Unit 3: Insurance Services

Introduction
Uncertainty, risk and insecurity are incidental. This makes insurance indispensable for an individual or
business. Insurance is a form of risk management primarily used to hedge against the risk of loss. It is
the equitable transfer of risk of potential loss from one entity to another in exchange for a premium.

Definition of Insurance
Insurance is defined as a contract in writing under which one party agrees to indemnify the other party
against a loss or damage suffered by it on account of an uncertain future, in return for a consideration
called ‘premium’.
The person/business who gets its life/property insured is called ‘Insured/Assured’. The agency which
helps in entering into an insurance arrangement is called ‘Insurer/Insurance Company’. The agreement
or contract which is put in writing is called a ‘Policy’.

Nature of Insurance
1. Contract
It is a contract between two parties in which one party agrees to provide protection to other party
from losses in exchange for premium. The parties are insurer and insured. Insurer guarantees
compensation in occurrence of any contingency to insured and insured pays premium to insurer
for protection. Insurance companies accept the offer made by the insurance policy holder and
enter into contract. Contract for insurance is always in written.

2. Lawful Consideration
Existence of lawful consideration is a must for insurance contract like any other lawful contract.
Insurance policy holder is required to pay premium regularly to the insurance company. This
premium is paid in exchange for protection against losses and damages guaranteed by insurance
companies.

3. Payment on Contingency
Insurer has to compensate the insured only on happening of contingency for the damages and
losses done. Insured cannot make profit from insurance policy but can only claim compensation
from insurer in case of contingency. If no contingency occurs, insurer is not required to pay any
compensation to insured.

4. Risk Evaluation
Insurer evaluates risk associated with the subject matter of insurance contract. Proper risk
evaluation enables insurer to calculate the right amount of premium to be paid by insured. Insurer
uses different techniques for risk evaluation. If insurance object is subject to heavy losses, heavy
premium will be charged. On the other hand, if there is less expectation of losses then low
premium will be charged.

5. Large number of Insured persons

A large number of insured persons take insurance policy from the insurer. Larger the number of
insurance policy holders with insurance companies, smaller will be the degree of risk on any
individual. Risk arising from any contingency is shared among these large numbers of insured
persons.

6. Cooperative device
It’s a cooperative device to pool risk among large number of persons. It is a platform where
different persons come together to share risk by taking insurance policy from insurer. All pay
premium regularly to insurance companies. If any of the person incurs losses or damages due to
occurrence of any contingency, insurance company will compensate him out of premiums paid
by different persons.
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 7. Not Charity or gambling
Insurance is a legal contract and cannot be termed as a charity or gambling. Compensation paid
to insured by insurer is not in charity but is paid in exchange of premium. Insured cannot make
profit out of insurance policy and is meant for recovering him from losses only. The insured is
paid compensation only when losses are incurred due to contingency.

Principles of Insurance
1. Utmost Good Faith
An insurance contract is known as a contract of ‘Uberrimate Fidel’ or a contract based on ‘utmost
good faith’. It means both the parties must disclose all material facts. Any fact is material which
goes to the root of the contract of insurance and has a bearing on the risk involved. It is only
when the insurer knows the whole truth that he is in a position to judge:
a) Whether he should accept the risk
b) What premium he should charge.
Concealment of any fact will entitle the insurer to deprive the assured of benefits of the contract.
Also, as insurance shifts risk from one party to another, it is essential that there must be utmost
good faith and mutual confidence between the insured and the insurer.

2. Indemnity
A contract of insurance is a contract of indemnity. It means that the insured, in case of loss
against which the policy has been issued, shall be paid the actual amount of loss not exceeding
the amount of the policy, i.e. he shall be fully indemnified. The object of every contract of
insurance is to place the insured in the same financial position, as nearly as possible, after the
loss, as if the loss has not taken place at all. This is applicable to all types of insurance except
life, personal accident and sickness insurance. A contract of insurance does not remain a contract
of indemnity if a fixed amount is paid by the insurer to the insured on the happening of the event
against, whether he suffers a loss or not. Like, in case of life insurance, the insurer is liable to pay
the sum mentioned in the policy on the death, or expiry of a certain period.

3. Insurable Interest
It means that the insured must have an actual interest in the subject matter of insurance. A
contract of insurance affected without insurable interest is void. A person is said to have an
insurable interest in the subject matter if he is benefited by its existence and is prejudiced by its
destruction. For example, a person has insurable interest in the building he owns; employer can
insure the lives of his employees because of his pecuniary interest in them; a businessman has
insurable interest in his stock, plant and machinery, building, etc. So, all these people have
something at stake and all of them have insurable interest. It is the existence of insurable interest
in a contract of insurance which distinguishes it from a mere wagering agreement. In case of life
insurance, insurable interest must be present at the time when the insurance is affected. It is not
necessary that the assured should have insurable interest at the time of maturity also. In case of
fire insurance, insurable interest must be present both at the time of insurance and at the time of
loss. In case of marine insurance, interest must be present at the time of loss. It may or may not
be present at the time of insurance.

