SEMESTER 2: MASTER OF BUSINESS ADMINISTRATION (MBA)

[BATCH: 2023 – 25]

Course Title: Indian Financial System and Financial Markets

(IFS)
COURSE CODE: 23MBADSE209

MODULE 5: INSURANCE
1
Dr. Madhavi R,
Professor & Programme Coordinator
 CONTENTS

• Concept and Growth,

• Principles of Insurance,
• Life and General insurance - types and growing trends,
• Health/Medical Insurance;
• Impact on economic growth of the country*,
• Underinsured and uninsured sectors - challenges;
• Top players in the industry

2
 INTRODUCTION

• A social mechanism to reduce or eliminate risk of loss to life and property.

• Collective bearing of risk
• Spreads the risks and losses of few among large number
• Shares unavoidable risks
• Insurance is a contract (policy) in which an insurer indemnifies another against losses from
specific contingencies or perils.

3
 INSURANCE COMPANIES – PRINCIPLES

CMS Business School, JAIN (Deemed-to-be University) 4

▪ Principle of Utmost Good Faith: The fundamental principle is that both the parties in an insurance
contract should act in good faith towards each other, i.e. they must provide clear and concise information
related to the terms and conditions of the contract.

▪ Principle of Proximate Cause (‘Causa Proxima’ or the nearest cause). This principle applies when the
loss is the result of two or more causes. The insurance company will find the nearest cause of loss to the
property. If the proximate cause is the one in which the property is insured, then the company must pay
compensation. If it is not a cause the property is insured against, then no payment will be made by the
insured.

▪ Principle of Insurable Interest: The person who is taking insurance should have some insurable interest
in that thing which is getting insured. So if there will be financial loss to the person if the insured object
gets destroyed. If this is not the case, insurance cannot be taken. So when a breadwinner takes life
insurance for his life, it makes sense because incase the person dies, there will be financial loss to family.

CMS Business School, JAIN (Deemed-to-be University) 5

▪ Principle of Indemnity says that Insurance is not to make profit, but only to compensate you against the
losses incurred. It’s an assurance to restore the same position which was there before the loss. So the
compensation paid cannot be more than the losses incurred.

▪ Principle of Contribution: This principle is just a corollary of the principle of indemnity. As per this
principle, the insured company are liable to pay only their own contribution and they have right to
recover back the excess money paid from other insurer.

▪ Principle of Subrogation: Once the insured is paid for the losses due to damage to his insured property,
then the ownership right of such property shifts to the insurer. So if your car / bike / house / valuables
which you have insured is fully damaged and once you get compensation from insurance company, then
they get the ownership of the item and now they can sell off the remains to recover their dues by that
process. You can’t benefit from the remains of that item.

▪ Principle of Loss minimization: As per this principle, it’s the insured duty & responsibility to take all
actions to minimize the losses if it’s in their control. The insured person should take all necessary steps to
control and reduce the losses if possible
CMS Business School, JAIN (Deemed-to-be University) 6
 LIFE INSURANCE
• Is a contract between two parties, the assured and the assurer, whereby, the latter for consideration
promises to pay a certain sum of money to the former on the happening of the event insured
against.
• Features
• Long term contract
• Payment on the maturity / event
• Risk coverage
• Payment of premium
• Security

7
 LIFE INSURANCE PRODUCTS

1. Endowment plan –
• for specific period of time,
• sum assured payable on death or on
maturity
• bonus benefit
• savings option
• low risk and steady return
• 5 -30 years
• High premiums

2. Money back policy

• Fixed sum after fixed intervals of time
• Lump sum at the time of death
• High premiums
• Tax benefits
• Bonuses
• Low risk profile
8
• Insurance cover
 LIFE INSURANCE PRODUCTS - CONTD.
• Whole Life Policy
• For entire life
• ULIP – Unit linked Insurance Policy
• Death benefit
• Part of Premium is invested in fund
• Same premium remains • Return linked to fund performance
• Guaranteed cash value • Debt/equity/balanced funds
• Flexible and transparent
• Tax advantage
• Term Insurance Policy • Life protection
• Coverage for specific term • Extra charges applicable
• 10 -30 years • Capital appreciation
• No cash value
• Pure risk product
• Low premium
• Payment only in case of death
• No payment at maturity
9
10
 GENERAL INSURANCE
• An agreement between a policyholder and insurer wherein the
insurance company protects your valuable assets from fire,
theft, burglary, or any other unfortunate accident.

