EXECUTIVE SUMMARY OF INSURANCE

Insurance sector in India is one of the booming sectors of the economy and is
growing at the rate of 15-20 per cent annum. Together with banking services, it
contributes to about 7 per cent to the country's GDP. Insurance is a federal subject in
India and Insurance industry in India is 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.

The origin of life insurance in India can be traced back to 1818 with the
establishment of the Oriental Life Insurance Company in Calcutta. It was conceived
as a means to provide for English Widows. In those days a higher premium was
charged for Indian lives than the non-Indian lives as Indian lives were considered
riskier for coverage. The Bombay Mutual Life Insurance Society that started its
business in 1870 was the first company to charge same premium for both Indian and
non-Indian lives. In 1912, insurance regulation formally began with the passing of
Life Insurance Companies Act and the Provident Fund Act.

By 1938, there were 176 insurance companies in India. But a number of frauds
during 1920s and 1930s tainted the image of insurance industry in India. In 1938, the
first comprehensive legislation regarding insurance was introduced with the passing
of Insurance Act of 1938 that provided strict State Control over insurance business.

Insurance sector in India grew at a faster pace after independence. In 1956,

Government of India brought together 245 Indian and foreign insurers and provident
societies under one nationalised monopoly corporation and formed Life Insurance
Corporation (LIC) by an Act of Parliament, viz. LIC Act, 1956, with a capital
contribution of Rs.5 crore.

The (non-life) insurance business/general insurance remained with the private

sector till 1972. There were 107 private companies involved in the business of general
operations and their operations were restricted to organised trade and industry in large
cities.

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

general insurance business in India with effect from January 1, 1973. The 107 private

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insurance companies were amalgamated 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).

In 1993, the first step towards insurance sector reforms was initiated with the
formation of Malhotra Committee, headed by former Finance Secretary and RBI
Governor R.N. Malhotra. The committee was formed to evaluate the Indian insurance
industry and recommend its future direction with the objective of complementing the
reforms initiated in the financial sector.

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 INTRODUCTION OF INSURANCE INDUSTRY
Insurance in India can be traced back to the Vedas. For instance, yogakshema,
the name of Life Insurance Corporation of India's corporate headquarters, is derived
from the Rig Veda. The term suggests that a form of "community insurance" was
prevalent around 1000 BC and practiced by the Aryans.

Burial societies of the kind found in ancient Rome were formed in the
Buddhist period to help families build houses, protect widows and children. Bombay
Mutual Assurance Society, the first Indian life assurance society, was formed in 1870.
Other companies like Oriental, Bharat and Empire of India were also set up in the
1870-90s. It was during the swadeshi movement in the early 20th century that
insurance witnessed a big boom in India with several more companies being set up.

As these companies grew, the government began to exercise control on them.

The Insurance Act was passed in 1912, followed by a detailed and amended Insurance
Act of 1938 that looked into investments, expenditure and management of these
companies' funds.

By the mid-1950s, there were around 170 insurance companies and 80

provident fund societies in the country's life insurance scene. However, in the absence
of regulatory systems, scams and irregularities were almost a way of life at most of
these companies. As a result, the government decided nationalizes the life assurance
business in India. The Life Insurance Corporation of India was set up in 1956 to take
over around 250 life companies.

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Industry Structure

Insurance Companies:

IRDA has so far granted registration to 12 private life insurance companies

and 9 general insurance companies. If the existing public sector insurance companies
are included, there are currently 13 insurance companies in the life side and 13
companies operating in general insurance business. General Insurance Corporation
has been approved as the "Indian reinsurer" for underwriting only reinsurance
business. Particulars of the life insurance companies and general insurance companies
including their web address is given below:

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LIFE INSURERS Websites
Public Sector
Life Insurance Corporation of India www.licindia.com
Private Sector
Allianz 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
Om 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

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GENERAL INSURERS
Public Sector
National 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 Sector
Bajaj 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
HDFC Chubb General Insurance Co. Ltd.
REINSURER
General Insurance Corporation of India www.gicindia.com

BACKGROUND OF INSURANCE INDUSTRY

In India, insurance has a deep-rooted history. It finds mention in the writings
of Manu ( Manusmrithi ), Yagnavalkya ( Dharmasastra ) and Kautilya ( Arthasastra
). The writings talk in terms of pooling of resources that could be re-distributed in

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times of calamities such as fire, floods, epidemics and famine. This was probably a
pre-cursor to modern day insurance. Ancient Indian history has preserved the earliest
traces of insurance in the form of marine trade loans and carriers’ contracts. Insurance
in India has evolved over time heavily drawing from other countries, England in
particular.
1818 saw the advent of life insurance business in India with the
establishment of the Oriental Life Insurance Company in Calcutta. This Company
however failed in 1834. In 1829, the Madras Equitable had begun transacting life
insurance business in the Madras Presidency. 1870 saw the enactment of the British
Insurance Act and in the last three decades of the nineteenth century, the Bombay
Mutual (1871), Oriental (1874) and Empire of India (1897) were started in the
Bombay Residency. This era, however, was dominated by foreign insurance offices
which did good business in India, namely Albert Life Assurance, Royal Insurance,
Liverpool and London Globe Insurance and the Indian offices were up for hard
competition from the foreign companies.
In 1914, the Government of India started publishing returns of Insurance
Companies in India. The Indian Life Assurance Companies Act, 1912 was the first
statutory measure to regulate life business. In 1928, the Indian Insurance Companies
Act was enacted to enable the Government to collect statistical information about both
life and non-life business transacted in India by Indian and foreign insurers including
provident insurance societies. In 1938, with a view to protecting the interest of the
Insurance public, the earlier legislation was consolidated and amended by the
Insurance Act, 1938 with comprehensive provisions for effective control over the
activities of insurers.
The Insurance Amendment Act of 1950 abolished Principal Agencies.
However, there were a large number of insurance companies and the level of
competition was high. There were also allegations of unfair trade practices. The
Government of India, therefore, decided to nationalize insurance business.
An Ordinance was issued on 19th January, 1956 nationalising the Life
Insurance sector and Life Insurance Corporation came into existence in the same year.
The LIC absorbed 154 Indian, 16 non-Indian insurers as also 75 provident societies—
245 Indian and foreign insurers in all. The LIC had monopoly till the late 90s when
the Insurance sector was reopened to the private sector.
The history of general insurance dates back to the Industrial Revolution in
the west and the consequent growth of sea-faring trade and commerce in the 17th

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century. It came to India as a legacy of British occupation. General Insurance in India
has its roots in the establishment of Triton Insurance Company Ltd., in the year 1850
in Calcutta by the British. In 1907, the Indian Mercantile Insurance Ltd, was set up.
This was the first company to transact all classes of general insurance business. 1957
saw the formation of the General Insurance Council, a wing of the Insurance
Associaton of India. The General Insurance Council framed a code of conduct for
ensuring fair conduct and sound business practices.
In 1968, the Insurance Act was amended to regulate investments and set
minimum solvency margins. The Tariff Advisory Committee was also set up then.
In 1972 with the passing of the General Insurance Business (Nationalisation)
Act, general insurance business was nationalized with effect from 1st January,
1973. 107 insurers were amalgamated and grouped into four companies, namely
National Insurance Company Ltd., the New India Assurance Company Ltd., the
Oriental Insurance Company Ltd and the United India Insurance Company Ltd. The
General Insurance Corporation of India was incorporated as a company in 1971 and it
commence business on January 1sst 1973.
This millennium has seen insurance come a full circle in a journey extending
to nearly 200 years. The process of re-opening of the sector had begun in the early
1990s and the last decade and more has seen it been opened up substantially. In 1993,
the Government set up a committee under the chairmanship of RN Malhotra, former
Governor of RBI, to propose recommendations for reforms in the insurance sector.
The objective was to complement the reforms initiated in the financial sector. The
committee submitted its report in 1994 wherein, among other things, it recommended
that the private sector be permitted to enter the insurance industry. They stated that
foreign companies be allowed to enter by floating Indian companies, preferably a
joint venture with Indian partners.

A brief history of the 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 of the important milestones in the life insurance business in India are:
• 1912: The Indian Life Assurance Companies Act enacted as the first statute to
regulate the life insurance business.

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 • 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:
• 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.