4. Causa Proxima
Causa proxima means that cause of loss must be proximate or immediate and not remote. If the
proximate cause of the loss is a peril insured against, this insured can recover the loss. When a
loss has been brought about by two or more causes, the real or the nearest cause shall be the
causa proxima, although the result could not have happened without the remote cause. But, if the
loss is brought about by any cause attributable to the misconduct of the insured, the insurer is
liable. In a contract of insurance the insurer undertakes to protect the insured from a specified
loss and the insurer receives a premium for running the risk of such loss. Thus, risk must attach
to a policy.
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 5. Mitigation of Loss
In the event of some mishap to the property of the insured, the insured must take all necessary
steps to mitigate or minimise the losses, just as any person would do in case of loss attributable to
his negligence. Insured is bound to do his best for his insurer, but he is not bound to do so at the
risk of his life.

6. Subrogation
Subrogation means something that is natural and is result of something else. According to it,
when an insured has received full indemnity in respect of his loss, all rights and remedies which
he has against third person, will pass on to the insurer and will be exercised for his benefit until
he (the insurer) recoups the amount he has paid under the policy. The insurer’s right of
subrogation arises only when he has paid for the loss for which he is liable under the policy and
this right extends only to the rights and remedies available to the insured in respect of the thing to
which the contract of insurance applies.

7. Contribution
When there are two or more insurances on one risk, principle of contribution comes into play.
Aim of contribution is to distribute the actual amount of loss among the different insurers who
are liable for the same risk under different policies in respect of the same subject matter. Any one
insurer may pay to the insured the full amount of the loss covered by the policy and then become
entitled to contribution from his co-insurers in proportion to the amount which each has
undertaken to pay in case of the loss of the same subject matter.

Types of Insurance
I. Life Insurance
II. Non-Life Insurance
1. Marine Insurance
2. Fire Insurance
3. Motor insurance
4. Heath/Medical Insurance
5. Burglary Insurance
6. Crop Insurance

I. Life Insurance
It is a contract between the insurer and the person who is insured against the risk to his life. The insured
person pays premium regularly to the insurance company once the policy is taken and in lieu of this, the
insurer promises to pay a fixed sum of money at the time of the death of insured or on the expiry of a
specified period of time, whichever is earlier. Payment for life insurance is certain but the event for
which insurance is taken is not certain. If the insured dies during the policy period his family/nominee
gets the sum assured along with the bonus accrued. If the insured survives the policy period he gets the
maturity amount accrued under the policy.

Procedure to Apply for Life Insurance

Procedure to apply for Life Insurance Life policy is based on the principle utmost good faith. The
procedure for filling in the form is quite simple.
Step 1: Selection of type of life insurance policy
The first step is to choose a life insurance policy that fits you. There are 3 broad types of policies like
Term Policy, Endowment Policy and Whole Life Policy.

Step 2: Submitting Proposal

The next step is to fill in a proposal form. The proposal form contains the following details:
a) Name, nationality permanent residential address, occupation, nature of duties, present
employer’s name, length of service, previous employment record, father’s name in full.
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 b) Place of birth, date of birth, proof of age and district of birth.
c) Term of insurance, nature of insurance, type of policy, amount to be insured, mode of premium
payable - yearly, half-yearly, quarterly and monthly.
d) Personal information regarding height, weight where the life is proposed.
e) Details of any previous policies whether one or double insurance.
f) Family history, history of father, mother, brothers, sisters, children.
g) Information regarding diseases like epileptics, asthma, tuberculosis, cancer, leprosy, etc.
h) Information regarding previous records of accident, injury, operation diseases.

Step 3: Medical Examination

If the applicant has a family history of disease then the investment procedure is more detailed and
description about permanent immunity and other family diseases have to be given including habits,
name, income, occupation and salary. A person of normal health almost goes through a medical
examination as a matter of formality.

Step 4: Medical Report

The next step after filling-in proposal form is to undergo a medical examination from one of the doctors
approved by the Life Insurance Corporation. The examination is usually of a routine kind where the
identification of the applicant, his appearance, measurement, weight, condition of teeth, eyes, throat,
tongue, ears, condition of heart, chest, digestion, nerve system and past operation is taken into
consideration to find out the life span of the individual.

Step 5: Agent’s Confidential Report

The next step consists of a report which is confidential in nature. It is made by the agent who is
underwriting the life of the person. His report consist of the age of the person insuring himself, his
health, occupation, soundness of payment of premium, proper health and longevity of life.

Step 6: Acceptance of Proposal

The Life Insurance Corporation accepts the proposal of the insurer on the commitment made by the
agent and after taking into consideration the doctor’s medical report. The factors which play a
dominating role is the mode of premium, type of policy, the age of the applicant, his health, occupation
and habits. Once these factors have been considered and the Life Insurance Corporation’s officers are
satisfied, the form is accepted. An investor’s form will be rejected only if he suffers from serious
diseases or the longevity of life cannot be guaranteed.

