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Emerging Trends in Insurance Sector PDF
Emerging Trends in Insurance Sector PDF
sector
ACKNOWLEDGEMENT
The success of this final report is the outcome of Guidance
and valuable suggestions provided by all the concerned
without whom the report could not fide on the right back.
I would like to express my sincere gratitude to Coordinator
and Guide MRs Mahek Mansuri for giving me an opportunity
to do this project work.
I express my sense of deep gratitude to. Facultys supervisor of
S.K Somaiya COLLEGE, for inclusions and timely suggestions
in the preparation of this final report. Finally, I will be failing
in my duty, if I do not thank my parents, brother & friends
and well wishers for their enthusiastic support and who have
directly or indirectly helped in some way or the other in
making this final report a success.
PREFACE
Whether the insurer is old or new, private or public,
expanding the market will present multitude of challenges and
opportunities.
But
the
key
issues,
possible
trends,
procedures
hampers
nationalized
insurers.
Contents
Sr. No.
1.
1.1
1.2
1.3
1.4
2.
2.1
2.2
2.3
2.4
2.5
2.6
3.
3.1
4.
4.1
5.
Subjects Covered
Project Proposed
Objective of the project
Methodology
Sampling
Limitations
Introduction
Introduction to insurance
Definition of insurance
Pre liberalization of insurance
Post liberalization of insurance
Trends in Insurance Sector
Indian Insurance in 21 Century
Emerging Trend in Indian Insurance Sector
Growth of Insurance Sector
Present Scenario of Insurance Sector in India
Technology Trend in Insurance Sector
Globalization of Life Insurance Market
Impact of Budget on Insurance Sector
Impact of Budget 2004
Private V/S Public Insurance Sector
Comparison between private and Public
Insurance sector In India
Company Analysis of LIC& ICICI Prudential
Pages
40 - 42
43 - 46
47 - 52
7.
53 - 62
63 - 69
70 - 71
8.
72 - 91
92
Scope of the
Study
Methodology
Used
Objective
Of the
Study
Design of
the Study
Limitation
Objective
The project was conducted after taking into consideration the
changing face of the life insurance sector. The objective for
conducting this project was
Scope
The project gives brief description of the following
What is insurance?
Effect of liberalization
Limitation
Life
sector
RESEARCH METHODOLOGY
Information Research
Secondary data
collection
Primary data
collection
Personal
interview
Internet
Mr ashsish shukla
Insurance agent
(LIC )
Mr parvinder
singh
Insurance agent
(ICICI Prudential)
Literature
study
Books on insurance
agency
Various
insurance
magazines
EXECUTIVE SUMMARY
The huge and ever rising population levels in out country
provide an attractive opportunity for the global insurance majors
to seek their fortunes here. That is the reason why we find so
many private players today competing with LIC the only life
insurer prior to liberalization of out economy, for insuring Indian
lives. In spite of the loud noises made by the various companies
vying for a slice of the large Indian Insurance pie, the irony is
that even today not more than 20% of the population of out
country is aware about the very basic concepts regarding Life
Insurance. This is the precisely the reason why we see a
mandatory tag today with every advertisement that advertises
for a insurance product, that goes INSURANCE IS THE
SUBJECT
MATTER
OF
SOLICITATION. The
INSURANCE
Chapter 1
Introduction to
Insurance
INSURANCE
GENERAL
INSURANCE
LIFE
INSURANCE
Fire
insurance
Marine
insurance
Mediclaim
Motor
vehicle
Insurance helps to
DEFINITIONS
12
Functional definition
Insurance is a co-operative device to spread the loss caused by a
particular risk over a number of persons who are exposed to it and
who agree to insure themselves against the risk.
General Definition
Insurance has been defined to be that in which a sum of money as a
premium is paid in consideration of the insurers incurring the risk of
paying a large sum upon a given contingency.
In the words of John Magee, Insurance is a plan by
themselves which large number of people associate and transfer to
the shoulders of all, risks that attach to individuals.
Fundamental Definition
13
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.
Working of Insurance
14
Pre-Liberalization Scenario
Indian History: Time to turn the clock back-and open up insurance
16
17
18
Chapter 2
Trends in Insurance
Sector
19
mode
2007: First Online Insurance portal, https:/// set up by an Indian
Insurance Broker, Bonsai Insurance Broking Pvt Ltd.
