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A PROJECT REPORT ONFOREIGN DIRECT INVESTMENT ANDINTERNATIONAL MARKETING
(INSURANCE SECTOR)SSuubbmmiitttteedd iinn PPaarrttiiaall ffuullffiillmmeenntt ffoorr tthhee aawwaarrdd oofftthhee ddeeggrreeee ooff
MMaasstteerr ooffBBuussiinneessss AAddmmiinniissttrraattiioonn
SUBMITTED BYUJJWAL KUMAR SINGH
MBA/1038/2010
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CERTIFICATE OF APPROVAL
The foregoing thesis entitled Foreign Direct Investment and International
Marketing Vol-I (Insurance Sector) is hereby approved as a credible study of
research topic and has been presented in a satisfactory manner to warrant to
its acceptance as prerequisite to the degree for which it was submitted.
It is understood that by this approval, the undersigned do not necessarily
endorse any conclusion drawn or opinion expressed therein, but approve the
thesis for the purpose for which it is submitted.
(Internal Examiner) (External Examiner)
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DECLARATION CERTIFICATE
This is to certify that the Project Report entitled Foreign Direct Investment
and International Marketing Vol-I (Insurance Sector)has been submitted inPartial fulfilment of the requirement for the award of the degree of Master of
Business Administration. It is a bonafide project work carried out byUjjwalKumar Singh(Roll- MBA/1038/2010).
(Project Guide)
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CONTENTS
S. No. PARTICULARS PAGE NO.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
Introduction
Objectives .
FDI in India ...
Growth of FDI inflow in pre-liberalization period .
Routes of approval ..
Share of investing country .
Foreign market entry strategy .
Industry profile ..
List of insurance companies in India
Current scenario
Growth drivers ..
Emerging trends
Need of FDI in sector .
Barriers to FDI in sector ..
FDI regulations in insurance sector .
Strategy adopted by foreign investors ..
Suggestion .
Conclusion .
References .
1
2
3-4
4-6
7-8
8-9
10-12
13-15
16-17
18-21
22-23
24-27
28-30
31-33
34-35
36-43
44
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IntroductionForeign Direct Investment plays a major role in the economy of a country. It is
not only a vital source of earning foreign currency but also plays a major role
in the development of a country, specially for developing country like India.
India has a great potential for attracting a large amount of FDI because of its
natural and finest human resources. There are certain roadblocks also which
may make the ride little bumpy. There are a number of factors which play an
important role in attracting foreign investment like politics, rules and
regulation of a certain country, market competition. So, investors as well as
host country must have a close watch on these.
In this project, I will try to find out foreign investment scenario of insurance
sector of India. As insurance sector of India is full of potential and India can be
considered as untapped market in this field. So, there is great opportunity for
foreign investors to enter in the market. There are different features ofinsurance sector of India which will help us to attract more investment. There
are limitations to certain in our control which we can overcome.
When a company enters in the foreign market they have to adopt some
strategy. Some of the strategy depends upon the rules set by country, for
instance in insurance sector all the company have to form joint venture with
an Indian company, because they are only allowed to invest 26% in themarket.
So, analysis of marketing strategy will be done to find out its advantage and
disadvantage to investors.
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Objectives1. To study the FDI scenario of Indian insurance sector
2. To analyse the risks faced by investors in Indian insurance sector
3. To suggest ways and means to reduce those risks
4. To find out the market strategy of foreign investor
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FDI IN INDIAWhat is FDI?Foreign direct investment (FDI) occurs when an investor based in one country
(the home country) acquires an asset in another country ( the host country)
with the intent to manage the asset.
Generally speaking FDI refers to capital inflows from abroad that invest in the
production capacity of the economy and are usually preferred over other
forms of external finance because they are Non-debt creating, non-volatileand their returns depend on the performance of the projects financed by the
investors.
FDI also facilitates international trade and transfer of knowledge, skills and
technology.
The FDI relationship consists of a parent enterprise and a foreign affiliate
which together form a multinational corporation (MNC).Difference Between FDI & FII
FDI - is Foreign Direct Investments i.e. a foreign company having astake in a public sector undertaking in a country for a long period and
that company is called Multinational Enterprise.
FII - is Foreign Institutional Investors, i.e., foreign Investment Bankerslike Goldman sachs, Merrill lynch, Lehman bros etc. investing in Indian
markets, in other words buying Indian stocks. FII's generally buy in
large volumes which has an impact on the stock markets.
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Foreign Direct Investment (FDI) is permitted as under the following forms ofinvestments-
Through financial collaborations.
Through joint ventures and technical collaborations.
Through capital markets via Euro issues.
Through private placements or preferential allotments.
ADVANTAGES OF FDI Increase in Domestic Employment/Drop in unemployment
Investment in Needed Infrastructure. Positive Influence on the Balance of Payments.
New Technology and Know How Transfer.
Increased Capital Investment.
Targeted Regional and Sectoral Development
DISADVANTAGES OF FDI Industrial Sector Dominance in the Domestic Market.
Technological Dependence on Foreign Technology Sources.
Disturbance of Domestic Economic Plans in Favor of FDI-Directed
Activities.
Cultural Change Created by Ethnocentric Staffing The Infusion of
Foreign Culture , and Foreign Business Practices
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Growth of FDI inflows in India in Pre-Liberalization PeriodIn the pre liberalization period the government's attitude to FDI inflows was
open but halfhearted. The investment coming to the country had to seek prior
approval. The data of FDI available for this period is of the amount approved
rather than actually received. However, the amount approved increased
manifold during this period.
Growth of FDI inflows (approved) in India in Pre-Liberalization Period
Growth of FDI inflows (Actual) in Post -Liberalization Period
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Liberalization in India: 24-07-1991 The assassination of Prime Minister Indira Gandhi in 1984, and
later Rajiv Gandhi in 1991 crushed international investor confidence on
the economy that was eventually pushed to the brink by the early
1990s.
India started having balance of payments problems since 1985, and by
the end of 1990, it was in a serious economic crisis.
The government was close to default, its central bank had refused new
credit and foreign exchange reserves had reduced to the point that Indiacould barely finance three weeks worth of imports.
Our foreign exchange reserve was only 1 billion dollar of Import ,GDP
growth was standstill ,economy was in shambles
Our Gold was put to security to foreign countries for money to save
India.
Dr. Manmohan Singh with great support of late PM P.V.Narsimha Rao
presented a great budget of economic liberalization.
This liberalization was duly supported by the then opposition leader
Atal Bihari Vajpayee of BJP.
