Professional Documents
Culture Documents
Innovations in Insurance
Innovations in Insurance
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1.1.2 Definitions:
Fundamental Definition
In the words of D.S. Hansell, Insurance accumulates contributions of all parties
participating in the scheme.
Contractual Definition
In the words of Justice Tindall, Insurance is a contract in which a sum of money is
paid to the assured as consideration of insurers incurring the risk of paying a large sum
upon a given contingency.
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in order to improve their performance and enable them to act as independent companies
with economic motives. For this purpose, it had proposed setting up an independent
regulatory body i.e. The Insurance Regulatory and Development Authority.
Reforms in the Insurance sector were initiated with the passage of the IRDA Bill in
Parliament in December 1999. Since being set up as an independent statutory body the
IRDA has put in a framework of globally compatible regulations. The other decision
taken simultaneously to provide the supporting systems to the insurance sector and in
particular the life insurance companies was the launch of the IRDA online service for
issue and renewal of licenses to agents.
The Insurance Act, 1938 had provided for setting up of the Controller of Insurance
to act as a strong and powerful supervisory and regulatory authority for insurance. Post
nationalization, the role of Controller of Insurance diminished considerably in
significance since the Government owned the insurance companies.
The Insurance Regulatory and Development Authority Act, 1999 is an act to provide
for the establishment of an Authority to protect the interests of holders of insurance
policies, to regulate, promote and ensure orderly growth of the insurance industry and for
matters connected therewith or incidental thereto amend the Insurance Act, 1938, the Life
Insurance Corporation Act, 1956 to end the monopoly of the Life Insurance Corporation
of India (for life insurance business).
Following are some of the powers, functions and duties of IRDA:
Issue to the applicant a certificate of registration, renew, modify, withdraw,
suspend or cancel such registration.
Specifying requisite qualifications, code of conduct and practical training for
intermediary or insurance intermediaries and agents.
Specifying the code of conduct for surveyors and loss assessors.
Promoting efficiency in the conduct of insurance business.
Promoting efficiency in the conduct of insurance business; promoting and
regulating professional organisations connected with the insurance and reinsurance business.
Specifying the percentage of life insurance business and general insurance
business to be undertaken by the insurer in the rural or social sector.
Supervising the functioning of the Tariff Advisory Committee;
Exercising such other powers as may be prescribed.
of the private insurance companies have formed Joint ventures partnering well
recognized foreign players across the globe.
There are now 22 Life insurance companies operating in the Indian market. With
many more joint ventures in the offing, the insurance industry in India today stands at a
crossroads as competition intensifies and companies prepare survival strategies in a
detariffed scenario. There is pressure from both within the country and outside on the
Government to increase the foreign direct investment (FDI) limit from the current 26%
to 49%, which would help Joint ventures partners to bring in funds for expansion.
State Insurers Continue To Dominate: There may be room for many more
players in a large underinsured market like India with a population of over one billion.
But the reality is that the intense competition in the last five years has made it difficult for
new entrants to keep pace with the leaders and thereby failing to make any impact in the
market. Also as the private sector controls over 26.18% of the life insurance market a
public sector companies still call the shots. The countrys largest life insurer, Life
Insurance Corporation of India (LIC), had a share of 64% in new business premium
income in November 2009. ICICI Prudential Life Insurance Company continues to lead
the private sector with a 9% market share in terms of fresh premium.
big urban cities, but in the next few years, increased competition will drive insurers to
rural and semi-urban markets.
Global Standards: While the world is eyeing India for growth and expansion,
Indian companies are becoming increasingly world class. Take the case of LIC, which has
set its sight on becoming a major global player following Rs. 280-crore investment from
the Indian government. The company now operates in Mauritius, Fiji, the UK, Sri Lanka,
and Nepal and will soon start operations in Saudi Arabia. It has already ventured into the
African and Asia-Pacific regions in the year 2006.
With life insurance premiums being just 2.5% of GDP, the opportunities in the
Indian market place is immense. The next five years will be challenging but those that
can build scale and market share will survive and prosper.
