PART A

SECONDARY
DATA
ANALYSIS
1. OBJECTIVES OF THE STUDY

The main objectives of the study were as follows:

1. To understand the concept of Insurance and Life Insurance
in particular.
2. To appreciate the Legislative and Regulatory framework
which influence the Life Insurance Business in India.
3. To identify the various Life Insurance Products and
Services of LIC of India and ICICI Prudential Life Insurance
Company.
4. To test the perception of the customers regarding shifting
towards ICICI Prudential Life Insurance Company from
LIC, as hypothesis of the research study.
5. To find out the diverse customer needs and to inculcate
their behavioral traits.
6. To compare Life Insurance Corporation of India (LIC) and
ICICI Prudential Life Insurance Company and arrive at
trends.
7. To predict the future trends in the Indian Life Insurance
Industry.

2. EVOLUTION OF INSURANCE
Life is full of risks. Being a social animal and risk
averse, man always tries to reduce risk. An age-old method
of sharing of risk through economic cooperation led to the
development of the concept of insurance.
Insurance may be described as a social device to
reduce or eliminate risk of loss to life and property. Insurance
is a collective bearing of risk. Insurance spreads the risks
and losses of few people among a large number of people as
people prefer small fixed liability instead of big uncertain and
changing liability. Insurance is a scheme of economic
cooperation by which members of the community share the
unavoidable risks. The risks which can be insured against
include fire, the perils of sea, death, accidents, and burglary.
The members of the community subscribe to a common pool
or fund which is collected by the insurer to indemnify the
losses arising out of risks.
Insurance cannot prevent the occurrence of risk but it
provides for the losses of risk but it provides for the losses of
risk. It is a scheme which covers large risks by paying small
amount of capital. Insurance is also a means of savings and
investment.
DEFINING INSURANCE :Insurance can be defined as a legal contract between two
parties whereby one party called insurer undertakes to pay a
fixed amount of money on the happening of a particular
event, which may be certain or uncertain, the other party
called insured pays in exchange a fixed sum known as
premium. The insurer and the insured are also known as
Assurer, or Underwriter, and Assured, respectively. The

document which embodies the contract is called the Policy.

Insurance business is divided into four classes: 1. Life
Insurance 2. Fire Insurance 3. Marine Insurance and 4.
Miscellaneous Insurance.
PRINCIPLES OF INSURANCE :1.
2.
3.
4.
5.

Principle
Principle
Doctrine
Principle
Principle

of
of
of
of
of

utmost good faith.

Indemnity.
Subrogation.
Causa Proxima.
insurable interest.

1. Principle of utmost good faith :It means maximum truth. All material information
regarding the subject matter of insurance should be
disclosed by both the parties-the insurer and the insured.
This duty of full disclosure rests more heavily on the insured
than the insurer. The insurer has the right to avoid the
contract if the insured fails to make the full disclosure.
2. Principle of indemnity :This means that if the insured suffers a loss against
which the policy has been made, he shall be fully
indemnified only to the extent of loss. In other worlds the
insured is not entitled to make a profit on his loss.
3. Doctrine of subrogation :This means the insurer has the right to stand in the
place of the insured after settlement of claims in so far as
the insureds right of recovery from an alternative source is
involved. The right may be exercised by the insurer before
the settlement of the claim. In other worlds, the insurer is
entitled to recover from a negligent third party any loss

payments made to the insured. The purposes of subrogation

are to hold the negligent person responsible for the loss and
prevent the insured from collecting twice for the same loss.
4. Principle of causa proxima :The cause of loss must be direct and an insured one in
order to claim for compensation.
5. Principle of insurable interest :The assured must have insurable interest in the life or
property insured. Insurable interest is that interest which
considerably alters the position of the assured in the event
of loss taking place and if the event does not take place, he
remains in the same old position. One who has to lose as a
result of loss may be said to have insurable interest in the
life or property insured. If this principle is absent, the
insurance contract degenerates into a wagering contract. It
is taken as given that an individual has insurable interest in
his/her own life or property. Cases of no proof of insurable
interest is required are that of a husbands interest in his
wifes life and wifes interest in her husbands life. In cases of
business and family relationships, proof of insurance interest
is required.
HISTORY OF INSURANCE :The story so far
Almost 4,500 years ago, in the ancient land of
Babylonia, traders used to bear risk of the caravan trade by
giving loans that had to be later repaid with interest when
the goods arrived safely. In 2100 B.C., the Code of
Hammurabi granted legal status to the practice. That,
perhaps, was how insurance made its beginning.
5

Life insurance, on the other hand, had its origins in

ancient Rome, where citizens formed burial clubs that would
meet the funeral expenses of its members as well as help
survivors by making some payments.
As European civilization progressed, its social
institutions and welfare practices also got more and more
refined. With the discovery of new lands, sea routes and the
consequent growth in trade, Medieval guilds took it upon
themselves to protect their member traders from loss on
account of fire, shipwrecks and the like.
Since most of the trade took place by sea, there was
also the fear of pirates. So these guilds even offered ransom
for members held captive by pirates. Burial expenses and
support in times of sickness and poverty were other services
offered. Essentially, all these revolved around the concept of
insurance or risk coverage. That's how old these concepts
are, really.
In 1347, in Genoa, European maritime nations entered
into the earliest known insurance contract and decided to
accept marine insurance as a practice.
The first step
Insurance as we know it today owes its existence to
17th century England. In fact, it began taking shape in 1688
at a rather interesting place called Lloyd's Coffee House in
London, where merchants, ship-owners and underwriters
met to discuss and transact business. By the end of the 18th
century, Lloyd's had brewed enough business to become one
of the first modern insurance companies.
Insurance and Math
Back to the 17th century, in 1693, astronomer Edmond
Halley constructed the first mortality table to provide a link
6

between the life insurance premium and the average life

spans based on statistical laws of mortality and compound
interest. In 1756, Joseph Dodson reworked the table, linking
premium rate to age.
The first stock companies to get into the business of
insurance were chartered in England in 1720. The year 1735
saw the birth of the first insurance company in the American
colonies in Charleston, SC.
Companies enter
In 1759, the Presbyterian Synod of Philadelphia
sponsored the first life insurance corporation in America for
the benefit of ministers and their dependents. This was
followed by the formation of Fire Insurance Corporations, first
in New York City (1787) and then in Philadelphia (1794).
However, it was after 1840 that life insurance really
took off in a big way. The trigger: reducing opposition from
religious groups.
The growing years
The 19th century saw huge developments in the field of
insurance, with newer products being devised to meet the
growing needs of urbanization and industrialization.
In 1835, the infamous New York fire drew people's
attention to the need to provide for sudden and large losses.
Two years later, Massachusetts became the first state to
require companies by law to maintain such reserves. The
great Chicago fire of 1871 further emphasized how fires can
cause huge losses in densely populated modern cities. The
practice of reinsurance, wherein the risks are spread among
several companies, was devised specifically for such
situations.

There were more offshoots of the process of

industrialization. In 1897, the British government passed the
Workmen's Compensation Act, which made it mandatory for
a company to insure its employees against industrial
accidents.
With the advent of the automobile, public liability
insurance, this first made its appearance in the 1880s,
gained importance and acceptance.
In the 19th century, many societies were founded to
insure the life and health of their members, while fraternal
orders provided low-cost, members-only insurance.
Even today, such fraternal orders continue to provide
insurance coverage to members as do most labour
organizations. Many employers sponsor group insurance
policies for their employees, providing not just life insurance,
but sickness and accident benefits and old-age pensions.
Employees contribute a certain percentage of the premium
for these policies.
In India
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 to nationalize the
life assurance business in India. The Life Insurance
Corporation of India was set up in 1956 to take over around
250 life insurance companies.
For years thereafter, insurance remained a monopoly of
the public sector. It was only after seven years of
deliberation and debate - after the R N Malhotra Committee
report of 1994 became the first serious document calling for
the re-opening up of the insurance sector to private players
-- that the sector was finally opened up to private players in
2001.
The Insurance Regulatory & Development Authority, an
autonomous insurance regulator set up in 2000, has
extensive powers to oversee the insurance business and
regulate in a manner that will safeguard the interest of the
insurance.
HOW INSURANCE WORKS :People facing common risks come together and make
their small contributions to a common fund. The contribution
9

to be made by each person is determined on the assumption

that while it may not be possible to tell beforehand, which
person will suffer, but it is possible to tell, on the basis of
past experiences, how many persons, on an average, may
suffer losses.
For example, in a village, there are 400 houses each
valued at Rs. 20,000. Every year, on the average 4 houses
get burnt, resulting into a total loss of Rs. 80,000 if all the
400 owners come together and contribute Rs. 200 each, the
common fund would be 80,000.
This is enough to pay Rs. 20,000 to each of the 4
owners whose houses got burnt. This is the risk of 4 owners
is spread over 400 house owners of the village.
OBJECTIVES OF INSURANCE
1. Spread life insurance much more widely and in
particular to the rural areas and to socially and
economically backward classes with a view to reaching
all insurable persons in the country and providing them
adequate financial cover against death of a reasonable
cost.
2. Maximize mobilization of peoples savings by making
insurance linked Savings adequately attractive .
3. Keeping in view national priorities and obligation of
attractive return.
4. Conduct business with at most economy and with the
full realization that the money belongs to the
policyholders.
5. Act as trustees of the insured public in their individual
and collective capacities.
6. Meet the various life insurance needs of the community
that would arise in the changing social and economic
environment.
7. Promote amongst all agents and employees of the
corporation a sense of participation, pride and job
10

satisfaction through discharge of their duties with

dedication
towards
achievement
of
corporate
objectives.

