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A Project Report On



Prepared By
Kunjal Shah
Roll No : 41
Under Guidance Of
Prof. Mrs. Shruti Chavarkar

Submitted In Partial Fulfillment Of

Required For Qualifying B.F.M
Part 1 Examination
Bachelor of Financial Market
University Of Mumbai
S.K Somaiya Collage Of Arts, Science, and Commerce,
Vidhyavihar (East) Mumbai-40077
Year 2014-2015

This project report on study of traditional and modern investment

avenueis a result of cooperation, hard work and good wishes of many
I would sincerely like to give my heartfelt acknowledgement and
thanks to my parents. Any amount of thanks given to them will never
be sufficient. I would like to thank the University of Mumbai, for
introducing Bachelor of Financial Markets Course, there by giving
the student a platform to abreast will changing business scenario, with
the help of theory as a base and practical as a solution.
I would sincerely like to thank our principal Mrs. Sangeeta
Kohli. I would also like to thank my project guide & our coordinator
Mrs. Shruti Chavarkar for her valuable support and guidance
whenever needed. I also feel heartiest sense of obligation to my library
staff members for helped in collection of data and also in processing as
well as in drafting manuscript and I express my deepest regards to all
staff members for helping us and giving us their valuable time and
providing all the needed facilities.
Last, but not least, I would like to thank my friends and colleagues
for always being there

Executive Summary

Life insurance in its modern form came to India from England in 1818 with the formation of
Oriental Life Insurance Company. The Government of India nationalized the life insurance
industry in January 1956 by merging about 245 life insurance companies and forming Life
Insurance Corporation of India (LIC), which started functioning from 01.09.1956. For years
thereafter, insurance remained a monopoly of the public sector. It was only after seven years of
deliberation and debate that 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.
The sector was finally opened up to private players in 2001.The Insurance Regulatory and
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 interests of the
insured. Insurance is a federal subject in India. There are two legislations that govern the sectorThe Insurance Act-1938 and the IRDA Act- 1999. The insurance sector in India has come a full
circle from being an open competitive market to nationalization and back to a liberalized market

To compare cost efficiency and financial performance of Life Insurance Corporation of
India and private sector life insurance companies in India.
To understand the concept and mechanism of insurance
To predict the volume of new business and total premium of life insurance sector in
To encourage the expansion of capital markets,
To enable the investors to take a close view of the fund performance over the years,
To monitor the insurance schemes transactions.



Chapter names
1 Introduction
1.1 Brief history of Insurance
1.2 Principles of Insurance
1.3 Functions of Insurance


2 Regulatory Authority of Insurance

2.1 Malhotra Committee
2.2 Insurance Act
2.3 Insurance Regulatory and Development Authority


3 Life Insurance
3.1 Life Insurance in India
3.2 Features of Life Insurance Contract
3.3 Types of Life Insurance Policies
3.4 Profile of Life Insurance Companies in India


4 Life Insurance Corporation of India


(Public sector company)

5 HDFC Life Insurance



(Private sector company)

6 Data Analysis of Life Insurance Companies

6.1 Market share based on Premium and Policies
6.1.1 Market share based on Total Premium
6.1.2 Market share based on Renewal Premium
6.1.3 Market share based on Total Policies
6.1.4 Market share based on New Business


6.2 Prediction of New Business & Total Premium
6.2.1 Prediction of New Business for Public Sector
6.2.2 Prediction of New Business for Private Sector 50
6.2.3 Prediction of Total Premium for Public Sector 52
6.2.4 Prediction of Total Premium for Private Sector 54
6.3 Cost efficiency of Life insurnce Companies


7 Swot Analysis of Insurance Industry in India

7.1 Strengths / opportunities of Insurance Industry
7.2 Weakness / Challenges of Insurance Industry


8 Conclusion




Insurance is a mechanism of collecting money from a larger group in small amounts

called premium and compensating few people who are victims of losses and damages. The
concept of insurance involves paying a premium to the insurance company to provide cover on a
certain risk.

An individual
buys an

Individual pays a
premium to the

The insurer agrees

to pay a specified
amount of money in
case of loss

Insurance refers to the market for insurance in India which covers both the public and private
sector organisations. It is listed in the Constitution of India on the in the Seventh Schedule
meaning it can only be legislated by the central government.

Insurance is the equitable transfer of the risk of a loss, from one entity to another in exchange
for payment. It is a form of risk management primarily used to hedge against the risk of a
contingent, uncertain loss.
An insurer, or insurance carrier, is a company selling the insurance; the insured, or policyholder,
is the person or entity buying the insurance policy. The amount of money to be charged for a
certain amount of insurance coverage is called the premium. Risk management, the practice
of appraising and controlling risk, has evolved as a discrete field of study and practice.
The transaction involves the insured assuming a guaranteed and known relatively small loss in
the form of payment to the insurer in exchange for the insurer's promise to compensate
(indemnify) the insured in the case of a financial (personal) loss. The insured receives a contract,
called the insurance policy, which details the conditions and circumstances under which the
insured will be financially compensated.

The insurance sector has gone through a number of phases by allowing private companies to
solicit insurance and also allowing foreign direct investment. India allowed private companies in
insurance sector in 2000, setting a limit on FDI to 26%, which was increased to 49% in 2014.

However, the largest life-insurance company in India, Life Insurance Corporation of India is

still owned by the government and carries a sovereign guarantee for all insurance policies issued
by it.

In financial sense:
According to Reegel and Miller, Insurance is a social device whereby the uncertain risks
of individuals may be combined in a group and thus made more certain,small periodical
contributions by the individuals providing a fund,out of which,those who suffer losses may be

In legal sense
Insurance is a contracted agreement whereby one party agrees in consideration of the price paid
to him (premium) to compensate another party for losses.