1. Aegon- Religare
2. Aviva
3. Bajaj Allianz
4. Birla SunLife
5. Bharti- Axa
6. Future Generali
7. HDFC Standard Life
8. India First Life
9. ICICI Prudential
10. IDBI Fortis
11. ING Vysya
12. Kotak Mahindra Life
13. LIC
14. Max Newyork Life
15. Met Life
16. Reliance Life
17. Sahara India
18. SBI Life
19. Shriram Life
20. Tata AIG Life
21. DLF Pramerica
22. Canara HSBC OBC
(Source: www.irdaindia.org)
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MARKET SHARE
LIC
ICICI PRUDENTIAL
2% 2%
1% 6%
SBI LIFE
RELIANCE
3%
3%
3%
7%
9%
BAJAJ ALLIANZ
BIRLA SUNLIFE
64%
(Source: www.irdaindia.org)
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CHAPTER 2
CONTRIBUTION OF LIFE INSURANCE
INDUSTRY TO THE INDIAN ECONOMY
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1.4 billion
253 million
88.5 million
(Source: Financial Times)
Indian
Promoter
Foreign Partner
Aviva Life
Dabur
Aviva, UK
1.12%
Bajaj Allianz
Bajaj Auto
Allianz, Germany
6.12%
Birla Sunlife
Aditya Birla
Sunlife, Canada
1.84%
HDFC Standard
HDFC
Standard Life, UK
2.96%
ICICI Prudential
ICICI Bank
Prudential, UK
7.11%
Max India
1.32%
MetLife
Jammu and
Kashmir Bank
Tata Group
MetLife, US
0.40%
AIG, US
1.78%
Tata AIG
Market Share
(Source:
based on
Financial
Premium
Times)
2.2
2007-2008
2008-2009
2,80,450Cr
3,52,608Cr
4,23,000 Cr
(Source: Financial Times)
2006-2007
2007-2008
2008-2009
57,708 Cr
66,278 Cr
79,000 Cr
2007-2008
2008-2009
94,000 Cr
1,12000 Cr
1,33,000 Cr
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2007-2008
2008-2009
20,800 Cr
24,200 Cr
28,700 Cr
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Tax clubbing of various savings short term and long term into same bracket
have a bias towards short term savings.
Distinction between the short term savings and long term savings is critical
from investors point of view. More prone to inflationary pressures.
Clearly, long term savings more than 10 years deserve special consideration
under tax regime.
Life insurance companies are Capital Intensive Industry.
Total Income
Capital Employed
2007-2008
3623
4329
2008-2009
5440
6128
(Source: Financial Times)
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CHAPTER 3
POTENTIAL 0F LIFE INSURANCE BUSINESS
IN INDIA
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3.1 INTRODUCTION
Indias life insurance market has grown rapidly over the past six years, with new
business premiums growing at over 40% per year. The premium income of Indias life
insurance market is set to double by 2012 on better penetration and higher incomes.
Insurance penetration in India is currently about 4% of its GDP, much lower than the
developed market level of 6-9%. In several segments of the population, the penetration is
lower than potential. For example, in urban areas, the penetration of life insurance in the
mass market is about 65%, and its considerably less in the low-income unbanked
segment. In rural areas, life insurance penetration in the banked segment is estimated to
be about 40%, while it is marginal at best in the unbanked segment. The total premium
could go up to $80-100 billion by 2012 from the present $40 billion as higher per capita
income increases per capita insurance intensity. The average household premium will rise
to Rs 3,000-4,100 from the current Rs 1,300 as will penetration by the existing and new
players. Indias ratio of life insurance premium to its GDP is around 4 per cent against 69 percent in the developed world. It could rise to 5.1-6.2 by 2012 in tandem with the
countrys demographic profile. India has 21 life insurers and the state owned Life
Insurance Corp. of India dominates the industry with over 60 percent market share,
though private players have been growing aggressively.
Considering the worlds largest population and an annual growth rate of nearly 7
per cent, India offers great opportunities for insurers. US based online insurance company
ebix.com plans to enter the Indian market following deregulation of its insurance sector.