Within 4 years of liberalization Indian foreign exchange reserve rose to
140 billion dollar
INDIA AN IDEAL INVESTMENT DESTINATION Worlds largest democracy
Second largest emerging market (US$ 2.4 trillion)
Liberal Foreign Investment Regime
Skilled, economic and competitive labor force
Amongst the highest rates of return on investment
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Large domestic market
Stable democratic environment over 60 years of independence
Abundance of natural resources
World class scientific, technical and managerial manpower
Well-established legal system with independent judiciary.
Developed banking system and vibrant capital market
India among the top three investment hot spots and one of the fastest
growing economies in the world.
Large English speaking population
FDI in India are approved through three routes:AUTOMATIC ROUTE:No need of Prior Approval From FIPB,RBI,GOI but the investors are only
required to notify the Regional Office concerned of the Reserve Bank of India
within 30 days of receipt of inward remittances and file the required
documents along with form FC-GPR with that Office within 30 days of issue of
shares to the non-resident investors.
THE FIPB ROUTE: FDI in activities not covered under the automatic route require prior
government approval.
Approvals of all such proposals including composite proposals involvingforeign investment/foreign technical collaboration are granted on the
recommendations of FIPB.
Application for all FDI cases, except NRI investments and 100% EOUs,
should be submitted to the FIPB Unit, DEA, and Ministry of Finance.
Application for NRI and 100% EOU cases should be presented to SIA inDepartment of Industrial Policy and Promotion (DIPP).
Application can be made in Form FC-IL. Plain paper applicationscarrying all relevant details are also accepted.
No fee is payable.
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CCFI ROUTE: Investment proposals falling outside the automatic route.
Having a project cost of Rs. 6,000 million or more would require prior
approval of Cabinet Committee of Foreign Investment (CCFI).
Decision of CCFI usually conveyed in 8-10 weeks. Thereafter, filings
have to be made by the Indian company with the RBI.
SHARE OF TOP INVESTING COUNTRIES (Fiscal years)
PERCENTAGE TO TOTAL INFLOWS
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SHARE OF TOP INVESTING SECTORS
Percentage to total Inflows
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FOREIGN MARKET ENTRY STRATEGY EXPORTING
LICENCING JOINT VENTURE
MANUFACTURING
ASSEMBLY OPERATIONS
MANAGEMENT CONTRACT
TURNKEY OPERATIONS
ACQUISITION
EXPORTING A company without any marketing or production organization overseas,
export a product from its home base .
It is ease in implementation.
Minimum risk involved.
Function poorly when home country currency is strong
LICENCING It is an agreement that permits a foreign company to use industrial
property, technical know-how and skills, architectural and engineering
designs, or any combination of these in a foreign market.
It is not only restricted to tangible products.
Substantial risks and other difficulties can avoided.
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JOINT VENTURE It is simply a partnership at corporate level.
It is an enterprise formed for a specific business purpose by two or more
investors sharing ownership and control.
There is possibility of a parent firms change in mission or power.
Reduce amount of resource.
MANUFACTURING Manufacturing process can be employed as a strategy involving all or
some manufacturing in foreign country.
Manufacturing operations in host country , not so much to sell there but
for the purpose of exporting from that country to companys home
country or other country is known as sourcing.
ASSEMBLY OPERATIONS Assembly operation is variation on a manufacturing strategy.
Assembly means the fitting or joining together of fabricated
components.
To gain each countrys comparative advantage.
It also allow a companys product to entry many markets without being
subject to tariffs and quotas.
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MANAGEMENT CONTRACT Management contract is agreement with new owner in order to manage
the business.
New owner may lack technical and managerial expertise and need
former owner to manage the investment until local employees are
trained.
It is used as a sound strategy for entering a market with minimum
investment and minimum political risk.
TURNKEY OPERATIONS It is an agreement by seller to supply a buyer with facility fully equipped
and ready to operate by the buyers personnel.
It is usually associated with giant projects.
Term is also used in fast food franchising when a franchisor agree to
select a store site , build the store, equip it ,train manpower etc.
SECTORS WHICH WILL BE ANALYSED Insurance
Banking
Retail
Real Estate
Automobile
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INDUSTRY PROFILEThe insurance industry in India has come a long way since the time when
businesses were tightly regulated and concentrated in the hands of a few
public sector insurers. Following the passage of the Insurance Regulatory and
Development Authority Act in 1999, India abandoned public sector
exclusivity in the insurance industry in favour of market-driven competition.
This shift has brought about major changes to the industry. The beginning of a
new era of insurance development has seen the entry of international insurers,
the proliferation of innovative products and distribution channels, as well asthe raising of supervisory standards.
Evolution of the industryThe growing demand for insurance around the world continues to have a
positive effect on the insurance industry across all economies. India, being one
of the fastest-growing economies (even in the current global economic
slowdown), has exhibited a significant increase in its GDP, and an even larger
increase in its GDP per capita and disposable income. Increasing disposable
income, coupled with the high potential demand for insurance offerings, has
opened many doors for both domestic and foreign insurers. The following
table briefly depicts the evolution of the insurance sector in India.
1818 - Oriental Life Insurance Co. was established in Calcutta.
1870 - The first insurance company, Bombay Mutual Life Insurance
Society, was formed.
1907 - The Indian Mercantile Insurance Limited was formed.
1912 - Life Insurance Companies Act and the Pension Fund Act of 1912
Beginning of formal insurance regulations
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1928 - Indian Insurance Companies Act was passed to collect statistical
data on both life and non-life.
1938 - The Insurance Act of 1938 was passed; there was strict state
supervision to control frauds.
1956 - The Central Government took over 245 Indian and foreign life
insurers as well as provident societies and nationalized these
entities
The LIC Act of 1956 was passed.
1957 - The code of conduct by the General Insurance Council to ensure
fair conduct and ethical business practices was framed.
1972- The General Insurance Business (Nationalization) Act was passed.
1991 - Beginning of economic liberalization
1993 - The Malhotra Committee was set up to complement the reforms
initiated in the financial sector.
1994 - Detariffication of aviation, liability, personal accidents and health
and marine cargo products
1999 - The Insurance Regulatory and Development Authority (IRDA)Bill was passed in the Parliament
2000 - IRDA was incorporated as the statutory body to regulate and
register private sector insurance companies.
General Insurance Corporation (GIC), along with its four
subsidiaries, i.e., National Insurance Company Ltd., Oriental
Insurance Company Ltd., New India Assurance Company Ltd. and
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United India Assurance Company Ltd., was made Indias national
reinsurer.
