Q.1 Explain the steps involved in Risk Management Technique
The steps involved in risk management techniques-
1 Avoiding Risks If Possible
Risks that can be eliminated without an adverse effect on the goals of an individual or business probably should be avoided. Without a systematic identification of pure risk exposures, however,some risks that easily could be avoided may inadvertently be retained.Consider the plight of the not-for-profit organization, SEWA which operates several shelters tofeed and house homeless persons. A wealthy patron dies, leaving the entire estate to SEWA.Included in the estate are an apartment complex in Delhi and some undeveloped land near ahazardous waste site in Mumbai. Both properties present substantial risks, whether SEWA isaware of them or not. But the organization will not likely be interested in keeping these properties and actively managing the risks inherent in them. After carefully considering its goalsand priorities as well as the possible and probable losses associated with the properties, SEWAmay decide that the best solution is to sell the real estate and use the cash to finance its other activities. By doing so, the organization will avoid several risks present in the said properties.
2 Implementing Appropriate Loss Control Measures
In case of risks that a business or individual cannot or does not wish to avoid, considerationshould be given to available loss control measures. In analyzing the likely cost and benefits of loss control alternatives, it should be recognized that loss control will always be used inconjunction with either risk retention or risk transfer. That is, even if substantial funds are spentto reduce loss frequency and severity, some risk will still be present. In fact, objective risk mayactually increase when actions are taken that decrease the chance of loss. Thus, either theremaining risk will be retained or it will be transferred to another party. This phenomenon is truewhether it is specifically planned or happens by default.Therefore, part of the cost/benefit analysis regarding potential loss control is recognition of thelikely effects on the transfer or retention of the risk existing after loss control measures areimplemented. For example, X42 store is concerned about burglars breaking into its building, because it is located in a high-crime neighbourhood. To help protect itself, X42 is consideringinstalling a high-power security and alarm system. In analyzing this situation, X42 should think about both the effect on the chance of loss due to burglary and the fact that the cost of its crimeinsurance may be lowered if it installs a reliable system. Hence, X42 may purchase lessinsurance and engage in relatively more risk retention following the loss control measures.
3 Selecting the Optimal Mix of Risk Retention and Risk Transfer
As stated, loss control decisions should be made as part of an overall risk management plan thatalso considers the techniques of risk retention and risk transfer. To further complicate thedecision-making process, risk retention and risk transfer often will both be used, with therelevant question being, “What is the appropriate mix between these two techniques?”

Q.2 Explain the concept of banassurance and bring out the latest development in the banking Industry for promoting banassurance products.

The Concept of Bancassurance
Bancassurance is a concept that has rewritten the way in which insurance products are distributedin many parts of the world and has the potential to do the same in many other markets. Byoffering a holistic financial services package, encompassing banking, insurance, lending andinvestment products, banks can maximise distribution of products to a captive customer base. Inmarkets where it is firmly established bancassurance channels can take an impressive market share of new life business – around 55% in France and between 20% and 30% in many other European countries.Bancassurance – a term coined by combining the two words ‘bank’ and ‘insurance’ (in French) – connotes distribution of insurance products through banking channels. Bancassuranceencompasses terms such as ‘Allfinanz’ (in German), ‘Integrated Financial Services’ and‘Assurebanking’. This concept gained currency in the growing global insurance industry and itssearch for new channels of distribution, with their geographical spread and penetration in termsof customer reach of all segments, have emerged as viable sources for the distribution of insurance products. However, the evolution of bancassurance as a concept and its practicalimplementation in various parts of the world, have thrown up a number of opportunities andchallenges. Aspects such as the most suited model for a given country with its economic, socialand cultural ramifications interacting on each other, legislative hurdles, and the mindset of persons involved in this activity, have dominated the study and literature on bancassurance.Bancassurance is the distribution of insurance products through the bank’s distribution channel.It is a phenomenon wherein insurance products are offered through the distribution channels of the banking services along with a complete range of banking and investment products andservices. To put in simple terms, bancassurance tries to exploit synergies between both theinsurance companies and banks.Bancassurance if taken in right spirit and implemented properly can be win-win situation for allthe participants viz., banks, insurers and the customer.