Step 7: Proof of Age

The next step after accepting the proposal of a person is to ask him to submit the proof of age. The
person who is interested in insuring himself may give this proof by submitting any of the following
documents:
a) A copy of a certificate giving details of the school leaving examination with age or date of birth
stated therein.
b) Birth Certificate from Municipal records
c) Original horoscope prepared at the time of birth, if no proof of age is available
d) In the case of uneducated families, entry in the family record through birth register
e) Employer’s Certificate
f) Any other satisfactory proof.

Step 8: Mode of Premium

When an investor takes a life policy on his portfolio he must pay some installment to the life insurance
company for this investment. This installment is called premium and may be paid periodically. It may be
paid annually, half-yearly, quarterly or monthly. Usually, a period of 30 days is given as grace beyond
the due date of payment of premium. The rates of premium are different for different kinds of policies
offered as investment.

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Step 9: Commencement of Risk
As soon as the first installment is paid by the insured, the risk is automatically transferred to the
insurance company or the insurer.

Step 10: Issue of Policy

When all these formalities are completed the Life Insurance Corporation sends a life policy to the
insured. This legal document between the life company and the insured states the details of the policy. It
gives details regarding the age, address, sum assured, type of policy with or without profits, date of
maturity, premium, mode of payment of premium, name of person who is entitled to receive the ultimate
sum, amount at the termination of the policy, the surrender value of the policy, the settlement of claims
of policy and all other conditions of the contract. The Life Insurance Corporation sends this policy under
its seal and signature of its officers. On receiving this policy, the investor begins his investment with the
Life Insurance Corporation of India.

Settlement of Claim in Life Insurance

Payment of claim is the ultimate objective of life insurance and policyholder waits for a long time and in
some cases for entire lifetime. It is the final obligation of insurer in terms of insurance contract, as the
policyholder has already carried out his obligation of paying premium regularly as per the conditions
mentioned in the document. The policy document also mentions in the schedule the event or events on
the happening of which the insurer shall be paying a predetermined amount of money. There are three
types of claim in life insurance policies:
1. Death Benefit Claim
2. Survival Benefit Claim
3. Maturity Benefit Claim

1. Death Benefit Claim

In the case of death claims, the first step for the family or nominee is to inform the insurer. One
can also submit details online through the website and receive timely claim assistance from the
insurer. The documents needed in this case include the following:
a) Death claim form
b) Death certificate of the insured issued by the local municipal authority
c) Original policy document
d) Copy of nominees’ bank passbook or cancelled cheque for bank details
e) ID and Address proofs of the claimant
f) Age proof, if age is not admitted
g) Early death rarely happens due to natural causes. Thus, one will also need to submit
documents depending on the actual cause of death of the person.
h) In case of death due to medical reasons any of the following to be submitted:
(i) Physician’s statement
(ii) Treating hospital’s certificate
(iii) Employer’s/school/college certificate
(iv) Hospital/Other treatment records
i) Accidental death cases will need the following documents:
(i) FIR or Police investigation report
(ii) Post-Mortem Report (PMR)
Attestation of Documents:
The documents to be submitted for death claim must be attested. Any of the following persons may attest
the documents:
(a) A company agent, employee or relationship manager
(b) Branch manager of a distributing bank for insurer’s policies
(c) Bank manager of a nationalized bank with appropriate stamp
(d) A Gazetted officer, Headmaster or Principal of a Government school
(e) Magistrate

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2. Survival Benefit Claim
It is not payable under all types of plans. It is payable in case of endowment or money back plans
after a lapse of a fixed period say 4 or 5 years, provided the policy is in force and the
policyholder is alive. The insurer sends premium notices to the policyholder for payment of
premium due and also sends intimation to the policyholder when a survival benefit falls due.
Letter of intimation of survival benefit carries with it a discharge voucher mentioning amount
payable. The policyholder has to return the discharge voucher duly signed along with the policy
document. The policy document is necessary for endorsement to the effect that the survival
benefit which was due has been paid. The survival benefit can take different forms under
different types of policies.

3. Maturity Claim
It is final payment under the policy as per the terms of the contract. The insurer is under
obligation to pay amount on due date. The intimation of maturity claim and discharge voucher
are sent in advance with instruction to return it soon. If the life assured dies after the maturity
date, but before receiving the claim, there arises a typical problem as to who is entitled to receive
the money. As the policyholder was surviving till the date of maturity, the nominee is not entitled
to receive the claim. The policy under such conditions is treated as death claim where the policy
does not have nomination. The insurer in such a case shall ask for a will or succession certificate,
before it can get a valid discharge for payment of this maturity claim. If maturity claim is
demanded within one year, before the maturity it is called a discounted maturity claim. This
amount is much less than the maturity claim. The following documents are to be submitted:
(a) Age proof, if age is not admitted.
(b) Original policy document for cancellation.
(c) In case assignment is executed on a separate paper, that document has to be surrendered.
(d) Discharge form duly executed.
(e) Indemnity bond in case policy document is lost or destroyed, duly executed by the
policyholder and a surety of sound financial standing.

