Für neue Autoren:
kostenlos, einfach und schnell
Für bereits registrierte Autoren
38 Seiten, Note: A
iii. List of Tables and Graphs
1.2. Statement of the problem
1.3. Objectives of the study
1.4. Scope of the study
1.5. Significance of the study
1.6. Organization of the study
2. Literature Review
2.1. Theory of Insurance
2.2. Types of Life Insurance
2.2.1. Ordinary life insurance
2.2.2. Industrial Life Insurance
2.2.3. Group Life Insurance
2.2.4. Credit Life Insurance
2.3. Supplementary Benefits (Riders)
2.3.1. Accidental Death Benefit (ADB)
2.3.2. Accidental Death and Dismemberment (AD&D)
2.3.3. Comprehensive Accidental Indemnities (CAI)
2.3.4. Accelerated Death Benefit
2.4. Health Insurance Rider
2.6. Sources of Underwriting Information
3. Methodology of the study
3.1. Data sources
3.2. Analysis of data
4. Data Presentation and Analysis
4.1. The Structure and Trend of Life Insurance
4.1.1. The Structure of Life Insurance Business in Terms of Market Share
3.1.2. The Performance of life Insurance in NIC in Term of sources of Revenue /Premium/
3.1.3. The Trend of Gross Written Premium in Life Insurance
3.2. The Trends of the Life Fund and Underwriting Performance
3.3. The Structure of Life Insurance in Terms of Cost or Claims Incurred
3.4. Performance Analysis of Life Insurance by Different Cost Ratio Mechanism
3.5. Factors that affects the growth of life insurance
3.5.1. Factors that affect the demand life insurance
3.5.2. Factors That Affect Supply of Life Insurance
3.6. Human Resource Development in NIC
5. Conclusion and Recommendations
First, I would like to express my heartfelt thanks to my advisor, Ato Wubet Kifle, who gave me valuable suggestions and comments while writing this paper. I am indebted to the underwitter of the Nile Insurance Company, Ato Assegid, for supplying me with necessary financial data and some relevant documents. Finally, I would like to express my gratitude to all people who have helped me specially my family and Mrs Melkamech Dessu and Urge Melaku who typed the paper.
1 The growth of gross written premium (in ETB and %)
2 Revenue /premium/ earned in which class of life insurance (2003/04-2006/07) in Birr and percent
3 The Trend of Life Fund and Management Expense in NIC (in birr)
4 Cost incurred (claims) paid in each of class in life insurance business (2003/04 – 2006/07)
5 Performance Management of Life Insurance using different Cost Ratio’s (2003/04 – 2006/07) in Birr and Percen
1 Underwriting Performance for 2004/05 to 2006/07
2 Human resource developments in Nile Insurance Company
illustration not visible in this excerpt
The result of this study reveals that gross written premium and net written premium showed on increasing trend. But there is an ups and down of the percentage change because of unhealthy completion between non private and other private insurance companies. Secondly even if there are new classes of life insurance that was sold in Nile Insurance Company, the structure of life insurance in terms of diversification of the source of revenues is limited to small classes of the business. The amount of the premium collected and claims paid in these classes of the insurance is not proportionally distributed.
The end result of the data also shows that there is a direct correlation between premium collections and the claim payments i.e. the classes of life insurance which contributes the large amount of also incur higher claims (cost).
Insurance is a means of providing protection against financial loss in great variety of situation. For example life insurance helps to replace income lost to a family if wage earning parent dies. Insurance business can be used as a peace of mind for individuals and business entities, loss control measures, social benefit, investment of funds and invisible earnings.
The idea of insurance can be traced back to thousands of years. The insurance Principe of building reserves for the future is illustrated by the biblical story of Joseph and the famine in Egypt. The code of Hamurabi, the collection of Babylonian laws of the 1700 B.C included the form of credit insurance. Life insurance dates back to Raman times. The first successful insurance company, the amicable society for a perpetual assurance office was founded in England in 1705-1706 (Encyclopedia, 1992).