A contract (policy) in which an individual or entity receives financial protection or

reimbursement against losses from an insurance company. The company pools clients' risks to
make payments more affordable for the insured


The Indian life insurance industry has its own origin and history, since its inception. It has
passed through many obstacles, hindrances to attain the present status. Insurance owes its
existence to 17th century England. In fact, it took 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. 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. In 1759, the Presbyterian Synod of Philadelphia sponsored
the first life insurance corporation in America for the benefit of ministers and their dependents.
Life insurance in its modern form came to India from England in 1818 with the formation of
Oriental Life Insurance Company (OLIC) in Kolkata mainly by Europeans to help widows of
their kin. Later, due to persuasion by one of its directors (Shri Babu Muttyal Seal), Indians were
also covered by the company. However, it was after 1840 that life insurance really took off in a
big way. By1868, 285 companies were doing business of insurance in India. Earlier these
companies were governed by Indian company Act 1866.

By 1870, 174 companies ceased to exist, when British Parliament enacted Insurance Act 1870.
These companies however, insured European lives. Those Indians who were offered insurance
cover were treated as sub-standard lives and were accepted with an extra premium of 15% to
20%. By the end of the 18th century, Lloyd's had brewed enough business to become one of the
first modern insurance company.


A contract of insurance may be defined as a contract between two parties whereby a
person undertakes in consideration of a fixed sum of money to pay to the other a fixed amount
of money on the happening of a certain event ( death or maturity of policy) or to pay the amount
of actual loss when it takes place through a risk insured ( in case of property). Following are the
important principles of insurance contract:

Principle of utmost good faith.

Principle of insurable interest.
Principle of indemnity.
Principle of subrogation.
Principle of contribution.
Principle of proximate cause.

Principle of utmost good faith.

The principle of utmost good faith also known as Uberrimae Fedei. The contract of
insurance is a contract based on utmost good faith. It is duty bound on the parties to disclose all
material facts and figures relating to the subject matter of the insurance contract. A material fact
is one which affects the judgement or decision of both the parties in entering into the contract. If
this principle is not observed by either party, the contract may be avoided by the other. The duty
of disclosure is absolute and positive.
Most of the coomercial contracts are subject to the doctrine of Caveat empter ( let the
buyer beware ) which does not prevail in the insurance contract. In the above doctrine it is the
duty of the buyer to satisfy himself, the genuineness of the subject matter and the seller is under
no obligations to supply information about it.
But in the insurance contract both the parties should disclose in the form in which it
really exist and there should be no concealment, misrepresentation, mistake, or fraud about the
material facts. Even though, the principle is equally applicable to both the parties, the onus of

making a full disclosure of al material facts rests primarily on the insured. Examples of material
facts are:
a) In life insurance : Information relating to age, income, health, diseases, family
history, nature of business or profession.
b) In fire insurance, it is relating to activities of firm, condition of godown, the detailsof
the goods stored, whether such goods are of hazardous nature. In motor insurance,
details of the drivers, condition of vehicle etc.

The whole truth must be disclosed about the subject matter of insurance, so that the
underwriter may know the extent of his risk and the amount he must charge for the insurance
policy as a premium. It is the duty of the insurer to disclose all the relevant facts about the
policy conditions and benefits. The facts should be disclosed at the time of entering into the
contract and if there are some changes subsequently, then the same should be intimated to the
insurer by the insured.

Principle of insurable interest:

The contract is valid only when the insured possess an insurable interest in the subject
matter to be insured. The insurable interest is the pecuniary interest in the property to be insured
whereby the insured is benefited by the existence of the subject matter and will suffer financial
loss on the death or damage of the subject matter.
In the words of Reegel and Miller, An insurable interest is an interest of such a
nature that the possessor would be financially injured by the occurrence of the event insured

The essentials of a valid insurable interest are the following:

a) There should be subject matter to be insured.
b) The relationship between the subject matter and the policy holder must be recognised by

c) The policy holder should have monetary relationship with the subject matter and the
insured risk must be capable of financial evaluations.
d) The relationship between the policy holder and the subject matter should be such that the
insured is economically benefited by the survival existence of the subject matter or will
suffer economic loss by the death or non- existence of the subject matter.
e) The insurable interest must exist both at the time of the proposal and at the time of
claims in the fire insurance but in the case of life insurance it may not be present at the
time of claim, if the policy is assigned. In case of marine insurance it must exist at the
time of claim.
Insurable interest is the basis of legality of insurance contracts. In the absence of the
insurable interest, the insurance contract becomesvoid and such void contracts are contracts
against public interests.

Principle of indemnity:
The very foundation of every rule which has been applied to insurance law is that the
contract of insurance contained in a marine or fire policy is a contract of indemnity only. If ever
a preposition is brought forward which is in variance with it, that is to say, which either will
prevent the assured from obtaining a full indemnity or which gives the assured more than a full
indemnity, that proposition must certainly be wrong.
The principle of indemnity implies that on the happening of an event insured against, the
insurer undertakes to place the insured, in the same pecuniary (monetary) position that he
occupied immediately before the event. Indemnity means the exact financial compensation,
which is paid to the insured. According to this contract, the insured should be neither better off
nor worse off after receiving the insured amount in case of loss due to eventualities.
The main object of this principle is to ensure that the insured is not able to use this contract
for speculation or gambling. The indemnity prevents the insured from benefiting under the
contract and to reduce the impact of moral hazards. The principle is applicable to all types of
contract except life insurances, personal accident and sickness insurance. Under the contract of

insurance, the sum assured will be paid by the insurer when the person dies, due to the fact that
life cannot be indemnified. The principle of indemnity does not apply to personal insurance
because the amount of loss is not easily calculable there.
The measure of indemnity is decided, at the time of entering into the contract itself. In the
event of claim the insured must:
a) Prove that he / she has sustained a monetary loss.
b) Prove the extent and value of his / her loss.
c) Transfer any rights which he / she may have for recovery from another source to the
insurer, if he / she has been fully indemnified.