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 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 new products 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 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

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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 the private companies have huge task to play in creating
awareness and credibility among the rural populace. The perceived benefits of buying
a life policy range from security of income bulk return in future, daughter's marriage,
children's education and good return on savings, in that order, the study adds.

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 FEATURES OF INSURANCE INDUSTRY
Insurance Policy India provides the clients with the details required for the
coverages in the policy, date of commencement of the policy and their adopting
organizations. It plays a important role in the Indian insurance sector.

The Insurance Policy India is regulated by certain acts like the Insurance Act (1938),
the Life Insurance Corporation Act(1956), General Insurance Business
Nationalization) Act(1972), Insurance Regulatory and Development Authority IRDA)
Act(1999). The insurance policy determines the covers against risks, sometime opens
investment options with insurance companies setting high returns and also informs
about the tax benefits like the LIC in India. There are two types of insurance covers:

1. Life insurance

2. General insurance

Life insurance – this sector deals with the risks and the accidents affecting the life of
the customer. Alongside, this insurance policy also offers tax planning and investment
returns. There are various types of life Insurance Policy India:

a. Endowment Policy

b. Whole Life Policy

c. Term Life Policy

d. Money-back Policy

e. Joint Life Policy

f. Group Insurance Policy

General Insurance – this sector covers almost everything related to property,

vehicle, cash, household goods, health and also one's liability towards others. The
major segments covered under general Insurance Policy India are:

a. Home Insurance

b. Health Insurance

c. Motor Insurance

d. Travel Insurance

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Some of the well known Insurance Policy India are:

Social Security Group Scheme – a scheme covering the age group of 18-60 years
and an insurance of Rs.5000 for natural death and of Rs.25000 on due to accidental
death.
Shiksha Sahyog Yojana – a scheme providing an educational scholarship of Rs.300
per quarter per child is given for a period of four years.

Jan Arogya Bima Policy – a scheme for the adults upto the age of 45 years is Rs. 70
and for children it is Rs. 50. The limit coverage is fixed at Rs.5000 per annum.

Mediclaim Insurance Policy – a scheme covering the age group from 5-80 years
with a tax benefit of up to Rs 10,000.

Jana Shree Bima Yojana – this is a coverage of Rs 2,000 on natural death and Rs
50,000 for accidental death. The premium amount is fixed at Rs. 200 for single
member.

Videsh Yatra Mitra Policy – a scheme covering medical expenses during the period
of overseas travel.

Bhagya Shree Child Welfare Bima Yojana – a scheme covering one girl child in a
family upto the age of 18 whose parents age does not exceed 60 years, with a
premium of Rs.15 per annum.

Raj Rajeshwari Mahila Kalyan Yojana – a scheme providing protection to woman

in the age group of 10 to 75 years with an insurance of Rs. 25,000 and premium Rs.15
per annum.

Ashray Bima Yojana – a scheme covering workers in case of loss of jobs.

Personal Accident Insurance Scheme for Kissan Credit Card – a scheme covering all
the KCC holders up to an age of 70 years. Insurance coverage includes 50,000 for
accidental death and 25,000 for partial disability.

The functions of Insurance can be bifurcated into two parts:

1. Primary Functions

2. Secondary Functions

3. Other Functions

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The primary functions of insurance include the following:

Provide Protection - The primary function of insurance is to provide protection

against future risk, accidents and uncertainty. Insurance cannot check the happening
of the risk, but can certainly provide for the losses of risk. Insurance is actually a
protection against economic loss, by sharing the risk with others.

Collective bearing of risk - Insurance is a device to share the financial loss of few
among many others. Insurance is a mean by which few losses are shared among larger
number of people. All the insured contribute the premiums towards a fund and out of
which the persons exposed to a particular risk is paid.

Assessment of risk - Insurance determines the probable volume of risk by evaluating

various factors that give rise to risk. Risk is the basis for determining the premium
rate also.

Provide Certainty - Insurance is a device, which helps to change from uncertainty to

certainty. Insurance is device whereby the uncertain risks may be made more certain.

The secondary functions of insurance include the following:

Prevention of Losses - Insurance cautions individuals and businessmen to adopt

suitable device to prevent unfortunate consequences of risk by observing safety
instructions; installation of automatic sparkler or alarm systems, etc. Prevention of
losses cause lesser payment to the assured by the insurer and this will encourage for
more savings by way of premium. Reduced rate of premiums stimulate for more
business and better protection to the insured.

Small capital to cover larger risks - Insurance relieves the businessmen from
security investments, by paying small amount of premium against larger risks and
uncertainty.
Contributes towards the development of larger industries - Insurance provides
development opportunity to those larger industries having more risks in their setting
up. Even the financial institutions may be prepared to give credit to sick industrial
units which have insured their assets including plant and machinery.

The other functions of insurance include the following:

Means of savings and investment - Insurance serves as savings and investment,

insurance is a compulsory way of savings and it restricts the unnecessary expenses by

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the insured's For the purpose of availing income-tax exemptions also, people invest in
insurance.

Source of earning foreign exchange - Insurance is an international business. The

country can earn foreign exchange by way of issue of marine insurance policies and
various other ways.

Risk Free trade - Insurance promotes exports insurance, which makes the foreign
trade risk free with the help of different types of policies under marine insurance
cover.

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 DEMAND DRIVERS
Before Independence

The insurance industry originated in India in the year 1818 with the formation
of Life Insurance Corporation in Calcutta. The idea behind starting LIC was to
provide insurance coverage for English widows and different premium was charged
for the English and for the Indians. In 1870 Bombay Mutual Life Insurance Society
established its Insurance business and the same premium was charged for both Indians
and English. In 1912 the Insurance sector came under the purview of regulations
when the government passed the Life Insurance Companies Act. But it was in the year
1938 when the government came up with the first legislation to bring the insurance
sector under state control.

Post Independence

In 1956, the Government of India nationalized insurance companies bringing

Indian Insurance sector under the purview of the Government. These state owned
Insurance companies became highly inefficient and bureaucratic, had excess
manpower and countless delay in settlement of claims but the nation did not have an
alternative. Any effort by the government to privatize the industry met with stiff
resistance from the trade unions.

Post Liberalization Policies regarding Insurance

Under the recommendation of Malhotra Committee the Insurance Regulatory

And Development Authority was set up to monitor and control the Insurance industry
Some of the initiatives taken by the government after Insurance sector reforms are:

• Government to have not more than 50 per cent stake in insurance companies.

• Insurance sector to be opened up for private companies and any number of

insurance enterprises can operate.

• Private players with minimum paid up capital of Rs.1 billion should be given
opportunity to do business.

• Foreign companies can enter Indian market through joint ventures with Indian
companies.

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 The state controlled Insurance companies like LIC and GIC faced stiff
competition from private insurance companies post reforms. The monopoly of the
national Insurance companies came to an end. The private Insurance companies were
able to exploit the shortcomings in the state run Insurance companies. The private
insurance companies launched a variety of new insurance products like health care,
pension plans, annuity plans, income protection, market linked products which were
welcomed by the end customers. The business for the private sector boomed in both
urban and rural sector alike.

FDI Policy Regarding Insurance Sector

THE Finance Minister, while presenting the first Budget of the UPA
government, has proposed to raise the FDI cap in three sectors. Elaborating upon the
decision he said, “The NCMP declares that FDI will continue to be encouraged and
actively sought, particularly in areas of infrastructure, high technology and exports.
Three sectors of the economy fully meet this description. They are
telecommunications, civil aviation and insurance.” The specific proposal for the
insurance sector is to raise the FDI cap from 26 to 49 per cent. We argue below that
this move is unjustifiable on several grounds.

Bodies that regulate the sector:

For better regulation purpose of the insurance sector the government has
established following bodies;

1. IRA: Insurance Regulatory Authority.

2. IRDA: Insurance Regulatory and Development Authority.

3. TAC: Tariff Advisory Committee.

1. IRA: INSURANCE REGULATORY AUTHORITY:

The IRA, under the chairmanship of Rangachary, was set-up in January 1996.
The IRA Bill has to be passed by parliament to make the IRA a statutory body.
Comprehensive legislation aimed at reviewing the insurance Act of 1938 and
repealing the life insurance corporation Act of 1956 have to be passed.

