Table of Contents ACKNOWLEDMENT2 OBJECTIVES3 FUTURE ENERGY4 A PRICE BEYOND NORMAL COST5 HYPOTHESIS OF ENERGY5 POWER OF WIND7 CARBON STORAGE8 SOLAR ENERGY9 GEOTHERMAL ENERGY10 FUTURE CAR’S10 BIO-FUELS11 INDIAN STATE12 SUGGESTIONS AND ANALYSIS13 ENERGY’S FUTURE14 SKYPE-REVOLUTIONIZAING THE WAY PEOPLE COMMUNICATE15 FEATURES OF SKYPE:15 HYPOTHESIS:15 SKYPE’S TECHNOLOGY16 SKYPE’S BUSINESS17 SUGGESTIONS:19 ENTREPRENEURSHIP20 THE INSURANCE CONNECTION20 HYPOTHESIS21 Growth in non life insurance sector and Economic growth. 4 CONCLUSION27 ACKNOWLEDMENT On the verge of completing our project on “INNOVATION AND ENTERPRENEURSHIP”, I take this opportunity and pleasure to express my gratitude to Professor Dr. Swati Jain. We are equally thankful to Prof. Dr. Swati Jain, for her constant guidance and encouragement. She has been very supportive and has guided us all the way. She has helped us at every step, correcting our flaws and encouraging us. This task would not have been possible without her support. OBJECTIVES 1.
To study the impact of innovation and sector energy as the whole. 2. To study the major changes into the energy consumption. 3. The companies like automobiles, technology turning green inviting entrepreneurship skills. 4. To give a detailed analysis of the future opportunities for internet telephony. 5. To analyze the future threats because of the new innovators in telecommunication industry. 6. To study how insurance sector acts as a facilitator to the growth of entrepreneurship. FUTURE ENERGY CHANGE THROUGH CHALLENGE-THE ALTERNATE WAY
The world over-people love the booming markets. Investors and Venture Capitalists like the markets backend by the Technological change. We have witnessed the computing boom of 1980’s, the internet booms of 1990’s, biotech and nanotech boom lets of early 2000’s, and they are searching for another. They think they have got that-CLEAN ENERGY. Many of the past energy booms have been through Coal-fired Steam power, the rise of electricity, oil-fired internal combustion engine and even the mass tourism era of jet.
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But past few decades, coal has been cheap, natural gas has been cheap, the nuclear energy before the current deal in India and barring few countries in the world went off the rails. The pressure to innovate has been minimal. The changing times, in the span of few years at present, Oil is no longer cheap, the concern over supply of oil reaching to the peak, new reserves becoming more expensive and harder to find. The price of natural gas has also risen in sympathy with oil, that’s putting up the cost of electricity on rise.
Wind and solar energy no longer looks so expensive in comparison. Coal still remains the cheap source of electricity for powered stations but the world looks the whole picture differently. The world over the projects of Coal power station are in queue, but in practice few have been implemented because no longer the major countries tolerate the green house gas emissions the plants are emitting. The power companies fear because of the tax they ight have to pay for increased pollutants, so investing now in the power plants of coal would lead to the heavy expenditures in the future. That has opened up the opportunity gap for the wind and solar energy, the future price of these resources is known-ZERO. That certainly is a hedge opportunity against the present heavy cost of capital for establishment. During an Economic downturn, global warming may not be at the top of people’s mind. High fuel prices can fall due to the new explorations and availability from other sources (Tar sands, liquefied coal and so on).
Source: The Economist-The future of Energy 19th July, 2008 Special Report A PRICE BEYOND NORMAL COST CHALLENGE THE WORLD FACES The energy market is massive. The world’s population at present consumes about 15 Terawatts (1 Terawatt is 1000 gigawatts, and a gigawatt is usually the capacity of the largest sort of the power station). The world GDP in 2007 was $65 Trillion, so the 15 terawatts translates into the business of approximately $6 Trillion, which is a tenth of the world’s Economic output.
