SUMMER INTERNSHIP PROJECT REPORT

AT

THE NEW INDIA ASSURANCE COMPANY LIMITED

A Project Report Submitted In Partial Fulfillment of the Requirements

For The Award of the Degree of

POST GRADUATE DIPLOMA IN MANAGEMENT

TO

M.S.RAMAIAH INSTITUTE OF MANAGEMENT

BY
ANAND VINODKUMAR (101203)

PGDM(AUTONOMOUS) 2010-12

Under the guidance of

Dr. G.P.SUDHAKAR

M.S.RAMAIAH INSTITUTE MANAGEMENT

NEW BEL ROAD, BANGALORE-560054

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 STUDENT’S DECLARATION

I hereby declare that the Project Report conducted at The New India Assurance
Company Limited

Under the guidance of Dr. G. P. Sudhakar

Submitted in Partial fulfillment of the requirements for the Degree of

POST GRADUATE DIPLOMA IN MANAGEMENT (AUTONOMOUS)

TO

M.S.RAMAIAH INSTITUTE OF MANAGEMENT

is my original work and the same has not been submitted for the award of any
other Degree/Diploma/Fellowship or other similar titles or prizes

Place: Bangalore ANAND VINODKUMAR

Date: 11-08-2011 Reg. No 101203

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3
 CERTIFICATE

This is to certify that the Project Report at The New India Assurance
submitted in partial fulfillment of the requirements for the award of the
degree of

POST GRADUATE DIPLOMA IN MANAGEMENT (AUTONOMOUS)

TO

M.S.RAMAIAH INSTITUTE OF MANAGEMENT

Is a record of bonafide training carried out under my supervision and

guidance and that no part of this report has been submitted for the award of
any other degree/diploma/fellowship or similar titles or prizes.

FACULTY GUIDE
Signature:

Name: Dr.G.P.Sudhakar

Qualifications: Seal of learning centre

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 ACKNOWLEDGEMENT

I extend my special gratitude to our beloved Dean Dr.M.Chandrashekar &

Academic Head Shri.V.Narayanan & Programme Head Mrs.Jayashree
Kowtal for inspiring me to take up this project.

I wish to acknowledge my sincere gratitude and indebtedness to my project

guide Dr.G. P. Sudhakar of M.S. RAMAIAH INSTITUTE OF
MANAGEMENT Bangalore for his valuable guidance and constructive
suggestions in the preparation of project report.

ANAND VINODKUMAR

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Table of Contents
EXECUTIVE SUMMARY
CHAPTER I - INDUSTRY ANALYSIS
Introduction to Insurance…………………………………………………………………...1
Evolution of General Insurance Industry in India………………………………………….1
Competition in the Industry……………………………………………………………..….2
The Potential of New Entrants in the Industry……………………………………………..3
The Power of Suppliers…….……………………………………………………………...4
The Power of Customers…………………………………………………………………...4
The Availability of Substitutes…………………………………………………………….5
CHAPTER II - COMPANY ANALYSIS
The New India Assurance Co. Ltd………………………………………………………...6
Marketing……………………………………………………………………………….….8
Customers………………………………………………………………………………...16
Competitor………………………………………………………………………………..18
Human Resources…………………………………………………………………………22
Operations…………………………………………………………………………………27
Finance……………………………………………………………………………………30
Organizational Hierarchy…………………………………………………………………31
Environment……………………………..………………………………………………..33
SWOT Analysis…………………………………….…………………………………….35
CHAPTER III – DISCUSSION ON TRAINING
Roles and Responsibilities………………………………………………………………38
Description of tasks handled…………………………………………………………….38
Contribution to the organization………………………………………………………...39
CHAPTER IV – ANALYSIS OF RESEARCH
Introduction…………………………………………………………………………….42
Research Design……………………………………………………………………..…42
Data Analysis and Interpretations………………………………………………………44
Findings…………………………………………………………………………………64
Recommendations………………………………………………………………………65
Conclusion………………………………………………………………………………67
BIBLIOGRAPHY

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ANNEXURE

EXECUTIVE SUMMARY
The rapid growth of the Indian middle class strata in terms of both size and wealth has resulted in
the tremendous growth of the Indian Insurance Industry over the past decade. They are now
playing an increasingly important role in the financial services industry.
India's general insurance industry has witnessed a growth of 22% in premium income for the
fiscal year ended on March 2011. The industry has collected a total of Rs 425.66 billion from
premiums in the last fiscal. According to an industry study conducted by the Federation of Indian
Chambers of Commerce and Industry (FICCI) and the US-based Boston Consulting Group, India
will be among the top 15 non-life insurance markets by 2020. Indian health insurance represents
one the fastest growing and second largest non-life insurance segments in the country. As per
estimates, health insurance gross premium is expected to grow at a CAGR of around 26% during
2010-11 – 2013-14.
This increasing market is creating considerable competition among Indian insurance companies
in an industry that 20 years ago was relatively small. There are twenty four companies vying for
market share at present. While the industry has come a long way over the past decade, the big
challenge is profitability. The non-life insurance industry has cumulative underwriting losses of
nearly Rs.30,000 crore.
In such a scenario, it is essential to maintain the market share as well as ensure sustainable
growth. Over the past few years companies have run at losses with a view of gaining a foothold
in the industry. However, this practice cannot go on for long. Underwriting profitability has
emerged as a buzzword. It is of paramount importance that companies focus on prudent
underwriting to ensure sustainability.
The report is a compilation of all activities and observations carried out during the course of an 8
week internship at The New India Assurance Co. Ltd.
Chapter One focuses on the General Insurance Industry in India tracing its evolution and Porter’s
Five Force Analysis of the Indian General Insurance Industry.
Chapter Two is a study of the New India Assurance Company with emphasis on their Products,
Marketing activities, Customers, Finance, HR, Operations. It includes a SWOT analysis of the
company.
Chapter Three is a discussion on the training undergone and the tasks handled during the course
of the internship. It includes a survey to determine the awareness and needs of prospective
customers with regard to Health Insurance
Chapter Four is a detailed study on the “Profitability Analysis of various lines of business for the
past three years”. The study of material facts is followed by observations and suggestions to
improve the profitability of the Company.

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 CHAPTER I - INDUSTRY ANALYSIS

1.1 INTRODUCTION TO INSURANCE –

Insurance may be defined as a contract between the insurer and insured under which insurer
indemnifies the loss of the insured against the identified perils for which mutually agreed upon
premium has been paid by the insured. The contract lays down the time framework within which
the losses will be met by the insurer.
Insurance in its present form in India is there for almost a century. People know life insurance
more than non life insurance. General Insurance is more known by its motor insurance because
third party motor insurance is compulsory. Life insurance is a tax saving, life and accidental
insurance and investment. However, general insurance is purely insurance. This has been one of
the major reasons for the relative unpopularity of General Insurance in India. However, the entry
of new players, the consequent expansion of offices, new channels of distribution, increase in
number of tied agents along with increasing awareness and acceptance of insurance have all
contributed to the massive expansion of the insurance sector in the last few years.

1.2 EVOLUTION OF GENERAL INSURANCE INDUSTRY IN INDIA –

 The history of general insurance dates back to the Industrial Revolution in the west and
the consequent growth of sea-faring trade and commerce in the 17th century. It came to
India as a legacy of British occupation. General Insurance in India has its roots in the
establishment of Triton Insurance Company Ltd., in the year 1850 in Calcutta by the
British. In 1907, the Indian Mercantile Insurance Ltd, was set up. This was the first
company to transact all classes of general insurance business.
 1957 saw the formation of the General Insurance Council, a wing of the Insurance
Association of India. The General Insurance Council framed a code of conduct for
ensuring fair conduct and sound business practices.
 In 1968, the Insurance Act was amended to regulate investments and set minimum
solvency margins. The Tariff Advisory Committee was also set up then.
 However, insurance for mainly restricted to big business houses and the upper strata of
society. With a view of spreading insurance to all sections of the society, the process of
nationalization of insurance companies was undertaken.
 In 1972 with the passing of the General Insurance Business (Nationalization) Act, general
insurance business was nationalized with effect from 1st January, 1973. 107 insurers were
amalgamated and grouped into four companies, namely National Insurance Company
Ltd., the New India Assurance Company Ltd., the Oriental Insurance Company Ltd and
the United India Insurance Company Ltd. The General Insurance Corporation of India
was incorporated as a company in 1971 and it commence business on January 1st 1973.
 Nationalization led to the rapid spread of offices across the country as well as
development of new products such as Cattle Insurance, agriculture Pump Set Insurance
etc aimed at the rural sector.

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  This period also saw the hiring of many professionals such as veterinary doctors, legal
experts, chartered accountants and H.R professionals as specialists.
 Thus, nationalization led to more awareness and penetration of insurance to the semi-
urban and rural areas.
 This millennium has seen insurance come a full circle in a journey extending to nearly
200 years. The process of opening up of the sector had begun in the early 1990s and the
last decade or so has seen it being implemented in a substantial manner. In 1993, the
Government set up a committee under the chairmanship of RN Malhotra, former
Governor of RBI, to propose recommendations for reforms in the insurance sector. The
objective was to complement the reforms initiated in the financial sector. The committee
submitted its report in 1994 wherein, among other things, it recommended that the private
sector be permitted to enter the insurance industry. They stated that foreign companies be
allowed to enter by floating Indian companies, preferably as a joint venture with Indian
partners.
 Following the recommendations of the Malhotra Committee report, the Insurance
Regulatory and Development Authority (IRDA) was constituted as an autonomous body
to regulate and develop the insurance industry in 1999. The IRDA was incorporated as a
statutory body in April, 2000. The key objectives of the IRDA include promotion of
competition so as to enhance customer satisfaction through increased consumer choice
and lower premiums, while ensuring the financial security of the insurance market.
 The IRDA opened up the market in August 2000 with the invitation for application for
registrations. Foreign companies were allowed ownership of upto 26%. The Authority
has the power to frame regulations under Section 114A of the Insurance Act, 1938 and
has from 2000 onwards framed various regulations ranging from registration of
companies for carrying on insurance business to protection of policyholders’ interests.
 In December, 2000, the subsidiaries of the General Insurance Corporation of India were
restructured as independent board run companies and at the same time GIC was
converted into a national re-insurer. Parliament passed a bill de-linking the four
subsidiaries from GIC in July, 2002.

1.3 COMPETITION IN THE INDUSTRY-

 India with about 200 million middle class household shows a huge untapped potential for
players in the insurance industry. Saturation of markets in many developed economies
has made the Indian market even more attractive for global insurance majors. The
insurance sector in India has come to a position of very high potential and
competitiveness in the market.
 Today there are 24 general insurance companies including the ECGC and Agriculture
Insurance Corporation of India.

 In a de-tariffed environment, competition will manifest itself in prices, products,

underwriting criteria, innovative sales methods and creditworthiness. Insurance
companies will vie with each other to capture market share through better pricing and
client segmentation.

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  The General Insurance Industry is an ultra competitive one. Since the products offered by
each of the competitors is more or less the same, the companies are focusing more on
customer service in order to gain a competitive advantage. The figures show that the four
public sector companies together account for 59.14%. The biggest private player in the
General Insurance Sector is ICICI Lombard having a share of almost 9.5% followed by
Bajaj Allianz which accounts for around 7.2%. The share of the public sector was
58.84% for the financial year 2008-2009. Thus, it has been more or less the same.
However, with the increase in the disposable income of the public and the increased
awareness, the growth of the private sector in the coming years is inevitable especially
specialized institutions viz. Star Health and Allied Insurance, Apollo Munich and Max
BUPA which cater solely to the health sector.
 There may be room for many more players in a large underinsured market like India with
a population of over one billion. But the reality is that the intense competition in the last
five years and the impact of the wider network of the public sector companies has made it
difficult for new entrants to keep pace with the leaders and thereby struggling to make
any impact in the market so far.
 The battle has so far been fought in the big urban cities, but in the next few years,
increased competition will drive insurers to rural and semi-urban markets.
 The private companies showed a growth of 22.49% over the past year while the public
companies grew by 21.12%. The industry as a whole grew by 21.68%.
 When there are more competing insurance providers in the insurance industry the overall
premium rates drop due to market compulsions.
 When premium rates drop significantly, the word spreads. Public demand for insurance
increases with high correlation in regards to how affordable it is. When premium rates are
very low people, who never would have otherwise, purchase insurance policies.

