Overview of TATA AIG Life Insurance - Rajkot


By
Bhavna Vyas
MBA 2nd Semester
Shree Amreli Jilla Leuva Patel MBA Mahila Collage
Amreli–365 601 GJ
E-mail:
vijaypithadia@lycos.com
 


The TATA group

The TATA group is India's best-known industrial group in the private sector with a turnover of around US $ 10.4 billion (equivalent to 2.4% of India's GDP). It is India's most respected private business group. With 219000 employees across 94 major companies, it is also India's largest employer in the private sector.

Founded by Jamsetji Tata in the 1860s, the Tata group's early years were inspired by the spirit of nationalism. The Tata group pioneered several firsts in Indian industry: India's first private sector steel mill, first private sector power utility, first luxury hotel chain and first international airline, amongst others. In more recent times, the Tata group's pioneering spirit continues to be showcased by companies like Tata Consultancy Services (TCS), today Asia's largest software and services company, and Tata Engineering, the first car maker in a developing country to design and produce a car from the ground up.

The 5 core values of the Group

The Tata group has always sought to be a value-driven organization. These values continue to direct the group's growth and businesses. The five core TATA values underpinning the way we do business are:

Integrity

We must conduct our business fairly, with honesty and transparency. Everything we do must stand the test of public scrutiny.

Understanding

We must be caring, show respect, compassion and humanity for our colleagues and customers around the world and always work for the benefit of India.

Excellence:

We must constantly strive to achieve the highest possible standards in our day to day work and in the quality of the goods and services we provide.

Unity:

We must work cohesively with our colleagues across the group and with our customers and partners around the world, building strong relationships based on tolerance, understanding and mutual cooperation.

Responsibility:

We must continue to be responsible, sensitive to the countries, communities and environments in which we work, always ensuring that what comes from the people goes back to the people many times over.

Business Sectors

The TATA Group operates business in seven key industry sectors. The chart below illustrates how, in percentage terms, TATA companies in each of these sectors contribute to the overall makeup of the group. The table follows the group's sector wise financial performance.


TATA Group figures:

Year

Total turnover

Sales turnover

Value of assets

Gross block

PAT

Exports

2002-03

542270

521337

50927

434809

38926

130764

2001-02

494568

479999

496222

403647

34307

125738

2000-01

412906

400623

447341

352938

10982

65120

1999-00

386071

371535

417381

329014

9873

50170


Group Companies

There are 80 companies across seven sectors.

Some of them are:

Engineering

Materials

Energy

Chemicals

    * Tata Motors
    * Tata Cummins
    * Telco

    * Tata steel
    * Tata Metaliks
    * Tata Refractoriness

    * Tata power

    * Tata Chemicals
    * Rallis India

Consumer products

Communication & IT

Services

 

    * Tata Tea
    * Tata Tetley
    * Titan Industries

    * Tata Telecom
    * Tata Teleservices
    * Tata Consultancy
    * CMC

   

The Tata brand is recognized as the largest homegrown brand in India and the most respected brand across consumer segments. The Tata Group's stable of brands also include many national and some internationally renowned product and service brands, including Tata Indica, Tata Indigo, Tata Safari, Taj(Hotels, Resorts & Palaces), Voltas, Tata Tea, Tata Sault, Titen, Tanishq, Westside and the largest addition, Tata Indicom.

The Tata Group has always believed in returning wealth to the society it serves. Thus, nearly two-third of the equity of Tata sons, the Tata Group's promoter company, is held by philanthropic trusts which have created a host of national institutes in community development, education and research centers, hospitals and scientific and cultural establishments. The trusts also give substantial annual grants and endowments to deserving individuals and institution in the areas of education, healthcare and social upliftment.

By combining ethical values with business acumen, globalization with national interests and core business with emerging ones, the Tata Group aims to be the largest and most respected global brand from India whilst fulfilling its long-standing commitment to improving the quality of life of its stakeholders.

INTRODUCTION TO AIG INC

American International Group, Inc. (AIG) is the world's leading international insurance and financial services organization, with operations in approximately 130 countries and jurisdiction. AIG member companies serve commercial, institutional and individual customers through the most extensive world wide property-casualty and life insurance networks of any insurer.

In the United States, AIG is the largest underwriter of commercial and industrial insurance and is one of the top three life insurers. AIG's global businesses also include financial services, retirement savings and asset management. AIG's financial services businesses include aircraft leasing, financial products, trading and market making.

AIG's growing global consumer finance business is led in the United States by American General Finance. AIG also has one of the largest U.S. retirement savings businesses through AIG Sun America and AIG VALIC, and is a leader in asset management for the individual and institutional markets, with specialized investment management capabilities in equities, fixed income, alternative investments and real estate. AIG's common stock is listed in the New York Stock Exchange, as well as the stock exchanges in London, Paris, Switzerland and Tokyo.