The estimates suggest that till 2030 the power consumption will rise to 30 Terawatts. The market of renewable sources is in mere billions. Two of the important reasons under consideration, the first being the scale (more than 90% of the world’s consumption being non renewable) between the coming clean energy boom and the prevalent sources of energy-fossil fuel, the second being new information technology being disruptive in the sense it forces the replacement of the existing equipments.
For both reasons, the transition of the world economy from fossil fuel consumer to that of renewable source will take time as it is seen in the past decade too. But market provides the opportunity to the GREENS and alternatives for developing the technological base and proves them to be exploding, just as the growth of Wind Energy. Another example is that of “Plug-in-cars”, which could be fuelled with the electricity for 25 Cents equivalent to a liter of petrol, which could shake the dominance of the Oil.
The growth of Automobile and Electricity industry all in one go. The co founder of Paypal, Elon Musk developed the batteries for sports car. Larry page and Sergey Brin have already started the www. Google. org an outfit that is searching for renewable source a term commonly used RE<C (The Cost of renewable source lesser than that of coal). Vinod khosla of Sun Microsystems is using the power of Venture Capital into the renewable source.
This renewed interest is bringing on new ideas some get successful and some fail miserably, As happened in the case of dotcom most of the ideas came to naught, but there could be another Google, or Paypal or Sun among them. HYPOTHESIS 1. Clean Energy Revolution-Is it the next big thing? 2. Renewable sources of energy competitively cost effective to the non renewable sources of energy. The hypothesis is being proven by looking into the aspects of developments of various sources of energy, their cost effectiveness and the Innovation and Entrepreneurship involved with them.
Source: International Energy Association The people around world complain that many form of existing renewable energy rely heavily on subsidies, complain is worth. The whole energy sector is on the base of subsidies both explicit and implicit and many a costs are not taken into account. According to the International panel of Climate Change (IPCC) there should be a tax of $20 to $50 on fossil fuel for every tone of carbon dioxide generated in order to pay for the environmental effects of burning them.
This should be done in order to level the field of subsidies which are provided for the renewable source of energy such as wind turbines. If the political policies favor and world become rational, a proper tax on carbon can be introduced (It is started in Europe) as is suggested by IPCC. If that can be placed in world economy Wind energy would be automatically be cheaper than fossil fuels and other sources would move closer to renewable source prices. POWER OF WIND
The wind power is no illusion though it wouldn’t have been possible without the help of the governments who wanted to contribute to the greener world, it’s an industry all together, and it’s growing at 30% a year and will exceed 100 gigawatts this year. General Electric, the wind turbines provider expects the business of $6 Billion this year. In addition wind farms can be built piece meal unlike the coal or nuclear power stations if partially built the money invested is waste, the half wind farm produces the energy half the intended energy.
The growth which is seen in the sector as the whole is mainly because of the technological improvement, the initial turbines were cobbled from components intended for ships, now engineers build the turbines from the material obtained from the aircraft industry to try making the bigger blades (bigger is better with turbine technology) and the flexi and smart blades (which can flex when the wind blows too strongly, which can spill the wind, to be able to turn when other lesser turbines would have to be shut down for their own safety).
The newer turbines are also more efficient when General Electric entered the business in 2002 the average turbine was out of commission 15% of the time. Now the rate has reduced to less than 3% as a result the cost of energy has come to about 8 cents a kilowatt-hour (KWH) and is still falling. That makes the wind power cheaper than the electricity produced by Natural gas but coal power is still cheaper at about 5 cents a KWH but that would rise to 8 cents a KWH if carbon dioxide produced is to be captured and buried underground or a tax of $30 a tone is imposed.
CARBON STORAGE Even if we develop alternatives the coal’s presence is most likely to be there. Coal is cheap, abundant and most important it’s local. The question is what can be done for making it acceptable? CCS-The carbon capture and storage is one of the explored alternatives for making the use of coal environment friendly. There are couple of problems attached with it the first being nobody knows whether it will work (whether CO2 will remain buried) or not and the second being everyone knows it will be expensive so much that the alternatives will start looking cheaper.
