Principles of Life insurance by Dr. Amitabh Mishra

Principles of Life insurance

1. Principles of Life Insurance
Life insurance operates on some basic principles common to
many individuals.
Dr. Amitabh Mishra, Principles of Life
Insurance

2. Followings are the principles of life insurance
Principles of
life insurance
Principle of
Insurable Interest
Principle of
Utmost Good Faith
Principle of
Large number
Principle of
Proximate Cause
Principle of
Warranties
Principle of
Transfer of Risk
Dr. Amitabh Mishra, Principles of Life
Insurance

3. 1. Principle of Insurable Interest
Insurableinterestisthepecuniaryinterest.
Aninsurableinterestisanobjectwhich,ifdamagedordestroyed,
wouldresultinfinancialhardshipforthepolicyholder.
Insurableinterestarisesoutofthepecuniaryrelationshipthat
existsbetweenthepolicy-holderandthelifeassuredsothatthe
formerstandstoloosebythedeathofthelatterand/orcontinues
togainbyhissurvival.
Thelossshouldbemonetaryorfinancial.Mereemotionand
expectationdonotconstituteinsurableinterest.
Dr. Amitabh Mishra, Principles of Life
Insurance

4. Insurable interest in life insurance may be divided into
two categories:
Dr. Amitabh Mishra, Principles of Life
Insurance
Insurable Interest
Own life Others life
Proof is not requiredProof is required
Business Relation Family Relation

5. II. Principle of Utmost Good Faith
Lifeinsurancerequiresthattheprincipleofutmostgood,faithshouldbe
preservedbyboththeparties.
Utmostgoodfaithcanbedefinedas“apositivedutytodisclose
accurately&fullyallfactsmaterialtotheriskbeingproposedwhether
requestedornot”.
Theprincipleofutmostgoodfaithsaysthat:
◦Theparties,insuredandinsurermustbeofthesamemindatthetime
ofcontract(becauseonlythentheriskmaybecorrectlyascertained).
◦Theymustmakefullandtruedisclosureofthefactsmaterialtothe
risk.
Materialfactsareage,income,occupation,health,habits,residence,familyhistoryand
planofinsurance.
Dr. Amitabh Mishra, Principles of Life
Insurance

6. III. Principle of Large Numbers
Insurancecompaniesmustusealargesamplesizeofthe
population(insuredpeople)topredictdeathrates.
Probabilitiesforlifeinsurancearerepresentedinamortality
table.
Whilenoonesingleperson'sdeathcanbepredicted,thelaw
oflargenumbersallowsinsurerstopredictdeathratesby
lookingatalargegroupofpeople.
Alargesamplesizemeansthataprobabilitycanbepredicted
asapercentageofthepopulation.
Dr. Amitabh Mishra, Principles of Life
Insurance

7. IV. Principle of Proximate Cause
Theefficientoreffectivecausewhichcausesthelossiscalled
proximatecause.
Itlooksforthereasonbehindtheloss.Ifthecauseofloss(peril)is
insured,theinsurerwillpay;otherwisetheinsurerwillnot
compensate.
InlifeinsurancethedoctrineofCausaProxima(Proximate
Cause)isnotapplicablebecausetheinsurerisboundto
paytheamountofinsurancewhatevermaybethereasonofdeath.
Itmaybenaturalorunnatural.
Dr. Amitabh Mishra, Principles of Life
Insurance

8. V. Principle of Warranties
Awarrantyinaninsurancepolicyisapromisebytheinsuredpartythat
statementsaffectingthevalidityofthecontractaretrue.
And,ifanystatementisuntrue,thecontractshallbenullandvoidandthe
premiumpaidbyhimmaybeforfeitedbytheinsurer.
Warrantiesmaybeinformativeandpromissory.
Theproposalisexpectedtodisclose:
“All the material facts to the best of his knowledge and belief”
Dr. Amitabh Mishra, Principles of Life
Insurance

9. VI. Transfer of Risk
Thetransferofriskisessentialtolifeinsurance.
Insureddonotretaintheriskofdeathinlifeinsurance
policy.Instead,thisriskisspreadoutamongall
policyholdersthattheinsurerdoesbusinesswith.
Allcustomersoftheinsurancecompanycontributemoney
tothegeneralaccount.Thismoneyisinvested,andthen
claimsarepaidoutwhenanindividualfromthegroup
dies.
Dr. Amitabh Mishra, Principles of Life
Insurance