II. Non-Life Insurance

1. Marine Insurance
Contract of marine insurance is an agreement whereby the insurer undertakes to indemnify
the assured, in the manner and to the extent agreed, against losses incidental to marine adventure.
There is marine adventure when any insurable property is exposed to maritime perils i.e. perils
consequent to navigation of the sea. Perils of the sea refer to accidents or casualties of the sea and
do not include the ordinary action of winds and waves. Maritime perils also include fire,
warperils, pirates, seizures, etc.

Types of Marine Insurance Policies

(a) Voyage Policy
It is a policy in which the subject matter is insured for a particular voyage irrespective of the time
involved in it. In this case the risk attaches only when the ship starts on the voyage.

(b) Time Policy

It is a policy in which the subject matter is insured for a definite period of time. The ship may
pursue any course it likes; the policy would cover all the risks from the perils of the sea for the
stated period of time. It cannot be for a period exceeding one year but may contain ‘continuation
clause. It means that if the voyage is not completed within the specified period, risk shall be
covered until voyage is completed or till the arrival of the ship at the port of call.

(c) Mixed Policy

Combination of voyage and time policies and covers the risk during particular voyage for a
specified period of time.

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(d) Valued Policy
It is a policy in which the subject matter is agreed upon between the insurer and the insured and it
is specified in the policy itself.

(e) Open or Un-valued Policy

It is a policy in which the value of the subject matter insured is not specified. It is subject to the
limit of the sum assured, it leaves the value of the loss to be subsequently ascertained.

(f) Floating Policy

It is a policy which only mentions the amount for which insurance is taken and leaves the name
of ship and other particulars to be defined by subsequent declarations. It is useful to merchants
who regularly dispatch goods through ships.

(g) Wagering or Honour Policy

It is a policy in which the assured has no insurable interest and the underwriter is prepared to
dispense with the insurable interest. Such policies are also known as Policy Proof of Interest.

2. Fire Insurance
Contract by which the insurer in return for a consideration (premium) agrees to indemnify the
insured for the financial loss which the latter may suffer due to destruction of or damage to
property or goods, caused by fire, during a specified period. The contract specifies the maximum
amount agreed to by the parties at the time of contract, which the insured can claim in case of
loss. The loss can be ascertained only when the fire has been occurred. Insurer is liable to make
good the actual amount of loss not exceeding the maximum amount fixed under the policy. Fire
insurance policy cannot be assigned without permission of insurer because the insured must have
insurable interest in the property at the time of contract as well as at the time of loss. Insurable
interest in goods may arise out on account of
(a) Ownership
(b) Possession
(c) Contract

Types of Fire Insurance Policies

(a) Specific Policy
It covers loss of upto a specific amount which is less than the real value of the policy. The actual
value of policy is not taken into consideration while determining amount of indemnity. It is not
subject to ‘average clause’. It is a clause by which insured is called upon to bear a portion of the
loss himself. The purpose is to check under-insurance, to encourage full insurance and impress
upon property owners to get their property accurately valued before insurance.

(b) Comprehensive Policy

It is also known as ‘all in one’ policy. It covers risk like fire, theft, burglary, etc. It also covers
loss of profits during the period the business remains closed due to fire.

(c) Valued Policy

It is departure from contract of indemnity. The insured can recover a fixed amount agreed to at
the time the policy is taken. In the vent of loss, only the fixed amount is payable, irrespective of
the actual amount of loss.

(d) Floating Policy

It is a policy which covers loss by fire caused to property belonging to the same person but
located at different places under a single sum and for one premium. Such a policy might cover
goods lying in two warehouses at two different locations. This policy is always subject to the
‘average clause’.

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(e) Replacement Policy
It is also known as re-instatement policy. In this a insurer inserts a re-instatement clause,
whereby he undertakes to pay the cost of replacement of the property damaged or destroyed by
fire. Thus he may re-instate or replace the property instead of paying cash. In this, the insurer has
to select one of the two options. Once chosen he cannot change to other option.

(f) Average Policy

This is a fire insurance policy that is insured if the property is under-insured, i.e. insured for a
sum smaller than the value of the property. The insurer must bear only the proportion of the
actual loss which the sum assured bears to the actual value of the property at the time of loss.

(g) Excess Policy

When the stock of the insured fluctuates, the insured can take a policy for an amount below the
amount in which his stocks do not normally fall under. In this instance, the insured might have to
take another insurance policy to cover the maximum amount of stocks which might reach
sometimes. The former type of policy is called First Loss Policy and the latter is called Excess
Policy.

(h) Blanket Policy

A blanket policy is that which covers all assets, fixed as well as current, under one policy.

