1. Introduction
2. Insurance: intro
3. Insurance Penetration
4. Insurance density
5. FDI in insurance
6. Insurance amendment bill 2008
7. What is Bancassurance?
   • Example of Bankcassurance
   • Bancassurance: pros and cons
8. Chindu’s revival package for insurance sector
9. Chindu’s Budget speech: Insurance
10. Reforms
    • New branches
    • Banks as insurance brokers
    • Claims
    • New schemes
    • Integrated social security package
11. Government Schemes: Insurance
    • Aam Admi Bima Yojana(AABY)
    • Janshree Bima Yojana (JBY)
    • Universal Health Insurance Scheme (UHIS)
    • Rashtriya Swasthya Bima Yojana (RSBY)
    • Pravasi Bharatiya Bima Yojana
    • Agro Insurance
    • Rajiv Gandhi Shilpi Swasthya
12. Mock Questions

Introduction

• Fifth chapter of Economic Survey is about Financial intermediaries.
• You already know that financial intermediaries = banks, NBFC, pension-insurance-mutual funds etc. they acts middlemen between lenders (people) and borrowers (govt. and businessmen). for details given in earlier article, click me
• The fifth chapter, discusses various issues, reforms related to financial intermediaries in four sectors: 1) Banking, 2) Capital market, 3) Pension and 4) Insurance.

Pension sector	Already discussed in NPS article click me
Insurance sector	Discussed in the present article. (part 1 of 3)
Capital market: QFI, FII, SEBI reforms, ECB etc.	Will be published soon. (in part 2 of 3)
Banking sector: NPA, NBFC, RRB	Will be published soon (in part 3 of 3)

let’s start with Economic Survey >> Chapter 5> Financial intermediaries> insurance sector. The chapter itself, barely contains 4-5 paragraphs on Insurance, but this article also covers budget-speech and various insurance schemes given in India Yearbook.

Insurance: intro

• Insurance funds = important financial intermediaries for India. They help move peoples savings into Government and corporate securities.
• Insurance industry in India, can be classified into following

Insurer	Example
Life	LIC, ICICI prudential,
Non-life/General insurance (e.g. health, travel, business, marine, fire)	ICICI Lombard, Oriental, New India, United India. Among them, three are standalone Health insurance companies Star health Apollo Munich Max BUPA
Re-insurer	GIC
Specialized	Export credit guarantee corp. Agriculture insurance Company of India ltd. (AICIL)

• The basics of IRDA, Insurance ombudsman functions, various types of policies etc. already explained in earlier article click me

Insurance Penetration

• It is the ratio of premium underwritten in a given year vs. gross domestic product (GDP).
• It helps  measuring growth in the insurance sector in a country.

Insurance density

• ratio of premium underwritten in a given year to total population (measured in US dollars for convenience of comparison).

Issue?

• In past, (before LPG reforms of 90s), India’s Insurance penetration and density were very low because insurance sector was monopolized by public sector companies.
• But Post liberalization, and with the entry of private sector companies, both insurance penetration and density have increased.
• However, India’s insurance penetration and density are still low as compared to other developing countries of the world.

FDI in insurance

• Before 1999, Insurance sector in India was monopolized by public sector companies: LIC + GIC (and GIC’s subsidiaries).
• 1999 was the reform year insurance sector
  • Insurance Regulatory and Development Authority (IRDA) Bill passed
  • Private sector companies can enter insurance business (they started doing so from 2000)
  • 26% FDI allowed in Insurance sector.
• 2012:
  • As of 2012, there are 52 insurers in India.
  • Chindu gave 12 point revival package for insurance sector
  • Cabinet approved 49% FDI in insurance sector.
  • But insurance amendment bill is not yet passed in the parliament yet.
• FDI in insurance = will increase competition, = more efficiency, innovation, cheaper premiums for policy holders; Thus FDI ultimately benefit the customers, and help improving India’s insurance penetration and density.
• But some political parties oppose it saying, FDI in insurance = bad idea. Those unscrupulous private insurance companies will invest policy holders’ money into bad corporates and it will lead to something bad like sub-prime crisis.
• What they don’t see is: Even China allows 50% FDI in Insurance, Malaysia 70%, and Mexico has 100% FDI in insurance sector.
• And all these countries are doing fine. Hence, the fears regarding foreign investment in insurance= misplaced.

Insurance amendment bill 2008

Salient features are

(list is definitely not exhaustive)

• Increases FDI from 26% to 49%
• health insurance policies would cover sickness benefits on account of domestic as well as international travel.
• Reduced capital requirement for new company wanting to enter health insurance.
• Policy can be repudiated on any ground, including misstatement of facts etc.within first three years of purchase.
• Public Sector General Insurance Companies and GIC will be permitted to raise capital from the market, as long as Government’s shareholding doesn’t fall down below 51%.
• Appointment of agents is to be done by insurance companies subject to the agents meeting the qualifications, passing of examinations etc. as per IRDA’s guidelines.
• IRDA is empowered to take action against agents to protect the insurance customers.

