Insurance Swot

TYPES OF INSURANCE POLICIES

Insurance provides compensation to a person for an anticipated loss to his life, business or an asset.
Insurance is broadly classified into two parts covering different types of risks:
1. Long-term (Life Insurance)
2. General Insurance (Non-life Insurance)
Long-term Insurance
Long term insurance is so called because it is meant for a long-term period which may stretch to several
years or whole life-time of the insured. Long-term insurance covers all life insurance policies. Insurance
against risk to one's life is covered under ordinary life assurance. Ordinary life assurance can be further
clasified into following types: 

Types of Ordinary Life Meaning

Assurance

1. Whole Life Assurance In whole life assurance, insurance company

collects premium from the insured for whole
life or till the time of his retirement and pays
claim to the family of the insured only after his
death.

2. Endowment Assurance In case of endowment assurance, the term of

policy is defined for a specified period say 15,
20, 25 or 30 years. The insurance company
pays the claim to the family of assured in an
event of his death within the policy's term or in
an event of the assured surviving the policy's
term.

3. Assurances for Children i). Child's Deferred Assurance: Under this

policy, claim by insurance company is paid on
the option date which is calculated to coincide
with the child's eighteenth or twenty first
birthday. In case the parent survives till option
date, policy may either be continued or
payment may be claimed on the same date.
However, if the parent dies before the option
date, the policy remains continued until the
option date without any need for payment of
premiums. If the child dies before the option
date, the parent receives back all premiums
paid to the insurance company.

ii). School fee policy: School fee policy can be

availed by effecting an endowment policy, on
the life of the parent with the sum assured,
payable in instalments over the schooling
period.

4. Term Assurance The basic feature of term assurance plans is

that they provide death risk-cover. Term
assurance policies are only for a limited time,
claim for which is paid to the family of the
assured only when he dies. In case the
assured survives the term of policy, no claim is
 paid to the assured.

5. Annuities Annuities are just opposite to life insurance. A

person entering into an annuity contract
agrees to pay a specified sum of capital (lump
sum or by instalments) to the insurer. The
insurer in return promises to pay the insured a
series of payments untill insured's death.
Generally, life annuity is opted by a person
having surplus wealth and wants to use this
money after his retirement.

There are two types of annuities, namely:

Immediate Annuity: In an immediate annuity,
the insured pays a lump sum amount (known
as purchase price) and in return the insurer
promises to pay him in instalments a specified
sum on a monthly/quarterly/half-yearly/yearly
basis. Deferred Annuity: A deferred anuuity
can be purchased by paying a single premium
or by way of instalments. The insured starts
receiving annuity payment after a lapse of a
selected period (also known as Deferment
period).

6. Money Back Policy Money back policy is a policy opted by people

who want periodical payments. A money back
policy is generally issued for a particular
period, and the sum assured is paid through
periodical payments to the insured, spread
over this time period. In case of death of the
insured within the term of the policy, full sum
assured along with bonus accruing on it is
payable by hte insurance company to the
nominee of the deceased.

General Insurance 
Also known as non-life insurance, general insurance is normally meant for a short-term period of twelve
months or less. Recently, longer-term insurance agreements have made an entry into the business of
general insurance but their term does not exceed five years. General insurance can be classified as follows: 

Fire Insurance Fire insurance provides protection against damage

to property caused by accidents due to fire,
lightening or explosion, whereby the explosion is
caused by boilers not being used for industrial
purposes. Fire insurance also includes damage
caused due to other perils like strom tempest or
flood; burst pipes; earthquake; aircraft; riot, civil
commotion; malicious damage; explosion; impact.

Marine Insurance Marine insurance basically covers three risk areas,

namely, hull, cargo and freight. The risks which
these areas are exposed to are collectively known
as "Perils of the Sea". These perils include theft,
fire, collision etc.

Marine Cargo: Marine cargo policy provides

protection to the goods loaded on a ship against all
perils between the departure and arrival
 warehouse. Therefore, marine cargo covers
carriage of goods by sea as well as transportation
of goods by land.

Marine Hull: Marine hull policy provides protection

against damage to ship caused due to the perils of
the sea. Marine hull policy covers three-fourth of
the liability of the hull owner (shipowner) against
loss due to collisions at sea. The remaining 1/4th
of the liability is looked after by associations
formed by shipowners for the purpose (P and I
clubs).

