27 pg of overview of ins...

8/2/2019 27 pg of overview of ins...

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INTRODUCTION

The Insurance sector in India governed by Insurance Act, 1938, the Life Insurance

Corporation Act, 1956 and General Insurance Business (Nationalisation) Act, 1972,

Insurance Regulatory and Development Authority (IRDA) Act, 1999 and other related

Acts. With such a large population and the untapped market area of this population

Insurance happens to be a very big opportunity in India. Today it stands as a business

growing at the rate of 15-20 per cent annually. Together with banking services, it adds

about 7 per cent to the countrys GDP .In spite of all this growth the statistics of the

penetration of the insurance in the country is very poor. Nearly 80% of Indian

populations are without Life insurance cover and the Health insurance. This is an

indicator that growth potential for the insurance sector is immense in India. It was due to

this immense growth that the regulations were introduced in the insurance sector and in

continuation MalhotraCommitteewas constituted by the government in 1993 to

examine the various aspects of the industry. The key element of the reform process was

Participation of overseas insurance companies with 26% capital. Creating a more

efficient and competitive financial system suitable for the requirements of the economy

was the main idea behind this reform.

Since then the insurance industry has gone through many sea changes .The

competition LIC started facing from these companies were threatening to the existence of

LIC .since the liberalization of the industry the insurance industry has never looked back

and today stand as the one of the most competitive and exploring industry in India. The

entry of the private players and the increased use of the new distribution are in the

limelight today. The use of new distribution techniques and the IT tools has increased the

scope of the industry in the longer run.


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HISTORY OF INSURANCE SECTOR

The business of life insurance in India in its existing form started in India in the year

1818 with the establishment of the Oriental Life Insurance Company in Calcutta. Some ofthe important milestones in the life insurance business in India are given in the table 1.

Table 1: milestones in the life insurance business in India

Year Milestones in the life insurance business in India

1912 The Indian Life Assurance Companies Act enacted as the first statute

to regulate the life insurance business

1928 The Indian Insurance Companies Act enacted to enable the

government to collect statistical information about both life and non-

life insurance businesses

1938 Earlier legislation consolidated and amended to by the Insurance Act

with the objective of protecting the interests of the insuring public.

1956 245 Indian and foreign insurers and provident societies taken over by

the central government and nationalised. LIC formed by an Act of

Parliament, viz. LIC Act, 1956, with a capital contribution of Rs. 5

crore from the Government of India.

The General insurance business in India, on the other hand, can trace its roots to the

Triton Insurance Company Ltd., the first general insurance company established in the

year 1850 in Calcutta by the British. Some of the important milestones in the general

insurance business in India are given in the table 2.


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Table 2: milestones in the general insurance business in India

Year Milestones in the general insurance business in India

1907 The Indian Mercantile Insurance Ltd. set up, the first company to transact

all classes of general insurance business

1957 General Insurance Council, a wing of the Insurance Association of India,

frames a code of conduct for ensuring fair conduct and sound business

practices

1968 The Insurance Act amended to regulate investments and set minimum

solvency margins and the Tariff Advisory Committee set up.

1972 The General Insurance Business (Nationalisation) Act, 1972 nationalised

the general insurance business in India with effect from 1st January 1973.

107 insurers amalgamated and grouped into four companies viz. the

National Insurance Company Ltd., the New India Assurance Company

Ltd., the Oriental Insurance Company Ltd. and the United India Insurance

Company Ltd. GIC incorporated as a company.

Indian Insurance MarketHistory

Insurance has a long history in India. Life Insurance in its current form was introduced in

1818 when Oriental Life Insurance Company began its operations in India. General

Insurance was however a comparatively late entrant in 1850 when Triton Insurance

company set up its base in Kolkata. History of Insurance in India can be broadly

bifurcated into three eras: a) Pre Nationalisation b) Nationalisation and c) Post


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Nationalisation. Life Insurance was the first to be nationalized in 1956. Life Insurance

Corporation of India was formed by consolidating the operations of various insurance

companies. General Insurance followed suit and was nationalized in 1973. General

Insurance Corporation of India was set up as the controlling body with New India, UnitedIndia, National and Oriental as its subsidiaries. The process of opening up the insurance

sector was initiated against the background of Economic Reform process which

commenced from 1991. For this purpose Malhotra Committee was formed during this

year who submitted their report in 1994 and Insurance Regulatory Development Act

(IRDA) was passed in 1999. Resultantly Indian Insurance was opened for private

companies and Private Insurance Company effectively started operations from 2001.

Insurance Market- Present:

The insurance sector was opened up for private participation four years ago. For years

now, the private players are active in the liberalized environment. The insurance market

have witnessed dynamic changes which includes presence of a fairly large number of

insurers both life and non-life segment. Most of the private insurance companies have

formed joint venture partnering well recognized foreign players across the globe.