The capture part is not difficult. Carbon Dioxide reacts with the group of chemicals called amines. At low temperatures they combine at high temperature they get separated. The exhaust at power stations can be run through the amine bath to separate Carbon Dioxide. All this processing is difficult but scientifically there is no reason it shouldn’t work. The next part is what portrays challenge. The disposal has to be permanent so lot of conditions has to be met. The requirements of the burial site, a body of rocks needed o be at least 1 Km underground so as to provide enough pressure to convert CO2 into supercritical liquid a form in which it is more likely to stay put. The second being the rock should have enough pores and cracks to accommodate CO2. Lastly it needs a layer of non-porous, non cracked rock to provide leak proof cap. There are only three CCS projects functional in the world at present moment. Weyburn-Midale Co2 Project, Salah Gas field project in Algeria, run by BP and State oil large Norwegian oil and gas company. The scale of problem is big, the three showcase projects each dump about a million CO2 a year.
But alone United States emits 1. 5 Billion Tones a year that means finding out 1500 such appropriate sites including the problems of geology and transportation. As to the cost, MIT (Massachusetts Institute of Technology) reckons $25 a tone to capture and $5 a tone to transport it to the burial site. If we compare the figure of total expenditure of $30 is similar to what recommended by IPCC and same as to what is being charged in EU. Such a charge in form of tax or tradable permits to pollute would change the way the energy works radically. http://www. economist. om/specialreports/displaystory. cfm? story_id=11565676 SOLAR ENERGY The most iconic form of solar energy, the photovoltaic is growing at 50% per annum. According to CERA, the price of a KWH of photovoltaic used to cost 50 Cents in 1995, that had fallen to 20 Cents in 2005, once again approaching to the equation of RE<C (Coal 5 Cents a KWH). Photovoltaic cells or solar cells as popularly known convert sunlight directly into the energy, but that’s not the only way. It is also possible to concentrate sun’s rays use them to boil water and from that the steam can be used to drive the turbine.
The latter has been what scientist are doing in the past decades more to gain the efficiency. Traditional cells are made of silicon as of computer chips, but efficiency can be targeted through redesigning of the crystal design, similar thing is being done to the wires concentrated and improving the efficiency by 27%. New Energy Finance, a research firm, expects the output of silicon for the solar industry almost to double next year. It has asked big buyers and sellers what prices they have agreed on this year for silicon to be delivered in the future.
The responses suggest that participants in the industry expect prices to fall by more than 40% next year, and over 70% by 2015. http://www. economist. com/specialreports/displaystory. cfm? story_id=11565636 GEOTHERMAL ENERGY Philippines are usually not known for technological breakthrough but at present they are using the underground heat to produce 25% of their total electricity needs, which is free, inexhaustible and available day and night. In principle it’s simpler, drill two parallel holes in the ground, hundred odd meters apart and drilling can be carried out until the rock is hot enough (200°C).
Then pump the cold water at the suitably elevated temperature it will reach to the surface extremely hot water the steam is being used to generate the electricity. Extracting such energy is not that easy. Till the time Engineered Geothermal Energy was coined it was known as the hot dry rock geothermal energy. A data collected in the regard by oil companies suggest the granite rocks which are impermeable are the most effective, their dryness increases the heat capacity but to take heat out of them you have to make them permeable.
But the engineered way, if it can be solved through then no Turbines, no vast mirrors covering kilometers of area and geothermal is always on. The initial installation cost of geo-thermal energy $2500 per KWH, as compared to natural gas which is between $1200 to $1600 per KWH installed. The sector is growing at 3% per year. FUTURE CAR’S With the innovations in place future comes faster than ever. We don’t hear much about the hydrogen reacting through the fuel cells that was demanded much in the last decade. The demand and possibilities are of “Plug in Hybrids”.
These are not same as the hybrid cars available in the present day markets for example Toyota Prius which contains two electric as well as internal combustion engine, the electric motors will come into play when they perform more efficient job than petrol engine, but even the batteries which provide electricity come from burning petrol. In the plug in hybrid the electricity comes from mains (Power Stations). The ultimate target is to manufacture a car which can be run completely through the electric motor and not through the optional batteries.