ROLE OF INSURANCE :Role 1: Life insurance as an Investment Avenue

Insurance is an attractive option for investment. While
most people recognize the risk hedging and tax saving
potential of insurance, many are not aware of its advantages
as an investment option as well. Insurance products yield
more compared to regular investment options, and this is
besides the added incentives (read bonuses) offered by
insurers.
You cannot compare an insurance product with other
investment schemes for the simple reason that it offers
financial protection from risks, something that is missing in
non-insurance products.
In fact, the premium you pay for an insurance policy is
an investment against risk. Thus, before comparing with
other schemes, you must accept that a part of the total
amount invested in life insurance goes towards providing for
the risk cover, while the rest is used for savings.
11

In life insurance, unlike non-life products, you get

maturity benefits on survival at the end of the term. In other
words, if you take a life insurance policy for 20 years and
survive the term, the amount invested as premium in the
policy will come back to you with added returns. In the
unfortunate event of death within the tenure of the policy,
the family of the deceased will receive the sum assured.
Now, let us compare insurance as an investment
options. If you invest Rs.10,000 in PPF, your money grows to
Rs. 10,950 at 9.5 per cent interest over a year. But in this
case, the access to your funds will be limited. One can
withdraw 50 per cent of the initial deposit only after 4 years.
The same amount of Rs. 10,000 can give you an
insurance cover of up to approximately Rs. 5-12 lacs
(depending upon the plan, age and medical condition of the
life insured, etc) and this amount can become immediately
available to the nominee of the policyholder on death. Thus
insurance is a unique investment avenue that delivers sound
returns in addition to protection.
Role 2: Life insurance as Risk Cover
First and foremost, insurance is about risk cover and
protection financial protection, to be more precise to help
outlast life's unpredictable losses. Designed to safeguard
against losses suffered on account of any unforeseen event,
insurance provides you with that unique sense of security
that no other form of investment provides. By buying life
insurance, you buy peace of mind and are prepared to face
any financial demand that would hit the family in case of an
untimely demise.
To provide such protection, insurance firms collect
contributions from many people who face the same risk. A

12

loss claim is paid out of the total premium collected by the

insurance companies, who act as trustees to the monies.
Insurance also provides a safeguard in the case of
accidents or a drop in income after retirement. An accident
or disability can be devastating, and an insurance policy can
lend timely support to the family in such times. It also comes
as a great help when you retire, in case no untoward incident
happens during the term of the policy.
With the entry of private sector players in insurance,
you have a wide range of products and services to choose
from. Further, many of these can be further customized to fit
individual/group specific needs. Considering the amount you
have to pay now, it's worth buying some extra sleep.

Role 3: Life insurance as Tax Planning Tool

Insurance serves as an excellent tax saving mechanism
too. The Government of India has offered tax incentives to
life insurance products in order to facilitate the flow of funds
into productive assets. Under Section 88 of Income Tax Act
1961, an individual is entitled to a rebate of 20 per cent on
the annual premium payable on his/her life and life of his/her
children or adult children. The rebate is deductible from tax
payable by the individual or a Hindu Undivided Family. This
rebate is can be availed up to a maximum of Rs 12,000 on
payment of yearly premium of Rs 60,000. By paying Rs
60,000 a year, you can buy anything upwards of Rs 10 lakh
in sum assured. This means that you get a Rs 12,000 tax
benefit. The rebate is deductible from the tax payable by an
individual or a Hindu Undivided Family.

3. ABOUT THE LIFE INSURANCE INDUSTRY

13

 SIZE OF THE INDUSTRY :Insurance is a Rs.400 billion business in India, and

together with banking services adds about 7% to Indias
GDP. Gross premium collection is about 2% of GDP and has
been growing by 15-20% per annum. India also has the
highest number of life insurance policies in force in the
world, and total investible funds with the LIC are almost 8%
of GDP. Yet more than three-fourths of Indias insurable
population has no life insurance or pension cover. Health
insurance of any kind is negligible and other forms of non-life
insurance are much below international standards.
To tap the vast insurance potential and to mobilize longterm savings we need reforms which include revitalizing and
restructuring of the public sector companies, and opening up
the sector to private players. A statutory body needs to be
made to regulate the market and promote a healthy market
structure. Insurance Regulatory and Development Authority
(IRDA) is one such body, which checks on these tendencies.
IRDAs role comprises of following three functions:
(a) Protection of consumers interest.
(b) To ensure financial soundness and solvency of the
insurance industry
(c) To ensure healthy growth of the insurance market.
THE LIFE INSURANCE SCENARIO IN INDIA :Population: 1.04 Billion (as on July 2002)
Population Growth: 1.51% (2002)
Life Expectancy (2002 estimated): Total Population 63.23, F
= 63.93 and M = 62.55
Economy: 5th largest in the world in terms of Purchasing
Power Parity (PPP)

14

GDP growth Rate: Over 6% per year on an average for the

last decade; Growth rate for the year 2003 is over 8%.
Gross Domestic Savings Rate: Around 24% of GDP
Estimated middle class population: 300 Million
Insured population: 70 million only (around 23%)
Rate of average annual growth rate for Life Insurance
market: 20%
Geographical restriction for new players: None. Players can
operate all over the country.
Equity restriction in a new Indian Insurance Company:
Foreign promoter can hold up to 26%.
Registration
Restriction:
Composite
Registration
not
available.
Market opening: August 2000 with invitation of application
for registration.
Number of Registered Life Insurance Companies: Public 1,
Private 12 (Total 13).
Business of New Players: Expected to take up a market share
of 4-5% in three years.
Since 1956, with the nationalization of insurance
industry, the state-run Life Insurance Corporation of India
(LIC) has held the monopoly in that country's life insurance
sector. General Insurance Corporation of India (GIC), with its
four subsidiaries, was its counterpart in the casualty sector.
Over time, taking advantage of its monopoly and virtual
prerogative in establishing premiums, LIC has evolved into a
monolith. With around 600,000 agents in every nook and
corner of the vast country, it has created an enviable brand
name, particularly among the rural population of the country.
It has around $40 billion as its life fund and is a strong player
in the financial sector. However, on the qualitative side, it
has very little to take pride in. And there lies the potential for
foreign players to challenge this behemoth.
As is typical with monopolies, the premium rates
charged by LIC are among the highest in the world, and its
track record in customer service can, at best, be called
15

shabby. With a huge unionized, rigid workforce mostly in the

clerical category, LIC runs the risk of high fixed cost, which
will be the deciding factor in productivity in the competitive
scenario. While boasting full-scale automation of its
operation, the truth is that its technology is outdated. The
new players, with the state-of-the-art technology under their
belt, will be in an advantageous position. 80% of LIC's
business is procured by 20% of its ill-trained agent force. The
foreign player, with the domestic partner's strong brand
value, can test the unconventional distribution channels like
brokers, the Internet, the banking distribution system, etc.
Although foreign players may be tempted to keep their
operation in the big cities for the 'creamy layer' of the
society, the real market lies in rural India, which accounts for
the lion's share of LIC's present business. The foreign player
must learn to adapt to Indian realities. The well-publicized
failures of world famous consumer goods companies like
Electrolux, Whirlpool, Reebok, Nike etc. to gauge the Indian
psyche and sentiments demonstrate the concept. They failed
in the areas of realistic pricing, product promotion and
reaching to the consumer. The foreign companies need to
know the "ground realities" to the details.
ENTRY OF PRIVATE PLAYERS (THE PROS AND
CONS) :The nationalized insurance industry has not offered
consumers a variety of products. Opening of the sector to
private firms will foster competition, innovation, and variety
of products. It would also generate greater awareness on the
need for buying insurance as a service and not merely for
tax exemption, which is currently done. On the demand side,
a strong correlation between demand for insurance and per
capita income level suggests that high economic growth can
spur growth in demand for insurance. Also there exists a
strong correlation between insurance density and social

16

indicators such as literacy.

insurance demand will grow.