Principle of subrogation:
This principle is also a corollary to the principle of indemnity. Subrogation may be
defined as the transfer of rights and remedies of the insured to the insurer who has compensated
the insured in respect of the loss.
a) It literally means, to stand in place of. It is the right of one person to stand at law in the
place of another and to avail all rights and remedies of that other person.
b) Often when a claim occurs there may be two avenues of recovery. Suppose A drives
negligently and causes an accident damaging Bs car. If Bs car is insured then two
options are open to B to recover his loss. B can sue A for damages or he can claim
from his insurer. If B pursues both avenues he will receive double compensation. To
prevent B from profiting from his loss subrogation is used in terms of which once the
insurer has paid B the insurer assumes all Bs rights to sue A. this ensure that principle of
indemnity is preserved.

Subrogation has a number of sub-principles namely:


a) The insurer cannot be subrogated to the insureds right of action until it has paid the
insured and made good the loss.
b) The insurer can be subrogated only to actions, which the insured would have brought
c) The insurer must not prejudice the insurers right of subrogation. Thus the insured may
not compromise or renounce any right of action he has against the 3 rd party, if by doing
so he could diminish his loss.
d) Subrogation against the insurer. Just as insured cannot profit from his loss the insurer
may not make a profit from the subrogation rights. The insurer is only entitled to recover
the exact amount they paid as indemnity nothing more. If they recover more the balance
should be given to the insured.
e) Subrogation gives the insurer the right of salvage.

Principle of Contribution:
The principle is applicable to all types of insurance contracts, except life insurance.
Where an insurer gets the subject matter insured with more than one insurer, in case of loss or
damage to the insured property, the insurers shall contribute towards the claim in proportion to
the sum assured with each.
Contribution condition is a corollary to the principle of indemnity. If an insured obtains
more than one policy covering the same risk, he cannot recover in total more than a full
indemnity. The essentials of this principle are:

The policies covers the same perils.

The policies cover the same subject matter.
The policies should be in force when loss occurs.
The policies cover a common interest

Principle of proximate cause:

Proximate cause can be defined as The active efficient cause that sets in motion a
chain of events which brings about a result, without the intervention of any new force started

and working actively from a new independent source.

a) In Insurance the rule is that for a loss to be paid or compensated under a policy of
insurance, it must have been caused by an insured peril. Unless the loss is
proximately caused by an insured peril the policy does not pay or respond.
b) The onus of proving that the loss was proximately caused by an insured peril rests
with the insured.
c) If the insured makes a prima-facie case that the loss was proximately caused by an
insured peril the insurer is obliged to indemnify unless they can prove that an
exception applies.
This principle keeps the scope of the insurance within the limits intended by the insured
and the insurer when the contract was made. It also helps in giving effect to the real meaning
and intention of insurance contract. In the absence of this rule, every loss could be claimed by
the insured and the insurer could reject every loss. Thus, the principle serves not only to define
the scope of coverage under the insurance contract but also to protect the rightsof the parties to
the contract. A proximate cause is the first event in a chain of events that gives rise to a claim of
the insurance.


The functions of Insurance can be bifurcated into three parts:
(a) Primary Functions

(b) Secondary Functions

(a) Primary Functions
The primary functions of insurance include the following:
Provide Protection
The primary function of insurance is to provide protection against future risk, accidents and
uncertainty. Insurance cannot check the happening of the risk, but can certainly provide for
losses of risk. Insurance is actually a protection against economic loss, by sharing the risk with
Assessment of risk
Insurance determines the probable volume of risk by evaluating various factors that give rise to
risk. Risk is the basis for determining the premium rate also.
Collective bearing of risk
Insurance is a device to share the financial loss of few among many others. Insurance is a mean
by which few losses are shared among larger number of people. All the insured contribute
premiums towards a fund, out of which the persons exposed to a particular risk are paid.
Savings and investment
Insurance serves as a tool for savings and investment, insurance is a compulsory way of savings
and it restricts the unnecessary expenses by the insured. For the purpose of availing income-tax
exemptions, people invest in insurance also.
(b) Secondary Functions
The secondary functions of insurance include the following:
Prevention of Losses
Insurance cautions individuals and businessmen to adopt suitable device to prevent unfortunate
consequences of risk by observing safety instructions; installation of automatic sparkler or alarm
systems, etc. Reduced rate of premiums stimulate more business and better protection to the
Small capital to cover large risks


Insurance relieves the businessmen from security investments, by paying small amount of
premium against larger risks and uncertainty.
Contributes towards the development of large industries
Insurance provides development opportunity to large industries having more risks. Even the
financial institutions may be prepared to give credit to sick industrial units which have insured
their assets including plant and machinery.
Source of Earning Foreign Exchange
Insurance is an international business. The country can earn foreign exchange by way of issue of
insurance policies.
Risk Free Trade
Insurance promotes exports insurance, which makes the foreign trade risk free with the help of
different types of policies under marine insurance cover.