The extensive use of such plug-ins will help reduce the carbon dioxide to a large extent but it further depends on the type of power stations from which the electricity is being provided. Even if the electricity comes from the coal fired power stations then also there is less emissions of CO2, if the electricity is from hydro or nuclear power plants. Mass production for Economies of Scale is not far away, General Motors will launch the “Plug in hybrid” car called VOLT in 2010 and Toyota will launch PRIUS model again in the plug in segment. http://www. economist. com/specialreports/displaystory. cfm? story_id=11565627 BIO-FUELS
The industry requires number of things to get correct in order to establish and run properly. These are tailored new crops for fuel production rather than the food production. The second being the finding of various ways by which the crops can be converted into the feedstock. That has to be converted into the fuel, which is in form which can be purchased and affordable as well. Some are already affordable as is shown in the figure 5 below. The research into the field will make them competitive or so will the rising prices of oil. The classification can be made into three types of biodiesel: Trees, Grasses and algae.
The processing of the collected biomass into the fuel is done which is often called ethanol. Algae are fiddlier but it can be a high quality product, that won’t need a high processing. Algae are up for modification; the problem with them is that they are required to be extracted from ponds which are then dried out and are broken up for their cells. The process is so tedious that companies are thinking of burning the algae in the power stations instead. The process of the bio-fuels is being explained through diagram 6 below: http://www. economist. com/specialreports/displaystory. cfm? tory_id=11565647 INDIAN STATE The total energy consumption of India is 103000 Megawatts of which nearly 80% energy comes from the consumption of the fossil fuels (the greatest source of GHGs). The formation of Climate Change council under PMO in respect of the energy mix has been made in this regard. The nuclear energy, the biggest political centric, currently contributes only 3% of the country’s energy needs and there is no mention of enhancing production of nuclear energy, with the nuclear agreement getting through is having better chance the programme should be given a boast.
If India installed 200,000 MW of nuclear power by 2020 as proved by scientist it would save the world 145 Million tones of carbon emissions higher than that of EU countries under the Kyoto protocol. France is the best example of transforming at such a large scale, today it produces around 45000 MW of energy through nuclear power which is 70% of its total energy needs in a span of decade from 1989 to 1999. Wind energy is another source which helps making cleaner energy the gross wind energy potential for India has been assessed at 45000 MW.
At present the installed capacity is just 72200 MW, the most of which is in private sector. The cost of wind and solar energy are higher in the present state but they will come down when economies of scale are achieved and conversion efficiencies are improved. Source: 29th july economic times Indias climate change action plan SUGGESTIONS AND ANALYSIS The developed world on yearly basis is contributing to the lesser emissions, but according to the report of the financial times that would be offset by more emissions created by China alone (i. e. 1. 3 times).
To deal with such a challenge and support the growth of the developing nations along with lesser emissions, the amount that has been estimated to help the developing nations grow and develop on the renewable source of energy is $300 Billion. The amount can be sourced from various options 1. The levying of the Tobin Tax on the currency transactions. On a daily basis $1. 5 Trillion of the transactions take place across the globe. If a tax of 0. 25% to 0. 50% is being levied on the currency transactions then the required amount can be easily raised through operations.
The tax is basically levied to penalize the speculation being taking place in the currency transactions. 2. The second and more effective way of raising the funds would be by charging to the polluters that is a charge of $50 on a ton of carbon emission to the coal fired power stations, the emissions are up to the scale of 60 million tones, that would help to raise the requisite amount and also would enable to bring the cost of coal per kwh to 8 cents from 5 cents which would make it cost competitive to the wind energy and nearer to the solar energy and geothermal energy on the whole basis.
Energy | Price | Coal | 5 cents | Wind | 8 cents | Geothermal | 3-3. 5 cents | Solar | 20 cents | ENERGY’S FUTURE WE ACCEPT BOTH THE HYPOTHESIS. CLEAN ENERGY WITH COST EFFICIENCIES. As far as future is considered we should never make predictions. Specially, in the field of Technology, the predictions have either overshoot or undershoot.