Latest development in the banking Industry for promoting banassurance products
Bancassurance has developed in parallel to the dramatic expansion of the world’s life insurancemarket since the mid-1980s. This expansion has relied mostly on savings-type insurance products, a significant portion of which are very close to traditional banking products such asfixed-income securities or mutual funds. European wide, bancassurance has been far moresuccessful selling savings-type products than risky products such as those relating to longevity or disability. For these kind of risky products, as well as for property and casualty insurance,traditional insurers have kept their market leadership. While they also have expanded verysignificantly in the life insurance business, it has been at a slower pace than bancassuranceinstitutions, which have benefited from the recycling of savings deposits into life products inseveral countries. This has notably been the case in France, Belgium, Spain and Portugal.A range of bancassurance business models exists and this affects the type of legal structuresused. Nevertheless, these legal structures fall into three main above- mentioned categories:“Partnerships”, “Joint ventures” or “captives”.
(a)The Partnership Model
In this model, the insurance company distributes its products partly, though not exclusively,through a banking channel. In addition, there is no dedicated legal entity to underwrite this business, which is in practice directly accounted for on the insurer’s balance sheet. Under thismodel, the insurance company typically pays distribution commission to the bank, which is inturn offset by entry and management fees charged to policyholders. The relationship between the bank and the insurer may also be complemented by a more or less significant shareholding or cross-shareholding.The business logic for such a model is the recognition by a bank of a real need to be in a positionto offer (mostly life) insurance products to its customers while being unable or unwilling todevelop such expertise internally. In some cases, it may also be a way for the bank to createcompetition among various insurance providers to attract clients by adding value to itsdistribution capabilities.
(b) The Joint Venture Model
This business model relies on a more or less balanced shareholding between one or several banksand an insurance group in a joint venture insurance company. This joint venture distributes its products only through the network of its banking parent(s). In addition, the relationship betweenthe bank and the insurer is sometimes reinforced by a strategic shareholding.The joint venture typically pays distribution commissions to the bank, which are in turn offset byentry and management fees charges to policyholders. In addition, the bank also benefits from the joint venture’s profitability through dividends paid. As in the case of the partnership model, the business logic for creating a joint venture is a recognition by a bank of a real need to be in a position to offer (mostly life) insurance products to its customers with an intention to build upexpertise in this area. Typically, the joint venture is granted exclusive access to market insurance products through the bank’s network.
(c) The Captive Model
According to this model, an insurance company markets its products almost exclusively throughthe distribution channel of its banking parent. In such cases, the ownership by the bank in theinsurer is typically very high, often 100%. The captive insurance company typically paysdistribution commissions to the bank, which are in turn offset by entry and management feescharged to policyholders. In addition, the bank also benefits from the insurer’s profitabilitythrough dividends paid. When compared to the partnership model or a joint venture, the logic for the captive business model is the recognition by the bank of a real need to be in a position notonly to offer (mostly life) insurance products to its customers but also to keep the full know-howand profitability of the business in-house. The insurance captive becomes an important tool of the bank’s marketing policy and is a separate legal entity only due to regulatory constraints. Nevertheless, it is very important that the bank management has sufficient understanding of theinsurance business.

Q.3 Detail the future growth and opportunities of Indian Insurance Industry
Insurance sector in India is one of the booming sectors of the economy and is growing atthe rate of 15-20 per cent annum. Together with banking services, it contributes to about 7 per cent to the country's GDP. Insurance is a federal subject in India and Insurance industry in Indiais governed by Insurance Act, 1938, the Life Insurance Corporation Act, 1956 and GeneralInsurance Business (Nationalisation) Act, 1972, Insurance Regulatory and DevelopmentAuthority (IRDA) Act, 1999 and other related Acts.The industry is not just growing in terms of number of insurers, branch offices, employees or agents. The growth is also reflected in the business figures. There was a phenomenal growth inthe New Business Premium, Renewal Premium, Total Premium Income as well as the number of policies sold. The following table portrays the picture of life insurance business during the pastdecade.There was about 10 fold increase in the new business life insurance premium collected over a period of 9 years. The continuous growth witnessed in this parameter after the enactment of IRDA Act was reversed for the first time during 2008-09, when the New Business Premiumdeclined by 7.2%. This indicates that the fallout of sub-prime crisis was visible in terms of thenew business procured by the Indian life insurers. However, the total premium collected by theinsurers increased by over 10% and crossed the whopping figure of Rs.2.21 lakh crores asagainst Rs.2.01 lakh crores during the previous year. Although the growth in total life premiumcontinued during 2008-09, the rate of growth was slower at 10.2% compared to 29% growthwitnessed during the previous year. There was a growth of above 738% in the total premiumcollections since the entry of private players in the year 2000. As far as the number of new policies sold is concerned, the figure tripled from 1.69 crore policies in FY 2000 to 5.09 crore policies during FY 2009. Of course, the number of policies increased marginally by about 1 lakh(0.2% change over the previous year). Number of in force policies, which were just above 10crores at the end of FT 2000, crossed 29 crores as at 31st March, 2009, registering a growth of 186%.
1. Opportunities
i) Untapped Market
New comers will get the benefit of untapped market. While nationalized general insurancecompanies and LIC of India have done a commendable job in extending their servicesthroughout the country but the choices available to the insuring public are inadequate in terms of services, products and prices the untapped potential in quite large. The Malhotra Committee,which went into various aspects of India’s insurance industry, estimated that in life insurance,22% of the insurable population has been tapped so far. In India, premium per capita is only 2and premium as percentage of GDP is 0.55%, which is very less in comparison of USA where premium per capita is 1381 and premium as percentage of GDP is 480. This huge gap from theglobal bench mark is itself lucrative.
ii) Mandatory Insurance
In disaster-prone areas, Government of India is going to make insurance mandatory. The interimreport of the high-powered committee set up by the Centre for disaster management, has proposed mandatory insurance of life and property by people residing in disaster-prone areassuch as coastal belts, flood- prone areas, sites near nuclear, chemical and hazardous industriesand thickly populated areas.
iii) More Products Offered
A state monopoly has little incentive to offer a wide range of products. It can be seen by a lack of certain products from LIC’s portfolio and lack of extensive categorization in several GIC products such as health insurance. More competition in this business will spur firms to offer several new products and more complex and extensive risk categorization.
iv) Growth of Economy
With allowing of holding of equity shares by foreign company either itself or through itssubsidiary company or nominee not exceeding 26% of paid up capital of Indian InsuranceCompany, various joint ventures between foreign investors and Indian partners will be operatedresulting into supplementing domestic savings and economic progress of the nations.
v) Opportunity for Banks
Banks with their wide area network with branches in all the parts of the country will have verygood opportunity to enter the insurance business. They will succeed in this sector because theyhave data base of customers, trained staff, a good network of branches besides synergy benefits.
vi) Better Customer Services
It would result in better customer services and help improve the variety and price of insurance products. Competition will compel the players to bring new and innovative product, wider choiceof prices and quality service to consumers.