Online insurer ebix.com expansion into India is a major step for the company to become
a global supplier of internet-based insurance tools for consumers and insurance
professionals. In a diverse country such as India it is imperative that a universal insurance
infrastructure be created to maximize efficiency in the insurance industry. Online insurer
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ebix.com can offers the Indian market a business-to-consumer internet portal where
consumers have more choice while purchasing insurance and an internet-based agency.
Foreign holding in Indian insurance companies is limited to 26 per cent. The
government wants to increase the cap to 49 percent, but its communist allies oppose such
a move. The market is moving beyond single-premium policies and unit linked insurance
products which are easier to sell. The agency model is the dominant sales channel
accounting for more than 85 per cent of fresh premiums but overall inactivity and
attrition is much higher at 50-55 per cent than the global average of 25 per cent.
Opportunities include health insurance and pensions, the report said; adding only 1.5-2
percent of total healthcare expenditure in India was currently covered by insurance.
A life insurance policy covers ones personal self. Unlike with general insurance, it
is not like insuring a vehicle. Having said that, if we consider that Indias population is
over one billion and growing, we get a picture of the true potential of the life insurance
sector in India. LIC has been in business for 50 years now and has not covered the entire
population base yet. About 250 to 300 million Indians are still insurable. LIC has issued
about 120 million policies till now, with new premium income of US$ 1 billion. Its assets
have been estimated at $37 billion and in the last quarter it reported a 60 per cent growth
in new business. LICs business is growing at the rate of 20 per cent every year. That is
the kind of potential one is talking about in life insurance in India. It would not be wrong
to say that a lot of the advantage of advertising by new private sector insurance
companies has by default gone to LIC. While they have created a lot of awareness
through private insurers advertisements, LIC have benefited because LIC has a much
wider branch network, and buyers are surer of LIC because it has been in existence for
long; they are more comfortable about its safety. Some LIC agents continue to follow the
unethical practice of offering discounts from their commissions to new policy buyers; this
makes a difference.
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Insurance which grew 209% to Rs. 2,566 crores. The high growth has enabled SBI Life
to move into the number three positions after Bajaj Allianz Life Insurance.
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target these two specific characteristics and would span over both health and investment
domain. Insurers also feel that the women-specific insurance market is expected to grow
much faster than the overall insurance sector. No wonder, this is one domain which will
become a strong focus point for them in the near future.
3.7 AGENTS
A remarkable achievement is that Indias third largest private sector insurance
company SBI life Insurance has been ranked fifth across the world in terms of number of
Million Dollar Round Table (MDRT). Life insurance agents from India are moving fast
into the realm of global insurance. The total number of Indian agents registering with the
Million Dollar Round Table, a prestigious international trade association of insurance
agents, has more than tripled to 1,931 agents for 2007 compared with 532 in 2006. The
MDRT has a total of 35,781 qualifiers, which is 1% of the total insurance agents or
advisors in the world. Within the MDRT, there are three levels such as the basic MDRT,
the Court of Table (CoT) and Top of Table (ToT). To qualify for that MDRT, an Indian
insurance agent has to get a premium of Rs. 23.92 lakhs to his insurance company or earn
a commission of Rs. 5.98 lakhs. For the agent to qualify for the COT he has to do thrice
the MDRT business, while to qualify for the TOT; insurance agent has to do six times the
business required for the MDRT.
On the other hand IRDA has taken the first step to crack the whip on agents
misleading customers on unit-linked insurance plans. To start with, it has tightened the
norms for sale of actuarial-funded unit-linked products which are on their way out. The
Regulator intends asking customers and agents to sign illustrations on the entire gamut of
ULIP products offered by insurers. While the features of ULIPs vary from product to
product, the onus will be on agents to indicate the explanation that customers have been
given on the nature of investment. Agents will also have to give a break-up of the money
spent on various expenses. The objective is to enlarge the scope of disclosures made by
agents and such transparency will be in the interest of the entire insurance sector. IRDA
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appears to be taking the UK route to tackle mis-selling of policies. In the UK, if an agent
is accused of mis-selling, the onus is upon the insurer to prove that the policy was
explained. Similarly, insurers in India will now have to retain documentary evidence to
prove that the policy was properly explained to the insured. In the UK, the experience has
been the complaints of mis-selling emerge after a period when policyholders discover
that their investments were performing far worse than they were told to expect. Actuarialfunded products have a complex structure, where the insurance company allocates
significant sums to the policyholders account in the first year. However, these initial
allocations are notional i.e. in the form of actuarial units, which convert into real money
only in the future. The downside of such products is that there is not much balance in the
policyholders account in the initial years.