The Government of India liberalized the insurance sector in March
2000 with the passage of the Insurance Regulatory and Development
Authority (IRDA) Bill, lifting all entry restrictions for private players
and allowing foreign players to enter the market with some limits on
direct foreign ownership.
Minimum capital requirement for direct life and Non-life Insurance
company is INR1000 million and that for reinsurance company is INR
2000 million. In the 2004-05 budgets, the Government proposed for
increasing the foreign equity stake to 49%, this is yet to be effected.
Under the current guidelines, there is a 26 percent equity cap for
foreign partners in direct insurance and reinsurance Company.
20
21
23
More competitive
24
25
Growth of Insurance
GROWTH OF LIFE INSURANCE SOME FACTS (MAY
2008):
HOW THEY STACK UP
Premium income of life insurers in Rs crore
April - June
LIC
ICICI Prudential
Bajaj Allianz
SBI Life
HDFC Standard
Max New York
Reliance Life
Birla Sun Life
Total Private
Total Market
2007
8580.84
1056.45
731.85
426.39
355.93
289.74
204.10
174.63
3930.95
12511.80
2008
7524.56
1,590.27
829.24
1,148.67
490.40
501.16
557.33
501.53
6,795.64
14,320.20
Growth
%
26
-12
51
13
169
38
73
173
187
73
14
Total
Share (%)
52.55
11.11
5.79
8.02
3.42
3.50
3.89
3.50
47.45
100.00
in
the
late
1990s,
in
accordance
with
the
27
the GDP, of the country, the gross premium collection has been
hardly 2% of the GDP, not withstanding its growth between 15-20%
annually, during the decade preceding the opening up of insurance
market for private and foreign players in the year 2000. As the
insurance premium database of various developed and developing
countries for the year 1999 indicates, the per capita premium of India
was just around $ 8 as against the same having been very high in the
developed countries. In other words, and in terms of percentage of
GDP, it was 14% for Japan, 12% for Korea and 9% for UK as against
the same staggering below 2% for India for the fiscal year 2000-2001.
In the new economic reality in globalization, insurance companies in
21st century face a dynamic global business environment. Radical
changes are taking place owing to the internationalization of
activities. The appearance of new risks, new types of cover to match
with new risk situation, unconventional and innovative ideas on
customer service, low growth rates in developed markets, changing
customer needs and the uncertain economic conditions in the
developing world are exerting pressure on insurers resources while
testing their ability to survive. The existing insurers are facing
difficulties from non-traditional competitors that are entering the retail
market with new approaches and through new channels. The basic
premise of globalization is opening up of new service markets to
provide the developing countries with new opportunities for the
expansion of trade and economic growth.
28
29
Computerization:
Initially, in the late 1950s the insurance companies used Unit
Record Machines (Electro Magnetic Machines) to process data
punched into cards. Computers were introduces in the mid 1960s
and by the 1980s the Unit Phased Machines were phased out and
the entire process was computerized. This brought about greater
efficiency and quick service delivery
Internet:
30
like
LIC
(www.licindia.com),
ICICI
31
Almost all the insurance companies have their own call centres
which cater to the phone based queries of the policyholders. This
service is 24x7 and they have the Interactive Voice Response (IVR)
systems at all the branches
32
Significantchannelfor
householdsavingsintocapital
formation
2ndlargest
financialservice
inIndiaafter
banking
GDPpenetration
of4.1%
LifeInsurance
Statutory
requirementsto
providereach
toruralareas
TotalAssetsUnderManagement
ofLifeInsuranceCos.ason
March31,2008Rs.8,50,000
Totalnumberof
livesinsuredand
onbooksason
March31,2008
customers
were
under-
insured
with
no
flexibility
or
products,
smart
marketing
and
aggressive
34
35
Chapter 3
Impact of Budget
on Insurance Sector
banking The Finance Bill has some brilliant promises to offer and yet
there are adverse to the financial service sector.
The decision to permit 49 per cent foreign direct investment (FDI) in
insurance is welcome. The industry will agree that there is an acute
need for it to grow and to write more business. If one were to analyze
the growth of some new private sector insurance players the
underlying strength seems to be their ability to get more capital and
meet the solvency requirement perform, write more business and
grow faster. Lets not forget that these insurance companies will be
able to tap the capital market in two to three years.