10. Recent Trends in
Life Insurance
1.Digitization
2.E-Insurance Account
3.Evolution of Alternative channels of Distribution
4.Evolution of Technology for Customer Acquisition, Retention and Managing Data
Dr. Amitabh Mishra, Principles of Life
Insurance

11. Digitization
Onlinepoliciespickingupinabigway–Termpoliciesare
becomingpopular.
WebAggregatorsareessentiallyinsuranceportalsthathelp
youcompareproducts,andenablepurchasebydirectingyouto
theinsurerortheinsurertoyou.
◦PolicyBazaar,EasyPolicyetc.
Dr. Amitabh Mishra, Principles of Life
Insurance

12. UsageofTabletsfordemonstratingcustomerswitheaseunder
variousscenarios–withvariousreturnsandchargestructures
becomeveryeasy.
Formfillinghasbecomealesspainfulexerciseandanywhereany
timeinsurancethroughmobileapplicationshasalsobecome
popular.
ComparingproductsofvariousInsurershasbecomeeasyand
faster.
Premiumpaymentsmadeonline–
◦InstantPaymentthroughonlineportalshaverevolutionizedthepremium
collectionprocess.
◦IVRS,onlinemobileapplicationsetc.havealsobecomepopularpremium
paymentmethods
Dr. Amitabh Mishra, Principles of Life
Insurance

13. E-Insurance Account (eIA)
E-InsuranceAccountholdallinsurancepoliciesin
electronicformbyopeningasinglee-insuranceaccount
withanInsurancerepository.
IRDAhasgrantedtheCertificateofRegistrationtothe
followingfourentitiestoactas'InsuranceRepositories'that
areauthorizedtoopene-InsuranceAccounts.
◦NSDLDatabaseManagementLimited
◦CentralInsuranceRepositoryLimited
◦KarvyInsuranceRepositoryLimited
◦CAMSRepositoryServicesLimited
Dr. Amitabh Mishra, Principles of Life
Insurance

14. Benefits of an eIA:
◦No more physicalpolicydocuments/completely paperless
◦View and manage all life insurance policies under a single account
◦Single KYCdone for e-insurance account instead of each policy –
reduces the paper work.
◦Changes in contact detailsget auto updated in all your policies across
all life insurers
◦Opening eIAis free
◦Acustomerbuyingpolicyonline,paysinsurancepremiumonline,
getsreceiptonlineandalsogetscreditofinsurancepolicy
accountonlineandtheclaimsaresettledbydirecttransferoffunds
totheaccountofthenominee/Policyholder.
Dr. Amitabh Mishra, Principles of Life
Insurance

15. Evolution of Alternative channels of
Distribution
1.Individualagencychannel/Agentswastheonly
modeofdistributioninLICdays(morethancurrently
20lakh).
◦DirectMarketingisapopularchannelforreachingcustomersand
generatingleadsorsellingthroughatelephone.
Dr. Amitabh Mishra, Principles of Life
Insurance

16. II.CorporateAgencysystem:Corporateentities
representaninsurancecompanyandsellitspolicies.
◦Itwasintroducedin2002withIRDAIframingregulations(currentlymorethan
428).
◦Usuallytheyareengagedinaparticularbusinessandsellinsurancepoliciesto
theirexistingcustomersbasedonthesituation.
◦Whenabankbecomesthecorporateagentofaninsurancecompanyitis
referredtoasabancassurancearrangementorpartnership.
Dr. Amitabh Mishra, Principles of Life
Insurance
S.N CorporateAgent Insurer
1 State Bank of India SBI LIFE INSURANCE COMPANY LIMITED
2 ICICI BANK LIMITED ICICI PRUDENTIAL LIFE INSURANCE
3 HDFC BANK LTD HDFC STANDARD LIFE INSURANCE CO LTD
4 4CITIBANK N.A ROYAL SUNDARAM ALLIANCE INSURANCE CO LTD
5 SIDBI BANK IDBI-FORTIS LIFE INSURANCE CO. LTD
6 Peerless Developers LimitedIFFCO-TOKIO GENERAL INSURANCE CO. LTD.

