Introduction

"Insurance Repository" refers to a firm founded and registered under the Companies Act, 1956, and issued a certificate of registration by the Insurance Regulatory and Development Authority (IRDA) for the purpose of preserving data on insurance policies in electronic form on behalf of insurers.

IRDA has given Certificates of Registration to the following five entities to function as Insurance Repositories in order to implement the Insurance Repository System.

• NSDL Database Management Limited – www.nir.ndml.in 
• Central Insurance Repository Limited – www.cirl.co.in 
• SHCIL Projects Limited – www.shcilir.com  
• Karvy Insurance Repository Limited – www.kinrep.com 
• CAMS Repository Services Limited – www.camsrepository.com

A policyholder can purchase and maintain all of his or her policies using an electronic Insurance Account (EIA) with any Insurance Repository of his or her choice. Existing physical policies can also be dematerialized and stored in the EIA. All of the policies are then accessible with a single click of a button. The Insurance Repository System not only allows policyholders to maintain their insurance policies in electronic form, but it also allows them to make quick and accurate adjustments, modifications, and revisions to their policies. The Repository also serves as a 'one-stop shop' for policy servicing.

Role of an insurance repository

The goal of establishing an insurance repository is to give policyholders the ability to store insurance policies in electronic form and make changes to them quickly and accurately.

In addition, the repository serves as a one-stop-shop for a variety of policy service needs. The insurance repository system also makes the issue and maintenance of insurance policies more efficient and transparent. Insurance repositories give all of their services for free.

Insurance Business Process

The assumption and diversification of risk is at the heart of insurance companies' business models. Individual payers' risk is pooled and re-distributed across a wider portfolio under the basic insurance concept. The majority of insurance firms make money in two ways: by charging premiums in exchange for insurance coverage and then reinvesting those premiums in other interest-bearing assets. Insurance firms, like other private businesses, strive to market successfully while reducing administrative expenses.

Pricing and Assuming Risk

Health insurance firms, property insurance companies, and financial guarantors all have different revenue models. However, any insurer's first responsibility is to value risk and charge a premium for taking it on.

Assume the insurance firm is selling a $100,000 conditional payout coverage. It must determine how likely a prospective buyer is to trigger the conditional payment and then multiply that risk by the policy's length.

This is where the importance of insurance underwriting comes into play. Without proper underwriting, the insurance business would overcharge some customers and undercharge others for taking on risk. This may cause the least risky consumers to be priced out, causing premiums to rise even more. If a corporation properly markets its risk, it should be able to generate more income from premiums than it spends on conditional payouts.

In some ways, the real product of an insurer is insurance claims. When a consumer submits a claim, the company must process it, double-check it, and send payment. This adjustment process is required to weed out fraudulent claims and reduce the company's risk of loss.

Interest Earnings and Revenue

Let's say the insurance firm receives a million dollars in premiums for its policies. It could keep the money in cash or put it in a savings account, but neither of these options is very efficient: At the very least, their savings will be vulnerable to inflation. Instead, the corporation can invest its capital in safe, short-term assets. While the corporation waits for possible payouts, this produces additional interest revenue. Treasury bonds, high-grade corporate bonds, and interest-bearing cash equivalents are examples of this sort of instrument.

Reinsurance

Reinsurance is used by some businesses to mitigate risk. Insurance firms purchase reinsurance to protect themselves against excessive losses caused by high exposure. Reinsurance is an important part of insurance firms' efforts to stay solvent and prevent payout default, and it is required by regulators for companies of a specific size and kind.

For example, an insurance company may underwrite too much storm insurance based on models that predict a low probability of a hurricane striking a specific location. If the worst happened and a hurricane hit that area, the insurance firm may face significant damages. Insurance firms could go out of business if they don't have reinsurance to take some of the risks off the table when a natural disaster strikes.

Unless a policy is reinsured, regulators require that an insurance firm offer a policy with a cap of 10% of its value. As a result, because reinsurance allows insurance companies to transfer risks, they can be more aggressive in gaining market share. Furthermore, reinsurance smooths out insurance firms' natural volatility, which can result in considerable profits and losses.

It's akin to arbitrage for many insurance companies. They charge a higher fee to individual customers for insurance, then gain lower rates when they re-insure these policies in mass.

Assessing Insurers

Reinsurance makes the whole insurance sector more suitable for investors by smoothing out business swings.

Companies in the insurance industry, like any other non-financial business, are judged on their profitability, predicted growth, payout, and risk. However, there are several challenges that are unique to the industry. Because insurance businesses do not invest in fixed assets, there is little depreciation and relatively low capital expenditures. Furthermore, because there are no standard working capital accounts, calculating the insurer's working capital is a difficult task. Analysts don't employ firm or enterprise value indicators; instead, they use equity metrics like the price-to-earnings (P/E) and price-to-book (P/B) ratios. Analysts use ratio analysis to evaluate firms by calculating insurance-specific ratios.

Insurance firms with strong projected growth, large payout, and minimal risk tend to have a higher P/E ratio. Similarly, insurance businesses with strong projected earnings growth, low risk, high payout, and high return on equity have a higher P/B. Return on equity has the greatest impact on the P/B ratio when all other factors are held constant.

Analysts must contend with additional complicating considerations when comparing P/E and P/B ratios across the insurance industry. Insurance firms set aside money to cover future claims expenses. The P/E and P/B ratios may be too high or too low if the insurer estimates such provisions too conservatively or too aggressively.

Comparability throughout the insurance industry is further hampered by the degree of diversification. Insurers are frequently involved in many insurance companies, such as life, property, and casualty insurance. Insurance firms face varied risks and returns depending on their level of diversification, resulting in a wide range of P/E and P/B ratios.