With

social

development,

The choice between public and private might amount to

choosing between the lesser of two evils. An insurance
contract is a "promise to pay" contingent on a specified
event. In the case of insurance and banking, smooth
functioning of business depends heavily on the continuation
of the trust and confidence that people place on the
solvency of these financial institutions. Insurance products
are of little value to consumers if they cannot trust the
company to keep its promise. Furthermore, banking and
insurance sectors are vulnerable to the bank run
syndrome, wherein even one case of insolvency can trigger
panic among consumers leading to a widespread and
complete breakdown. This implies the need for a public
regulator, and not public provision of insurance. Indeed in
India, insurance was in the private sector for a long time
prior to independence.
The Life Insurance Corporation of India (LIC) was
formed in 1956, when the Government of India brought
together over two hundred odd private life insurers and
provident societies, under one nationalized monopoly
corporation, in the wake of several bankruptcies and
malpractices'.
Another
important
justification
for
Nationalization was to raise the much-needed funds for rapid
industrialization and self-reliance in heavy industries,
especially since the country had chosen the path of state
planning for development. Insurance provided the means to
mobilize household savings on a large scale.
Moreover, apart from consideration based on
theoretical principles alone, there is sufficient evidence that
suggests that introduction of private players in insurance can
only lead to greater benefits to consumers. This can be seen
from the fact that the spread in insurance in India is low
compared to international benchmarks. The two convention
measures of the spread of insurance are penetration and
17

density. The former measure (premiums per unit) of GDP,

and the latter, premiums per capita. Less than 7% of the,
population in India has life insurance cover. In Singapore,
around 45 per cent of the people are covered and in Japan,
this is close to 100 per cent. In the US, over 81 per cent the
households have insurance cover. India has the biggest life
insurance sector in the world if we go by the number of
policies sold, but the number of policies sold per 10 persons
is very low.
The demand for insurance is likely to increase with
rising per-capita incomes, rising literacy rates and increase
of the service sector, as has been seen from the example of
several other developing countries. In fact, opening up of the
insurance sector is an integral part of the liberalization
process being pursued by many developing countries. After
Korean and Taiwanese insurance sectors were liberalized, the
Korean market has grown three times faster than GDP and in
Taiwan the rate of growth has been almost 4 times that of its
GDP. Philippines opened up its insurance sector in 1992.
There were several other factors that called for private
sector presence. Firstly, a state monopoly has little incentive
to innovate or offer a wider range of products. This can be
seen by a lack of certain products from LlC's portfolio, and
lack of extensive risk categorization in several GIC products,
such as health insurance.
In fact, it seems reasonable to conclude that many
people buy life insurance just for the tax benefits, since
almost 35 per cent of the life insurance business is in March,
the month of financial closing. This suggests that insurance
needs to be sold more vigorously. More competition in this
business will spur firms to offer several new products, and
more complex and extensive risk categorization. The system
of selling insurance through commission agents needs a
better incentive structure, which a state monopoly tends to
stifle. For example LIC pays out only 5 per cent of its income
as commissions, whereas this share in Singapore is 16 per
cent, and in Malaysia it is close to 20 percent.
18

Private sector presence will also mean that the current

investment norms, which tie up almost 75 per cent of
insurance funds in low yielding government securities, will
have to go. This will result in more proactive and market
oriented investment of funds. This needs to be tempered by
prudential regulation to ensure solvency'. Of course, this also
implies that cross-subsidizing across policyholders of
different types that is seen both in life and non-life insurance
will diminish. Since public sector firms are required to sell
subsidized insurance to weaker sections of society, a
separate subsidy mechanism will have to be designed. The
India Infrastructure Report (GOI, 1996) estimates that the
funds required in the next two decades are more than
Rupees 4000 billion.
Finally, private sector entry into insurance might be
simply a fiscal necessity. Since large scale funds form long
term contractual savings need to be mobilized, especially for
investment in infrastructures the option of not having more
(private) players in the insurance sector is too costly.

The following table shows all the private players

operating in the Indian life insurance industry.

19

INDIAN CO./ GROUP

ICICI Bank
Kotak Mahindra Finance
Bajaj Auto
State Bank of India
Jammu & Kashmir Bank
TATA Group
Aditya Birla Group
HDFC Ltd.
Max India
Sanmar Group
Vysya Bank
Dabur India
Sahara India

FOREIGN PARTNERS
Prudential plc, UK
Old Mutual plc, South Africa
Allianz Group, Germany
Cardiff
Metropolitan Life (MetLife), USA
American Insurance Group (AIG),
USA
Sun Life Assurance, Canada
Standard Life, UK
New York Life
AMP Ltd., Australia
ING Insurance
CGU (Aviva plc), UK

OM KOTAK MAHINDRA LIFE INSURANCE COMPANY

LIMITED

20

Kotak Mahindra Finance Limited

Kotak Mahindra Finance Limited is one of Indias premier
financial services groups, with a range of highly specialized
products and services, and a very large client base of Indian
and international firms. Starting as a non-product company
in the mid-eighties, it has evolved into a full-service financial
conglomerate, covering auto and consumer finance, asset
management, investment banking, securities trading and
equity research. It operates across 30 centers in India and in
Dubai, London, New York and Mauritius.
Old Mutual plc
Old Mutual plc is a leading financial services provider,
providing a broad range of financial services in the area of
insurance, asset management and banking. It is a leading
life insurer in South Africa, with more than 30 percent market
share.
The Joint Venture
The joint venture OM Kotak Mahindra Life Insurance started
off with an initial capital base of Rs. 150 crores, with a 74:26
stake between Kotak Mahindra Finance Limited and Old
Mutual plc.

Allianz Bajaj Life Insurance Company Limited

21

Bajaj Auto Ltd.

Bajaj Auto Ltd., the flagship company of Bajaj Group, was
incorporated in 1945 as Bachraj Trading Corporation. Initially
it started by assembling two and three wheelers in
collaboration with Piaggio of Italy. After the expiry of the
agreement in 1971 the two and three wheelers acquired the
brand name of Bajaj. The strength of the company lies in its
strong brand image and ability to offer value for money
products leveraging on its large-scale operations. Bajaj is
one of India's largest two and three-wheeler manufacturer
and the fourth largest manufacturer of two-wheelers in the
world, with an annual turnover of Rs. 42.16 billion.
Allianz Group
Founded in 1890, Allianz group is one of the world's leading
insurance companies with over 100 years experience in
insurance and related services. It is also the largest insurer
in Europe and presence in over 70 countries. The key
business areas of Allianz group include General Insurance
(property, engineering, marine, motor, casualty and
miscellaneous), Reinsurance, Risk Management, Life &
health insurance, Asset Management and Pension Funds
Management. Rated AAA by Standard & Poors it has assets
over 670 billion DM (Rs. 17,160 billion) under its
management with employee strength of over 1,05,700.
The Joint Venture
Allianz Bajaj Life Insurance Co. Ltd. is a joint venture
between Allianz AG and Bajaj Auto Limited. Characterized by
global presence with a local focus and driven by customer
orientation to establish high earnings potential and financial
strength, it was incorporated on 12 th March 2001 and started
its operations on 3rd August 2001.

22

SBI Life Insurance Company Limited

State Bank of India
The State Bank of India is the largest bank in India with more
than 9000 branches. It has seven associate banks and
together they have 30 percent market share of the Indian
Banking Sector. Its net worth as on March 2000 stood at Rs.
121.46 billion, with a deposit base of Rs. 196.803 billion. The
insurance venture, SBI Life, is a step aimed at being a
universal bank as the SBI already has subsidiaries for
housing finance, merchant banking, mutual funds and
primary dealership in government papers and factoring
businesses.
Cardif
BNP Paribus, which is one among the three largest banks in
Europe, is the holding company of Cardiff, its insurance arm.
It was set up in 1973 and specializes in long-term savings,
protection products and creditor insurance. In 1999, its
premium income stood at US $4 billion, with assets worth
over US $23 billion under its management. Based in France,
it has the expertise for selling insurance products through
banks and has operations in over 20 countries.
The Joint Venture
This joint venture has 74 percent capital participation from
State Bank of India (SBI), with Cardiff contributing 26 percent
in the paid up capital of Rs. 2.5 billion.

