A Cross Segment Analysis of Performance Variables of General Insurance Players in India

A Cross Segment Analysis of Performance Variables of General Insurance Players in India

T. Joji Rao (University of Petroleum and Energy Studies, Dehradun, India)
Copyright: © 2019 |Pages: 13
DOI: 10.4018/IJRCM.2019040102

Abstract

The general insurance sector has been dynamically changing and upgrading its business operations in the field of product development, product pricing, underwriting, actuary, claims management, risk management, asset and liability management, reinsurance and customer relationship management to be in line with ever changing regulatory and non-regulatory business norms over the years. These changes arise out of increased emphasis on liberalization and open market systems has transformed the orientation of domestic general insurance markets from that of sellers to a buyer's market. In the past two decades of post privatization operations, the sector has witnessed many challenges in terms of performance. The present study attempts to provide an insight into the behavior of the variables, which determines the performance of general insurance business in India. The formulation of econometric models based on the behavior of the variables influencing the performance of general insurance business in India across the segments of fire marine and miscellaneous will facilitate better decision-making and risk management processes of the players in the industry. The findings of the study are likely to help the policy formulators in bringing needed modifications to the existing policy and provisions to give further boost to the industry.
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Literature Review

Risk is one of six major areas of functional responsibility in business David M. Boodman (1987). The risk management has evolved significantly over the past decades causing dramatic changes in the communication channels required to effectively handle the ever-changing risks a firm faces. The first generation of risk management dealt primarily with risks inside a company creating a need for internal risk communication. The second generation, which arose with the growth in third-party liability claims, involved many more stakeholders external to the company and forced the risk management function to deal with communications to these external parties. The third generation, which began as an expansion of the external risks that firms are exposed to, involved the board and senior management in the risk communication function (Nielson, Kleffner, Lee & Ryan, 2005). Moreover, the determinants of risk adoption shows that in case of a general absence of differences in the financial and ownership characteristics, the firms with greater financial leverage are more likely to adopt a dynamic risk management approach. Risk management is also the key for reducing the burden on the public exchequer as also for minimizing the misery and trauma of the masses exposed to disasters (Rautela, 2005).

Analysis of individual’s risk preference studies indicate that individual's decision to purchase cover and the magnitude of the risk parameter is dependent on economic conditions of the subject (Liebenberg & Hoyt, 2009). Empirical results indicate that consumers exhibited a relatively uniform degree of risk aversion at particular economic conditions (Attanasi & Karlinger, 1979). Apart from economic environment, risk corresponds to any pair of distribution functions and attitudes to risk are represented by any pair of non-decreasing and concave utility functions (Landsberger & Meilijson, 1999). A study by (Sharma, Vashishtha & Ashutosh, 2007) evaluates the effectiveness of derivatives as alternative risk management tools and basic framework required to implement them. According to the study the applications of traditional risk-hedging tools and techniques have proved to be costly, inadequate and more importantly they offer a hedge mostly against only the price risk. More over the success of hedging as a risk management tool depends on hedging effectiveness and optimization with consideration of basic risk and credit risk (Brockett, Wang & Yang, 2005).

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