By Ritesh Singh, New Law College, Pune
Editor’s Note: General insurance is typically defined as any insurance that is not determined to be life insurance. General Insurance comprises of insurance of property against fire, burglary etc., personal insurance such as Accident and Health Insurance and liability insurance which covers legal liabilities. There are also other covers such as Errors and Omissions insurance for professionals, credit insurance etc. General Insurance acts as aegis to the financial causalities and alongside it also acts an economical back-up for a nation’s economy. Insurance allied up with banking sector dispenses up to 7% of India’s total GDP. The general insurance entered into show in the Indian Market in 17th century due to the Industrial revolution and the persistent escalation in sea trade for import and exports of goods and services. It can be said that the notion of Indian General Insurance has a legacy from British Occupation. In the year 1973 the whole business on General Insurance was nationalized with the enactment of General Insurance Business (Nationalization), Act. Till date we have observed foreign insurance companies engaging into Indian markets and having share of 24% of FDI being allowed in the Indian market it has not become an Eye-candy for the foreign market and secondly the major general insurance market be it EU or USA is diminishing and long term expenditure in the EU market isn’t feasible and has now come to the situation of saturation and if India does not enter into foreign markets the time is not far away when the general insurance market would not have much improvement.
When there is a credo or disquisition about Insurance the first locution which comes to our mind is blend of fortuity or risk involved, in facile terms it can be exemplified as pooling of risks, by a faction of people who come together and are exposed to same risks; a gait forward to profusion of the risk factor and dwindle it to smaller manageable impacts[i]. Whereas General insurance can be technically delineated as a monetary means of safeguarding items from certain abrupt events. It could be applied to car, boat, home, or any other valuables, depending on the varieties of policy we purchase and the type of insurance we need2. When we buy it, we wage some wealth (premiums) to have the insurance then, if something results to the insured items; the insurance company requites us for that loss3. The general insurance primarily deals with the risk factor and without studying what are the constituents of risk perceptive of risk would be profoundly impossible. The flow chart below portrays the constituents of risks.
Advent of General Insurance in India:
The general insurance entered into show in the Indian Market in 17th century due to the Industrial revolution and the persistent escalation in sea trade for import and exports of goods and services. It can be said that the notion of Indian General Insurance has a legacy from British Occupation4.
The General Insurance in India can be divided into three period, they are:
- British Period
- Post-Independence period
- Present period
Indian General Insurance which was a bequest of British Occupation has been rooted in Indian Market by the advent of Triton Insurance Company Ltd, established by British India in the year 1850 in the heart of Calcutta. It was the year 1907 when Indian Mercantile Insurance Limited was set up. This was the first company to transact all classes of general insurance business.
The post-independence manifested a remarkable change when GIC came into endurance in the year 1957, and feigned the supremacy over the General insurance schemes and structured code for conduct to retain position in a stable market for the general insurance. Gradually with the thriving market the need for common code was felt paramount and hence the 1968 the Insurance Act was amended and brought into a full-fledged play from a moderately dormant stage5. In the year 1973 the whole business on General Insurance was nationalized with the enactment of General Insurance Business (Nationalization), Act. Later on in the late 1990’s the General insurance market was opened up for the private sector and Insurance Regulatory and Development Authority was established and hence it was entrenched as an autonomous body to regulate the augmentation of insurance agency.
In the month of August application was advertised in the market for the private companies to Endeavour into the game. On total of 26% of shares was clasped by the foreign entities. At instant there are 27 general insurance which incorporate in them ECGC, Agriculture Insurance Corporation of India and also 24 life insurance companies contriving in this strenuous market of the country.
Is General Insurance Essential?
General Insurance acts as aegis to the financial causalities and alongside it also acts an economical back-up for a nation’s economy. Insurance allied up with banking sector dispenses up to 7% of India’s total GDP.
The key role which General Insurance plays is
- A neoteric surge of market to delve into: general insurance pools accountability and assets devising a concoction of spectrum for trade drifted on by hands of insurance companies baptized as the insurers, by ushering in synchronization the population who have a identical insurance pursuit, where same insecurity is shared, getting premium as a dividend of contribution covering the apparent risk, and reimburse the damages for those who endure.
Hence it institutes a liquid stock in the exchange, there by deciphering the laboring system to curb down inflation.
- Social Security tool: General insurance frames the chunk of social security scheme and owing it to which the insurers sanction it flawless whether it’s private company of a public sector with or without the benefactor of the governmental establishment spending a colossal amount of capital at the grass level labor which is primarily for the prosperity of the proletarian and populace. Impending to the macro level general insurances operates as peril management amount after the insured had to endure through any kind of casualty. This concept makes the insured work with maximal recurrence of his productivity.
