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Grishma Ins

Grishma Ins

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Humans have always sought security. This quest for security was an important motivating force in the earliest formations of families, tribes, and other groups. The groups have been the primary source of both emotional and physical security since the beginning of humankind. Humans today continue their quest to achieve security and reduce uncertainty. We still rely on groups for financial stability. With industrialization our physical and economic security has diminished. Mankind is exposed to many serious hazards, which cause stoppage of income. The biggest worry any human being has is the economic worry. He is always thinking of tomorrow and the days to come and he will be planning to meet the demands of his family, his business and that of his own needs. The economic worries may arise due to stoppage of income. Our income dependent, wealth- acquiring lifestyle renders us and our families more vulnerable to environmental and social changes over which we have no control. There may be accidents, sickness disability, or due to premature death of the breadwinner. It is impossible to prevent such calamities. But it is always possible to provide against the loss of income that may result out of such these perils with the help of the insurance.

Insurance in India started without any regulation in the Nineteenth Century. It was a typical story of a colonial era: a few British insurance companies dominating the market serving mostly large urban centers. After the independence, it took a dramatic turn. Insurance was nationalized. First, the life insurance companies were nationalized in 1956, and then the general insurance business was nationalized in 1972. Only in 1999 private insurance companies have been allowed back into the business of insurance with a maximum of 26% of foreign holding. In what follows, is described how and why of regulation and deregulation. The entry of the State Bank of India with its proposal of bank assurance brings a new dynamics in the game. The collective experience of the other countries in Asia already deregulated their markets and have allowed foreign companies to participate is studied. If the experience of the other countries is any guide, the dominance of the Life

Insurance Corporation( LIC) and the General Insurance Corporation(GIC) is not going to disappear any time soon.

Insurance may be described as a social device to reduce or eliminate risk of loss to life and property. Under the plan of insurance, a large number of people associate themselves by sharing risks attached to individuals. The risks which can be insured against include fire, the perils of sea, death and accidents and burglary. Any risk contingent upon these, may be insured against at a premium commensurate with the risk involved. Thus collective bearing of risk is insurance.  Definition General definition: In the words of John Magee, “Insurance is a plan by which large number of people associate themselves and transfer to the shoulders of all, risks that attach to individuals.” Fundamental definition: In the words of D.S. Hansell, “Insurance may be defined as a social device providing financial compensation for the effects of misfortune, the payment being made from the accumulated contributions of all parties participating in the scheme.” Contractual definition: In the words of justice Tindall, “Insurance is a contract in which a sum of money is paid to the assured as consideration of insurer’s incurring the risk of paying a large sum upon a given contingency.”

 Insurance = Collective Bearing Of Risk
Insurance is nothing but a system of spreading the risk of one onto the shoulders of many. While it becomes somewhat impossible for a man to bear by himself 100% loss to his own property or interest arising out of an unforeseen contingency, insurance is a method or process which distributes the burden of the loss on a number of persons within the group formed for this particular purpose. Insurance is the science of spreading of the risk. It is the system of spreading the losses of an Individual over a group of Individuals. Insurance is a method of sharing of financial losses of a few from a common fund formed out of Contribution of the many who are equally exposed to the same loss. What is uncertainty for an Individual becomes a certainty for a Group. This is the basis of All Insurance Operations. Basic Human trait is to be averse to the idea of risk taking. Insurance, whether life or non-life, provides people with a reasonable degree of security and assurance that they will be protected in the event of a calamity or failure of any sort. Thus insurance convert uncertainties to certainty.

Insurance in its pure form is a social good and in a number of cases can be classified as a public good (that is, it generates desirable externalities). Insurance companies, mutual and cooperatives enable individuals and firms to protect themselves against infrequent but extreme losses at a cost which is small compared to the feared loss. They do this through the workings of the law of large numbers and the central limit theorem which ensure that a sufficiently large number of reasonably homogenous risks will produce well behaved and highly predictable aggregate results. Insurance by its nature is an intangible good, involving payment in advance for an unknowable quality of delivery in the future. Thus trust is a critical element, and public good classes such as health, disability and work place injury or illness have to date often been delivered through state entities. However, most classes of insurance are usually delivered through private markets and insurance regulation tends to reflect solvency concerns and information asymmetry between suppliers and policyholders: many countries have explicit reference to insurance contracts in their civil codes and specialized laws including specific provisions for retail (B to C) markets. As fiscal pressures mount there is an increasing trend to entrust more social good classes, such as workman’s compensation and annuities, to the private sector and this adds to the pressure for effective market conduct and prudential regimes. Thus, in India insurance is generally considered as a tax-saving device instead of its other implied long term financial benefits. Indian people are prone to investing in properties and gold followed by bank deposits. They selectively invest in shares also but the percentage is very small. Even to this day, Life Insurance Corporation of India dominates Indian insurance sector. With the entry of private sector players backed by foreign expertise, Indian insurance market has become more vibrant.