1.4 THE POTENTIAL OF NEW ENTRANTS INTO THE INDUSTRY-

 The General Insurance has seen an annual growth of about 15% over the last 10 years and
the industry is today at an inflection point and is poised to grow at a much faster pace due
to the rapidly growing middle class/high income segment, robust demand for motor cars
and two wheelers, huge potential in the health sector and the untapped segments such as
personal lines of insurance market and liability insurance.
 In recent times, we have seen the advent of many new Insurance companies targeting this
lucrative Indian market.
 The opening up of insurance sector has seen many overseas brands making a foray into
the country’s market mainly due to the lowered entry barriers.
 Many famous Indian business houses like Tata, Bharati, Bajaj have also entered into this
somewhat virgin market along with their fancied foreign partners viz AIG, AXA and
Allianz respectively.
 The new entrants are making huge investment in the market since there is potential for
long term growth, market share and ultimately profit.

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  Another threat for many insurance companies is financial services companies like Banks
and NBFCs entering the market. For eg- SBI General Insurance.
 These entities use their existing customer base to market their products and gain a
foothold into the insurance sector.
 With the ongoing efforts to get the rural India financially included, there is a large
opportunity to tap the semi-urban and rural markets which would be open for general
insurance.
 However, the intense capital requirements and stringent norms are a potential stumbling
block for new entrants.

1.5 THE POWER OF SUPPLIERS-

 If an insurer were to renege on the written promise it has made, for any reason, then the
claim of an insured can only be re-established in a court of law, based on full disclosure
of facts and other evidences; and ofcourse, at considerable initial legal expense and delay
to the insured.
 The delicate power balance that exists in a transaction to dictate performance compliance
shifts in favour of an insurer, once the deal is struck between the insurer and the insured.
 A certain helplessness is felt by an insured to ensure an insurer’s performance
compliance.
 The main strength of suppliers lies in the fact that insurance products can be bundled on
the spot for sale. There is no need for a manufacturing process or facility.
 There is nothing extra needed in designing a cover, by which an insurer can distinguish
himself except for his financial strength and service reputation or capability to act smart
and fast.
 With products being more or less the same in insurance market, customers will gravitate
towards subjective criteria in purchasing the insurance cover. Studies show that in 9 out
of 10 cases when choosing products that are similar in quality and price, customers will
go for a company that has a better image in his mind.
 Thus, the image of a company plays a major role in generating business for the company.
Its reputation is a valuable asset which is given as much attention as that given to
products and services.
 This is where the PSUs score over the newly incorporated general insurance companies
and why they continue to enjoy a majority of the market share.
 Also, unlike the normal market model, it is the not the customers but the suppliers who
determine the price of the product.

1.6 THE POWER OF CUSTOMERS –

 Insurance as they say is sold not bought. Hence, Consumers remain the most important
centre of the insurance sector.
 The Customer profile has changed drastically in the last few years. The steady economic
growth has ensured augmented banking and insurance services.

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  The industry now deals with customers who have better buying power, know what they
want and when, and are more demanding in terms of better service and speedier
responses.
 People today don’t want to accept the current value propositions, they want personalized
interactions and they look for more and more features and add ons and better service.
 The insurance companies today must meet the need of the hour for more and more
personalized approach for handling the customer. Today managing the customer
intelligently is very critical for the insurer especially in the very competitive
environment. Companies need to apply different set of rules and treatment strategies to
different customer segments. However, to personalize interactions, insurers are required
to capture customer information in an integrated system.
 With the explosion of Website and greater access to direct product or policy information,
there is a need to developing better techniques to give customers a truly personalized
experience. Personalization helps organizations to reach their customers with more
impact and to generate new revenue through cross selling and up selling activities. To
ensure that the customers are receiving personalized information, many organizations are
incorporating knowledge database-repositories of content that typically include a search
engine and lets the customers locate the all document and information related to their
queries of request for services. Customers can hereby use the knowledge database to
manage their products or the company information, claim records, and history of the
service inquiry.

 After the entry of the foreign players the industry is seeing a lot of competition and thus
improvement of the customer service in the industry. Computerization of operations and
updating of technology has become imperative in the current scenario. Foreign players
are bringing in international best practices in service through use of latest technologies.
 Customers are offered unbundled products with a variety of benefits as riders from which
they can choose. More customers are buying products and services based on their true
needs.
 Large corporate clients like airlines and pharmaceutical companies etc have a lot more
bargaining power with insurance companies since they pay millions of rupees a year in
premiums. Insurance companies try extremely hard to get high-margin corporate clients.

1.7 THE AVAILABILITY OF SUBSTITUTES-

 There are plenty of substitutes in the insurance industry. Most large insurance companies
offer similar suites of services. Whether it is motor, personal line, commercial, health or
fire insurance, chances are that there are competitors who can offer similar services.
 In some areas of insurance, however, the availability of substitutes is few and far
between. For eg- Micro Insurance and Rural Insurance.
 Companies focusing on niche areas usually have a competitive advantage, but this
advantage depends entirely on the size of the niche and on whether there are any barriers
preventing other firms from entering.

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  The new companies have also introduced many new products hitherto unknown to the
Indian Insurance populace. New products and new companies have only expanded the
choice of Indian consumers.

CHAPTER II - COMPANY ANALYSIS

2.1 THE NEW INDIA ASSURANCE CO. LTD. –

The New India Assurance Co. Ltd was incorporated on July 23rd, 1919. It was founded by Sir
Dorab Tata. New India is the first fully Indian owned insurance company in India. Earlier it was
a subsidiary of the General Insurance Corporation of India (GIC). But as GIC became a
reinsurance company as according to IRDA Act 1999, all of its four primary insurance
subsidiaries (New India Assurance, United India Insurance, Oriental Insurance and National
Insurance) got sovereignty.
The New India Assurance Co. Ltd. is a leading global insurance group, with offices and branches
throughout India and various countries abroad. It is the only Indian company which has
successfully managed to develop considerable International operations and an extensive record
for successfully trading outside India. The company has its presence felt in nearly 27 countries
and accounts for more than 80% of the total overseas premium in India.
The New India employs approximately 21000 employees, specialists and technically qualified

13
personnel at all levels of management who are empowered to underwrite and settle claims of
high magnitude. Government of India is the principal shareholder of the company.
With a wide range of policies New India has become one of the largest non-life insurance
companies, not only in India, but also in the Afro-Asian region.
The company aims to develop insurance business in the best interest of the society by providing
financial security to individuals, trade, commerce and other segments of the society with high
quality services at an affordable cost.
New India is a pioneer among the Indian Companies on various fronts, right from insuring the
first domestic airlines to satellite insurance. Lately The New India Assurance Co. Ltd. has
insured the INSAT-2E.
New India Assurance was the first group to meet with the needs of the Indian Shipping Fleet, and
the initiators of engineering insurance and satellite insurances as well.
The company was the first to build an Aviation Insurance Department, way back in 1946, to
handle the requirements related to insurance of the Indian Shipping Fleet, to establish its own
Training School, to introduce the concept of 'Model Office Training', and to create a department
in Engineering insurance.
It was also the first Indian non-life company to cross Rupees 5000 Crores Gross Premium. In
order to maintain being the first always the company aims at continuing the procedure of
providing optimized services for individuals and organizations.
New India has been rated "A-" (Excellent) by A.M.Best Co., making it the only Indian insurance
company to have been rated by an international rating agency.
The company is headed by Mr. M. Ramadoss, Chairman and Managing Director of the company.
In the recent years it has succeeded in forging tie-ups with some of the leading public sector
banks in India like State Bank of India (SBI), Central Bank of India, Corporation Bank and
United Western Bank to increase its distribution network.

Mission-

 To develop general insurance business in the best interest of the community.

 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.

Values-

 Highest priority to customer needs

 High Standards of Public Conduct
 Transparency in operations.

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2.2 MARKETING-
Products-

The company offers a wide portfolio of products which cater to a wide segment of people.
They can be classified as follows-
Personal-
 Pravasi Bhartiya Bima Yojana Policy
 Mediclaim Policy
 Family Floater Mediclaim Policy
 Janata Mediclaim Policy
 Senior Citizen Mediclaim Policy
 Personal Accident Policy
 Overseas Mediclaim Policy
 Householders Policy
 Motor Policy
 Money Insurance
 Rasta Apatti Kavach (Road Safety Insurance)
 Suhana Safar Policy
 TV/VCR/VCP Insurance
 Mobile/Cellular Phone Insurance
 Other Personal Insurance
 Group Mediclaim Policy

Commercial-
 Jewellers Block Policy
 Bankers Indemnity Policy
 Shopkeepers Policy
 Marine Cargo Policy
 Plate Glass Insurance
 Special Contingency Policy
 Neon Sign Insurance
 Multi Peril Policy for L.P.G. Dealers
 Fidelity Guarantee Insurance Policy
 Marine Hull Policy
 Aviation Insurance

Liability-
 Public Liability Policy

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  Products Liability Policy
 Professional Indemnity Policy
 Directors and Officers Liability Policy
 Lift (Third Party) Insurance
 Employers' Liability Policy
 Carrier's Liability Insurance
 Liability Insurance Act Policy
 Golfers Indemnity Insurance

Industrial-
 Fire Policy
 Burglary Policy
 Machinery Breakdown Policy
 Electronics Equipment Policy
 Consequential Loss Policy
 Contractors All Risk Policy
 Marine cum Erection / Storage cum Erection Policy
 Advanced Loss of Profit / Delay in Startup Policy
 Contractor Plant and Machinery Policy
 Mega Package Policies

Social-
 Universal Health Insurance Scheme for BPL families
 Universal Health Insurance Scheme for APL families
 Jan Arogya Bima Policy
 Raj Rajeshwari Mahila Kalyan Yojana
 Bhagyashree Child Welfare Policy
 Janata Personal Accident Insurance
 Student Safety Insurance
 Ashrya Bima Yojana
 Rural Insurance

Distribution Network-

Marketing is a predominant activity in the general insurance industry. The Insurance product is
intangible and requires a considerable amount of explanation of the intricacies of various
products. This has necessitated the need for competent, motivated and professional marketing
and distribution channels, in addition to direct selling, to communicate with a great number of
insured and uninsured customers, with their marketing messages and to expand their current
markets in terms of number of customers and premium volumes across the expanse of a vast
country like ours.
As the customer segment consist of various heterogeneous individuals, corporate insured and
other groups, with their own highly individualized insurance needs, the most effective way to
reach them has proved to be a big challenge to the insurers.

16
The distribution channel acts as the intermediary and as a personal go-between. It plays a crucial
role to build bridges of better understanding between the insurer and the insured.
In order to spread the awareness of insurance and increase coverage to the far corners of the
country, the opening up of the insurance sector has enlarged distribution from the earlier single
channel system of tied agencies to a multiple channel setup comprising Corporate Agents
including Bancassurance, Brokers and referrals/introducers and Agents etc. In one sense, the
independent surveyors community too is a distribution channel legally recognized under the
Insurance Act for claims’ services of assessment and determining the policy liability.
Corporate Agents is a concept introduced with a view of taking advantage of the presence of a
large number of entities with a sizeable client base, contacts and goodwill already operating in
the market with other activities
While corporate insured do get attention from direct selling staff of an insurer, the individual
insured, whose numbers are larger but the premiums are relatively lower require other secondary
distribution channels.
Despite, the emergence of new channels of distribution, agency channel remains the mainstay of
the sector, still contributing a lion’s share of the business being generated by the insurers. During
the year 2010-11, in terms of premium generated, more than 80% of the business is coming from
the agency channel, around 3.8 % through brokers, around 0.54 % through corporate agents,
around 3.3% through bancassurance in the Pune Region.