23

Met Life India Insurance Company Limited

Pallonji Group and Jammu and Kashmir Bank
M. Pallonji & Co. Pvt. Ltd., is primarily engaged in contracting
and has undertaken major contracts for power generating
stations (hydroelectric and thermal), chemical and fertilizer
factories, petroleum refineries, offshore oil and gas
platforms. It has also diversified outside their main line of
business into the field of non-conventional energy resources.
The Jammu and Kashmir Bank Ltd., was incorporated in
1938. From a small beginning, the bank has grown to
become a giant with a network of 440 branches spread over
the length and breadth of the country.
Metropolitan Life Insurance Comapny
The Metropolitan Life Insurance Company was established in
1867 and is a member of the Metropolitan Life Group and is
licensed in the USA, Canada and a few other countries. Its
major lines of business are individual and group life
insurance.
The Joint venture
The Met Life India Insurance Company, a joint venture
between the US major Metropolitan Life Insurance Company,
the Jammu and Kashmir Bank Ltd., the Pallonji Group and
some high net worth individuals, was incorporated in India
on April 11, 2001. The company started its operations with
an initial capital of Rs. 1.25 billion.

24

TATA AIG Life Insurance Company Limited

TATA Group
TATA Enterprises with 82 companies, spread over seven
sectors, have an annual turnover exceeding US $8.8 billion.
The TATA Group has made pioneering contributions in
various fields including insurance, aviation, iron and steel.
The Group has had a long association with Indias insurance
sector, having set up the largest insurance company viz.
New India Assurance Co. Ltd. (1919), prior to the
nationalization of this sector.
American Insurance Group (AIG)
The American Insurance Group (AIG) is the leading US-based
international insurance and financial services organization
and the largest underwriter of commercial and industrial
insurance in the USA. Its member companies write a wide
range of commercial and personal insurance products in over
130 countries and jurisdictions throughout the world.
The Joint Venture
TATA AIG Life Insurance Company Limited is capitalized at
Rs. 1.85 billion of which 74 percent has been brought in by
TATA Sons and 26 percent by their American counterpart.

25

Birla Sun Life Insurance Company Limited

The Aditya Birla Group
Aditya Birla Group is India's second largest business house,
with a turnover of over $4.75bn and an asset base of $3.8
bn. The Group is a well diversified conglomerate with 72,000
strong workforce spanning 40 Companies spread across 17
countries. The flagship companies of the Group - Grasim,
Hindalco, Indian Rayon and Indo Gulf - hold leadership
positions in their respective areas of business.

Sun Life Assurance Co.

Sun Life Assurance of Canada, established in 1871, is
licensed in Canada, the U.S., the Philippines, Hong Kong, and
the U.K. Its major lines of business are life insurance,
annuities and mutual funds and investment services. Sun
Life's rating reflects extremely strong diversification of
revenues and profitability, outstanding capitalization, good
fundamental earnings, and high-quality investments. In
Canada, the company is especially strong in the corporate
life and health insurance and savings markets. In the U.S.,
the company is a top 20 player in the variable annuity
market and a significant force in the upscale individual
insurance market. In the U.K., Sun Life is among top 20 life
and health insurers.
The Joint Venture
Birla Sun Life Insurance Company, the 74:26 joint ventures
between Aditya Birla Group and Sun Life financial Services of
26

Canada, has an equity capital of Rs. 150 crore. Birla Sun Life
has Mr. Nani B Javeri as its CEO.

HDFC Standard Life Insurance Company Limited

HDFC
Incorporated in 1977 with a share capital of Rs. 10 crores,
HDFC has since emerged as the largest residential mortgage
finance institution in the country, raising its capital to Rs.
119 crores and an asset base of Rs. 15000 croers. HDFC
operates through 75 locations throughout the country with
its Corporate Headquarters in Mumbai, India. HDFC also has
an international office in Dubai, U.A.E., with service
associates in Kuwait, Oman and Qatar.
Standard Life
Standard Life is Europe's largest mutual life assurance
company. Standard Life, which has been in the life insurance
business for the past 175 years, has assets exceeding over
70 billion (Rs. 6000 bn) under its management and has the
distinction of being accorded "AAA" rating consequently for
the past six years by Standard & Poors.
The Joint Venture
HDFC Standard Life Insurance Company Limited was one of
the first companies to be granted license by the IRDA to
operate in life insurance sector. Each of the JV player is
highly rated and been conferred with many awards. HDFC is
rated 'AAA' by both CRISIL and ICRA. Similarly, Standard Life
is rated 'AAA' both by Moody's and Standard and Poors.
27

These reflect the efficiency with which HDFC and Standard

Life manage their asset base of Rs. 15,000 Cr and Rs.
600,000 Cr respectively.
HDFC Standard Life Insurance Company Ltd was
incorporated on 14th August 2000. HDFC is the majority
stakeholder in the insurance JV with 81.4 % stake and
Standard Life has a stake of 18.6%. Mr. Deepak Satwalekar is
the MD and CEO of the venture.

Max New York Life Insurance Company Limited

Max India Limited
Starting early 1999, Max has refocused itself into building a
company based on the knowledge platform that India
represents. Today, Max is building businesses in the
emerging knowledge-based areas of Healthcare, Financial
Services and Information Technology. Max India has a
significant presence in the most vital & fast growing sectors
of the Indian Economy, Telecommunication services,
Electronic components distribution, Specialty Plastic Films
and Bulk Pharmaceuticals. These diversified businesses are
organized as Max India's 100% owned Business Units (BU)
and equity sharing Joint Ventures (JV). Each of the BUs & JVs,
fully empowered to lead their operations, have grown and
obtained leadership position in their respective industries by
providing high quality products and services, working closely
with their customers.
New York Life International Inc.

28

In 1998 New York Life International Inc., a Fortune 100

company, had total revenues amounting to almost US $20
billion, and was rated the number one provider of new life
insurance policies in the USA. In the same year, New York
Life was also the leader in insurance sales to the growing
Indian community in the USA.
The Joint Venture
Max New York Life is a partnership between Max India
Limited, one of India's leading multi-business corporations
and New York Life, a Fortune 100 company. The paid-up
capital of the Joint Venture is Rs. 250 crores.

AMP Sanmar Assurance Limited

Sanmar Group
The Sanmar Group is one of the largest industrial groups in
South India, with a turnover for 1998-1999 of close to Rs. 10
billion. It has a significant presence in the following
businesses: PVC / chlorochemicals, specialty chemicals,
shipping and engineering.
AMP Limited
AMP Limited is one of the worlds leading financial services
businesses. It has been the largest life insurer in Australia
and of the largest in New Zealand for most of the last
century and is a major provider of superannuation and asset
management products and services. AMP has a significant
presence in the UK.
29

The Joint Venture

The initial paid-up capital of this joint venture is Rs. 1.25
billion, wherein AMP has a stake of 26 percent and the
Sanmar Group holds 74 percent.

ING Vysya Life Insurance Company Private Limited

Vysya Bank
Vysya Bank is one of the most aggressive of the oldergeneration private-sector banks. With the investment from a
foreign partner, Bank Brussels Lamberts, Vysya Bank is one
of the largest private banks in India with around 2 million
customers and 480 retail outlets. The Bank, given its
significant branch penetration, has a very high degree of
retail focus.
ING Group
ING Group, with an asset base of over Rs. 28,42,000 crore is
a global financial institution of Dutch origin, which is active
in the field of banking, insurance and asset management in
more than 60 countries.
ING Insurance
ING Insurance is the worlds second largest life insurance
company as per latest Fortune rankings with a client base of
over 50 million. It is the third largest financial services
company in Europe and the tenth largest financial services
company in the World.

30

The Joint Venture

As per the JV agreement, Vysya Bank would hold 49 per cent
stake, ING 26 percent, and the GMR Group would hold 25 per
cent, which has wide ranging interests in fields such as
power generation, infrastructure, manufacturing, software
and banking. The paid up capital of the joint venture is Rs.
110 crore. The joint venture is expected to be the first
Bancassurance venture in the country.

Aviva Life Insurance Company Limited

Dabur India
Established in 1884, Dabur India Limited is one of the Indias
oldest groups of companies, with interests in Ayurvedic
specialties, pharmaceuticals and personal-care and health
care products. The annual sales turnover of the group is over
Rs. 12 billion.
CGU (Aviva plc)
Aviva plc is the largest life and general insurance group of
UK, and the worlds seventh largest insurer with world-wide
premium income and retail investment sales of 28 billion
and more than 200 billion in assets under management.
Aviva plc is the holding company of the Aviva Group of
Companies which is involved in the life assurance business,
long-term savings, all classes of general insurance business
and fund management.