Travelling at moon in 2000s predicted at 1960s hasn’t fulfilled. The analysis into the report has tried to pick up the fields of energy which are important and predictions according to it. Some outcomes can be mutually exclusive. A true electric car may eliminate the need of Bio-fuel except into the aircrafts or heavily cheap bio-diesel can drive the electric cars out. Geothermal may prove out to be better than solar. Solar may prove out to be better than wind. The solution can’t be hugely into the conservation of energy because economies would keep on consuming, the solution is in CHANGE.
Price, political security and environmental pressures are all pushing in the same direction. The change is to be there, but how fast? Is difficult to predict, one thing world should not forget is the power of compounding. In fields of technology changed happened quickly. In case of energy it has started gradually but as the curve moves up there comes a point where all the things start moving fast. Ten years ago wind turbines were marginal, now they are considered and in another decade they might contribute the 1/5th of the world’s energy needs.
Same could happen to solar energy which is 10 years behind Wind energy and geothermal energy which is 20 years behind. It could result faster if the carbon emissions are being charged for an honest price as given by IPCC. The need is of necessary incentives to make the equation of Google: Renewable energy cheaper than coal possible. If that’s being resulted then Mr Vinod Khosla, an Indian born American, will see the fruits of the same are being flourished into his native land India. It takes a lot to remove the oil dominance over the world economies, but those signs are here and Oil is going to be dethroned.
The future is here. SKYPE-REVOLUTIONIZAING THE WAY PEOPLE COMMUNICATE Liberalization in the telecom sector and the emergence of new technologies and new entrants coming from different sectors has revolutionalized communication in this era of globalization. Several new players have emerged to challenge the incumbents like connecting operators, search engines and browsers. In this competitive scenario voice over internet protocol (VoIP) is a new internet telephony which includes voice, data, video communication as well as instant messaging. One of the forerunners in the VoIP network service is Skype.
It is software which enables users to make calls over the internet. The genesis of two entrepreneurs namely Niklas Zennstrom and Janus Friss. Skype was founded in 2003 and is available in 28 languages in countries all around the world. It has its headquarters in Luxembourg. It was acquired by eBay in October 2005. Skype is a 100% subsidiary of eBay however it has established a brand name in the market independent of eBay. The main innovation of skype has been in the area of Peer to Peer networking which has made Skype the best known of the internet telephone operators.
FEATURES OF SKYPE: Skype offers various features like calling i. e. taking and making calls to skype for free, SkypeOut and SkypyIn which enable interoperatibiltiy between Skype and other telephone operators. Then there are various other features like SkypeVoicemail, Video Calling, Business control Panel which enables controlling skype expenditure in any business. Hence Skype offers various features and keeps on innovating constantly with new and better features. HYPOTHESIS: Skype will write the obituary of landline and is the future of telecommunications media” Skype was launched in 2003 and since then it has witnessed tremendous growth and achieved for itself a solid position in field of internet telephony. In just two years after its launch, Skype witnessed: –over 150 million downloads in 225 countries and territories –over 51 million people registered to use Skype’s free services –over 3 million people using the service concurrently –over 12 billion minutes served –over 2 million people created accounts for Skype’s paid services
Source: http://resources. bnet. com/topic/Skype+Technologies+S. A.. html www. skype. com Even after2 years Skype’s user bas has been increasing tremendously. In 2008 it had a user base of 309 million registered users. Skype has shown an exponential increase in its revenues over the years. In Q1 2008, Skype had total revenues of $126 million i. e. an increase of 61 percent over the previous year and hence showed a fifth consecutive quarter of profitability. SKYPE’S TECHNOLOGY Skype’s main innovation was peer-peer to network. This has helped it to greatly reduce its infrastructure cost.