- Economic development: An enormous chunk of capital is collected by channel of premium joined together. It caters straight as well as indirect remuneration to the particular with his family, the business and commerce and to the association of the country as a whole as it discards anxiety related with future risks and hence exhilarates free investment in the corporate sphere.
General Insurance in Indian Market
By the limit of September 2013 there were roughly 52 insurance companies performing in the market, out of which 24 were Life Insurance Company and 27 were non-insurance companies (General insurance)6.
The gross direct premium collected by the general insurance companies in the year 2012- 2013 is 62.973 crores, and marked a growth of 19.10 in the year 2012-20137.
General insurance operators can be extensively branched into private sector players and the other one being the public sector companies. The private sectors entities observed a rise of 25.26 percent in the year 2012-2013 when correlated to the preceding records, growth being 28.06 percent.
Impending to the public sector it enrolled the advances of 14.60 percent where as it had registered a growth of 21.60 percent in the year 2011-128.
While glancing into the formalities of the market we observe advancement in the general insurance sector, but on the other side it has noticed a limited gain in the market in comparison to the previous year.
Profit market for non-life insurance or general insurance:
The non-life insurance market has observed a final turnout of 3,282 crores in the period 2012-2013, 2,603 crores being from the private sector and 679 crores of the public sectors as the net profit; as in the year 2011-29 it was limited up to 25 crores9.
The key features of Indian insurance market10:
- The de-regularization of market has freed up enormous ambit for the advancement of the insurance based trade in India and a free open market for entry.
- Attacking market policies by private sector insurers will buy consumer perception of risk and develop the markets for commodity.
- Antagonism in a deregulated market will allow the forces to fix premiums that are pertinent for disclosure and advance insurers to demarcate their commodity and services.
- Modification in trading and enhancement in market invasion will pursue as public and private insurers contend to market their brand.
- Granting insurer power to make their own policy wordings and fix their own standards will empower underwriters to tailor products to fulfill the requirements of clients.
- The actuality of rigorous licensing exigency assures that only sufficiently capitalized and professionally handled companies are qualified to carry out insurance and reinsurance.
- The Insurance Regulatory Development Authority of India (IRDA) focuses on quarterly summarizing/auditing of insurer solvency will enhance monetary capacity and clarity.
- Licensed agents are very much element of the connecting arrangement and only those with sufficient funds, professional background and proficiency which will be licensed by IRDA.
The researcher efforts on this field to analyze the international arena and the ambit for Indian companies to risk into foreign nations. The researcher in this paper has not taken into review UN charter and the AIFTA Agreement the logic being the non-differential principle pursued.
The next facet in this research was SAFTA. In this paper the analyst has dealt with SAFTA moderately because the SAFTA deal has not been enforced and India adhering ASEAN. The researcher has strategy to have an intuition to glance into the EU retail and their charge less business policy amidst the European countries and arrive up to an undeniable position as to which market and commodity should be relevant for the Indian Insurance companies.
Essentials of General Insurance
Insurance is primarily a contract amidst an insured and the insurer and has to adhere to the essentials as set down in the prevailing propositions of common law of contract known generals or basic principles of contract of law.
The key features or prerequisites which are mandatory to make a lawful contract of insurance have been laid down.
The obligation lies on both the parties entering into the contract and not only substantial fact which the proposer knows but also to substantial facts which he was supposed to know.
Indian General Insurance Companies venturing into international market:
Law as a regulation keeps growing continuously with advancements in the society, and has to be grasped constantly and persistently with the times11.
This chapter has been broadly chapterized into three subjects namely:
- Indian Market and the EU insurance sector (a quick Analysis).
- The main Products to Target on in the International Market.
- The structure to Venture in International Market (Free trade agencies& procedure).
Indian Market & the EU General Insurance Market:
The European insurance market, an inward scanning to the corporate regime12.
The above diagram depicts the corporate governance on insurance market as reported by the Insurance Europe the regulatory body in the European Union.
The European Union with free trade policy between European nations has accordingly developed in the past decades but with the gradual advancement in the international market and economical strata, there has been a rapid down fall in the financial status of the European market. The EU Insurance companies have now focused primarily on Matured Asian Nation, India being the prime target with 20% Market Penetration and ranked 10 in the international market regarding market penetration.
Procedure for Launching Products in the market:
The above given diagram shows the aggressive market approach used by the European insurance companies. The prime query which emerges here is whether this aggressive market strategy is feasible when it comes to the Indian insurance entering into new region on foreign market.
Brief insight to European insurance market:
Insurance Europe is the European insurance and reinsurance association. Through its 34 members embodying the national insurance federations. Insurance Europe represents all categories of insurance and reinsurance enterprises, e.g. pan-European entities, monoliners, mutuals and SMEs13. Insurance makes an extensive addition to Europe’s economic rise and development.