(i) Consequential Loss Policy

The objective of this insurance policy is to indemnify the insured against the loss or profit caused
by any interruption of business due to fire. It is also known as loss of profit policy.

(j) Reinstatement Policy

It is a policy under which the insurer pays the amount which is sufficient to reinstate assets or
property destroyed.

(k) Open Declaration Policy

It is a policy where the insured makes a deposit with the insurer and declares the value of the
subject. Risk of such nature is covered. Such policies are normally taken where the value of
stocks etc. fluctuates significantly.

3. Health Insurance
It is type of insurance that covers medical expenses that arise due to an illness. These expenses
could be related to hospitalization costs, cost of medicines or doctor consultation fees. Health
insurance has become a necessity today because it plays an important role in health care. One
never knows when illnesses may strike. Health insurance can be a source of support by taking
over the financial burden the family may have to go through. Health insurance policies cover the
following:
(a) Medical expenses incurred prior to hospitalization
(b) Cashless hospitalization for all the expenses incurred in the hospital
(c) Post-hospitalization expenses
(d) Expenses incurred on ambulance services
(e) Expenses incurred for general health examination
(f) Daily hospital allowance

Critical illness rider:

(a) Fixed sum is paid on diagnosis of illness

Family cover:
(a) Whole family covered under one policy
(b) Each member is eligible
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 (c) Pre-existing diseases covered
The cost of health insurance premium is deductible to the payer and the benefits received are tax
free.

4. Motor Insurance
Under this, a personal or commercial vehicle is subjected to combined insurance against the risk
of:
(a) Loss or damage to the vehicle
(b) Death of or injury to the owner or passenger
(c) Damages possible to the third party by the owner of vehicle
(d) Insurance against the first two cases is optional but every owner has to take the insurance under
the third case as it is compulsory under Motor Vehicle Act of 1956.
A motor insurance policy is a mandatory policy issued by the insurance company as a part of
prevention of public liability to protect the general public from any accident that might take place
on the road.

5. Crop Insurance
It is a means of protecting the agriculturist against financial losses due to uncertainties that may
arise from crop failures/losses arising from all unforeseen perils beyond their control. It is
purchased by agricultural producers, and subsidized by the government, to protect against either
the loss of their crops due to natural disasters, or the loss of revenue due to declines in the prices
of agricultural commodities. A number of crops are covered with includes:
(a) Food crops (Cereals, Millets and Pulses), Oilseeds, Annual Commercial/Annual
horticultural crops
(b) Covers damages due to local calamities, landslides, etc. and risk relating to sowing,
germination, etc.
(c) Crop insurance is categorized into 3 types:
(i) Multiple Peril Crop Insurance
It provides financial coverage to manage risks arising from weather-related losses, such
as a flood, drought, etc.

(ii) Actual Production History:

It covers losses due to wind, hail, insects, etc. It also includes coverage for lower yield
and compensates for the difference between the estimate and the real.

(iii) Crop Revenue Coverage

This is based not only on the crop yield but on the total revenue generated from this yield.
In case of a drop in crop price, the difference is covered by this type of crop insurance

6. Burglary Insurance
It is insurance against loss or damage resulting from or following the unlawful breaking and
entering of designated premises or places of safekeeping. It is a type of insurance that protects
you against the financial loss you might sustain in the event of a break-in or an attempted break-
in at your home or place of business. A forced entry into a home or company to steal something
is referred to as a burglary. Insurance companies require policyholders to notify the authorities of
the burglary as one of the first steps before they make the claim. Before paying any claims, the
insurance company requires documented proof of ownership of the existence of the goods prior
to the burglary. This enables them to avoid losses arising from individuals fabricating the
ownership of goods for monetary gains.

Insurance Marketing in India

The term insurance marketing refers to the marketing of insurance service with the motto of customer-
orientation and profit-generation. The insurance marketing focuses on the formulation of an ideal mix
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for the insurance business so that the insurance organizations survive and thrive in a right perspective.
They quality of services can be improved by formulating a fair mix of the core and peripheral services.
The marketing concept in the insurance business is concerned with the expansion of insurance business
in the best interest of society vis-à-vis the insurance organisations.
The insurance companies lag behind most manufacturers in-recognizing the marketing concept in their
organizations. Insurance companies tend towards a strong sales orientation, since the services they sell,
although certainly necessary ones, rarely sell themselves. Potential policy holders are reluctant to think
about the disaster and death. So they postpone planning for these possibilities unless they are contacted
and influenced by insurance agents. The selection of risks (product planning), policy writing (customer
service), rating of actuarial (pricing) and agency management (distribution) - all marketing activities
make up an integrated marketing strategy. Particularly in the developing countries like India, the
organizational objectives advocate spreading of insurance services much more widely and in particular
to the rural areas and especially to the economically backward classes with a view to reaching all
insurable persons. This naturally necessitates an integral marketing strategy. In other words, market-
orientation in place of sales orientation is need of the hour. Hence marketing concept in the insurance
business focuses on the formulation of marketing mix or a control over the whole group of marketing
activities that make up an integrated marketing strategy.