Insurance business was introduced into Ethiopia based on mutual assistances and its modern form traces back to 1905, when bank of Abyssinia began to underwrite fire and marine insurance policy, as an agent to foreign insurance company. In 1972, fifteen local insurance companies were licensed pursuant to the proclamation. However, two of these companies discontinued their business. These thirteen nationalized companies were merged together and became company with the name of Ethiopian Insurance Corporation as proclamation number 68/75 (Feseha Afework, 1986).
The proclamation number 86/1994, the licensing and supervision of the insurance business, allows only indigenous, private investors to participate in insurance operations, as given authority of licensing and supervision of insurance business to NBE. As a result there are many indigenous private insurance companies operating in Ethiopian currently both in life and non life insurance services. As one of the private insurance company, Nile Insurance Company S.C was established on 11th of April 1995 with the subscribed capital of Birr 12,050,000 of which Birr 10,050,000 was the full paid-up. Currently the company’s paid-up capital stands at 40 million Birr and the balance will be settled shortly (NIC, 2007).
Nile insurance company S.C is on giving services both by life and non life coverage. Life insurance policy provides that the insurance company will pay certain amount of money when a person insured dies. Life insurance plays a great role in economic development and company’s growth. It can also be used for investment income, saving retirement age and children education (NIC, 2007). The general objective of the study was to analysis the insurance services in the Nile Insurance Company by giving special attention focusing on life insurance.
Life insurance plays a key in promoting the socio-economic development of modern economy. It is a policy where an insurance company promises to pay benefit on the death of the person whose life is insured. However, there is a problems related to insurance industries, which hinders its smooth operation. Some of the problems faced Nile Insurance Companies in the case of life insurance are;
- The alarmingly declining premium rates due to unhealthy competition.
- Most branches of the company were concentrated around urban areas.
- Lack of life insurance professionalism and training staffs.
- Lack of adequate advertising to the promotion of life insurance.
It is clear that the problems of life insurance industry are increasing through different factors. Therefore, it needs investigation to indentify the problems and to address possible solutions to the problems before it is deep rooter.
The general objective of this study is to analysis the insurance services in the Nile Insurance Company by giving special attention focusing on life insurance. The specific objectives are;
- To examine the premium collected and claims in terms of endowment, term and permanent (whole life) among many classes of life insurance supplied by the company.
- To analyzed the performance of life insurance in private companies by giving special attention to Nile Insurance Company.
- To analyze the structure and trend of the life insurance activities in the Nile Insurance Company.
Our study will give more emphasizes on private insurance companies by giving more insight into life insurance business with regard to those insurance companies. However, due to resource, available reference materials and time constraint dealing with life insurance business in the whole private insurance companies is unattainable. Part in particular company which is Nile Insurance Company.
We have belied that the paper may help for all responsible bodies as well as our selves to grasp necessary concepts, performance and development, and strength of the life insurance business of the company by the identify some problems that is raised by the paper: Generally, the paper may have the following significance:
- The paper may create awareness on the importance of the life insurance sector.
- The paper may rise out the factors that affect the insurance market situation.
- The study may help as a hint for other researchers.
The study was presented into four different charters. The first charter was an introductory part which contains all issue listed in the proposal. The second chapter explained about methodology of the paper. In this part data collected from different secondary sources were employed.
The third chapter was devoted to data analysis and presentation of findings and in this section of the study issue. The last and fourth chapter was comprised the conclusion and recommendation of the study.
Insurance can be defined from two points of view. On the one side insurance is the protection of against finance loss provided by an insured. On the other side, insurance is a device by means of which the risks of two or more person or firms are combined through actual or promised contribution to a fund out of which claimants are paid. (C.A.W. Heins, 1987)
Insurance as an economic or social institution designed to perform certain function s as a legal contract between two parties. Insurance is an economic institution that reduces risk by combining under one management. A group objects situated that the aggregate accidental losses to which the group is subjected become predictable with narrow limits. Insurance is usually affected by, and can be said to include, certain legal contract under which the insurer, for consideration, promises to reimburse the insured or render services in case of certain described accidental losses suffered during the term of agreement (Greene, 1984).