2.1 Malhotra Committee

In 1993, Malhotra Committee- headed by former Finance Secretary and RBI Governor R.N.
Malhotra- was formed to evaluate the Indian insurance industry and recommend its future
direction. The Malhotra committee was set up with the objective of complementing the reforms
initiated in the financial sector. The reforms were aimed at creating a more efficient and

competitive financial system suitable for the requirements of the economy keeping in mind the
structural changes currently underway and recognising that insurance is an important part of the
overall financial system where it was necessary to address the need for similar reforms. In 1994,
the committee submitted the report and some of the key recommendations included:
(i) Structure
Government stake in the insurance Companies to be brought down to 50%. Government should
take over the holdings of GIC and its subsidiaries so that these subsidiaries can act as
independent corporations. All the insurance companies should be given greater freedom to
(ii) Competition
Private Companies with a minimum paid up capital of Rs.1bn should be allowed to enter the
sector. No Company should deal in both Life and General Insurance through a single entity.
Foreign companies may be allowed to enter the industry in collaboration with the domestic
companies. Postal Life Insurance should be allowed to operate in the rural market. Only one
State Level Life Insurance Company should be allowed to operate in each state.
(iii) Regulatory Body
The Insurance Act should be changed. An Insurance Regulatory body should be set up.
Controller of Insurance- a part of the Finance Ministry- should be made independent.
(iv) Investment
Mandatory Investments of LIC Life Fund in government securities to be reduced from 75% to
50%. GIC and its subsidiaries are not to hold more than 5% in any company (their current
holdings to be brought down to this level over a period of time)
(v) Customer service
LIC of India should pay interest on delays in payments beyond 30 days. Insurance companies
must be encouraged to set up unit linked pension plans. Computerisation of operations and
updating of technology to be carried out in the insurance industry. The committee emphasised
that in order to improve the customer services and increase the coverage of insurance policies,
industry should be opened up to competition. But at the same time, the committee felt the need to
exercise caution as any failure on the part of new players could ruin the public confidence in the
industry. Hence, it was decided to allow competition in a limited way by stipulating the

minimum capital requirement of Rs.100 crores. The committee felt the need to provide greater
autonomy to insurance companies in order to improve their performance and enable them to act
as independent companies with economic motives. For this purpose, it had proposed setting up
an independent regulatory body- The Insurance Regulatory and Development Authority.


The Insurance Act,1938 and its subsequent amendments in 1950 and 1999 are
serious attempts to address various issues relating to the business.Some of them are:

Protection of policy holder interest.

Limiting the expenses of insurance organizations.
Establishment of tariff advisory committee.

Solvency levels to be maintained

Creation of insurance organization.
Defining the roles and responsibilities of various functionaries associated with the

Features of Insurance Act 1938:

1. The Act applies to all types of insurance business- life,marine etc done by companies
incorporated in India.
2. The insurer carrying on the business of life insurance,general insurance or re-insurance shall
be registered only if:
a) A paid up capital or rupees one hundred crores,in case of a person carrying
on the business of life insurance or general insurance;or
b) A paid up capital of rupees two hundred crores,in case of a person carrying
on exclusively the business as a reinsurer.
3. Regarding deposits,to prevent the growth of insurers of small financial resources or
speculative concerns,the Act provided for registration of all insurers and a substantial
deposit with the Reserve Bank.
4. No company can carry on the insurance business unless he has obtained from the Authority a
certificate of registration for the particular class of business
5. The audited accounts and balance sheet and actuarial report and abstract and four copies
thereof shall be furnished as returns to the Authority.

2.3 The Insurance Regulatory and Development

Authority (IRDA)
Reforms in the Insurance sector were initiated with the passage of the IRDA Bill in Parliament in
December 1999. The IRDA since its incorporation as a statutory body in April 2000 has
fastidiously stuck to its schedule of framing regulations and registering the private sector
insurance companies. Since being set up as an independent statutory body the IRDA has put in a
framework of globally compatible regulations. The other decision taken simultaneously to
provide the supporting systems to the insurance sector and in particular the life insurance
companies was the launch of the IRDA online service for issue and renewal of licenses to agents.


The approval of institutions for imparting training to agents has also ensured that the insurance
companies would have a trained workforce of insurance agents in place to sell their products.
The regulatory body for insurance IRDA has been established with the following mission:
To protect the interests of the policy holders, to regulate, promote and ensure orderly growth of
the insurance industry and for matters connected therewith or incidental thereto.

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.
(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 reinsurance 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 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
(q) Exercising such other powers as may be prescribed.



3.1 Life Insurance in India

Life insurance in the modern form was first set up in India through a British company called the
Oriental Life Insurance Company in 1818 followed by the Bombay Assurance Company in 1823
and the Madras Equitable Life Insurance Society in 1829. All these companies operated in India
but did not insure the lives of Indians. They insured the lives of Europeans living in India. Some
of the companies that started later did provide insurance for Indians, as they were treated as
substandard. Substandard in insurance parlance refers to lives with physical disability.
Pioneering efforts of reformers and social workers like Raja Rammohan Ray, Dwarakanath
Tagore, Ramatam Lahiri, Rustomji Cowasji and others led to entry of Indians in insurance
business. The first Indian insurance company under the name Bombay Life Insurance Society
started its operation in 1870, and started covering Indian lives at standard rates. Later Oriental
Government Security Life Insurance Company, was established in 1874, with Sir Phirozshah
Mehta as one of its founder directors. 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.
Insurance business was conducted in India without any specific regulation for the insurance
business. They were subject to Indian Companies Act 1866. After the start of the Be Indian Buy
Indian Movement (called Swadeshi Movement) in 1905, indigenous enterprises sprang up in
many industries. 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. Not surprisingly, the
Movement also touched the insurance industry leading to the formation of dozens of life
insurance companies along with provident fund companies (provident fund companies are
pension funds). In 1912, two sets of legislation were passed: the Indian Life Assurance
Companies Act and the Provident Insurance Societies Act. There are several striking features of
these legislations. They were the first legislations in India that particularly targeted the insurance
sector. They did not include general insurance business. The government did not feel the
necessity to regulate general insurance. They restricted activities of the Indian insurers. 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.
In 1914 there were only 44 companies; by 1940 this number grew to 195. Business in force
during this period grew from Rs.22.44 crores to Rs.304.03 crores (1628381 polices). Life fund
steadily grew from Rs.6.36 crores to Rs.62.41 crores. In 1938, the insurance business was
heavily regulated by enactment of insurance Act 1938 (based on draft bill presented by Sir
N.N.Sarcar in Legislative Assembly in January 1937). From here onwards the growth of life
insurance was quite steady except for a setback in 1947-48 due to aftermath of partition of India.
In 1948, there were 209 insurances, with 712.76 crores business in force under 3,016, 000
policies. The life fund by then grew to 150.39 crores.
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 in most of these companies. Despite the mushroom
growth of many insurance companies, the per capita insurance in Indian was merely Rs.8.00 in
1944 (against Rs.2,000 in US and Rs.600 in UK), besides some companies were indulging in
malpractices, and a number of companies went into liquidation. Big industry houses were
controlling the insurance and banking business resulting in interlocking of funds between banks
and insurance companies. This shook the faith of the insuring public in insurance companies who
were seen as custodians of their savings and security. The nation under the leadership of Pandit
Jawaharlal Nehru was moving towards socialistic pattern of society with the main aim of
spreading life insurance to rural areas and to channelize huge funds accumulated by life
insurance companies to nation building activities. The Government of India nationalized the life
insurance industry in January 1956 by merging about 245 life insurance companies and forming
Life Insurance Corporation of India (LIC), which started functioning from 01.09.1956. After
completing the arduous task of integration of about 245 life insurance companies, LIC of India
gave an exemplary performance in achieving various objectives of nationalization. The non-life
insurance business continued to thrive with the private sector till 1972. Their operations were
restricted to organized trade and industry in large cities. The general insurance industry was
nationalized in 1972. With this, nearly 107 insurers were amalgamated and grouped into four
companies- National Insurance Company, New India Assurance Company, Oriental Insurance

