Life Insurance V/s Non Life Insurance (General Insurance)
Life Insurance V/s Non Life Insurance (General Insurance)
Life Insurance v/s Non-life Insurance (i.e. General Insurance):
Insurance business, comprising two types– life and non-life (also called general insurance), is divided into four classes: 1) Life Insurance, 2) Fire Insurance, 3) Marine Insurance and 4) Miscellaneous Insurance (including Motor Insurance).
Life Insurers transact life insurance business.
General Insurers or Non-life insurers transact the rest (i.e. Fire Insurance, Marine Insurance and Miscellaneous Insurance). No composites are permitted as per law.
Presently, in India there are 24 life insurance companies including one government owned ‘Life Insurance Corporation of India’ and 33 non-life insurance companies (including 6 stand-alone health insurance companies), of these, six are in public sector and the rest are in private sector. Among the 6 public sector companies, 4 companies are National Insurance Co. Ltd., The New India Assurance Co. Ltd., The Oriental Insurance Co. Ltd. and United India Insurance Co. Ltd. (Now the process for merger of 3 companies has been started by the Govt.) and there are two specialized insurance companies – one for credit insurance (Export Credit Guarantee Corporation of India Ltd. in short ECGC) and the other for crop insurance (Agricultural Insurance Company of India Ltd. in short AIC is specialized insurer underwriting business in agriculture insurance only. AIC also transacts other insurance businesses directly or indirectly concerning agriculture and its allied activities).
The ECGC Limited is a company wholly owned by the Government of India based in Mumbai, Maharashtra and is specialized insurer underwriting business in export credit insurance only. It provides export credit insurance support to Indian exporters and is controlled by the Ministry of Commerce. Government of India had initially set up Export Risks Insurance Corporation in July 1957. It was transformed into Export Credit and Guarantee Corporation Limited in 1964 and to Export Credit Guarantee Corporation of India in 1983.
The entire Insurance business is governed by Insurance Act, 1938, and Insurance Regulatory and Development Authority Act, 1999 with their amendments.
There are two more acts related to Non-life general insurance business viz. Marine Insurance Act, 1963 (This MIA codifies the law relating to marine insurance. It follows the English law, and is therefore virtually identical to the Marine Insurance Act, 1906 of the U.K. In the U.K., the Act represents the codification of case laws which guided the practice of insurance for several centuries) and Public Liability Insurance Act, 1991 (This PLI Act was enacted for the purpose of providing relief to the persons affected by accident occurring while handling any hazardous substance and for matters connected therewith or incidental thereto. The underlying basis for relief under this act is the No-Fault Basis).
The statutory authority in India which protects the rights of customers & which regulates the insurance market (life and non-life including re-insurance) is ‘Insurance Regulatory & Development Authority of India’ (in short –IRDAI) with head office at Hyderabad. IRDAI’s main mission is “To Protect the interests of the policyholders, to regulate, promote and ensure orderly growth of the insurance industry and for matters connected therewith or incidental thereto.”
Non-life insurance (also known as General Insurance) has got a peculiar characteristic among all services. It is unique from rest of the services in the sense many times it is not realized even though client has paid the amount (i.e. premium) for it as if one has purchased a lottery ticket. But, insurance is not gambling. In insurance, one pays money to avoid the risk of a large loss. In gambling, one pays money to purchase the chance of a gain. The buyer accepts a large chance of a small loss (the purchase price of the ticket) in return for a small chance of a large gain (the payoff to the winning tickets). Many times, insurance policy is lapsed without any claim even renewed continuously for many years and that is the challenge an insurer faces.
The insurance policy is realized only in case if a claim is preferred on the insurer. That is why the business of insurance is all about settling claims. This makes the task of non-life insurers more difficult for maintaining customer satisfaction and relationship. How best they can make the client feel about tangibility of insurance policy?
Although, to fill up the gap, insurer gives the insured ‘Cumulative Bonus’ in case of Individual Mediclaim Policy (it is the only non-life insurance policy wherein he gets tax-benefit under 80 D of Income Tax Act), ‘No-Claim Bonus’ in case of renewal of Motor package policy and Fire insurance, etc. for those having no claim in previous policy. But, such discounts are not made available in majority of the policies. There are few policies under which loading are charged on their next renewals for having claim but not in all types of policies. For such policies rates of premium are same for next renewals for both non-claimants and claimants and that leads to a problem what is universally known as ‘adverse selection’ – people who know they are most at risk are those most likely to buy insurance.
Therefore, customers look for “signals” of service quality to reduce such uncertainties. They draw conclusions about quality from place, people, price, equipments and communications of service providers. Therefore, the insurer’s task is to make service tangible in one or more ways and to send right “signals” about quality. However, they try to show their honest evidence of capabilities by showing the best place, price, communications etc. but it gives only a kind of pseudo feeling to client and not exactly what the service was.
These intangible and perishable characteristics compel the insurers, particularly non-life insurers, always to keep on showing some more tangible evidences in one or more ways about their quality service.
Contrary to life-insurance, there is another unique feature that non-life insurance has. Non-life differs from life in perishable and tangible characters too. Unlike life insurance, premium is non-refundable in case of non-life insurance after expiry of the policy and also, there is no such provision to accumulate the sum-insured in the next renewal. Premium is refunded for the balance unexpired period only when there was no claim reported under the policy and the policy is cancelled. But, client having life insurance somehow gets yearly tax benefits under Sec 80 D of Income Tax Act and life insurance is at last realized by the client after maturity of the policy when he or she gets the money back. Even in the case of maturity claim in life insurance, the claimant is likely to feel unhappy that he did not put his money into more lucrative options.
Thus, the product of non-life insurance which is realized only at the time of claim is, by and large, shrouded in unhappiness. The insured, at the time of claim or loss is definitely in distress. That is why quick response and speedy claim settlement become the single most important task to be performed by non-life insurers as this is the only time or an opportunity for them to make the client realized that what he or she had chosen – agent, company, policy, rate and thereupon spent money on insurance was correct and a wise decision. That is why the business of insurance is all about settling claims and that the claim settlement in non-life insurance has its own peculiarities and therefore needs proper handling. Quick settlement of claim to customer’s satisfaction is the core obligation and, therefore, is the touchstone of insurer’s performance which is a challenge ever present for them to combat with.
The written form of contract between an Insurer and a Proposer (Insured) is known as ‘Insurance Policy’. All life-insurance contracts are completed only after evaluating almost all the risk factors, such as proof of age of the proposer, and his medical condition, which is always examined and confirmed by the medical examiners of the choice of insurers. In the case of non-life insurance contracts all verification of information disclosed is made only when a claim is reported. Contracts are entered into without any proof of information disclosed. Asymmetry of the informational exchanged is scrutinized more severely, when a claim is reported. Such a scrutiny is bound to be eagle-eyed and can be subjective too. Since such a scrutiny is held, after an accident, the insured feel that insurers are always prejudiced, just to deny them a claim, though this may be untrue in most cases.