• Features
• Short term coverage (period of one year)
• Financial stability
• Covers financial damage
• Sometimes statutory
• Tax benefits (health insurance)
• No maturity payment

11
GENERAL INSURANCE PLAYERS IN INDIA

12
HEALTH / MEDICAL INSURANCE

13
 HEALTH INSURANCE

• A health insurance policy is a financial safety shield that protects you and your family during
medical emergencies. It comes with several benefits such as paying your medical bills
including pre and post-hospitalization expenses, protect your savings and get tax benefits.
• Features
• Covers all medical expenses / charges
• Renewal discounts
• Tax benefits
• Flexible in plans
• Financial security – Raising medical costs
• Peace of mind
• Cashless treatments

14
 HEALTH INSURANCE POLICIES

1. Individual Health insurance

• for individual (spouse, parents, children)
• cover all kinds of medical expenses, including hospitalisation,
daycare procedures, hospital room rent and more.
• each member has their own sum insured amount.

2. Family Floater Health Insurance

• covers family members under a single policy
• everybody shares the sum insured amount.
• These plans are typically more affordable than individual plans since the sum insured is shared.

15
3. Group Health Insurance
• To cover group of employees working together.
• Benefit offered to the employees.
• Boost the rate of employee retention.
• low cost premium.
• covers you for hospitalization
• enhance the goodwill of your company.
• the employees are covered only till the time they work with your company.
4. Senior Citizens Health Insurance
• Dedicatedly designed for old people above the age of 60 years
• coverage for cost of medicines, hospitalization arising out of accident or illness, pre and post
hospitalization and treatment.
• Needs complete body check up
5. Other types
• Critical illness insurance
• Maternity health insurance

16
17
 Mobilization
of resources
Promotes
Risk
trade and
mitigation
commerce

Incentivizing
Impact on
businesses
GDP
development

Supports IMPACT OF Improves

capital
market INSURANCE ON Standard of
living
growth
ECONOMIC GROWTH

Return
Safety net
generation

Capital Employment
accumulation generation 18
 INSURANCE INTERMEDIARIES

1. Agents
2. Surveyors an loss assessors
3. Brokers
4. Third party administrators

19
RECENT TRENDS IN INSURANCE SECTOR IN INDIA

• The life insurance industry is expected to increase at a CAGR of 5.3% between 2019 and
2023.

• India’s insurance penetration was pegged at 4.2% in FY21, with life insurance penetration at
3.2% and non-life insurance penetration at 1.0%.

• For more info:

https://www.ibef.org/industry/insurance-sector-india

20
 UNDERINSURANCE - UNDERINSURED

• Underinsurance refers to an insufficient insurance policy.

• Underinsurance is insufficient insurance coverage that leaves the policyholder responsible for
a large percentage of a total loss or expense and may lead to financial hardship.
• It could be that your claim exceeds the maximum amount that the insurance policy can pay
out.
• Underinsurance can cause a serious financial crisis, depending on the asset that is insured and
the extent of the shortfall in insurance.

21
 UNINSURED

• Around 75% of people are not insured and they pay for medical services from their pocket.

• Insurance penetration in India only marginally improved from 2.71 per cent in 2001 to 3.76
per cent in 2019.

• Life insurance coverage in rural India is pegged at a mere 8-10 per cent.

• It has to explore the vast rural market of the country.

• Insurers can bundle livestock, crop, and health insurance policies, and make them available
through these very same digital channels.

22
23
24
 GOVERNMENT INITIATIVES – INSURANCE INDUSTRY

The government also strives hard to provide insurance to individuals in a below poverty line by
introducing schemes like the

• Pradhan Mantri Suraksha Bima Yojana (PMSBY),

• Rashtriya Swasthya Bima Yojana (RSBY) and
• Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY).

• Introduction of these schemes would help the lower and lower-middle income categories to
utilize the new policies with lower premiums in India.

25