European insurers accomplished the premium profit of more than €1 100bn, employ almost one million workforce and spend around €8 500bn in the economy14.
Macroeconomic circumstances have an explicit impact on the European insurance business. Numbers from the EU statistical office, Euro stat, points out that actual gross domestic product (GDP) in the EU, after balanced prosperity of 1.6% in 2011, decreased by 0.3% in 2012. This basically shows the aggravating of the sovereign-debt emergency in the first half of the year15.
Comparison between Indian & European Market:
|Net premium collected||5.2876 billion in year 2012||3.8232brillion|
Glancing up to the market prestige of EU it won’t be beneficial for the Indian General Insurance companies to venture into European market the logic being regular downfall in the economic advances , it won’t be applicable for an long term expenses in the European market.
The adjoining facet is the marketing model prevailing in the European market being very much attacking; the lone reasoning being the well developed Insurance companies running there and the liability factor is relatively considerably greater as compared to the Indian market.
The Model which Indian Insurance companies follows to launch a product:
The key Products to Focus in the International Market:
According to current market scenario as concluded by the IRDA it has been observed that the non-life insurance sector in the flourishing economy will benefit in the next few years. The overall non-life insurance premium in real conditions (excluding inflation) marked a gain of 2.16 in the year 201216. The global outlook report has established that there would be an opportunity to deviate towards the matured Asian countries and China would rank second largest insurance market after U.S.A and this cycle will continue till 202317.
Primarily it can be distinguished that it is the macro sector that has flourished on the total and the micro insurance is somewhat overlooked in the domestic as well as the international forum of insurance market, and the developing and the under developed nations being the main reason.
In this research paper the researcher would focus on Micro-economics and the structure needed to enter into the International market through Free trade agencies (the researcher would focus on ASEAN).
Brief intro to Micro-insurance:
The main target of the Micro-insurance is to provide the subordinate income group with liability insurance, an insurance plan which has resilience in its repayment scheduled forward with flat premium rates. This context of micro-insurance analyzes it with other products of general insurance or non-life insurance which labor on macro level.
Micro-insurance V/S Macro-insurance
|Payment schedule||Flexible payment schedule||Rigid payment schedule|
|Premium||Minimum premiumDecided according to the financial status of the policy holders||Premium according to the product tariff rates.|
The mechanism to Venture into International Market (Free trade agencies& procedure)
The main aspect on which the analyst tries to work is Indian General insurance (Micro Insurance) operating into International market through free trade agencies.
Scope of in Indian General Insurance companies in to international market:
India, being one of the biggest economies in the global market is being designated as the 10th largest country in terms of premium collection amongst 88 countries but is the infrastructure proficient enough to contest with the insurance companies in foreign market in the international forum?
With roughly around 40% of motor vehicles not being insured and 20% of inputs to GDP MP is from the Indian general insurance companies which are nurturing at a fast speed and this is the reason it cannot defend itself in the developed nation market where as if we particularly target on the developing countries it can flourish and thereby create a market for long term investment.
The research paper is purely based on the purview of Indian Market going into free trade agencies and the special target is now focused towards the south Asian free trade agencies ASEAN.
Introduction to SAFTA:
The South Asian Preferential trade compromise which was built up with an aspect to make trade tariff charge less in SAARC countries and India being a party to it and the nation with an improved economic security was the main reason it was glanced up with great responsibility.
India was in a beneficial position because it describes about both, free trade and non-tariff policies in SAARC countries, but as a matter of fact it was never enforced because of the few controversies between India, Pakistan and Bangladesh and hence SAFTA is not kept as a field study in this research paper.
Introduction to ASEAN:
The ASEAN, i.e. Association of South East Asian Nations, was founded on 8 August 1967 in Bangkok which is the capital of Thailand, with the endorsing of the ASEAN Declaration (Bangkok Declaration) by the Founding Fathers of ASEAN which were namely Malaysia, Indonesia, Thailand, and others are Singapore, Philippines.
The lone objective of the ASEAN was to speed up the economic advancements of the countries by initiating a form of partnership amongst them which would be between the ASEAN nations, and with the principles of U.N Charter. The ASEAN Community is basically controlled by three bodies of authorities which are ASEAN (Political-Security Association), ASEAN (Economic Community) and the last one i.e. ASEAN Socio-Cultural Group18. The ASEAN conferring to its declaration sticks on the principle of non-discrimination the basis of UN charter.
India being a signatory to ASEAN: AIFTA the abbreviation for ASEAN India Free trade agency would effort for economic co-operation between India and South Asian Countries.
