Chapter 1

Nature, Scope, Objectives and Methodology of Research

1.1. Introduction

1.2. Statement of the Problem

1.3. Importance of the Study

1.4. Objectives of the Study

1.5. Research Methodology

1.6. References

1.1 Introduction:
With largest number of life insurance policies in force in the world, Insurance happens to be a mega opportunity in India. Its a business growing at the rate of 15-20% annually and presently is of the order of Rs. 450 billion. Together with banking services, it adds about 7% to the countrys GDP. Gross premium collection is nearly 2% of GDP and funds available with LIC for investments are 8% of GDP. Yet, nearly 80% of Indian population is without life insurance cover while health insurance and non-life insurance continues to be below international standards.

Following the recommendations of Malhotra Committee, the Government of India liberalised the insurance sector in March 2000, with the passage of the Insurance Regulatory and Development Authority (IRDA) Bill, lifting all entry restrictions for private players and allowing foreign companies to enter the market with some limits on direct foreign ownership. Under the current guidelines, there is a 26% equity cap for foreign partners in an insurance company. There is a proposal to increase this limit to 49%. The opening up of the sector is likely to lead to greater spread and deepening of insurance in India and this may also include restructuring and revitalizing of the public sector companies. In the post liberalization period, the life insurance industry of India witnessed a remarkable growth and it is being forced to face a lot of healthy competition from many domestic as well as international private insurance players. A host of private insurance companies operating in both life and non-life segments have started selling their insurance policies since 2001. In the private sector 12 life insurance and 8 general insurance companies have been registered.

The Life Insurance market in India is an underdeveloped market that was only tapped by the state owned LIC till the entry of private insurers. The penetration of life insurance products 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. Most customers were under-insured with no flexibility or transparency in the products. With the entry of the private insurers, the rules of the game have changed. The growing popularity of the private insurers shows the other way. They are coining money in new niches that they have introduced. The state owned companies still dominate segments like endowments and money back policies. But in the annuity or pension products business, the private insurers have already wrested over 33 percent of the market. And in the popular unitlinked insurance schemes, they have a virtual monopoly with over 90 percent of the customers.

But LIC still remains the largest life insurance company accounting for 68.7% market share in March 2011 as compared to 64.86% in March 2010. (Source: IRDA Annual Report, 2011). LIC has managed to beat the trend due to three factors; firstly, its economies of scale allow it to sell single premium policies. Secondly, it has a strong base of traditional products (non unit-linked plans) which were unaffected by the guidelines and thirdly, its group retirement products have done very well.

1.2. Statement of the Problem:

Globalisation and liberalisation of the insurance sector and subsequent entry of private insurance companies with foreign equity participation in the sector has posed new challenges and opened up new frontiers for the Indian insurance sector. Life Insurance Corporation acted as a monopolist in the market for more than half a decade but now the private insurance companies have wrested 36% of the market share in the business. The fall in the savings rate and increased competition in the primary market are posing serious challenges to the LIC. Also radical changes are taking place owing to internationalisation of activities, the appearance of new risks, new types of covers to match with new risk situations and unconventional and innovative ideas on customer service. The future growth of the companies depends upon its service and service quality to the customers. All these have forced, the LIC to bring about many changes in its functioning and product mix to suit demands of changing customer profile. Against this background, it has become necessary to undertake an analytical study of the Life Insurance Corporation of India and private insurance companies.

1.3. Importance of the Study:

Liberalisation, Privatisation and Globalisation (LPG) has compelled the LIC to change its strategy from business orientation to customer orientation. Its biggest asset is its past legacy and strong foundation in terms of fundamentals. However, the fact remains that the LIC is still a state owned corporation, functioning purely on social considerations in a rigid way. On the other hand, private companies are more diversified and customer focused operating with a basic motive of making profit through customer satisfaction. Against this background, the present study aims at critically reviewing the functioning of Life Insurance Corporation and private life insurance companies based on quantitative parameters which include performance indicators such as market share, number of policies, branch network, total business, revenue and profit, number of agents and number of claims settled. Hence, the researcher has taken up the present study to analyse the present

condition of life insurance in post-liberalisation and benefits to the industry on a whole. The suggestions recommended by the researcher will be extremely useful for life insurers to bring further improvement in the business of life insurance and its penetration.

1.4. Objectives of the Study:

(1) To examine the need of liberalisation in Indian life insurance industry (2) To compare the performance of LIC vis-a-vis selected private life insurers based on quantitative and qualitative parameters. (3) To suggest ways to improve the performance of life insurance business in India.

1.5. Research Methodology:

(A) Type of Research: The present research study is descriptive and analytical in nature.

(B) Universe: The Life Insurance Corporation of India and its branches across the country as also the private insurance companies with their network in India will constitute universe for the present study. Presently, there are 22 private life insurance companies registered with the IRDA out of which 19 companies have entered into joint ventures with foreign companies to the extent of 26% equity participation. (C) Sample: Of 22 registered private life insurance companies, 5 top performing private life insurance companies will be selected for comparison and analysis. (D) Sources of Data Collection: The present research study aims at comparing LIC and private life insurance companies based on qualitative parameters and quantitative parameters in terms of network of branches, customer relations, total business, technology enabled services, settlement of claims, etc. For this purpose, the required data and information would be collected from various respondents who would possess insurance policies of both LIC and private life insurance companies. The IRDA Reports and Annual Reports of various life insurance companies also would be considered.

(E) Statistical Tools: The data collected through secondary sources would be presented through bar
graphs and in tabular form.

1.6. References:
(1) C. Barathi, D. Balaji And Ch. Ibohal Meitei (2011), Innovative Strategies To Catalyse Growth Of Indian Life Insurance Sector-An Analytical Review, Indian Journal Of Commerce And Management Studies, Vol. Ii, Issue IV, May 2011. (2) Kundu. S (2003), Whats Next In Indias Insurance Market, Knowledge Digest Com., May 12. (3) Tripathi.S (2009), A Comparative Analysis of Life Insurance Corporation and Private Insurance Company Dissertation Fms Banaras (4) Rastogi. S and Sarkar.R (2006), Enhancing Competitiveness: The Case Of The Indian Life Insurance Industry, Conference On Global Competition & Competitiveness Of Indian Corporate, IIMK, September 2006. (5) G.R. Desai, Life Insurance in India- Its History and Dimensions of Growth, (1973). Macmillan India Ltd. (6) IRDA Annual Reports (7) www.indianinfoline.com (8) www.licindia.com

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