has stipulated that the total premium collected under this product between August 2008
and September 15, 2009 should not exceed the average growth in sales posted in the
previous quarter of July 31, 2008.Although ULIPs may have become popular for more
wrong reason that right ones, the segment does have its fair share of positives.
The right reasons includes multiple benefits to the customers like Life protection,
Investment and Savings, Flexibility, Adjustable Life Cover, Investment Options,
Transparency, Options to take additional cover against, Death due to accidents, Disability,
Critical Illness, Surgeries, Liquidity and Tax Planning.
The Regulator is in the process of modifying the guidelines for ULIPs so that
products with high concentration of investments will be treated as mutual funds and term
products if the proportion is tilted towards a greater risk. The reviewed is aimed at
bringing in better information, transparency standards and understanding of such
products among customers. Customers should have an idea as to what the risk and the
return in the policy are when they subscribe to them. IRDA has also proposed to make it
mandatory for insurance companies to issue sales of document with illustration as a part
of the over all policy document. This would give an idea to policyholders about the
instruments they are investing in and risks are taking. The company, in this document,
will have to explain what component actually goes towards life cover and what towards
investment. The Regulator has clarified that the policyholders in the unit-linked scheme
could remain invested in the policy for another five years after the maturity, but could not
withdraw any amount. The decision to continue with the scheme after maturity will be
purely at the option of policyholders. The objective was to ensure that the insurance
companies cannot act as a fund manager while it can only provide the option to the
policyholder for waiting for a better NAV. The Regulator has observed that the proportion
of unit linked insurance plans in the total product portfolio has gone up by 65- 70 per
cent, which ties the fortunes of the insurance company and its investors to the vagaries of
the stock market. Meanwhile, all companies are well above the solvency margin of 150%.
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The life insurance industry is growing at 30 per cent each year; its one of the fastest
growing industries in the country. Private players have captured a sizeable chunk of the
market in these six years, with the Life Insurance Corporation of Indias (LIC) share in
the new business falling to 64 per cent. The upside includes improved service, riders with
policies; unit linked insurance policies health care for as little as Rs100 per month, needfocused products with flexibility, and sales channels to suit the customers convenience.
Theres a wide range of products and services competing to deliver the best value to
customers, which has increased the market. Expansion coupled with a rapidly growing
business is the big reason for the fresh capital infusion at regular intervals. Most private
insurers have stabilized their operations in the last five years and fine-tuned their business
models. Now is the time for expansion and launching their services beyond metros and
big cities, to get the real benefits of mass business and exponential growth.
Pension and health are two areas that have tremendous growth potential in the
future. Almost 90 per cent of the people in the country have no old age benefits or health
cover. New products are launched targeting niche markets. Pension products are
developing in a big way, and will benefit a large section of people in the organized and
unorganized sector. The annuity market has also started growing, and new players are
offering a plethora of new and innovative products. Alternate channels of distribution like
corporate brokers, online selling and bancassurance are increasing their share in the
business of all the companies. Increasing the insurance sector FDI limit to 49 per cent is
the foremost issue, to provide financial flexibility to the existing players and make the
Indian market attractive for foreign investment. Also, the Fringe benefit tax (FBT) needs
to be eased, especially for group products like superannuation schemes. FBT has caused
this market to stagnate, and most companies have withdrawn this product, as companies
find it increases their costs by more than 30 per cent. Now FBT restricted to more than
Rs. 1 lakh contribution per member per year.