In Article 1(F) goods means materials and/ or services which entangle that even the Products of General insurances comes under the apprehension of-
Agreement On Trade And In Products Under The Structure Agreement On Comprehensive Economic Cooperation Between The Republic Of India And The Association Of South East Asian Countries19.
As per the AIFTA arrangement none of the parties are granted to make its own policies for tariff free regulations except under the special constraints which have been taken by the member nations under this agreement as cited under the Article 10 of the agreement which has been mentioned above.
The due agenda is expected to be pursued by the Indian Insurance companies to invade into ASEAN retail though it is a party to the ASEAN Panel but it has a viewer post and cannot put ahead its poll in the forum of consideration but with the trade agreement between ASEAN and India which is known as AIFTA has vested the authority to the Indian trade market to enter into one sided trade agreement with the parties to the ASEAN and make guidelines for non-tariff by the special powers given to India in relation to trade and business. The sole-motto of ASEAN is for the advancement of Indian and South Asian economic co-operation and expansion which is through this treaty where Indian general insurance companies could invest into foreign country market i.e. Bangladesh and Sri Lanka being the main target and secondly Bangladesh having the highest constraints for foreign Insurance companies accessing into their Market and establishing up a business. It is in 2010 when for the first time a foreign company named IFC ventured into Bangladesh market with a joint venture of Green Delta.
- SEBI was to be given the domination for ULI’s. In the period of 2010 the rivalry between the IRDA and SEBI was settled out and it was concluded that the IRDA would be the lone dominion to have superiority over the ULI’s, but this would create an extensive chaos for the foreign general insurance companies who were to compete into foreign markets keeping in mind the apprehension while accessing into the foreign market is that the General insurance industries may have to enter into partnership or joint venture with the entities venturing into foreign markets. As we can note that in the European market it is the corporate sector that holds the share management and effort evenly.
- Introduction of new clause: IRDA has never in its whole working period executed any guidelines or supervision for the Indian Insurance Companies to venture into foreign markets.
- Proper networking: it has been acclaimed that there is dearth of appropriate networking and co-incidental points amongst the Indian Finance ministry and the IRDA, as IRDA has the exclusive authority and SEBI cannot implements its rules into the insurance sector.
- Social Peering Process: For the Indian market to enter into foreign market and to work entirely into the sector, it can choose few social groups who are willing to collect deposits and rest the Insurer Company spends into it and have a share of 25-75 accountability to indemnify the loss. This agenda can be used to as a tool of social upliftment as it would help the people at lower strata to invest less and get the security of indemnity.
The logic why the researcher has preferred for the micro-insurance sector in the international market is that the Macro-insurance in general insurance sector has flourished a lot and it is the macro-insurance sector that has been left behind, secondly the developing countries like Bangladesh and Srilanka because the market need long term expenditure it would be very much beneficial for the Indian General insurance market to take a move ahead towards these economies through the AIFTA and let their economy gain and get a profit earning market through risk capital investment in the Insurance market.
Till date we have observed foreign insurance companies engaging into Indian markets and having share of 24% of FDI being allowed in the Indian market it has not become an Eye-candy for the foreign market and secondly the major general insurance market be it EU or USA is diminishing and long term expenditure in the EU market isn’t feasible and has now come to the situation of saturation and if India does not enter into foreign markets the time is not far away when the general insurance market would not have much improvement. It is being anticipated that the Matured Asian countries will take over the world Insurance Industry and India being one of them with premium collection of $6.66 billion India ranks 10th in the world race.
There is substantial time for India to enter into foreign market and begin its general insurance business at micro-level and aid in advancing the framework of developing countries along with being foreign capital in the Indian market. The more the market explodes the more capital can be invested into India the prime reason being Insurance is not a Product that need Production cost it is a contract to indemnify the loss or peril.
The foreign capital can be used for other investment and accelerate the economic cycle and let the economic structure prosper.
Edited by Kanchi Kaushik
[i] General Insurance; Insurance Institute Of India; IC-34, pg-2
5 http://gicofindia.com/index.php?option=com_content&view=article&id=8&Itemid=444&lang=en, last visited at 07/01/2013
7 http://www.irda.gov.in/ADMINCMS/cms/frmGeneral_NoYearList.aspx?DF=AR&mid=11.1, last visited at 13/1/2014
10 Major changes expected as deregulation continues ;Indian General Insurance Outlook; Moody’s – ICRA General Insurance, PDF, 2008
11 Messy, I.P, Administrative Law, , Eastern book Company, Seventh Edition,2008
13 http://www.insuranceeurope.eu/uploads/Modules/Publications/annual-report-2012-2013-web.pdf, last visited on 13th jan 2014
16 Supra note 9, page 5.