CHAPTER- 1

INTRODUCTION

AND

RESEARCH METHODOLOGY
 Chapter -1
Introduction and Research Methodology
1. Introduction
1.1. Definition of Insurance
1.1.1. In financial Sense
1.1.2. In legal Sense
1.2. Why Insurance
1.3. Objectives of Insurance
1.4. Insurance sector reforms
1.5. RBI & Insurance Reforms
1.6. IRDA (Insurance Regularly Development Authority)
1.7. Principles of Insurance
1.7.1. Indemnity
1.7.2. Utmost good Faith
1.7.3. Subrogation
1.7.4. Contribution
1.7.5. Insurable Interest
1.8. Life Insurance
1.9. Advantage of Life Insurance
1.10. Research Methodology
1.10.1. Meaning of Research
1.10.2. Selecting the Problem
1.10.3. Statement of Problem
1.10.4. Objectives of Study
1.10.5. Scope of Study
1.10.6. Methods of Study
[Link]. Primary Data
[Link]. Secondary Data
[Link]. Processing Data
 CHAPTER -1
INTRODUCTION AND RESEARCH METHODOLOGY

1. INTRODUCTION:
The concept of insurance is not new to the society. Insurance is a
financial service for collecting the savings of the pubic and providing them

with risk coverage. The risk may be certain events like death, retirement,
pension, education, marriage etc; or uncertain events like theft, accident, fire,

ill health etc. Marine insurance is one category which covers risk of sea

voyage of shipping, cargo etc. Motor car, scooter and two wheeler and three
wheeler are also provided with insurance called vehicle insurance, Building
insurance from thefts etc. and crop insurance are the other categories of risk
coverage introduced by GIC.

1.1 Definition of Insurance :

The term “Insurance” can be defined in both financial and legal terms.

The financial definition focuses on an arrangement that redistributes the cost

of unexpected losses. That is the collection of a small premium payment from

exposed and distributed to those suffering loss. The legal definition focuses
on a contractual arrangement whereby one party agrees to compensate to
another party for losses. The financial definition provides for the funding of the
loses whereas the legal definition provides for the legally enforceable contract

that spells out the legal rights, duties and obligations of all the parties to the
contract. Let us have a look at these definitions:

1.1.1 In financial Sense:

Insurance is a social device in which a group of individuals (insured)

transfer risk to another party (insurer) in order to combine loss experience

which permits statistical prediction of losses and provides for payment of
losses from funds contributed (premiums) by all members who transferred
risk.

1.1.2 In Legal Sense:

A contract of insurance is contract by which one party in consideration of

the price paid to him proportionate to the risk provides security to the other

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party that he shall not suffer loss, damage or prejudice by the happening of
certain specifies events. Insurance is meant to protect the insured against
uncertain events which may cause disadvantage to him. Life Insurance
however is a distinctive type of insurance where there is certainty of payment
of a specified amount either on the death of the insured or on the maturity of
the policy whichever is earlier.
1.1.3 Importance of principles of Insurance:
[Link] guidance of run the Insurance Business.
[Link] to the insurance employees
3. Useful in solving the problems
[Link] efficiency of business
[Link] attitude of the employee.

1.2 WHY INSURANCE?

They help provide protection to investors from some certain or uncertain
risks. There are contractual savings, which the investors are focused to
provide for. This will constitute voluntary involvement in savings, but turn into
compulsory or forced savings through contractual obligation. These are
generally medium and long term savings and the investments of this type
provide a low return but the needed risk coverage of life, accident, fire etc.

Categories of Insurance:

Life Medical Health General

Endorsement Whole life

Pension / Annuity Contracts
With profit or without profit
For fixed amounts on maturity

I
LIC GIC

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LIC:
LIC has a monopoly of life insurance. Life insurance was there in India
since 1818 carried by private and foreign insurance. In 1956 life insurance
was nationalized and LIC was setup by taking over the business of about 245
large and medium companies doing business of Life insurance.

1.3 OBJECTIVES OF INSURANCES:

1. Family of insured is protected.
2. Provision of retirement and old age.
3. To provide funds for education, marriage and donations to charitable
institutions like hospitals and schools.
4. To get tax relief form income tax, wealth tax and gift tax, the premium
paid as well as the sum assured.
5. To insure own life or those of any other members of the family.
6. Installment payments in quarterly or monthly basis in addition or as
alternative to yearly payments.