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The prospects for Indias insurance sector are good on the back of expected buoyant
economic growth and rising levels of wealth in society. The new insurance companies
aims to fulfill the needs of high net worth individuals, professionals, small and medium
enterprises, farmers and also rural and semi-urban masses. Private insurance ventures,
allowed to compete with state owned Life Insurance Corporation and non-life companies
beginning 2000, are trying to tap expanding demand for insurance in an economy
growing nine percent a year. The demand, which has seen annual premiums double to
more than 20 billion dollars since 2000, is being driven by the absence of a social
security system and low penetration dating back to the decades when government-owned
insurers enjoyed a monopoly.
The life insurance industry is close to eclipsing the mutual fund sector in terms of its
total investment in equities through the success of unit-linked products. The Mutual Fund
industry registered a total AUM of Rs 4.86 lakhs crores till July 2009, while the
investment in equities stood at Rs 1.59 lakhs crores. As per figures compiled by the Life
Insurance Council. Life insurers total investment in equities was close to Rs 1.5 lakhs
crores as of March 2009, while total Assets under Management (AUM) stood at about Rs
6.1 lakhs crores. As much as 75% of investments made in ULIPs get routed to the stock
markets at SBI Life. At least 60% of the funds from unit-linked products are invested in
the equity market. ULIPs are sold like hot cakes but still they are under constant scrutiny.
ULIPs have given Life Insurance market a big boost to grow and expend. The reason
behind foreign companies making a beeline to enter the insurance business in the country
is pretty obvious: Insurance in India is only 3.14 per cent of its GDP compared with the
global average of 7.52 per cent. And this is expected to rise to only 4 per cent. At present,
there are 22 companies providing life insurance in the country. In India, insurance is seen
with an improper perspective. Insurance products are sold rather than bought, as most
people do not realize that insurance is for the security and benefits of their dependants.
While the objective of life insurance is to provide a lump sum amount in the eventuality
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of untimely death of the insured, most Indians buy insurance to save taxes. This is evident
from that around 40 per cent of the insurance business of any insurer takes place in
March, which marks the deadline for submission of investment details for computation of
income-tax liabilities.
CHAPTER 4
A COMPARATIVE ANALYSIS OF POTENTIAL
OF
LIFE INSURANCECORPORATION (LIC)
AND
ICICI PRUDENTIAL
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become a household name for providing security for a lifetime and is synonymous to life
insurance in India. LIC ranks No.1 in the list of top 500 companies on the basis of Net
Worth as well as Net Profit - Dun & Bradstreet (India 500).
U
nP i e
nt s i
po l n
pa l a
nn ss
S p
e c i
a l
pI nl as
un rs a
n c
e
p l a
n s
W
i
t h dP
r a o
w nu
p l sa
n sL
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r
d
c t
o f
I
LIC provides all types of products ranging from normal insurance plans to that of
ULIPs and Withdrawn plans. They offer various ranges of products to Childrens, Senior
citizens, Corporate, High worth individuals, Special policies for women and even for
married couples. They have different pension plans, Group schemes and even
Endownment Insurance plans.
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Intense competition from new insurers in winning the consumers by multidistribution channels, which will include agents, brokers, bank branches, and direct
marketing through telesales and interest, is also a challenge for LIC.
Major challenges in canalizing the growth of insurance sector are product
innovation, distribution network, investment management and customer services.
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ICICI Prudential has recruited and trained about 56,000 insurance advisors to
interface with and advise customers. Further, it leverages its state-of-the-art IT
infrastructure to provide superior quality of service to customers. Today the total market
share of ICICI Prudential is 9% of the total life insurance industry and the largest private
sector Life insurance company in India. In June, 2009 ICICI Prudential Life Insurance
has decided to snap its tie up with TTK Healthcare to settle insurance claims of its users.
4.2.3 Values:
Every member of the ICICI Prudential team is committed to 5 core values: Integrity,
Customer First, Boundaryless, Ownership, and Passion. These values shine forth in all
they do, and have become the keystones of their success.