Miscellaneous As per the Insurance Act, all types of general

insurance other than fire and marine insurance are
covered under miscellaneous insurance. Some of
the examples of general insurance are motor
insurance, theft insurance, health insurance,
personal accident insurance, money insurance,
engineering insurance etc.

Clearing basics

Before we begin the analysis of Indian insurance industry, let us clear some basics on insurance. 

 In the words of a layman, insurance means managing risk. For instance, in life insurance segment, the
insurance company tries to manage mortality (death) rates among the wide array of clients.
 The insurance company works in a manner by collecting premiums from policy holders, investing the
money (usually in low risk investments), and then reimbursing this same money once the person passes away
or the policy matures. The greater the probability for a person to have a shorter life span than the average
mark, the higher premium that person has to pay. The case is the same for all other types of insurance,
including automobile, health and property.
 Ownership of insurance companies is of two types:
 Shareholder ownership
 Policyholder ownership

Types of Insurance

1. Life Insurance - Insurance guaranteeing a specific sum of money to a designated beneficiary upon the death
of the insured, or to the insured if he or she lives beyond a certain age.
2. Health Insurance - Insurance against expenses incurred through illness of the insured.
3. Liability Insurance - This insures property such as automobiles, property and professional/business mishaps.

Challenges facing Insurance Industry

 Threat of New Entrants: The insurance industry has been budding with new entrants every other day.
Therefore the companies should carve out niche areas such that the threat of new entrants might not be a
hindrance. There is also a chance that the big players might squeeze the small new entrants.
 Power of Suppliers: Those who are supplying the capital are not that big a threat. For instance, if
someone as a very talented insurance underwriter is presently working for a small insurance company, there
exists a chance that any big player willing to enter the insurance industry might entice that person off.
 Power of Buyers: No individual is a big threat to the insurance industry and big corporate houses have
a lot more negotiating capability with the insurance companies. Big corporate clients like airlines and
pharmaceutical companies pay millions of dollars every year in premiums.
 Availability of Substitutes: There exist a lot of substitutes in the insurance industry. Majorly, the large
insurance companies provide similar kinds of services – be it auto, home, commercial, health or life
insurance.

How to choose an insurance company?

There are many factors to probe into when an investor chose an insurance company.

 The consumers as well as the investors should only focus on the insurer's financial strength and
capability to meet ongoing responsibilities to its policyholders.
 The fundamentals of the insurance company should be strong and should not indicate a poor investment
opportunity as this might also deter growth.

ndustry Example
With the above synapses in mind we would like to apply a SWOT Analysis to the insurance industry for an
example. Keep in mind that this will be written from the agency's perspective.

Major Strengths:
� Premium rates are increasing and so are commissions.
� The variety of products is increasing.
� Prospects expect more services from their brokers.

Major Weaknesses
� Insurance companies are often slow to respond to changing needs.
� There is an increasing trend of financial weakness among the companies.
� There are more competitors for agencies to compete with banks and Internet players.

Opportunities
� The ability to cross sell financial services is barely being tapped.
� Technology is improving to the point that paperless transactions are available.
� The client's increasing need for an "insurance consultant" can open new ways to service the client and
generate income.

Threats
� The increasing cost and need for insurance might hit a point where a backlash will occur.
� Government regulations on issues like health care, mold and terrorism can quickly change the
direction of insurance. Increasing expenses and lower profit margins will hit hard on the smaller agencies
and insurance companies. 
� Increasing expenses and lower profit margins will hit hard on the smaller agencies and insurance
companies.
In a country like India of one billion
people where sky is the limit there
is a vast untapped potentials waiting
for life insurance products. There
are more than 900 million lives waiting
for life cover, 200 million house hold
waiting for household insurance
policy. Millions of people travelling
in and out of India are waiting for
overseas mediclaim and Travel insur-
Bank assurance

Weaknesses :-
In the case of rapid growth of Information
Technology banks and insurance
companies are still lacking
its implementation. Though it is
awakening but it is too late and too
little. In the age of Wide Area Network
(WAN) and Vast Area Network
(VAN), simple LAN has not yet been
introduced even in the head-quarters.
As discussed earlier about the untapped
middle class segments, they
are over burdened with the inflationary
pressure and tax exemption for
all insurance products will inspire the
customers (though it is done partially)
to be insured. Another one is
inflexibility of the products, i.e. they
are not tailor-made to the requirements
of the customer.
Opportunities :-
Though not at the same level,
banks data base in India is enormous
and has to be dissected variously
and various homogeneous groups
are chummed out in order to position
bancassurance products. With a
good IT structure they can really do
wonders. Appropriate atmosphere
and political conscientious have to
be built up for liberalisation and if it
is done then RBI or IRA should have
no hesitation in allowing the marriage
of banking and insurance sectors
to take place. Merger and Acquisition
or setting up of joint venture
is necessary in this direction.