17. III.InsuranceBrokingmodelallowedtheentitytobea
distributorformultipleinsurers(currentlymorethan370).
◦Aninsurancebrokersells,solicits,ornegotiatesinsurancefor
compensation
Dr. Amitabh Mishra, Principles of Life
Insurance
S.N Insurance BrokingFirms
1 AdityaBirla Insurance Brokers Ltd.
2 Alliance Ins. Brokers Pvt. Ltd.
3 IIFL Insurance Brokers Limited
4 MuthootInsurance Brokers Pvt. Ltd
5 PolicywowInsurance Broking Private Limited

18. MicroInsuranceAgentchanneltoprocureNew
Businessfromruralandremoteruralareas.(currently
morethan27,041)
◦Microinsuranceagentsareappointedbyandactingforaninsurer,for
distributionofmicroinsuranceproducts(andonlythose
products).
◦Microinsuranceisinsurancewithlowpremiumsandlowcaps/
coverage.
◦Example:
Termlifeinsurance
Deathinsurance,disabilityinsurance,and
Insurancefornaturaldisasters.
Healthinsurance,
Cropinsuranceandlivestock/cattleinsurance,
Theftorfireinsurance,
Dr. Amitabh Mishra, Principles of Life
Insurance

19. WebAggregatorsareonlineoperatorswhoprovidechoiceof
productstocustomersonline(currentlymorethan16).
InsuranceMarketingFirms(IMF):TheIRDAhasallowedfor
theregistrationofinsurancemarketingfirms,sothat
entrepreneursandinsuranceagentscanstarttheirown
insurancedistributioncompany.(currentlymorethan81)
AspertheRegistrationofInsuranceMarketingFirmRegulations,
2015,an
“Insurance Marketing Firm is defined as an entity registered by the
IRDAto solicit or procure insurance products, to undertake
insurance service activities and to distribute other financial
products”.
Dr. Amitabh Mishra, Principles of Life
Insurance

20. AnInsuranceMarketingFirmperformfollowingfunctions:
ProcureInsuranceProducts:
◦ProcureinsuranceproductsoftwoLife,twoGeneralandtwoHealthInsurance
companiesatanypointoftime.
ProvideInsuranceServicingActivities:
◦Undertakebackofficeactivitiesofinsurers
◦Undertakesurveyandlossassessmentwork
◦PerformanyotherinsurancerelatedactivitypermittedbytheIRDAfromtime
totime.
Marketingofotherfinancialproducts,namely:
◦Mutualfunds
◦Pensionproducts
◦Banking/financialproductsofbanks/NBFCregulatedbyRBI;
◦Non-insuranceproductsofferedbyDepartmentofPosts,GovernmentofIndia;
◦AnyotherfinancialproductoractivitypermittedbytheIRDAfromtimeto
time.
Dr. Amitabh Mishra, Principles of Life
Insurance

21. Common ServiceCenters(CSC):EncourageRural
EntrepreneurshiptotakeinsurancetotheremoteareasthroughVillage
LevelEntrepreneurs(VLE).(currentlymorethan5373).
CSCsaretheservicedeliverypointsenabledwithInformationand
CommunicationTechnology(ICT)forthedeliveryofvariouspublicand
privateservicestoruralcitizensofIndia.
CSCisoneoftheprogramsofGovernmentofIndiaundertheDigital
IndiaProgram.
ThegovernmentservicesdeliveredthroughthenetworkofCSCsinclude
servicesintheareaof:
◦Education,agriculture,health,
◦Utilitypayments
◦Banking,Insurance,financialservicesetc.
Dr. Amitabh Mishra, Principles of Life
Insurance

22. EvolutionofTechnologyforCustomer
Acquisition,RetentionandManagingData
IncreaseduseofsoftwareasaService(SAS)
IncreasedinterestinBusinessProcessManagementintheCloud
(Cloudcomputingasanewtechnologyapplicationinlifeinsurance)
Leveragingbigdataandanalyticsbasedsolutionsusingservice
providers–
◦Customeranalytics,claimsanalyticsetc.–whichisfastcatchingupin
Indiaaswell–Insurancecompaniesusedataanalyticstostudycustomer
segments,choicepreferences–especiallyinreinstatingthelapsedpolicies
Dr. Amitabh Mishra, Principles of Life
Insurance

23. Insurance companies providing online
direct-to-consumer applications
Thereisbigmoneyincuttingoutthemiddlemanintheinsuranceprocess,aka,the
agents.
CompaniesarecreatingadvancedAIcalculationstoapproveapplications
immediately.
Dr. Amitabh Mishra, Principles of Life
Insurance