31

The Joint Venture

The Aviva Life Insurance Company, a joint venture between
Dabur India and CGU, a wholly-owned subsidiary of Aviva plc,
is capitalized at Rs. 100 crores.

4. THE LIFE INSURANCE MARKET

The Life Insurance market in India is an underdeveloped
market that was only tapped by the state owned LIC till the
entry of private insurers. The penetration of life insurance
products was 19 percent of the total 400 million of the
insurable population. The state owned LIC sold insurance as
a tax instrument, not as a product giving protection. Most
customers were under- insured with no flexibility or
transparency in the products. With the entry of the private
insurers the rules of the game have changed.
The 12 private insurers in the life insurance market
have already grabbed nearly 11 percent of the market in
terms of premium income. The new business premiums of
the 12 private players has tripled to Rs 1000 crore in 200203 over last year. Meanwhile, state owned LIC's new
premium business has fallen.
Innovative products, smart marketing and aggressive
distribution. That's the triple whammy combination that has
enabled fledgling private insurance companies to sign up
Indian customers faster than anyone ever expected. Indians,
who have always seen life insurance as a tax saving device,
are now suddenly turning to the private sector and snapping
up the new innovative products on offer.
32

The growing popularity of the private insurers shows in

other ways. They are coining money in new niches that they
have introduced. The state owned companies still dominate
segments like endowments and money back policies. But in
the annuity or pension products business, the private
insurers have already wrested over 33 percent of the market.
And in the popular unit-linked insurance schemes they have
a virtual monopoly, with over 90 percent of the customers.
The private insurers also seem to be scoring big in
other ways- they are persuading people to take out bigger
policies. For instance, the average size of a life insurance
policy before privatization was around Rs 50,000. That has
risen to about Rs 80,000. But the private insurers are ahead
in this game and the average size of their policies is around
Rs 1.1 lakh to Rs 1.2 lakh- way bigger than the industry
average.
Buoyed by their quicker than expected success, nearly
all private insurers are fast- forwarding the second phase of
their expansion plans. No doubt the aggressive stance of
private insurers is already paying rich dividends. But a
rejuvenated LIC is also trying to fight back to woo new
customers.
Popular Products: Endowment Assurance (Participating)
and Money Back (Participating). More than 80% of the life
insurance business is from these products.
(i) COMPETITIVE SITUATION :A comparison across countries shows that India is ranked 27
in mobilizing savings in the form of insurance.
Shares of Life Insurance Premiums in Gross Domestic
Savings(GDS) and Gross Domestic Product (GDP) 2001
33

Rank Country
G.D.P.
Rank Country
1. United Kingdom
2. South Africa
3. Japan
4. France
5. USA
6. South Korea
7. Finland
8. Switzerland
9. Netherlands
10. Israel
11. Sweden
12. Australia
13. Canada
14. Zimbabwe
15. Ireland
16. Greece
17. New Zealand
18. Taiwan
19. Denmark
20. Spain
21. Germany
22. Norway
23. Belgium
24. Portugal
25. Austria
26. Chile
27. India
28. Italy
29. Malaysia
30. Singapore

Life insurance
Life insurance
premiums as a
premiums as a
Percentage of G.D.S. percentage of
52.50
51.55
32.46
26.20
25.20
23.66
23.10
21.92
19.04
18.84
17.88
17.78
17.05
15.88
14.96
13.87
12.75
12.29
12.00
11.68
11.40
9.57
9.13
8.76
6.96
6.96
5.95
5.60
5.35
4.72

7.31
10.32
10.10
4.91
3.63
9.10
4.98
5.99
4.51
4.41
3.51
3.48
3.04
6.27
4.59
1.12
3.04
3.64
2.71
2.23
2.80
2.33
2.38
1.65
2.10
1.95
1.29
1.13
2.30
2.73

34

Source: ENVOSCAN Information, Special Vol. 7, 2001-2002,

LIC
In countries such as South Africa and the U.K., life insurance
premiums constitute over 50 percent of GDS. Life insurance
premiums account for over 25 percent of GDS in the U.S.,
Japan and France. Because premiums account for less than
6 percent of GDS in India, there is a tremendous scope for
mobilizing insurance savings, assuming that India achieves
conditions existing in the aforementioned countries in the
future. Also, investment of insurance funds is skewed in
India. Over 80 percent of insurance funds are invested in
the public sector, primarily in government and governmentbacked securities. Note that this skewness is mainly the
result of investment rules established by the government.
(ii) INTERNATIONAL COMPARISON

(Insurance Penetration & Insurance Density)

INSURANCE PENETRATION INSURANCE
DENSITY
(PREMIUMS AS % OF GDP- (PREMIUMS
PER CAPITA IN
1999)
USD-1999)
Countries
Total Non-life
Life
Total Non-life
Life
United States
8.55
4.32
4.23 2921.1 1474.4
1446.6
Canada
6.49
3..31
3.19 1375.3 700.6
674.6
Brazil
2.011.661.13
0.35
68.6
56.7
11.8
Mexico
1.68
0.86
0.82
84.6
43.3
41.3
Chile
3.78
1.13
2.65 163.0
48.7
114.3

35

United Kingdom

13.35
3.05
2502.8
Germany
6.52
3.55
762.2
France
8.52
2.82
1392.3
Russia
2.13
1.34
Japan
11.17
2.30
3103.4
South Korea
11.28
2.89
760.5
PR China
1.63
0.61
India
1.93
0.54
6.1
Malaysia
3.88
1.72
78.1
Indonesia
1.42
0.76
South Africa
16.54
2.62
413.0
Nigeria
0.95
0.88
Kenya
3.26
2.48
Australia
9.82
3.39
1333.6
Source: Swiss Re, SIGMA/9-2000.

10.30 3244.3

741.5

2.96 1675.7

913.5

5.70 2080.9

688.6

0.78
26.8
8.87 3908.9

17.0
805.5

8.39 1022.8

262.3

1.02
1.39

13.3
8.5

5.0
2.4

2.16

140.4

62.3

0.66
13.92

9.5
490.9

5.1
77.9

0.07
2.6
0.78
9.9
6.43 2037.4

2.4
7.5
703.8

INSURANCE PENETRATION - PREMIUMS AS A % OF GDP - 1999

United States
Canada
Brazil

18

Mexico

16

Chile
United Kingdom

14

Germany
12

France

10

Russia
Japan

%
8

South Korea
PR China

India

Malaysia
Indonesia

South Africa
Nigeria

0
COUNTRIES

Kenya
Australia

36

INSURANCE DENSITY PREMIUMS PER CAPITA IN USD - 1999

United States
Canada

4000

Brazil
Mexico

3500

Chile
United Kingdom

3000

Germany
2500

France
Russia

USD 2000

Japan
South Korea

1500

PR China
India

1000

Malaysia
500

5. ROLE OF IRDA

Indonesia
South Africa
Nigeria

COUNTRIES

Kenya
Australia

(i) Introduction of IRDA :The Insurance Regulatory and Development Authority (IRDA)
was constituted as an autonomous body to regulate and
37

develop the business of insurance and re-insurance in India.

The Authority was constituted on April 19, 2000 vide
Government of India.
The Insurance Regulatory and Development Authority Act,
1999, was enacted by Parliament in the fiftieth year of the
Republic of India to provide for the establishment of an
Authority to protect the interest of holders of insurance
policies, to regulate, promote and ensure orderly growth of
the insurance industry, and for matters connected therewith
or incidental thereto and further to amend the Insurance Act,
1938, the Life Insurance Corporation Act, 1956 and the
General Insurance Business Act, 1972. The Act was approved
in the Parliament in December 1999 and the insurance
sector was thrown open for private licensees on August 15,
2000. IRDA was constituted in terms of the Insurance
Regulatory and Development Authority Act, 1999, as the
regulator of the Indian Insurance industry.
IRDA was set up in 1996 but it was formally constituted as a
regulator of the insurance industry in April 2000. The
regulator was initially known as the Insurance Regulatory
Authority but was subsequently rechristened as Insurance
Regulatory And Development Authority as it was provided
that it had a broader role to perform in the Indian insurance
market. It has not only to frame and issue statutory and
regulatory stipulations, guidelines, and clarification but it has
also to perform a development and promotional role. The
objective of IRDA are two fold: Policyholder protection and
Healthy growth of the insurance market.
IRDA has constituted the Insurance Advisory Committee and
in consultation with this committee has brought out
seventeen regulations. IRDA has till 2001 issued seventeen
regulations in the areas of registration of insurers, their
conduct of business, solvency margins, conduct of
reinsurance business, licensing, and code of conduct
intermediaries.

