Shield India Insurance Brokers PVT Commerce Essay

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Shield India Insurance Brokers Pvt. Ltd is a private insurance brokering firm that matches clients to insurers. It is an insurance intermediary that focuses on the Urban and Semi-Urban Indian market which includes business organizations and individuals. Its Head Office will be located in Pune, Maharashtra in India.

Assumptions -

1. Country: In a developing country like India with highly trained professional candidates, organizations can retain employees and reduce employee turnover by providing various benefits like healthcare and pension plans. Most candidates and trade unions expect employers to take care of their employees by providing these benefits. There are many risks which companies also face in their day to day business which can be minimized. Insurance is a part of a regulated market or controlled market where the services are regulated by the government. There is an assumption that the company has received the Direct Broker's License from the Insurance Regulatory and Development Authority (IRDA).

2. Economy: The Cabinet has increased the foreign direct investment (FDI) and foreign institutional investment (FII) in the Insurance Sector from 26% to 49%. The Finance Minister, P Chidambaram says that the sector requires $5-6 billion of capital immediately. The economy in the last few weeks has improved due to changes in economic policies by the government. Insurance is subject to stock market risk and the stock market sentiment is becoming positive and the people are willing to invest. The assumption is that organizations are recovering from the recession in 2008 and the slump in the stock market and are therefore increasing the number of employees in the company and providing them with health benefits.

3. Paid Up Capital:

According to the Regulation 10 of the Insurance Regulatory and Development Authority (Insurance Brokers) Regulations, 2002 a direct broker must have a minimum paid up capital of fifty lakh rupees.

Also according to Regulation 22 "Every insurance broker shall before the commencement of his business, deposit and keep deposited with any scheduled bank a sum equivalent to 20% of the initial capital in fixed deposit, which shall not be released to him unless the prior permission of the Authority is obtained."

According to the Sub-Regulation (1) of Regulation 18, Schedule II, of Insurance Regulatory and Development Authority (Insurance Brokers) (Amendment) Regulations, 2007 a Direct Broker at the time of application of license must pay a non-refundable application fee of twenty-five thousand rupees and in the subsequent years pay an annual license fee equal to the "sum calculated at the rate of 0.50 per cent of remuneration earned in the previous financial year subject to a minimum of twenty-five thousand rupees and a maximum of one lakh rupees."

According to Regulation 2(B) of Insurance Regulatory and Development Authority (Insurance Brokers) Regulations, 2002 a license will only be provided when "the applicant has the necessary infrastructure, such as, adequate office space, equipment and trained manpower to effectively discharge his activities."

Keeping all these requirements in mind the assumption is that the paid up capital should be one crore rupees.

4. Labour: According to Regulation 2(B) of the Insurance Regulatory and Development Authority (Insurance Brokers) Regulations, 2002, the license granting authority will take into account "whether the applicant has in his employment a minimum of two persons who have the necessary qualifications below and experience to conduct the business of insurance broker." Insurance is a people to people business. The nature of insurance requires agents to build personal relations with clients to create trust. Insurance is never bought but always sold. Hence to increase business, more the number of employees, more the business. Insurance is an over-penetrated sector with High Network Individuals (HNI), but is highly underpenetrated in mid-income families. As these clients require a lot of follow up the assumption is that the business will require twenty employees, out of which -

Ten employees will be responsible for the field business.

Ten employees will be responsible for tele-calling and follow up activities.

Insurance is therefore a labour intensive sector requiring candidates which have the ability to sell.

5. Affiliation: Another important assumption is that the company has received permission for empanelment from various -

General Insurance Companies - National, New India, United India, Oriental, Tata AIG, HDFC ERGO, ICICI Lombard, Reliance etc.

Health Insurance Companies - Apollo Munich, Max Bupa and Star Health.

Life Insurance Companies - LIC, Max, Aviva, Bajaj Alliance, ICICI Prudential, Star Union Dai-ichi, Birla Sunlife, ICICI Prudential, IDBI Federal, ING Vysya, Kotak, MetLife, Reliance etc.