Intermediaries

Agents
The agency system is pre-dominant as historically face to face contact was considered essential
in selling an Insurance product. Insurance agents are involved in the selling of one or more lines
of insurance policies and products. An agent is required to undergo Practical training of 100
hours and pass in an examination with 50% marks to be conducted by Insurance Institute of
India, Mumbai. New India has its own IRDA approved training centers to develop dedicated
agents.
Brokers
As per notification dated 16th Oct 2002 and INSURANCE REGULATORY AND
DEVELOPMENT AUTHORITY (INSURANCE BROKERS) REGULATIONS, 2002, IRDA
has allowed brokers to act as an intermediary to sell insurance policies in India. Though it was
introduced only in 203, it has made inroads into the world of corporate insurance. Brokers are
gaining ascendancy as professionals, as more and more corporate insured are changing over to
them. Brokers traditionally weaken the bargaining powers of insurers because of equality in
professional expertise between them and the premium clout of several customers backing their
punch. However, with commercial interests guiding everyone involved, all negotiating battles are
fought on the price front; and not on improving risk management practices of customers.
Professionalism at the level of all selling efforts is lacking. The New India Assurance Company
Ltd. has enlisted more than 280 brokers. Some of the brokers operating in Pune are FIRST
POLICY Insurance Advisors Pvt. Ltd, Chawla & Associates Insurance Services Pvt. Ltd, Life &
General Associates Pvt. Ltd., Nipun Ins. Brokers Pvt. Ltd., Surekh Ins. Services Pvt. Ltd., United
Risk Ins. Broking Co. Pvt. Ltd., Vantage Ins. Services Pvt. Ltd.

17
Bancassurance
Bancassurance means the sale of insurance products through a bank’s distribution channels. This
model offers a seamless service of banking, life and non-life products. Bancassurance in India is
developing as an important channel for distribution to a growing class of customers. This is a
very customer friendly channel. As per the current regulations, banks can either opt to become a
corporate agent or a referral provider to an insurance company. The company has bancassurance
tie ups with the following banks-State Bank of India, Central Bank of India, Corporation Bank
and United Western Bank to increase its distribution network.
Third Party Administrators (TPA)
The job of a TPA is to maintain databases of policy holders and issue them identity cards with
unique identification numbers and handle all the post policy issues including claim settlements.
In case of a claim, policy holder has to inform TPA. On informing the TPA, policy holder will be
directed to a hospital where the TPA has a tied up arrangement. However, policy holder will
have the option to join any other hospital of his choice, but in such case payment shall be on
reimbursement basis. TPA issues an authorization letter to the hospital, for the treatment wherein
the TPA will pay for the treatment. TPA will be tracking the case of the insured at the hospital
and at the point of discharge; all the bills will be sent to TPA. TPA makes the payment to the
hospital. TPA then sends all the documents necessary for consideration of claims, along with
bills to the insurer and Insurer reimburses the TPA. New India has tied up with 18 TPAs viz
Mediassist India Pvt.Ltd., M D India Healthcare Services ( P ) Ltd., E Meditek Solutions
Ltd., Heritage Health Service Pvt. Ltd., Universal Medi-Aid Services Ltd., Focus Healthcare
Medicare TPA Services ( I ) Pvt.Ltd., Raksha TPA Pvt. Ltd., TTK Healthcare Services Pvt.Ltd.,
East West Assist Pvt. Ltd., Alankit Health Care Limited, Health India, Good Health Plan Ltd.,
Vipul Med Corp TPA Pvt. Ltd., Safeway Mediclaim Services Pvt. Ltd., Anmol Medicare Ltd.,
Dedicated Healthcare Services (India)Ltd., Genins India Ltd.
Surveyors
Surveyors play a crucial role between the Policy Holder (Insured) and the Policy issuer or
Underwriter or Insurer (Insurance Companies). Surveyor gives their expert report without any
prejudice to the Insurer (Insurance Company) with a recommendation specifying whether
indemnify or repudiate the claim lodged by the Insured.
Following shows the channel wise distribution of premium over the past two years for the
company – (Rs.in lakhs)

Channel 2009-10 2010-11

Individual agents 342689 475259.46
Corporate Agents-Banks 32535 31333.68
Corporate Agents –Others 21467 32757.58
Brokers 62360 129323.4
Direct Business 144931 241063.74

18
Referral 268.61 436.22
Grand Total 604251 910174.08

0.04

Individual agents

23.98 Corporate Agents-Banks

Corporate Agents -Others
Brokers
56.71 Direct Business
10.32
Referral

3.55 5.38 2009-10

19
 0.04

26.48
Individual agents
Corporate Agents-Banks
52.21 Corporate Agents –Others
Brokers
Direct Business
Referral
14.20

3.6
2010 - 11

3.44

Pricing-

A fundamental principle of insurance pricing is that if insurers are to sell coverage willingly,
they must receive premiums that
( 1) are sufficient to fund their expected claim costs and administrative costs and
(2) provide an expected profit to compensate for the cost of obtaining the capital necessary to
support the sale of coverage."[Harrington 1999]
The pricing of insurance products starts from the pure premium calculation of the actuaries. It
includes the amount needed to cover expected losses and loss adjustment expenses. It is then
loaded for operating expenses including sales commission and other marketing costs, taxes and
the cost of handling claims. This component varies from one line of business to another. The law
of large numbers principle works while pricing a product i.e determining the premium. The
premium is based on rates. There are basically three recognized rating methods.
Judgment rating is used when the risk proposed to be bought is so unusual that little or no
statistical information about similar risk is available. Each exposure is individually evaluated,
and the rate is determined largely by the underwriter's judgment. When the judgment rating is
used, each premium is unique and is based on the opinion of the person making it.
Class rates are the most common rate in insurance business. Insured risks are classified on the
basis of one or several important features and all that belong to the same class are subject to the
same rate per unit of exposure. The rate charged reflects the claims experience for the class as a
whole. It is based on the assumption that future losses to insured will be determined largely by

20
the same set of factors.
Merit rating is a modification of the class rating. It modifies the class rate of a particular class
insured based on individual loss experience.

Promotion Strategy-

The aim of the company is to design the products from customer feedback to suit their specific
needs. The company focuses on delivering outcome rather than merely products. The company is
ramping up its knowledge database and is focusing on the customer base with a view to building
long term relationships. The role of field personnel is imperative for the promotion of the various
insurance covers and it is their responsibility to scout for these covers.
Electronic media, outdoor media and print media were utilized for publicity purpose. Hoardings
and glow signs were placed at many major road junctions, highways, railway stations and
airports. Advertisements were also displayed on transit media like buses, trains, baggage trolleys
and barricades.
Banner display at local events helped the company in brand building in rural areas.
The company participates in fairs, exhibitions and road shows and also sponsors various social
gatherings, sports and cultural events.
The company recently forayed into television and radio activities. The company also sponsored
the Mumbai Indians IPL T-20 team which has given tremendous visibility to the customers of all
ages and various groups not only nationwide but also global-wise.
The internet affords widespread access to a pool of new customers. Beyond the traditional means
of radio, print and television ads, the internet opens up the audience that insurers might reach.
This dimension has to do with delivering a marketing message to more customers than before.
Also the internet is an advertising vehicle. A website offers the insurer an opportunity to shape
and tailor its particular message to personal computer owners. The website newindia.co.in
displays financial ratings and statements, shows press releases and lists a range of product and
service offerings. It also showcases the newly developed products of the company. The cost of
advertising on the internet on a per reader basis is much lower than television, radio and print
advertising. The website also provides toll free numbers of the customer care and details of
nearby offices and claims hubs etc.

21
Customer Service-

The company believes in the following dictum-

“The customer is the most important visitor on our premises. He is not dependant on us. We
are dependent on him. He is not an interruption in our work. He is the purpose of it. He is not
an outsider in our business. He is a part of it. We are not doing him a favour by serving. He is
doing us a favour by giving us an opportunity to do so.”
Thus, it is evident that the company lays utmost importance to customer service. Customer
services and grievance cells are well established at company’s corporate offices and all Regional

22
Offices. “May I Help You?” counters have been provided in all Regional Offices, Divisional
Offices and Branch Offices for customer service.
In order to ensure better and efficient customer service, the company has decided to launch a toll
free number on an All India basis, catering to the needs of the existing as well as prospective
clients.

Current Market Structure-

General Insurance Industry was under the complete control of the four Government Companies
for nearly three decades. After much deliberation, the market was opened for competition from
December 2000. The government delinked the four public sector companies from holding
company GIC to operate as independent companies. The IRDA has issued licenses to a number
of private General Insurance Companies.
List of General Insurance Companies operating in the market as on date –

S.No Name of the Company Headquarters

Bajaj Allianz General Insurance Pune
1. Co. Ltd.
2. ICICI Lombard General Mumbai
Insurance Co. Ltd.
3. IFFCO Tokio General Insurance Gurgaon
Co. Ltd.
4. National Insurance Co.Ltd. Kolkata
5. The New India Assurance Co. Mumbai
Ltd.
6. The Oriental Insurance Co. Ltd. New Delhi
7. Reliance General Insurance Co. Mumbai
Ltd.
8. Royal Sundaram Alliance Chennai
Insurance Co. Ltd
9. Tata AIG General Insurance Co. Mumbai
Ltd.
10. United India Insurance Co. Ltd. Chennai

11. Cholamandalam MS General Chennai

Insurance Co. Ltd.

12. HDFC ERGO General Insurance Mumbai

Co. Ltd.
13. Export Credit Guarantee Mumbai
Corporation of India Ltd.
14. Agriculture Insurance Co. of New Delhi
India Ltd.
15. Star Health and Allied Insurance
Company Limited Chennai
16. Apollo Munich Health Insurance Gurgaon

23
 Company Limited
17. Future Generali India Insurance Mumbai
Company Limited
18. Universal Sompo General Mumbai
Insurance Co. Ltd. 
19 Shriram General Insurance Jaipur
Company Limited
20 Bharti AXA General Insurance Bangalore
Company Limited
21 Raheja QBE General Insurance Mumbai
Company Limited
22 SBI General Insurance Company Mumbai
Limited
23 Max Bupa Health Insurance New Delhi
Company Ltd.
24 L&T General Insurance Mumbai
Company Limited

2.3 CUSTOMERS-

 Globalisation is helping to create wealth for more people around the world. This has
spurred the demand for financial products. Newly prosperous people are seeking ways in
investments and see their assets grow, as well as to protect those assets and ensure
financial security for their families.
 The customer profile can be defined as follows-
 Knowledgeable
 Increasingly aware of the global scenario
 Demanding
 Expect value for money
 Aware of their rights
 Expect widest cover at lowest cost
 Demand promptness be it in policy documents, claims or any other
service.
 Expect quality service.
 Since, very individual is susceptible to risk; everyone is a customer or a potential
customer for the insurance industry.
 In selling an insurance cover, each individual customer is unique both in his specific
insurance needs and in his buying preferences.
 This uniqueness of each insured customer has put an enormous pressure on an insurer, in
terms of demonstrating its individualized insurance expertise of the marketing staff, the
time spent accessing and engaging its customers and the relative costs of doing them all
to get the business.
 Marketing strategies will have specific focus based on the segment to which they are
catering to.

24
  The company caters to a large cross section of lower, middle and upper sections of
society.
 The customers are segmented along the following lines-
Corporate
Small Industries
New Ventures
Cooperatives
Individual Entrepreneurs
Rural Units
Personal Insurance Lines

 Extensive market survey is carried out to determine the needs of the people and specific
policies are designed keeping in mind the needs of customers.
 The company offers various generic policies which cater to a large number of people
such as, motor and basic fire policy.
 The company also offers policies for individuals belonging to specific professions. For
eg- Doctor’s Protection Shield has been designed keeping in mind the various hazards
doctors are exposed to.
 The Office Protection Shield (General) offers protection to various items generally found
in the offices. However, there are specific Office Protection Shield policies for
professionals that provide professional indemnity for loss on material damage to property
and/or death or bodily injury to third party whilst rendering professional services.
 Also, various tailor made policies are provided for organizations to cover their
employees. For eg- Group Mediclaim policy offers cover to a minimum of 100
employees subject to a minimum sum insured of Rs.1 lakh each. The premium in such
cases is determined by a number of factors pertaining to that organization alone such as
age of the employees, the risk that they are subject to, the claims ratio over the previous
years etc.
 The rural consumer is now exhibiting an increasing propensity for insurance products. A
research conducted exhibited that the rural consumers are willing to dole out anything
between Rs 2,900 and Rs 3,500 as premium each year.