The story of insurance is probably as old as the story of mankind. The same instinct that prompts modern businessmen today to secure themselves against loss and disaster existed in primitive men also. They too sought to avert the evil consequences of fire and flood and loss of life and were willing to make some sort of sacrifice in order to achieve security. Though the concept of insurance is largely a development of the recent past, particularly after the industrial era – past few centuries – yet its beginnings date back almost 6000 years. The insurance sector in India has come a full circle from being an open competitive market to nationalisation 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.  Milestones In The Life Insurance Business In India The history of life insurance in India dates back to 1818 when it was conceived as a means to provide for English Widows. Interestingly in those days a higher premium was charged for Indian lives than the non-Indian lives as Indian lives were considered more risky for coverage. The Bombay Mutual Life Insurance Society started its business in 1870. It was the first company to charge same premium for both Indian and non-Indian lives. The Oriental Assurance Company was established in 1880.Till the end of nineteenth century insurance business was almost entirely in the hands of overseas companies. Chronology 1912: The Indian Life Assurance Companies Act enacted as the first statute to regulate the life insurance business. 1928: The Indian Insurance Companies Act enacted to enable the government to collect statistical information about both life and non-life insurance businesses.

set up. the first company to transact all classes of general insurance business. 5 crore from the Government of India.. Chronology 1907: The Indian Mercantile Insurance Ltd.1938: Earlier legislation consolidated and amended to by the Insurance Act with the objective of protecting the interests of the insuring public. These were subsidiaries of the General Insurance Company (GIC). 1972 nationalized the general insurance business in India with effect from 1st January 1973. 1957: General Insurance Council.107 insurers amalgamated and grouped into four companies viz. LIC formed by an Act of Parliament.  Milestones In The General Insurance Business In India The General insurance business in India.. the National Insurance Company Ltd. with a capital contribution of Rs. viz. can trace its roots to the Triton Insurance Company Ltd. on the other hand.. . the first general insurance company established in the year 1850 in Calcutta by the British. the Oriental Insurance Company Ltd. a wing of the Insurance Association of India. 1968: The Insurance Act amended to regulate investments and set minimum solvency margins and the Tariff Advisory Committee set up. frames a code of conduct for ensuring fair conduct and sound business practices. LIC Act. and the United India Insurance Company Ltd. 1956. The General Insurance Corporation of India was incorporated as a company in 1971 and it commence business on January 1st 1973. 1956: 245 Indian and foreign insurers and provident societies taken over by the central government and nationalised. 1972: The General Insurance Business (Nationalisation) Act. the New India Assurance Company Ltd.

For years now. which would help JV partners to bring in funds for expansion. The insurance market have witnessed dynamic changes which includes presence of a fairly large number of insurers both life and non-life segment. With many more joint ventures in the offing. and so forth) to various types of liability under tort and civil codes to protecting the balance sheets of credit granting institutions. the private players are active in the liberalized environment. through life and disability and standard property risks (fire. explosion. product innovation and enhancement will increase. The health insurance sector has tremendous growth potential.CHAPTER 3 PRESENT SCENARIO OF INSURANCE INDUSTRY Today the insurance sector is a major global industry covering a huge range of risks ranging from natural disasters and environmental hazard. Less than 10 % of Indians above the age of 60 receive pensions. In the latter case the sector has developed overlaps with. the insurance industry in India today stands at a crossroads as competition intensifies and companies prepare survival strategies in a detariffed scenario. The IRDA has issued the first licence for a standalone health company in the country as many more players wait to enter.There. . and as it matures and new players enter. There are now 29 insurance companies operating in the Indian market – 14 private life insurers. The deepening of the health database over time will also allow players to develop and price products for larger segments of society. burglary. There is pressure from both within the country and outside on the Government to increase the Foreign Direct Investment (FDI) limit from the current 26% to 49%. Most of the private insurance companies have formed joint venture partnering well recognized foreign players across the globe. The insurance sector was opened up for private participation four years ago. nine private non-life insurers and six public sector companies. are opportunities in the pensions sector where regulations are being framed. and become the backstop for significant sections of the banking and shadow banking sectors.