Overview of the Sector

Insurance is a form of risk management primarily used to protect against the risk of a contingent and uncertain loss. It is a practice by which an insurance company provides a guarantee of compensation for specified loss, damage, illness, or death in return for payment of a premium.

An insurance broker sells, solicits, or negotiates insurance for compensation in the form of commission. An insurance broker differs from an insurance agent. An insurance agent can provide his clients with limited services as he can get a license for agency from only one life insurance organization whereas an insurance broker can be empanelled with various life insurance companies thereby providing his clients with a variety of services.

Shield is committed to providing value to its customers by understanding their insurance needs and providing innovative, cost effective and customised solutions to ensure total customer satisfaction. Its role encompasses various activities right from client profiling to claims administration for customers. Shield aims to play a predominant role in the insurance broking industry in India with a focus on giving more value to customers, innovative solutions, superior services, a professional team, and corporate social responsibility.

Table 1

The advisory process of Shield will involve the following activities -

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Services Offered: Shield India Insurance Brokers Pvt. Ltd provides various insurance services for employees such as -

Health Insurance: With medical expenses being on the rise people worry about emergency health problems which could wreak havoc on finances. Shield offers a variety of insurance plans from the market which includes individual, family and senior citizen insurance plans.

Personal Accident Insurance: According to Global Status Report on Road Safety by the WHO at least 13 people die every hour in road accidents in the country. A Personal Accident Insurance would not only cover medical expenses but also provide compensation for the individual's disablement or death.

Motor Insurance: One of the many perks offered by many business organizations to its employees are chauffer driven cars. These cars and other utility vehicles like vans, trucks, buses etc. need to be insured against accidental damage, theft and injury.

Travel Insurance: Another perk provided as incentive by many business organizations is travelling abroad. Travel insurance protects individuals from unforeseen risks like loss of baggage, loss of passport and any other personal liability.

Fire Insurance: Fires can cause damage to property and life. Financial losses up to crores can be incurred due to fires. Thus Shield offers a variety of insurance policies to recover losses incurred due to the burning down of factories, offices etc.

Industrial Insurance: This type of insurance provides for work related injuries or sicknesses. It also covers an injured worker's treatment and recovery expenses. It also provides for partial wage for injured workers who are temporarily unable to work. Industrial Insurance is especially required for manufacturing industries.

Liability Insurance: This type of insurance protects a business from the risk that they may be sued and held legally liable for something such as negligence, injury or malpractice. Liability insurance policies cover both legal costs and any legal payouts for which the insured would be responsible if found legally liable.

Government Policies: The license for Direct Broker's License is provided by the Insurance Regulatory and Development Authority (IRDA).

According to the Regulation 10 of the Insurance Regulatory and Development Authority (Insurance Brokers) Regulations, 2002 a direct broker must have a minimum paid up capital of fifty lakh rupees.

According to Regulation 2(F) of the Insurance Regulatory and Development Authority (Insurance Brokers) Regulations, 2002, the license granting authority will take into account whether the principal officer of the application −

(i) possesses the minimum qualification of:

Bachelors/ Masters degree or its equivalent from any institution/ university recognized by any State Government or the Central Government; or

Masters in Business Administration or its equivalent from any institution/ university recognized by any State Government or the Central Government; or

(ii) the principal officer of the applicant has received at least one hundred hours of

theoretical and practical training from an institution recognized by the Authority from

time to time according to a syllabus approved by the Authority.

(iii) has passed an examination, at the end of the period of training mentioned in the

proviso above, conducted by the National Insurance Academy, Pune or any other

examining body recognized by the Authority.

To set up a Private Limited Company, the organization has to register under the Companies Acct, 1956 with the Registrar of Companies (ROC) and file its Memorandum of Association and its Articles of Association to receive its Certificate of Incorporation.