The best performer in the sector have also expanded their capital to
about Rs. 700 to 800 crore. A look at the non performers suggests
that they do not have adequate capital to grow. Hence the increase in
the FDI limit would help. More importantly, this will give greater
control to the foreign partners in areas of management control and
governance. They will now be more willing to bring in their expertise
in product development, technology, and implement best practices.
The striking future of the Finance Bill is that the government has
accepted defined contribution as the way forward for pension
reforms, particularly for new government employees.
One could have expected some clarity on the subject of multiple
regulators for pension. Though there be some benefits having a
separate pension regulator, one supposes that there would be a
strong case for just one regulator both the pension and insurance
sectors. The government must examine the confusion that may arise
on account of having multiple regulators.
37
38
Chapter 4
40
"Our
bancassurance
channel--with
tie-ups
with
four
banks--
contributes almost 70 per cent of our total sales," says Aviva CEO
Stuart Purdy.
OM Kotak Mahindra Life, which is ranked eighth among private
players, is also leaning towards alternative distribution channels that
will contribute to 45 per cent of total sales, in line with the contribution
from its tied agency force.
In sharp contrast, most of the LIC's policies continue to be sold
through
its
tied-agency
network.
The
state
life
corporation
selling life policies on the back of fixed deposits and bonds. A senior
company official cites the example of Vijaywada where a significant
portion of the income is derived from farming activities.
"The rural populace is managing their money well and no longer
keeping it under their beds. They have mobile phones and have
opened bank accounts. They are not very different from their urban
counterparts when it comes to purchasing life insurance covers," he
points out.
And that's making the private sector optimistic about its future in the
Indian insurance market. "We [private insurers] are becoming an
alternative to LIC. If a customer has already bought an LIC plan, his
second policy is likely to be bought by the private insurance sector on
account
of
various
reasons--more
specifically
flexibility
and
42
But it's not the increased spend on advertising alone that has helped
private players in grabbing market share. One of the key differential
factors responsible for their growing market is the 150,000-odd life
insurance advisors of the private insurance companies.
"The private insurance agents sell better than their counterparts at
the LIC. Life insurance advisors of private sector insurance
companies adopt the need-based selling approach, unlike the LIC's
agency force that pushes the number of policies," says Dam.
This also gets reflected in the average sum assured by private
insurance companies being higher than that of the LIC. Policies sold
by the private players tend to be of a higher value.
For instance, Birla Sun Life's average premium stands at Rs 24,500,
while that of OM Kotak Mahindra Life is equally high at Rs 20,400.
Against this is the LIC's average premium of Rs 3,200.
Of course, there's also a difference in the target client of the private
and the state-run insurance companies. While the private players are
targeting the upper middle-class and high net-worth individuals, the
LIC aims for the masses through its 2,048 branches spread
across semi-rural and rural towns.
Meanwhile, private insurance companies are capitalizing on global
relationships. "Business deals are often a call away since we
capitalize on AIG's global relationship with multinational companies
such as GE and Kodak," says Tata AIG Life Ian Watts.
43
OM Kotak has gone a step further and tied up with Swiss Life
International so that it can capitalize on the latter's relationship with
300 multinational subsidiaries and affiliates.
But it's not as if LIC has lost out on group insurance. The insurance
major's group business reached new heights in fiscal 2004, recording
a 119 per cent growth in new premium income and 50 per cent
increase in the number of lives covered.
Still, new business income for private companies has grown at 146
per cent in fiscal 2004, compared to the 18 per cent average industry
growth in new premium income for the same period.
"The key in product sales lies in offering unbundled and transparent
products that give customer value," points out Dam.
The biggest draw in insurance in fiscal 2004 was unit-linked plans.
Ninety-five per cent of the policies sold by Birla Sun Life and over 80
per cent of the 436,000 policies sold by ICICI Prudential were unitlinked plans.
And even though the LIC was late (January 2004) in pushing its unitlinked product "Bima Plus", it managed to mop up a premium income
of Rs 373 crore (Rs billion) with the sale of just under 1.7-lakh unitlinked policies, the highest sales figure in the industry.