The IRA is also preparing an internal rating system to screen all applications,
as entry will be in phases. The joint venture status of life insurance companies (with

17
majority holding of the domestic partner) is likely to be approved by the parliament.
Consensus also seems to be emerging on the minimum of Rs.1 bn capital stipulations
for new insurance companies.

The IRA has stipulated a minimum rural presence for all companies. The
exhaustive guidelines have been issued for the appointment of intermediaries
(brokers, agents, surveyors and actuaries).

Feature of IRA:

1. The Bill allowed for up to 26% foreign equity participation in the insurance
sector.

2. The current India monopoly companies were required to bring down their
equity holding to 26% within a period of 10 years.

Government pronouncement:

1. IRA will be sole Authority, which will be responsible for awarding of, licenses
i.e. little or no government or political interference in licensing process.

2. No restriction on the number of licenses.

3. No composite license for life insurance business.

4. Licensing to be only on national basis (no city by city approach)

5. IRA allowed for up to 26% foreign equity participation in the life insurance
sector.

6. The current Indian monopolies companies are required to bring down their
equity holding to 26% within a period of 10 years.

IRA proposals:

1. New player should start their business within 15-18 months.

2. Trafficking of licenses not to be permitted.

3. IRA to seek business plan with 5-year protection for all applicants.

4. A system of direct brokers to be introduced.

5. IRA to vet top management appointments.

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2. IRDA: INSURANCE REGULATORY AND DEVELOPMENT
AUTHORITY:-

The Insurance Regulatory and Development Authority, constituted under the

IRDA Act, 1999, provide for the establishment of an authority to protect the interest
policyholders, to regulate, promote and ensure orderly growth of the life insurance
industry.

Business Requirement:-

A company will not be issued a license unless the IRDA is satisfied with the
sound financial condition, the general character of management, the volume of
business, the capital structure, earning prospects for the insurers and that the interests
of the general public will be served if registration is granted to the insurer.

Foreign insurance companies have been allowed to have a maximum 26%

share holding. No life insurance company can be registered under the Act unless they
have a paid up capital of Rs.100 crores. Every life insurer shall deposit with the
reserve bank of India one percent of the total gross premium written in India in any
financial year, not exceeding Rs.10 crores.

This amount would not be susceptible to any assignment or charge nor would
it be available for the discharge of any liabilities other than liabilities arising out of
policies issued, so long as any such liabilities remain undercharged.

Investment of Assets:-

Every insurer is required to invest, and keep invested, assets equivalent to not
less than the net liabilities as follows:

a. 25 % in government securities,

b. a least 25% of the said sum in government securities or other

approved securities and

c. the balance in any approved investment rated as “very stron” or

more by reputed rating agencies, which include various debt instruments on
which dividend on its ordinary shared for the five years immediately
preceding or for at least five out of the six or seven years immediately

19
 preceding have been paid and which have priority in payment over ordinary
shares of the company in winding up.

The IRDA may in the interest of the policyholder’s directions relation the
time, manner and other conditions and investments of assets to be held by an insurer.
The IRDA may also direct the insurer to realize the investment, if it sees the
investments to be unsuitable or undesirable. The Act prohibits an insurer from directly
or indirectly investing policyholder funds outside India.

Further, every insurer has to always maintain an excess of the value of his
assets over the amount of his liabilities of not less than Rs. 50 crores in the case of an
insurer carrying of life insurance business. If at any time an insurer does not maintain
the required solvency margin, he is required to submit a financial plan, as per
directions issued by the IRDA, indicating a plan of action to correct the deficiency
within three months.

In order to ensure that the company does not risk the money of the
policyholder’s, the Act provides that an insurer who does not comply with the
aforesaid provisions may be deemed to be insolvent and may be would up by the
court.

Insurers are required to get an actuary to investigate the financial conditions of

the life insurance business including a valuation of liabilities every year in order to
ensure continual compliance

In order to maintain transparency in its dealings, insurers would have to keep

separate account relating to funds of shareholders and policyholders.

3. TARIFF ADVISORY COMMITTEE:

The tariff advisory committee established under the Act is empowered to

control and regulate the rates, terms, and etc. that may be offered by insurers in
respect of any risk or of any category of risks. It is provided that in fixing, amending
or modifying such rates etc. the committee shall try to ensure as far as possible that
there is no unfair discrimination between risk of essentially the same hazard and also
that consideration is given to past and prospective loss experience. Every insurer is
required to make payment to the TAC of the prescribed annual fees.

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TAX POLICY AND INSURANCE SECTOR:

Another factor, which affects the insurance sector, is the tax policy. The tax
reforms in India are such that it encourages the citizens to invest in the insurance
sector.

The tax policy of the government is particular relevant for life insurance which
is a long-term contract and inculcates among the policyholders the habit of saving.
Taxation of returns on investment influences, investment decisions and high rates of
taxation will discourage the desire to save. Already in India there are complaints that
the rates of return on life policies are not what they could be. Therefore tax incentives
play a vital role in determining the attractiveness of such policies. Such tax breaks are
available in many countries and have helped in the development of their life sector. In
western countries the gain from the proceeds of a life insurance policy is paid free of
tax. Provided the policy satisfies certain qualifying conditions. Non-qualifying
policies get basic rate tax relief, though higher rate taxpayers may still have to pay tax
on the gain, although at a reduced rate. The insurance companies can use such tax
concessions rate. The insurance companies can use such tax concessions to design
products for different categories of taxpayers.

The other factors, which affect the insurance sector, are the employment law,
and government stability. These are the factors, which affect the insurance industry

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 KEY SUCCESS FACTORS
In order to succeed in any of the business it is very necessary to make and
follow the strategies. Strategies are very important for any of the business. Following
are the general strategies, which are recommending to the insurance sector. One
approach is to focus upon product quality, which will instill confidence in minds of
the customers that they would be offered best product from out of the several
available products.

The other approach, is to focus on the customers need, would involve a heavy
investment in developing relationships with policyholders. Under this approach, one
can expect a range of products and services designed to give the customer what he
specially desires.

The third approach is of greater market segmentation under which the

population should be divided into several homogeneous groups and product, and
services would be targeted towards such selected markets. The effort would be to
“tie” clients to their company- by customized combination of coverage, easy payment
plan, risk management advice, and convenient quick claim handling.

Porter Generic Strategies:

One of the expert Michel porters has identified three internally consistent
generic strategies, which can be used singly or in combination: overall cost leadership
is clearly under stable. In a differentiation strategy, a company seeks to be unique in
its industry along some dimensions that are widely valuable by the customer. May be
the lowest cycle time for settling a claim under say, a med claim policy could be
differentiating factor. In a cost focus, a company seeks a cost advantage in its target
segment, while in differentiation focus; a company seeks a differentiation target.

Marginal Different Product:

Another strategy would be for the companies to design products that will make
comparison-shopping difficult. They could offer a wide variety of covers with
marginal differences and varying prices, whose terms and conditions are difficult to
compare for consumers who may not have sufficient experience in purchasing
insurance and who would find it difficult to make a clear choice. If the consumer is
offered a unique policy, he will have no alternative coverage with which can be

22
compared. Given the combination policy, which can offer protection against a number
of losses, the consumer will find comparison even more difficult.

Designing New Strategies:

The existing insurance companies cannot be satisfied with concentrating on

the consolidation of their existing markets, but have to achieve further growth and
penetration. They must, therefore, concentrating on strengthening existing points of
service, designing new channel of distribution, direct contact with their ultimate
customers, and front line employee empowerment. They also need to refresh their
marketing set up. The new comers, on the other hand give priority to tapping the
market, left unexploited by the public sector companies.

Move towards Rural Market:

It is one of the most important suggestions; data says that rural market is still
uncovered by this sector. We believe that the sector should move towards tie rural
market. Insurance penetration can be achieved by tapping the neglected Rural
Markets. There is vast potential for insurance growth in the rural sector. A recent
survey by foundation for research, training and Education in insurance (FORTE)
suggests that insurance can be sold profitably to rural communities in India. The
survey reveals that

• There is distinct hierarchy of needs in rural areas.

• Rural people find security in groups the saving habit is very strong in rural
areas.

• Average saving across the most important socio-economic strata comes to 30-
35% of annual income or Rs.13,500 annually, which is significant.