2.4 COMPETITORS-
Figure below shows the segment wise premium of the 21 General Insurance Companies as on
March 2010. (All figures in Rs.crore). The New India Assurance Co. Ltd is the largest non-life insurer
in India in terms of premium, having a market share of 17.27% with the gross premium underwritten
being 6013.44 crores as on 30th March 2010. The top four spots are occupied by the public sector
companies with United India Insurance being second (15.04%) followed by Oriental Insurance (13.55%)
and National Insurance (13.27%). The biggest private player continues to be ICICI Lombard with a
market share of almost 9.5% followed by Bajaj Allianz with 7.23%. The biggest gainers in the last year
were Bharti AXA followed by Universal Sompo which grew by a whopping 797% and 454%
respectively. However, their market share continues to be less than 1%. The share of the PSUs was more

25
or less the same over the previous year. The market share New India Assurance Co. Ltd. has increased
to.17.62% and gross premium underwritten is 7070.22 crores as per the unaudited and provisional figures
available as on 30th March 2011. The specialized institutions managed to make a significant dent in the
health sector with Star Health & Allied Insurance showing a growth of 92% and Apollo Munich
showing a growth of 134%.

Sl Market
Grand
No Insurer Fire Marine Motor Health Others Share(%
Total
. )

Royal 42.49 23.02 617.19 116.11 108.27 907.08 2.61

1 Sundaram
156.75 113.84 236.36 83.39 301.51 891.84 2.56
2 TATA-AIG
129.78 44.42 1,318.71 238.75 248.00 1,979.65 5.69
3 Reliance
202.38 135.12 849.01 164.22 288.83 1,639.56 4.71
4 IFFCO Tokio
270.06 146.57 1,379.16 911.81 587.47 3,295.06 9.46
5 ICICI Lombard
261.40 74.76 1,445.77 295.39 438.37 2,515.70 7.23
6 Bajaj Allianz
142.78 25.01 289.92 268.74 201.96 928.42 2.67
7 HDFC ERGO
Cholamandala 47.77 42.39 450.10 149.51 95.08 784.85 2.25
8 m
42.38 15.50 210.40 69.32 49.11 386.72 1.11
9 Future Generali
Universal 42.15 3.84 79.10 17.40 46.86 189.36 0.54
10 Sompo
1.74 0.01 410.51 0.00 3.65 415.91 1.19
11 Shriram
27.29 5.44 179.97 35.20 42.75 290.65 0.83
12 Bharti Axa
0.16 0.02 0.17 0.00 1.60 1.94 0.01
13 Raheja QBE
1,541.9 1,011.5
914.80 477.79 2,067.42 0 3 6,013.44 17.27
14 New India
1,021.7
429.16 239.91 2,168.76 1 761.37 4,620.92 13.27
15 National
1,256.1 1,064.1
647.93 451.97 1,817.13 4 5 5,237.32 15.04
16 United India
1,063.5 1,079.5
575.03 390.45 1,610.19 1 7 4,718.75 13.55
17 Oriental
3,934.0 2,190.0 15,129.8 7,233.1 6,330.0 34,817.1
7 6 8 0 6 7 100.00
Grand Total

26
         813.71 813.71  
18 ECGC
Star Health &
Allied       965.53 14.51 980.04  
19 Insurance
      106.43 8.23 114.66  
20 Apollo MUNICH
      0.13 0.00 0.13  
21 Max BUPA

Technology-

The company in an effort to beef up their operations and service delivery for customers, is
currently implementing a robust IT delivery platform called — CWISS — Centralized Web-
based Insurance System Solution. The IT platform project is being implemented by TCS
Financial Solutions(TCS BaNCS) at a cost of Rs.175 crore. This system has been brought in to
replace “GENISYS” which was first implemented in late 1998, and has evolved over time.
The CWISS system is expected to streamline the underwriting procedure and since it is a web
based system, it will allow for generating of reports and accessing other relevant documents in
case of claims from anywhere in the country.
CWISS is a functionally rich, Web Based, Flexible and User Friendly System for Insurance
operations. This is an ideal product for an insurance service provider – be it an Insurance
Company or an Intermediary. The high degree of parameterization and user-friendliness in the
lines of Component Based Architecture has made CWISS an effective solution for the company.
The Party component can maintain all stakeholders including Policyholder, Prospect, Third
Parties, Service Providers and Organization Structure. Comprehensive information can be
maintained in the Product Component for Covers, Risk Types, Rates, Loading and Discounts,
Events and their Rules, Documents and Clauses. CWISS supports all Underwriting events viz.
Quotation, Policy Issue, Endorsement, Renewal, Suspension, Cancellation, Reinstatement etc.
using its Operation Rules. These Event Rules are externalized and hence enable Business Users
to change processing details. It also supports Claims Registration, Verification, Advance and
Settlement. Reinsurance Component supports Outward and Inward functions. Accounting
component is integrated with Underwriting, Claims and Reinsurance Components in a seamless
fashion. Document Management, Diaries and an access & limit based Application Security are
infrastructure features that are available. Historical Data and comprehensive Audit Trail are
available for all transactions.
CWISS includes rolling out the core insurance applications for the various lines of business and
Oracle Financials for the complete accounting and financial package and also encompasses the
peripheral applications including CRM with a Grievance Module and Call Centre, Customer’s
portal, Dealer’s portal, Broker’ and Agent’s portal, Employee’s portal, Business Intelligence
portal, Document Management Systems and various modules of an Integrated HRMS package
with People Soft Payroll etc. CWISS has been linked to the main server at Thane in Maharashtra.

The value proposition of CWISS over GENISYS are-

 Ease of maintaining products
 Integration of Reinsurance and Accounting with other components which reduces
inefficiency due to separate systems.

27
 The workflow in Underwriting and Claims components being configurable, it is easy to
make necessary changes.
 Facilities of new properties on request in Underwriting and Claims ease the problems to
adopt regulatory changes.
 Flexible, externalized Rating and Event Rules maintainable by Users reduce IT
involvement in Business Rule Change. Flexibility is the key in all components of this
solution.
 Role based Security, Authorization and Audit features ensure high level of Transaction
and Data Security.
 Availability of Document Manager features let the User come up with new Document
Templates within Short Time. It also allows the User to maintain all communications
(received and sent) inside the system – this enhances the traceability.
The following are a few screenshots of the CWISS system.

28
29
2.5 HUMAN RESOURCES-

Executive Details

M.Ramadoss Chairman cum Managing Director

A.R.Sekar Director, Financial Advisor,

General Manager

I.S.Phukela Director, General Manager

S.B.L.Gour General Manager

K Sanath Kumar General Manager

R K Deka General Manager

Sadashiv Mishra General Manager

S Sethuraman General Manager

Virander Kumar General Manager

30
A R Prabhu Appointed Actuary

K V Pathak Chief Vigilance Officer,

Deputy General Manager

V C Jain Company Secretary

Arun Kumar Deputy General Manager

Chanda

P Dutta Deputy General Manager

S Segar Deputy General Manager

Rafi Ahmed Deputy General Manager

K Surya Rao Deputy General Manager

Mita Bhattacharjee Deputy General Manager

Anil Kumar Deputy General Manager

Aloke Narain Jha Deputy General Manager

K V Krishna Deputy General Manager

Dinesh Waghela Deputy General Manager

C K Gola Deputy General Manager

Departments-

Sl.No Departments

1 Agency Perfomance Enhancement Programme

2 Agency, Class II Cell, IBD (Admn), Publicity, Marketing

3 Auto Tie-up

4 Aviation

5 Business Process Redesigning, R & D

6 Brokers, Bancassurance, Corp Agency

7 Central Accounts

8 Chief Liaison Officer, I.D.D.

9 Corporate HRM- Class I, III & IV & Training

31
10 Corporate Training College

11 Credit Insurance Risk Office

12 Estate and Establishment

13 EWS, Legal, Library, MBS

14 Fire

15 Foreign Business

16 Grievance Cell, Customer Service, R.I.D.

17 Health

18 Information Technology

19 Investment

20 Investment, Board Secretariat

21 Legal O.D

22 Legal TP

23 Legal, CPI cell

24 Marine Cargo

25 Marine Hull

26 Miscellaneous Accident Technical

27 Motor Technical

28 Performance Management System, De-tariffing Business

29 Property Cell

30 Reinsurance

31 Reinsurance (Accounts)

32 RID, Health Insurance

33 Techno Marketing

34 Vigilance

32
 Employee Strength-

Category Total number of Employees Function

Class I 5941 Supervisory

Class II 2547 Development Force
Class III 9032 Clerical/Secretarial
Class IV 2049 Sub staff/Drivers
P. T. S. 389

Total 19558

Staff Position at Pune R.O-

Officers Developmen Class III Class IV PT Tota

(DGM+CRM+MGR+Dy.MGR+A.M+A.O t Officers Employee Employee S l
) s s
307 171 668 114 17 1277

Training-

 For Agents:
In addition to their Corporate Training College (CTC), Mumbai, Zonal Training Centres (ZTC)
at Kolkata and Chennai and 19 Regional Training centres (RTC) at Regional offices; the
company have received accreditation for 23 other Agencies training centres in interior parts of
the country. The training is for pre-licencing exam preparation and subsequent trainings for skill
developments.

 For Staff:
RTC and ZTC caters training to the employees under the zone/ regions, from time to time. ZTCs
generally conduct trainings on special topics for which faculties are rare.College of Insurance
(Under GIC ,Mumbai) also imparts training programmes for staff from Mumbai and Pune
Regions only.On Management topics and specialized topics , there are external agency's training
centers at various places throughout India.

 For Officers:
RTC, ZTC & CTC make their yearly calendar for regular training, and special trainings on
technological changes, departmental changes, for transfers and promotions. National Insurance
Academy (NIA), Pune takes up specialized training programme on Insurance, IT, Law and
Management topics. Officers are also nominated to various external institutions for training
programmes/seminars and conferences. College of Insurance also caters to the needs of officers
of Mumbai & Pune region. Being an International Company, the top executives and officers are
nominated for overseas training, around 10 cases per year. 10 Computer Learning centres in
large cities like Ahmedabad, Kanpur and Mumbai CTC etc have been created for Computer
literacy training and specialized courses. The company has also initiated 'E- training', initially on
Management courses with various outside agencies.

33
 For SC/ST Staff:
Special Training programmes in preparation for competitive examination are organized in all
Regional Training Centres. Special training programmes and workshops in 2/3 batches per year
are also organized at all India level at some outside venues.Special attention is given to them
while nominating for training at various Institutes.

 For TPAS / Brokers/ Surveyors / Advocates:

Basing on the need to improve the productivity and professionalism and also to clear pending
cases in an effective way, special workshops are being organised under various Regional Offices.

 For Customers:
All Regional offices organise various workshops / seminars for their existing and prospective
clients throughout the year at various hired places.

 For Corporate Agents:

The company has initiated pre-licensing agency training for Corporate 'bancassurance' agents.
For first hand information and soft skill in Insurance Underwriting 3 days training programme
for Bank officials were taken up at around 10 places throughout India.

Centres Total no. of Programs Total no. of Participants

National Ins.Academy, Pune 92 381
College of Insurance 1 2
External Institutes 15 25
Training Abroad 9 12
CTC 59 1036
Total 176 1456

34
2.6 OPERATIONS –

Underwriting and Claims Management are the two most important aspects of the functioning of
an insurance company. The other operations are Actuarial Analysis, Investment and Reinsurance.
Out of any insurance contract, the customer has the following
expectations:
i. Adequate insurance coverage, which does not leave him high and dry in time of
need, with right pricing.
ii. Timely delivery of defect free policy documents with relevant endorsements /
warranties / conditions / guidelines.
iii. Should a claim happen, quick settlement to his satisfaction.
Underwriting is the process of classifying the potential insureds into the appropriate risk
classification in order to charge the appropriate rate. An underwriter decides whether or not to
insure exposures on which applications for insurance are submitted. There are separate
procedures for group underwriting and individual underwriting.
For any insurance contract to exist there has to be a proposal form. Any individual wishing to
take an insurance policy has to first fill the proposal form. Different forms are available for
different types of policy. (See Annexure for a Motor Proposal form)
The parties to the insurance contract are required to observe utmost good faith (Uberrimae fidei)
by disclosing all material information. Examples of material information are type of construction
of building in case of fire insurance, type of packing goods and material used in case of marine
cargo insurance, cubic capacity of vehicle in motor insurance, physical disabilities if any while
taking a personal accident policy. This allows the insurer to decide for a)acceptance of risk b)
fixing rate of premium c)terms and conditions of the contract. The proposal forms the basis for
any contract and any non disclosure of material facts makes the contract voidable.
In case of motor policies where there is a break in policy, a vehicle inspection is done. In case of
high risk proposals, technically qualified staff are enlisted to inspect the risk and provide an
assessment on the basis of which the policy is underwritten. A medical examination is also
necessary in case of Mediclaim policy for clients above the age of 45.
Once the proposal is accepted by the competent authority, it is underwritten. The underwriters
use the proposal form to fill in the prescribed details in the CWISS system. The underwriter must
employ sound judgment based on his or her years of experience to read beyond the basic facts
and get a true picture of the applicant and his lifestyle in case of health policies. Of course, the
underwriter certainly cannot - and isn't expected to - foresee all possible circumstances. The
underwriter's primary function is to protect the insurance company insofar as is possible against
adverse selection (very poor risks) and those parties who may have fraudulent intent. Once the
underwriter determines that risk can be accepted, the next decision is to apply the proper
premium rate. Premium rates are determined for classes of insured by the actuarial department.
An underwriter’s role is to decide which class is appropriate for each insured. The business of
insurance inherently involves discrimination; otherwise, adverse selection would make insurance
unavailable. Once the premium is calculated, the draft is saved and then sent for collection.
The client then has to pay the premium to the cashier who then generates a collection receipt and
the policy. The policy then becomes active.