However. Computerisation of operations and updating of technology has become imperative in the current scenario. which is not considered very appropriate for long term protection and savings. The concept is very well established in the country like India but still the increasing use of other sources is imperative. Customers are offered unbundled products with a variety of benefits as riders from which they can choose. Indians.900 as premium . Foreign players are bringing in international best practices in service through use of latest technologies.g. Consumers remain the most important centre of the insurance sector. The insurance agents still remain the main source through which insurance products are sold. there are still some key new products yet to be introduced . A research conducted exhibited that the rural consumers are willing to dole out anything between Rs. There is lots of saving and investment plans in the market. Saturation of markets in many developed economies has made the Indian market even more attractive for global insurance majors. The insurance sector in India has come to a position of very high potential and competitiveness in the market.e.3. The rural consumer is now exhibiting an increasing propensity for insurance products. More customers are buying products and services based on their true needs and not just traditional money back policies. At present the distribution channels that are available in the market are listed below. have always seen life insurance as a tax saving device. health products.2. After the entry of the foreign players the industry is seeing a lot of competition and thus improvement of the customer service in the industry. are now suddenly turning to the private sector that are providing them new products and variety for their choice.India with about 200 million middle class household shows a huge untapped potential for players in the insurance industry. · Direct selling · Corporate agents · Group selling · Brokers and cooperative societies · Bancassurance Customers have tremendous choice from a large variety of products from pure term (risk) insurance to unit-linked investment products.500 and Rs.

In the insurance the awareness level for life insurance is the highest in rural India. accidents and cattle insurance. .each year. but the consumers are also aware about motor.

India still has a low insurance penetration of 1. less than5 percent is spent on insurance. cost-efficient (reduction of intermediation costs) and/or market oriented (customerservice) points of view. Consumers are increasingly more aware and are actively managing their financial affairs. What really increases the appeal of insurance is the benefit of protection to assets and lives from insurance products. the rules of the game have begun to change.95 per cent. Although India boasts a saving rate of around 25 per cent. In such a scenario. In this context. Today. 51st in the world. the distribution of insurance products is expected to play an increasingly important role from strategic (structuring of product supply). The market is already beginning to witness a wide array of products from players whose number is set to grow. The profile of the Indian consumer is also evolving.1 SHRI N. . while boundaries between various financial products are blurring. Despite its more than teeming one billion populations. pricing. the differentiators among the different players are the products. With the entry of competition.CHAPTER 4 VIEWS OF SOME EMINENT PERSONALITIES ON CURRENT DEVELOPMENTS IN INSURANCE SECTOR 4. and service. people are increasingly looking not just at products.RANGACHARY – CHAIRMAN OF IRDA The insurance landscape in India is undergoing a tectonic shift.

the penetration level. this vision alone will help to bring the new ideas. creativity. Overcoming challenges to development requires leadership. Most of these private companies have signed joint agreements with foreign 26% equity partner.2 SHRAWAN JALAN – MANAGER OF ASSURANCE Insurance in India had been under public sector for over four decades. necessary to create viable insurance industry. 4. In view of this. remained low. however. With the passing of Insurance Amendment bill.but at integrated financial solutions that can offer stability of returns along with total protection. Life Insurance Corporation of India (LIC) was nationalized in 1956 and General Insurance of India (GIC) which was nationalized in 1972. The passing of Insurance Regulatory &Development Authority (IRDA) Bill in 1999 finally paved the way for opening up of the insurance sector to private Indian and foreign players. Within a short time of two years there are twelve private life insurance & seven private nonlifeinsurance companies have started their operations in India. and flexibility. the public sector insurance companies had made significant contributions in the development of insurance sector in India. the insurance managers need to understand more about the details that go into the formulation of insurance products to make it attractive in a competitive market. Although. as well as the capital and technical assistance. multi . Besides helping in expanding the insurance coverage geographically so that "every family in every remote village in the country feels safe and secure". commitment.