As insurance funds are the public funds their investments are

controlled by government guidelines. They are not expected to use the funds
for speculation or trading. The investments are to be safe and mostly liquid
with marketability. The housing loans to State Governments, Co-Operative
Housing Societies, HUDCO, Housing Boards, Housing Finance Societies and
Individual policy holders are granted as part of the priority sector
commitments.
A contract between two or more persons creating legal relationship to
do something for another for a consideration needs rules to make the contract
enforceable by law. Insurance is also a special type of contract creating legal
relation between insurer and insured, needs, rules and regulations, so that it
can enforced easily. As insurance contracts are based on material facts of
the subject matter and the insurer can know such material facts only if the
proposer of insurance decides to disclose them. Non -disclosure of such
material facts may bring insurer and insurance community in danger. This can
be avoided by making rules and regulations imposing obligations on the
parties to the contracts. Such rules or set of rules are called principles, which

BARR. BMASAHil KHAHDEKAR LIIBAW

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provide guidance to contracting parties so as to perform the promises given in
the contracts.
The principles of insurance are the set of rules, which are applicable to
the agreement entered in by insurer and insured. The principle on insurance
is the guiding force, which lays the path on which the insurer and insured
have to take care of the insurance community at large and this can be done
by following some fundamental rules or principles, which will help them for a
long period. These rules or principles are also needed from the point of view
of managerial executives of insurance company to carry out day to day
insurance work so that insurance agreement becomes legally binding. These
principles also guide the parties to the contract to fulfill the essential
requirements of a valid contract and protect their interests.

1.4 INSURANCE SECTOR REFORMS :

Reference was already made to the opening up of the insurance sector
to foreign and private enterprise for breaking the monopoly of the public
sector in this business. The insurance business can now be undertaken by
corporate with foreign participation of 26% of total equity and another 26% to
be left to private enterprise leaving the rest for public participation. The main
objective of these reforms is to widen the base of public participation in this
sector as recommended by Malhotra Committee.
The IRDA act was passed in 1999, and setting up of Insurance
Regulatory Development Authority of India was setup to oversee the
insurance sector so as to promote and regulate it in the public interest. The
Bank's and NBFC's entry into the insurance sector is regulated by the RBI
guidelines of January and June 2000 and further amendments effected to
them from time to time in the policy announcement of the RBI.

1.5 RBI AND INSURANCE REFORMS:

With the passage of IRDA Act in 1999 and setting up of Insurance
Regulatory and Development Authority of India in 1999 there began a foray
into this sector by banks and NBFC’s RBI has laid down guidelines for FIS
and bank to enter into insurance sector in January 2000.

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These guidelines are broadly setout below:
1. FIS and bank’s are barred to run insurance business due to high risks
involved either departmentally or thorough subsidiaries they could
however stake up to 50% in these ventures, along with the Indian
partners and foreign investors.
2. Such entrants need to have a net worth of Rs. 500 crores or more and
a reasonable level of NPA’s below the industry average.
3. Their CRAR should not be less than 10% of assets.
4. Their subsidiaries should have a satisfactory track record and
continuous profitability over the last three years.
5. Their share in equity participation in joint ventures of insurance
business should not exceed 10% of their net worth or Rs. 50 crores
whichever is less.
6. Their participation in joint ventures should not exceed 30% of the paid
up capital of the insurance company with an important provision that
the total amount invested in all subsidiaries and joint ventures should
not exceed 20% of the bank’s or FIS net worth.
7. Banking business should be kept separate and not contaminated by
inducting insurance business into the former due to high risk nature of
insurance business.
8. RBI being controller of Foreign Exchange has along with the
government fixed ceiling of 26% of FDI in insurance sector. More
recently in 2005 the government proposed to raise it to 49%.

The above guidelines apply only to main insurance business and to

insurance broking agency or surveying. The guidelines for them has also
reinsurance business are the responsibility of IRDA.