Need for Insurance Marketing

The Indian insurance sector has a very low market penetration. Indian population has crossed one billion
mark, but less than % of the total population have insurance cover and many of them are grossly
underinsured. The demand for insurance services unlike consumer products is not built-in. Among the
financial services too, insurance sector gets the least priority in comparison to other investment avenues.
Insurance products have a distinct feature where the benefits of the product come at a later stage at times
after a considerable period of time and many times there is “no seen” benefit at all.
The rural market is still untapped. The insurance sector is yet to exploit this segment which has vast
potential. In case of life insurance low penetration of insurance services is due to the psyche of the
Indian consumer. Beliefs, tradition, culture, tendency to leave everything to fate is common. The concept
of proper financial planning, taxation and investment is still lacking among middle class. Privatisation of
insurance sector has brought in more players and made the market more competitive. The need to market
insurance services is even more. There is absence of insurance culture in the country.

Landmark Developments
1. Pre-Independence Developments
The history of life insurance in India dates back to 1818 when it was conceived as a means to
provide for English Widows. Interestingly in those days a higher premium was charged for
Indian lives than the non-Indian lives as Indian lives were considered more risky for coverage.
The Bombay Mutual Life Insurance Society started its business in 1870. It was the first company
to charge same premium for both Indian and non-Indian lives. The Oriental Assurance Company
was established in 1880. The General insurance business in India, on the hand, can trace its roots
to the Triton (Tital) Insurance Company Limited, the first general insurance company established
in the year 1850 in Calcutta by the British. Till the end nineteenth century insurance business was
almost entirely in the hands of overseas companies. Insurance regulation formally began in India
with the passing of the Life Insurance Companies Act of 1912 and the provident fund Act of
1912. Several frauds during 20’s and 30’s sullied insurance business in India. By 1938 there were
176 insurance companies. The first comprehensive legislation was introduced with the Insurance
Act of 1938 that provided strict State Control over insurance business.

2. Post-Independence Developments
The insurance business grew at a faster pace after independence. Indian companies strengthened
their hold on this business but despite the growth that was witnessed, insurance remained an
urban phenomenon. The Government of India in 1956, brought together over 240 private life
insurers provident societies under one nationalised monopoly corporation and Life Insurance
Corporation (LIC) was born. Nationalisation was justified on the grounds that it would create
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 much needed funds for rapid industrialization. This was in conformity with the Government’s
chosen path of State lead planning and development. The (non-life) insurance business continued
to thrive with the private sector till 1972. Their operations were restricted to organised trade and
industry in large cities. The general insurance industry was nationalised in 1972. With this,
nearly 107 insurers were amalgamated and grouped into four companies - National Insurance
Company, New India Assurance Company, Oriental Insurance Company and United India
Insurance Company. These were subsidiaries of the General Insurance Company (GIC).

Cross Selling
Meaning of Cross Selling
It is a method that companies, businesses and agencies use/employ to generate more sales. It is done by
recommending items to customers related to, in addition to, or complementary to the item the buyer is
already committed to purchase. It is a sales strategy pointed at producing more deals by proposing extra.
In insurance industry, cross-selling is when one sells additional insurance products to an established
client. Cross-selling insurance allows a company to earn additional profit without the cost of searching
for new leads. Firm can build client relationship by staying up to date on events and changes in clients’
lives-which might require new or greater coverage. It leads to improved client retention. However, cross-
selling must be done in the right way because if clients are aggressively pushed to purchase products
they don’t want or need, a firm might risk losing their business.

Merits of Cross Selling

1. Builds customer loyalty
One of the most important things that any selling tactic can do for a company or agency is
building customers’ loyalty. When customers feel a stronger connection to a particular company,
they’re much more likely to remain loyal to them and even go so far as to become brand
ambassadors. Cross-selling encourages this behavior by offering customers several products they
will love, turning them into recurring customers, and saving money of the company.

2. Improves profits and earnings

One of the main merits of cross-selling is to increase the business profits. Most obvious way is by
promoting related products to customers to entice them to buy more items than they had initially
planned to purchase. Customer who purchases multiple products or services will contribute more
to the earnings than a customer who purchases only one product. There are also other ways
through which cross-selling can boost earnings. If cross-selling improves customer satisfaction, a
firm will save money by devoting less time and resources to customer acquisition.

3. Develops more leads

One of the most valuable advantages of cross-selling is that it has the rare ability to increase lead
generation. Customers who feel understood by a company are likely to recommend it to others,
allowing agencies to benefit from not only the original customer, but any referrals they choose to
send to the agency.

4. Greater convenience
Convenience is important to today's consumers. Nobody wants to drive from store to store
looking for every product they need. Even moving from one website to another can be difficult.
As a result, when you cross-sell them a product they adore, customers will be delighted to return
time and time again. Firms should strive to become a one-stop-shop, and thus they will have an
easier time competing.