38

(ii) MISSION STATEMENT :

To protect the interest of and secure fair treatment to

policyholders.
To bring about speedy and orderly growth of the insurance
industry (including annuity and superannuation payments)
for the benefit of common man, and to provide long-term
funds for accelerating growth of the economy.
To set, promote, monitor and enforce high standards of
integrity,
financial
soundness,
fair
dealing
and
competence of those it regulates.
To ensure that insurance customers receive precise, clear,
and correct information about products and make them
aware of their responsibilities and duties in this regard.
To ensure speedy settlement of genuine claims, to prevent
insurance frauds, and other malpractices and put in place
effective grievance redressal machinery.
To promote fairness, transparency, and orderly conduct in
financial markets dealing with insurance and to build a
reliable management information systems to enforce high
standards of financial soundness among market players.
To take action where such standards are inadequate or
ineffectively enforced.
To bring about optimum amount of self-regulation in dayto-day working of the industry, consistent with the
requirements of prudential regulation.

(iii) DUTIES, POWERS 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.
39

(2) Without prejudice to the generality of the provisions

contained in sub-section (1), 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;
(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;
(i) control and regulation of the rates, advantages, terms and
conditions that may be offered by insurers in respect of
general insurance business not so controlled and regulated
by the Tariff Advisory Committee under section 64U of the
Insurance Act, 1938 (4 of 1938);
(j) specifying the form and manner in which books of account
shall be maintained and statement of accounts shall be
rendered by insurers and other insurance intermediaries
(k) regulating investment of funds by insurance companies;
(l) regulating maintenance of margin of solvency
(m) adjudication of disputes between insurers and
intermediaries or insurance intermediaries
(n) supervising the functioning of the Tariff Advisory
Committee;
(o) specifying the percentage of premium income of the
40

insurer to finance schemes for promoting and regulating

professional organizations referred to in clause (f);
(p) specifying the percentage of life insurance business and
general insurance business to be undertaken by the insurer
in the rural or social sector; and
(iv) CUSTOMER PROTECTION :Insurance Industry has Ombudsmen in 12 cities. Each
Ombudsman is empowered to redress customer grievances
in respect of insurance contracts on personal lines where the
insured amount is less than Rs. 20 lakhs, in accordance with
the Ombudsman Scheme. Addresses can be obtained from
the offices of LIC and other insurers.
(v) APPRAISAL OF INSURANCE MARKET :The Indian insurance regulator follows the world pattern
of keeping the life insurance and general insurance
companies separate. In other words no composite insurance
business is encouraged in the Indian market. We have,
therefore, two separate watertight business environments.
Though the Insurance Act, 1938 and the IRDA Act, 1999
prescribe that the regulator would encourage the setting up
of health insurance business on a stand-alone basis, no
person has yet approached to set up an exclusive health
insurance business.
Representations have been made to the Authority and
through the Authority to the Government that the
requirement of a minimum working capital of Rs.100 crores
would be too large for a stand alone health insurance
business. Due to lack of applications in this particular area,
the Authority has encouraged both life and general
insurance companies, old and new, to go in for rider policies
41

offering health covers. It is gratifying to note that the new

companies have seized this opportunity and many of them
have gone in for riders offering a variety of health products.
The Authority hopes that in due course some of these
rider policies would convert themselves into main health
policies. Towards encouraging players to seriously consider
entering this vital area, as pointed out elsewhere in this
report, the Authority has fostered the development of Third
Party Administrators in health services. Regulations have
been notified in this area, and applications called for from
companies who are willing to act as Third Party
Administrators.
As on date, these applications are under examination
by the Authority and possibly by the beginning of 2002,
some of them may be in a position to offer their services to
the insurance industry. The reluctance on the part of the
insurance companies to entrust a large area of work to the
Third Party Administrators, the Authority hopes, would get
reduced as the system of Third Party Administrators takes
root in this country, and the benefits are felt by the market.

42

6. INTRODUCTION TO LIC
LIC has been established by an act of the Parliament
and started functioning from 1-9-1956. It is an autonomous
body authorized to run the life insurance business in India
with its Head Office at Mumbai. The Corporation also has
offices in London, Fiji and Mauritius and Oman.
The Life Fund of the LIC, which was established in 1956
to conduct life insurance transactions, has grown to
approximately $25 billion from a mere $94 million in its
inaugural year. Over 100 million lives are covered. The
annual premium income, which was $21 million in 1956, was
estimated at $4.5 billion in 1997-98. Presently, business
investments of the LIC total over $23 billion.
LIC is synonymous with insurance in India, and has
grown very quickly too. But it is not only insurance LIC
is synonymous with, it is also security.
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

43

To be a trans-nationally competitive financial conglomerate

of significance to societies and Pride of India.
OBJECTIVES OF LIC
Spread Life Insurance much more widely and in
particular to the rural areas and to the socially and
economically backward classes with a view to reaching
all insurable persons in the country and providing them
adequate financial cover against death at a reasonable
cost.
Maximize mobilization of people's savings by making
insurance-linked savings adequately attractive.
Bear in mind, in the investment of funds, the primary
obligation to its policyholders, whose money it holds in
trust, without losing sight of the interest of the
community as a whole; the funds to be deployed to the
best advantage of the investors as well as the
community as a whole, keeping in view national
priorities and obligations of attractive return.
Conduct business with utmost economy and with the
full realization that the moneys belong to the
policyholders.
Act as trustees of the insured public in their individual
and collective capacities.
Meet the various life insurance needs of the community
that would arise in the changing social and economic
environment.
Involve all people working in the Corporation to the best
of their capability in furthering the interests of the
insured public by providing efficient service with
courtesy.
Promote amongst all agents and employees of the
Corporation a sense of participation, pride and job
satisfaction through discharge of their duties with
dedication
towards
achievement
of
Corporate
Objective.

44

7. CHANGING FACE OF LIC

(i) INFORMATION TECHNOLOGY AND LIC

LIC has been one of the pioneering organizations in
India who introduced the leverage of Information Technology
in servicing and in their business. Data pertaining to almost
10 crore policies is being held on computers in LIC. We have
gone in for relevant and appropriate technology over the
years.
1964 saw the introduction of computers in LIC. Unit
Record Machines introduced in late 1950s were phased out
in 1980s and replaced by Microprocessors based computers
in Branch and Divisional Offices for Back Office
Computerization. Standardization of Hardware and Software
commenced in 1990s. Standard Computer Packages were
developed and implemented for Ordinary and Salary Savings
Scheme (SSS) Policies.
(ii) FRONT END OPERATIONS
With a view to enhancing customer responsiveness and
services , in July 1995, LIC started a drive of On Line Service
to Policyholders and Agents through Computer. This on line
service enabled policyholders to receive immediate policy
status report, prompt acceptance of their premium and get
Revival Quotation, Loan Quotation on demand. Incorporating
change of address can be done on line. Quicker completion
of proposals and dispatch of policy documents have become
a reality. All our 2048 branches across the country have been
covered under front-end operations. Thus all our 100
divisional offices have achieved the distinction of 100%
45

branch computerisation. New payment related Modules

pertaining to both ordinary & SSS policies have been added
to the Front End Package catering to Loan, Claims and
Development Officers Appraisal. All these modules help to
reduce time-lag and ensure accuracy.
(iii) METRO AREA NETWORK
A Metropolitan Area Network, connecting 74 branches
in Mumbai was commissioned in November, 1997, enabling
policyholders in Mumbai to pay their Premium or get their
Status Report, Surrender Value Quotation, Loan Quotation
etc. from ANY Branch in the city. The System has been
working successfully. More than 10,000 transactions are
carried out over this Network on any given working day. Such
Networks have been implemented in other cities also.
(iv) WIDE AREA NETWORK
All 7 Zonal Offices and all the MAN centres are
connected through a Wide Area Network (WAN). This will
enable a customer to view his policy data and pay premium
from any branch of any MAN city. As at May 2002, we have
91 centers in India with more than 1320 branches networked
under WAN.
(v) INTERACTIVE VOICE RESPONSE SYSTEMS (IVRS)
IVRS has already been made functional in 59 centers all
over the country. This would enable customers to ring up LIC
and receive information (e.g. next premium due, Status,
Loan Amount, Maturity payment due, Accumulated Bonus
etc.) about their policies on the telephone. This information
could also be faxed on demand to the customer.
46

(vi) PAYMENT OF PREMIUM AND POLICY STATUS ON

INTERNET
You have to register for these services Online Policy
Status
LIC has given its policyholders a unique facility to pay
premiums through Internet absolutely free and also view
their policy details on Internet premium payments. There are
11 service providers with whom L I C has signed the
agreement to provide this service.
(vii)INFORMATION KIOSKS
We have set up 150 Interactive Touch screen based
Multimedia KIOSKS in prime locations in metros and some
major cities for dissemination information to general public
on our products and services. These KIOSKS are enabling to
provide policy details and accept premium payments.
(viii) INFORMATION CENTRES
LIC has also set up 8 call centres, manned by skilled
employees to provide you with information about our
Products, Policy Services, Branch addresses and other
organizational information.
(ix) LICS SUSIDAIRIES
1. LIC Sri Lanka
47

2.
3.
4.
5.