The advantage with unit-linked plans is that they offer policyholders
transparency in terms of costs, annual returns and bonus
calculations. With many companies guaranteeing the capital
44
investment (some like Birla Sun Life even guarantee 3 per cent
assured returns on its unit-linked plans), the interest in unit-linked
plans only increased.
And the switch from traditional products to unit-linked plans gained
momentum as the Sensex climbed higher: the returns on such
policies are linked to the equity market.
"The stock market has helped to a certain extent and has contributed
to our growth and performance," agrees Birla Sun Life CEO Nani
Javeri.
Aviva has shown a compounded aggregate growth rate of 36 per
cent since the inception of its fund. Returns on OM Kotak's
balanced and growth funds stand at 31.79 to 43.25 per cent
respectively.
Dam claims that OM Kotak has sold several policies of Rs 25-50 lakh
(Rs 2.5-5 million) since the "savvy investor thinks it best to invest in
unit-linked products." He adds: "Growth is coming faster in insurance
companies with unit-linked plans."
Chapter 5
45
Company Profile of
LIC & ICICI
Prudential
COMPANY PROFILE
46
48
49
Mission
"Explore and enhance the quality of life of people through financial
security by providing products and services of aspired attributes with
competitive returns, and by rendering resources for economic
development."
Vision
"A trans-nationally competitive financial conglomerate of significance
to societies and Pride of India."
Goals
practices
and
products
to
meet
the
50
51
52
ICICI GROUP
53
VISION
To be the dominant Life, Health and Pensions player built on trust by
world-class people and service
VALUES
Very 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 we do, and have become the
keystones of our success
54
(PENINSULAR)
(HIMALAYAN)
Sales Head
55
Market Share
22%
8%
70%
56
LIC
ICICI Prudentail
Others
Chapter 6
Product Offered By
LIC & ICICI
Prudential
57
Children plan
Endowment Policy
58
59
Special Plans
LICs Special Plans are not plans but opportunities that knock on
your door once in a lifetime. These plans are a perfect blend of
insurance, investment and a lifetime of happiness!
60
Term Policy
Term Assurance
Unit Plans
Unit plans are investment plans for those who realise the worth of
hard-earned money. These plans help you see your savings yield rich
benefits and help you save tax even if you don't have consistent
income.
Market plus
Profit plus
Fortune plus
Money plus
Features
LICs Jeevan Aastha is a single premium assurance plan which offers
guaranteed benefits on death and maturity. The Plan is close ended
and would be available for a maximum period of 45 days from the
date of its launch i.e. 08.12.2008
Premium rates
Specimen Single Premium rates per Rs.1000 Basic Sum Assured for
some of the ages are as under:
Age at
entry
20
30
40
50
5 years
174.50
174.70
176.10
180.85
10 years
165.00
165.40
167.95
175.90
63
The ideal insurance plan is one that addresses the exact insurance
needs of the individual that will depend on the age and life stage of
the individual apart from a host of other factors.
Protection Plans
LifeStage Pension
ForeverLife
64
Hospitalisation Plans
MediAssure
Hospital Care
Crisis Cover
Cancer Products
Cancer Care
Diabetes Products
Diabetes Assure
Retirement Solutions
ICICI PRUDENTIAL Provide a wide range of retirement plans and
they are as follows
65
LifeStage Pension
ForeverLife
Immediate Annuity
Group Plans
ICICI Prudential offers a suite of group insurance plans that are as
follows:
Group Plans
66
67
69
Features
Jeevan Suraksha-I
Forever Life
Age at entry
18- 60 years
Deferment period
2 - 35 years
Vesting age
Minimum single
Rs. 10,000
----
RS 2500
----
premium
Mode of premium
payment
Minimum amount of
annual premium
Mode of annuity
payment
Tax benefits
Choice of retirement
monthly
Tax benefits u/s 80CCC(I) for
Suraksha I.
date
of 70 years of age.
This option gives annuitant
the flexibility to buy a pension
from any other Company of his
choice.
Chapter 7
70
Innovation Strategy
and IT in LIC
&
ICICI Prudential
71
It basically means that the Company should keep the promises made
to the Customer before or at the time of service provision i.e. the
Company should fulfill its commitments.
LIC makes sure that none of the Agents provide any kind of wrong
information or false promises to its customers which mislead them.