• There is high level of awareness about life insurance and fairly high-level
about 36% already own life insurance.

• 51% of these who own life insurance would like to buy more.

• Amongst the savers, a significant percentage does not save through formal
financial modes or institutions.

23
 • Rural buyers of insurance prefer a half yearly mode of premium payment to
coincide with the time of the harvest. Thus there are very much chances for
any of the companies to work over this scenario. So we believe and suggest all
the players to move towards the rural areas.

Motivation of sales force:

A life insurance company should constantly be involved in the process of

motivating the sales force in the turbulent times. The following strategies are
recommending;

 Building relationship is real perk. One should be sure to build in networking

times for agents during the program-in addition to entertainment and
education.

 Web should be frequently used for creating gift ideas.

 Hold sales contests in the forth quarter. It is the best times ti motivates agents
who wants to qualify for a trip.

 Consider a contrast within the contest ‘for- top-tier producers; additional

rewards for additional milestones that are met, such as air and guest room
upgrades.

Use of Internet:

The present scenario is such that the products sold with the help of Internet.
The technological advancement is such that force the companies to take such steps.
Still the full-fledged use of Internet is not done in our country. As suggestion earlier
the Internet based life insurance will help the companies to reduce the transaction cost
and time. At the time it can improve the quality of service to its customers, which is
the mission of the company.

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 ENVIRONMENTAL ISSUES
Political Factors Affecting Life Insurance Industry:

Within India political ambitions and rise of communalism, fissiparous

tendencies are on the rise and may well continue for quite some time to time.
Therefore, it expected that the insurance companies might consider offering political
risk coverage also. The only area where Indian insurers consider giving cover is with
regard to customs duty change under certain conditions.

Certain type of political risk at the international level has serious implications
for exporters. The term ‘political risk’ has a wider connotation than commonly
understood or assumed. It covers events arising not just from politics, but risks in the
course of international transactions. In this connection, it may be noted that export
credit insurance has evolved out of uncertainties relating to international trade,
particularly due to problems arising out of foreign legal jurisdiction, political changes
and currency exchange difficulties faced by many developing countries.

Economical Factors Affecting Life Insurance Industry

Interest rate at bank and interest rate of P.F variation very much affect to life
insurance industry, because people always attract by higher return. Therefore, they do
not prefer lower return policy. Unemployment also affects insurance industry, because
the unemployment people will not have earning, so saving also affect to life insurance
sector Life insurance industry will directly affected by Earthquake, Monsoon, and
Natural calamity. Because of these events turns into lots of death, so the life insurance
companies have to pay claim against policy. Infant mortality rate and maternity
mortality rate are also affecting to life insurance. Typical Indian want luxurious
product against low income, so that they prefer installment or annuity (EMI), so that
they may not have extra saving to invest in life insurance.

Socio-Cultural FACTORS affecting Life Insurance Industry:

The basic social factors that affect the life insurance sector are as under: -

 Population

 Life style

25
  Educational level

 Level of earning

 Societal benefits These are the major social factors, which

affect the life insurance sector. We will discuss all of them in brief.

 Population:

Growth in the population is a major factor pushing up the demand. It is also

going to exert a special influence on the life insurance market in other ways. Apart
from exerting pressure on demand for goods and services, and through that, ill effects
of uncontrolled growth of population also could spur the growth of demand. For
example, overcrowding in public places of entertainment, public support, or too many
vehicles on the road can result in hazards like stampedes and pollution, which require
covers and still are not sold on a large scale today. Thus the positive as well as the
negative aspects of population growth are going to spur demand.

 Life style:

The peculiar lifestyle of a country or an age also influences the insurance

business. Change therein produces different demands for life insurance. For e.g. All
over the world, family size is shrinking and the fact that in decades to come, both
presents are more frequently likely to work outside the home will mean that there
could be a greater possibility of property loss. Similarly, a larger number of
vehicleson the roads for people commuting to their jobs or business would mean
larger incidence of accidents. This will increase the demand for life insurance
products.

Of course, there is also the other possibility that wherever it is possible, some
people will try to spend a part of their time working at home either because they
would like to be with their families or because they find it more convenient. Activities
like life insurance and financial services are particularly well suited for such
arrangements.

In recent times, there has been a surge in the high end business of the LIC. For
instance, as against 90 policies each worth more than Rs 10 million in 1999-2000, the
number was as high as 900 policies in the next year. Or again, the number of jeevan
shri policies jumped from 88,000 to a total of 2,33,000 policies in the same period.

26
  Level of education:

India is one of the developing countries: the level of education is very low
here. The literacy rate is very poor. More than 50% of the population is still
uneducated or more or less not educated. Thus the people are not able to understand
the concept of the life insurance. Among the educated people the quality of the
education is still a big question mark. Thus the awareness is not created and it has
become a big challenge for the industry. Thus one of the factors, which affect the life
insurance sector, is low level of education.

 Level of earning:

Another factor, which affects the life insurance sector, is the level of earning.
In India the rule of 80-20 is working. The 80% of the total population is having the
20% of the wealth and the 20% of the total population is having 80% of total wealth.
Thus the richer are richer and poorer are poorer. Due to this the life insurance sector is
affected very much.

 Societal benefits:

In view of the fact that large sections of India have inadequate life insurance
cover, an important social responsibility of the government relates to spreading it far
and wide. In addition, the government attempts to extent life insurance with certain
social obligations in view in both urban and the rural areas through such means
special schemes for the weaker sections, and by tilting of the life insurance
companies’ investments in favour of social developments.

The social changes emerging in the country provide opportunities for insurers
to sell financial services products such as family health care programmed, retirement
plans disability insurance, long-term care for senior citizens and different employee
benefit plans

The population in the age group 15-55 is usually regarded as the insurable
population, since this can be considered as the main “active” age group ( in the sense
of working, earning. And supporting others), and beyond this range life risk may be
considered to be not worth insuring.

27
 There is one opinion, which suggests that in our country the age group 15-55
as the base is not totally suitable. Due to various factors including the unemployment
problem, real earning starts from around the age of 25 for salaried persons. For others,
particularly small entrepreneurs, traders and businessman, the starting age is a little
higher. Only in the affluent sector of society life insurance can be taken before
personal earning starts. Thus, number wise life insurance below the age of 25 is not so
significant (although amount wise it need not be so). On the other hand, people over
the age of 50 rarely apply for fresh life insurance, mainly because in India the normal
retirement age is around 60 years. Also, a high percentage of the population in the
lower income group does not remain “insurable” after the age of 50. thus, in our
country the practical age range for insurable population actually narrows down to 25
to 50.

Technological Factors Affecting Life Insurance Industry:

Internet as an intermediary in the current Indian market customer is not aware

about the intrinsic value of insurance. He thinks of insurance only in the mount of
March as a tax saving measure. The security provide by an insurance cover is rarely
thought about. In such a scenario Internet can be an effective medium for educating
the consumers about insurance. It serves as a single window for disseminating
product, process and procedural information to the consumers.

Product development and target marketing through the Internet: with increase
in the number of insurance companies there will be a need for market segmentation
and subsequently product designed for each of them. In such a scenario Internet can
be a effective channel for pushing product specific information to a particular market
segment. Consumer feedback about a particular product as well as suggestions for
different types or covers can also be generated through the Internet.

 Maintaining the database

The most important facto that is affecting the insurance industry is the
marinating the database of the customers. The insurance industry having a huge list of
the customers.

In order to maintain it in manual format it is really the work of stupidity. With

the change in time the computers has taken the work of this things. Thus with the
development of the technology it has becoming possible to maintain such huge

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database very easily. A person can switch over to the computer and get the details of
the customer very easily. Thus maintaining the database has really become easy due
to the development in technology.

 E-business insurance in India: -

The Internet has played a vital role in transforming the business of the 21 st
century. Computers are now being used extensively for creating a storing data,
information with the help of complex and sophisticated technological tools in every
kind of business. This change having been widely accepted, the advantages are
numerous such as fast processing improved. Efficiency, cost reduction among several
other benefits. However, with every positive change, there is an evil attached and
technology is no exception. In technical is an evil attached and technology is no
exception. In technical terms, increased sophistications of technology brings with it,
an increased factor of risk involved. The risk can be of various attributes, for example,
the risk of data being lost due to a virus attack, the theft of important and confidential
information and so on, which ultimately results in losses for the business entity. With
this change in the business process, insurers have to devise new methods for
assessing, underwriting and servicing claims for the so-called e-business insurance.

