ORGANIZATION
The general insurance corporation business is completely owned by the Government, and it is controlled by a single organization with four subsidiaries. Earlier, a number of Indian and foreign companies did general insurance business in India and abroad. In addition, LIC, some mutual companies and cooperative societies conducted general assurance. On the eve of nationalization, 68 Indian insurers and 45 non-Indian insurers did business in this field. In November 1972, the business of these organizations was nationalized and vested in the hands of the General Insurance Company (GIC) and its four subsidiaries. These are:
»National
Insurance Company Limited
»New
India Assurance Company Limited
»Oriental
Fire and General Insurance Company Limited
»United
India Insurance Company Limited
The GIC was given the charge of the overall control, superintendence and policy making for smooth operation of general insurance business. At present, the direct general insurance business is done mostly by the subsidiaries of the GIC. The premium income of the GIC is obtained mainly through the obligatory reinsurance premium on a quota share basis from subsidiaries on their direct business in India. Twenty percent of the business of subsidiaries is ceded to the GIC. The direct business of the GIC is in the form of aviation insurance. The general insurance corporation business is classified as marine, fire, and miscellaneous. Fire insurance is a single major business, although its share in the total general insurance has been declining. Miscellaneous business has grown substantially, while marine insurance is less important in India as compared to the miscellaneous insurance. The GIC was incorporated as a holding company in 1992. The business of the GIC and its subsidiaries is transacted under the provisions of the Insurance Act, 1938, and that of its four subsidiaries fully by the GIC.
The working of general insurance corporation companies tends to get neglected in discussions of the financial sector in India. There has been an almost exclusive preoccupation with the working of the LIC. In view of the large amount of funds at the disposal of general insurance companies, more attention needs to be paid to the impact of their working on the financial system.
INSTRUMENTS
GIC Instruments:
»Government
and other approved securities
»Special
deposits with the government
»Shares,
debentures, deposits of companies and term loans
to them
»Loans
to banks as participation certificates
»Equity
shares of public sector undertakings
»Loans
to HUDCO/DDA/GIC-HF/State Governments for housing,
etc
»Others
LIC Instruments:
»Government
and other approved securities
»Loans
for infrastructure facilities
»Loans
for housing development including mortgage loans
»Shares
and debentures of companies
»Loans
to companies including short-term loans
»Others
LIC-Sectoral:
»Public
»Joint
»Cooperative
»Private
TYPES AND STRUCTURE OF BUSINESS
General insurance policies are not financial claims in the way most life insurance policies are. The essence of general insurance is the collective pooling of risks arising from fortuitous occurrences. For insurance to be worthwhile, the premium must be small in relation to the potential loss. The policies in the general branch do not run for a period longer than one year, and with some types, the period is even shorter. There is no guarantee of renewal of policy on the same terms or on any terms. The short-term contracts do not create large funds of invested assets as in the case of life insurance. General insurance companies do not collect savings, yet they do accumulate pools of funds from premium and investment income out of which they meet claims under their policies. Since their liabilities are short-term in nature and claims against them are unpredictable, their assets are held in liquid form. General insurance companies make the payments. They tend to rise during inflation because the cost of repairs and replacements are greater. Thus, they have a greater need both for liquidity and higher return and their investment pattern has to take care of this need.
The general insurance corporation companies are also known as property insurance companies and liability insurance companies. They specialize in insurance in such areas as fire, hail, automobile, inland marine, aviation, theft, loss, damage, liability and so on.
The GIC and its subsidiaries do insurance business in these fields. They have introduced some new non-traditional schemes for purposes, which are of vital importance to the Indian economy. For e.g. the GIC manages Comprehensive Crop Insurance Scheme introduced by the central government in 1985. The GIC meets the requirements of industrial, manufacturing, commercial, services, household, and agricultural sectors through a wide range of 115 products, granting insurance coverage. It underwrites a very vast and diversified portfolio of general insurance. They have developed special package covers and group covers for individuals, taking care of their life, health, and property. Rural insurance and agricultural insurance schemes have been developed so that even the poor can avail of the insurance coverage at economic cost.
It has recently introduced new policies such as Personal Accident Policy for Visitors in Bank Premises, Mediclaim, Householders’ Comprehensive Insurance Policy, Professional Indemnity Insurance, Rejection insurance on marine products, Hut insurance, Nuclear Insurance Pool for insurance of nuclear power plants.
RECENT DEVELOPMENTS
Some of the recent developments in the financial sector reforms are:
»The
central and zonal offices of the LIC should be
restructured and reorganized within a period of
six months. The central office should concentrate
on policy formation, review, evaluation, product
development, pricing, actuarial valuation, investments,
personnel policies, system development, and accounts.
The zonal offices should look after the insurance
business and related matters in their jurisdiction.
»The
GIC should cease to be the holding company, and
its subsidiaries should function as independent
companies. The GIC should function as a reinsurance
company.
»The
private sector should be allowed entry in insurance
business, but no single Indian or foreign company
should be allowed to transact both life and general
insurance business.
»The
entry of foreign companies should be done on a
selective basis. They should float an Indian company
in a joint venture with an Indian partner.
»Prudential
norms and conditions should be finalized to ensure
that insurers do not neglect the small man or
the rural business.
»The
LIC and GIC should operate as board-run enterprises.
»The
institution of ombudsman should be set up by the
general insurance industry.
»The
office of the Controller of Insurance should restore
its full functions under the Insurance Act as
an interim measure. Steps should be taken for
establishing a strong and effective Insurance
Regulatory Authority (IRA) in the form of a statutory
autonomous board on the lines of the SEBI.
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