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H e a lth
P ro d u c
t s u ite
P e n s io n a n d
R e tire m e n t
s o lu tio n s
G ro
up
p la
ns
L ife
In su ra n
ce
p la n s
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P ro d u c ts
o f IC IC I
P ru d e n tia l
The biggest challenge for the company today is to understand the customer better
which will enable company to design appropriate products, determine price
correctly and increase profitability.
ICICI
Prudential
has
overstaffing
and
with
the
introduction
of
full
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If we look at the financial performance the company has sold over 10 million
policies and crossed Rs. 28,000 crore in assets held during last nine years of its operation.
The company continued its strong performance with retail new business weighted
premium of Rs. 6,684 crores, registering 68 per cent growth over last year. The company
has tripled its branch network to 1960 branches in 1665 cities across the country
including over 1000 branches in rural segments in 2009-10. The total premium income of
the company jumped by 71 per cent to Rs. 13,561 crore from Rs. 7,913 crore in 2008-09.
The last financial year we saw increase in their distribution network and strength their
service infrastructure and continued to introduce innovative products in health, retirement
and wealth creation space, has created a great potential for the company to grow in the
Indian market.
Further, the company having released advertising campaign through print, outdoor
and radio, the company has also recently released a new advertising campaign through
the electronic media for promoting their various policies. The Company recently tied up
with the Forbes Six Sigma rated Dabbawalla organization in Mumbai for a direct
marketing exercise. In a Unique effort to create awareness about a tax saving product, the
company attached a creative of a bitten apple to Mumbais ubiquitous lunchboxes. It
worked wonderfully with Mumbais office-goers and one that translated into substantial
business for the company. Being a number one private life insurer with a market share of
9%, ICICI Prudential is fast emerging to serve its customers and provide excellent
customer service to increase their profits and maintain their stability in the Indian market.
The potential of LIC and ICICI Prudential can be compared based on the following
considerations:
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LIC
2008-09
2009-10
127,822
149,789
7913
13,561
ICICI Prudential
The total premiums collected by LIC for the year ended 2009-10 were Rs. 149,789
crores as compared to that of ICICI Prudential was Rs 13,561 crores, is quite high. ICICI
Prudential has collected more premiums if we compare with other private life insurers.
LIC
ICICI Prudential
2008-09
2009-10
174,425
206,363
16,860.48
16,212.02
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The total income of LIC for the year ended 2009-10 was RS. 206,363 crores as
compared to that of ICICI Prudential which was Rs. 16,212 crores. All over Income is
much more than of ICICI Prudential due to the fact that LIC being a government agency
is being trusted by lot of companies and has large number of shares in big corporate.
2008-09
2009-10
LIC
2301
2522
ICICI Prudential
1645
1960
When the matter of total number of branches comes its very much obvious that LIC,
being the oldest existing insurance company in India, has the large number of offices in
the country by any single insurance company.
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LIC
RELIANCE
ICICI PRUDENTIAL
BAJAJ ALLIANZ
6%
2% 2% 1%
3%
3%
3%
HDFC STANDARD LIFE
7%
9%
KOTAK MAHINDRA
OTHERS
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BIRLA SUNLIFE
64%
SBI LIFE
(Source: www.irdaindia.org)
LIC is still the market leader in insurance industry with 64 % share. But we cannot
forget that in last five years market share of LIC has decreased. It was 73.9 % in year
2003-04 which came down to 64 % in 2009-10.
2009-10
LIC
30.76 million
51.23 million
ICICI Prudential
8.12 million
10.23 million
LIC is an undoubted leader in the field of average number of policies per year in the
last five years. It is seen that private insurance companies are gaining momentum and are
trying to defeat LIC in case of new insurances. Main reason behind LIC having such a
large number of policies is the trust of a common man. LIC being a government agency
has got a faith of Indian mass. People are not yet prepared to give their savings in the
hands of private players.
Thus from the above facts and figures it is seen that LIC is the clear market leader in
the life insurance business while ICICI Prudential is trying to compete LIC in some
aspects of the business. Thus the potential of LIC in Indian Life Insurance Industry is
comparatively more than six times higher than that of ICICI Prudential.
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