2. CONTENT
1. RISK MANAGEMENT
2. TYPES OF RISKS
3. IMPLEMENT RISK MANAGEMENT
4. INSURABLE RISK AND ITS FEATURES
5. PROSPECTUS OF INSURANCE COMPANIES
6. INSURANCE INDUSTRY IN INDIA
7. REFERENCE
3. RISK MANAGEMENT :
Risk management is the process of making and carrying out decisions that will
minimize the adverse effects of risk on an organization. The adverse effects of risk can
be objective or quantifiable like insurance premiums and claims costs, or subjective and
difficult to quantify such as damage to reputation or decreased productivity. By
focusing attention on risk and committing the necessary resources to control and
mitigate risk, a business will protect itself from uncertainty, reduce costs, and increase
the likelihood of business continuity and success.
A risk exists where there is an opportunity for a profit or a loss. In terms of losses, we
commonly refer to the risks as exposures to loss, or simply exposures. A fire is an
exposure. Defective products or defamation are liability exposures. The loss of business
that results from a damaged building or tarnished reputation is also an exposure.
4. Types of Risk:
1. Pure Risk - Risks where the possible outcomes are either a loss or no loss. It includes
things like fire loss, a building being burglarized, having an employee involved in a
motor vehicle accident, etc.
2. Speculative Risk - Risks where the possible outcomes are either a loss, profit, or status
quo. It includes things like stock market investments and business decisions such as
new product lines, new locations, etc.
5. Steps to Implement Risk Management:
1. Risk identification: It is a good idea to chart your risks in a way that allows you to
identify the more common and serious risks so that you know the areas to which you
need to commit resources.
2. Quantify and prioritize: Risk mapping is one way to do this. Essentially, you chart all
of the identified risks on the map. The map will make you aware of those risks on
which you need to focus. Work with your broker to make sure that you are covered for
all of the appropriate risks and look for ways to prevent and mitigate these risks.
3. Be risk sensitive, not risk adverse: Being risk sensitive is not the same as being
paranoid. Realize that there are risks associated with everything. Take a deliberate and
methodical approach to dealing with risk, while at the same time being realistic.
4. Identify risk in business decisions: Identifying risks in business decisions is much the
same as with the process of identifying any risk. The key is to be thorough and use all
the sources available. These risks can be prioritized and mapped in the same way as all
other risks.
6. Definition of 'Insurable Risk'
Definition: A risk that conforms to the norms and specifications of the insurance policy
in such a way that the criterion for insurance is fulfilled is called insurable risk. There
are various essential conditions that need to be fulfilled before acceptance of
insurability of any risk. In case of a scenario where the loss is too huge that no insurer
would want to pay for it, the risk is said to be uninsurable.
A risk may not be termed as insurable if it is immeasurable, very large, certain or not
definable.
7. Features of Insurable Risk:
There are ideally six characteristics of an insurable risk:
• There must be a large number of exposure units.
• The loss must be accidental and unintentional.
• The loss must be determinable and measurable.
• The loss should not be catastrophic.
• The chance of loss must be calculable.
• The premium must be economically feasible.
8. Prospectus of insurance companies:
A prospectus is a formal document that is required by and filed with the Securities and
Exchange Commission (SEC) that provides details about an investment offering to the
public. A prospectus is filed for offerings of stocks, bonds, and mutual funds. The
document can help investors make more informed investment decisions because it
contains a host of relevant information about the investment security. A prospectus
includes some of the following information:
• A brief summary of the company’s background and financial information
• The name of the company issuing the stock
• The number of shares
• Type of securities being offered
• Whether an offering is public or private
• Names of the company’s principals
• Names of the banks or financial companies performing the underwriting
9. Types of prospectus:
According to Companies Act 2013, there are four types of prospectus.
Deemed Prospectus – Deemed prospectus has mentioned under Companies Act, 2013
Section 25 (1). When a company allows or agrees to allot any securities of the company, the
document is considered as a deemed prospectus via which the offer is made to investors. Any
document which offers the sale of securities to the public is deemed to be a prospectus by
implication of law.
Red Herring Prospectus – Red herring prospectus does not contain all information about
the prices of securities offered and the number of securities to be issued. According to the
act, the firm should issue this prospectus to the registrar at least three before the opening of
the offer and subscription list.
Shelf prospectus – Shelf prospectus is stated under section 31 of the Companies Act, 2013.
Shelf prospectus is issued when a company or any public financial institution offers one or
more securities to the public. A company shall provide a validity period of the prospectus,
which should not be more than one year. The validity period starts with the commencement
of the first offer. There is no need for a prospectus on further offers. The organization must
provide an information memorandum when filing the shelf prospectus.
Abridged Prospectus – Abridged prospectus is a memorandum, containing all salient
features of the prospectus as specified by SEBI. This type of prospectus includes all the
information in brief, which gives a summary to the investor to make further decisions. A
company cannot issue an application form for the purchase of securities unless an abridged
prospectus accompanies such a form.