Threats :-
Success of bancassurance venture
requires change in approach,
thinking and work culture on the part
of everybody involved. In India there
is always a tendency to restrict any
change whether its impact becomes
favorable or not. So there should be
a clear vehemence. Sometimes nonresponse
from the target customers
becomes possible threat as it was
found in USA in 1980's and failed.
US banks have turned their attention
( since late 1990's) towards life insurance.
Again the investors in the
capital may turn their face in case the
rate of return on capital falls short of
the existing return on capital. So the
return from bancassurance must at
least match those returns. Also
unholy alliance are not allowed to
take place as there will be fierce competition
in the market resulting in
lower price.

Insurance is the backbone of a country’s risk management system. The Insurance

providers offer a variety of products to businesses and individuals in order to
provide protection from risk and to ensure financial security. They are important
component of financial intermediation chain of a country and are a source of
long-term project capital. Their participation in financial markets evens out
fluctuations. Mitigation of risk and its impact helps organization and individuals to
become entrepreneurs and has a positive effect on growth. The benefit of
insurance as a financial intermediary is thus to provide liquidity in the market by
reducing the cost of capital through mitigating risk. Thus, a strong Insurance
culture of a country can be said to be an indicator of its development and growth
potential. The Insurance Business is broadly divided into life, health and non-life
insurance.

Indian Insurance can be said to have undergone three phases of its evolution viz.
Pre Nationalization, Nationalization and Privatization era. Triton Insurance
Company Ltd promoted by British was the first general insurance company in
Calcutta in 1850. Non-life insurance was finally regulated in 1938 through the
passing of the Insurance Act, which continues till date to be the definitive piece of
legislation on insurance and controls both life insurance and general insurance.
The general insurance business was nationalized with effect from January 1, 1973,
through the introduction of the General Insurance Business Act, 1972. Prior to
1973, there were 107 companies, including foreign companies, offering general
insurance in India. These companies were amalgamated and grouped into four
subsidiary companies of GIC (1) National Insurance Company Limited, (2) The New
India Assurance Company Limited.
 Health was always a priority in India. In 1978, during Alma Atta Declaration
(1978), a programme called ‘Health for All by year 2000’ was chalked out. But
when we look back, it is clear that we are far behind the projected scene. Hence,
in 2002’s National Health Policy the main objective was to achieve an acceptable
standard of good health amongst the general populace of the country.

Though India has experienced a rapid increase of private players in healthcare,

facilities at public hospitals are grossly lacking. Public hospitals have failed to provide free
and low-cost quality care to people. As a result, there is an increased financial burden (83
per cent of the estimated Rs 1,036 is out-of-pocket expense), which is found to be one of
the important reasons of indebtedness in rural areas. Moreover, public health financing is
also inadequate in meeting the rising cost of healthcare. This is due to the focus of public
finance on disease control rather than on the well-being of the person. At the same time,
due to high-value diagnostics and drugs, the cost of healthcare has gone up drastically. So,
health insurance in the form of healthcare financing (Mediclaim) was introduced in India in
1986-1987 by four subsidiaries of General Insurance Company (GIC) to support the ailing
healthcare industry.

Health insurance works on the basic principle of cross subsidisation between young–old;
healthy–sick; and rich–poor. The basic aim was social welfare and provision of good
healthcare for individuals and groups. Strength Weakness Opportunity Threat (SWOT)
analysis of the insurance shows the following:

Strength: Expected to boost the private sector and increase accessibility to healthcare,
which was earlier impossible due to financial barriers.

Weakness: Chances of widening inequity amongst masses and creating a dual system of
care.

Opportunity: Source of financing to the starved health sector.

Threat: Can escalate healthcare costs and wreck the system.

Problem Of Staggering Bills

Earlier, medical insurance did not have the facility of cashless service and hence people had
to pay hefty hospitals bills and submit the claim for re-imbursement to the insurance
company. Though the introduction of Mediclaim had transformed healthcare, patients were
grappling with arranging bills at the time of admission and discharge.