35
OO
R
P
F
JOS
K
C
T
Y
A
B
N
G
Q
IU
M
E
R
P
SER IN SU
E R
R

Actuarial analysis is a highly specialized mathematic analysis that deals with the financial and
risk aspects of insurance. Actuarial analysis takes past losses and projects them into the future to
determine the reserves an insurer needs to keep and the rates to charge. An actuary determines
proper rates and reserves, certifies financial statements, participates in product development, and
assists in overall management planning. The rates or premiums for insurance are based first and
foremost on the past experience of losses. Actuaries calculate the rates using various procedures
and techniques. The most modern techniques include sophisticated regression analysis and data
mining tools. In essence, the actuary first has to estimate the expected claim payments.
Investment income is a significant part of total income in most insurance companies. The
company invests in Government securities and Government guaranteed bonds including
Treasury Bills, Other Approved Securities, Debentures/Bonds, Infrastructure and Social Sector
projects.
Reinsurance is an arrangement by which an insurance company transfers all or a portion of its
risk under a contract (or contracts) of insurance to another company. The company transferring
risk in a reinsurance arrangement is called the ceding insurer. The company taking over the risk
in a reinsurance arrangement is the assuming reinsurer. In effect, the insurance company that
issued the policies is seeking protection from another insurer, the assuming reinsurer. Typically,
the reinsurer assumes responsibility for part of the losses under an insurance contract; however,
in some instances, the reinsurer assumes full responsibility for the original insurance contract.
A ceding company (the primary insurer) uses reinsurance mainly to protect itself against losses
in individual cases beyond a specified sum (i.e., its retention limit), but competition and the
demands of its sales force may require issuance of policies of greater amounts. A company that
issued policies no larger than its retention would severely limit its opportunities in the market.
Many insureds do not want to place their insurance with several companies, preferring to have
one policy with one company for each loss exposure. The national insurer is GIC

36
Claims settlement is the process of indemnifying the insured against any loss that he may have
suffered which come under the purview of his policy. As soon as a claim is reported, the
insurance company checks as to whether the cover is in force at the time of loss and whether the
peril is covered under the policy. A surveyor is appointed who visits the spot, do the assessment
and submit the report. Insurance company examines the report, calls for relevant supporting
documents. On receipt of survey report and documents, the same are examined. The claim file is
processed and settlement is offered.

Insurance claim flow process

INTIMATE CLAIM

SUBMIT CLAIM FORM WITH

RELEVANT DOCUMENTS

VERIFY
COVERAGE

ASSIGN SURVEYOR
FOR ASSESSMENT

SURVEYOR
REPORT +
DOCUMENTS

ACCEPT CLAIM
REPUDITE CLAIM

ARCHIVE

CLOSED

2.7 FINANCE-

37
 (in %)
Upto the Upto the
Quarter Quarter
Sl.No. Particulars
Ending 31st Ending 31st
Mar.,2011 Mar.,2010
1 Gross Premium Growth Rate 15.87 9.97
2 Gross Premium to Shareholders' Fund Ratio 34.70 30.77
3 Growth Rate of Shareholders' Fund 2.75 56.53
4 Net Retention Ratio 87.44 84.55
5 Net Commission Ratio 9.02 9.35
Expense of Management to Gross Direct Premium
6 32.78 34.61
Ratio
7 Combined Ratio 104.97 108.66
8 Technical Reserves to Net Premium Ratio 177.84 177.29
9 Underwriting Balance Ratio -36.75 -28.64
10 Operationg Profit Ratio -17.68 -8.38
11 Liquid Assets to Liabilities Ratio 49.07 48.28
12 Net Earning Ratio -5.86 6.74
13 Return on Net Worth Ratio -1.78 1.75
Available Solvency Margin to Required Solvency
14 2.97 3.55
Margin Ratio

Equity Holding Pattern

1 (a) No. of shares 200000000 200000000 200000000 200000000

(b) Percentage of shareholding (Indian /
2 100/0 100/0 100/0 100/0
Foreign)
( c) %of Government holding (in case
3 100 100 100 100
of public sector insurance companies)
(a) Basic and diluted EPS before
4 extraordinary items (net of tax expense) -21.08 -21.08 20.23 20.23
for the period (not to be annualized)
(b) Basic and diluted EPS after
5 extraordinary items (net of tax expense) -21.08 -21.08 20.23 20.23
for the period (not to be annualized)
6 (iv) Book value per share (Rs) 348.71 348.71 371.51 371.51

2.8 ORGANIZATIONAL HIERARCHY

38
 CHAIRMAN CUM
MANAGING DIRECTOR

GENERAL MANAGERS

DEPUTY GENERAL
MANAGERS

CHIEF MANAGERS

MANAGERS

DEPUTY MANAGERS

ASSISTANT
MANAGERS

ADMINISTRATIVE
OFFICERS

Organization Structure-
Domestic:
The company has entered a phase of consolidation and restructuring of offices. The company has
converted 59 offices as specialized offices to take care of bancassurance, brokers and auto tie-
ups.

39
As on 31st March 2010, the company has a network of 26 Regional Offices, 395 Divisional
Offices, 591 Branch Offices, 27 Direct Agent Branches and 23 Extension Counters totaling 1062
offices.

Foreign:
The company operates through a network of 9 branches, 7 agencies, 4 associate companies and 3
subsidiary company (including 1 fully owned subsidiary) in 23 countries.

Office Hierarchy

HEAD OFFICE

REGIONAL OFFICE

DIVISIONAL OFFICE

BRANCH OFFICE

2.9 ENVIRONMENT -

Social Environment –
Profit is not the first criterion of public sector units. Social welfare is the ultimate goal of
development of insurance sector. The government has devised a lot of social security measures

40
for India’s rural, socially backward classes of people. Prices of such products are reduced.
Insurers are obliged to provide insurance to atleast 20000 lives each year. In case of general
insurance, this obligation includes the insurance of crops ( Sec.32 B and 32C of Insurance
Act,1938 and the IRDA regulations 2000.) The government has also introduced various schemes
such as ‘Rashtriya Krishi Bima Yojana’ to provide insurance coverage to farmers in case of
failure of crops. ‘Solatium Scheme’ for payment of compensation to victims of hit and run
accidents. In addition to this the company provides policies such as ‘Universal Health Insurance
Scheme’ and ‘Jan Arogya Bima Policy’ at nominal rates to the less-privileged. In a democratic
setup, insurance companies are accountable to the public through 1.)Parliament 2.)Audit
and3.)Annual reports as a social measure.

Social responsibilities of insurance business

Promoters/
Shareholders
Surveyors,
Consumer
Lawyers,
Insured
Actuaries

Insurance
Suppliers Business Workers
Insurers

Reinsurers Managers

TPAs

Legal Environment -
The IRDA Act of 1999 was enacted with a view to regulate the Insurance Companies
irrespective of private and nationalized companies. Any insurance company is obliged to abide
by the rules and follow the guidelines as prescribed by IRDA from time to time. These include
the IRDA Regulation 2000 on ‘Appointed Actuary’ and the ‘Obligations of Insurance to Rural

41
Social sectors’ which specifies that the company has to undertake certain obligations pertaining
to the persons in Rural and Social Sectors in each financial year. ‘Assets, Liabilities and
Solvency Margin of Insurance’ also specifies that the insurer has to maintain a solvency margin
as prescribed by IRDA. The ‘Investment Regulation’ deals with type of investment in the
following segments – central government securities, state government securities and other
approved securities. The Motor Vehicles Act 1988 specifies the third party liability arising out of
the use of motor vehicles in a public place and compensation for the same.

Political Environment -
The Central Government being satisfied that it is necessary in the public interest to do so,
exempts the taxes leviable for schemes such as Cattle Insurance under IRDP (Irrigated Rural
Development Program), Janata Personal Accident Scheme, Agriculture Pump Set Insurance and
other such social welfare schemes.

Economic Environment -
Insurance is the result of various economic activities causing employment and is dependant on
the total net income, national economic and industrial development. On the other hand insurance
also has the responsibility to provide stability and security to economy and industry. The
company cannot behave with sole profit motives. Policies with less demand have become costlier
to the insurer but due to social obligations, the pricing remains subsidized. The premium
collected is not even sufficient to cover the cost of issuing the policies (stationery, man hours
involved, stamp duty) in case of certain schemes as such is operating at a loss ratio of above
100%. An insurer is not permitted to invest in private limited companies. Insurer is also not
permitted to keep more than 10% of his assets in fixed and current deposit or both in one banking
company.
Physical Environment –
If one area is endemic to one peril (For eg – Kutch, Gujarat is prone to earthquakes, Khopoli,
Maharashtra is prone to landslides) then to cover the insurance risk of that area, premium rates
will be higher than other areas.

Technological Environment -
The company introduced its first automated system ‘Genisys’ in 1998. However, this was an
rudimentary system and the spread of technology for insurance services such as underwriting and
claims management was slow. It was only recently that the company has entered into online
transaction of business. It is needless to say that the technology provides better quality,
quickness, better space utilization and easier data storage. The spread of technology has also
helped improve the customer service.

2.10 SWOT ANALYSIS-

Strengths-
The Company is without doubt the largest non-life insurance company in India. It is the market
leader in terms of premium underwritten in the fire (23% market share), marine (22%),

42
engineering (18%), health (21%) and liability (15%) sectors. The New India Assurance is a
pioneer non-life insurance company insuring all types of assets, belongings and lives of rural and
social sector in the country. A leading market position gives a company a stronghold within the
industry.
Financially the company is in a strong position with the profits after tax for the financial year
2009-10 being Rs.404 crores, an increase of 80% from the previous year. The gross direct
premium also recorded a good growth rate of 9.69% as against 4.39% growth registered during
2008-09. Continued good investment performance enabled the company to earn an investment
income of 2139 crores as against 1686 crores in the previous year.
The company has an available solvency margin of 6621 crores while the required solvency
margin under IRDA regulations is 1429.33 crores.
Its widespread network of 1062 offices across the country helps in its product distribution to all
corners of the country. The company has experienced and technically competent staff who
understand the nuances of the insurance industry. Claim hubs have been created for centralized
claim processing in all Regional Office centres. This has helped the company achieve a very high
claims settlement ratio. The company has been able to bring down the average claim settlement
time from 137 days in 2008-09 to 88 days in 2009-10. It has been able to reduce its Motor T.P
losses which are severely affecting the profitability of all insurance companies thanks largely to
the diligent efforts taken to settle as many claims promptly through Lok Adalats and conciliation.
Large Corporate Regional Offices have helped provide dedicated service and organizational
focus to corporate clients and government accounts

Weakness-
During the financial year 2009-10 the underwriting deficit has gone up by 255 crores mainly due
to increased operating expenses and adjustments for the previous year. In these times of intense
competition where premium rates have bottomed out and companies are struggling for their very
survival due to a high combined ratio, the employees fail to realize the importance of customer
service in not only retaining but also generating fresh premium. Customers are made to wait for
service and are sometimes shunted from one counter to another.
Another major weakness is the treatment of agents who generate a majority of the premium for
the company. As per their own admission, they are treated worse than the sub staff and not
accorded the respect that they deserve from the employees. Also, there is a delay in payment of
the Agent’s fees which is effectively the salary of the Agents.
The employees are not particularly well versed in the use of computers and in this day and age;
this is a major drawback. Also the computer systems in use are outdated and infested with
problems. The connectivity of the system is quite poor causing inordinate delay to the customers
who are made to wait for no fault of theirs.
The company recently implemented a new ERP package called CWISS. However, proper
planning has not been done before implementing this change. The employees weren’t adequately
trained and a number of them are facing difficulties while working in the new system. Also, all
the existing policies have not been fully migrated to the new system. Hence, employees have to
use both the systems (GENISYS and CWISS) simultaneously which is a major hassle. The
underwriters also face difficulties due to this.
The HR policies in practice are out of date and not in sync with the current times. Profit linked
incentives are provided to all employees and hence, there is hardly any motivation for the people
who work hard and those who don’t. The company is losing productive man hours due to the

43
absence of a mechanized attendance system. Since there is no individual accountability, there
seems to be a certain lethargy in the attitude of a majority of the employees. There is a certain
lack of professionalism.
In quite a few cases, premium has been accepted from the customer. However the policy has not
been underwritten. This causes major issues in accounting and in the event of claims; the insurer
find themselves in a position where they are unable to register a claim.