Insurers face challenges to ascertain risks, in order to quantify them because

such risks don’t have any past data, which makes it all the more difficult for actuaries.
Moreover, what financial impact a particular risk can have is very difficult to be
determined. For example, if some hackers obtain credit card information of few
customers, it’s a loss for banks, their credibility, customers and also their brand. Will
an insurance policy cover all of this is million dollars question hence; the difficulty is
to design a cover first of all, which really answers the needs of customers. But even
after designing and pricing such products with difficulty, the challenge to underwrite
and handle claims for such policies remains existent.

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 DOMESTIC PLAYERS
Top 10 Players in Insurance Companies in India

Life Insurance Corporation of India

Life Insurance Corporation (LIC) came into existence on 1st September 1956
through the amalgamation of 154 Indian insurance companies, 16 non-Indian
companies and 75 provident. The amalgamation was achieved with the help of Life
Insurance Act passed by the Parliament in the same year. The LIC was created with
the goal of reaching all the insurable people in the country and providing them
financial coverage at a reasonable price. In the year 1956, LIC had 5 zonal offices, 33
divisional offices and 212 branch offices. With time there was a need for a branch
office at every district headquarter and many branches were opened, which raised the
pace of the organization.

LIC now has 2048 fully computerized branch offices, 100 divisional offices, 7
zonal offices and the corporate office. At present, online premium collection facility is
being offered in selected cities as LIC has tied up with some banks and service
providers. For providing customer satisfaction the organization has introduced various
schemes such as ECS, ATM premium payment facility, IVRS, Info centers which are
set up in various cities including Mumbai, Bangalore, Chennai, Kolkata, New Delhi,
Pune and many more. It has also come up with SATELLITE SAMPARK offices
providing easy access to policyholders. LIC has crossed many milestones and set
standards for itself fostering unmatched performance.

Objectives

• Holding the money with obligation and using it in the best possible manner in
the interests of the policyholder and the community.

• Bringing attractive savings plans and making them easily accessible to the
policyholders.

• Giving attractive returns to the people and keeping in mind national priorities.

• Being trustworthy to the customers and develop the spirit of corporate social
responsibility.

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Bajaj Allianz General Insurance Company Limited

Bajaj Allianz General Insurance Company Limited is a joint venture between

Bajaj Auto Limited and Allianz AG of Germany.

Bajaj Allianz General Insurance came into existence on 2nd May 2001, when
it got certification of Registration from the Insurance and Regulatory Development
Authority. Bajaj Auto has a share of 74%, whereas Allianz has the remaining 26%. In
the very first year, the company made a strong position for itself in the industry and
was reckoned amongst the top private insurers. The premium income of the company
as on 31st March 2006 was Rs. 1285 crores, whereas the profit after tax made was Rs.
52 crores. Bajaj Allianz has a Pan India network covering over 100 towns from
Jammu to Thiruvananthapuram and aims to spread its operations in many other cities.

The vision of the organization is to be the first choice for customers, and
provide job satisfaction to the employees and create shareholder value. The
organization strives to excel in its products and services, providing total customer
satisfaction.

Bajaj Allianz serves customers in all areas of General and Health Insurance as
well as Risk Management. It has in-depth knowledge of the local market and
extensive distribution network with expertise, stability and experience. It has a capital
base of Rs.147 crores, and is allowed to serve both the General and Health insurance.

It has achieved iAAA rating, by ICRA Limited and has the highest claims-
paying ability and a stable position in the market. In a 2006 survey, Business World
has rated it among the Most Respected Companies, putting it at No.2 position in
Insurance sector.

The Company provides the following products under general insurance:

• Travel Insurance

• Asset Insurance

• Health Insurance

• Corporate Insurance

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ICICI Prudential Life Insurance Company

ICICI Prudential is a joint venture between ICICI bank and Prudential plc,
both having strong operations in their respective countries. ICICI bank is one of the
leading banks in India providing quality financial services and Prudential is an
international financial service provider headquartered at United Kingdom. ICICI and
Prudential have respective shares of 74% and 26%. The Company started operating in
December 2000. Currently, total capital with the company is Rs. 18.15 billion.

ICICI Prudential was the first insurance company in India to receive a

National Insurer Financial Strength rating of AAA (Ind.) from Fitch ratings. It has
been given the honour of being among the Most Trusted Brands in the industry by
Economic Times for 3 consecutive years. It has a network of 450 branches, over
1,50,000 insurance advisors and 18 banc assurance partners.

As the organization grows and develops, it keeps introducing new range of

products and services and enhancing the quality of plans and solutions given to the
customers. The distribution network is one of the best, and is spreading across the
length and breadth of the country. As on December 31, 2006, it had made imprints in
over 360 cities and towns in India. It has over 1,75,000 advisors across the country,
serving clients with full commitment. It has tied up with ICICI Bank, Bank of India,
Federal Bank, Lord Krishna Bank, some co-operative banks, NGOs, MFIs and
corporates for making inroads into the rural areas.

ICICI Lombard General Insurance About the various player of life

insurance sector:

ICICI Lombard General Insurance Company Limited is a joint venture

between ICICI Bank Limited and Fairfax Financial Holdings Limited. ICICI bank is
India's second largest bank; Fairfax is Canada-based, engaged in general insurance,
reinsurance, insurance claims management and investment management. ICICI
Lombard General Insurance Company commenced its operations in general insurance
business in August 2001.

ICICI Lombard is India's number one private insurance company; it is also the
first general insurance company to be given certification of ISO 9001:2000. The

32
company provides simple and fast documentation, fast claims settlement, online
policy issuance, and comprehensive product line.

It has also been given iAAA rating by ICRA for having highest claims paying
ability. In the very first year of operations, it was able to reach financial breakeven
and achieve underwriting breakeven in the second year. Security is provided through
encryption and it is the first company to provide digitally signed documents. It has
been honored as the most Customer Responsive Company by the Economic Times.
Times of India has designated it as the Best Housing Insurance in the Smart Living
Awards by 360 degrees. It has also been awarded Gold Shield for "Excellence in
Financial Reporting". It is among the top three companies to be awarded the "General
Insurance Company of the Year" at the 10th Asia Insurance Industry Awards.

Birla Sun Life Insurance Company Limited

Birla Sun Life Insurance Company Limited (BSLI) is a joint venture between
Aditya Birla Group and Sun Life Financial Inc. BSLI started functioning in March
2001 after getting the certificate of registration from IRDA.

Birla Sun Life Insurance Company Limited introduced unit Linked Life
Insurance Solutions in India. Within a short span of time it was able to establish itself
as a leading player in the Private Life Insurance Industry. It has been innovative and
come up with customer-centric products to provide safety and services. The company
has web-enabled IT systems for better customer services and a strong distribution
channel which is easily approachable. The company shows corporate governance and
a high degree of transparency in all business practices. It has professional knowledge
and global expertise of Aditya Birla Group.

Birla Sunlife Insurance has been providing first class financial solutions to its
customers and has been amongst the top three private sector life insurance companies.
Its mission is to be amongst the top players in the eyes of customers and the
first choice of insurance and retirement solutions to individuals and groups. These
innovative solutions are linked with global and technical expertise and are deployed
by a multi channel distribution network and enhanced technology.

The company aims at keeping all people associated with it - customers, clients,
stakeholders and employees- happy and fully satisfied. It wants to provide value

33
added products and services to the customers, job satisfaction to employees and
highest returns to the shareholders.

Qualities like integrity, commitment, passion, and speed are the core values of
the company. The products offered by the company are:

TATA AIG General Insurance

Tata AIG General Insurance Company Ltd. is a joint venture between Tata
Sons and American International Group, Inc. (AIG). The Tata Group is holding 74 per
cent stake and the rest 26 percent is held by AIG. The company has got the expertise,
knowledge and strength of both the organizations.

Tata AIG General Insurance Company was founded on January 22, 2001. It
offers general insurance in various categories, such as automobile, home, personal
accident, travel, energy, marine, property and casualty and specialized financial
solutions.