2005 - Detariffication of marine hull2006 - Relaxation of foreign equity norms, thus facilitating the entry
of new players
2007- Detariffication of all non-life insurance products except the auto
third-party liability segment
In India, the Ministry of Finance is responsible for enacting and implementing
legislations for the insurance sector with the Insurance Regulatory andDevelopment Authority (IRDA) entitled with the regulatory and
developmental role. The government also owns the majority share in some
major companies in both life and non-life insurance segments. Figure below
depicts the structure of the insurance industry in India.
Fig : Indian insurance industry structure
MINISTRY OF FINANCE GOI
IRDA
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Both the life and non-life insurance sectors in India, which were nationalized
in the 1950s and 1960s, respectively, were liberalized in the 1990s. Since the
formation of IRDA and the opening up of the insurance sector to private
players in 2000, the Indian insurance sector has witnessed rapid growth.
List of Insurance companies in IndiaLIFE INSURERSPublic SectorLife Insurance Corporation of India www.licindia.com
Private SectorAllianz Bajaj Life Insurance Company Limited www.allianzbajaj.co.in
Birla Sun-Life Insurance Company Limited www.birlasunlife.com
HDFC Standard Life Insurance Co. Limited www.hdfcinsurance.com
ICICI Prudential Life Insurance Co. Limited www.iciciprulife.com
ING Vysya Life Insurance Company Limited www.ingvysayalife.com
Max New York Life Insurance Co. Limited www.maxnewyorklife.com
MetLife Insurance Company Limited www.metlife.com
Kotak Mahindra Life Insurance Co. Ltd. www.omkotakmahnidra.com
SBI Life Insurance Company Limited www.sbilife.co.in
TATA AIG Life Insurance Company Limited www.tata-aig.com
AMP Sanmar Assurance Company Limited www.ampsanmar.com
Dabur CGU Life Insurance Co. Pvt. Limited www.avivaindia.com
http://www.licindia.com/http://www.licindia.com/http://www.allianzbajaj.co.in/http://www.allianzbajaj.co.in/http://www.birlasunlife.com/http://www.birlasunlife.com/http://www.hdfcinsurance.com/http://www.hdfcinsurance.com/http://www.iciciprulife.com/http://www.iciciprulife.com/http://www.ingvysayalife.com/http://www.ingvysayalife.com/http://www.maxnewyorklife.com/http://www.maxnewyorklife.com/http://www.metlife.com/http://www.metlife.com/http://www.omkotakmahnidra.com/http://www.omkotakmahnidra.com/http://www.sbilife.co.in/http://www.sbilife.co.in/http://www.tata-aig.com/http://www.tata-aig.com/http://www.ampsanmar.com/http://www.ampsanmar.com/http://www.avivaindia.com/http://www.avivaindia.com/http://www.avivaindia.com/http://www.ampsanmar.com/http://www.tata-aig.com/http://www.sbilife.co.in/http://www.omkotakmahnidra.com/http://www.metlife.com/http://www.maxnewyorklife.com/http://www.ingvysayalife.com/http://www.iciciprulife.com/http://www.hdfcinsurance.com/http://www.birlasunlife.com/http://www.allianzbajaj.co.in/http://www.licindia.com/8/2/2019 An Analysis of FDI Scenario in Indian Insurance Sector
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GENERAL INSURERSPublic SectorNational Insurance Company Limited
www.nationalinsuranceindia.com
New India Assurance Company Limited www.niacl.com
Oriental Insurance Company Limited
www.orientalinsurance.nic.in
United India Insurance Company Limited www.uiic.co.in
Private SectorBajaj Allianz General Insurance Co. Limited www.bajajallianz.co.in
ICICI Lombard General Insurance Co. Ltd. www.icicilombard.com
IFFCO-Tokio General Insurance Co. Ltd. www.itgi.co.in
Reliance General Insurance Co. Limited www.ril.com
Royal Sundaram Alliance Insurance Co. Ltd. www.royalsun.com
TATA AIG General Insurance Co. Limited www.tata-aig.com
Cholamandalam General Insurance Co. Ltd. www.cholainsurance.com
Export Credit Guarantee Corporation www.ecgcindia.com
REINSURERGeneral Insurance Corporation of India www.gicindia.com
http://www.nationalinsuranceindia.com/http://www.nationalinsuranceindia.com/http://www.niacl.com/http://www.niacl.com/http://www.orientalinsurance.nic.in/http://www.orientalinsurance.nic.in/http://www.uiic.co.in/http://www.uiic.co.in/http://www.bajajallianz.co.in/http://www.bajajallianz.co.in/http://www.icicilombard.com/http://www.icicilombard.com/http://www.itgi.co.in/http://www.itgi.co.in/http://www.ril.com/http://www.ril.com/http://www.royalsun.com/http://www.royalsun.com/http://www.tata-aig.com/http://www.tata-aig.com/http://www.cholainsurance.com/http://www.cholainsurance.com/http://www.ecgcindia.com/http://www.ecgcindia.com/http://www.gicindia.com/http://www.gicindia.com/http://www.gicindia.com/http://www.ecgcindia.com/http://www.cholainsurance.com/http://www.tata-aig.com/http://www.royalsun.com/http://www.ril.com/http://www.itgi.co.in/http://www.icicilombard.com/http://www.bajajallianz.co.in/http://www.uiic.co.in/http://www.orientalinsurance.nic.in/http://www.niacl.com/http://www.nationalinsuranceindia.com/8/2/2019 An Analysis of FDI Scenario in Indian Insurance Sector
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Current scenarioA growing middle-class segment, rising income, increasing insurance
awareness, rising investments and infrastructure spending, have laid a strong
foundation to extend insurance services in India. The total premium of the
insurance industry has increased at a CAGR of 24.6% between FY03 and FY10
to reach INR2,523.9 billion in FY10. The opening up of the insurance sector
for private participation/global players during the 1990s has resulted in stiff
competition among the players, with each offering better quality products.
This has certainly offered consumers the choice to buy a product that best fits
his or her requirements.
The number of players during the decade has increased from four and eight in
life and non-life insurance, respectively, in 2000 to 23 in life and 24 in non-
life insurance (including 1 in reinsurance) industry as in August 2010. Most
of the private players in the Indian insurance industry are a joint venture
between a dominant Indian company and a foreign insurer.
Fy00 Fy01 Fy02 fy03 fy04 fy05 fy06 fy07 fy08 fy09 fy10
Life
insurers
Public 1 1 1 1 1 1 1 1 1 1 1
Private 3 10 12 12 13 13 15 15 21 21 22
Non-lifeinsurers
Public 4 4 5 6 6 6 6 6 6 6 6
Private 3 6 8 8 8 8 9 10 15 15 17
Reinsurer
s 1 1 1 1 1 1 1 1 1 1 1
Table: Insurance companies in India from 2000-2010
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Life insurance industry overview
Fig : Market share of private companies (fy 11)
The life insurance sector grew at an impressive CAGR of 25.8% between FY03
and FY10, and the number of policies issued increased at a CAGR of 12.3%
during the same period.