A legal authority on insurance states that, there are five essential elements to an insurance contract. These are the inured must have an insurable interest in the subject of insurance, the insured is subject to risk of loss of that interest by the happing of certain specified perils, the insured assumes the risk of loss, distribute the actual loss among a large group of persons bearing similar risks and the insured pays a premium to a general insurance fund.
The distinctive feature of insurance as a transferred device is that it involves some pooling of risks i.e. the insurer combines the risks of many insured. Through these the combination of the insurer improves, its ability to predict its expected losses (C. A.W.Heins, 1987).
The primary function of the insurance companies therefore, to protect individuals and corporations (policy holders) from adverse events. By accepting premiums, insurance companies promise to compensate policy holders if certain pre-specified events occur (S.Cornett, 2001).
Abbildung in dieser Leseprobe nicht enthalten
Source: (Green, 1984)
As we can observe from the above classification, as general an insurance industry can be classified into two broad categories:
1. The general insurance business (non life insurance business) and
2. The life insurance businesses.
But as the main objective of this study is to analyze the life insurance business of Nile Insurance Company, we will try to give emphasis to life insurance business part into more detail.
Life insurance may be divided into four major categories (S.Cornett, 2001). These are:
- Ordinary (term, whole, endowment )
- Group and
Ordinary life insurance policies are marketed on an industrial basis, usually in units of 1,000; policy holders make predict premium payments. The major contracts of ordinary life insurance are of three types –term, whole life and endowment. The first, term insurance policy, is the closest to pure life insurance; it has no saving element attached. Essentially, an individual’s beneficiary receives a pay out at the time of individual’s death during the coverage period. The term of coverage can vary from as little as 1 year to 40 years or more. It may also be divided into three categories- level term, decreasing term, and increasing term contacts.
A) Level- Term Contracts : - A level term contract is issued for a constant amount during its term. For example, 5—years, 10—years, or 20—years are renewable term and term to 65. Level term contracts are particularly always renewable without of insurability. Thus, an objection if removed that was formerly attributable to this type of contact in that insured’s policy could expire and leave this person without and uninsurable.
B) Decreasing Term Contract: - When the amount of pure death protection gradually declines each year on a term contract, but the premium payable may be constant over the term. Decreasing term contract can be- mortgage protection insurance, gamily income policy and so on.
C) Increasing Term Contract :- term insurance protection can be arranged to increase each year, to correspond to a need that also increase and the premium payable is increasing over the time.
The second major contract of ordinary life insurance policy is whole life insurance policy which protects the individual over an entire life time rather than or specific coverage period. In term for periodic or level premiums, the individuals’ beneficiaries receive the face value of the insurance contract on death. Thus, if the policy holder continues premium payments, the insurance company is certain to make a payment.
The third major contract of ordinary life insurance policy is endowment life insurance policy which combines both a pure /term/ insurance element with a saving element. It guarantees a payout to the beneficiaries of the policy if the death occurs during some endowment period (for example, prior to reaching retirement age) an insured person who lives to endowment date receives the face amount of the policy. Each endowment policy specifies a maturity date, which is the date on the policy’s face amount is paid, if the insured is still living; if the insured dies before maturity date the policies face amount is paid at the time of the insured’s death to the designated beneficiary. Thus, endowment insurance policy pays a fixed benefit either if the insured services to the maturity date of the policy or if the insured dies before the maturity date.
This type of life insurance currently represents a very small area of coverage. It usually involves weekly payments collected directly by representatives of the company. To a large extent, the growth of the group life insurance has led to the demise of industrial life as a major activities class (S.Cornett, 2001)
This insurance covers a large number of insured a person under a single policy. Usually issued to corporate employers, this policy may be either contributory (where the employer c0vers a share of the employee’s cost of the insurance) or non contributory (where the employer does not contribute to the employee’s cost of the insurance) for the employees themselves. (S.Cornett, 2001)
This insurance protects leaders against the borrower’s death prior to the repayment of a dept contact as mortgage or car load. Usually the face amount of the insurance policy reflects the outstanding principal and interest on the load. (S.Cornett, 2001)
Supplementary benefit insurance contact /also called riders / are designed to cover risk of incapacity due to accident and /or sickness. The covers provided by each supplementary insurance were briefly described as follows.