Company and United India Insurance Company. These were subsidiaries of the General
Insurance Company (GIC). For years thereafter, insurance remained a monopoly of the public
sector. It was only after seven years of deliberation and debate that 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. The sector was finally opened up to private players in 2001.The
Insurance Regulatory and 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 interests of the insured. Insurance is a federal subject in India. There are two
legislations that govern the sector- The Insurance Act- 1938 and the IRDA Act- 1999. The
insurance sector in India has come a full circle from being an open competitive market to
nationalization and back to a liberalized market again. Tracing the developments in the Indian
insurance sector reveals the 360 degree turn witnessed over a period of almost two centuries.



1. Elements of valid contract: Since the life insurance contract is a contract between the
insured and the insurer, it is governed by the Indian Contract Act. The contract of
insurance must contain the essential elements of a valid contract ( offer and acceptance,
legal consideration, competency of the parties, free consent and legal object).
2. Insurable interest: The insured must have an insurable interest in the life to be insured.
The insurable interest must exist at the time of the contract of insurance. The risk against
this policy is the death of the insured.
Insurable interest in owns life
Insurable interest in others life

3. Utmost good faith: The principle of utmost good faith should be observed by both the
parties in life insurance. At the time of taking a policy, the policy holder should disclose

all the material facts. Similarly the insurer is bound to exercise same good faith in
disclosing facts.
4. Warranties: Warranties are an important feature of life insurance contract. Warranties
are integral part of contract i.e. they form the basis of the contract between proposer and
insurer. The contract shall become null and void if any statement whether material or non
material facts are untrue. The policy insured will contain that the proposal and the
personal statement will form part of the policy and be the basis of the contract.
5. Assignment and nomination: Assignment and nomination are essential features of life
insurance policy. In the case of nomination, a person or persons to whom the money
secured by the policy shall be paid on the death of insured against but the rights of
insured are not transferred. In the case of assignment, the rights are transferred to the
assignee for some legal cconsideration or love and affection.
6. Premium: Premium is the price paid by the insured for the risk or loss undertaken by the
insurer. The premium is paid monthly, quarterly, half yearly or in annual instalment for a
certain period.
7. Certainty of event: In life insurance policy the insurer has to pay the insured amount at
the time of death of the insured or at maturity which is certain.

3.3Types of Life Insurance Policies

A life insurance policy could offer pure protection (insurance), another variant could offer
protection as well as investment while some others could offer only investment. In India, life
insurance has been used more for investment purposes than for protection in ones overall
financial planning. Followings are the types of life insurance policy:
Term Life Insurance Policy
As its name implies, term life insurance policy is for a specified period. It depends on the
length of time. It has one of the lowest premiums among insurance plans and also carries an
added advantage of fixed payments that do not increase during the term of the policy. In case
of the policy holder's untimely demise, the benefit amount specified in the insurance
agreement goes to the nominees.
Whole Life Insurance Policy


Whole life insurance policies do not have any fixed term or end date and is only payable to
the designated beneficiary after the death of the policy holder. The policy owner does not get
any monetary benefits out of this policy. Because this type of insurance involves fixed known
annual premiums, it's a good option to ensure guaranteed financial benefits for surviving
family members.
Money Back Plan
With a money back plan, policyholder receives periodic payments, which are a percentage of
the entire amount insured, during the lifetime of policy. It's a plan that offers insurance
coverage along with savings. These policies provide for periodic payments of partial survival
benefits during the term of the policy itself. A unique feature associated with this type of
policies is that in the event of death of the insured during the policy term, the designated
beneficiary will get the full sum assured without deducting any of the survival benefit
amounts, which have already been paid as money-back components. Moreover, the bonus on
such policies is also calculated on the full sum assured.
Pension Plan
Pension plans are different from other types of life insurance because they do not provide any
life insurance cover, but ensure a guaranteed income, either for life or for a certain period.
The Policyholder makes the investment for a pension plan either with a single lump sum
payment or through installments paid over a certain number of years. In return, he gets a
specific sum every year, every half-year or every month, either for life or for a fixed number
of years. In case of the death of the insured, or after the fixed annuity period expires for
annuity payments, the invested annuity fund is refunded, usually with some additional
amounts as per the terms of the policy.
Endowment Policy
It is the most popular life insurance plan. This policy combines risk cover with objective of
savings and investment. If the policy holder dies during the policy period, he will get the
assured amount. Even if he survives he will receive the assured amount. The advantage of
this policy is if the policy holder survives after the completion of policy tenure, he receives
assured amount plus additional benefits like bonus from the insurance company. Designed
primarily to provide a living benefit, along with life insurance protection, the endowment


policy makes a good investment if policyholder wants coverage, as well as some extra