As of August 2011, there were 23 players in the sector (1 public and 22
private). The Life Insurance Corporation of India (LIC) is the only public
sector player, and held almost 65% of the market share in FY10 (based on
first-year premiums).
To address the need for highly customized products and ensure prompt
service, a large number of private sector players have entered the market.
Innovative products, aggressive marketing and effective distribution have
enabled fledgling private insurance companies to sign up Indian customers
more rapidly than expected. Private sector players are expected to play an
increasingly important role in the growth of the insurance sector in the near
future.
market share
SBI LIFE
ICICI PRU
BAJAJ ALLIANZ
RELIANCE LIFE
BIRLA SUNLIFE
HDFC STANDARD
MNYL
KOTAK MAHINDRA
TATA AIG
METLIFE
18.3
16.5
11.6
10.2
7.7
8.5
4.8
3.5
3.4
2.8
4.0 8.6
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In a fragmented industry, new players are gnawing away the market share of
larger players. The existing smaller players have aggressive plans for network
expansion as their foreign partners are keen to capitalize on the enormous
potential that is latent in the Indian life insurance market.
ICICI Prudential, Bajaj Allianz and SBI Life collectively account for
approximately 50% of the market share in the private life insurance segment.
To tap this opportunity, banks have also started entering alliances with
insurance companies to develop/underwrite insurance products rather than
merely distribute them.
Non-life insurance industry overview
FIG : Market share among players in FY11 (in %)
Between FY03 and FY11, the non-life insurance sector grew at a CAGR of
17.05%. Intense competition that followed the de-tariffcation and pricing
deregulation (which was started during FY07) decelerated the growthmomentum.
Market share
NEW INDIA
UNITED INDI
ORIENTAL
NATIONAL
ICICI LOMBARD
OTHERS
BAJAJ ALLIANZ
RELIANCE GENERAL
IFFCO-TOKIO
AIC
STAR HEALTH AND ALLIED
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As of August 2011, the sector had a total of 24 players (6 public insurers, 17
private insurers and 1 re-insurer). The non-life insurance sector offers
products such as auto insurance, health insurance, free insurance and marine
insurance
Private sector players have now pivoted their focus on auto and health
insurance. Out of the total non-life insurance premiums during FY10, auto
insurance accounted for 43.5% of the market share. The health insurance
segment has posted the highest growth, with its share in the total non-life
insurance portfolio increasing from 12.8% in FY07 to 20.8% in FY11. These
two sectors are highly promising, and are expected to increase their share
manifold in the coming years.
With the sector poised for immense growth, more players, including monoline
players, are expected to emerge in the near future. The last two years has seen
the emergence of companies specializing in health insurance such as Star
Health & Allied Insurance and Apollo DKV.
In the last decade, it was observed that most players have experienced growthby formulating aggressive growth strategies and capitalizing on their
distribution network to target the retail segment. Although the players in the
private and public sector largely offer similar products in the non-life
insurance segment, private sector players outscore their public sector
counterparts in their quality of service.
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Growth driversIndias favourable demographics help strengthen market penetration
The life insurance coverage in India is very low, and many of those insured
are underinsured. There is immense potential as the working population (25
60 years) is expected to increase from 675.8 million to 795.5 million in the
next 20 years (20062026). The projected per capita GDP is expected to
increase from INR18,280 in FY01 to INR100,680 in FY26, which is indicative
of rising disposable incomes. The demand for insurance products is expected
to increase in light of the increase in purchasing power.
Health insurance attracts insurance companiesThe Indian health insurance industry was valued at INR51.2 billion as of
FY10. During the period FY03-10, the growth of the industry was recorded at
a CAGR of 32.59%. The share of health insurance was 20.8% of the total non-
life insurance premiums in FY10. Health insurance premiums are expected toincrease to INR300 billion by 2015
Private sector insurers are more aggressive in this segment. Favorable
demographics, fast progression of medical technology as well as the increasing
demand for better healthcare has facilitated growth in the health insurance
sector. Life insurance companies are expected to target primarily the young
population so that they can amortize the risk over the policy term.
Rising focus on the rural marketSince more than two-thirds of Indias population lives in rural areas, micro
insurance is seen as the most suitable aid to reach the poor and socially
disadvantaged sections of society.
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Poor insurance literacy and awareness, high transaction costs and inadequate
understanding of client needs and expectations has restricted the demand for
micro-insurance products. However, the market remains significantly
underserved, creating a vast opportunity to reach a large number of customerswith good value insurance, whether from the base of existing insurers or
through retail distribution networks.
In FY09, individuals generated new business premium worth INR365.7
million under 2.15 million policies, and the group insurance business
amounted to INR2, 059.5 million under 126 million lives. LIC contributed
most of the business procured in this portfolio by garnering INR311.9
million of individual premium from 1.54 million lives and INR1,726.9
million of group premium under 11.1 million lives.
LIC was the first player to offer specialized products with lower premium
costs for the rural population. Other private players have also started
focusing on the rural market to strengthen their reach.
Government tax incentivesCurrently, insurance products enjoy EEE benefits, giving insurance products
an advantage over mutual funds. Investors are motivated to purchase
insurance products to avail the nearly 30% effective tax benefit on select
investments (including life insurance premiums) made every financial year.
Life insurance is already the most popular financial product among Indians
because of the tax benefits and income protection it offers in a country where
there is very little social security. This drives more and more people to come
within the insurance ambit.
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Emerging trends Exploring multiple distribution channels for insurance products
To increase market penetration, insurance companies need to expand their
distribution network. In the recent past, the industry has witnessed the
emergence of alternate distribution channels, which include
bancassurance, direct selling agents, brokers, online distribution, corporate
agents such as non-banking financial companies (NBFCs) and tie-ups of
Para-banking companies with local corporate agencies (e.g. NGOs) in
remote areas.
Agencies have been the most important and effective channel of
distribution hitherto. The industry is viewing the movement of
intermediaries from mere agents to advisors.
Product innovation
With customers asking for higher levels of customization, product
innovation is one of the best strategies for companies to increase their
market share. This also creates greater efficiency as companies can
maintain lower unit costs, offer improved services and distributors can
increase flexibility to pay higher commissions and generate higher sales.
The pension sector, due to its inadequate penetration (only 10% of the
working population is covered) offers tremendous potential for insurance
companies to be more innovative.