LIC
LIC
LIC
LIC

Nepal
Housing finance
Mutual fund
(International) E.C., Oman branch, Muscat.

8. PRODUCTS OF LIC
I. INDIVIDUAL PLANS :1. Whole life schemes
(a) Limited Payment Whole Life - Plan 005 (With Profits)
(b) Single Premium Plan no.8 (With profits)
(c) Whole Life with Profits Plan - 002
2. Endowment schemes
(a) New Janaraksha- Plan no.91
(b) Bhavishya Jeevan Special Endowment Plan no.95
(c) Endowment With profit Plan 014
(d) Jeevan Anand Plan - 149
(e) Jeevan Mitra- Plan no.88
(f) Jeevan Mitra Triple Cover Plan no.133
(g) Limited Payment Endowment with Profits - Plan no.48
3. Term assurance plan
(a) ANMOL JEEVAN - I (WITHOUT PROFITS)
(b) Convertible Term Assurance - Plan no.58
(c) New Bima Kiran Plan no.150
(d) Term Assurance - Plan no.43
4. Plans for need of children
(a) Children's Deferred Plan - 041 & 050
(b) Jeevan Balya Plan no.101
48

(c) Jeevan Chhaya Plan no.103

(d) Jeevan Kishore Plan no.102
(e) Jeevan Sukanya Plan no.109
(f) Komal Jeevan (Table No. 159) Childrens Money Back
Policy
(g) Marriage Endowment Educational Annuity- Plan no.90
5. Periodic money back plan
(a) Jeevan Rekha Plan - 152
(b) Jeevan Samriddhi Plan no.154,155,156,157
(c) Jeevan Surabhi Plan no.106,107,108
(d) Plan 160 - Jeevan Bharati - An exclusive plan for women
(e) Money Back with Profit - Plan no.75 & 93
6. Medical benefits linked insurance
(a) Asha Deep Plan no.121
7. For benefits of handicapped
(a) Jeevan Adhar Plan no.114
(b) Jeevan Vishwas Plan no.136
8. Plans to cover housing loans
(a) Mortgage Redemption- Plan no.52
9. Joint life plan
(a) Jeevan Sathi- Plan no.89
10. Plans for high net worth individuals
(a) LICs JEEVAN SHREE I (T.No.162)
11. Investment plans
(a) BIMA NIVESH TRIPLE COVER Table No. 143
49

12. Capital market linked plan

(a) Bima Plus Plan (Table No 140)
II. GROUP SCHEMES :1. GROUP (TERM) INSURANCE SCHEME
2. GROUP GRATUITY SCHEME
3. GROUP INSURANCE SCHEME IN LIEU OF EMPLOYEE'S
DEPOSIT LINKED INSURANCE (EDLI) SCHEME, 1976.
4. Group Leave Encashment Scheme
5. GROUP MORTGAGE REDEMPTION ASSURANCE SCHEME
6. GROUP SAVINGS LINKED INSURANCE SCHEME
7. GROUP SUPERANNUATION SCHEME
III. PENSION PLANS :1. LICs Jeevan Akshay- II (Table No. 163)
2. New Jeevan Suraksha 1 (Plan No. 147) New Jeevan Dhara
1 (Plan No. 148)
3. VARISHTHA PENSION BIMA YOJANA (Table No 161)
LICs STRUCTURE
Corporate Office at Mumbai.
Zonal Offices 7
Divisional Offices 100
Branches 2100
Agents more than 10 lacs.

50

 SERVICES OFFERED
1. Insurance to Non Resident Indians through Mail Order.
2. Insurance to persons of Indian Origin who have
acquired foreign Nationality.
3. Online premium calculator
4. Bonus announcements
5. Grievance redreesal
6. Online policy status
7. Online Premium payment
Authorized Banks: HDFC Bank, ICICI Bank, Bank of
Punjab, UTI Bank, Global Trust Bank, Federal Bank,
Corporation Bank, Citibank.
Authorized
Websites:
BillJunction.com,
Timesofmoney.com,
BillDesk.com.
8. Online Claims and settlement
9. Special Bancassurance tie-up with Central bank of
India.

51

9. ICICI PRUDENTIAL LIFE INSURANCE COMPANY

LIMITED
ICICI LIMITED
ICICI Ltd. was established in 1955 by the World Bank,
the Government of India and representatives of the Indian
Industry, to promote industrial development of India by
providing project and corporate finance to the Indian
industry. Since its inception, ICICI has grown from a
development bank to a financial conglomerate and has
become one of the largest public financial institutions in
India.
ICICI has thus far financed all the major sectors of the
economy, covering 6,848 companies and 16,851 projects.
Till March 31, 2000, ICICI had disbursed a total of
Rs.1,13,070 crores.
ICICI started off its operations in 1955 with providing
finance for industrial development, and since then it has
diversified into housing finance, consumer finance, mutual
funds to being a Virtual Universal Bank and its latest venture
Life Insurance.
In 2002, ICICI Ltd. merged with its subsidiary, ICICI Bank
to achieve the goal of Universal Banking.
ICICI BANK
ICICI Bank (NYSE:IBN) is Indias second largest bank with an
asset base of Rs.106812 crore. ICICI Bank provides a broad
52

spectrum of financial services to individuals and companies.

This includes mortgages, car and personal loans, credit and
debit cards, corporate and agricultural finance. The Bank
services a growing customer base of more than 7 million
customer accounts and 5 million bondholders accounts
through a multi-channel access network. This includes about
450 branches and extension counters, 1675 ATMs, call
centres and Internet banking (www.icicibank.com). ICICI
Bank posted a net profit of Rs.1, 206 crore for the year
ended March 31, 2003. ICICI Bank is the only Indian
company to be rated above the country rating by the
international rating agency Moodys and the only Indian
company to be awarded an investment grade international
credit rating. The Bank enjoys the highest AAA (or
equivalent) rating from all leading Indian rating agencies.
PRUDENTIAL PLC, UK
Established in 1848, Prudential plc is a largest international
financial services company in the UK (Source: S & Ps UK Life
Financial Digest, 2001), with some US$250 billion funds
under management and more than 16 million customers
worldwide. Prudential has brought to market an integrated
range of financial services products that now includes life
assurance, pensions, mutual funds, banking, investment
management and general insurance. In Asia, Prudential is
UKs largest life insurance company with a vast network of
23 life and mutual fund operations in twelve countries China, Hong Kong, India, Indonesia, Japan, Korea, Malaysia,
the Philippines, Singapore, Taiwan, Thailand and Vietnam.
Since 1923, Prudential has championed customer-centric
products and services, supported by over 60,000 staff and
agents across the region.
THE JOINT VENTURE
ICICI and Prudential came together in 1993 to form
Prudential ICICI Asset Management Company, which has
today emerged as one of the leading mutual funds in India.
53

The two companies bring together two of the strongest

financial service brands in Asia, known for their
professionalism, excellent quality of service and long term
commitment. Riding on the success of this relationship, the
two companies joined hands once more in 2000, to form
ICICI Prudential Life Insurance, with a commitment to provide
leading-edge life insurance solutions.
ICICI Prudential Life Insurance Company is a joint
venture between ICICI Bank, a premier financial powerhouse
and Prudential plc, a leading international financial services
group headquartered in the United Kingdom. ICICI Prudential
was the second private sector insurance companies to begin
operations in December 2000 after receiving approval from
Insurance Regulatory Development Authority (IRDA).
ICICI Prudentials equity base stands at Rs.625 crore
with ICICI Bank and Prudential plc holding 74% and 26%
stake respectively. As of December 31, 2003, the company
had issued over 550,000 policies, with a sum assured
exceeding Rs 13,000 crore and premium income of over Rs.
1000 crore. Today the company is the No.1 private life
insurer in the country.
(i)