Jamsetji Tata founded Tata Group in 1860s. It has an estimated turnover of

around US $ 14.25 billion. It has spread its operations in various fields such as steel,
power, hotels, airlines, software services, communications, etc. Some of its major
projects have been Tata Tea, Tata Steel, Tata Chemicals, Titan, Tanishq, Voltas,
Westside and Tata Motors. Its imprints are made on the telecommunication and
technology sector. Regarding telecommunications, it is the largest international long
distance service provider. Approximately two- third of the equity of Tata Sons is held
by a host of national institutions in science and technology, medical services and
performing arts. By combining the ethical values with business acumen and fulfilling
its commitment to the nation, it has become one of the largest groups in India.

American International Group, Inc. (AIG) is the leading international player in

insurance and financial services. Its network spreads across 130 nations. AIG member
companies serve all types of customers, be it commercial or individual. AIG is among
the leading insurers and the largest underwriter of insurance. Aircraft leasing,
financial products and trading are some of the services offered by AIG. AIG has a
global expertise of fulfilling the customer-centric needs. It has specialized investment
management capabilities in equities, fixed income, alternative investments and real
estate. AIG's stock has been listed in the New York Stock Exchange as well as stock
exchanges in London, Paris, Switzerland and Tokyo.

34
 The organization caters to individuals, small businesses and corporates.
Individual plans include motor, home, accident & health and travel insurance,
whereas corporate plans include accident & health, travel, energy, property, marine
and liability plans.

New India Assurance Company

Sir Dorab Tata founded New India Assurance Company on 23rd July 1919. It
has 1068 offices comprising of 26 regional offices, 393 divisional offices and 648
branches with more than 21,000 employees.It is one of the largest Non- Life insurers
in Afro- Asia and the first one to cross Rs. 5,000 crores of Gross Premium. It has a
global network expanding in countries like Japan, U.K., Middle East, Fiji and
Australia. Its international operations started in 1920 and have spread across 24
countries having a network of 19 branches, 12 agencies, 2 associate companies and 2
subsidiary companies. The company contributes 80% of total overseas premium in
India.The company has a highly qualified staff, which excel in both expertise and
knowledge and are trained to provide satisfaction to the customers. It is the only
company able to establish strong relationships overseas and has a record of successful
trading outside India. The performance has been outstanding and the company has
been able to maintain a strong position in the market.

It has been the pioneer in various fields such as:

• Setting up an Aviation Insurance Department in 1946.

• Handling the complete insurance requirements of the Indian Shipping Fleet.

• Introduced its own Training School.

• Pioneering the concept of 'Model Office Training'.

• Creating department in Engineering insurance.

• Satellite insurance.

The company wants to develop itself as the best general insurance company in
the industry. It is concerned about the society and community, and provides financial
security at reasonable prices. The company gives utmost importance to customer
needs and there is transparency in its operations. Some of the policies and schemes
introduced by the company are:

35
 • Public Liability Policy

• Jewellers Block Policy

• Pravasi Bharatiya Bima Yojana Policy

• Universal Health Insurance Scheme

• Fire Policy

IFFCO Tokio General Insurance

IFFCO Tokio General Insurance is a customer-centric company aiming to be

easily accessible and approachable to all sections of society. It offers products and
services that provide quality at reasonable cost. The organization has the deep
knowledge of IFFCO and thus developed a business plan that has both stability and
integrity.

It has set global standards for itself and is the only private general insurance
company in India to make 5 consecutive years of experience. ITGI has been one of
the few companies to show underwriting profits within four years of operations.
The company focuses on delivering creative solutions to its customers. IFFCO Tokio
General Insurance has 273 employees present in 68 cities, dedicated to give full
satisfaction to the customers. It is the first company to underwrite mega policies for a
fertilizer and automobile client.

The Oriental Insurance Company Ltd.

The Oriental Insurance Company Ltd. (OICL) is one of the general insurance
companies under the support of the General Insurance Corporation (GIC) of India. It
came into existence in the year 1947 and is one of the oldest organizations in India. It
caters to all sections and sectors ranging from MNCs to rural sector. The headquarters
of the company are situated at Delhi and it has 21 Regional Offices, 311 Divisional
Offices and 635 Branch offices.

It has a team of hard working employees, having the talent to take the
company to new heights. Also the company shows concern for both the employees
and customers. It provides special covers for large projects like power plants, steel
plants and chemical plants.

36
 It believes in actively participating in economic growth by being a dynamic
organization catering to the society with full commitment and efficiency. The main
objectives of the company are to serve the insurance needs of the entire community,
provide services at reasonable cost, make optimum utilization of the funds,
maintaining global standards, minimization of losses and retention of business.

HDFC Standard Life Insurance Company Limited

HDFC Standard Life Insurance Company Limited is one of the first

companies to be licensed by IRDA to operate in the Insurance sector. The company
came into existence on 14th August 2000. Both Crisil and ICRA have honored it with
AAA Ratings. Similarly Moody's and Standard and Poors have also honoured it AAA
ratings. HDFC holds 81.4% share in HDFC and the remaining 18.6% stake is with
Standard Life. It integrates the strong expertise and stability of Standard Life and
HDFC.

It is one of the most trusted companies; it is easily accessible and

approachable, offering value services to its customers.

The company aims to provide:

• Innovative products to cater to different needs of different customers

• Customer service of the highest order

• Use of technology to improve service standards

• Value for money for customers

• Increasing market share

• Professionalism in carrying out business

The values ingrained in the company are to provide financial security to

policyholders, maintain trust and keep innovating to establish it as a unique player.

37
 GOVERNMENT REGULATIONS
Insurance Regulatory and Development Authority (IRDA):

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 April 2000 has fastidiously stuck to its schedule of framing regulations and
registering the private sector insurance companies.

The other decisions taken simultaneously to provide the supporting systems to

the insurance sector and in particular the life insurance companies were the launch of
the IRDA’s online service for issue and renewal 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 insurance agents in
place to sell their products, which are expected to be introduced by early next year.

Since being set up as an independent statutory body the IRDA has put in a
framework of globally compatible regulations. In the private sector 12 life insurance
and 6 general insurance companies have been registered.

Duties, Power and Functions of IRDA:

Section 14 of IRDA Act, 1999 lays down the duties, powers and functions of IRDA.

1. Subject to the provisions of this Act and any other law for the time being in
force, the Authority shall have the duty to regulate, promote and ensure
orderly growth of the insurance business and re-insurance business.

2. Without prejudice to the generality of the provisions contained in sub section.

The powers and functions of the Authority shall include

a) Issue to the applicant a certificate of registration, renew, modify,

withdraw, suspend or cancel such registration;

b) Protection of the interests of the policy holders in matters concerning

assigning of policy, nomination by policy holders, insurable interest,
settlement of insurance claim, surrender value of policy and other terms and
conditions of contracts of insurance;.

38
 c) Specifying requisite qualifications, code of conduct and practical
training for intermediary or insurance intermediaries and agents.

d) Specifying the code of conduct for surveyors and loss assessors.

e) Promoting efficiency in the conduct of insurance business

f) Promoting and regulating professional organizations connected with

the insurance and re-insurance business.

g) Levying fees and other charges for carrying out the purposes of this
Act.

h) Calling for information from, undertaking inspection of, conducting

enquiries and investigations including audit of the insurers, intermediaries,
insurance intermediaries and other organizations connected with the insurance
business;

Insurance Regulatory and Development Authority (IRDA) Act:

The Insurance Regulatory and Development Authority Act was introduced to

end the monopoly of State-owned companies and to invest in the Insurance
Regulatory Authority power to control the insurance sector.

These powers inter aria are:

 Imposition of prudential norms such as solvency margins, capital adequacy;

 Requirements and investment guidelines for insurance companies;

 Grant of licenses to new companies, and cancellation, suspension and

withdrawal of licenses given to insurance companies;

 Regulation of fund investment by insurance companies;

 Maintenance of solvency margins;

 Adjudication of disputes between insurers and intermediaries; and

 Tariff fixing.