Privatisation of insurance sector has changed mindset of customers. brokerage. determine price correctly and increase profitability. ● Adequate re-insurance management. One of the most important challenges for the private insurers is to offer products that meet ever changing customer needs. corporate agency. bancassurance and cooperative societies have also come into place and provide wider choice to the insurers. ● Development of new products specially healthcare and pension plan to gain business growth.g. ● Timely claims settlement and management. ● Better distribution channel (through Bancassurance& internet). ● Improve customer service and retain the confidence of the clients. Understanding the customer better will enable insurance companies to design appropriate products. However.. even now traditional channel of agency system is considered as the most effective channel of distributions.distribution channels for e. and ● Training of agents . The private insurance companies are adopting one or more of following options available to them to survive in the era of strong competition: ● Gaining profitability by way of underwriting good risks and better policy administration. Customers are now looking at insurance as complete financial solution offering stable returns coupled with total protection. ● Use of information technology.

It had very good trade relations with other parts of world. Each village was economically independent as all the economic needs were fulfilled with in the village.8% in 1952. which is evident from the coins of various civilizations found at the site of Indus valley.3% in 1700 AD to 3. started by Indian government. If on one hand agriculture received the immediate attention on the other side industrial sector was developed at a fast pace to provide employment opportunities to . First five year plan for the development of Indian economy came into implementation in 1952. The history of Indian economy can be broadly divided into three phases: Pre. For this various policies and schemes were formulated. As predicted by Goldman Sachs. by 2035 India would be the third largest economy of the world just after US and China. This booming economy of today has to pass through many phases before it can achieve the achieve the current milestone of 7. During Indus Valley Civilization Indian economy was very well developed. There was a two-way depletion of resources. the process of rebuilding the economy started. COLONIAL ND POST COLONIAL The economic history of India since Indus Valley Civilization to 1700 AD can be categorized under this phase.Colonial.1 PRE. is going to touch new heights in coming years. the third largest economy in the world. After India got independence from this colonial rule in 1947. These Five Year Plans.25% GDP. focused on the needs of Indian economy. Colonial and Post Colonial 5. Before the advent of East India Company.COLONIAL. During this phase India's share of world income declined from 22. It will grow to 60% of size of the US economy. British used to buy raw materials from India at cheaper rates and finished goods were sold at higher than normal price in Indian markets.CHAPTER 5 ECONOMIC BEFORE ECONOMY AND INSURANCE REFORMS India economy. Then came the phase of Colonization. The arrival of East India Company in India ruined the Indian economy. in terms of purchasing power. the Global Investment Bank. each village in India was a self sufficient entity.

 Introduction of reforms in labour laws to generate more employment opportunities for the growing population of India. introduction of new technology..3 % in 1951-52. which was 2. Structure .Malhotra was formed to evaluate the Indian Insurance industry and recommended its future direction.N. Malhotra Committee. which helped Indian economy to gain momentum. The Economic Liberalization introduced by Man Mohan Singh in 1991. In 1994..2 INSURANCE SECTOR REFORMS In 1993. then Finance Minister in the government of P V Narsimha Rao.2% . 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 recognizing that insurance is an important part of the over all financial system where it was necessary to address the need for similar reforms. 5. financial liberalization. proved to be the stepping-stone for Indian economic reform movements. reached 9% in financial year 2005-06 and presently at 7. reducing agriculture's dependence on monsoon by developing means of irrigation.the growing population and to keep pace with the developments in the world.". the committee submitted the report and some of the key recommendations included: A. Trade liberalization. Since then Indian economy has come a long way. The Gross Domestic Product (GDP) at factor cost. tax reforms and opening up to foreign investments were some of the important steps.  Reorganization of agricultural sector.  Introduction of financial reforms including privatization of some public sector banks. These include:  Maintaining fiscal discipline  Orientation of public expenditure towards sectors in which India is faring badly such as health and education. headed by former Finance Secretary and RBI Governor R. The Malhotra committee was set up with the objective of complementing the reforms initiated in the financial sector.

