1. Role of CMA in life insurance industry
Vadapalli Srinivas

2. Evolution of Insurance
Insurance is sharing of risks.
Marine Insurance
Mutual Benefit Societies.
Less of Government Control

3. Evolution of Insurance
More than 200 Insurance Companies prior to Independence
The Insurer – Bank – Industry
Settlement of claims – an issue
Repudiation of claims on flimsy grounds

4. Evolution of Insurance
First comprehensive legislation in 1938 – “The Insurance Act, 1938”
An Act to consolidate the law relating to business of insurance.
Establishment of Controller of Insurance
Provisions to protect policyholders

5. Evolution of Insurance
Nationalization of life insurance business and the establishment of Life Insurance Corporation of India –
Monopoly of Life Insurance Business in LIC
Nationalization of General Insurance in 1972

6. Evolution of Insurance
Malhotra Committee constituted in 1993
Submitted Report in 1994
Recommended - Insurance Sector to be opened up for Private Players to improve customer service and to increase the coverage of insurance
Recommended - Establishment of a Regulator
The Insurance Regulatory and Development Authority Act, 1999

7. Evolution of Insurance
Several Regulations brought in – Customer Focus
Evolution of ULIPs
Challenges in a highly competitive market
Unfair Business Practices – sporadic
Tightening of Regulations to protect policyholders
Regulation of ULIPs – SEBI vs IRDA – Presidential Ordinance

8. Life Insurance – An Overview
Life Insurance business means the business of effecting contracts of insurance upon human life, including any contract whereby payment of money is assured on death ( except death by accident only) or the happening of any contingency dependent on human life ……………………………..

9. Life Insurance – An Overview
The Business involves
Product design and development
Distribution
Policy Servicing including settlement of claims

10. Life Insurance – An Overview
Product Design And Pricing
Simple way of looking at Pricing components
Mortality
Expenses
Interest

11. Life Insurance – An Overview
Mortality Rate is simply the probability of a person aged “x” dying within one year before he attains the age of “x+1”
For example, if we take a group of 1000 people aged 35 years and before they attain 36 years of age, 3 persons die, we say the Mortality Rate of L(35) – L(36) is 3 per thousand.

12. Life Insurance – An Overview
Thus if an Insurer wants to cover a group of 1000 people aged 35 years for a period of 1 year, considering the mortality rate of 3 per thousand, we require Rs.3000 to cover this group and thus the premium required is Rs.3/- per member assuming that there are no other expenses and there is no profit loading.
To this we add “expenses’ to cover the management expenses of the business

13. Life Insurance – An Overview
The premium is always received in advance. All the claims may not occur on day one and the premium lies with the insurer for some time and it earns some interest. A part of the interest may be passed on to the group.
Thus the Premium may be taken as
Mortality Rate + Expense – Interest earnings

14. Life Insurance – An Overview
Challenges in the fixation of the Premium
How to determine the Mortality Rate?
Census statistics vis-à-vis the actual experience
Life Style – socio economic profile
Life Insurance being long-term contracts, how to assume expenses?
What should be the rate of interest to be assumed?

15. Life Insurance – An Overview
Level Premium concept
Expenses- Assumption challenges
Expenses include distribution expenses and management expenses and policy administration expenses.
Under Level Premium, expenses have to be assumed for the entire term of the policy.
Elements of Fraud – Quality of business
Adverse judgments – compliance

16. Life Insurance – An Overview
Challenges in Interest assumptions
Volatility in capital markets
Inflationary trends
Complex financial products
Statutory and Regulatory Restrictions
Peer Pressure
Customer expectations

17. Life Insurance – An Overview
Reinsurance Requirements
Catastrophes
Statutory Changes – New Section- 45 and the challenges associated with this amendment
Solvency Margin Requirements
Calculation of fair value for voluntary exits
Revenue Account and Balance Sheet
Mortality vs Morbidity

18. Life Insurance – An Overview
Surplus or Deficit?
Mortality Surplus
Investment Surplus
Expenses Surplus
If Surplus, 10% to shareholders and 90% to Policyholders in case of participating policies
Solvency Margin – Statutory Requirement 1.5

19. Appointed Actuary Appointment to be approved by the IRDAI
Life Insurer cannot carry on insurance business without an Appointed Actuary
Have powers to access all information and documents.
Can attend meetings of the management including BODs, shareholders or policyholders …. Etc.

20. Appointed Actuary
To render actuarial advice on product design, pricing, insurance contract wording, investment and reinsurance.
To ensure the solvency of the Insurer at all times.
Certification of assets and liabilities.
To avoid contravention of the act o prejudice to the interests of the policyholders.

21. Appointed Actuary Compliance with the Regulations
To ensure that the premium rates are fair
To consider reasonable expectations of the policyholders in valuation and distribution of surplus.

22. Syllabus for an Actuary
Financial Mathematics
Finance and Financial Reporting
Probability and mathematical statistics
Models
Statistical Methods
Business Economics and Financial Economics
Risk Management
Model Documentation analysis and reporting

23. Syllabus for an Actuary
Finance and Investment
Enterprise Risk Management
Health and Care
Other Insurance related subjects

24. Role of CMA Product Pricing
Investment Management –Asset Liability Management
Planning and Budgeting
Taxation
Compliance
Valuation
Statutory Returns

25. Role of CMA Solvency Margins – capital sufficiency
Developing profitable business models
Continuous Market Research
Management of various Risks - Competitive Risk, Economic Risk, Reputational Risk, Legal Risk, Compliance Risk, Operational Risk, Taxation Risk, Investment Risk …. etc

26. Role of CMA Rationalization of costs Optimization of returns
Constant vigil
Cost control vs cost reduction
Conservative approach