This is type of cover that provides protection against both accidental and natural death. The difference lies in the amount payable as a policy benefit. The amount payable in case of natural death in the sum assured where as this amount would be doubled in case of death by accidental means. Total paralysis, total insanity, total loss of speech and /or total loss of lower jaw would also entitle to the sum assured. Accidental death benefit is an additional benefit in a permanent policy by extending the existing policy rather than issuing new policy and double benefit will be paid when accidents occur. The additional sum is equal to the policy face amount when the benefit is for an amount equal to the policy, the benefit is often refers to as double indemnity. The additional sum may also be a multiple of the policies face mount or it may be an amount unrelated to the policy face amount. (Life insurance policy of NIC)
Generally, in order for accidental death benefit to be payable, the insured persons death must have been caused directly and independently of all external body injured, un expected/ sudden, and unintentional. However, there are also certain exclusions such as:
- Accidents caused by self inflecting injuries /suicide
- War related accident
- Accidents resulting from aviations activity.
- Use of nicotine and etc.
In order for additional to be payable, the insured death must occur within the specified number of death after the accident.
Accidental death and dismemberment generally specifies that that the accident death benefit amount will paid in addition to the cover provided under accidental death benefit (ADB) above and covers the insured employee against loss of sight one eye, loss of hearing of one ear or, loss of one limb or combination thereof. Loss a single said part of the body would entitle the insured employee to half the sum assured where as any combination (two or more) of these would entitle the employee to the full sum assured. Accidental death and dismemberment rider specifies that the insurer will not pay both accidental death benefit and dismemberment benefit for injuries in the same accident.
This scheme in addition to the covers stated AD & D above, provides protection against almost all permanent partial disabilities (such as amputation of fingers or toes) that are covered by a group person accident or women’s compensations insurance.
Accelerated death benefit is a rider which also known as living benefit rider, provides that a policy owner insured may elect to receive all or part of the policies death benefit before his/her death if certain conditions are meet. The payment of an accelerated death benefit reduces the death benefit that will be paid to the policy owner-insured.
i. Terminal Illness Benefit
Terminal illness benefit is a benefit under which the insurer pays a portion of the policies death benefit to a policy owner-insured that suffers from terminal illness and has a physician certified life expectance of 12 months or less. A statement attending by physician established evidences of a terminal condition and certifies that the insured likely to die within the time period specified in the rider. The maximum payable under this rider is a stated percentage usually up to 25-75% of a policies face amount. (Life insurance policy of NIC)
ii. Dread Disease Benefit (DDB)
Dread disease benefit is the amount of benefit under which the insurer agrees to pay a portion of policies face amount to a policy owner-insured who suffers from one of a specified disease. The remainder death benefit is paid to the death beneficiary at the insurer’s death. These specified disease or medical procedures has known as insurable events and usually include life threaten cancer, HIV AIDS, kidney failure, never attack, vital organ transplant disease and etc. The dread disease benefit may offer a premium waiver option under which the insurer agrees to waiver all renewal premium payable after accelerated death benefit payment (Life insurance policy of NIC).
This scheme insures the insured person against the cost of recognized medical treatment due to accident and / or natural illness up to a selected maximum annual limit of birr say 3,000.00, 5,000.00 etc per insured member. Health insurance scheme may only be offered to a policy holder together with the other basic policies i.e. it may not be offered in isolation. The scheme requires that the treatment be carried out by a qualified and duly licensed medical practitioner. A policy deductable, called excess and duly licensed medical practitioner. A policy deductable, called excess, may attract a discount in premium. (Life insurance policy of NIC)
Underwriting means all the activities necessary to select risks offered to the insurer in such a manager that general company objectives are fulfilled. It can also be the process of identifying and classifying the potential degree of risk represented by proposed insured. This is also called selection of risk (Greene, 1984).