5. Streamlines purchase processes

Cross-selling simplifies the purchase process by streamlining it. Sometimes, customers will try to
draw out making purchase decisions for long time as they want to ensure they are choosing best
product for or because they’re hesitant to commit to a product. With cross-selling, customers are
provided with an added incentive to move more quickly through the purchase process, thereby
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 streamlining the process.

6. Assists customers in feeling understood

The most effective cross-selling makes customers feel understood. Assume a person works in
retail and shows a customer a great pair of shoes to go with their new jeans. If the person is able
to convince, they'll form a stronger bond with you and your brand, believing that you truly
understand their personality and connect on a deeper level.

7. Customers are moved through the buying process

Customers, have a habit of deferring purchasing decisions for extended periods of time. They
may debate whether or not they require an item, shop around for the best price, or wait for a great
sale. Cross-selling, on the other hand, can provide customers with extra push they need to
complete the purchase journey, increasing their motivation to get everything they need in one
place.

Demerits of Cross Selling

1. Bad practices may increase customer unease
Cross-selling tactics are designed to put customers at ease and help encourage loyalty and
retention, but the opposite can happen if mishandled. If agencies don’t cross-sell the right items
to their customers or offer a much higher cost than the original purchase, customers may feel like
they are being tricked.

2. Bad practices may increase customer unease

This will cause customers to fall away from your company and go to another where they feel like
their needs are being better met. Above all, agencies must put their clients first, especially when
trying to grow their company because it is ultimately the customer’s decision to purchase or not
that will determine how much money the agency makes.

3. Bad practices may compel customers to buy items they don’t need
When customers are offered items unrelated to what they are purchasing, they may feel pressured
to buy things they don’t need. This may increase initial purchases, but it can have a detrimental
effect on long-term customer retention. Agencies can avoid this by being aware of who their
target audience is and what they need so that they can offer items that will suit the clients they
have.

4. Difficult to analyse customer data

It is critical to analyze customer data and metrics related to your cross-selling marketing
campaigns to determine which efforts produce cross-sales without reducing overall profitability
and which customers should be avoided or approached differently, such as upselling.

5. Increase service related costs

It may result in increased service-related costs as it may be more expensive to cross-sell
compared to other strategies.

Bancassurance
Meaning of Bancassurance
It is an arrangement between a bank and an insurance company, allowing the insurance company to sell
its products to the bank's client base. This partnership arrangement can be profitable for both companies.
Banks earn additional revenue by selling insurance products and insurance companies expand their
customer base without increasing their sales force. Banks can easily earn profits without doing any risky
work. Banks need to sell insurance company products, and in return, the bank will get a commission.
Banks will get more benefits by offering life insurance products because they will get a chance to build
good relationships with customers. Life Insurance companies will organize specialized training for bank
employees, which is an added benefit for the bank.
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Merits of Bancassurance – Customers
1. One-stop shop for all financial needs
It provides the end users a customized insurance solution by giving a right product at a right time
i.e. at a location; they already are for their financial needs – their bank. This improves the overall
experience of the customers. They are more likely to opt for a complete financial solution from
their banks, thus making bancassurance a success.

2. Improved Application and Policy Processing Time

Bank already has the data and documentation of customers. This real-time information
accessibility makes sure that the turnaround time is reduced in application processing and claims
management.

3. Ease of Renewals
Banks being in the forefront in dealing with customers, handle renewals as well. This makes the
transaction hassle-free. With new technology and data access for the bancassurance channel,
tracking renewals is very easy.

4. Trust
Customers trust their banks to sell them the right product. The trust they would place on
insurance carriers and independent agents is comparatively lesser. Therefore, the propensity to
buy insurance products from their banks is higher.

5. Expert Advice
Banks have mounds of customer data. This, along with insurance carriers’ expertise in packaging
insurance products helps the alliance suggest the right products. Customers also recognize this
expertise, majorly because of their trust in their banks.

Merits of Bancassurance – Banks

1. Diversification of Customer Portfolio
Banks already have relationship with their customers selling them an amalgamation of financial
products. With bancassurance, insurance is added to the banks’ product mix, diversifying
customer portfolio and increasing their penetration in the market.

2. Improved Profitability and Non-Interest Free Income

In bancassurance models, banks can easily generate risk-free income in the form of the
commission from insurance carriers. Multiple studies have been done in Indian bancassurance
context to prove its positive impact on the bank’s profitability. For example, SBI, after entering
bancassurance, improved almost all components

3. Customer Loyalty and Retention

Banks enjoy the benefit of being able to provide yet another product to their customers.
Providing integrated financial services strengthens customer relationships and builds better
customer loyalty and retention levels.

4. Cost effective use of existing resources

Banks use their existing premises and employees for sale of the new insurance products. There is
no additional cost of operation in selling insurance. Banks utilize the insurance company’s
expertise in training employees and packaging insurance products. This reduces the cost of
distribution for both insurers and bank, increasing the channel’s profitability.