What is Bancassurance?

• Bancassurance = Arrangement through which banks sells insurance products. (and earns Commission)
• “Bancassurance” system appeared in France in the 80s.
• According to Insurance law: one bank can work as Bankassurance agent for only one insurance company. (one for life insurance and one for non-life insurance)
• Meaning one bank cannot sell policies of multiple insurance companies (unlike a stationary shop owner- who can sell pens from multiple brands such as Raynolds, Parker, Luxor, Cello etc.)
• But this “one bank one insurance co.” system was changed after Chindu’s revival package.

Example of Bankcassurance

Type of insurance	Insurance co	+bank
Life	ICICI prudential	ICICI Bank
	SBI-life	SBI
Non-life	ICICI Lombard	ICICI bank
	TATA-AIG	HSBC, IDBI etc.

Bancassurance: pros and cons

Pros

Cons/Anti arguments

LIC has a big network of agents and offices but private Insurance companies don’t. Hence Bancassurance system helps the private insurance companies to utilize the big network and manpower of a bank without much investment. It helps the reach of insurance products to the masses. Bancassurance increases Insurance density and insurance penetration. Increases the competition between public and private sector insurance companies = better prices, products and services for customers. Account holder doesn’t need to visit multiple offices – one for banking and one for insurance. Now bank is a “big mall” where he can do “shopping” for both.

Banks have huge database of customer telephone numbers. They annoy customers with stupid telemarketing calls for selling insurance policies. Bank employees donot have in-depth knowledge of insurance products. They only care about meeting the “sales-targets”. They sometimes misinform the customers about future benefits / returns to sell a particular insurance policy. (^although same criticism applies for insurance agents also, they push for products that give more Commission.) so ultimately you’ve to do bit of a research and comparison of various insurance policies before investing into one.

Chindu’s revival package for insurance sector

He released this in late 2012. Total 12 points, important ones are

New products

• An insurance company has to seek approval from IRDA, before launching a new product. According to this plan, IRDA must give that clearance within 30 days.
• Life insurance companies can introduce a product even without getting formal approval from the IRDA. (in some specific conditions).

Bank brokers

• Banks can work as brokers of Insurance products. (earlier they could work only as “agents”: meaning as an “agent”, one bank could tie up with only one insurance co.)
• But now as a “broker” One Bank can sell insurance products of multiple insurance companies.
• Banking Correspondence agents can sell micro-insurance products.

KYC

• IRDA will accept Know Your Customer (KYC) check done by banks.

Taxation

• Service tax to be cut on single premium policies and 1st year premium
• Government is thinking about offering some more income tax exemption, for investing in insurance products.

Investment

• Investment norms for Insurance companies=relaxed.
• Life insurers can invest in infrastructure SPV (special purpose vehicles) of any firm (earlier they could only invest in public sector undertaking’s SPV only).

Chindu’s Budget speech: Insurance

Reforms

• We need to increase insurance penetration in India. I’ve a number of proposals that have been finalized in consultation with the regulator, IRDA.

New branches

• Insurance companies will be empowered to open branches in Tier II cities and below without prior approval of IRDA.
• All towns of India with a population of 10,000 or more will have an office of LIC and an office of at least one public sector general insurance company. I propose to achieve this goal by 31.3.2014.

Banks as insurance brokers

• KYC of banks will be sufficient to acquire insurance policies.
• Banks will be permitted to act as insurance brokers so that the entire network of bank branches will be utilized to increase penetration.
• Banking correspondents will be allowed to sell micro-insurance products.
• Group insurance products will now be offered to homogenous groups such as SHGs, domestic workers associations, anganwadi workers, teachers in schools, nurses in hospitals etc.

Claims

• There are about 10,00,000 motor third party claims that are pending before Tribunals/Courts.
• Public sector general insurance companies will organise adalats to settle the claims and give relief to the affected persons/families.

RSBY extended

• The Rashtriya Swasthiya Bima Yojana already covers BPL families.
• Now, It’ll cover rickshaw, auto-rickshaw and taxi drivers, sanitation workers, rag pickers and mine workers as well.

Integrated social security package

• We need a comprehensive and integrated social security package for the unorganised sector
• The package should include life-cum-disability cover, health cover, maternity assistance and pension benefits.
• At present schemes like AABY, JSBY, RSBY, JSY and IGMSY are run by different ministries and departments.
• I propose a convergence among these schemes so we can evolve a comprehensive social security package. It’ll benefit the poorest and most vulnerable sections of society.