Business Publications' Views about AIG

RANK

Publication

YEAR

# 1

Fortune : Property & Casualty Stock Insurance Organization in Revenues and profits

2000

# 2

Fortune : Most Admired Property and Casualty Insurance Company

2000

# 4

On Forbes super 500

2003

# 9

On Fortune 500

2003


AIG INDIA

AIG India, the Indian arm of AIG, established its presence in India in 1994. AIG entered India in 1945, prior to nationalization of the insurance sector, and had offices n several Indian cities. On opening up of the insurance sector to private insurance company's in2000, AIG and the Tata Group formed a Joint venture, Tata AIG.

AIG and its affiliate funds have invested approximately $450 m in private equity in India. These direct investments have been made in telecommunication. And toll roads & bridges in the e infrastructure sector. Besides, investments have also been made in the manufacturing, technology, pharmaceuticals and retailing sector. AIG continues to look with interest for made direct investment opportunities in these sectors and in new emerging sectors like biotechnology, IT-enabled services etc.

INTRODUCTION TO TATA AIG

The non-life insurance arm, Tata AIG General Insurance Company, which started its operation in India on Jan 22, 2001, offers the complete range of insurance for automobile, home personal, accident, travel, energy, marine, property and casualty, as well as several specialized financial lines.

OUR VISION
To be the fastest growing Life Insurance Company in India, measured by annualized premium growth, procuring persistent business, delivering first class customer service, adding shareholder value by 2007.


Our Business Divisions
  • Agency – Agency

WSM

  • Alternate Channels
  • GMD
  • Pensions
  • Direct Marketing

Financial Results For the fiscal 03-04

  • Total Premium : Rs 254 cr (253 % growth)
  • First year Premium Income: Rs 180 cr
  • Agent strength : 18,000
  • Life cover sold : 1,62,000

INTRODUCTION TO INSUREANCE

WHAT IS INSURANCE

1. The business of insurance is related to the protection of the   economic values of assets. Every asset has a value. The asset would have been created through the efforts of the owner. The asset is valuable to the owner, because he expects to get some benefits from it. The benefit may be an income or some thing else. It is a benefit because it meets some of his needs. In the case of a factory or a cow, the product generated by is sold and income generated. In the case of a motor car, it provides comfort and convenience in transportation. There is no direct income.

2. Every asset is expected to last for a certain period of time during which it will perform. After that, the benefit may not be available. There is a life time for a machine in a factory or a cow or a motor car. None of them will last fro ever. The owner is aware of this and he can so manage his affairs that by the end of that period or life time, a substitute is made available. Thus, he makes sure that the value or income is not lost. However, the asset may get lost earlier. An accident or some other unfortunate event may destroy it or make it non-functional. In that case, the owner and those deriving benefits there from, would be deprived of the benefit and the planned substitute would not have been ready. There is an adverse or unpleasant situation. Insurance is a mechanism that helps to reduce the effect of such adverse situations.

BRIEF HISTORY OF INSUREANCE

3. The business of insurance started with marine business. Traders, who used to gather in the Lloyd's coffee house in London, agreed to share the losses to their goods while being carried by ships. The losses used to occur because of pirates who robbed on the high seas or because of bad weather spoiling the goods or sinking the ship/ the first insurance policy was issued in 1583 in England. In India, insurance began in 1870 with life insurance being transacted by an English company was the Albert. The first Indian insurance company was the Bombay Mutual Assurance Society Ltd, formed in 1970. This was followed by the Oriental Life Assurance Co. 

4. Later, the Hindustan Cooperative was formed in Calcutta, the United India in Madras, the Bombay Life in Bombay, the National in Calcutta, the New India in Bombay, the Jupiter in Bombay and the Lakshmi in New Delhi. These were all Indian companies, started as a result of the swadeshi movement in the early 1900s. By the year 1956, when the life insurance business was nationalized and the Life Insurance Corporation of India (LIC) was formed on 1st September 1956, there were 170 companies and 75 provident fund societies transacting life insurance business in India. After the amendments to the relevant laws in 1999, the L.I.C. did not have the exclusive privilege of doing life insurance business in India. By 31/3/2002, eleven new insures had been registered and had begun to transact life insurance business in India.

PURPOSE & NEED OF INSURACE

5. Assets are insured, because they are likely to be destroyed, through accidental occurrences. Such possible occurrences are called perils. Fire, floods, breakdowns, lightning, earthquakes, etc, are perils. If such perils cab case damage it the asset, we say that the asset is exposed to that risk. Perils are the events. Risks are the consequential losses or damages. The risk to an owner of a building, because of the peril of an earthquake, may be a few lakhs or a few crores of rupees, depending on the cost of the building and the contents in it.