There are now 29 insurance companies operating in the Indian market 14 private life

insurers, nine private non-life insurers and six public sector companies. With many more

joint ventures in the offing, the insurance industry in India today stands at a crossroads as

competition intensifies and companies prepare survival strategies in a detariffed scenario.

There is pressure from both within the country and outside on the Government to increase

the foreign direct investment (FDI) limit from the current 26% to 49%, which would helpJV partners to bring in funds for expansion.

There are opportunities in the pensions sector where regulations are being framed. Less

than 10 % of Indians above the age of 60 receive pensions. The IRDA has issued the first

licence for a standalone health company in the country as many more players wait to


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enter. The health insurance sector has tremendous growth potential, and as it matures and

new players enter, product innovation and enhancement will increase. The deepening of

the health database over time will also allow players to develop and price products for

larger segments of society.

State Insurers Continue To Dominate There may be room for many more players in a

large underinsured market like India with a population of over one billion. But the reality

is that the intense competition in the last five years has made it difficult for new entrants

to keep pace with the leaders and thereby failing to make any impact in the market.

Also as the private sector controls over 26.18% of the life insurance market and over

26.53% of the non-life market, the public sector companies still call the shots.

The countrys largest life insurer, Life Insurance Corporation of India (LIC), had a share

of 74.82% in new business premium income in November 2005.

Similarly, the four public-sector non-life insurers New India Assurance, National

Insurance, Oriental Insurance and United India Insurancehad a combined market share

of 73.47% as of October 2005. ICICI Prudential Life Insurance Company continues to

lead the private sector with a 7.26% market share in terms of fresh premium, whereas

ICICI Lombard General Insurance Company is the leader among the private non-life

players with a 8.11% market share. ICICI Lombard has focused on growing the market

for general insurance products and increasing penetration within existing customers

through product innovation and distribution.

Reaching Out To Customers No doubt, the customer profile in the insurance industry is

changing with the introduction of large number of divergent intermediaries such as

brokers, corporate agents, and bancassurance.

The industry now deals with customers who know what they want and when, and are

more demanding in terms of better service and speedier responses. With the industry all


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set to move to a detariffed regime by 2007, there will be considerable improvement in

customer service levels, product innovation and newer standards of underwriting.

Intense Competition In a de-tariffed environment, competition will manifest itself in

prices, products, underwriting criteria, innovative sales methods and creditworthiness.

Insurance companies will vie with each other to capture market share through better

pricing and client segmentation.

The battle has so far been fought in the big urban cities, but in the next few years,

increased competition will drive insurers to rural and semi-urban markets.

Global Standards While the world is eyeing India for growth and expansion, Indiancompanies are becoming increasingly world class. Take the case of LIC, which has set its

sight on becoming a major global player following a Rs280-crore investment from the

Indian government. The company now operates in Mauritius, Fiji, the UK, Sri

Lanka, Nepal and will soon start operations in Saudi Arabia. It also plans to venture into

the African and Asia-Pacific regions in 2006.

The year 2005 was a testing phase for the general insurance industry with a series of

catastrophes hitting the Indian sub-continent.

However, with robust reinsurance programmes in place, insurers have successfully

managed to tide over the crisis without any adverse impact on their balance sheets.

With life insurance premiums being just 2.5% of GDP and general insurance premiums

being 0.65% of GDP, the opportunities in the Indian market place is immense. The next

five years will be challenging but those that can build scale and market share will survive

and prosper.


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LIFE INSURANCE CORPORATION OF INDIA (LIC)

Life Insurance Corporation of India (LIC) was formed in September, 1956 by an Act of

Parliament, viz., Life Insurance Corporation Act, 1956, with capital contribution from the

Government of India. The then Finance Minister, Shri C.D. Deshmukh, while piloting the

bill, outlined the objectives of LIC thus: to conduct the business with the utmost

economy, in a spirit of trusteeship; to charge premium no higher than warranted by strict

actuarial considerations; to invest the funds for obtaining maximum yield for the policy

holders consistent with safety of the capital; to render prompt and efficient service to

policy holders, thereby making insurance widely popular.

Since nationalisation, LIC has built up a vast network of 2,048 branches, 100divisions and 7 zonal offices spread over the country. The Life Insurance Corporation

of India also transacts business abroad and has offices inFiji, Mauritius and United

Kingdom. LIC is associated with joint ventures abroad in the field of insurance, namely,

Ken-India Assurance Company Limited, Nairobi; United Oriental Assurance Company

Limited, Kuala Lumpur and Life Insurance Corporation (International) E.C. Bahrain. The

Corporation has registered a joint venture company in 26th December, 2000 in

Kathmandu, Nepal by the name of Life Insurance Corporation (Nepal) Limited in

collaboration with Vishal Group Limited, a local industrial Group. An off-shore company

L.I.C. (Mauritius) Off-shore Limited has also been set up in 2001 to tap the African

insurance market.