Government Schemes: Insurance

From, INDIA Yearboook

Aam Admi Bima Yojana(AABY)	Rural landless households For the death / disability of Head of family / one earning member of the family. +scholarship for kids implemented via LIC
Janshree Bima Yojana (JBY)	Started in 2000 and merged with Aam Admi Bima Yojana in 2012, for better convergence. Provided Life insurance protection to the rural and urban poor persons below poverty line and marginally above the poverty line. Insurance cover 30k (natural death) Rs.75k (accidental death/disability) implemented via LIC
Universal Health Insurance Scheme (UHIS)	Started in 2003 Healthcare for BPL Medical expenses upto Rs.25k Maternity benefit given Pre-existing diseases also covered.
Rashtriya Swasthya Bima Yojana (RSBY)	Started in 2007 Smart card based cashless health insurance. BPL family (upto 5 members) in unorganized sector. In Budget 2013, Chindu extended this scheme to rickshaw, auto-rickshaw and taxi drivers, sanitation workers, rag pickers and mine workers. For medical expenses upto Rs.30k per year. Premium sharing: centre vs State=75:25, incase of North east, 90:10
Pravasi Bharatiya Bima Yojana	For emigrant workers Minimum Rs.10 lakh insurance cover Applicable during employment contract period abroad. For sickness, accidental death, disability while being abroad. Also cover expenses for transporting dead Also for legal expenses related to employment contract dispute abroad. body/sick/disabled person back home.
Agro Insurance	Two schemes: 1) NAIS (National agriculture insurance scheme): available  to all farmers, irrespective of their farm size. Protects them against crop losses due to natural calamity. 2) Weather based crop insurance scheme Both are run by Agricultural insurance company (AIC)
Rajiv Gandhi Shilpi Swasthya	Provides health insurance to handicraft artisan’s family. (man, wife and two children only).

Mock Questions

1. For the given year, Insurance penetration is measured as:
   1. Ratio of Premium underwritten to No. of People in the 18-60 age group
   2. Ratio of Premium underwritten to GDP
   3. Ratio of Premium underwritten to Total population
   4. None of above
2. For the given year, Insurance Density is measured as
   1. Ratio of Premium underwritten to No. of People in the 18-60 age group
   2. Ratio of Premium underwritten to GDP
   3. Ratio of Premium underwritten to Total population
   4. None of above
3. Bancassurance means
   1. Arrangement in which Insurance company provides banking services
   2. A bank giving security for Indian corporate to raise capital from abroad.
   3. A Non banking Finance company providing assured returns on its deposits.
   4. Arrangement in which Bank sells insurance products.
4. Bancassurance leads to
   1. Increase in Bank’s NPA
   2. Decrease in Bank’s NPA
   3. Increase in insurance penetration
   4. Decrease in insurance penetration
5. Bancassurance involves ________ and ________.
   1. Bank, NBFC
   2. Bank, MNC
   3. Bank, insurance company
   4. None of above
6. The Insurance amendment bill aims to increase FDI limit in Insurance sector to
   1. 26%
   2. 49%
   3. 51%
   4. None of above
7. Correct Chronology (older to newer)
   1. IRDA, SEBI, PFRDA
   2. PFRDA, IRDA, SEBI
   3. SEBI, IRDA, PFRDA
   4. None of Above
8. An urban BPL family is not eligible for
   1. Janshree Bima Yojana
   2. Rashtriya Swasthya Bima Yojana
   3. Aam Admi Bima Yojana
   4. None of Above
9. Incorrect Statement about Rashtriya Swasthya Bima Yojana
   1. It is a smart card based cashless health insurance scheme for rural households.
   2. Premium sharing between Centre :State is 50:50.
   3. Both A and B
   4. Neither A or B
10. Incorrect match
    1. Aam Admi Bima Yojana: urban and rural BPL
    2. Janshree Bima Yojana: Rural landless
    3. Both A and B
    4. Neither A or B
11. What are the similarities between Aam Admi Bima Yojana and Janashree Bima Yojana?
    1. Both provide life insurance
    2. Both are implemented via LIC
    3. Both A and B
    4. Neither A or B
12. Who among the following, is/are eligible for Rashtriya Swasthya Bima Yojana (RSBY)?
    1. Rickshaw and taxi drivers
    2. Rag pickers
    3. Mine workers
    4. All of Above

Mains

1. Pravasi Bharatiya Bima Yojana (5m)
2. Rashtriya Swasthya Bima Yojana (RSBY) (5m)
3. Janashree Bima Yojana? (5m)
4. Meaning and advantages of Bancassurance (5m)
5. Write a note on the salient features of Insurance (Amendment) bill. (10m)
6. Examine the need for a comprehensive social security scheme in India. (12m)
7. Write a note on Finance Minister’s 12-point plan for revival of Insurance sector. (12m)

Interview

1. Are you in favor of increasing the FDI in insurance sector?
2. Suggests the measures required to increase insurance penetration in India.