1.6 IRDA [Insurance Regulatory and Development Authority of India]

The IRDA Act 1999 provided for three categories of insurer to carry on the
business in India. These are the following:
1. A public company which has two categories in operation namely public
limited and public unlimited companies of these the public unlimited

BARR. BAL'AS^FB W’DEKAR UBHWY

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 companies setup mostly in the U.S.A. are not eligible to do insurance
business. Similarly private limited companies are also not allowed.
2. A society incorporated under the co-operative society’s act 1912 in
India or under any law relating to co-operative societies.
3. A body corporate incorporated abroad under the law of that country not
being in the nature of a private company.
Since IRDA Act provides for disinvestments by the domestic promoter
after 10 years one of the ways of allowing the US majors who are public
unlimited companies to invest in Indian insurance sector is to allow a fourth
category namely deemed public companies. The government was committed
to disinvestments by domestic promoters in favour of public after 10 years.
After the disinvestments domestic and foreign promoters would hold equal
share of 26% each while the rest of stake would be dispersed in favour of the
public. The Malhotra Committee which laid down the broad framework for the
insurance sector to be opened up recommended will dispersal of share
holding of the proposed insurance companies.

1.7 PRINCIPLES OF INSURANCE :

1.7.1 Indemnity:
On the happenings of an event insured against the insured will be placed
by the insurer in the same pecuniary (monetary) position that he/she occupied
immediately before the event. Indemnity means that the insured person is
placed, financially, in the same position, as he was before the loss. The
exceptions to the rule are found in Personal Accident Polices. Agreed value
policies in Marine insurance & Valuables and reinstatement policies like in
engineering policies. These are also contracts of indemnity but by a special
application of the principle, the measure of indemnity is decided at the time of
entering into the contract itself, in the event of a claim the inured must.
1 .Prove that he / she have sustained a monetary loss.
2. Prove the extent and value of his /her loss.
[Link] any right which he / she may have for recovery from another
source to the Insurer, if he / she have been fully indemnified.
The settlement of the loss will be subject to (a) Sum insured (b)
Average and (c) Excess / Deductible.

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 It is important to note that the contract of the life insurance is not as
such insurance but it is in the natural of assurance. This is logical in the sense
that life can not be indemnified, instead if a person dies, then under the
contract of life insurance the sum assured will be paid by the insured.
1.7.2 Utmost good faith:
Under the contact of insurance, the insured is duty bound to disclose
all material facts relating to the risk to be covered. A material fact is a fact
which would influence the mind of a prudent underwriter in deciding whether
to accept a risk for insurance & on what terms. Both the parties to a contract
are expected to observe good faith. However the good faith assumes utmost
importance when materials facts are concerned and therefore utmost good
faith should be observed on matters relating to material facts. Examples of
materials facts in various classes of insurance are:-
1. Motor - Details of any young drivers
[Link] - Details of any commercial use of private dwelling house.
3. Commercial - Previous losses / hazards
[Link] - Details of Heart diseases
Duty of disclosure applies to both the proposer and the insurer. Duty of
disclosure operates at inception until the date cover is confirmed by the
insurer’s renewal up to the renewal date mid term alteration until the insurers
confirm cover in respect of the alteration.
1.7.3 Subrogation:
Subrogation in general, means the legal right of one person, having
indemnified the other in a contractual obligation to do so, to stand in their
place of another and avail of all the rights and remedies of the another ,
whether enforced or not.
It entitles the Insurer who has granted an indemnity to receive after
payment of a loss the advantage of every right of the insured. Subrogation
condition is a corollary to the principle of indemnity. A loss may occur
accidentally or by the action or negligence of their party (not workmen). The
property owners have a right to proceed against the offending third party to
recover the loss / damage and also under their insurance policy but not under
both. If the insured opts to recover the loss under the insurance policy which
is faster and does not involve litigation, he will surrender his rights against the

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third parties in favour of the insurance signing ‘Letter of Subrogation’ of an
appropriate stamp paper.
Exceptions to this are life insurance policies insured / beneficiaries can
claim under an insurance policy and also proceed against the offending third
party. The insurer must exercise the right of recovery in the name of the

insured.