Opportunity-
Insurance is a business of distress management and the process of claims management is the
final moment of truth. The claims manager should be sensitive to the needs of the claimant.
When it is obvious that the claim is legitimate, less importance should be laid on a slew of
formalities and the intent should be on settling the claim swiftly. If the company follows the
dictum of “low on promise and high on delivery”, it will lead to customer delight and result in a
long and lasting relationship between the insurer and the insured.
Being the largest company, New India has the built-in strength and the capacity to underwrite big
businesses. The company has the potential to focus on huge projects such as large infrastructure
projects, mega power plants. We are seeing rapid development across the country with express
highways, metro rails, international standard airports, port development, power plant projects
coming up across the country. These projects demand insurance cover of international standard
and the company will do well to tap into this new market by providing tailor made all risk
package policies.
The auto industry is also growing at rapid pace. As motor policies are compulsory in India, this
portfolio can give incremental rise to the premium of the company.
With rising awareness, all kinds of insurance especially health is now at the precipice of an
explosion. The penetration of insurance is hardly 3% of the population. This means there is a
potential of market of over 97% of the population. The company is now facing losses in the
Health Sector and the major reason for this is the small spread of risk and the problem of anti-
selection. Once this is sorted, this sector has the potential to be a source of immense profit for the
organization. Also an increase in the disposable income of individuals will give a boost to health
and other personal lines of insurance.
The insurance industry is seeing a double digit growth every year and new talent should be
recruited to take the business forward. The company needs to reinvent itself along the lines of
many nationalized banks.
If the company gains a more professional approach, it will help the company survive the intense
competition.
If every claim is attended to with compassion and enthusiasm and the claim settlement duration
is brought down further, it will enhance the reputation of the company.
The thrust on liability policies have not been much so far and not many people are aware of these
policies. There is tremendous potential if the company focuses on this untapped segment.

Threats-
When the customers are not afforded the service that they demand; it is but natural that they will
tend to go elsewhere. No doubt, this has been one of the major factors for the stupendous growth
of private sector insurance companies that pride themselves on providing excellent customer
service. The company risk losing out on corporate clients who can provide crores of rupees in
premium due to a perceived lack of support from the insurer.

44
If the management does nothing to ease the complaints of the Agents, they are likely to jump
ship and switch over to the private sector.
The non life insurance industry today faces its biggest challenge of mounting underwriting
losses. This has been primarily because of the lack of focus on prudent underwriting and
effective claims management.

CHAPTER III-DISCUSSION ON TRAINING

3.1 ROLES AND RESPONSIBILITIES –
During the initial phase of the internship, my role as an intern was to get acquainted with the
various terms and concepts of the insurance industry. It was my responsibility to read up as much

45
on insurance and familiarize myself with the terms that are commonly used.
This was followed by a study on the transition and prospects of the Indian Insurance Industry in
order to gain an understanding about the evolution of the insurance sector in India, the functions
of insurance, the growth of the sector, the principles of insurance, the current market structure
etc.
It was my responsibility to study the portfolio of products offered by the company, their
coverage, exclusions, premium calculations, features and claims procedure with special focus on
fire, marine, motor and health policies. I also had to study the different distribution channels, the
roles of these channels, their importance and their functioning. I was encouraged to interact with
the various intermediaries such as the Agents and the TPAs in order to gain an overall picture of
how the insurance industry works right from procuring the business to the settlement of claims.
I was also trained to use their ERP system called CWISS and get myself acquainted with its
entire functionality.

3.2 DESCRIPTION OF TASKS HANDLED -

Every Insurance company is required to disclose its annual business figures to the public. Hence,
at the end of every financial year, every branch of the company is required to prepare and send
its statistics to the respective Regional Office where it is assimilated and ultimately sent to the
Head Office.
I assisted in preparing the statement of operating performance for the year ending March 2011 of
the Divisonal Office. This included providing statistics of department wise details of premium
generated. The commission paid for each department, the commission as percentage to the
overall premium, the claims incurred in each department, the claims as a percentage of the
premium. This helps determine the claims ratio of each department, the underwriting
surplus/deficit and hence identify the most profitable lines of business. This also included a
yearly review of department wise performance upto March 2011 to determine the accretion
percentage of the various lines of business.
I also assisted in preparing the statement of settlement of claims which was to determine the
department wise claims disposal ratio and age wise settlement of claims in order to determine the
claim processing and settlement time.
The most important task given to me was the underwriting of policies to reduce the burden on
the underwriters. I had the opportunity to work on various types of policies including motor,
householder’s policy, public liability insurance, and goat insurance. However the prime focus
was on health policies especially tailor made group policies which the company provides to
various corporate after obtaining permission from the Head Office. Some of the clients include
National Insurance Academy, Simmonds Marshall, MWH Resource Net Ltd, Millennium
Engineers and Contractors Pvt.Ltd. The following are a few screenshots of the underwriting
process for Millennium Engineers and Contractors Pvt.Ltd.

3.3 CONTRIBUTION TO THE ORGANIZATION

The various statements of operating performance had to be sent to the Regional Office within a
stipulated period of time. I assisted in the preparation of these statements and helped meet the
deadline as set by the Head Office. Due to a huge number of pending policies, there was a severe
strain on the underwriters. I was able to assist in underwriting a number of policies and updating

46
the insured list of various group policies which is pretty time consuming and thus helped reduce
some of the burden on the underwriters. I was able to update many such policies which had to be
migrated from the old ERP to the new system so that claims could be registered on these
policies. My research work provides an insight to the company regarding the performance of
their various portfolios. The company may wish to implement some of the suggestions which can
help improve the profitability of these portfolios.

The following are a few screenshots of the ERP package that I used to update the Tailor Made
Floater Group Mediclaim policy of Millenium Engineers and Contractors Pvt. Ltd.

47
48
CHAPTER IV – ANALYSIS OF RESEARCH UNDERTAKEN

49
4.1 INTRODUCTION-
Insurance professionals make decisions everyday which ultimately impact the company’s
bottom-line. It is very essential therefore to know how the profitability is measured by insurers.
Although there are numerous approaches, estimating insurer profitability is generally
accomplished by examining premiums and investment income and either underwriting results
(underwriting gain or loss) or overall operating performance (gain or loss from operations). An
insurer’s profits depend heavily on the premium revenue the insurer generates. Insurers use rates
based on the insured's loss exposures to determine the premium to charge for insurance policies.
Premium growth is not always a positive indicator of an insurer's success. An insurer should
achieve premium growth by writing new policies rather than depending solely on insurance rate
increases or inflation. Rapid premium growth may be undesirable and could indicate lax
underwriting standards or inadequate premium levels. Inappropriate premium growth can
eventually lead to reduced profits as losses begin to exceed premiums collected for loss
exposures. To determine profitability, an insurer should consider whether growth resulted from a
competitive advantage, relaxed underwriting, inadequate insurance rates, or a combination of
these factors.
An alternative way to measure an insurer’s profits is through overall results from operations. An
insurer’s overall operating performance (gain or loss from operations) is its net underwriting gain
or loss plus its net investment gain or loss for a specific period. This overall figure gives a more
complete picture of an insurer’s profitability because investment income generally helps to offset
any underwriting losses. The formula for overall gain or loss from operations is expressed as:
overall gain or loss from operations = net underwriting gain or loss + investment gain or loss.
Another key indicator of profitability is based on an insurer’s underwriting results. Many
insurers use the combined ratio to measure the success of underwriting activities The combined
ratio is a profitability ratio that indicates whether an insurer has made an underwriting loss or
gain. When the combined ratio is exactly one hundred percent, it means every rupee is being
used to pay claims and cover operating cost with nothing remaining for insurer profit. When it is
greater than 100%, it means an underwriting loss occurs, more rupees are being paid out than
being taken in as premiums and when it is less than 100%, an underwriting profit occurs because
not all the premium is being used for claims and expenses.

4.2 RESEARCH DESIGN

Title of the Research Topic-
Profitability analysis of various lines of business for the past three years for the Pune R.O.

Statement of the Research Problem-

To analyze the underwriting performance of various lines of business that the company provides
and to determine the profitability.

Objectives-
 To study the growth in premium of various departments over the past three years at the
Pune Regional Office. The various lines of business have been segmented as Fire,
Marine, Motor, Health and other miscellaneous..

50
  To determine the changing composition of contribution of various departments to the
overall premium.
 To determine the underwriting profitability of the various lines of business over the past
three years.
 To determine the contribution of each department to the overall claims.
 To examine the channel wise generation of premium.

Scope of the Study-

 The study on profitability is confined to three financial years starting from 2008-09.
 Of all the regional offices of the company, only the Pune R.O has been considered for
analysis.
 For department-wise analysis, five sectors are considered namely Fire, Marine, Motor,
Health and Other Miscellaneous which includes Public Liability, Householder’s policy,
Shopkeeper’s policy etc.

Need and Importance of the Study-

Insurance companies today are operating at a combined ratio of more than 120. In simple terms,
it means that if the income is 100, the outgo is 120. The companies are continuing to eat into
their investment income built over the years due to prudent investment. If underwriting
profitability is not focused upon then it won’t be long before there aren’t any reserves to eat into.
Thus, the immediate concern for the companies is to focus on prudent underwriting and bring the
claims ratio to a manageable level so that the company is not entirely dependant on the
investments to make a profit. The company can no longer afford to sacrifice profitability for the
sake of maintaining market share. The following analysis is an attempt to determine the most
profitable lines of business and suggestion thereof to improve the profitability of the various
lines of business.

Limitations of the Study-

 Although the combined ratio is the most-often-cited measure of underwriting success, the
results that it produces are generally subject to an additional analysis of its components.
Changes in premium volume, major catastrophic losses, and delays in loss reporting can
distort the combined ratio, making it difficult to evaluate the effectiveness of
underwriting.
 Since the study is confined only to the Pune Region, the findings may not be in sync with
that of the entire company.

Data Sources-
 Primary Data Source
The primary Data is collected through interaction with the project guide and the finance
manager of the company.
 Secondary Data Source
The Secondary Data is collected from the Trial Balance of the Pune R.O of the Company
and the yearly performance figures as prepared by the company.

51
4.3 DATA ANALYSIS AND INTERPRETATION-

THE GROSS DIRECT PREMIUM FOR THREE YEARS (PUNE REGION)-

(in Rs.lakhs)
Department 2008-09 2009-10 2010-11
Fire 2818.98 3739.8 4179.65
Marine 852.2 686.76 1403.04
Motor 15283.15 15413.62 17767.01
Health 6133.3 6984.24 8302.35
Misc. 4673.61 5291.65 6940.91
Total 29761.24 32116.07 38592.96

As above figure and the table reveal, the gross premium generated by the company has increased
over the last three years growing by margin of 7.9% from March 2009 to March 2010 and an
impressive 20% from March 2010 to March 2011. The figures reveal that the company is
generating increasing amounts of premium year on year which is a positive sign meaning the
company is able to maintain as well as generate fresh premium year on year

20000

18000

16000

14000

12000
2008-09
10000
2009-10
8000 2010-11

6000

4000

2000

0
Fire Marine Motor Health Misc.

52
QUANTUM GROWTH OF PREMIUM-

Department March 2009-March 2010 March 2010-March 2011

920.820 439.85
Fire
-165.44 716.28
Marine
130.47 2353.39
Motor
850.94 1318.11
Health
618.04 1649.26
Misc.
2354.83 6476.89
Total

ACCRETION OF PREMIUM –

Department Accretion(%) Accretion (%)

Fire 32.66 11.76
Marine -19.41 104.3
Motor 0.85 15.27
Health 13.87 18.87
Misc. 13.22 31.17
Total 7.91 20.16

If we look at the department wise accretion which is the growth in gross premium generated, we
can see that the fire portfolio showed the most growth from March 2009- March 2010 registering
a quantum growth of 920 lakhs, The marine portfolio fell steeply by 19% while the motor
portfolio remained more or less the same. Health and the other miscellaneous portfolio grew by
almost identical margins. During the next financial year, the motor department registered a
growth of 15.27% and generated additional premium to the tune of 2353 lakhs. The marine
department registered a growth of over 100% after the fall in the previous year. The health and
miscellaneous department continued their steady growth showing a rise of 18% and 31%
respectively over the previous years. Thus, we can see that these two lines of business are the
ones growing steadily over the last three years.