Growth: India's insurance industry recently underwent major structural changes. Both the life and general insurance sectors, which were nationalized in the 1950s and 1960s, respectively, saw an across-the-board liberalization process in 2000. Recently the Cabinet has increased the foreign direct investment (FDI) and foreign institutional investment (FII) in the Insurance Sector from 26% to 49%. The Finance Ministry has clarified that the 49 per cent limit on foreign investment in insurance will be a 'composite' one. That is, a combination of foreign direct investment (FDI) and foreign institutional investment (FII).

The insurance sector grew at nearly 40% - 50% from 2004 to 2008; but due to the economic downturn world over saw a deceleration of 15% per annum in the last 2 - 3 years. The life insurance sector is slated to grow at 12% - 15% in over the next five years. Indian Insurance Sector is cumulatively valued at over US$ 66 billion. Released on April 11th 2011, a study by the Federation of Indian Chamber of Commerce and Industry (FICCI) and the US-based Boston Consulting Group (BCG) titled 'India Insurance, Turning 10, Going on 20′, reveals that awareness and total penetration of insurance services (premiums as a percentage of GDP) in India have increased from 2.3 percent of the population in 2001 to 5.2 percent in 2011.

Short and Long Run Strategies:

After adhering to all the regulations set up by the Insurance Regulatory and Development Authority (IRDA), Shield plans to employ a Managing Director, Haresh Daryanani and set up a Human Resource Department.

Subsequently at least twenty employees should be employed, out of which -

a. Ten employees will be responsible for the field business.

b. Ten employees will be responsible for tele-calling and follow up activities.

To penetrate the market he Haresh Daryanani (MD) has contacts with small and medium industries.

There is also a list of companies that can be contacted on the website of Maharashtra Chambers of Commerce.

Hopefully Shield would reach the break-even point in three years.

Profits Projection

(a) 2013-2014: nil

(b) 2014-2015: Twenty-Five Lakh Rupees

(c) 2015-2016: Fifty Lakh Rupees

(d) 2016-2017: One crore

The company would then start expanding to semi-urban areas Nagpur and Nasik and urban areas like Mumbai after five years.

Data and Analysis

Pie-Chart 1

Market Share of Life Insurance Companies according to IRDA

http://freepress.in/wp-content/uploads/2010/10/life_insurers_market_share.jpg

The Latest Market Share of all the Life Insurance companies operating in India at the end of March - 2011 / FY 2011 is as shown in the Pie-chart above. The following Data suggests that LIC of India is still the market leader followed by ICICI Prudential, HDFC Standard Life, SBI, Reliance, Bajaj, Birla Sun Life, Max New York etc.

Pie Chart 2

Market Share of General Insurance Companies

Although the players in the private and public sector largely offer similar products in the non-life insurance segment, private sector players outscore their public sector counterparts in their quality of service.

Pie Chart 3

Product Mix of General Insurance Companies

Products are mainly divided as Commercial vs Personal/retail products. Growth for the largest private sector players has been fueled by the retail segment. Auto continues to be the largest business segment.

Graph 1

Growth Chart of Health Insurance

http://www.healthinsuranceindia.org/right_img/Growth%20graph%20of%20Health%20Insurance.jpg

As People are conscious of health care and hence need for Health Insurance is increasing year by year. Healthcare costs are increasing at 20% per year. People have started giving more importance to health insurance with a life insurance. We feel large number of people are now on the verge of becoming buyer/ customer of health insurance.

Graph 2

Insurance Premiums as a Percentage of Gross Domestic Product (GDP)

Capture 2.JPG

The country's strong economic growth in recent years has helped increase penetration levels substantially. Premium income, as a percentage of GDP, increased from 3.3% in FY03 to 7.6% in FY09. However, the penetration of insurance in India still continues to be low, as compared to other developed and developing economies.

Graph 3

Per Capita Insurance Premium

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The Indian life insurance sector has witnessed exponential growth, driven by innovation in product offerings. Currently, it is the fifth-largest life insurance market in Asia. The rapid expansion in the life sector coincided with a period of rising household savings and a growing middle class. Innovative product design (e.g. launch of ULIPs) and aggressive distribution strategies (e.g. development of bancassurance) by private sector players have significantly contributed to strong premium growth. The following diagram shows the increasing premium per capita during the same period.