In Skype whenever a use logins than only his login information is stored on the network. Besides login information no other information is stored on network. All other information like personal information is stored on user’s hardware. Suppose a person creates a buddy list then it is stored on user’s hardware and not on Skype’s network. This way skype takes maximum use of user’s hardware thereby reducing its infrastructure cost to a great extent. Another great innovation by skype in technology is by which it can find any user who has logged in to network in last 72 hours by the help of “Global
Index Technology”. The voice quality of skype is very good as codecs which are used for transfer of audio are of international standard and have been licensed by Global IP Sound. SKYPE’S BUSINESS Where does skype gets its revenues from when the normal communication between skype uses is free. Skype generates its revenues from the premium services that it offers like Skype In, Skype Out, and Skype Voicemail etc. It charges users for these services and from this it derives its major revenue. Source: http://www. tml. tkk. fi/Publications/C/18/tapio. pdf www. skypenumerology. blogspot. com
COMPARISION WITH TELECOM OPERATORS Now days what the users want? They want a single device or an application which can provide them with all facilities like phone, email, instant messaging etc. Skype has already taped into these opportunities well. It has made a simple piece of software which can provide users with all these facilities. Presently voice communication and data communication has been converged into a single device. So with these developments we see that the demand for landline phones has been decreasing over the years. One might feel that landline phones are essential for emergency calling.
But skype has tapped well into this field also by launching its new mobile phone 3SkypePhone. This new phone has everything a normal phone has along with Skype’s services. The telecom operators derive their major revenue from the ordinary calls and if internet operators bypass this then the will loose on their major source of income. So landline phones need to rethink their strategies else in near future they will be replaced the way fax was replaced when email came. So in near future it might be possible for skype to replace landline phones completely. Hence our hypothesis has been proved. Thus eBay’s acquisition of skype has renewed the industry’s interest on VoIP and shifted the focus from the telephone to the home computer. ” Said John Barret, Director of research with Park Associates. CRITICAL ANALYSIS There are many telephone operators in this voice over internet technology. Some of which have not been able to make up to Skype’s mark and some have reached that position. This poses a serious competition for skype. One of the competitors of skype is yahoo. Comparison between Skype and Yahoo: Yahoo is a VOIP service provider like skype.
Yahoo enables users to make calls anywhere in the world free of cost through high-quality, PC-to-PC calling, also known as VoIP (Voice over Internet Protocol). The enhanced version allows one to leave voice messages and features like YahooIn and YahooOut etc. So all the services which are being offered by skype now are all offered by yahoo. Yahoo has a large customer base consisting of 63 million users. In June of 2004, Yahoo announced its plans to acquire Dial pad Communications in order to expand its VoIP services, and offer computer-to-computer connections, to allow customers to use their computer to contact someone on an actual phone.
Source: www. yahoo. com www. skype. com Call Rate Charges by Yahoo and Skype | | | Destination | Skype (Rate/min) | Yahoo (Rate/min)| America| 0. 024| 0. 08| Australia| 0. 024| 0. 018| China| 0. 024| 0. 015| Egypt| 0. 172| 0. 209| France | 0. 024| 0. 015| Germany| 0. 024| 0. 015| Hong Kong| 0. 024| 0. 019| India| 0. 106| 0. 07| Norway| 0. 024| 0. 049| Philippines| 0. 228| 0. 159| Russia| 0. 024| 0. 049| Singapore| 0. 024| 0. 015| As we can see from the graph in most of the countries the price in dollars for Skype is greater than for Yahoo.
Nevertheless the user base for yahoo is 166 million registered user bases as compared to Skype which has a registered user base of 309 million around the world. Skype has the largest registered user base under eBay Inc portfolio of business. Further Skype is thriving in this industry by earning a revenue of 126$ in the first quarter of 2008. Skype’s future business lies in scalability of skype i. e. skype earns it major revenues from its premium services like Skype In, SkypeOut etc. But these premium services require extra hardware and hence extra cost.
So in future skype needs to see if it is able to meet the hardware and infrastructure cost by the revenues earned from its premium services. Now in future there will be interoperatibilty between various internet telephony operators. But then this service will be provided by all other internet operators besides skype. So it needs to think on aspects like how is it going to convince people to use skype and not other operators, when already all other operators are providing the same features as that of skype.
And as we have seen earlier that yahoo provides services at a lower call rate. Source: www. skype. com www. yahoo. com http://www. tml. tkk. fi/Publications/C/18/tapio. pdf SUGGESTIONS: We discussed regarding what skype should do to create a position for itself in the internet telephony market. Some of the things we considered were like presently skype offers video call between 2 people, so it can extend it to more than two people in near future. Now as we saw that yahoo offers everything now which skype has, so skype needs to create a monopoly in something.