As per the section 4 of IRDA Act' 1999, Insurance Regulatory and

Development Authority (IRDA, which was constituted by an act of parliament)
specify the composition of Authority the Authority is a ten member team consisting of

a. A Chairman;

39
 b. Five whole-time members;

c. Four part-time members, (All appointed by the Government of India)

Regulatory Issues:

The IRDA Bill lies down that the Indian promoter must dilute the stake in the
private insurance firms from 74 per cent to 26 per cent in ten years. The bill stipulates
tough solvency margins -- Rs 500 million for life insurance firms, Rs 500 million or a
sum equivalent to 20 per cent of net premium income for general insurance and Rs 1
billion for reinsurance business.

The insurer has to maintain separate accounts relating to fund of shareholders

and policyholders. The funds of policyholders should be retained within the country
but does not cover repatriation of profits and dividends. Insurance companies under
the new regime will have to have exposure to rural and social sectors. Foreign
investment in insurance, the bill states, is crucial to financing infrastructure and better
insurance cover.

The key to success in opening up the insurance sector in India is regulation.

An example of how poor regulation can destroy a market is the mutual fund industry.
A combination of improper marketing practice has resulted in a loss of investor faith
in that industry. Incidentally, the insurance industry in India itself has gone through
the same phase.

One of the reasons for nationalization of the insurance industry (LIC in 1956
and GIC in 1973) was the mismanagement and malpractice of erstwhile private
players. But if the statements of IRA officials are anything to go by, the new
regulations are expected to be on the right track. N I Rangachary, chairman, IRA, has
already provided the timetable for the changes once the Bill is passed. The IRA has
already indicated that it will have tough norms for new participants.

This is the most compelling reason why private sector (and foreign)
companies, which will spread the insurance habit in the societal and consumer
interest, are urgently required in this vital sector of the economy.

With the nation's infrastructure in a state of imminent collapse, India couldn't

have afforded to be lumbered with sub-optimally performing monopoly insurance
companies and therefore the passage of the Insurance Regulatory & Development

40
Authority Bill on December 2, 1999 heralds an era of cautious optimism where stakes
are high for all parties concerned. For the Govt. of India, Foreign Direct Investment
(FDI) must pour in as anticipated; for foreign insurers, investments must start yielding
returns and for the domestic insurance industry - their market penetration should
remain intact. On the fringe, the customer is pondering whether all the hype created
on liberalization will actually benefit him.

Regulatory Body:

 The Insurance Act should be changed

 An Insurance Regulatory body should be set up

 Controller of Insurance (Currently a part from the Finance Ministry) should

be made independent

Investments:

• 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
(There current holdings to be brought down to this level over a period of time)

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 FISICAL REGULATIONS
Tax policy and Insurance Sector:

Another factor, which affects the insurance sector, is the tax policy. The tax
reforms in India are such that it encourages the citizens to invest in the insurance
sector.

The tax policy of the government is particular relevant for life insurance which
is a long-term contract and inculcates among the policyholders the habit of saving.
Taxation of returns on investment influences, investment decisions and high rates of
taxation will discourage the desire to save. Already in India there are complaints that
the rates of return on life policies are not what they could be. Therefore tax incentives
play a vital role in determining the attractiveness of such policies. Such tax breaks are
available in many countries and have helped in the development of their life sector. In
western countries the gain from the proceeds of a life insurance policy is paid free of
tax. Provided the policy satisfies certain qualifying conditions. Non-qualifying
policies get basic rate tax relief, though higher rate taxpayers may still have to pay tax
on the gain, although at a reduced rate. The insurance companies can use such tax
concessions rate. The insurance companies can use such tax concessions to design
products for different categories of taxpayers.

The other factors, which affect the insurance sector, are the employment law,
and government stability. These are the factors, which affect the insurance industry

Tariff Advisory Committee:

The tariff advisory committee established under the Act is empowered to

control and regulate the rates, terms, and etc. that may be offered by insurers in
respect of any risk or of any category of risks. It is provided that in fixing, amending
or modifying such rates etc. the committee shall try to ensure as far as possible that
there is no unfair discrimination between risk of essentially the same hazard and also
that consideration is given to past and prospective loss experience. Every insurer is
required to make payment to the TAC of the prescribed annual fees.

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 INTERNATIONAL SCENARIO
Life insurance not plays an important role in national economy but also in
international economy. Marine cargo insurance provides risk coverage for shippers
and the banks, which finance international trades. This role becomes all the more
important in the context of an active government policy to encourage exports. Indian
life insurer operates in more than 30 countries through agencies, branches, associates
companies. These operations earn foreign exchange.

The insurance business is concerned with North America, Western Europe,

Japan and Oceania. Together these region’s accounts for about 91 % of the world
annul remium. By region’s North America and western Europe are growing
moderately while oceanic, Latin America, eastern Europe and Africa display growth
above lone –term trends to a global context globalization of life insurance helps
companies practices underwriting discipline in one regions globalization of the
insurance industry received a big boost.

Insurance Density (Per

Insurance Penetration
Countries Capita Premiums in
(premium as a% of GDP)
USD)
United Kingdom 12.71 3028.5
Japan 8.70 3165.1

United States 4.48 1611.4

South Africa 14.04 392.9

Australia 6.04 1193.5
South Korea 9.89 935.6
India 1.77 7.6
China 1.12 9.5
Malaysia 2.13 86.4
Indonesia 0.54 4.0
Brazil 0.36 12.9

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India and the World Market:

Unfortunately, the progress achieved by the life insurance industry in India, it

compares unfavorably not just with the developed countries. But also even with the
developing world. The global market for the life insurance is estimated to be around $
1412.3 billions.

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 PORTERS FIVE-FORCE ANALYSIS
Porters fives forces model is an excellent model to use to analyse a particular
environment of an industry. So for example, if we were entering the PC industry, we
would use porters model to help us find out about:

1. Competitive Rivalry

2. Power of suppliers

3. Power of buyers

4. Threats of substitutes

5. Threat of new entrants.

The above five main factors are key factors that influence industry
performance, hence it is common sense and practical to find out about these factors
before you enter the industry. Lets look at them below.

Competitive rivalry

A starting point to analysing the industry is to look at competitive rivalry. If

entry to an industry is easy then competitive rivalry will likely to be high. If it is easy
for customers to move to substitute products for example from coke to water then
again rivalry will be high. Generally competitive rivalry will be high if:

• There is little differentiation between the products sold between customers.

• Competitors are approximately the same size of each other.

• If the competitors all have similar strategies.

• It is costly to leave the industry hence they fight to just stay in ( exit barriers)

Power of suppliers

Suppliers are also essential for the success of an organisation. Raw materials
are needed to complete the finish product of the organisation. Suppliers do have
power. This power comes from:

• If they are the only supplier or one of few suppliers who supply that particular
raw material.

45
 • If it costly for the organisation to move from one supplier to another (known
also as switching cost).

• If there is no other substitute for their product.

Power of buyers

Buyers or customers can exert influence and control over an industry in certain
circumstances. This happens when:

• There is little differentiation over the product and substitutes can be found
easily.

• Customers are sensitive to price.

• Switching to another product is not costly.

Threat of substitutes

Are there alternative products that customers can purchase over your product
that offer the same benefit for the same or less price? The threat of substitute is high
when:

• Price of that substitute product falls.

• It is easy for consumers to switch from one substitute product to another.

• Buyers are willing to substitute.

Threat of new entrant

The threat of a new organisation entering the industry is high when it is easy
for an organisation to enter the industry i.e. entry barriers are low.

An organisation will look at how loyal customers are to existing products, how
quickly they can achieve economy of scales, would they have access to suppliers,
would

46
 Government legislation prevents them or encourages them to enter the
industry. Legislation prevents them or encourages them to enter the industry.

47
 PORTERS FIVE-FORCE OF INSURANCE INDUSTRY
Competitive rivalry:

• There is cut thought competitions among rivals in life insurance industry

• There are mainly 13 private organizations and 1 public organization in life

insurance competition

• Insurance companies deal in identical policies as service levels offered are

similar

• Ministry of finance controls all the insurance companies that are in the
industry at present hence there are less chance of exit.