Example:
The insurer of an import of electrical goods receives a claim in respect
of a faulty toaster. The insurer pays the claim but takes over the insured rights
to claim back against the manufacturer. The insurance company can proceed
with the claim in this insured’s name.
Subrogation rights only apply where there is legal liability under the
policy i.e. where policy cover existed.
1.7.4 Contribution:
Contribution condition is a corollary to the principle of Indemnity. If an

insured obtains more than one policy covering the same risk, he can not

recover the same loss from more than one source so that he is not benefited
by more than ‘Indemnity’. Although the insured may affect more than one
policy to cover the same property or interest, he / she can not recover in total
more than a full indemnity. Contribution condition checks that each policy
pays only a ratable portion under each separate policy.
Cover can only arise when the policies:

• Cover the same peril.

• Cover the same subject matter

• Are effected by or on behalf of the same insured

Example:
An insured losses his / hers watch on holidays. He / she have holiday
insurance and on risks cover on his / her household policy. The cost of the

claim should be shared under both policies.

1.7.5 Insurable Interest:

The insured must have an insurance interest in the subject matter of

insurance i.e. he /she must benefit by its safety or be prejudiced by its loss.
Insurance contract without insurable interests have no sanction of law as they

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amount to speculation. The owner of a property has absolute insurance
interest. When a person insures a property, what is insured therein, is his
interest in that property. By this principle, insurance interest exists to other
parties like lesser, lessee, financiers etc. but their interest is limited to the
extent of their financial commitment only. The insurable interest must exist
both at the time of the proposal and at the time of claims.

1.8 LIFE INSURANCE:

Life insurance is a contract for payment of a sum of money to the person
assured (or failing him / her, to the person entitled to receive the same) on the
happening of the event insured by the contract.
Usually the insurance contract provides for the payment of an amount on
the date of maturity or at specified dates at periodic intervals or at unfortunate
death if it occurs earlier. Obviously, there is a price to be paid for this benefit.
Among other things, the contract also provides for the payment of premium by
the assured. Life insurance is universally acknowledged as a tool to eliminate
risk, substitute certainty or uncertainty and ensure timely aid of the family in
the unfortunate event of the death of the bread winner. It is sometimes called
as the civilized world’s partial solution to the problems caused by death. In a
nutshell, life insurance helps in two ways - premature death, which leaves
dependent families to fend for itself and old age without visible means of
support.

1.9 ADVANTAGES OF LIFE INSURANCE:

[Link] ofanv other saving plan:
Unlike any other saving plan, a life insurance policy affords full
protection against risk of death. In the event of death of a policyholder,
the insurance company makes available the full sum assured to the
policyholders near and dear ones. In comparison any other saving plan
would amount to the total savings accumulated till date. If the death
occurs prematurely, such savings can be much lesser than the sum
assured. Evidently, the potential financial loss to the family of the
policyholder is sizable

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2. Encourages and forces thrift:
A savings deposit can easily be withdrawn. The payment of life

insurance premiums however is considered sacrosanct and is viewed

with the same seriousness as the payment of interest on a mortgage.

Thus, a life insurance policy in effect brings about compulsory savings.

3. Easv settlement and protection against creditors :

A life insurance policy is the only financial instrument the proceeds of

which can be protected against the claims a creditor of the assured by

effecting a valid assignment of the policy.

4. Administering the Legacy for Beneficiaries -

speculative or unwise expenses can quickly cause the proceeds to be
squandered. Several policies have foreseen this possibility and provide

for payments over a period of years or in a combination of installments

and lump sum amounts.

5. Readv Marketability and Suitability for Quick Borrowing -

a life insurance policy can after certain time period (generally three
years) surrendered for a cash value. The policy is also acceptable as a
security for a commercial loan. For example a students loan It is
advisable for housing loan when an acceptable LIC policy may also
cause the lending institution to give loan at lower interest rates.

6. Disability Benefits -
Death is not the only hazard that is insured many policies many
policies also include disability benefits typically these provide for waiver
of future premiums & payment of monthly installments spread over

certain time period.

7. Accidental Death Benefits -

Many policies can also provide for an extra sum to be paid (typically

equal to the sum assured) if death occurs as a result of accident

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 [Link] Relief -
Under the Indian income tax act 15 % of the premiums paid is allowed,
as a rebate from the total income tax liability. Also 100 % of the
premium paid is deductible as expenditure from business income.