Building the ICICI Prudential Brand

ICICI Prudential life is the No.1 player among the Indian

private insurance companies. The ICICI Prudential brand
name has the highest recall among all private companies.
The task for the ICICI Prudential is to build a relevant brand
that customers could trust.
When the insurance industry was first opened up and
private players entered the field in 2000, there was a host of
challenges that lay before them. Consumer attitudes towards
insurance were largely indifferent, and insurance was
regarded as an inflexible, tax-saving product that offered low
54

returns. Rarely was it recognized for its multi-dimensional

protection instrument. Service levels were low and products
were not transparent and typically sold as the One-Size-FitsAll kind, with very little relevance to a consumers actual
need. The most broad-based challenge for all companies was
to spread awareness about life insurance how it works, its
benefits, and most of all, its absolute necessity for anyone
who has dependents. At a more company specific level, the
task for ICICI Prudential Life Insurance Company was to build
a relevant brand that customers could trust.
Being a front-runner in the life insurance industry, ICICI
Prudential has always performed both the category task as
well as the brand task with the help of advertising and PR.
The companys initial campaigns addressed various myths
and misconceptions about life insurance, seeking to change
customer attitudes. For instance, life insurance had long
been regarded as expansive, rigid, difficult to understand
and good only for tax saving. As a result of ICICI Prudentials
advertising, life insurance is now increasingly seen as a
complete solution to meet ones myriad needs health,
wealth, life, child protection and retirement. Its financial
product that provides a stable return on investment, protects
life at affordable cost, secures a childs future, does
retirement planning in the most effective way and provides
additional health protection. It is now becoming an integral
part of the consumers wealth management basket.
The other major communications task at the time of
launching operations was to present the visiting card of the
company to public at large and build credibility and stature,
so as to give the consumer the confidence that here was a
company that could be trusted to invest funds with. This
required a corporate campaign, which stated with
advertising to establish the brand, build awareness and give
the brand a larger than life image. The aim was to position
ICICI Prudential as the new and modern face of life insurance
provider in India and change perceptions of the targets
audience to view insurance not as a compulsory tax-saving
55

instrument, but, as a means to lead a worry free and secured

life.
Amongst ICICI Prudential innovative steps were the
introduction of life stage and need-based solutions selling,
thereby unshackling the category and meeting specific
customer needs. The brand proposition for all the ad
campaigns was reflected in the line. At every step in life ,
i.e. that ICICI Prudential is the only private life insurance
company that providers the consumer insurance solutions
which are relevant to the unique needs at every stage of life.
The campaign also provided several lines of support serving
to inculcate trust and belief in the company, such as the
competitive advantage or product performance, a showcase
of products available for different segments, the flexibility
and value addition in products and the sound financial
backing and credentials of ICICI & Prudential.
The advertising idea was encapsulated in an endearing,
lasting and universally recognized symbol of protection- the
Sindoor. The company launched a mass media campaign
including print, outdoor, Internet and radio and finally
culminating in the corporate film. With the geographical
expansion of the company, TV became a viable medium and
thee corporate campaign was run on TV, because the
medium lends itself well to an emotional type of films that
strike a chord with the audience.
This campaign contributed extensively to raising brand
awareness of the company and was short-listed as one of the
12 most effective campaigns for the year 2001 in the Effie
awards. The Effies are amongst the most significant
international advertising awards because they honor the one
truly important achievement in advertising results, i.e. how
the advertising really worked for the brands. In another
major achievement, ICICI Prudential has, this year been
selected as a super brand, ICICI Prudential is in the company
of international behemoths like Coke, Levis, Adidas, Sony

56

and McDonalds; as well as Indian brands like The Times of

India, Jet Airways and Raymonds.
Once the corporate image & brand identity was
established, we had to give the customer a rational &
tangible reason to buy- first of all insurance, & secondly,
from ICICI Prudential. This brought us to the next phase of
communication- to inform the consumer about the
comprehensive product range & present the benefits of the
same. This was tackled through product advertising, which
gave the customer information that would help him/her
make a decision. ICICI Prudential launched product specific
advertising campaigns for most of its products-largely
through print & outdoor advertising-once more performing a
category task, particularly in the retirement solutions & child
solutions category. The retirement solutions campaign
attempted to drive home the benefits of early retirement
planning, while the SmartKid campaign educated customers
about a life insurance product that would leave nothing to
chance in providing for their childs future.
In fact, the retirement solutions campaign launched in
last September marked the first time that a private life
insurer ventured into TV advertising for a specific product
category & was one of ICICI Prudentials most effective
campaigns, highly successful due to the integrated efforts
of product development, advertising & direct marketing.
Recognizing the dire need for systematic retirement
planning among the Indian public early on, ICICI Prudential
invested the necessary resources in building awareness &
introducing products. The challenge in this slow growth,
low awareness category was to re-position the traditional
concept of retirement planning & create relevance for it
among the 30-40 years age group that traditionally had
many emotional barriers the target group had against
retirement planning.
The word retirement itself brought top mind all the
negative associated with old age- mainly the loss of social,
57

financial & physical independence- causing avoidance or

deferment of any decision relating to planning for
retirement. ICICI Prudential launched a campaign specifically
to address this psychological barrier by offering a fresh
perspective: Be forever young & lead an unchanged life- an
aspirational appeal for the target group. The advertising
campaign was complemented by other activities like
seminars to spread awareness about the need for retirement
planning & direct marketing innovations. The efforts paid off,
and ICICI Prudential increased its market share of pensions
market to 23% of the total pensions market & 73% amongst
the private players in the market, within six months of
launching its retirement campaign. The company also won a
silver in the Effies 2003 for its retirement solutions
campaign.
Moreover, according to recent syndicated ORG-MARG
studies, the ICICI Prudential brand name & advertising had
the highest recall amongst all private players, and was only
marginally behind LIC. On a cast per saliency point basis,
ICICI Prudential, with an advertising budget of about Rs.20 cr
in FY03, stands as one of the most efficient advertisers in the
category.
Three
years since the liberalization of the life
insurance industry, we see consumers becoming increasingly
aware of and actively managing their financial affairs. They
are looking at insurance companies to offer them a complete
solution &, one of the biggest challenges facing insurance is
to continuously re-evaluate customer-centric in all that it
does, thereby constantly evaluating & meeting customer
needs. Regular focus groups, individual meetings with
customers, listening to the Voice of the Customer, etc. are all
methods that the company implements to ensure that the
customer remains central to the ICICI Prudentials being.
VISION

58

To make ICICI Prudential the dominant Life and Pensions

player built on trust by world-class people and service. This
we hope to achieve by:
1. Understanding the needs of customers and offering
them superior products and service
2. Leveraging technology to service customers quickly,
efficiently and conveniently
3. Developing
and
implementing
superior
risk
management and investment strategies to offer
sustainable and stable returns to our policyholders
4. Providing an enabling environment to foster growth and
learning for our employees
5. And above all, building transparency in all our dealings.
The success of the company will be founded in its
unflinching commitment to 5 core values -- Integrity,
Customer First, Boundaryless, Ownership and Passion. Each
of the values describes what the company stands for, the
qualities of our people and the way we work.
We do believe that we are on the threshold of an
exciting new opportunity, where we can play a significant
role in redefining and reshaping the sector. Given the quality
of our parentage and the commitment of our team, there are
no limits to our growth.
10. PRODUCTS OF ICICI PRUDENTIAL
1. Child Plans
(a) Unit-linked Regular Premium
(b) Unit-linked Single Premium
(c) Regular Premium SmartKid
2. Group Plans
(a) Group Gratuity Plan
(b) Group Term Assurance
59

(c) Group Superannuation Plan

3. Investment Plans
(a) LifeLink (SP)
4. Protection Plans
(a) LifeGuard
5. Retirement Plans
(a) LifeTime Pension
(b) SecurePlus Pension
(c) LifeLink Pension
(d) ForeverLife
6. Savings Plans
(a) SecurePlus
(b) CashPlus
(c) LifeTime
(d) Save'n' Protect
(e) CashBak

11. DISTRIBUTION
ICICI Prudential has one of the largest distribution
networks amongst private life insurers in India, having
commenced operations in 46 cities and towns in India.
The company has eleven bancassurance tie-ups, having
agreements with ICICI Bank, Allahabad Bank, Federal Bank,
South Indian Bank, Bank of India, Lord Krishna Bank, and
Punjab & Maharashtra Co-operative Bank, Goa State Co60

operative Bank, Indoor Paraspar Sahakari Bank, Manipal

State Co-operative Bank and Jalgaon Peoples Co-operative
Bank, as well as some corporate agents. It has also tied up
with organisations like Dhan for distribution of Salaam
Zindagi, a policy for the socially and economically
underprivileged sections of society.
ICICI Prudential has recruited and trained nearly 29,000
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.

61