Some Areas of Future Growth

Life Insurance

The traditional life insurance business for the LIC has been a little more than a savings

policy. Term life (where the insurance company pays a predetermined amount if the

policyholder dies within a given time but it pays nothing if the policyholder does not die)

has accounted for less than 2% of the insurance premium of the LIC (Mitra and Nayak,


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2001). For the new life insurance companies, term life policies would be the main line of

business.

Health Insurance

Health insurance expenditure in India is roughly 6% of GDP, much higher than most

other countries with the same level of economic development. Of that, 4.7% is private

and the rest is public. What is even more striking is that 4.5% are out of pocket

expenditure (Berman, 1996). There has been an almost total failure of the public health

care system in India. This creates an opportunity for the new insurance companies.

Thus, private insurance companies will be able to sell health insurance to a vast number

of families who would like to have health care cover but do not have it.

Pension

The pension system in India is in its infancy. There are generally three forms of plans:

provident funds, gratuities and pension funds. Most of the pension schemes are confined

to government employees (and some large companies). The vast majority of workers are

in the informal sector. As a result, most workers do not have any retirement benefits to

fall back on after retirement. Total assets of all the pension plans in India amount to less

than USD 40 billion.

Therefore, there is a huge scope for the development of pension funds in India. The

finance minister of India has repeatedly asserted that a Latin American style reform of the

privatized pension system in India would be welcome (Roy, 1997). Given all the pros and

cons, it is not clear whether such a wholesale privatization would really benefit India or

not (Sinha, 2000).

MARKET SHARE OF INDIAN INSURANCE INDUSTRY

The introduction of private players in the industry has added value to the industry. The

initiatives taken by the private players are very competitive and have given immense


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competition to the on time monopoly of the market LIC. Since the advent of the private

players in the market the industry has seen new and innovative steps taken by the players

in this sector. The new players have improved the service quality of the insurance. As a

result LIC down the years have seen the declining phase in its career. The market sharewas distributed among the private players. Though LIC still holds the 75% of the

insurance sector but the upcoming natures of these private players are enough to give

more competition to LIC in the near future. LIC market share has decreased from 95%

(2002-03) to 81 %( 2004-05).The following companies has the rest of the market share of

the insurance industry. Table 3 shows the mane of the player in the market.

TABLE NO: 3NAME OF THE INSURANCE COMPANY AND THE

SHARE HOLDING PATTEN

Name of the Insurance Company Shareholding

Agricultural Insurance Co Bank and Public Ins Co

Bajaj Allianz General Insurance Co. Ltd. Privately Held

Cholamandalam MS General Insurance Co. Ltd. Privately Held

Export Credit Guarantee Company Public Sector

HDFC Chubb General Insurance Co. Ltd. Privately Held

ICICI Lombard General Insurance Co. Ltd. Privately Held

IFFCO-Tokio General Insurance Co. Ltd. Privately Held

National Insurance Co. Ltd. Public Sector


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New India Assurance Co. Ltd. Public Sector

Oriental Insurance Co. Ltd. Public Sector

Reliance General Insurance Co. Ltd. Privately Held

Royal Sundaram Alliance General Insurance Co. Ltd. Privately Held

Tata AIG General Insurance Co. Ltd. Privately Held

United India Insurance Co. Ltd. Public Sector

There are a total of 13 life insurance companies operating in India, of which one is a

Public Sector Undertaking and the balance 12 are Private Sector Enterprises.

List of Companies are indicated below:-

TABLE NO: 4NAME OF THE LIFE INSURANCE COMPANY AND THE

SHARE HOLDING PATTEN

Name of the company Nature of Holding

Allianz Bajaj Life Insurance Co Private

Aviva Life Insurance Private

Birla Sun Life Insurance Co Private

HDFC Standard Life Insurance Co Private


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ICICI Prudential Life Insurance Co Private

ING Vysya Life Insurance Co. Private

Life Insurance Corporation of India Public

Max New York Life Insurance Co. Private

MetLife Insurance Co. Private

Om Kotak Mahindra Life Insurance Private

Reliance insurance Private

SBI Life Insurance Co Private

TATA- AIG Life Insurance Company Private

TABLE 5. NAME OF THE PLAYER MARKET SHARE (%)

Name of the Player Market share (%)

LIFE INSURANCE CORPORATION OF INDIA 82.3

ICICI PRUDENTIAL 5.63

BIRLA SUN LIFE 2.56

BAJAJ ALLIANZ 2.03


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SBI LIFE INSURANCE 1.80

HDFC STANDARD 1.36

TATA AIG 1.29

MAX NEW YARK 0.90

AVIVA 0.79

OM KOTAK MAHINDRA 0.51

ING VYSYA 0.37

MET LIFE 0.21

PRESENT SCENARIO OF INSURANCE INDUSTRY

India with about 200 million middle class household shows a huge untapped potential

for players in the insurance industry. Saturation of markets in many developed economies

has made the Indian market even more attractive for global insurance majors. The

insurance sector in India has come to a position of very high potential and

competitiveness in the market. Indians, have always seen life insurance as a tax saving

device, are now suddenly turning to the private sector that are providing them newproducts and variety for their choice.