Power of suppliers:

 Policy designer tend to have less leverage to Brgain over premium

 Insurance is tax exempted so that suppliers bargaining power increases

 Solvency of private players is not certain

Threat of Substitutes :

 Customers deposits in their amount in to bank & post deposits &

purchase gold & silver

 Investment in government securities

 Money market investment

 Capital market investment

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Power of buyer :

 Market is highly segmented

 Insurance industry very return oriented and switches easily

 High switching cost creates buyers lock in and makes a buyers bargaining
power

 Exercise bargaining leverage over premium

Threat of new entrants:

• Life insurance industry entry barriers is moderate

• The Indian market is highly brand oriented .so it is difficult to introduce new
brand

• The acceptability of new brand is also very low

• Economies of scale is difficult to find in the initial stage of entry in to market

• Special permission is required from the government to enter in the insurance

sector

49
MARKET SHARE OF INSURANCE INDUSTRY

50
Life Insurance Industry grows 49 per cent in April

New Delhi: The life insurance industry clocked 49 per cent growth in new
businesses, while general insurance players saw 16 per cent increase in April, the first
month of the current financial year.

Strong performance by Life Insurance Corporation, ICICI Prudential and SBI

Life helped the 16 player-strong life insurance industry to mop up Rs 2,982 crore in
April this year compared with Rs 1,996 crore collected in the same month last year,
according to data compiled by the Insurance Regulatory and Development Authority.

The country’s largest life insurer, LIC, saw new premiums grow 57 per cent to
Rs 2,134 crore in April by selling 15,89,684 policies against Rs 1,355 crore a year
ago. It had a market share of 71.56 per cent in April.

Insurers Premium (Rs cr)

ICICI Prudential 271.00
Bajaj Allianz 124.00
SBI Life 90.00
HDFC Standard 70.00
Max New York Life 69.00
Tata AIG 48.00

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Aviva 39.00
Reliance Life 33.00
Birla Sunlife 28.00
Kotak Mahindra Old Mutual 26.00
ING Vysya 22.00
Met Life 19.00
Shriram Life 4.50
Sahara Life 1.70
Bharti Axa Life 0.72

LIC

LIC (Life Insurance Corporation of India) still remains the largest life
insurance company accounting for 64% market share. Its share, however, has dropped
from 74% a year before, mainly owing to entry of private players with innovative
products and better sales force.

ICICI Prudential Life Insurance Co Ltd

ICICI Prudential Life Insurance Co Ltd is the biggest private life insurance
company in India. It experienced growth of 58% in new business premium,
accounting for increase in market share to 8.93% in 2007-08 from 6.97% in 2006-07.

Bajaj Allianz Life Insurance Co Ltd

Bajaj Allianz Life Insurance Co Ltd has reported a growth of 52% and its
market share went up to 6.98% in 2007-08 form 5.66% in 2006-07. The company
ranked second (after LIC) in number of policies sold in 2007-08, with total market
share of 7.36%.

SBI Life Insurance Co Ltd

SBI Life Insurance Co Ltd in terms of new number of policies sold, the
company ranked 6th in 2007-08. New premium collection for the company was Rs
4,792.66 crore in 2007-08, an increase of 87% over last year.

Reliance Life Insurance Co Ltd

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 Reliance Life Insurance Co Ltd Total collected was Rs 2,792.76 crore and its
market share went up to 2.96% from 1.23% a year back. It now ranks 5th in new
business premium and 4th in number of new policies sold in 2007-08.

HDFC Standard Life Insurance Co Ltd

HDFC Standard Life Insurance Co Ltd with an income of Rs 2,680 crore in

FY2007-08, registering a year-on-year growth of 64%. Its market share is 2.88% and
it ranks 6 th among the insurance companies and 5th amongst the private players.

Birla Sun Life Insurance Co Ltd

Birla Sun Life Insurance Co Ltd market share of the company increased from
1.22% to 2.11% in 2007-08. The company moved to the 7th position in 2007-08 from
8the a year before, pushing down Max New York Life insurance company.

Max New York Life Insurance Co Ltd

Max New York Life Insurance Co Ltd has reported growth of 73% in 2007-
08. Total new business generated was Rs 641.83 crore as against Rs 387.51 crore. The
company was pushed down to the 8th position from 7th in 2007-08.

Kotak Mahindra Old Mutual Life Insurance Ltd

Kotak Mahindra Old Mutual Life Insurance Ltd the fiscal 2007-08, the
company reported growth of 80%, moving from the 11th position to 9th. It captured a
market share of 1.19% in 2007-08. Last year the company doubled its branch network
to 150 from 74.

Aviva Life Insurance Company India Ltd

Aviva Life Insurance Company India Ltd ranking dropped to 10th in 2007-08
from 9th last year. It has presence in more than 3,000 locations across India via 221
branches and close to 40 banc assurance partnerships. Aviva Life Insurance plans to
increase its capital base by Rs 344 crore. With the fresh investment, total paid-up
capital of the insurer would go up to Rs 1,348.8 crore.

Current Market Share of LIFE INSURANCE COMPANIES

LIC still remains the largest life insurance company accounting for 64%
market share. Mainly owing to entry of private players with innovative products and
better sales force.

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 Bajaj Allianz Life Insurance Co Ltd has reported a growth of 52% and its
market share went up to 6.98% in 2007-08. The company ranked second (after LIC)
in number of policies sold in 2007-08, with total market share of 7.36%.

ICICI Prudential Life Insurance Co Ltd is the biggest private life insurance
company in India. Accounting for increase in market share to 8.93% in 2007-08.

SBI Life Insurance Co Ltd in terms of new number of policies sold, the
company ranked 6th in 2007-08. New premium collection for the company was
Rs.4,792.66 crore in 2007-08, an increase of 87% over last year.

Reliance Life Insurance Co Ltd Total collected was Rs.2,792.76 crore and its
MARKET SHARE went up to 2.96% from 1.23% a year back.

HDFC Standard Life Insurance Co Ltd with an income of Rs.2,680 crore in

FY2007-08, registering a year-on-year growth of 64%. Its MARKET SHARE is
2.88% and it ranks 6th among the insurance companies and 5th amongst the private
players.

Birla Sun Life Insurance Co Ltd market share of the company increased from
1.22% to 2.11% in 2007-08. The company moved to the 7th position in 2007-08 from
8the a year before.

Max New York Life Insurance Co Ltd has reported growth of 73% in 2007-
08. Total new business generated was Rs.641.83 crore as against Rs.387.51 crore. The
company was pushed down to the 8th position from 7th in 2007-08.

Kotak Mahindra Old Mutual Life Insurance Ltd the fiscal 2007-08, the
company reported growth of 80%, moving from the 11th position to 9th. It captured a
market share of 1.19% in 2007-08.

Aviva Life Insurance Company India Ltd ranking dropped to 10th in 2007-08
from 9th last year. It has presence in more than 3,000 locations across India via 221
branches and close to 40 bancassurance partnerships. Aviva Life Insurance plans to
increase its capital base by Rs.344 crore. With the fresh investment, total paid-up
capital of the insurer would go up to Rs.1,348.8 crore.

54
55
 SWOT ANALYSIS
Strength

• Risk protection is provided by this sector only.

• Insurance having currently good market.

• Tax exemption.

• The variety of products is increasing.

• Insurance to build close relationship with customers.

Weakness

• Unable to convenience the people about the products.

• Insurance companies instability

• Limited working capital

• Products or services similar to competitors.

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Opportunities

• Technology is improving paperless transaction are available.

• Busy life, customer need flexible and customizable policies.

• Like mobile banking mobile insurance could be a hit.

• New innovations in technology-measuring weather variables.

Threats

• Weather cycles.

• New substitute product emerging.

• Increasing expenses and lower profit margins with hard on the smaller
agencies and insurance companies.

• Government regulations on issues like health care terrorism can quickly

change the direction on insurance.

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 CONCLUSION
Insurance sector in India is one of the booming sectors of the economy and is
growing at the rate of 15-20 per cent annum. One of the key service industry in India
would be health and education Insurance sector in India grew at a faster pace after
independence. In 1956, Government of India brought together 245 Indian and foreign
insurers and provident societies under one nationalised monopoly corporation and
formed Life Insurance Corporation (LIC) by an Act of Parliament, viz. LIC Act,
1956, with a capital contribution of Rs.5 crore.

The (non-life) insurance business/general insurance remained with the private

sector till 1972. There were 107 private companies involved in the business of general
operations and their operations were restricted to organised trade and industry in large
cities. 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.

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