Consolidation in future
The past few years have witnessed the entry of many companies in the
domestic insurance industry, attracted by the significant potential of
insurance sector. However, increasing competition in easily accessible
urban areas, the FDI limit of 26% and the recent downturn in equity
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markets have impacted the growth prospects of some small private
insurance companies.
Such players may have to rethink about their future growth plans. Hence,
consolidation with large and established players may prove to be a better
solution for such small insurers. Larger companies would also prefer to
take over or merge with other companies with established networks and
avoid spending money in marketing and promotion. Therefore,
consolidation will result in fewer but stronger players in the country as
well as generate healthy competition.
Mounting focus on EV over profitability
Many companies are achieving profitability by controlling expenses;
releasing funds for future appropriations as well as through a strong
renewal premium build up. As a few larger insurers continue to expand,
most are focused on cost rationalization and the alignment of business
models to ground level realities. This will better equip insurers to realize
reported embedded value (EV) and generate value from future newbusiness.
In the short term, companies are likely to face challenges to achieve the
desired levels of profitability. As companies are also planning to get listed
and raise funds, the higher profitability will help companies to get a better
valuation of shares. However, in the long term, companies would need to
focus on increasing EV, as almost 70% of a companys EV is influenced by
renewal business and profitability is not as much of an indicator for
valuation. Hence, players are now focusing on increasing their EV than
profitability figures.
Rising capital requirements
Since insurance is a capital-intensive industry, capital requirements are
likely to increase in the coming period. The capital requirement in the lifeinsurance business is a function of the three factors: (1) sum at risk; (2)
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policyholders assets; (3) new business strain and expense overruns. With
new guidelines in place, capital requirements across the sector are likely to
go up due to:
Higher sum assured driving higher sum at risk
Greater allocation to policyholders assets due to lower charges
Back loading of charges is resulting in high new business strain, and
expense overruns due to low productivity of the newly set distribution
network (and inability to recover corresponding costs upfront)
For non-life insurance companies, the growing demand for healthinsurance products as well as motor insurance products is likely to boost
the capital requirement.
With the capital market picking up and valuations on the rise, insurance
companies are exploring various ways of increasing their capital base to
invest in product innovation, introducing new distribution channels,
educating customers, developing the brand, etc.
This is due to the following reasons:
A major portion of the costs in insurance companies is fixed (though it
should be variable or semi-variable in nature). Hence, the reduction in
sales will not result in the lowering of operational expenses, thus
adversely impacting margins. As such, reduced margins would impact
profitability, and insurers would need to invest additional funds.
The sustained bearishness in capital markets could further pressurize the
investment margins and
Increase the capital strain, especially in the case of capital/return
guarantee product.
Besides, companies are likely to witness a slowdown in new business
growth. Companies may also opt for product restructuring to lower their
costs and optimally utilize capital.
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According to IRDA Regulations 2000, all insurance companies are
required to maintain a solvency ratio of 1.5 at all times. But this
solvency margin is not sustainable. With the growing market risks, the
level of required capital will be linked to the risks inherent in theunderlying business. India is likely to start implementing Solvency II
norms in the next three to four years.
The transition from Solvency I norms to Solvency II norms by 2012 is
expected to increase the demand for actuaries and risk management
professionals. The regulator has also asked insurance companies to get
their risk management systems and processes audited every three years
by an external auditor. Many insurance companies have started aligning
themselves with the new norms and hiring professionals to meet the
deadline.
Contribution of insurance to FDIThe importance of FDI in the development of a capital-deficient country such
as India cannot be undermined. This is where the high-growth sectors of an
economy play an important role by attracting substantial foreign investments.
Currently, the total FDI in the insurance sector, which was INR50.3 billion at
the end of FY09, is estimated to increase to approximately INR51 billion in
FY10. It is difficult to estimate, but an equal amount of additional foreign
investment, can roughly flow into the sector if the government increases the
FDI limit from 26% to 49%.
The insurance sector, by virtue of attracting long-term funds, is best placed to
channelize long-term funds toward the productive sectors of the economy.
Therefore, the growth in their premium collections is expected to translate
into higher investments in other key sectors of the economy. Therefore, the
liberalization of FDI norms for insurance would not only benefit the sector,
but several other critical sectors of the economy.
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Need of FDI in Insurance sectorThe insurance sector in India is highly under-penetrated and capital-
intensive. High investment, poor underwriting and lack of technical expertise
are the major problems Indian insurance firms are currently struggling with.
Insurers focus on top line growth at any cost resulted in poor operating and
inefficiency in the system. The industry has inferior operating expense ratio
(cost of operation to generate operating income or operating expense divided
by gross operating income) compared to global standards both in life and non-
life segments. Due to these challenges we still have many people across the
country that are either under-insured or uninsured and it will take hugecapital and expertise to reach and educate them and design new insurance
products that meet their requirements. This amount of money is difficult to get
from the domestic market, especially when the sector has made losses in near
past.
With a limited ability to access long term capital, private insurance companies
are not able to grow fast and expand in new verticals. As per the Insurance
Regulatory and Development Authority, only eight out of 22 private life
insurance companies and seven out of 13 private non-life insurance
companies were profitable last year. Due to this lacklustre performance by
private companies, it is difficult for them to raise capital through initial public
offering (IPO) route and even if they are able to get successful IPOs, the fund
will be diverted from other sectors that also require capital market financing.
The other way to get funds is FII which by its very nature provide funding forshort term only and not for long term as required by insurance firms to build
and expand their business. We have already witnessed outflow of FII funds
during last recession which lead to 50 per cent drop in Bombay Stock
Exchange.
In contrast to these sources foreign direct investment (FDI) is more sustainable
and offer long term investment. The industry is expected to grow at a muchfaster pace due to huge capital inflow, expertise and transfer of technical
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know-how. Various sources within the industry suggest that the industry will
grow to $60-$70 billion in size from its current size of $45 billion and the life
insurance sector will get more than a billion dollar of FDI given the increase in
its limit to 49 per cent.
Rural India may also benefit from this move as with current resources Indian
firms are not able to serve this market. The opportunity is evident from the
fact that around 50 insurers are serving Indias 1.2 billion population
compared to 400 insures serving 60 million Britons. These Indian insurers are
currently focusing on the urban market leaving the rural market uninsured.
To tap this market, insurance companies require more expertise and
innovative products, designed specifically for rural India. This can be done by
raising the FDI limit and by ensuring that it is directed towards inclusive
insurance of our country by focusing on the rural and social sectors.
To make sure rural India benefit from such a move the IRDA should come up
with new norms and guidelines for insurers where a particular portion of the
FDI inflow in the sector is used in rural and social sectors. Regulations also
need to change in the direction which facilitates movement towards an era of
electronic policy issuance and de-materialisation. This will help insurers to
reach and operate in regions where they dont have presence due to logistical
difficulties.
