IC-02 (PRACTICE OF LIFE INSURANCE)

CHAPTER-1 (SUMMARY)
ORGANISATIONAL STRUCTURE OF A LIFE INSURANCE COMPANY
According to the current survey on 31st march 2023 it says there are 25 running company in
present tie those who sells life insurance.
The oldest insurance company which still existing in the market is the postal life insurance
company. Postal life insurance company was established in 1st February 1844.
After the liberalization of insurance sector IRDA was established to take care of all the rules
and regulation in the insurance sector. IRDA (insurance regulatory development authority)
under Act 1999. Was established act under 3.
Life insurance corporation of India was introduced in 1st September 1956. Under act 1956.
And general insurance company after (Nationalism) act 1972.
✓ Mission or IRDA
✓ Protect the interest of and secure fair treatment to policy holder.
✓ Speedy and orderly growth of the industry.
✓ To set, promote, monitor and enforce high standards of integrity.
✓ Ensure speedy settlement of genuine claims. To prevent insurance fraud.
✓ Promote fairness, transparency and orderly conduct in financial market dealing.
✓ Take actions where such standards are inadequate.

o After liberalization effect on insurance sector:

1. Allowed many domestic Indian companies to join with the other Indian companies
and/or overseas partners to bring into India the much-needed capital and valuable
international expertise.
2. Led to the introduction of innovative insurance product for larger to coverage.
Conclusion of 1.and 2. Is brought in better customer service through technology innovation
and increased customer satisfaction.
➢ LIFE INSURANCE (effect contracts of insurance upon humans lives in exchange of
premiums. In other words, sell life insurance contracts (policies) to individuals.

o Activities of a life insurance company:

✓ Receiving applications or proposals for insurance from the prospective
buyers.
✓ Underwriting – means selection and classification of risk by assessing the
economic, physical, medical and social status of the proponent and deciding the
premium payable at the time of accepting the risk on his/her.
✓ Issuing the insurance policy document.
✓ Honoring the terms and conditions of the insurance contract: - the term and
conditions mentioned in the policy document. The policy holder and/or the life
insured has to pay the insurance regularly on the specified dates. The insurance

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 company has to pay the periodic survival benefits or maturity claim/death claim on
the happening of the events as mentioned in the policy document.
✓ Policy servicing and customer engagement: - requirements of the life
assured/policy holder during the terms of the policy like nomination/change of
nomination, change if address and etc.
✓ Other significant activities: - like planning and management of its personnel,
development of the insurance products, valuation of its assets and its liabilities.

Organizational structure if life insurance company: -

Organization
It is a structure controlled by a group of individuals who are working towards a common goal.
The shareholders to the capital of the company with the purpose of providing services as
well as to earn the profit for the company. The total capital requirement is divided into small
units termed shares, contributed by the shareholders.

Organizing
The main purpose is to ensure smooth functioning of the organization by setting different
levels of offices or departments with the distinct level of responsibilities.

Organizational structure of a life insurance company

Companies have shareholders who have contributed to the share capital of the company.
The maximum capital the foreign shareholders can bring is 74% of the total paid up capital of
a company.

The structure of an organization refers to the hierarchy of the offices, different level of
strategic decision-making position and process, division of work into department and the
authorities and responsibilities vested in the various positions. The structure helps in defining
the processes to achieve the goals and timelines for their achievement.

There are two types of organizational structure horizontal and vertical.

Vertical Horizontal
✓ Has a pyramidal top-down structure ✓ A flat structure has, the MD/CEO [
with a management director/CEO at under board], fever levels hierarchy
the top [under the overall (compared to a pyramidal structure)
supervision and guidance of the that grants more authority to the
board]. executives.

✓ Followed by many intermediate ✓ This result in all the employees

levels of decision making and the being self-motivated with the high
regular executive at the bottom morale that can improve efficiency.
level.

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The company can have some of these or all of these departments for their operations or
controlling activities.

➢ BUSINESS DEVELOPMENT i. Taking care of procurement of new

(Marketing department) business, appointment and training
of new intermediaries, identification
and development of new insurance
market.

➢ NEW BUSINESS i. Involves an underwriting section (in

the receiving and conveying the
under-writer’s decision.
ii. Receiving an application of
insurance, scrutiny of the application
and medical reports.

➢ CUSTOMER RELATIONSHIP i. That deals with all the services

DEPARTMENT required by the life assured/policy
holder like monitoring the payment
of premium by the holders and other
services like revival of relapsed
policy.

➢ CLAIMS DEPARTMENT i. Claims on survival at the end of

different period and claims on
maturity.
➢ FINANCE DEPARTMENT i. Monitor and handle the daily cash
flows.