The risk appraisal procedure in life Insurance company is intended to determine the proper risk classification in to place a particular applicant. In most life insurance there are three major applicants under which underwriter classify them.
a) Standard Risk Category
This category includes people who though their health or life style do not present any extra mortality risk i.e. they do not represent any reason for insurer to believe that they will have a shorter than average life expectancy. About 94% of the life insurance applicants are placed into this category. The group of individuals whose physical conditions, health histories, occupations, and life style indicate the probability of a lower than usual mortality rates are called supper standard /preferred risk/ classification.
b) Substandard Risk
Substandard risks are those insurable at somewhat higher premium rates. This is also known as class risk. Policies issue to substandard risks is often called rated policies. About 4% of most life insurance applicants are placed under this category. Higher premium will be charged than in standard risks.
c) Uninsurable Risk
It is very difficult to set proper premium for individuals who are in extremely poor health or who has under gone some form of experimentally health treatment, or who engages in an extremely dangerous occupation or hobby. The premium is likely to be high. This category covers about 2% of life insurance applicants.
Underwriters use several sources of information to decide whether or not a risk is acceptable according to the company’s criteria. It can be completed application form and non medical examination questionnaires (W.C.A.Heins, 1987). In most instances these documents will provide enough information for the underwriter to reach a decision about whether to issue a policy and what underwriting classification to use.
However, when the policy is for an exceptionally large coverage amount or when some of the data suggest a problem companies may seek further information.
- It may call the proposed insured to obtain clarification about information in the application.
- It may request the physical examination.
- The underwriter may also request that a doctor who has treated the proposed insured for an illness or injury by completing a form called an Attending Physical Statement (ADS) to give details of the diagnosis and treatment.
The methodology employed in the study was the case study which is the life insurance in the Nile Insurance Company.
The source of data was heavily depends on secondary data which is obtained from different relevant books, published and unpublished materials, journals, articles, annual reports which is prepared by the NBE and the Nile Insurance Company. We have also used the primary data specifically the interview with the company’s life branch manager.
As a means of data analysis the descriptive statistics was applied to test the trends of the growth of the company, premium collections and claim payments by using charts or tables, graphs and so on. The time coverage of the study was four consecutive years (2003/04 – 2006/07), since the life insurance of the Nile Insurance start its operation in a good and well organized manner. This paper particularly focused on the main type of cover that contributes to the high premium collection in relative terms such as endowment life insurance, group term life insurance, and medical expense insurance and permanent life insurance.
This paper also tried to show the growth and the performance of life insurance business using different growth measurement. It also tried to identify some factors that affect the life insurance growth and performance through data analysis and successes review of result.
As the main propose of this study was data analysis and presentation of the results, it was to present the data and finding based on financial statements that are prepared by the account department of the life insurance main branch.
The structure and trend of life insurance is examined in this paper in connection with market share and against different performance measurements. For the purpose of the simplify and understanding, the paper presents the structures of life insurance business in Nile Insurance Company S.C. in the following terms.
The market share of private life insurance including Nile insurance company is very low when we compare them with non private insurance company such as Ethiopian Insurance Corporation due to it is early establishment, where as private insurance companies are in their infant stage. According to some document and research papers, the researcher have looked the following factors with may negatively contribute to the growth of life insurance among private companies.
i. The demand for life insurance is very low in our country because of lack of awareness on important of life insurance. The attitude of public to consider insurance as luxury rather than the necessity and the limited level of income of citizens affected the growth the life insurance (NIC, 2007).
ii. The occurrence of risk on a life insurance is higher than that of non life insurance. Risks in life insurance like illness and death of individuals are frequent and certain. These increase the claim (cost) and minimize profit range of insurance services suppliers specially in under developed countries of which living standards are very low (R.F. Carter, 1979)
iii. Lack of substantial financial capacity to run life insurance business is another bottleneck. Though insurance business needs an investment in other areas to strengthen capacity, there is big problem for private companies to get these huge amounts of money.
This subsection tries to give an insight into the sources revenue or premium of life insurance in NIC. It tries to show the earning capacity of premium from different category of the life insurance. In order to change affair premium the underwriter should have to take into consideration the circumstance and conditions of the applicant; because of the selection of risk is up to him/her. In the process of selection there could be a great deal of variation with regard to occupation, age, and sex. There is a low performance of life insurance in both private and non private insurance companies. The major reasons of for this low performance of life insurance are:
- Lack of awareness and altitude of the public to awards the life insurance and its benefits.