LIC ask their Agents to give reasonable commitments so that they
could be fulfilled by the Company or the Agent on behalf of the
Company.
Follow Up:
73
executed and the External part would be to get feedback from the
customer whether he is satisfy
Complaint Handling
74
Awarness:
Intrest:
Evaluation:
innovation or not.
4.
Trial:
Adoption:
IT in LIC
In todays world, IT is a must for any industry to keep pace with the
customers changing expectations. This is especially relevant in the
service industry. The insurance sector has to ensure that the
technology it chooses does not lag behind where customer
expectations are concerned.
LIC has more than 16 crore policy holders. So it has to induct the
best IT products available and use them to cater to the needs of the
75
IT in ICICI Prudential
The Information technology function at ICICI Prudential is committed
to enable a business through the use of technology. It is segmented
into 4 groups to enable highest level of delivery of customer. Life Asia
Solution Group that provide flexibility in designing better product
offering to end user, the solution group- Web that provide real time
information to customer and is responsible for customer relationship
management, IT Architecture & corporate solution group is in charge
of developing and marinating a blue print for the IT architecture for
the enterprise as whole. This team work as an in house R&D solution
group, exploring new technological initiatives and also caters to
information needs of corporate function in the organization. IT
76
robust,
scalable
and
highly
available
Chapter 8
77
platform
for
Emerging Trend
in LIC & ICICI
Prudential
78
Futuristic Approach
Till today, LIC enjoyed a monopoly. It is now that reality exists in the
are of marketing (i.e. sales and after sales service operations). It will
79
Customer Orientation
design,
service
procedures,
relationship
convinience,
Television
80
Gifts
LIC provides diaries, pens, booklets, etc to its customers
Hoardings
LIC put its hoardings where there is a mass flow of people,
especially outside the railway station or at the backside of the bus.
81
82
Radio:
ICICI Prudential advertises on 92.5 red Fm
Television
83
Seminars
Chapter 7
84
Impact of
financial Crisis on
LIC
performance
will
it
affect
the
ratio?
Total premium growth of LIC has always been quite stable, even
when there are periodical ups and downs in new premium income.
Last year, LIC ended the year with around 10% growth in First
Premium income despite several odds. However, the growth in total
premium income was quite healthy, indicating better conservation
ratio.
LIC overall expense ratio is the least in the industry. Last year, was
only 11.94%, and it was just 5.56%, excluding the commission. The
surplus generated was a record high of Rs 16,598.65 crore, which
enabled
It is not accurate to say that LIC has reached its saturation point in
terms of distribution, as they are expanding their reach and network.
Other insurers are perhaps expanding very fast and the effect is
reflected in their balance sheets. LIC do have constraints of capital
and any growth has to be supported by internal accruals only.
Hence, LIC follow the policy of steady and profitable growth and
distribute 95% of surplus to their with profit policyholders. Such a
practice makes our products better. And sure, this will, in the long run,
determine who becomes winner in the life insurance market in India
How do you propose to comply with IRDAs decision to cap single
company
exposure
at
10%
of
companys
capital?
First of all new regulations are not only about equity exposure, but
encompass several other aspects too. Second, these norms are not
just LIC-centric, but applicable to the whole industry. LIC total assets
of more than Rs 8-lakh crore are their legacy built on the basis of
earlier
regulations
and
norms
under
the
Insurance
Act.
norms
have
several
changes
from
the
earlier one and we are working on them and are in touch with IRDA
where
LIC
have
87
problems.
Will the exposure limit force LIC to divest in blue chips and invest in
companies
that
have
lower
credit
rating?
CONCLUSION
Competition will surely cause the market to grow beyond
current rates, create a bigger "pie," and offer additional consumer
choices through the introduction of new products, services, and price
options. Yet, at the same time, public and private sector companies
will be working together to ensure healthy growth and development
of the sector. Challenges such as developing a common industry
code of conduct, contributing to a common catastrophe reserve fund,
and chalking out agreements between insurers to settle claims to the
benefit of the consumer will require concerted effort from both
sectors.
The market is now in an evolving phase where one can expect a lot
88
Bibliography
Life-Insurance , by Mc GILL
Insurance in India
Important Website
www.iciciprudential.com
www.licindia.com
www.scribd.com
Newspaper
Times of India
89
90