment in the country by offering employment opportunities for many people. Moreover, there are large numbers of people working as insurance agents, professionals, etc. Tax Benefits The premiums paid for certain life insurance are eligible for tax rebate under section 80C of the income tax act. Encourages thrift As the premium paid is a form of compulsory savings, it promotes thrift and builds savings. Functions of life insurance In business, family and personal life, life insurance has important functions. In business, it plays a major role in calculated planning for future actions. Families purchase life insurance mainly as a security against future loss. Protection to stockholder - Companies with stockholders have life insurance contracts in place so any unpredicted transition goes easily. Both large and small companies insure the life of important employees, whose loss would distress business operations.

 Small business actions - People having sole ownership businesses need life insurance to enable the business operations to continue even after their death, at least until there is time to arrange for forthcoming management. In a partnership, life insurance with an assigned beneficiary contract will give a chance to the business to sustain and weather the challenges of the business. Retirement complement - Some life insurance policies can be converted into an annuity that will pay bonuses to the policyholder after retirement. These are more expensive policies. Support to the family - Life insurance provides security to a familys needy survivors with a financial help in their grief. Final expenditures - Many persons carry enough life insurance to cover funeral costs and other end-oflife expenses of the insured, and to repay unsettled dues. Gifts and special endowments - Another function of life insurance is to enable special endowments such as a major gift to a charity. A special facility in life insurance can be directed to fund education for a child. Parents of a child with an ill health may want to set apart a portion of their life insurance in a special fund to care for the child.

Q Explain the product development process, classification of new products, stages in new product 4 development, pricing strategy for new products. .

Any business organisation faces problem due to the threats from the environments like political and economical conditions, social, technology and supply conditions, changes in client requirements, and so on. The clients ask for better products and services. They seek more benefits in the products they buy, and more value for money. In addition to this, competition is another threat-causing factor. In order to overcome these threats and fulfill the customer requirements, business organisations have to develop new products. The new products provide new opportunities for the growth and security of the organisation. The new products are also needed to ensure profits to the company. The products that already exist have some limitations in improving the profit level of the organisation. Therefore, it is very important that the organisation introduce new products to substitute the old, declining and losing products. Thus, the new products become a part of the growth requirements of the organisation, and yields profits to the organisation. Classification of new products The new products introduced in any sector are classified into two groups: New products that arise from technological innovations: These are the products that have new functional value.

 New products that arise from marketing oriented modifications: These are the new versions of the existing products. The products may look new because of some changes in the existing product design, adding a new feature to the existing product, presenting the existing product with a new sales strategy to a new market segment.

Stages in new product development Stages of product development differ from one company to another. Generally, product development is carried out at the top-level management. The different stages of product development are: 1. Generating Ideas While developing a new product, the main challenge is to avoid mistakes and reduce risk. Before developing the product, the company should conduct a formal market research. This can help get some ideas on the customer needs and thus, develop the product accordingly. The different sources of information are customers, product development executives, consumer groups, intermediaries, legal pronouncement, employees, journals, magazines, and so on. 2. Screening Ideas After generating the ideas, screening of those ideas take place. The evaluation committee must screen the product for its objectives, policies, and so on. All the ideas need not be thoroughly followed. While screening the products, it is better to determine the following: - Is the new product an improvement over the existing product? - Is there any need for the new product? - Is it in the same line of business or different from the business? 3. Concept testing This is the third stage in the process of development of a new product. In this stage, the product concept is tested. It is a function of customer market research. It tests whether the customers have understood the product idea, whether they have interest in the idea, whether they need the product, and so on. This testing helps the company to make the concept of the new product clear. 4. Business analysis This stage of the product development life-cycle helps in designing the product based on the market analysis. It indicates the customer interest in the product, and thus helps in deciding whether to proceed with the project or not. In this stage, the impact of the project on the financial position of the organisation with and without the new product is compared, and calculated. While comparing and evaluating the products, different departments of the organisations have their own responsibilities. 5. New product development In this stage, the elements of the products are identified and highlighted. The prototypes of the products are developed in this stage, and after their approval, the actual product is developed. At this stage of product development the organisation is generally committed to the new product. In the development of the product, the production and marketing departments of the organisation are also actively involved apart from the research and development department. 6. Commercialisation In this stage, the organisation releases the product to the market. Insurance companies distribute their products through various channels including banks.