So, with consumer interest in mind, the Insurance Regulatory Development Authority
(IRDA) licensed third party administrators (TPAs) in 2002. TPAs are supposed to work as
mediators who will do all the necessary paper work, while the policyholder simply walks in
and out of the designated hospital or nursing home by merely flashing a health insurance
card. Though health insurance gave a boost to the ailing health sector, the situation today is
very critical, as the claims ratio or the payouts is alarming. Records show that the claims
ratio ranges from 100-400 per cent and above. The question is how and why are insurance
companies managing the health portfolio? It may be a social commitment or interest of the
insurance company towards group insurance policies where they are able to enroll corporate
groups with many insurance policies like fire insurance, asset insurance, health insurance
etc. Though companies make a loss in health portfolio, it is subsidised with other insurance
policies taken by the corporate.

Problems And Challenges

A closer look into the unregulated sector shows there are many factors that cripple the
functioning of insurance sector:

Hospital Related

 Overcharging by some health providers from insured persons.

 Differential rates for cash and insurance patients in hospitals.
 In many hospitals, a doctor’s charge is negotiable in higher-class rooms and
comprises 70-80 per cent of the total hospital bill.
 Average length of stay (ALOS) is high in nursing home/hospitals where occupancy is
low.
 Manipulation of the patient history.
 Patients getting discharged from the ICCU room.
 Some hospitals at present are extracting maximum permissible claim through nexus
with client.
 Different tariff rates for similar services in various hospitals.
 Unrelated investigations are on the rise, increasing healthcare cost. Moreover,
because of rise of cases in consumer courts, hospitals do not want to take a risk and
rely more on several investigation reports.

Insurance Policies Related

Insurance products are not designed properly at many occasions, creating confusion. Here
are a few points yet to be taken care of:

 Premium is too low for the sum assured. Average premia is between one-two per
cent of the sum assured, as compared to two-three per cent in developed countries.
 Low competition and inadequate range of products.
 There is no ceiling on room categories as per the sum insured, so all patients wish to
get admitted in special rooms/suites. Currently, a person with Rs 50,000 sum
insured and a member with Rs 7,00,000, both want to get into the deluxe rooms or
suites.
 Policy exclusions are not clearly defined. For instance, if a person while taking
insurance is suffering from hypertension and hyperlipidemia, it needs to be clear in
the policy exclusion that cardiovascular diseases will not be covered; rather than
mentioning treatment of hypertension and hyperlipidemia will not be covered.
 Need for a medical check before the commencement of the policy, if feasible.

Policy Holders

 Members converting outpatient procedures as inpatient. Approximately, six-seven

per cent of people covered lodge a claim compared to 3.2 per cent of population with
inpatient episodes.
  Fraudulent claims are on the rise.
 Younger age groups are not encouraged to buy insurance.
 Persons with high probability to fall sick buy insurance.
 Healthcare spendings of population with insurance is thrice that of the population
without insurance.

Insurance Company Related

 Non-life insurers prefer group policies. Individual policyholders are not a priority
 Insurers are reluctant to be in the business. No stand-alone health insurance player
in the market, other then Star Health and Allied Services, have entered the sector
recently.
 Life players offer critical illness riders.

Government Related

 Absence of institutional frameworks for accrediting, monitoring, regulating and

adjudicating.
 No strict laws to regulate provider practices, costs and quality.
 No proper regulatory bodies to monitor compliance to laws. Many nursing homes are
operating with registrations from the local bodies.
 Disproportionate public funding – due to impact of political compulsions on allocative
issues. For instance, resources given to polio eradication or HIV/AIDS.

TPAs

 Managing cost is the biggest problem as rates are not controlled by TPAs.
 Minimum standard of care is not clearly defined.
 Choosing appropriate service provider is becoming a challenge.
 Claim settlement, especially of mediclaim, takes longer time.
 Small nursing homes and some of the hospitals are being avoided by TPAs to avoid
unnecessary documentation.

General Factors

 Poorly-regulated insurance markets, which is threatening the financial system of

healthcare.
 Skewed health risks – large pool of the uninsurables.
 Interconnection between poverty, unemployment and ill health.
 Prolonged life spans – increased chronic diseases.
 Increase in risk factors and disease burden.
 Variability in healthcare expenditure – cataract surgery ranges from Rs 5,000 to Rs
75,000.
 Inequitable distribution of healthcare infrastructure.
 No standard treatment protocol.
  Most poor states have no providers to deliver the package of services. Not even
pathology labs for basic diagnostics.
 No common terminology for disease and grouping of disease.
 No appropriate data about incidence of disease and to measure level of risk.
 No date for post surgery complication rates.
 No information about hospital infection rates.