Thus, skype can probably do this with its newly launched mobile phone by innovating it further. Skype has brought open a cost effective business model and eliminated the need for infrastructure investment. CEO Josh Silver Man foresees skype as a liquid communication tool replacing the frozen shaped telephone. Thus, skype cuts through time and space blurring the line between real and virtual. ENTREPRENEURSHIP THE INSURANCE CONNECTION Entrepreneurship means Willingness to take the risks involved in starting and managing a business. The key lies in ability to take risk and sell the invention.
Entrepreneurship is closely linked with innovation, since it necessarily involves invention and then commercializing the product in order to make gains from it. Commercialising the invention is termed as innovation. Insurance ,innovation and entrepreneurship are closely linked with each other. One of the ways in which we can look at it is that insurance is the biggest financial innovation till date and has made many entrepreneurs. On the other hand insurance provides support to many upcoming entrepreneurs by providing them insurance cover against the risk of losses that may arise out of the newly setup business.
Innovations in the insurance sector are many. Any risk may be covered by insurance whether it be arising out of fire, health, financial loss or even terrorism. Some of the greatest innovations till date include: * Life insurance * Fire insurance * Marine insurance * Health insurance * Automobile insurance * Financial loss insurance * Annuities There are numerous other innovations too such as flood insurance , earthquake insurance , Workers’ compensation insurance , Travel insurance , Terrorism insurance and the list goes on and on. Any loss arising out bearing risk that can be compensated for comes under the umbrella of insurance.
HYPOTHESIS Insurance helps entrepreneurs by providing them with the required support to bear risk. Thus entrepreneurs may need to buy coverage to protect against risk and unforeseeable losses. This implies that the level of uncertainty is reduced and transformed into risk that insurance policies may cover. Those entrepreneurs with access to insurance are more likely to continue in business than entrepreneurs that do not buy insurance coverage. Nevertheless, it is very difficult to prove any strong association and /or causality between insurance and entrepreneurship.
However we will still try to establish a relationship between the two by considering few economic parameters. Thus the hypothesis statement is derived from the fact that insurance sector is a necessacity for entrepreneurship to survive and it helps entrepreneurs to grow and thrive in an economy. Thus the hypothesis statement can be stated as follows. “Insurance sector is the major driver of entrepreneurship in an economy. ” The relationship between entrepreneurship and insurance is very complex. To develop a testable theory of the relationship, we start from these basic propositions and the relationship among them. . Entrepreneurship and economic growth Both are very closely related, especially if one examines the recent history of the US economy, when the structure of firms became more dynamic and small companies replaced private bureaucracies. The results were high levels of innovation, and they were reflected in more technology and higher productivity growth. Similar example can be of India where new startups and private business houses have led to a very strong economic growth in recent years. 2. Growth in non life insurance sector and Economic growth.
These two have mostly a direct relationship in the sense that an increased level of activity prompts the demand for more insurance. However, preexistent insurance institutions and market receptivity of new needs would favor and possibly prompt greater economic activity. Yet, the direction of causality is not fully understood. Life and possibly business insurance play a key role. Social insurance of the type of health insurance may reduce the positive impact of business and life insurance. General insurance known to be driver of business is a prerequisite for entrepreneurs to grow and sustain. 3.
Insurance and entrepreneurship. By intuition, there exists a direct relation between the two and more and more entrepreneurs will demand for more and more insurance coverage , thus boosting the economies of insurance companies. In turn insurance provides required support to the entrepreneurs by proving them with the coverage against risk. Thus helping them to grow and enhancing the entrepreneurship activity in an economy. All the propositions can be explained with the help of relevant data and the relationship between the two can be found out. The data is collected with reference to the Indian economy.