Insurance sector is an important driver of job creation and as the number of
insurance firms increase and enter into new markets, it will provide jobs to
millions of people. Statistics reveals that private insurers have created more
than three million jobs (direct and indirect) 2003 onwards. The joint ventures
with foreign players will provide enough capital and expertise to develop new
products and hire more agents, analyst and supporting staff to enter into new
urban and rural markets.
Raising the FDI cap will also help developing infrastructure in the country. It
is a well known fact that the sustainable and inclusive growth of India isprimarily dependent on the ability of government to provide adequate
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infrastructure to all sectors. But figures suggest that we spend only 6 per cent
of our GDP on infrastructure development as compared to 20 per cent of GDP
by China. Lack of funds is a primary concern to build up and support huge
infrastructure projects. As per the Eleventh Plan, government spending cansupport only 43 per cent of infrastructure development projects and around
70-80 per cent of rest of funding has to be raised through debt market where
insurance companies with long-term investment horizon can play a vital role.
As of now insurance firms are not major contributors in infrastructure
funding but with a higher FDI cap and improved regulations and guidelines
there is a possibility to attract more firms to invest their insurance premiums
in infrastructure projects.
A section of supporters suggest that instead of raising the limit to 49 per cent,
it should be raised to 51 per cent. It will have a bigger impact in attracting
more investment in the sector. However, the sector is still in a developing state
and Indian players are not capable and experienced to compete with their
foreign peers (above 50 per cent FDI will give management control to foreign
players). So it is advisable to wait until the market is mature and Indianplayers get sufficient expertise and technical know-how to compete with their
foreign peers.
We will see major change in the way the Indian insurance sector is
functioning at the moment. The business model will change from agent-
centric to customer-centric, which offers more value to its end customers.
There will be more products in the market catering the needs of all sections of
society; the role of insurance agents will transform from mere intermediaries
to financial advisers; people will be more aware of insurance products and
customers will get better products and services at competitive prices. The
shortage of technical know-how and expertise in the Indian industry (like
claims management, actuarial, underwriting etc) will be overcome by
technology and know-how transfer, generally not available under the current
system.
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Barriers to FDI in the insurance sectorDespite its recent growth, the Indian insurance market lags behind other
economies in the baseline measure of insurance penetration. At only 2.8%,
India is well behind the 13% for the UK, 11% for Japan, 10% for Korea, 9.6%
for the US, and even 3.4% for China. Given the dramatic demographic shifts
now taking place in India, it is clear that the insurance industry will need to
play an increasingly important role in the future. For this to be achieved,
further modernisation is required of the regulatory environment for insurance
in India.
The following barriers to insurance in India are considered as most important:
- 26% cap on foreign direct investment in insurance companies
- Set tariffs and conditions which still dominate non-life insurance in India
- Reinsurance monopoly
Barriers with regards to the national treatment in insurers in India Certain government banks are unwilling to accept insurance covers written
by private insurance companies (i.e. Marine)
Removing this barrier would increase revenues available to private insurers
and widen the choice of available cover
Foreign reinsurers are not granted right of first refusal privileges while
domestic reinsurers have this right.
The national reinsurer, General Insurance Corporation, has the right but not
obligation to accept any business that requires reinsurance over and above
20% mandatory cessions. This unfair advantage has created an unlevel playing
field, and National Re remains effectively a monopoly in the market.
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Effective prohibition on cessions abroad. Insurance law makes it mandatory
to place the business within India (exhaust local capacity) before reinsurance
can be taken out with foreign reinsurers.
Greater reinsurance competition would increase pressure on price.
Barriers with regard to market access of foreign insurers in India Restrictions on foreign equity ownership of insurance and insurance
brokerage companies. Foreign insurers cannot establish unless via a joint
venture with an approved partner with a minimum 74% local shareholding.
This restriction will hamper the growth prospects of private companies,
as growth requires more capital allocation, which the local partners
may be unable to match. While the intent of the current government to
raise the foreign equity ownership cap to 49% has been made clear, it
has yet to result in action.
Set tariffs dominate the market resulting in poor development of
underwriting skills and leading to cross-subsidisation.
74% of the market GWP is regulated by tariff; the Tariff Advisory
Committee decides on price, terms and conditions. This prevents
insurance companies from offering product or price differentiation.
Capitalisation requirements in India are at USD 25 million for initial
establishment. This may restrict market entry by mono-line insurers. Their entry would
create greater awareness and demand.
Limitations with respect to payment of claims in foreign currency-exceptions
require approvals from RBI
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A lengthy permission process is required from the central bank.
Removal of this barrier would reduce administrative costs and reduce
currency risk.
Imposition of 20% mandatory cessions across the board for non-life classes to
state reinsurer.
The National Reinsurer, General Insurance Corporation, benefits from a
share of 20% of every business written by Insurance companies. This
prevents insurance companies from retaining profitable classes of
business on their own books and restricts them from seeking better
terms from foreign reinsurers.
Insurance companies investments are strictly limited. Most funds in
insurance companies are only allowed to be invested in low-return state and
central government bonds.
This is an impediment for foreign insurers as their profits and the
returns available to policyholders - may suffer from their inability to
invest in a wider range of investment products.
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FDI Regulations in Insurance SectorA non-resident entity (other than a citizen of Pakistan or an entity
incorporated in Pakistan) can invest in India, subject to the Foreign Direct
Investment (FDI) policy. A citizen of Bangladesh or an entity incorporated in
Bangladesh can invest in India under the FDI policy, only under the
Government route.
NRIs resident in Nepal and Bhutan as well as citizens of Nepal and Bhutan are
permitted to invest in the capital of Indian companies on repatriation basis,
subject to the condition that the amount of consideration for such investment
shall be paid only by way of inward remittance in free foreign exchange
through normal banking channels.
As per the policy, Foreign Direct Investment (FDI) by non-resident in resident
entities through transfer or issue of security to a person resident outside India
in insurance sector is as follows:
1. FDI upto 26% is allowed under the automatic route.
2. This will be subject to the condition that Companies bringing in FDI shall
obtain necessary license from the Insurance regulatory Development
Authority (IRDA) for undertaking insurance activities.
A person desiring to obtain a licence (hereinafter referred to as the
applicant) from Insurance Regulatory Development Authority to act as a
corporate agent or a composite corporate agent shall proceed as follows:
1. The applicant shall make an application to a designated person in Form
IRDA-Corporate Agents-A-1. (Provided that the applicant, who desires to be a
composite corporate agent, shall make two such separate applications)
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2. The fees payable by the applicant to the Authority shall be Rupees Two
Hundred and Fifty only.