6 . The risk only means that there is a possibility of loss or damage. The damage may or may not happen. Insurance is done against the contingence that it may happen. There has to be an uncertainty about the risk. Insurance is relevant only if there are uncertainties. If there is no uncertainty about the occurrence of an event, it cannot be insured against. In the case of a human being, death is certain, but the time of death is uncertain. In the case of a person who is terminally ill, the time of earth is not uncertain, though not exactly known. He cannot be insured.

7. Insurance does not protect the asset. It does not prevent its loss due to the peril. The peril cannot be avoided through insurance. The peril can sometimes be avoided, through better safety and damage control management. Insurance only tries to reduce the impact of the risk on the owner of the asset and those who depend on that asset. It only compensates the losses- and that too, not fully.

8 . Only economic consequences can be insured. If the loss is not financial, insurance may not be possible. Examples of non-economic losses are love and affection of parents, leadership of managers, sentimental attachments to family heirlooms, innovative and creative abilities, etc.

9. The mechanism of insurance is very simple. People who are exposed to the same risks come together and agree that, if any one of them suffers a loss, the others will share the loss and make good to the person who lost. All people who send goods by ship are exposed to these risks, which are related to water damage, ship sinking, piracy, etc. Those owning factors are not exposed to these risks, but they are exposed to different kinds of risks like, fire, hailstorms, earthquakes, lightning, burglary, etc. Like this, different kinds of risks can be identified and separate groups made, including those exposed to such risks. By this method, the heavy loss that any one of them may suffer (all of them may such losses at the same time) is divided into bearable small losses by all. In other words, the risk is spread among the community and the likely big impact on one is reduced to smaller manageable impacts on all.

10. If a Jumbo Jet with more than 350 passenger's crashes, the loss would run into crores of rupees. No airline would be able to bear such a loss. It is unlikely that many Jumbo Jets will crash at the same time. If 100 airline companies flying Jumbo Jets, come together into an insurance pool, whenever one of the Jumbo Jets in the pool crashes, the loss to be borne by each airline would come down to a few lakhs of rupees. Thus, insurance is a business of "haring".

11. There are certain principles, which make it possible for insurance to remain a fair arrangement. The first is that it is difficult for any one individual to bear the consequences of the risks that he is exposed to. It will become bearable when the community shares the burden. The second is that the peril should occur in an accidental manner. Nobody should be in a position to make the risk happen. In other words, none in the group should set fire to his assets and ask others to share the costs of damage. This would be taking unfair advantage of an arrangement put into place to protect people from the risks they are exposed to. The occurrence has to be random, accidental, and not the deliberate creation of the insured person.

12. The manner in which the loss is to be shared can be determined before-hand. It may be proportional to the risk that each person is exposed to. This would be indicative of the benefit he would receive if he the peril befell him. The share could be collected from the members after the loss has occurred or the likely shares may be collected in advance, at the time of admission to the group. Insurance companies collect in advance and create a fund from which the losses are paid.

13. The collection to be made from each person in advance is determined on assumption. While it may not be possible to tell beforehand, which person will suffer, it may be possible to tell, on the basis of past experiences, how many person, on an average,  may suffer losses.

Insurance as a security Tools

The United Nations Declaration of human Rights 1948 provides that "Everyone has a right to a standard of living adequate for the health and wellbeing of himself and his family, including food, clothing, housing and medical care and necessary social services and the right to security the event of unemployment, sickness, disability, widowhood or other lack of livelihood in circumstances beyond the control."

When the bread winner dies, to that extent, the family's income dies. The economic condition of the family is affected, unless other arrangements come into being to restore the situation. Life insurance provides if this did not happen, another family would be pushed into the lower strata creates a cost on society. The lower strata create a cost on society. Poor people cost the nation by way of subsidies and doles and so on. Poor people also cost by way of larger growth in population, poor education and vagaries in behavior of children. Life insurance tends to reduce such costs. In this sense life insurance business is complementary to the state's efforts in social management.

Under a socialistic system the responsibility of full security would be placed upon the state to find resources for providing social security. In the capitalistic society, provisions of security are largely left to the individuals. The society provides instruments, which can be used in security this aim. Insurance is one of them. In a capitalistic society too, there is a tendency to provide some social security by the state under some schemes, where members are required to contribute e.g. Social Security Schemes in U.K.

In India, social security finds a place in our constitution. Article 41 requires state, within the limits of its economic capacity and development, to make effective provisions for security right to work, to education and to provide public assistance incase of unemployment, old age, sickness, and disablement and in other cases of undeserved want. Part of the state's obligations to the poorer sections is met through the mechanism of life insurance.
 


Bhavna Vyas
MBA 2nd Semester
Shree Amreli Jilla Leuva Patel MBA Mahila Collage
Amreli–365 601 GJ
E-mail:
vijaypithadia@lycos.com
 

Source : E-mail September 9, 2005

 

  

 

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