- The nature of the insurance business i.e. it does not bring tangible service at the time of payment.
- The low level of income of the majority of population, which creates a hindrance to pay the insurance premium.
- The higher occurrence of risk in life insurance that raises cost and minimize the profit and this intern discourage the growth of the business and etc.
These all other factors have made the life insurance business unable to grow, as it has to be.
The rate at which the growth written premium and the net written premium grow as one factor which show performance of the life insurance in the Nile Insurance Company as follows.
Table 1. The growth of gross written premium (in ETB and %)
illustration not visible in this excerpt
Source: company’s annual report (2004/04, 2005/06, 2006/07)
The gross written premium of birr 3,054,602 from life insurance business exceeded the previous year (2004/04) performance by 31.82%, as a result the net written premium is increased by 2.54% from amount in 2003/04. The life insurance premium income of the year 2005/06 which is birr 3,375,377, as shown above was increased by 10.50% from amount registered in 2004/05. In the same manner as of June 2006, the net written premium showed huge change from birr 1,730,033 which is 33.02%.
The premium from life insurance as June 2007 was showed a great change compared to the amount in June 2006. This is because of the active contribution of the underwriting units through increasing public awareness marketing initiatives in life insurance, as a result the percentage change in Gross-premium as June 2007 was 35.71% but the net written premium showed only 17.22%.
Generally the gross written premium and the net written premium, as a performance in previous years indicate showed an increase. This is because of the life insurance provision of training made to sales agents and actives contribution of all underwriting units.
The following tables shows the amount of the revenue (premium earned) from the available categories of life insurance which are individually life, group life, medical expense insurance, term life, endowment life and mortgage protection assurance (MPA) life insurance in the years 2003/04 to 2006/07.
Table 2. Revenue /premium/ earned in which class of life insurance (2003/04-2006/07) in Birr and percent
illustration not visible in this excerpt
Source: computed from financial statement of NIC, life main branch.
Group Life Insurance
As it is shown the table above 2, group life insurance is the one and the main class of business that contributes greater proportion of revenue or premium and it is the main source of the life insurance revenue. According to the table the amount or premium collected from this class was birr 6.31 million and it implies that 43% of the revenue comes from it during the last four years.
As its name indicate group life insurance policy covers the lives of groups. Even if group life insurance can be issued in the form of term, whole life and endowment form, and life insurance that is renewable annually.
Conditions that are needed for issuing group life insurance in the NIC are:
- The group must be active at work of wages, since group life is composition for loss.
- The group must have been form for a purpose other than that of obtaining insurance benefit.
- The group is formed for an indefinite period and that there will be a regular entry of new and young members into the group.
- The group must have facilities for central administration of the group scheme i.e. premium collection, enrollment of new members, assisting in claims, formalities and in general administration of the group life.
According to table 2 the premium that was collected during the period of 2003/04 to 2006/07 is increased from time to time. If we consider the time period by dividing before and after 2004, which is the time that the company established its own life main branch and it creates an employment to the society which results in the increment of demand for group life insurance by the employer to their workers, which is the compensation or benefit for the employers.
Der GRIN Verlag hat sich seit 1998 auf die Veröffentlichung akademischer eBooks und Bücher spezialisiert. Der GRIN Verlag steht damit als erstes Unternehmen für User Generated Quality Content. Die Verlagsseiten GRIN.com, Hausarbeiten.de und Diplomarbeiten24 bieten für Hochschullehrer, Absolventen und Studenten die ideale Plattform, wissenschaftliche Texte wie Hausarbeiten, Referate, Bachelorarbeiten, Masterarbeiten, Diplomarbeiten, Dissertationen und wissenschaftliche Aufsätze einem breiten Publikum zu präsentieren.
Kostenfreie Veröffentlichung: Hausarbeit, Bachelorarbeit, Diplomarbeit, Dissertation, Masterarbeit, Interpretation oder Referat jetzt veröffentlichen!