Consumers remain the most important centre of the insurance sector. After the entry of

the foreign players the industry is seeing a lot of competition and thus improvement of

the customer service in the industry. Computerisation of operations and updating


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of technology has become imperative in the current scenario. Foreign players are

bringing in international best practices in service through use of latest technologies

The insurance agents still remain the main source through which insurance products are

sold. The concept is very well established in the country like India but still the increasing

use of other sources is imperative. At present the distribution channels that are available

in the market are listed below.

Direct selling

Corporate agents

Group selling

Brokers and cooperative societies

Bancassurance

Customers have tremendous choice from a large variety of products from pure term (risk)

insurance to unit-linked investment products. Customers are offered unbundled products

with a variety of benefits as riders from which they can choose. More customers are

buying products and services based on their true needs and not just traditional moneyback

policies, which is not considered very appropriate for long-term protection and savings.

There is lots of saving and investment plans in the market. However, there are still some

key new products yet to be introduced - e.g. health products.

The rural consumer is now exhibiting an increasing propensity for insurance products. A

research conducted exhibited that the rural consumers are willing to dole out anything

between Rs 3,500 and Rs 2,900 as premium each year. In the insurance the awareness

level for life insurance is the highest in rural India, but the consumers are also aware

about motor, accidents and cattle insurance. In a study conducted by MART the results

showed that nearly one third said that they had purchased some kind of insurance with

the maximum penetration skewed in favor of life insurance. The study also pointed out


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APPLICATION OF INFORMATION TECHNOLOGY IN INSURANCE SECTOR

There is a evolutionary change in the technology that has revolutionized the entire

insurance sector. Insurance industry is a data-rich industry, and thus, there is a need to

use the data for trend analysis and personalization.

With increased competition among insurers, service has become a key issue. Moreover,

customers are getting increasingly sophisticated and tech-savvy. People today dont want

to accept the current value propositions, they want personalized interactions and they

look for more and more features and add ones and better service

The insurance companies today must meet the need of the hour for more and more

personalized approach for handling the customer. Today managing the customer

intelligently is very critical for the insurer especially in the very competitive

environment. Companies need to apply different set of rules and treatment strategies to

different customer segments. However, to personalize interactions, insurers are required

to capture customer information in an integrated system.

With the explosion of Website and greater access to direct product or policy information,

there is a need to developing better techniques to give customers a truly personalizedexperience. Personalization helps organizations to reach their customers with more

impact and to generate new revenue through cross selling and up selling activities. To

ensure that the customers are receiving personalized information, many organizations are

incorporating knowledge database-repositories of content that typically include a search

engine and lets the customers locate the all document and information related to their

queries of request for services. Customers can hereby use the knowledge database to

mange their products or the company information and invoices, claim records, and

histories of the service inquiry. These products also may be able to learn from the

customers previous knowledge database and to use their information when determining

the relevance to the customers search request.


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CONCLUSION

There is a probability of a spurt in employment opportunities. A number of web-sites are

coming up on insurance, a few financial magazines exclusively devoted to insurance and

also a few training institutes being set up hurriedly. Many of the universities andmanagement institutes have already started or are contemplating new courses in

insurance. Life insurance has today become a mainstay of any market economy since it

offers plenty of scope for garnering large sums of money for long periods of time. A

well-regulated life insurance industry which moves with the times by offering its

customers tailor-made products to satisfy their financial needs is, therefore, essential if

we desire to progress towards a worry-free future.

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Overview of Insurance Sector in India

With largest number of life insurance policies in force in the world, Insurance happens to be

a mega opportunity in India. It's a business growing at the rate of 15-20 per cent annually

and presently is of the order of Rs 450 billion. Together with banking services, it adds about7 per cent to the country's GDP. Gross premium collection is nearly 2 per cent of GDP andfunds available with LIC for investments are 8 per cent of GDP.

Yet, nearly 80 per cent of Indian population is without life insurance cover while health

insurance and non-life insurance continues to be below international standards. And this

part of the population is also subject to weak social security and pension systems withhardly any old age income security. This it is an indicator that growth potential for theinsurance sector is immense.

A well-developed and evolved insurance sector is needed for economic development as it

provides long term funds for infrastructure development and at the same time strengthens

the risk taking ability. It is estimated that over the next ten years India would requireinvestments of the order of one trillion US dollar. The Insurance sector, to some extent, can

enable investments in infrastructure development to sustain economic growth of the

country. Insurance is a federal subject in India. There are two legislations that govern thesector- The Insurance Act- 1938 and the IRDA Act- 1999.

In India, insurance is generally considered as a tax-saving device instead of its otherimplied long term financial benefits. Indian people are prone to investing in properties andgold followed by bank deposits. They selectively invest in shares also but the percentage is
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very small. Even to this day, Life Insurance Corporation of India dominates Indian insurance

sector. With the entry of private sector players backed by foreign expertise, Indianinsurance market has become more vibrant.