5. Increased Customer Lifetime Value

With increased loyalty and stickiness, comes higher CLV per customer which is a very important
metric for banks.
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Merits of Bancassurance – Insurance Companies
1. Piggybacking on Bank’s high Market Penetration Rate
On its own it would be impossible for insurance companies to reach teh market coverage in
comparable to that of banks. Banks have a good distribution netwrork espacially India with many
commercial bank branches. Thus penetration is the most benefit the insurance company gets from
bancassurance.

2. Relevant offer generation and customer engagement

Banks have huge amount of data of their customers. This includes demographic and financial
info, transactional information, spending patterns, credit repayment history, etc. Carriers and
banks can use this info for creating customized relevant insurance covers.

3. Increased Premium Turnover

With increased market penetration, insurers’ motive of increasing premium turnover is also
achieved using bancassurance as a driving force.

4. Increased Operational Efficiency and Reduced Cost

Bank employees are in the forefront to close the deals. Therefore it proves to have much wider
coverage. There is no need to hire additional employees to sell the products.

5. Improved Turn-around time

Bank employees are on the forefront. Data access ensures that the turn-around-time is low
(responsiveness is high). This is important because responsiveness is rated by most customers as
a very important factor in insurance buying.

Demerits of Bancassurance
1. Data management of an individual customer’s identity and contact details may result in the
insurance company utilizing the details to market products, thus compromising on data security.
2. There is a possibility of the conflict of interest between the other products of bank and insurance
policies (like money back policy). This could confuse the customer regarding where he has to
invest.
3. Better approach and services provided by banks to customer is a hope rather. This is because
many banks in India are known for their bad customer service and this fact turns worse when
they are responsible to sell insurance products.
4. Work nature to market insurance products requires submissive attitude, which is a point that has
to be worked on by many banks in India.
5. Need for training for those who will handle this because of a lack of vision and awareness.

Reinsurance
Meaning of Reinsurance
Reinsurance is insurance of insurance, where one or more insurance companies agree to indemnify the
risk, partially or altogether, for the policy issued by another one or more insurance companies.
Reinsurance indicates the process where the original insurer accepted the risk from the original insured
gets the risk covered by another insurer or reinsurer for the same reason the original insured got
protection. Reinsurance is a deal wherein the insurer shares a part of the risk portfolio with another
insurance firm. It helps spread the risk to avoid an enormous unmanageable financial strain on a single
entity. The insured entity is called a ceding insurer, while the organization reinsuring it in return for a
portion of the insurance premium is labeled a reinsurer. Moreover, the ceding insurer can promptly buy
it from the reinsurer or by a mediator or liaison.

Importance of Reinsurance
1. Reinsurance helps decrease risk
When an insurance company singularly insures a large number of clients and their property, they
take on a huge amount of risk. Reinsurance is a great strategy to reduce that risk, placing some of
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 the burden on a reinsurance company instead of shouldering the burden completely alone.

2. Reinsurance companies offer valuable advice

When consumers need insurance advice, they turn to their insurance company. Where can
insurance companies turn? Because reinsurance companies are experienced and skilled at
understanding patterns in the industry, as well as risks that their individual clients face, they’re in
the perfect position to offer guidance and expertise. This is particularly helpful to fledgling
insurance firms that are just getting started, as well as insurance companies seeking to enter new
areas of the market.

3. It protects against natural disasters and catastrophic events

This is especially important in areas with large numbers of high-risk policies. Places that are
often plagued by wildfires or that are constant targets for hurricanes and flooding mean that
insurance companies covering these areas face the potential of paying out huge numbers of high-
dollar claims should a disaster strike. Since having a large number of policy holders make these
kinds of claims all at once can be financially devastating, reinsurance helps soften the blow.

4. Reinsurance can stabilize financial losses

Perhaps an insurance company has the financial ability to pay out a large number of high-dollar
claims. Even so, reinsurance can smooth the way so that a company need not face huge financial
losses that may cause undue strain.

5. It allows a company to take on more policyholders

Reinsurance helps protect against insolvency. It ensures that insurance companies are able to
make payment on all claims, even in the case of a natural disaster or unexpected high number of
expensive claims. Because of this, it puts companies on more solid ground, allowing them to
offer services to a greater number of clients.

6. Reinsurance helps with company expansion

Each policy sold carries a certain amount of risk. It also carries a certain amount of cost, from
pay to sales agents to administrative costs. This is why company growth is so important.
Unearned payment reserve requirements can be a burden, and reinsurance can help lessen that
burden – allowing the company to focus its attention on growing the company and number of
clients nationwide.

7. It’s a worthwhile investment

Insurance companies understand the value of taking out insurance – it’s their business to do so.
Because of this, it seems natural that every insurance company would see the importance of
investing in insuring themselves and their reputation.

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