1. INDUSTRY PROFILE
INSURANCE SECTOR PERFORMANCE:
Insurance is a system of spreading the risk of one onto the shoulders of many, Insurance may be described as a social device to reduce or eliminate risk of loss to life and property. Under the plan of insurance, a large number of people associate themselves by sharing risks attached to individuals. The risks, which can be insured against, include fire, the perils of sea, death and accidents and burglary. Any risk contingent upon these, may be insured against at a premium commensurate with the risk involved. Thus collective bearing of risk is insurance.
1.1 Global Scenario
Risk protection has been a primary goal of humans and institutions throughout history. Protecting against risk is what insurance is all about. Over 5000 years ago, in China, insurance was seen as a preventative measure against piracy on the sea. Piracy, in fact, was so prevalent, that as a way of spreading the risk, a number of ships would carry a portion of another ship's cargo so that if one ship was captured, the entire shipment would not be lost. In another part of the world, nearly 4,500 years ago, in the ancient land of Babylonia, traders used to bear risk of the caravan trade by giving loans that had to be later repaid with interest when the goods arrived safely. In 2100 BC, the Code of Hammurabi granted legal status to the practice. It formalized concepts of “bottomry” referring to vessel bottoms and “respondentia” referring to cargo. These provided the underpinning for marine insurance contracts. Such contracts contained three elements: a loan on the vessel, cargo, or freight; an interest rate; and a surcharge to cover the possibility of loss. In effect, ship owners were the insured and lenders were the underwriters. Life insurance came about a little later in ancient Rome, where burial clubs were formed to cover the funeral expenses of its members, as well as help survivors monetarily. With Rome's fall, around 450 A.D., most of the concepts of insurance were abandoned, but aspects of it did continue through the Middle Ages, particularly with merchant and artisan guilds. These provided forms of member insurance covering risks like fire, flood, theft, disability, death, and even imprisonment. During the feudal period, early forms of insurance ebbed with the decline of travel and long-distance trade. But during the 14th to 16th centuries, transportation, commerce, and insurance would again remerge. Insurance in India can be traced back to the Vedas. For instance, yogakshema, the name of Life Insurance Corporation of India's corporate headquarters, is derived from the Rig Veda. The term suggests that a form of "community insurance" was prevalent around 1000 BC and practiced by the Aryans. And similar to ancient Rome, burial societies were formed in the Buddhist period to help families build houses, and to protect widows and children. Current
The global insurance scenario has undergone profound changes during the last few years, accentuated by the terrorist attack on the World Trade Centre on 9/11/2001. Coincidentally, the major world stock markets suffered a steep decline in value towards the end of the last century, following the dot Com bubble burst and the unprecedented corporate scandals led by Enron and WorldCom. Hurricanes like the Katrina, the Wilma and the others, in addition, have bankrupted a substantial capitalization of insurers and reinsurers built up over decades. One estimate has put it that out of a total capitalization of $750 BN the WTC attack and the stock market failures due to the burst of dot com bubble alone wiped out a capital of $ 250 BN of the industry in one stroke. These financial blows have resulted in a large number of insurers/reinsurers going bankrupt and several others suffering lowered ratings by reputed rating agencies. Despite these setbacks the industry has recovered from such serious and unexpected financial losses and...
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