1.10 RESEARCH METHODOLOGY:

1.10.1 Meaning of Research:
Research in common parlance refers to a search for knowledge.
Once can also define as a scientific and systematic search for pertinent
information on a specific topic. In fact research is an art of scientific
investigation. The Advanced Learner’s Dictionary of current English lays down
the meaning of research as “a careful investigation or inquiry especially
through search for new facts in any branch of knowledge”. Redman and Mory
define research as “systematized effort to gain new knowledge”. Some people
consider research as movement, a movement from the known to the
unknown. It is actually a voyage of discovery. We all process the vital instinct
of inquisitiveness for, when the unknown confronts us. We wonder and our
inquisitiveness makes us probe and attain full and fuller understanding of the
unknown. This inquisitiveness is the mother of all knowledge and the method,
which man enjoys for obtaining the knowledge of whatever the unknown can
be termed as research.
Research is an academic activity and such the term should be
used in a technical sense. According to Clifford Woody research comprises
defining and redefining problems, formulating hypothesis or suggested
solutions, collecting organizing and evaluating data making deductions and
reaching conclusions and at last carefully testing the conclusions to determine
whether they fit the formulating hypothesis. Research is thus an original
contribution to the existing stock of knowledge making for its advancement.
1.10.2 Selecting the problem:-
The research problem undertaken for study must be carefully selected.
The task is a difficult one although it may not appear to be so. Help may be
taken from a research guide in this connection. Nevertheless, every
researcher must find out his own salvation for research problems cannot be
borrowed. A problem must spring from the researchers mind like a plant

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springing from its own seed if our eyes need glasses, it is not the optician
alone who decides about the number of the lenses we require. We have seen
ourselves ad enable him to prescribe for us the right number by co-operating
with him. Thus a research guide can at the most only a help researcher
choose a subject.
1.10.3 Statement of problem:-
The present study is entitled as of critical study of progress. An ICICI
Prudential Life Insurance Company Ltd. With special reference to branches in
Kolhapur. Now days various private companies entered into insurance sector.
Hence, there is a tough competition. Then what is the role of ICICI Prudential
Life Insurance Company Ltd. In present status of market we make critical
study on that.
1.10.4 Objectives of study:-
1. To understand the overall progress of ICICI Prudential Life Insurance
Company Ltd. In private sector.
2. To examine the progress of traditional policies in ICICI Prudential Life
Insurance Company Ltd.
3. To examine the progress on pension policies in ICICI Prudential Life
Insurance Company Ltd.
4. To examine the procedure of claim settlements.
5. To examine the cost and benefit of various products.
1.10.5 Scope of study:
The scope of the study is confined the working of both branches of ICICI
Prudential Life Insurance Company Ltd. To study the operational scope and
financial performance of various types of plan of policies extended over all the
schemes. The period covered is four years form 2005 to 2009.
1.10.6 Methods of data collection:
The tack of data collection begins after a research problem has been
defined. While deciding about the method of data collection to be used for the
study, the researcher keep in mind two types of data namely primary and
secondary. The primary data are those which are collected a fresh and for the
first time and thus happen to be original in character. The secondary data on
the other hand, are those which have already been collected by someone else
and which have already been passed through the statistical process. The

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researcher would have to decide which sort of data he would be using (thus

collecting) for his study and accordingly he will have to select one or the other

method of data collection. The methods of collecting primary and secondary

data differ since primary data are to be originally collected while in case of

secondary data the nature of data collection work is merely that of

compilation.

[Link] Primary Data:

Primary data can be collected either through experiment are through
survey. If the researcher conducts an experiment he observes some
quantitative measurements or the data with the help of which he examines the
truth contained in his hypothesis. The primary data will be colleted by the

following sources:
a) Questionnaires.
b) Interviews.

c) Discussions.

[Link] Secondary Data:

Secondary data means data that are already available i.e. they refer to

the data which have already been collected and analyzed by someone else.
When the researcher utilizes secondary data then he has to look into various

sources from where he can obtain them. Researcher must be very careful in

using secondary data. He must make a minute scrutiny because it is just

possible that the secondary data may be unsuitable or may be inadequate in
the context of the problem which the researcher wants to study. Secondary

data will be collected from published sources like official publication, reports of

committees, Research institutes, news papers, magazines.

[Link] Processing of data:

The processing data will be adopted by suitable techniques like analysis,
interpretation and tabulation method.

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