10. Insurance Industry in India:
The insurance industry of India has 57 insurance companies 24 are in the life insurance
business, while 33 are non-life insurers. Among the life insurers, Life Insurance
Corporation (LIC) is the sole public sector company. There are six public sector
insurers in the non-life insurance segment. In addition to these, there is a sole national
re-insurer, namely General Insurance Corporation of India (GIC Re). Other
stakeholders in the Indian Insurance market include agents (individual and corporate),
brokers, surveyors and third-party administrators servicing health insurance claims.
11. Market Size:
Government's policy of insuring the uninsured has gradually pushed insurance
penetration in the country and proliferation of insurance schemes.
Gross premium collected by life insurance companies in India increased from Rs. 2.56
trillion (US$ 39.7 billion) in FY12 to Rs. 7.31 trillion (US$ 94.7 billion) in FY20.
During FY12-FY20, premium from new business of life insurance companies in India
increased at a CAGR of 15% to reach Rs. 2.13 trillion (US$ 37 billion) in FY20.
Overall insurance penetration (premiums as% of GDP) in India reached 3.71% in FY19
from 2.71% in FY02.
Life insurers reported 14% YoY growth in individual annualised premium equivalent
(APE) in October 2020, compared with 4% YoY in September 2020.
The market share of private sector companies in the non-life insurance market rose
from 15% in FY04 to 56% in FY21 (till April 2020). In life insurance segment, private
players had a market share of 31.3% in new business in FY20.
In October 2020, health insurance witnessed an increase in premiums at Rs. 4,074.8
crore (US$ 553.93 million) compared with Rs. 3,840.6 crore (US$ 554.29 million),
recording 6% growth on y-o-y basis. Retail health also witnessed a 30% increase in
premiums to Rs. 1,982.6 crore (US$ 269.69 million).
12. Investments and Recent Developments:
The following are some of the major investments and developments in the Indian insurance
sector.
• Companies are trying to leverage strategic partnership to offer various services as follows:
• In December 2020, SBI General Insurance partnered with InterCity RailYatri to offer bus travelers with
domestic travel insurance. SBI General Insurance, under this partnership, will include a wide range of
coverage, including accidental death, permanent complete disability and emergency evacuation.
• In December 2020, ICICI Lombard General Insurance has partnered with Plum, India's fastest growing
employee health insurance start-up, to reimagine and co-create India's first technologically backed
group of health insurance products. ICICI Lombard and Plum plan to fix four key elements of
community health insurance using new technologies such as real-time pricing, onboarding, program
administration and claims.
• In November 2020, Bajaj Allianz General Insurance joined forces with Muthoot Finance to offer
insurance on gold jewellery. This scheme is planned to provide insurance coverage for gold jewelry
pieces for the latter’s customers at the time of closing of the gold loan and release of gold ornaments. As
a loyalty program, it will provide insurance coverage to Muthoot Finance's clients.
13. Investments and Recent Developments:
• On December 02, 2020, the International Financial Services Centers Authority (IFSCA)
obtained membership of International Association of Insurance Supervisors (IAIS).
• The United Kingdom’s Financial Conduct Authority (FCA), the US’s National Association
of Insurance Commissioners (NIAC); the US’s Federal Insurance Office of the US
Department of Treasury Insurance (FIO); Singapore’s Monetary Authority of Singapore
(MAS); and India’s Insurance Regulatory and Growth Authority of India (IRDAI) are some
of the leading members of IAIS.
• In November 2020, HDFC ERGO General Insurance Company and NSDL Payments Bank
Limited, National Securities Depository Ltd (NSDL) Subsidiary, collaborated to offer
customers a full range of general insurance products. This partnership intends to integrate
NSDL Payments Bank's broad distribution network and HDFC ERGO's wide innovation
pipeline to contribute to financial inclusion in the country.
• In November 2020, Life Insurance Corporation of India launched its first software
application, ANANDA, an acronym for ‘Atmanirbhar Agents New Business Digital App’ or
the on-boarding process with the aid of the agent/broker to get life insurance policy through
paperless module.
14. Government Initiatives
The Government of India has taken number of initiatives to boost the insurance
industry. Some of them are as follows:
• As per Union Budget 2019-20, 100% foreign direct investment (FDI) was permitted for
insurance intermediaries.
• In December 2020, Uttarakhand announced its plan to offer ‘COVID-19 Insurance
Policy’ to international tourists. A proposal request has been submitted to the Union
Tourism Minister, Mr. Prahlad Patel, to introduce special life insurance policies for
foreign tourists.
• On December 03, 2020, as a one-time measure, IRDAI announced that it has authorized
up to 5% of the existing premium rates to change the base premium. This move was to
ensure viability and longevity for smooth transformation of the existing goods.
15. •In November 2020, in collaboration with PNB MetLife India Insurance Company, India
Post Payments Bank (IPPB) announced the launch of Pradhan Mantri Jeevan Jyoti Bima
Yojana (PMJJBY) for customers.
The Insurance Regulatory and Development Authority of India (IRDAI) plans to issue
redesigned initial public offering (IPO) guidelines for insurance companies in India, which
are to looking to divest equity through the IPO.
In October 2020, the Andhra Pradesh rolled out free of cost crop insurance scheme for the
state farmers.(Rs. 1252 crores are paid as insurance compensation to 9.48 lakh farmers who
lost their crop).