Historical Perspective

The history of life insurance in India dates back to 1818 when it was conceived as a meansto provide for English Widows. Interestingly in those days a higher premium was chargedfor Indian lives than the non-Indian lives as Indian lives were considered more riskier forcoverage.

The Bombay Mutual Life Insurance Society started its business in 1870. It was the firstcompany to charge same premium for both Indian and non-Indian lives. The Oriental

Assurance Company was established in 1880. The General insurance business in India, onthe other hand, can trace its roots to the Triton (Tital) Insurance Company Limited, the firstgeneral insurance company established in the year 1850 in Calcutta by the British. Till the

end of nineteenth century insurance business was almost entirely in the hands of overseascompanies.

Insurance regulation formally began in India with the passing of the Life InsuranceCompanies Act of 1912 and the provident fund Act of 1912. Several frauds during 20's and30's sullied insurance business in India. By 1938 there were 176 insurance companies. The

first comprehensive legislation was introduced with the Insurance Act of 1938 that providedstrict State Control over insurance business. The insurance business grew at a faster paceafter independence. Indian companies strengthened their hold on this business but despitethe growth that was witnessed, insurance remained an urban phenomenon.

The Government of India in 1956, brought together over 240 private life insurers and

provident societies under one nationalized monopoly corporation and Life InsuranceCorporation (LIC) was born. Nationalization was justified on the grounds that it would createmuch needed funds for rapid industrialization. This was in conformity with the Government's

chosen path of State lead planning and development.

The (non-life) insurance business continued to thrive with the private sector till 1972. Their

operations were restricted to organized trade and industry in large cities. The generalinsurance industry was nationalized in 1972. With this, nearly 107 insurers wereamalgamated and grouped into four companies- National Insurance Company, New India

Assurance Company, Oriental Insurance Company and United India Insurance Company.These were subsidiaries of the General Insurance Company (GIC).

Indian federal government considers insurance as one of major sources of funds forinfrastructure development. The government has identified the following as major thrustareas:

* Timely and reliable statistical data and information about policies and markets to instill a

degree of credibility;

* A code of good practices based on international best practices to raise the standard ofIndian insurance sector;* Strengthening of supervision and regulation;

* Market participation in decision-making;* High solvency standard' and Developing alternative channels.


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Till end of 1999-2000 fiscal years, two state-run insurance companies, namely, Life

Insurance Corporation (LIC) and General Insurance Corporation (GIC) were the

monopoly insurance (both life and non-life) providers in India. Under GIC there were foursubsidiaries-- National Insurance Company Ltd, Oriental Insurance Company Ltd, New IndiaAssurance Company Ltd, and United India Assurance Company Ltd. In fiscal 2000-01, the

Indian federal government lifted all entry restrictions for private sector investors. Foreign

investment insurance market was also allowed with 26 percent cap. GIC was convertedinto India's national reinsure from December, 2000 and all the subsidiaries working underthe GIC umbrella were restructured as independent insurance companies.

Indian Parliament has cleared a Bill on July 30, 2002 de-linking the four subsidiaries from

GIC. A separate Bill has been approved by Parliament to allow brokers, cooperatives and

intermediaries in the sector. Currently insurance companies- both private and public-- haveto cede 20 percent of its reinsurance with GIC. GIC is planning to increase re-insurance

premium by 20 percent which works out at Rs 3000 cr. GIC is actively considering entry intooverseas markets including West Asia, South-east Asia and SAARC region.

Insurance Sector Reforms

In 1993, Malhotra Committee- headed by former Finance Secretary and RBI Governor R.N.

Malhotra- was formed to evaluate the Indian insurance industry and recommend its futuredirection. The Malhotra committee was set up with the objective of complementing thereforms initiated in the financial sector. The reforms were aimed at creating a more efficient

and competitive financial system suitable for the requirements of the economy keeping inmind the structural changes currently underway and recognizing that insurance is animportant part of the overall financial system where it was necessary to address the need

for similar reforms. In 1994, the committee submitted the report and some of the keyrecommendations included:

i) Structure

Government should take over the holdings of GIC and its subsidiaries so that thesesubsidiaries can act as independent corporations. All the insurance companies should begiven greater freedom to operate.

ii) Competition

Private Companies with a minimum paid up capital of Rs.1bn should be allowed to enter thesector. No Company should deal in both Life and General Insurance through a single entity.

Foreign companies may be allowed to enter the industry in collaboration with the domesticcompanies.

Postal Life Insurance should be allowed to operate in the rural market. Only one State LevelLife Insurance Company should be allowed to operate in each state.

iii) Regulatory Body

The Insurance Act should be changed. An Insurance Regulatory body should be set up.Controller of Insurance- a part of the Finance Ministry- should be made independent

iv) Investments
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Mandatory Investments of LIC Life Fund in government securities to be reduced from 75%

to 50%. GIC and its subsidiaries are not to hold more than 5% in any company (therecurrent holdings to be brought down to this level over a period of time)

v) Customer Service

LIC should pay interest on delays in payments beyond 30 days. Insurance companies mustbe encouraged to set up unit linked pension plans. Computerization of operations andupdating of technology to be carried out in the insurance industry

The committee emphasized that in order to improve the customer services and increase thecoverage of insurance policies, industry should be opened up to competition. But at thesame time, the committee felt the need to exercise caution as any failure on the part of new

players could ruin the public confidence in the industry.