53
 20000

18000

16000

14000

12000 Fire
10000 Marine
Motor
8000 Health
Misc.
6000

4000

2000

0
2008-09 2009-10 2010-11

CHANGING COMPOSITION OF CONTRIBUTION OF VARIOUS PORTFOLIOS TO

TOTAL PREMIUM (IN %)

Department Fire Marine Motor Health Others

2008-09 9.47 2.86 51.35 20.61 15.70

2009-10 11.64 2.14 47.99 21.75 16.48

2010-11 10.83 3.64 46.04 21.51 17.98

The most prominent feature of the above graph is the decrease in the contribution of the motor
department to the overall premium. While it was above 51% in 2008-09, it has been brought
down steadily for the last two years and it now stands at just above 46%. This is a very
encouraging sign for the company since it has been struggling under the burden of Motor T.P
claims where there is unlimited liability and hence the operating ratio is well above 100 which
means the company is not even breaking even and is running at a loss. This has been one of the
major reasons for the overall underwriting deficit. The reduction in the overall contribution to
premium means the company is reducing its dependency on this sector and is concentrating more
on other profitable departments. The fire department has more or less maintained an average of

54
10% contribution to the total premium as has the health portfolio with a contribution of
approximately 20%. The other miscellaneous policies too have shown a rising trend over the past

three years and now contribute almost 18% of the total premium.

60

50

40

2008-09
30
2009-10
2010-11
20

10

0
Fire Marine Motor Health Others

UNDERWRITING STATISTICS FOR THREE YEARS OF PUNE R.O -

2008-09
(All figures in Rs lakhs)

Dept. Incurred Allocated Total

Premium Commission Claims expenses Outgo CR Profitability

Fire
2818.98 291.53 1161.97 643.16 2096.66 74.38 722.32

Marine
852.2 231.84 2574.4 145.82 2952.06 346.4 -2099.86

Motor
15283.15 901.94 12011.13 3486.91 16399.98 107.31 -1116.83

Health
6133.3 955.01 4475.31 1399.34 6829.669 111.35 -696.37

Others
4673.61 636.45 1583.06 1066.3 3285.81 70.3 1387.8

Total
29761.24 3016.77 21805.87 6741.55 31564.19 106.06 -1803

55
 2009-10

Premiu Commissio Incurred Allocated Total Profitabilit

Dept.
m n Claims expenses Outgo CR y
103.5
Fire
3739.8 375.88 2770.08 727.28 3873.24 7 -133.44

Marin
e 686.76 124.81 619.07 100.16 844.04 122.9 -157.28
109.0
Motor
15413.62 882.55 12930.87 2997.47 16810.89 6 -1397.27
109.0
Health
6984.24 986.51 5269.55 1358.22 7614.28 2 -630.04

Others
5291.65 721.3 2616.14 1029.06 4366.5 82.52 925.15
104.3
Total
32116.07 3091.05 24205.71 6212.2 33508.96 4 -1392.89

2010-11

Dept. Incurred Allocated Total

Premium Commission Claims expenses Outgo CR Profitability

Fire
4179.65 411.77 673.88 1259.29 2344.94 56.10374 1834.71

Marine
1403.04 215.85 588 317.04 1120.89 79.8901 282.15

Motor
17767.01 925.51 11377.86 5353.03 17656.4 99.37744 110.61

Health
8302.35 1032.76 6839.54 2501.42 10373.72 124.9492 -2071.37

Others
6940.91 918.52 1875.72 2091.23 4885.47 70.38659 2055.44

Total
38592.96 3504.41 21355 11522 36381.41 94.26955 2211.55

56
The combined ratio is the key indicator for the profitability of the various lines of business. It is
calculated on the basis of premium underwritten, commission paid, claims incurred and
management expenses.
Incurred claims is calculated as follows-
O/S claims (at the beginning of the year) + Claims intimated during the year – O/S claims (at the
end of the year)
Management expenses are apportioned to each portfolio by using a weighted average method as
shown below for the year 2010-11

Department Weightage Gross Premium Weightage Allocated

(a) (b) premium (a*b)
expenses(E*Ki/K)

Fire 1 K1=4179.65 4179.65 1259.29

Marine 0.75 K2=1403.04 1052.28 317.04

Motor 1 K3=17767.01 17767.01 5353.03

Health 1 K4=8302.35 8302.35 2501.42

Others 1 K5=6940.91 6940.91 2091.23

Where E = 11522 = Total management expenses

K= Ʃ Ki
Total outgo = Commission paid + Incurred Claims + Allocated expenses
Combined Ratio (C.R) = Total outgo / Gross Premium
The combined ratio helps determine what percentage of the premium is incurred as expenses and
what percentage is saved.

CONTRIBUTION OF EACH SECTOR TO THE CLAIMS-

2008-09

Department Incurred claims Share of total claims (%)

Fire 1161.97 5.33
Marine 2574.4 11.81
Motor 12011.13 55.08
Health 4475.31 20.52
Misc. 1583.06 7.26
Total 21805.87  

57
 2009-10

Department Incurred claims Share of total claims (%)

Fire 2770.08 11.44
Marine 619.07 2.56
Motor 12930.87 53.42
Health 5269.55 21.77
Misc. 2616.14 10.81
Total 24205.71  

2010-11

Department Incurred claims Share of total claims (%)

Fire 673.88 3.16
Marine 588 2.75
Motor 11377.86 53.28
Health 6839.54 32.03
Misc. 1875.72 8.78
Total 21355  

58
 7.26 5.33 2008-09

11.81

20.52
Fire
Marine
Motor
Health
Others

55.08

10.81 11.44 2009-10

2.56

Fire
21.77 Marine
Motor
Health
Others

53.42

2.75
3.16 2010-11
8.78

Fire
Marine
Motor
32.03
Health
Others
53.28

59
As evident from the above figures and graphs, the two major contributors to the claims are the
motor portfolio and the health portfolio which together account for almost 80% of all claims.
Hence, controlling the claims of these sectors is crucial to the overall profitability of the
business. While there isn’t much that can be done for the claims of motor department as the
compensation to be awarded in T.P claims is decided by the verdict of the court and the
insurance company is liable to pay the said sum, better measures can be adopted to reduce the
claims of health sector.

Following shows the combined ratio and underwriting profitability of various lines of business

Department 2008-09 2009-10 2010-11

Fire 74.38 103.57 56.10

Marine 346.4 122.9 79.89

Motor 107.31 109.06 99.37

Health 111.35 109.02 124.95

Misc. 70.3 82.52 70.38

Total 106.06 104.34 94.27

Department 2008-09 2009-10 2010-11

Fire 722.32 -133.44 1834.71

Marine -2099.86 -157.28 282.15

Motor -1116.83 -1397.27 110.61

Health -696.37 -630.04 -2071.37

Misc. 1387.8 925.15 2055.44

Total -1803 -1392.89 2211.55

60
 Profitability of various lines of business
2500
2000
1500
1000 Fire
Marine
500 Motor
Health
0
Others
2008-09 2009-10 2010-11
-500
-1000
-1500
-2000
-2500

Combined Ratio of various lines of business

400

350

300

250 Fire
Marine
200 Motor
Health
150 Others

100

50

0
2008-09 2009-10 2010-11

61
From the above tables and graphs, we observe that there is no fixed pattern of profitability for
various lines of business. This serves to emphasis the uncertainty of the Insurance Business. A
single claim to the tune of few crores can cause a severe underwriting deficit. We can see that the
fire portfolio is generally profitable though it showed an underwriting deficit of 133.44 lakhs in
the year 2009-10, it was one of the most profitable lines in the other two years earning the
company a surplus of 722 and 1834 lakhs in the years 2008-09 and 2010-11. The marine
portfolio which was the least profitable in the year 2008-09 causing a loss of over Rs. 21 crore
and having a whopping claims ratio of 346% is now a profitable business earning a small
nevertheless significant surplus of Rs.2.8crore. As mentioned earlier, the motor portfolio is the
one causing maximum grief since no amount of prudent underwriting can help in case of suit
claims. Better reconciliation measures can help reduce some of the backlog. An encouraging sign
is the fact that the claims ratio was below 100% which is highly appreciable and praiseworthy in
the current scenario. Health sector, despite its potential continues to be a loss making line.
Though the claims ratio was above 100 in 2008-09 as well as 2009-10, it has swelled to almost
125% and is currently the most loss making line of business causing an underwriting deficit of
more than Rs.20 crore. The other miscellaneous lines of business have been a profitable line of
business for the past three years and the company would do well to invest its significant
resources in the promotion of these products. Overall the company has done well to show a profit
of Rs.22 crore in the financial year 2010-11 after being in the red for the past two years.

Overall underwriting performance

2211.55

2008-09 2009-10 2010-11

-1392.89
-1803

62
Following shows the channel wise distribution of premium over the past three years at Pune R.O.
(in lakhs)

CHANNEL 2008-09 2009-10 2010-11

Direct 1204.33 2387.4 4438.40

Individual Agents 26277.5 26898.09 31131.42

Corporate Agents 264.49 206.39 210.6

Brokers 1111.51 1243.74 1482.85

Bancassurance 872.88 1301.74 1279.2

Referrals 30.56 78.71 50.49

Total 29761.24 32116.07 38592.96

Distribution of premium across various channels for the last three years at Pune R.O-

2.93 0.10
3.73 4.04

0.89

Direct
Individual Agents
Corporate Agents
Brokers
Bancassurance
Referrals
88.29

2008-2009

63
 4.05 0.24
3.87
0.64
7.43

Direct
Individual Agents
Corporate Agents
Brokers
Bancassurance
Referrals
83.75

2009-2010

3.31 0.13
3.84
0.55
11.5

Direct
Individual Agents
Corporate Agents
Brokers
Bancassurance
Referrals
80.67

2010-2011

64
Trend of the various channels over the past three years at Pune R.O

100

90

80

70

60 Direct
Individual Agents
50 Corporate Agents
Brokers
40 Bancassurance
Referrals
30

20

10

0
2008-09 2009-10 2010-11

From the above figures, it is clear that the Agency channel still is the main source of premium
for the company contributing to more than 80% of the premium earned. However, the important
fact to be noted is that though the gross premium generated by almost all the verticals has shown
a rising trend, the contribution of various verticals to the overall premium is changing. The
Agency is showing a downward trend for the past three years (more than 88% in 2008-09 to just
over 80% in 2010-11). The Direct Business channel has grown steadily from around 4% in 2008-
09 to more than 11% in 2010-11. The contribution of the other channels has been more or less
the same for the past three years. This is a good sign for the company since the channel expenses
for direct business is less and hence it can directly help improve the profitability.

65
4.4 SUMMARY OF FINDINGS-
 The Gross Premium has risen considerably over the past three years. Motor continues to
be the dominant contributor to the overall premium. Health is now the second largest
premium generating business.
 The percentage contribution of various sectors to the overall business has seen a change.
Motor which accounted for more than 50% of premium now stands at around 46%. The
Health portfolio has remained pretty steady whereas the Other miscellaneous business
has seen a small rise over three years.
 The other miscellaneous portfolio is the only one which has consistently shown a profit
over three years. Fire has generally been a profitable portfolio although it showed a loss
in the year 2009-10. Health is a major loss making business. In fact, in the year 2010-11,
it was the only loss making portfolio causing losses to the tune of over Rs.20 crore.
Motor is another department which has a very high claims ratio causing severe strain on
the underwriting profitability.
 More than 50 % of the overall claims are from the motor department and that has been
the trend for the last three years. Health and motor together account for more than 75% of
the total claims and hence must be looked at carefully if the company wants to offset
underwriting losses.
 The Agency channel is the major source of generating premium. However, the direct
business channel is steadily gaining prominence and is now the second largest source of
business for the company.