There are two types of Endowment policy:

(a) Without-profit endowment plan
(b) With- profit endowment plan
(a) Without profit endowment plan These plans do not participate in the profits the
insurance company makes each year. Apart from the sum assured, the policyholder could
possibly get a loyalty bonus, which is a one time payout.
(b) With-profit endowment plan These plans share the profits the insurance company
makes each year with the policyholder. So they offer more returns than without-profit
endowment plans and are more expensive i.e. the premiums will be higher than without-profit
endowment plans.
Unit-linked insurance plan (ULIP) Unit-linked insurance plans gives a policyholder greater
control on where premium can be invested. The annual premium is invested in various types of
funds that invest in debt and equity in a proportion that suits all types of investors. A
policyholder can switch from one fund plan to another freely and can also monitor the
performance of his plan easily. ULIP is suitable for those who understand the stock market well.


3.4 Profile of Life Insurance Companies in India

All private life insurance companies and public sector company operating in India during 200001 to 2009-10 were taken for the study. Life Insurance Corporation which is the only public
sector life insurer and twenty two private sector life insurers, most of them joint ventures
between Indian groups and global insurance giants, were taken for the study.

Life Insurance Corporation of India
Life Insurance Corporation of India (LIC) is an autonomous body authorized to run the
life insurance business in India with its Head Office at Mumbai. About 154 Indian
insurance companies, 16 non-Indian companies and 75 provident fund societies were
operating in India at the time of nationalization. Nationalization was accomplished in two
stages; initially the management of the companies was taken over by means of an
Ordinance, and later, the ownership by means of a comprehensive bill. The Parliament of
India passed the Life Insurance Corporation Act on the 19 th of June 1956, and the Life
Insurance Corporation of India was created on 1 st September, 1956, with the objective of
spreading life insurance much more widely and in particular to the rural areas with a view
to reach all insurable persons in the country, providing them adequate financial cover at a
reasonable cost.

The Government having tried various models for the insurance industry such as privatization
with negligible regulation (pre 1956) and nationalization (1956-2000) and having observed sub
optimal performance of the sector, resorted to adopting a hybrid model of both these, resulting in
privatization of the sector with an efficient regulatory mechanism (post 2000). This was initiated

with the aim of making the industry competitive so that there are more players offering a greater
variety of products over a large section of the population. The following companies are entitled
to do insurance business in India.

( Public sector company)


Life Insurance Corporation of India (LIC) is an Indian state-owned insurance

group andinvestment company headquartered in Mumbai. It is the largest insurance company in
India with an estimated asset value of 1560482 crore (US$240 billion).[2] As of 2013 it had total
life fund of Rs.1433103.14 crore with total value of policies sold of 367.82 lakh that year.
The company was founded in 1956 when the Parliament of India passed the Life Insurance of
India Act that nationalised the private insurance industry in India. Over 245 insurance companies
and provident societies were merged to create the state owned Life Insurance Corporation.
The Oriental Life Insurance Company, the first company in India offering life insurance
coverage, was established in Calcutta in 1818 by Bipin Behari Dasgupta and others. Its primary
target market was the Europeans based in India, and it charged Indians heftier
premiums. Surendranath Tagore (son of Satyendranath Tagore) had founded Hindusthan
Insurance Society, which later became Life Insurance Corporation.
The Bombay Mutual Life Assurance Society, formed in 1870, was the first native insurance
provider. Other insurance companies established in the pre-independence era included

Postal Life Insurance (PLI) was introduced on 1 February 1884

Bharat Insurance Company (1896)

United India (1906)

National Indian (1906)


National Insurance (1906)

Co-operative Assurance (1906)

Hindustan Co-operatives (1907)

Indian Mercantile

General Assurance

Swadeshi Life (later Bombay Life)

Sahyadri Insurance (Merged into LIC, 1986)

The first 150 years were marked mostly by turbulent economic conditions. It witnessed, India's
First War of Independence, adverse effects of the World War I and World War II on the economy
of India, and in between them the period of world wide economic crises triggered by the Great
depression. The first half of the 20th century also saw a heightened struggle for India's
independence. The aggregate effect of these events led to a high rate of and liquidation of life
insurance companies in India. This had adversely affected the faith of the general public in the
utility of obtaining life cover.
Nationalisation in 1955
In 1955, parliamentarian Amol Barate raised the matter of insurance fraud by owners of private
insurance agencies. In the ensuing investigations, one of India's wealthiest businessmen, Sachin
Devkekar, owner of the Times of India newspaper, was sent to prison for two years.
Eventually, the Parliament of India passed the Life Insurance of India Act on June 19, 1956
creating the Life Insurance Corporation of India, which started operating in September of that
year. It consolidated the life insurance business of 245 private life insurers and other entities
offering life insurance services, this consisted of 154 life insurance companies, 16 foreign
companies and 75 provident companies. The nationalisation of the life insurance business in
India was a result of the Industrial Policy Resolution of 1956, which had created a policy
framework for extending state control over at least seventeen sectors of the economy, including
life insurance.
Growth as a monoply
From its creation, the Life Insurance Corporation of India, which commanded a monopoly of
soliciting and selling life insurance in India, created huge surpluses, and by 2006 was
contributing around 7% of India's GDP
The Corporation, which started its business with around 300 offices, 5.7 million policies and
acorpus of INR 45.9 crores (US$92 million as per the 1959 exchange rate of roughly 5 for


US$1),[5] had grown to 25,000 servicing around 350 million policies and a corpus of over
800000 crore (US$130 billion) by the end of the 20th century.
Liberalisation post 2000s
In August 2000, the Indian Government embarked on a program to liberalise the Insurance
Sector and opened it up for the private sector. Ironically, LIC emerged as a beneficiary from this
process with robust performance, albeit on a base substantially higher than the private sector.
In 2013 the First Year Premium compound annual growth rate (CAGR) was 24.53% while Total
Life Premium CAGR was 19.28% matching the growth of the life insurance industry and also
outperforming general economic growth.