The committee felt the need to provide greater autonomy to insurance companies in orderto improve their performance and enable them to act as independent companies witheconomic motives. For this purpose, it had proposed setting up an independent regulatory

body- The Insurance Regulatory and Development Authority.

Reforms in the Insurance sector were initiated with the passage of the IRDA Bill in

Parliament in December 1999. The IRDA since its incorporation as a statutory body in April2000 has fastidiously stuck to its schedule of framing regulations and registering the privatesector insurance companies. Since being set up as an independent statutory body the IRDA

has put in a framework of globally compatible regulations. The other decision taken

simultaneously to provide the supporting systems to the insurance sector and in particularthe life insurance companies was the launch of the IRDA online service for issue andrenewal of licenses to agents. The approval of institutions for imparting training to agents

has also ensured that the insurance companies would have a trained workforce of insuranceagents in place to sell their products.

Present Scenario

The Government of India liberalized the insurance sector in March 2000 with the passage ofthe Insurance Regulatory and Development Authority (IRDA) Bill, lifting all entry restrictionsfor private players and allowing foreign players to enter the market with some limits on

direct foreign ownership. Under the current guidelines, there is a 26 percent equity cap for

foreign partners in an insurance company. There is a proposal to increase this limit to 49percent.

The opening up of the sector is likely to lead to greater spread and deepening of insurancein India and this may also include restructuring and revitalizing of the public sector

companies. In the private sector 12 life insurance and 8 general insurance companies havebeen registered. A host of private Insurance companies operating in both life and non-lifesegments have started selling their insurance policies since 2001.

Non-Life Insurance Market

In December 2000, the GIC subsidiaries were restructured as independent insurancecompanies. At the same time, GIC was converted into a national re-insurer. In July 2002,Parliament passed a bill, de-linking the four subsidiaries from GIC.


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Presently there are 12 general insurance companies with 4 public sector companies and 8

private insurers. Although the public sector companies still dominate the general insurance

business, the private players are slowly gaining a foothold. According to estimates, privateinsurance companies have a 10 percent share of the market, up from 4 percent in 2001. Inthe first half of 2002, the private companies booked premiums worth Rs 6.34 billion. Most ofthe new entrants reported losses in the first year of their operation in 2001.

Insurance, like project finance, is extended by a consortium. Normally one insurer takes the

lead, shouldering about 40-50 per cent of the risk and receiving a proportionate percentageof the premium. The other companies share the remaining risk and premium. The policiesare renewed usually on an annual basis through the invitation of bids.

Of late, with IPP projects fizzling out, the insurance companies are turning once again to oldhands such as NTPC, NHPC and BSES for business.

Re-insurance business

The balance risk is re-insured with other insurers. In effect, therefore, re-insurance isinsurer's insurance. It forms the backbone of the insurance business. It helps to provide abetter spread of risk in the international market, allows primary insurers to accept risksbeyond their capacity settle accumulated losses arising from catastrophic events and stillmaintain their financial stability.

Life Insurance Market

The Life Insurance market in India is an underdeveloped market that was only tapped bythe state owned LIC till the entry of private insurers. The penetration of life insuranceproducts was 19 percent of the total 400 million of the insurable population. The state

owned LIC sold insurance as a tax instrument, not as a product giving protection. Mostcustomers were underinsured with no flexibility or transparency in the products. Withthe entry of the private insurers the rules of the game have changed.

The growing popularity of the private insurers shows in other ways. They are coiningmoney in new niches that they have introduced. The state owned companies still dominatesegments like endowments and money back policies. But in the annuity or pensionproducts business, the private insurers have already wrested over 33 percent of the market.And in the popular unit-linked insurance schemes they have a virtual monopoly, with over90 percent of the customers.

With an annual growth rate of 15-20% and the largest number of life insurance policies inforce, the potential of the Indian insurance industry is huge. Total value of the Indianinsurance market (2004-05) is estimated at Rs. 450 billion (US$10 billion). According togovernment sources, the insurance and banking services' contribution to the country'sgross domestic product (GDP) is 7% out of which the gross premium collection forms asignificant part. The funds available with the state-owned Life Insurance Corporation


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(LIC) for investments are 8% of GDP.

The year 1999 saw a revolution in the Indian insurance sector, as major structural changestook place with the ending of government monopoly and the passage of the InsuranceRegulatory and Development Authority (IRDA) Bill, lifting all entry restrictions for

private players and allowing foreign players to enter the market with some limits on directforeign ownership.