Competitors: There are very few competitors in the Private Insurance Brokering Market in Pune. According to the Insurance Regulatory and Development Authority (IRDA) they are

1. Nipun Ins. Brokers Pvt. Ltd.

2. Landmark Insurance Brokers Pvt Ltd (Earlier known as Surekh Insurance Brokers Pvt Ltd)

3. United Risk Ins. Broking Co. Pvt. Ltd.

4. Vantage Insurance Brokers & Risk Advisors Pvt. Ltd (Earlier known as Vantage Ins. Brokers

Pvt. Ltd.)

5. Rest Assured Ins. Broking Pvt. Ltd. 

Twenty percent of all the Life Insurance policies provided by life insurance companies are sold by Private Brokering Firms. Shield by the end of its second year plans to capture at least twenty percent of the market share in Pune.

Conclusion

With an annual growth rate of 15-20% and the largest number of life insurance policies in force, the potential of the Indian insurance industry is huge. Total value of the Indian insurance market (2004-05) is estimated at Rs. 450 billion (US$10 billion). According to government sources, the insurance and banking services' contribution to the country's gross domestic product (GDP) is 7% out of which the gross premium collection forms a significant part. The funds available with the state-owned Life Insurance Corporation (LIC) for investments are 8% of GDP.

The Indian insurance industry will continue to outpace the country's economic growth and is projected to reach US$ 350 to 400 billion in premium income by 2020. These figures will put India amongst the top three life insurance and top fifteen non-life markets in the world within the next nine years, according to a new report.

At present, the insurance sector in India comprises of 23 different life and 24 non-life companies, and is cumulatively valued at over US$ 66 billion. The development opportunity for life and non-life insurance coverage is being driven by the continued growth of India's population and economy.

Released on April 11th 2011, a study by the Federation of Indian Chamber of Commerce and Industry (FICCI) and the US-based Boston Consulting Group (BCG) titled 'India Insurance, Turning 10, Going on 20′, reveals that In addition, there has been a substantial increase in coverage. The report detailed that the number of life insurance policies now in force had increased almost 12 times over the past decade and the number of people receiving health insurance had also risen nearly 25 fold.

"This massive growth will have a significant impact on India's ranking in the global insurance industry and is based on strong fundamentals," remarked FICCI Director General Rajiv Kumar.

Growing consumer class, rising insurance awareness, and increased investments and infrastructure spending have built a strong platform for premium expansion in India.

The opening up of the insurance sector for private participation/global players during the 1990s has generated stiff competition among the players, with each player offering better quality products. This offers consumers the choice to buy a product that best fits his or her requirements. However, customers are not well aware of how to choose a suitable product to match their requirements. This is where Shield comes in and makes it easier for clients to choose a product which matches their requirements. There has been a recent upswing surge in the market due to the revamp in policies which increases investor confidence. This will therefore increase the rate of growth of insurance.

Recently the Cabinet has increased the foreign direct investment (FDI) and foreign institutional investment (FII) in the Insurance Sector from 26% to 49%. The Finance Ministry has clarified that the 49 per cent limit on foreign investment in insurance will be a 'composite' one. That is, a combination of foreign direct investment (FDI) and foreign institutional investment (FII).

This change in policy will increase the investment by foreign investors in Indian Companies.

Shield will grow and expand as we are generally targeting business organizations that will provide us with group insurance schemes. As employee turnover has been high, employees and the organization have to be insured again and again. By maintain good personal relations with the company we plan to provide excellent services so that our clients do not go to other brokers.

Shield will also try and target high income families providing them with a personalized risk portfolio (health, financial) and a variety of products to suit their needs. Insurance, especially health insurance, is not really affected by negative economic factors as health insurance is especially needed during financial crisis. Shield will capitalize on this product and provide personalized services especially during claim processing to reduce the burden on the family. As the motto says Minimize Risk, Maximize Caring; Shield will provide excellent services not only for profit but also to safeguard people from future uncertainties.

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