Awards and recognitions

The Economic Times Brand Equity Survey 2012 rated LIC as the No. 6 Most Trusted
Service Brand of India.

From the year 2006, LIC has been continuously winning the Readers' Digest Trusted
brand award.

Voted India's Most Trusted brand in the BFSI category according to the Brand Trust
Report for 4 continuous years - 2011-2014 according to the Brand Trust Report

Employees and Agents

As on 31 March 2014, LIC had 1,20,388 employees, out of which 24,867 were
women (20.65%).

Category of employees

Total Number


No. of Women

Class-I Officers



Development Officers



Class III/IV employees






LIC had 11,95,916 agents as on 31 March 2014, out of which the number of active agents were
11,32,677 (94.71%)

As per IRDA Annual Report 2012-13 the Total Life Fund of the Life Insurance Industry
was Rs.17,44894 crore. The increase in Life Funds during 2013-14was Rs.1,94,300 crore
compared to Rs.1,80,000 crore in 2012-13 showing a growth of 7.94 %


HDFC Life Insurance
( Private sector company )

HDFC Life (HDFC Standard Life Insurance Company) is a long-term life insurance provider with its
headquarters in Mumbai, offering individual and group insurance.
It is a joint venture between Housing Development Finance Corporation Ltd (HDFC), one of India's
leading housing finance institution and Standard Life plc, leading well known provider of financial


savings & investments services in the United Kingdom. HDFC Ltd. holds 72.37% and Standard Life
(Mauritius Holding) Ltd. holds 26.00% of equity in the joint venture, while the rest is held by others.

Corporate History
The Insurance Regulatory and Development Authority (IRDA) was constituted in
1999 as an autonomous body to regulate and develop the insurance industry. The
IRDA opened up the market in August 2000 with the invitation for application for
registrations. HDFC Life was established in 2000 becoming the first private sector
life insurance company in India
By 2001, the company had its 100th customer, strengthened its employee force to
100 and had settled its first claim. HDFC Life launched its first TV advertising
campaign 'Sar Utha Ke Jiyo' in 2005. In 2006, a study conducted by the Brand Equity
Economic Times had put HDFC Life at 29th rank in the most trusted Indian Brands
amongst the Top 50 Service Brands of 2010
The Insurance Regulatory and Development Authority (IRDA) gave accreditation to
HDFC Life for 149 training centres housed in its branches to cater to the mandatory
training required to be given as well as for other sales training requirements in
In 2012, it the first private life insurance company to bring back pension plans
under the new regulatory regime, with the launch of two pension plans - HDFC Life
Pension Super Plus and HDFC Life Single Premium Pension Super.

Presence & Distribution

HDFC Life has about 400+ branches and presence in 980+ cities and towns in India. The
company has also established a liaison office in Dubai.
HDFC Life distributes its products through a multi channel network consisting of Insurance
agents, Bancassurance partners (HDFC Bank, Saraswat Bank, Indian Bank), Direct channel,
Insurance Brokers & Online Insurance Platform.





6.1 Market share based on premium and policies.

6.1.1 Market Share based on Total Premium
The most important indicator to assess life insurers is the amount of premium collected.
The sum assured is fragmented into installments of premium. In other words, premium is
the fragmented value of the Sum Assured of policy, payable continuously at regular
intervals until the maturity of the policy. The total premium consists of first year
premium, Renewal Premium and Single Premium.
The amount of premium otherwise called premium rate, depends on:
Mortality experience of insured lives
Expenses incurred by the company in administrating the life fund
Yield on investments of life fund
Besides these three, the premium rates may also be affected by other factors namely
interest rates and taxation rates.


This table shows the market share of public and private sector life insurance companies based on
total premium.
The total premium of Life Insurance Corporation of India increased continuously since 2000-01
to 2009-10.However a significant decline is noticed in market share from 99.98% in 2000-01 to
70.10% in 2009-10. While in case of private sector, the total premium income and market share
of total premium have both increased.
The market share of private sector life insurance companies on the basis of total premium has
increased from 0.02% in 2000-01 to 29.90% in 2009-10. It reflects that the private sector has
been successful in capturing the market share from Life Insurance Corporation of India.


6.1.2 Market Share based on Renewal Premium

Premium collected on business in force is called renewal premium. Increase in the renewal
premium is a good measure of quality of the business underwritten by the insurer. It reflects
increase in their persistency ratio and enables insurers to bring down overall cost of doing


This table shows the market share of public and private sector life insurance companies based on
Renewal premium.
The public sector recorded 99.99% market share based on renewal premium in the year 2000-01
but it has decreased to 73.64% in the year 2009-10. While that of the private sector recorded
0.01% in the year 2000-01 which increased to 26.36% in the year 2009-10. Private sector has
managed to take away nearly 26% of the market share from LIC of India. LIC of India is still the
market leader in this segment.