Though the focus of this market research report is on the potential growth on the Indian

Insurance Sector, it also talks about the market size, market segmentation, and key

developments in the market after 1999. The report gives an instant overview of the Indian

non-life insurance market, and covers fire, marine, and other non-life insurance. The data

is supplied in both graphical and tabular format for ease of interpretation and analysis.

This report also provides company profiles of the major private insurance companies.

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The Indian Insurance Industryhttp://www.economywatch.com/indianeconomy/india-insurance-

sector.html
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India insurance is a flourishing industry, with several national and

international players competing and growing at rapid rates. Thanks to reforms

and the easing of policy regulations, the Indian insurance sector been allowed

to flourish, and as Indians become more familiar with different insuranceproducts, this growth can only increase, with the period from 2010 - 2015

projected to be the 'Golden Age' for the Indian insurance industy.

India Insurance Policies at a Glance

Indian insurance companies offer a comprehensive range of insurance plans, a range that is growing

as the economy matures and the wealth of the middle classes increases. The most common types

include: term life policies, endowment policies, joint life policies, whole life policies, loan cover term

assurance policies, unit-linked insurance plans, group insurance policies, pension plans, and annuities.

General insurance plans are also available to cover motor insurance, home insurance, travel insurance

and health insurance.

Due to the growing demand for insurance, more and more insurance companies are now emerging in

the Indian insurance sector. With the opening up of the economy, several international leaders in the

insurance sector are trying to venture into the India insurance industry.

India Insurance: History

The history of the Indian insurance sector dates back to 1818, when the Oriental Life Insurance

Company was formed in Kolkata. A new era began in the India insurance sector, with the passing of

the Life Insurance Act of 1912.

The Indian Insurance Companies Act was passed in 1928. This act empowered the government of

India to gather necessary information about the life insurance and non-life insurance organizations

operating in the Indian financial markets.

The Triton Insurance Company Ltd formed in 1850 and was the first of its kind in the general

insurance sector in India. Established in 1907, Indian Mercantile Insurance Limited was the first

company to handle all forms of India insurance.

Indian Insurance: Sector Reform

The formation of the Malhotra Committee in 1993 initiated reforms in the Indian insurance sector. The

aim of the Malhotra Committee was to assess the functionality of the Indian insurance sector. This

committee was also in charge of recommending the future path of insurance in India.
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The Malhotra Committee attempted to improve various aspects of the insurance sector, making them

more appropriate and effective for the Indian market.

The recommendations of the committee put stress on offering operational autonomy to the insurance

service providers and also suggested forming an independent regulatory body.

The Insurance Regulatory and Development Authority Act of 1999 brought about several crucial policy

changes in the insurance sector of India. It led to the formation of the Insurance Regulatory and

Development Authority (IRDA) in 2000.

The goals of the IRDA are to safeguard the interests of insurance policyholders, as well as to initiate

different policy measures to help sustain growth in the Indian insurance sector.

The Authority has notified 27 Regulations on various issues which include Registration of Insurers,

Regulation on insurance agents, Solvency Margin, Re-insurance, Obligation of Insurers to Rural and

Social sector, Investment and Accounting Procedure, Protection of policy holders' interest etc.

Applications were invited by the Authority with effect from 15th August, 2000 for issue of the

Certificate of Registration to both life and non-life insurers. The Authority has its Head Quarter at

Hyderabad. Detailed information on IRDA is available at their web-sitewww.irdaindia.org

Protection of the interest of policy holders:

IRDA has the responsibility of protecting the interest of insurance policyholders. Towards achieving

this objective, the Authority has taken the following steps:

IRDA has notified Protection of Policyholders Interest Regulations 2001 to provide for: policy

proposal documents in easily understandable language; claims procedure in both life and non-life;

setting up of grievance redressal machinery; speedy settlement of claims; and policyholders'

servicing. The Regulation also provides for payment of interest by insurers for the delay in

settlement of claim.

The insurers are required to maintain solvency margins so that they are in a position to meet their

obligations towards policyholders with regard to payment of claims.

It is obligatory on the part of the insurance companies to disclose clearly the benefits, terms and

conditions under the policy. The advertisements issued by the insurers should not mislead the

insuring public.

All insurers are required to set up proper grievance redress machinery in their head office and at

their other offices.

The Authority takes up with the insurers any complaint received from the policyholders in

connection with services provided by them under the insurance contract.
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New page

The growth of the insurance sector in India has been phenomenal. The insuranceindustry has undergone a massive change over the last few years and the

metamorphosis has been noteworthy.

There are numerous private and government insurance companies in India thathave become synonymous with the term insurance over the years. Offering adiversified product portfolio and excellent services the many insurance companiesin India have managed to make their way into almost every Indian household.

Before we begin the analysis of Indian insurance industry, let us clear some basicson insurance.

In the words of a layman, insurance means managing risk. For instance, inlife insurance segment, the insurance company tries to manage mortality(death) rates among the wide array of clients.