66
 SURVEY CONDUCTED AMONG THE I.T POPULATION IN PUNE

The above analysis showed that the Health Portfolio was the most loss making business.
However, the management of the company were of the opinion that this sector has tremendous
potential for growth and the major reason for the losses were due to the problem of adverse
selection of risks. They felt that this sector can see a turnaround if more youngsters are
encouraged to buy the health policies. In order to determine the spread of insurance and the
awareness of the young population regarding Health Insurance, a survey was conducted among
45 I.T professionals in Pune who are the ideal target population which the company wishes to
capture.
Methodology-
An online questionnaire was mailed to a number of employees in the various I.T companies in
Pune. Their responses were tabulated and a frequency plot was done to determine the relative
popularity of various options. A Likert Scale was used to determine the importance of various
features that prospective customers seek.
Data Sources-

 Primary Data – Data was collected by mailing a questionnaire to I.T Professionals of

various companies in Pune.
Sample Size-
A sample size of 45 employees from 11 different companies was selected to administer the
questionnaire
ANALYSIS OF SURVEY
 36 out of the 45 respondents were consumers of Health Insurance. All 36 have Employer
provided Health Cover. Only 17 out of those 36 had any health cover besides employer
provided. Among those having additional cover, 9 had benefit plans of Life Insurance
and only 8 had Mediclaim policy.

Consumers

Yes No

36

67
  When asked about the source of information for the policies, the following were the
results

Insurance Brokers 0

Insurance Agents 8

Newspapers 0

Internet 3

Advertisements (T.V/Radio) 1

Family/Friends 13

0 2 4 6 8 10 12 14

 When asked about the reasons for purchasing additional policy, the following results
were obtained

The facilities of Health Insurance influenced you 3

You spend frequently on your health 1

On the advice of someone 2

Protection/Security/Peace of mind 16

Tax Benefits 13

0 2 4 6 8 10 12 14 16 18

68
  The reasons for not purchasing additional policy were as follows –

Insufficient Funds 11

Lack of trust on the insurers during the time of claims 4

No returns in case of no claims 8

Lack of information/awareness 8

Don't feel the need for it 4

Happy with the sum insured and the coverage of policy provided by 1
employer

0 2 4 6 8 10 12

 16 out of 22 said they were willing to purchase additional policy if they were properly
informed about the various policies. Their preference of companies is as below-

10
9
8
7
6
5 9
4
3
2 4
3
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.
r..

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s..
.
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69
  22 out of the 39 respondents said that they are aware of the terms and conditions of the
policy and only 5 respondents said they were fully aware of the claims procedure of their
policy.
 The reasons given by those 6 respondents who are not consumers of Health Insurance of
any kind for not purchasing policy is as below -

Insufficient funds 3

Lack of trust on the insurers during the time of claims 4

No returns in case of no claims 4

Lack of information/awareness 6

Don't feel the need for it 0

0 1 2 3 4 5 6 7

 A five point Likert scale was used to determine the relative importance of various
benefits that the customers seek while deciding to purchase a policy. The benefits were
low premium, coverage for pre-existing diseases, family floater, hospitalization expenses,
cashless facility, post hospitalization expenses, out patient charges, cost of medicines and
doctor’s consultation fees. The following are the results.

70
 No importance Low importance Moderate importance
Great importance Utmost importance
27
22 24 23 23
21 21
1715 16
13 15 13 14 151316
11 11
8 6 8 7 7
3 3 4 4 3 3 5 4
2 1 1 02 02 0 0 01
um 01

s
ilit

ine
rge
mi

Cas ses
fac

s
dic

fee
pre

tpa es
cha
en
es

ss

me
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hle
xp
eas
Low

nt

tati
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ne

tie

st o
dis

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ne

sul
)atio
ng

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con
isti

ailyiz

liza
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r’s
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e

ita
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cto
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Do
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en
age

he

[Po
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ver

rin
Co

ove
dc
ur e
in s
um
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ing
es
(onr
ate
flo
ily
Fam

 37 out of the 45 respondents felt that more emphasis should be laid on the marketing
health plans considering the rising cost of healthcare in our country.

18%

82%

71
4.4 SUMMARY OF FINDINGS –
 Only 37% of the total sample has any additional cover besides the employer provided
one. This shows that the company has hardly made a dent in the segment which they
should ideally be targeting aggressively.
 Insurance Agents and Family/Friends are the major source of information for the
customers.
 Security/Peace of mind is the most common reason for investing in Health Policies. Tax
Benefits is also one of the major reasons.
 Insufficient funds, lack of returns in case of no claims and lack of awareness is cited as
the most common reasons for not purchasing any additional policy.
 Majority of the people prefer the PSU rather than the private companies or the specialized
institutions.
 The benefits are ranked in descending order of preference.
 Hospitalization expenses was rated as the most important benefit with a mean
rating of 4.44
 This was followed by cashless facility with a mean rating of 4.2
 Family floater policy i.e a single sum insured for the entire family with a mean
rating of 4.13
 Post hospitalization expenses and cost of medicines both had a mean rating of
4.11
 Doctor’s consultation fees had a mean rating of 3.97
 Coverage for pre-existing diseases had a mean rating of 3.95
 Outpatient charges had a mean rating of 3.73
 Low premium had a mean rating of 3.53
 82% of the respondents felt that more emphasis should be laid on the marketing of Health
Plans in our country

72
4.5 RECOMMENDATIONS –
 The Company should focus more on selling personal lines of insurance and on retail
products. The Agency channel almost exclusively caters to the retailing of personal lines
and a recent report concluded that the Agency Channel shall remain the largest channel
for at least the next ten years. Thus, measures have to be taken to motivate the agents.
The benefits of Agents clubs such as CMD club and GM club should be attractive and
their disbursement must be prompt.
 The policies catering to special needs of the public such as Director’s and Officer’s
Liability etc are quite limited in number and have not been properly marketed. This is an
avenue which the company may explore. The company may also seek to tie-up with
schools and colleges to provide insurance to the students and increasing the penetration
of their products among the younger generation.
 The existing practice of the company offering tailor made group policies with loading for
waiver of exclusions, should be restricted to only those corporate clients who place their
entire business with the company so that the overall portfolio of the corporate is
profitable.
 The problem of anti-selection is affecting the insurance companies in case of health
insurance. The majority of the people taking these policies are those who are 50+ and in
all likelihood, prone to medical expenses. Hence company is making huge losses.
Company should target the young population so that their risk is sufficiently spread.
 Authorities may revisit the decision on commission structure. Business like Mediclaim
which is generating huge load of losses should be disincentivized by means of no/very
low commission. Survey fees especially for fire claims should be rationalized. The
principle of more assessment more fees should be replaced by a more scientific scale of
pay especially since fire premium is at an all time low.
 Star Health is showing a profit in Mediclaim. The major reason for this is the 80-20
principle. The company has cap of 80% of the sum insured for a single incident. The
probability of 2 claims by the same party within a year is very low hence the company in
most cases is retaining 20% of premium in all cases. This can also be applied to the
company.
 Agreements can be signed with TPAs so that their payment is on a profit sharing basis
and not otherwise. Thus the company will not have to pay high TPA fees in addition to
huge load of claims and commissions.
 Efforts should be made to visit the site of the claims, take an inventory of the loss, follow
up for relevant documents, discuss with both surveyor and insured and arrive at the
assessment of loss and stay engaged till the claim is settled. This can reduce the claim
amount and also reduce the life cycle of settling claims.
 The company’s financial health and reputation in the market depends on the efficient and
timely settlement of claims. Such a vital activity should not be left entirely to the
outsourced agency. The property claims are managed by surveyors, liability claims by
lawyers and health claims by TPAs who are not as accountable for errors as the insurer.
 The company can be a watchdog on the activities of the intermediaries such as the
surveyors, lawyers and TPAs in order to ensure their accountability to the insurer as well
as the insured. For eg- The rules specify that the TPAs are supposed to visit the site of
claims (i.e the hospital premises in case of hospitalization) and verify the genuineness of
the claim but this is hardly the practice. In case of health policies, there is a distinct

73
 possibility of bogus claims. Thus visit to the site of claims is a must and stringent
measures should be adopted to ensure the same.
 Companies can form claims management teams by choosing intelligent, honest and
competent employees to do this job. If they visit the site of the claim, apply their basic
intelligence, utilize their experience and participate actively in claims assessment,
companies will most certainly regain their lost health and overturn underwriting losses.
 The Motor Third Party (T.P) claims are another area of concern. Since these cases are
settled in court, there are lakhs of cases pending for years. This means that the
beneficiaries are denied their rightful amounts for years and insurance companies are
ordered to pay huge sums plus interest. One way to bring about a solution is to make a
structured compensation irrespective of the person’s earning capacity as in many foreign
countries where the T.P business is in profit. If the company is empowered to settle such
claims directly then the complicated procedures of going through court can be avoided.
The poor can in turn get hassle free benefit without paying huge sums to the
intermediaries like lawyers. This will relieve the company of back breaking load of T.P
claims.
 Conferences on peripheral issues like accounts, audits, vigilance, official language, target
fixation are arranged at star hotels and in hill stations at great cost to the company.
Instead, conferences should be held on effective underwriting and judicious claims
management as they are central and vital to the very success of the business since the
company is operating at a very high combined ratio. It is through such conferences that
causes of bad claims experiences can be identified, analyzed, shared and then utilized as
lessons for building a sound underwriting model for the future.
 NGOs can be used as an effective distribution channel in the sale of insurance products
particularly in the rural areas.
 The auto tie up is another area where companies are bleeding profusely. With such a high
loss ratio the company may seek to pull out of the tie up since business has to be done
with a view of generating operating surplus.
 The survey shows that there is a tremendous market among the young I.T population for
the spread of Health plans. The fact that a majority of the respondents prefer public sector
companies over the others is worth noting.
 The source of information is mainly family/friends and insurance agents. This shows that
the impact of advertising is almost nil. As compared to other companies which have
aggressive marketing campaigns, the company hardly focuses on this area and should
rethink their strategy with respect to advertising.
 Lack of awareness/information is also one of the major reasons for the relative
unpopularity of the health plans. Majority of the respondents aren’t aware of the terms
and conditions or the claims procedure of their policies. Thus, there is a need to educate
the public.
 Lack of funds and no returns in case of no claims were also cited as reasons. This is
however a myth. The premium is hardly a fraction of the sum insured. In the long run, the
benefits far outstrip the cost incurred. A better class of agents is required to demonstrate
the cost benefit analysis of these policies to the public.
 Low premium was the least important benefit that people said they seek. Thus, if the
other benefits are provided, the company can charge the premium they see fit and people
will be willing to buy.

74
  Only one individual said they were happy with the sum insured and coverage provided by
the employer. This indicates that there is under-insurance and the company should
aggressively target this segment and make inroads so as to overcome the pitfalls of
adverse selection.

4.6 CONCLUSION-
The insurance sector is a colossal one and is growing at a speedy rate of 15-20%. Together with
banking services, insurance services add about 7% to the country’s GDP. A well-developed and
evolved insurance sector is a boon for economic development as it provides long- term funds for
infrastructure development at the same time strengthening the risk taking ability of the country.
The market is yet largely untapped and estimates say that it is going to blossom in the coming
years. This offers tremendous growth opportunities. However, it is of utmost importance that the
companies focus on prudent underwriting in order to ensure profitability and not solely depend
on the investment income to offset their underwriting losses.

75
BIBLIOGRAPHY-
 INDIAN INSURANCE INDUSTRY-TRANSITION AND PROSPECTS
- D.C SRIVASTAVA &SHASHANK SRIVASTAVA
 INDIAN INSURANCE ENVIRONMENT
-SCDL PUNE
 THE INVISIBLE SIDE OF INSURANCE CLAIMS
-R.P.SAMAL
 NEW INDIA ASSURANCE CO.LTD ANNUAL REPORT 2009-10
 www.newindia.co.in
 www.irda.gov.in
 www.bimabazaar.com

76
ANNEXURES-

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