Developing new product is time-consuming; it involves risks, and is expensive. New products have a high attrition rate due to the following reasons: Many new products do not even reach the market at all, thus wasting considerable amount of money, time and effort. Some products that manage to reach the market after many years of development, also fail some time. Some products are successful only for a short period of time. They soon lose their initial boom. Therefore, for a product to be successful, it has to have an exclusive and better idea that fulfils the customer requirements and yields benefits. It should have a powerful production expertise and a good marketing strategy.

Pricing strategy for new products After the new product is developed, it is essential to price the product before releasing in the market. Therefore, it is important for insurance organisations to have an efficient pricing strategy. Pricing new insurance products is an important phase in product development process. Pricing a new product of insurance is quite difficult, as there are no previous versions of these products. Thus, there is no data on the possible market reaction for this product and the probable demand rate of the product. So, demandbased pricing is not possible. Competitionbased pricing is also not useful while pricing these products, because the customer compares the product only after it is released to the market. Costplus pricing strategy may be difficult, as the research and development cost may have been shared among different products while generating ideas for new products. Therefore, it is difficult to assign the cost for a particular product. Pricing of the new insurance products includes four steps: 1. Drafting a pricing strategy. 2. Actuaries testing. 3. Rate setting and testing. 4. Managing of pricing outcomes.

Q 6.

Reinsurance is a kind of insurance. It is an important operation of insurance. Give an overview of reinsurance and explain the reasons for reinsurance.

Overview of Reinsurance Reinsurance is the transaction in which one insurer agrees to pay a premium of another insurer either a part of the policy or the whole policy. The insurance company that purchases reinsurance is called as the ceding insurer and the company selling the reinsurance is called as reinsurers or the assuming insurer. It can also be known as the insurance of insurance.

The amount of insurance the ceding company retains for its own account is called the retention limit or the net retention. The amount of the insurance policy that is ceded to the reinsurer is called as the cession. The reinsurance of the risk involved either a part of it or the whole risk is called retrocession. In such cases the second reinsurer is called as the retrocessionaire. The purpose of reinsurance is to decrease the financial cost of the insurance companies that arise from the possible occurrence of the particular insurance claims. As an insurance company purchases an insurance policy from any reinsurer just like an individual or company purchases an insurance policy from an insurance company. Purchasing the reinsurance coverage may reduce the reinsurance risk that the reinsurer assumes for both the domestic as well as international insurance. Reinsurance gives the reimbursement to the ceding insurer for the losses covered by the reinsurance agreement. It improves the basic objectives of the insurance for spreading the risk so that no single unit finds itself loaded with a financial burden beyond its ability to pay. Reinsurance can either be acquired directly from a reinsurer or through a broker or reinsurance intermediary. Reasons for Reinsurance The previous section discussed about the overview of reinsurance. This section will discuss about the reasons for reinsurance. The insurance business is basically risky because this is a business that is very sensitive to losses and when these losses occur they occur with an unreliable frequency. In case of new and small insurance company the probability of these losses are more and when old and existing insurance companies underwrite some new business also the loss occur. In such cases some amount of their insurance risk cover should be reinsured so as ensure that the risks are spread. Reinsurance allows the insurer to retire from an area or class of business and to get the underwriting advice from the reinsurer. Reinsurance is used for many reasons. Some of the important reasons include: Increase underwriting capacity. Stabilise profit. Reduce the unearned premium reserve. Provide protection against a catastrophic loss.