Insurance Risk

Presented By: Akshay Virkar

Table of Contents

Sources

Conclusion

Investment Risk

Investor Risk

Classification of Risk

Regulatory Body

Corporate Governance

Compliance

Introduction

“Insurance is a social device whereby the uncertain risk of individuals may be combined in a group and thus made more certain, small periodical contribution by individual providing a fund out of which those who suffer losses may be reimbursed”.

Meaning of insurance

The Essentials of valid insurance contract are Offer and AcceptanceConsideration Capacity to contract Free consentLegality of purpose

Compliance in Insurance

Investments.

Anti - Money laundering.

Standard Formats.

Fraud Risk Management Systems.

Unfair or Misleading Advertisement.

Type of Investment Life Insurance

General Insurance

Government Securities (Not less than ) 25%, 20%

State Government Securities or other approved securities (Not less than )

30%, 30%

Approved Investments as specified in Schedule I (not exceeding) Infrastructure and Social Sector 15% 20%

Others to be governed by Exposure. 20% 10%

Other than in Approved Investments to be governed by Exposure

10% 20%

Investments

Source : IRDA.GOV.IN

Fraud Risk Management Systems

Internal Fraud. Policyholder Fraud and Claims Fraud. Intermediary fraud.

In order to adequately protect itself from the financial and reputational risks posed by insurance frauds, every insurance company shall have in place appropriate framework to detect, monitor and mitigate occurrence of such insurance frauds within its company.

Unfair or Misleading Advertisement

Makes claims beyond the ability

Makes unfair or incomplete comparisons with products which are not comparable or criticizes competitors

Uses words or phrases in a way which hides or minimizes the costs of the hazard insured against or the risks inherent in the policy

Omits to disclose or discloses insufficiently, important exclusions, limitations and conditions of the contract

Corporate Governance in insurance

• Corporate governance defines organizational roles and responsibilities of an enterprise.

• It generally encompasses five areas: corporate culture and environment, corporate structure, governing policies, controls and procedures and decision making.

Guidelines on Corporate Governance in insurance company (LIC)

• Well developed risk culture and risk management and internal control systems, supported by effective and independent control functions.

• A high level of financial expertise among board members and within senior management.

• Policies and procedures that ensure proper treatment of customers and policyholders.

• The insurance sector, the regulatory responsibility to protect the interests of the policyholders demands that the insurers have in place, good governance practices for maintenance of solvency, and assumption of underwriting risks on a prudential basis.

Regulatory Body of Insurance Sector

Introduction to Insurance Regulatory and development Authority of India

Insurance Regulatory and Development Authority (IRDA) is an autonomous apex statutory body which regulates and develops the insurance industry in India. It was constituted by a Parliament of India act called Insurance Regulatory and Development Authority Act, 1999 and duly passed by the Government of India. The IRDA Act, 1999 also allows private players to enter the insurance sector in India besides a maximum foreign equity of 26 percent in a private insurance company having operations in India. The FDI limit in insurance sector was raised to 49% in July 2013.

It serves as an Authority to protect the interests of holders of insurance policies, to regulate, promote and ensure orderly growth of the insurance industry and for matters connected therewith.

Role of the Insurance Regulatory and Development Authority (IRDA)

IRDA is responsible for the renewal, modification, withdrawal, suspension or cancellation of this certificate of registration.

IRDA frames regulations on protection of policyholders' interests.

It offers policyholders the right to voice their complaints against insurers or insurance companies

The IRDA has set up the grievance redressal cell to take up the complaints of the policyholder.

It specifies the requisite qualifications, code of conduct and practical training for insurance intermediaries and agents

It promotes efficiency in the conduct of insurance businesses.

It levies fees and other charges to carry out the purposes of the IRDA Act.

It can call for information from, undertake the inspection of, conduct enquiries and investigations including the auditing of insurers, intermediaries, insurance intermediaries and other organisations connected with the business of Insurance.

It regulates the investment of funds by insurance companies.

It regulates the maintenance of margins of solvency.

It adjudicates disputes between insurers and intermediaries or insurance intermediaries.

It specifies the percentage of life insurance business to be undertaken by an insurer in the rural or social sector.

Classification of Insurance Risk

Risk

Financial & Non financial Risk

Static & Dynamic Risk

Fundamental & Particular Risk

Pure & Speculative Risk

Internal & External Risk

Investor Risk

Undisclosed Information

Exchange Rate

Rising Premium

Language of Premium

Closedown of policy

Investment Risk in Insurance

• Physical Environment

• Technological environment

• Social Environment

• Political Environment

• Economic environment

• Legal Environment

Conclusion

Sources

• www.irda.gov.in• Insurance Management by Aarthi Kalyankaram &

Shraddha Bhome• www.wealth.economictimes.com• http://www.business-standard.com• www.prokerala.com/banking/articles/insurance-

investment-option.php• www.incomeprotectionadvisors.com• Strategic Business Risk by Ernst & Young

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