Overcoming Challenges

As it is now clear that insurance is the protection for high healthcare cost, it is time for all
stakeholders to join hands to overcome the challenges for survival of the industry.
Regulations and managed insurance market can also play an important role in moving
health financing towards greater equity. Some recommended steps may be as follows:

Hospitals

 Accreditations and standardisation of the tariff as far as possible for similar pattern
of healthcare providers.
 Regular orientation to the doctors regarding health insurance.
 Concept of negotiable doctor’s fees should be discouraged as far as possible.

TPAs

 TPAs should increase their network to hospitals in all areas, which will lead to
increased competition, and more bargaining power for TPAs.
 TPAs should be directed for faster settlement of claims.
 Selecting some specific hospitals for group insurance policies where the hospitals will
be assured of some volume of business and in a position to offer better discounts.
 Indoor case paper and medical history can be made a regular document for the
submission of the claim.
 All the problems should be supported by positive investigation report wherever
applicable.
 Empanelling hospitals with fixed hospital schedule and not encouraging hospitals
with negotiable doctor’s fees.
 Frequent visit to the hospital to meet the patient in the hospital.

Policy Conditions

 Policy exclusion should be very clear.

 Capping in the room category as per the policy coverage with a upper limit is
important. For instance, patients get admitted in a Rs 15,000 presidential suite in
leading hospitals increase the healthcare expenditure burden on insurance
companies.
 Three years’ cataract exclusion with an upper limit as per the sum insured. It has
been observed that cataract claims is high in second year of the policy immediately
 after the first year exclusion. It is recommended that public insurance company
should exclude cataract for at least three years.

Insurance Companies

 Creating more awareness regarding health insurance.

 Strong underwriting and claims management.
 Review of mediclaim to cover ‘existing illness’, if possible with a higher premium.
 Introduction of new products for different segments.
 Offer products for specific treatments to profitable segments.
 Remove life/non-life categorisation for writing reimbursement-based health policies.
 Agents and private players should target new markets in rural and semi-urban areas,
rather than tapping the same market. This will increase the penetration of health
insurance.
 Control costs by managing or controlling hospitals, ie shifting to the concept of
Health Management Organisation (HMO).

Government

 Recognising health insurance as a separate line of business.

 Reduce capital requirement for health insurers from Rs 100 crore to Rs 30-50 crore.
 Introduce capital monitoring and product level norms for private health insurance.
 Accreditation and benchmarking of health providers. There should be some quality
standards and protocols to follow.
 Invest in training doctors, providers, health economists, cost accountants,
epidemiologists, hospital managers, record keepers in computerisation etc.
 Reform public health system by decentralisating autonomy and invest more to
ensure standards.
 Government-controlled health trusts can facilitate public–private partnership in a
competitive environment.

General Factors

 Encouragement of HMO, PPOs and managed care for sustaining in the business.
 Public education and awareness needs to be increased through media as to use of
insurance.
 Social insurance/employer-based insurance for organised sector.

Recent Initiatives By IRDA

 Co-ordination between insurers and TPAs through regular meetings.

 Micro-insurance: Encourage community initiatives in marketing and servicing of
health insurance, especially in the rural communities in the form of offering micro-
insurance products.
 Health Insurance Working Group (HIWG): Representation from ministries of
health, finance, ESI, CGHS, corporate hospitals, insurers, TPAs, actuaries and NGOs.
Terms Of Reference Of HIWG:

 Discussion of issues pertaining to development of health insurance.

 Involvement of stakeholders for strategy development.
 Elaborating a framework for development of private health insurance in India.
 Collaborating on tasks needed to discover and assess the current status of private
health insurance and managed care schemes.

Sub Group On Health Insurance Data Terms Of Reference:

 Examining current data availability.

 Standardisation of common data elements for collection of data.
 Identification of standard coding systems.
 Creation of data warehouse and actuarial analysis of data.
 Pricing of new health insurance products.
 Submission of data by insurers/TPAs in approved formats – for previous two financial
years.
 Standardisation of data submissions electronically after adopting coding systems and
standards.
 Actuarial review of data by insurers to develop and price new products.
 Creation of national health data repository and tariff advisory committee as the
custodian.

Conclusion

Health insurance is like the knife. In the surgeon’s hand it can save the patient, while in the
hands of the quack, it can kill. Health insurance in India needs to be customized to suit our
conditions.