POSTAL LIFE INSURANCE

a. Headed by the chief general manager who reports to the member and the
chairman of the investment board.

b. Premiums are collected by all post office but the final accounting is
centralized at the office of the director of accounts in Kolkata.

APPOINTMENT OF LIFE INSURANCE AGENTS AND THEIR DUTIES

✓ The appointment of different intermediaries is governed by the respective regulations
issued by the IRDA from time to time.
✓ Act dated 15.4.2016, effective from 1.4.2016, amended from time to time.
✓ The agents are to be trained by the insurer, on the basis of the syllabus prescribed by
the IRDA, to pass the pre-recruitment insurance agency examination conducted by the
examining body to be eligible for appointment as an insurance agent by the insurer. the
insurer is required to provide all necessary assistance and guidance to equip them with
adequate knowledge to pass the pre-recruitment examination.

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 Need for an agent for selling insurance.

✓ Push product need to be explained in detail.

✓ One to one meeting may be required between the agent and the prospect-customer.
✓ Personal interaction can the agent understand the customer’s life cycle needs and
provide appropriate solutions to present the future needs of the customer.

Process of appointing an agent

I. Board of the company decided the eligibility age for appointment (applicant
should not be minor.)
II. Decide the minimum educational qualification, suggested minimum qualification
is a 10th pass or equivalent examination from a recognized board.
III. Interview procedure, if any

IV. Not less than 25 hours pre-recruitment training and practical training to equip
the applicant for insurance agency.
V. Provide skill development training by (NSCDC) in a phased manner.

VI. Agency performance review policy: - covering minimum business norms for
continuation, criteria for termination, reappointment etc.
VII. Agency remuneration and benefits

a. NOTE: - sec42(3) lists the disqualifications which prevents a person

from being appointed as an insurance agent (e.g. a minor, or of unsound
mind etc.)

b. “Designated official” means an officer authorized by the insurer to make

appointment of an individual as an insurance agent (reg. 2(9) agent
regulation)

✓ Remuneration to agents
✓ Commission to agents
✓ BOARD APPROVED POLICY FOR PAYMENT OF COMMISSION
✓ Policy shall clearly state the objectives and principles that under pin commission
structure. This shall include promoting fair and transparent competition among
intermediaries aligning incentives with customer needs, and encouraging efficient and
cost.
✓ Continuation of agency/minimum business requirement
✓ Prohibition of rebates.

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FUNCTIONS OF AN AGENT: -

✓ He/she represent themselves as the member of insurance company.

✓ Show the agency identity card to the prospect and also disclose the agency
appointment letter to the prospect on demand.
✓ Disclose the scales of commission in respect of the product offered for sale, if asked by
the prospect.
✓ Indicate to the prospect the premium for the product sale.
✓ He has to guide the proposer to fill up the proposal from truthfully without omitting any
information that could be material for underwriting the proposal.
✓ Advise every prospect to effect a nomination under the policy.
✓ The agent will have to conduct reasonable enquiries discreetly to get such information,
(inform the prospect promptly about the acceptance or rejection of his proposal once
the underwriter has given his decision).
✓ Obtain requisite documents from the prosper and file the same with the insurer along
with the proposal from and any other document subsequently asked for by the insurer
for completion of the proposal.
✓ Advise the policy holders of the various services that may be required during the term
of the policy and assist the policy holder for the same.
✓ Provide all necessary assistance to the holder of the policy.

THERE ARE A SET OF “DON’TS” ALSO IN THE CODE OF CONDUCT.

▪ Not to behave discourteously with the prospect.

▪ Interfere with the proposal introduced by any other agent.
▪ Force a policyholder to terminate his existing policy and effect a new policy.
▪ Induce proposer to submit wrong information or omit anu material information in
the proposal.

The trends in the life insurance distribution channels.

Corporate agent
Insurance marketing firms (IMF)
Insurance web aggregate
Insurance brokers
❖ Direct broker
❖ Composite broker

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CHAPTER- 2 (SUMMARY)
PREMIMUS AND BONUSES
Aim: - company aim to earn profit by effectively marking their insurance products and meet
the expectations if their eligible policy holders for bonus and that of their shareholders for
dividends.
The premiums paid by policy holders constitute the primary source of income of an
insurance company. The contractual benefits paid to policy holders and expenses incurred
by the insurer constitute its outgoes. The returns on investments of the excess premiums
over the outgoes (and the company’s capital) constitute the other major source of income for
the company. So, the premiums together with the investment incomes should be adequate to
cover the cost of benefits and expenses and leave some profit for the insurer.