6.1.3 Market Share based on Total Policies

The life insurance contract provides elements of protection and investment. After getting insured,
the policy-holder feels a sense of protection because he shall be paid a definite sum at death or
maturity. Since a definite sum must be paid, the element of investment is also present. In other
words, life insurance provides against pre-mature death and a fixed sum at maturity of policy.
The two elements of protection and investment exist in various degrees in different types of
The older the policy, the lesser the element of protection and higher the element of investment
and vice-versa is also true. Having different elements in different policies, the policy-holders are
free to choose the best policies according to their requirements.
It should be known that no one policy is the best policy for all the policy-holders due to variance
in cost, elements of investments and protection, requirements of the policy-holders and
availability of the policy. Life insurance policies are divided on the basis of duration of policy,
method of premium payments and participation.


This table shows the market share of both the public and the private sector life insurance
companies based on total policies. The market share of LIC of India was 99.23% in the year
2000-01.It has decreased to 73.02% in the year 2009-10. While that of the private sector was
0.77% in the year 2000-01 and increased to 26.98% in the year 2009-10.
There are concerns over Life Insurance Corporation of Indias declining market share based on
total policies and concurrent rise of private insurers who have just entered ten years ago.
Innovative products, smart marketing and aggressive distribution channels has enabled private
life insurance companies to sell policies. As of today, Life Insurance Corporation of India has
retained the market share based on total policies.


6.1.4 Market Share based on New Business

Premium collected on the new business is called first year premium. It also includes single
premium. It is the first Premium collected by the insurance companies from policy holders.


This table shows the market share of public and private sector life insurance companies based on
New Business.
The market share of Life Insurance Corporation of India on the basis of the first year premium in
the year 2000-01 was 99.93% but it declined to 60.89% in 2008-09 and has slightly risen to
65.08% in 2009-10 while the market share of private sector life insurance companies was only
0.07% in 2000-01, which increased up to 39.11% in 2008-09 and slightly declined to 34.92% in
2009-10.The growth in first year premium of private sector was fuelled by sales of unit linked


6.2 Prediction of New Business & Total Premium of

Life Insurance Sector for the Year 2015

6.2.1 Prediction of New Business for Public Sector



Prediction of New Business for Private Sector




Prediction of Total Premium for Public Sector




Prediction of Total Premium for Private




6.3 Cost efficiency of Life Insurance Companies.

Cost Efficiency Score




7.1 Strengths/Opportunities of Insurance Industry

1. The intense competition brought about by deregulation has encouraged the industry to
innovate in all areas; from underwriting, marketing, policy holder servicing to recordkeeping.
2. The existence of stringent licensing requirements ensure that only adequately capitalized
and professionally managed companies are eligible to carry out insurance and
3. The Insurance Regulatory Development Authority of Indias (IRDA) emphasis on
quarterly reporting/monitoring of insurer solvency has enhance capital adequacy and
4. Aggressive marketing strategies by private sector insurers will buoy consumer awareness
of risk and expand the markets for products.
5. Competition in a deregulated environment will allow market forces to set premiums that
are appropriate for exposure and push insurers to differentiate their products and services.
6. Innovations in distribution and improvements in market penetration will follow as public
and private insurers compete to market their products. Allowing insurers to issue their
own policy wordings and set their own rates will enable underwriters to tailor products to
meet client needs. Range of available products will increase because foreign companies
bring with them a wide range of products and product development expertise.
7. Licensed brokers are very much part of the intermediary structure and only those with
adequate capital, professional experience and expertise will be licensed by IRDA .
8. Capital structure of entire insurance industry will improve as foreign companies bring
fresh capital with them.
9. Market efficiency will improve due to information dissemination, global operating
knowledge and increased competition.
10. Management efficiency will increase because foreign companies bring with them global
experience and management innovation.
11. Customers service will improve competition. which will finally benefit the consumers.
Globalization will also improve Regulatory and Governance system. It will also
improve market conduct and Ethical Business Standard.

7.2 Weaknesses/Challenges of Insurance Industry


1. Premiums rates will remain under pressure due to intense competition on more profitable
lines. Falling premium income without a corresponding reduction in claims is likely to
drive down profits.
2. Public and private sector insurers greater reliance on their investment portfolios to
generate sufficient income and gains for net profits would subject them to the volatility of
the financial markets.
3. Private insurers need to raise more capital otherwise growth could be constrained since
reliance on reinsurance for capital relief is not always viable or available.
4. Traditional distribution channels, especially tied agents, need to improve to match the
new product offerings.
5. There is general lack of transparency as financial and operational data for insurers are not
readily available as none of Indias insurers are directly listed on stock exchanges.
6. Like all developing economies on a fast track, the shortage of trained insurance
professionals and technicians at all levels cannot be remedied in the short term.
7. Natural catastrophes will always be present; the Indian sub-continent is vulnerable to
cyclones, floods, hurricanes and earthquakes, and until there is a national capacity
(similar to the terrorism pool) to manage losses, dependence on overseas reinsurers will


Insurance plays an important role in general life. Risk exist every where, to cover these
risk Insurance is very important. But the method or procedure of insurance need to be
change. As days goes needs & requirements of the people get change. Insurance includes
different-different products to fulfill the need of the people.

In our daily lives we encounter lot of risks which results in fiscal losses. One of the
excellent ways to safeguard these losses is through insurance. The insurance firms in
India take entire charge of any such losses against the payment forfeited every month in
the form of premium. Insurance is a commercial means for relocating risks and covering
fiscal losses.

Insurance is an integral part of any personal financial plan. The type of insurance and the
amount of coverage you obtain all depends on your unique financial and family
circumstances, and must be evaluated carefully.

Thus Insurance is a needy financial instrument that every individual should pursue for
covering the risk of his life and providing safety against life, property, liability, disability,



Books/ Journals / Bulletins

1) The ICFAI University Press on Insurance Indian
Insurance Environment by. K.B.S Kumar
2) Insurance ( Fund ) Management by
Aarthi Kalyanraman
N. Lakshmi Kavitha
3) Basic of Insurance Industry - by N.M. Mishre