The in detail analysis of the individual propositions is as follows. 1. Entrepreneurship and economic growth It is generally known that an increased level of entrepreneurial activity in an economy leads to higher level of growth. This is particularly true with reference to India and The USA. This fact can be proven with the help of the following data. Year | No. Of SME’s | GDP growth rate | | | 2000-2001 | 9900000 | 6 | | | 2001-2002 | 10500000 | 5. 4 | | | 2002-2003 | 11000000 | 4. 3 | | Correlation | 2003-2004 | 11500000 | 8. 4 | | 0. 724578 | 2004-2005 | 11900000 | 6. 2 | | | 2005-2006 | 12300000 | 8. 4 | | | 006-2007 | 12800000 | 9. 2 | | | Source:Indiastat. com and Govt Of SME Entrepreneurship here is represented by the no of SME’s that start up every year. SME’s stand for small and medium scale enterprises which represent the true growth of entrepreneurship in any economy. Increase in the number of SME’s leads to an accelerated economic growth as represented by the increasing GDP. The correlation as depicted above is pretty high and positive signifying the direct relationship between the two. Correlation of more than 0. 72 shows that as entrepreneurial activities in an economy increase , economy tends to grow at a faster rate.
Hence promoting entrepreneurship in any economy is very important for its growth. Next, we try to link the general insurance, i. e. non life insurance sector to the economic growth of India. 2. Growth in non life insurance sector and Economic growth. Since we propose that an increased level of insurance growth leads to an accelerated level of GDP growth rate in real terms, we shall see how the growth in non life insurance sector and GDP growth rate are related. Since growth in non life insurance sector is linked to the increasing number of SME’s as we shall soon, it is imperative that there should exist a direct relationship between the two.
Year | Growth rate of non life insurance sector | GDP growth rate | | | 2000-2001 | 4. 5 | 6 | | | 2001-2002 | 4. 7 | 5. 4 | | | 2002-2003 | 20. 06 | 4. 3 | | Correlation | 2003-2004 | 11. 24 | 8. 4 | | 0. 31379178 | 2004-2005 | 11. 6 | 6. 2 | | | 2005-2006 | 15. 61 | 8. 4 | | | 2006-2007 | 21. 41 | 9. 2 | | | Source:IRDA and Indiastat. com As it can be inferred from the above data that the relation between the two is also positive and direct thus an increased level of growth in non life insurance sector leads to higher level GDP growth rate.
One may argue that a correlation of 0. 31 is not quite high, but this may be explained by the fact that there was an extreme case in the year 2002 where growth in insurance sector was more than 20 %. This can be attributed to the fact that the insurance sector was opened up for private players in the year 2001. This lead to more and more number of private players entering the Indian market in the year 2001, thus encouraging huge growth rate in the year 2002. If the growth rate of year 2002 is removed from the data to calculate the correlation, the correlation stands at a huge 0. 81.
Thus it can be inferred that growth in insurance sector directly leads to an increased level of economic growth. 3. Insurance and entrepreneurship After deducing the relationship between economic growth and the insurance sector, and between entrepreneurship and economic growth, we establish a relationship between the insurance sector and entrepreneurship. As per the hypothesis, we have assumed that there is high correlation between entrepreneurship and insurance sector in an economy. Year | Value of products and services produced by SME’s(Rs Crores) | Premium from non life insurance policies | | | 2000-2001 | 240000 | 11832. 7 | | | 2001-2002 | 265000 | 12385. 24 | | | 2002-2003 | 300000 | 14870. 25 | | Correlation | 2003-2004 | 350000 | 16542. 49 | | 0. 98429314 | 2004-2005 | 420000 | 18456. 45 | | | 2005-2006 | 480000 | 21339. 1 | | | 2006-2007 | 530000 | 25930. 02 | | | | Source:Annual report “Govt Of SME’s” And IRDA The data above shows that indeed there exists a very high correlation between the two. The correlation of 0. 98 between value of services produced and the premium from non life insurance sector is almost perfect which signifies that as more and more entrepreneurs grow, they seek more and more insurance.
CONCLUSION There exists a strong interrelationship between entrepreneurship and insurance in an economy, the latter supporting the former by providing cover for risk that is involved in it. As entrepreneurial activities grow in an economy, the GDP tends to rise, as is shown by the data and the figures given above. These entrepreneurial activities require risk coverage, which is provided by the insurance sector. Thus the hypothesis that insurance sector supports entrepreneurship stands proved. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
