started by the company to enhance its reach over the rural. LIC had seven zonal offices, 100divisional offices, 2,048 branch offices and army of agents totaling 6,28,031.Need for reforming the industry was felt in the early-1990s for providing better coverage to theIndians and to increase flow of long-term financial resources to finance the growth of infrastructure.In 1993, the Indian government constituted the ‘Malhotra Committee’ to suggest reforms in theindustry. The committee submitted its report in 1994, with recommendations for opening theinsurance sector to private players, improving service standards and extending insurance coverageto larger sections of the population.The committee’s suggestions faced stiff opposition from various labor unions andpolitical parties in the country. They opined that entry of private players would leadto job cuts by the nationalized players in order to compete with them. There were ahost of other arguments against these reforms. The government sought to addressthem by restricting foreign stake in insurance companies to only 26%, which waswell below 51% needed for the managing the company in the Insurance Bill.Though one of LIC’s basic objectives was to ‘provide insurance cover to all Indians,’ insurancepenetration in India was considered to be very low. According to reports, only 65 million peoplewere covered by insurance. R N Jha, LIC’s former Executive Director commented in his book, ‘Insurance in India,’ “Insurance coverage has been extended only to about 25% of the insurablepopulation in 40 years,” indicating the huge uncovered market potential in the country.It was reported that per capita insurance premium
in developed countries was much higher ascompared to India. In 1999, per capita insurance premium in India was only $8 while it was $4,800in Japan, $1000 in Republic of Korea, $887 in Singapore, $823 in Hong Kong and $144 in Malaysia.In the world market, in terms of gross insurance premium also, India’s share was only 0.3%,though population wise it ranked second in the world. The corresponding figures in 1999 for Japanwas 31%, European Union 25%, South Africa 2.3% and Canada – 1.7%. Further, in 2001, while theratio of insurance premium to the Gross Domestic Product (GDP)
was 9% for UK and Japan, and5% for US, it was only 1.9% in India.Attracted by the huge untapped potential, many private players entered the market after theInsurance bill was passed in late 2000. A majority of these were collaborations between an Indiancompany and a leading MNC insurance/financial services company (Refer Table I).
TABLE IPRIVATE PLAYERS IN THE INDIAN INSURANCE MARKET
COMPANYINDIAN PARTNERFOREIGN INSURERAREA
Birla Sun Life Aditya Birla Group Sun Life, Canada LifeOm KotakKotak MahindraFinanceOld Mutual, South Africa LifeHDFC-StandardLifeHDFC Standard Life, UK LifeRoyal Sundaram Sundaram Finance Royal Sun, UKLife and Non-LifeICICI-Prudential ICICI Prudential, UK LifeMax New YorkLifeMax India New York Life, USA LifeTata-AIG Tata Group AIG, USALife and Non-LifeING Vysya Vysya BankING Insurance,NetherlandsLifeAviva Dabur CGU Life, UK LifeMetLife IndiaJammu & KashmirBankMetLife, USA LifeBajaj Allianz Bajaj Auto Allianz Life & Non-Life