3. The designated person may, on receipt of the application along with theevidence of payment of fees to the Authority, and on being satisfied that the
corporate insurance executive of the applicant:-
i. possesses the prescribed qualifications;
ii. possesses the prescribed practical training;
iii. has passed the prescribed examination;
iv. has furnished an application complete in all respects;
v. has the requisite knowledge to solicit and procure insurance business; and
vi. is capable of providing the necessary service to the policyholders;
Grant or renew, as the case may be, a licence in Form IRDA-Corporate Agents-
L-1
4. Every licence granted by the Authority to a corporate agent or any renewal
thereof, in terms of these regulations, shall remain in force for three years.
A licence granted to a corporate agent may be renewed for a further period of
three years on submission of the application form along-with a renewal fee of
rupees two hundred and fifty, at least thirty days prior to the date of expiry of
the licence.
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Strategy adopted by foreign investorsIn India only 26% fdi is allowed through automatic route. Generally foreign
insurance company make alliance with reputed Indian company or bank and
operates their business in Joint Venture with their Indian counterpart. It is
necessary that Indian company should have at least 74% share in the venture.
What is joint venture?
There are many good business and accounting reasons to participate in a Joint
Venture (often shortened JV). Partnering with a business that has
complementary abilities and resources, such as finance, distribution channels,
or technology, makes good sense. These are just some of the reasons
partnerships formed by joint venture are becoming increasingly popular.
A joint venture is a strategic alliance between two or more individuals or
entities to engage in a specific project or undertaking. Partnerships and joint
ventures can be similar but in fact can have significantly different implications
for those involved. A partnership usually involves a continuing, long-term
business relationship, whereas a joint venture is based on a single business
project.
Parties enter Joint Ventures to gain individual benefits, usually a share of the
project objective. This may be to develop a product or intellectual property
rather than joint or collective profits, as is the case with a general or limited
partnership.
A joint venture, like a general partnership is not a separate legal entity.
Revenues, expenses and asset ownership usually flow through the joint
venture to the participants, since the joint venture itself has no legal status.
Once the Joint venture has met its goals the entity ceases to exist.
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What are the Advantages of forming a Joint Venture? Provide companies with the opportunity to gain new capacity and
expertise
Allow companies to enter related businesses or new geographic markets or
gain new technological knowledge
access to greater resources, including specialised staff and technology
sharing of risks with a venture partner
Joint ventures can be flexible. For example, a joint venture can have a
limited life span and only cover part of what you do, thus limiting both
your commitment and the business' exposure. In the era of divestiture and consolidation, JVs offer a creative way for
companies to exit from non-core businesses.
Companies can gradually separate a business from the rest of the
organisation, and eventually, sell it to the other parent company. Roughly
80% of all joint ventures end in a sale by one partner to the other.
The Disadvantages of Joint Ventures It takes time and effort to build the right relationship and partnering with
another business can be challenging. Problems are likely to arise if:
The objectives of the venture are not 100 per cent clear and communicated
to everyone involved.
There is an imbalance in levels of expertise, investment or assets brought
into the venture by the different partners.
Different cultures and management styles result in poor integration and
co-operation.
The partners don't provide enough leadership and support in the early
stages.
Success in a joint venture depends on thorough research and analysis of
the objectives.
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Embarking on a Joint Venture can represent a significant reconstruction to
your business. However favourable it may be to your potential for growth, it
needs to fit with your overall business strategy.
It's important to review your business strategy before committing to a joint
venture. This should help you define what you can sensibly expect. In fact,
you might decide there are better ways to achieve your business aims.
You may also want to study what similar businesses are doing, particular those
that operate in similar markets to yours. Seeing how they use joint ventures
could help you decide on the best approach for your business. At the sametime, you could try to identify the skills they use to partner successfully.
You can benefit from studying your own enterprise. Be realistic about your
strengths and weaknesses - consider performing strengths, weaknesses,
opportunities and threats analysis (swot) to identify whether the two
businesses are compatible. You will almost certainly want to identify a joint
venture partner that complements your own skills and failings.
Remember to consider the employees' perspective and bear in mind that
people can feel threatened by a joint venture. It may be difficult to foster
effective working relationships if your partner has a different way of doing
business.
When embarking on a joint venture its imperative to have your
understanding in writing. You should set out the terms and conditions agreed
upon in a written contract, this will help prevent misunderstandings and
provide both parties with strong legal recourse in the event the other party
fails to fulfil its obligations while under contract.
A written Joint Venture Agreement should cover:
The parties involved The objectives of the joint venture
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Financial contributions you will each make whether you will transfer any
assets or employees to the joint venture
Intellectual property developed by the participants in the joint venture
Day to day management of finances, responsibilities and processes to befollowed.
Dispute resolution, how any disagreements between the parties will be
resolved
How if necessary the joint venture can be terminated.
The use of confidentiality or non-disclosure agreements is also
recommended to protect the parties when disclosing sensitive commercial
secrets or confidential information.
JOINT VENTURE STRATEGIESBusinesses should not engage in joint ventures without adequate planning and
strategy. They cannot afford to, since the ultimate goal of joint ventures is the
same as it is for any type of business operation: to make a profit for the owners
and shareholders. A successful company in any type of business is often
recruited heavily for participation in joint ventures. Thus, they can pick and
choose in which partnerships they would like to engage, if any. They follow
certain ground rules, which have been developed over the years as joint
ventures have grown in popularity.
For example, experience dictates that both parties in a joint venture should
know exactly what they wish to derive from their partnership. There must be
an agreement before the partnership becomes a reality. There must also be a
firm commitment on the part of each member. One of the leading causes for
the failure of joint ventures is that some participants do not reveal their true
intentions in the partnerships. For example, some private companies in
advanced countries have formed partnerships with militant governments to
supply technological expertise and develop products such as chemicals or
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nuclear reactors to be used for allegedly peaceful purposes. They learned later
that the products were used for military purposes. Such results can be
detrimental to the companies involved and adversely affect their bottom lines
and reputations, to speak nothing of the direct victims of the militarydevelopment.
Businesses should form joint ventures with experienced partners. If the
partners do not have approximately equal experience, one can take advantage
of the other, which can lead to failure. Joint ventures generally do not survive
under this imbalanced dynamic. Nor do they survive if companies jump into
them without testing the partnership first.
Partners in joint ventures would often be better off participating in small
projects as a way to test one another instead of launching into one large
enterprise without an adequate feeling-out process. This is especially true
when companies with different structures, corporate cultures, and strategic
plans work together. Such differences are difficult to overcome and frequently
lead to failure. That is why a "courtship" is beneficial to joint ventureparticipants.