The insurance company works in a manner by collecting premiums from policy holders, investing the money

(usually in low risk investments), and then reimbursing this same money once the person passes away or the

policy matures. The greater the probability for a person to have a shorter life span than the average mark, the

higher premium that person has to pay. The case is the same for all other types of insurance, includingautomobile, health and property.

Ownership of insurance companies is of two types:

Shareholder ownership

Policyholder ownership

Type of insurance

1. Life Insurance - Insurance guaranteeing a specific sum of money to a designated beneficiary upon the

death of the insured, or to the insured if he or she lives beyond a certain age.

2. Health Insurance - Insurance against expenses incurred due to illness of the insured.

3. Liability Insurance - This insures property such as automobiles, property and professional/business

mishaps.


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LIC Life InsuranceCorporation of India

Insurance Policies: Jeevan Anurag

Unit Plans: Samridhi Plus, Pension Plus

Special Plans: Jeevan Madhur, Jeevan Mangal, Group Schemes

ICICI Prudential LifeInsurance Co Ltd

Education insurance plans: Smartkid New Unit-Linked, RegularPremium, Smartkid Regular Premium

Savings(all ULIP): Life Time Super, Premier Life Gold, Life Time Plus

Premium guarantee plans, Invest Shield Cash Back

Protection plans (All Traditional plans): Life Guard, Save 'n' Protect,

Home Assure.

Health care plans: Crisis Cover, Diabetes Care/ Diabetes Care Plus,

Cancer Care

Bajaj Allianz LifeInsurance Co Ltd

Insurance Policies

iGain III

Max Advantage

Health care plans Star Package

Personal Guard

Silver Health

Travel Insurance

Student Elite Plan

Brilliant MindsSBI Life Insurance CoLtd

Individual Plans

SBI Life - Unit Plus Super

SBI Life - Smart Wealth Assure

Group Plans

Group Micro Insurance Plans

Group Loan Protection ProductsReliance Life Insurance Co Ltd Protection Plans

Reliance Life Insurance Money Multiplier Plan

Reliance Special Term Plan

Child Plan

Reliance Child Plan

Savings & Investment Plans

Reliance Life Insurance Pay Five Plan

Reliance Life Insurance Classic Plan - Limited Premium

Reliance Life Insurance Highest NAV Advantage PlanReliance Life Insurance Money Multiplier Plan

HDFC Standard Life Insurance Co

LtdProtection Plans

HDFC Premium Guarantee Plan

Savings and Investment Plans

HDFC SL ProGrowth Flexi

ClassicAssure Insurance Plan

HDFC SL ProGrowth Maximiser
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Birla Sun Life Insurance Co Ltd Health and Wellness SolutionsBSLI Saral Health Plan

BSLI Bachat Money

Retirement Solutions

BSLI Dream Life Plan

BSLI Immediate income PlanRural Solutions

Birla Sun Life Insurance Bima Dhan Sanchay

Birla Sun Life Insurance Bima Kavach YojanaMax New York Life Insurance Co

LtdLife Plans

20 year Endowment

Max New York Life Platinum Protect

Life Gain Plus 25

Growth Plans

Max New York Life Flexi Fortune

Max New York Life Shubh Invest

Health Plans

LifeLine MediCash Plus

LifeLine Safety NetKotak Mahindra Old Mutual Life

Insurance Ltd

Protection Plans

Kotak eternal Life Plans

Saving and Investment Plans

Kotak ace investment Plan

Kotak surakshit Jeevan

Child Plans

Kotak headstart Child Assure

Aviva Life Insurance Company

India Ltd

Protection Plans

Aviva LifeShield Platinum

Aviva LifeShield Advantage

Fund Management

Rural Plans

Aviva Anmol Suraksha

Aviva Grameen Suraksha

Savings

Aviva Dhan Vriddhi

Aviva LifeBond Advantage

Challenges facing Insurance Industry

Threat of New Entrants: The insurance industry has been budding with new entrants every other day.

Therefore the companies should carve out niche areas such that the threat of new entrants might not be a

hindrance. There is also a chance that the big players might squeeze the small new entrants.

Power of Suppliers: Those who are supplying the capital are not that big a threat. For instance, if someone

as a very talented insurance underwriter is presently working for a small insurance company, there exists a

chance that any big player willing to enter the insurance industry might entice that person off.
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Power of Buyers: No individual is a big threat to the insurance industry and big corporate houses have a lot

more negotiating capability with the insurance companies. Big corporate clients like airlines and

pharmaceutical companies pay millions of dollars every year in premiums.

Availability of Substitutes: There exist a lot of substitutes in the insurance industry. Majorly, the large

insurance companies provide similar kinds of services - be it auto, home, commercial, health or life

insurance.

How to choose an insurance company?

There are many factors to probe into when an investor chose an insurance company.

The consumers as well as the investors should only focus on the insurer's financial strength and capability to

meet ongoing responsibilities to its policyholders.

The fundamentals of the insurance company should be strong and should not indicate a poor investment

opportunity as this might also deter growth.

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