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Some examples of joint venture in insurance sectorTata AIG Insurance Solutions
Tata AIG Insurance Solutions, one of the leading insurance providers in India,
started its operation on April 1, 2001. A joint venture between Tata Group
(74% stake) and American International Group, Inc. (AIG) (26% stake), Tata
AIG Insurance Solutions has two different units for life insurance and general
insurance. The life insurance unit is known as Tata AIG Life Insurance
Company Limited, whereas the general insurance unit is known as Tata AIG
General Insurance Company Limited.
AVIVA Life Insurance
AVIVA Life Insurance, one of the popular insurance companies in India, is a
joint venture between the renowned business group, Dabur and the largest
insurance group in the UK, Aviva plc. AVIVA Life Insurance has an extensive
network of 208 branches and about 40 Bancassurance partnerships, spread
across 3,000 cities and towns across the country. There are more than 30,000
Financial Planning Advisers (FPAs) working for AVIAV Life Insurance. It offers
various plans like Child, Retirement, Health, Savings, Protection and Rural.
MetLife Insurance
MetLife India Insurance Company Limited is another popular player in Indianinsurance sector. A joint venture between the Jammu and Kashmir Bank, M.
Pallonji and Co. Private Limited and other private investors and MetLife
International Holdings, Inc., MetLife Insurance offers a wide range of financial
solutions to its customers including Met Suraksha, Met Suraksha TROP, Met
Mortgage Protector and Met Suraksha Plus etc. It has its branches situated
over 600 locations across the country. More than 50,000 Financial Advisors
work for MetLife.
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ING Vysya Life Insurance
ING Vysya Life Insurance entered into the Indian insurance industry inSeptember 2001. A joint venture between ING Group, Ambuja Cements, Exide
Industries and Enam Group, ING Vysya Life Insurance uses its two channels,
viz. the Alternate Channel and the Tied Agency Force to distribute its products.
The first channel has branches in 234 cities across the country and has got
366 sales teams. On the other hand, the later one has more than 60,000
advisors. Currently, ING Vysya Life Insurance has tie ups with more than 200
cooperative banks.
Birla Sun Life Financial Services
Birla Sun Life Financial Services is a joint venture between Aditya Birla Group
and Sun Life Financial Inc, Canada. It has got an extensive network of more
than 600 branches. More than 1,75,000 empanelled advisors work for BirlaSun Life, which currently covers over 2 million lives.
MAX New York Life
Max New York Life Insurance Company Ltd. is one of the top insurance
companies in India. A joint venture between Max India Limited and New York
Life International (a part of the Fortune 100 company - New York Life), Max
New York Life Insurance Company Ltd. started its operation in April 2001. It
currently has around 715 offices located in 389 cities across the country. It
also has around 75,832 agent advisors. Max New York Life offers 39
products, which cover both, life and health insurance.
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Bajaj Allianz
Bajaj Allianz is a joint venture between Bajaj Finserv Limited and Allianz SE,
where Bajaj Finserv Limited holds 74% of the stake, whereas Allianz SE holds
the rest 26% stake. Bajaj Allianz has been rated iAAA by ICRA for its ability to
pay claims. The company also achieved a growth of 11% with a premium
income of ` 2866 crore as on March 31, 2009.
Bharti AXA Life Insurance
Bharti AXA Life Insurance, one of the top insurance companies in India, is ajoint venture between Bharti group and world leader AXA. Bharti holds 74%
stakes, whereas AXA holds the rest of 26%. Bharti AXA has its branches
located in 12 states across the country. It offers a range of individual, group
and health plans for its customers. Currently more than 8000 employees work
for Bharti AXA Life Insurance.
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SuggestionOn the basis of my study I figured out some of the important factors which
can help India in not only attracting more FDI in insurance sector but can also
help to increase Indias reputation as a premium investment destinations.
Some of the suggestions are as follows:-
It was demanded since long time that FDI cap for insurance sector
should raise upto at least 49% from its current 26%. This will attract
further more investors in India. As competition will increase and this
will result into enhanced product quality
A lengthy permission process is required from the central bank.
Removal of this barrier would reduce administrative costs and reduce
currency risk for foreign company.
The state-owned General Insurance Corporation (GIC), with itstraditionally close ties to the primary insurers of the public sector, holds
a monopoly, being the only domestic reinsurer in India. Mandatory
cessions to GIC and its right of first refusal privilege prevent Indian
primary insurers from diversifying their risks freely and flexibly.
Opening up Reinsurance sector will definitely help India to attract more
FDI.
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ConclusionThere is no doubt that the potential market for the buyers of insurance is
significant in India and offers a great scope of growth. While estimating the
potential of the Indian insurance market we often tempt to look at it from theperspective of macro-economic variables such as the ratio of premium to GDP,
which is indeed comparatively low in India. For example, India's life insurance
premium as a percentage of GDP is 1.3% against 5.2% in the US, 6.5% in the
UK or 8% in South Korea. But the fact is that the large part of the India's (the
number of potential buyers of insurance) is certainly attractive. However, this
ignores the difficulties of approaching this population. Much of the demand
may not be accessible because of poor distribution, large distances or high
costs relative to returns.
Despite innumerable delays the sector has finally opened up for private
competition. The threat of private players shaking and giving the run for
incremental market share for the Public Sector mammoths has been
overplayed. The number of potential buyers of insurance is certainly attractive
but much of this population might not be accessible for the new insurers.
Since distribution will be a key determinant of success for all insurance
companies regardless of age or ownership, Indian Insurance companies
should broaden the distribution network. As the product move towards the
mature stages of commodization (increased awareness and popularity) theycould then a host of new channels like grocery stores, direct mails. Regulators
must formulate strong and fair guidelines and ensure that old and new players
are subject to the same rules and at the same time the government should
ensure that the IRDA does not become yet another toothless tiger like CEA or
TRAI.
In a reopened Indian insurance market, regulators must formulate strong fair
and transparent guidelines and make sure that old and new players aresubject to the same rules. Companies meanwhile must be prepared to set and
meet high standards for themselves. The big challenge for both companies and
regulators is to ensure that they replicate the benefits of the past while
eliminating its ills.
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References www.rbi.org.in
www.irda.com Banking and Insurance - Law and PracticebyThe Institute of Company Secretaries
of India (ICSI)
International Marketing by Michael R. Czinkota, Illka A. Ronkainen
Global Marketing (3rd Edition) by Warren J. Keegan, Mark Green
International marketing by R. Srinivasan
Ministry of commerce websites
Business Today
Business & Economy
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