· No Company should deal in both Life and General Insurance through a single entry. · 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. · Controller of Insurance (Currently a part from the Finance Ministry)should be made independent INVESMENTS · Mandatory Investments of LIC Life Fund in government securities to be reduced from 75% to 50%.1 bn should be allowed to enter the industry. The committee emphasized that in order to improve the customer service and increase the coverage of insurance industry should opened up to competition. CUSTOMER SERVICE · LIC should pay interest on delays on payments beyond 30 days. · Insurance Companies must be encouraged to set up unit linked pension plans · Computerization of operations and updating of technology to be carried out in the insurance industry. . D. the committee felt the need to exercise caution as any failure on the part of new players could ruin the public C. · All the insurance companies should be given greater freedom to operate B. But at the same time. E. · GIC and its subsidiaries are not to hold more than 5% in any company (There current holdings to be brought down to this level over a period of time). · Government should take over the holdings of GIC and its subsidiaries so that these subsidiaries can act as independent corporations. Competition · Private Companies with minimum paid up capital of Rs. Regulatory Body · The Insurance Act should be changed · An Insurance Regulatory Body should be set up. · Only one State Level Life Insurance Company should be allowed to operate in each state.· Government stake in the Insurance Companies to be brought down to 50%.

and it allows more financial instruments to be developed so people can choose the one that suits them -Liberalization removes government regulations on the economy.The private sector is more efficient than the public sector.The benefits of privatization include: -better quality products -lower priced products -more efficient firms which have lower costs -makes costs lower for other firms who use the product the privatized firm produces -this increases employment and incomes across the economy -Government no longer needs to subsidize product . higher incomes and lowers inflation -Promotes technological advancement.confidence in the industry. so resources are wasted much much less -Liberalization allows financial markets to provide loans to people who previously may not have been able to access loans that they can pay off. 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. again creating jobs and growing incomes  PRIVATIZATION It is the incidence or process of transferring ownership of business from the public sector (government) to the private sector (business). Hence. lower prices. it was decided to allow competition in a limited way by stipulating the minimum capital requirement of Rs. it had proposed setting up an independent regulatory body. 100 crores. For this purpose. The benefits are: -Promotes competition. which promotes jobs. which leads to lower costs and prices for consumers -Competition promotes efficiency. usually in areas of social or economic policy. Chapter 6 LIBERALIZING INSURANCE INDUSTRY  LIBERALISATION A relaxation of previous government restrictions.

foreign direct investment. thus increasing their incomes and jobs -It makes technology improvements flow between countries.There are several reasons for discussion of liberalizing India's insurance industry:  First. GLOBALIZATION Globalization is often used to refer to economic globalization. it brings into focus the importance of portfolio management in the insurance business and the nature and impact of portfolio related regulations on the asset quality of the insurance companies. the backdrop of US experience provides some pointers for Indian policymakers. increasing incomes and lowering prices/costs -Countries can produce what they are best at and trade it for goods other countries can produce well. so all countries can reep the benefits of improved technology. -Globalisation increases competition. by increasing incomes and jobs -It allows people to migrate between countries. integration of national economies into the international economy through trade. especially in the non-life industry. If politicized.  Secondly. so countries can produce more goods more efficiently. government decision on important recommendations in insurance sector has been withheld pending the development of national consensus on the subject. . It also provides a rationale for the increased autornatisation of insurance companies.The benefits of globalization include: -Allows specialization. increasing labour force mobility. and the spread of technology. and hence the viability of the insurance companies. migration. again creating jobs and growing incomes In this context. This leads to higher efficiency as people can move to the jobs they do best. regulations have potential to adversely affect the pricing of risks. making firms more efficient -Globalisation puts downward pressure on inflation -Promotes technological advancement. that is. and the increased emphasis on agent independent marketing strategies for their products. capital flows. Finally. the possible liberalizing of the insurance industry would be very much apart of the ongoing economic reforms. allowing both countries to benefit -Countries which have a low savings level can borrow money from overseas to invest. This means higher incomes for all and increased jobs.

 Thirdly. Published By The IRDA 2000. Thus. regulations stipulate that they have a capital base of at least US $ 20 million. to oppose the idea of competition because it encourages unhealthy & illegal practice 6. In the private sector 14 life insurance companies have been registered. a domestic private company must be registered in accordance with the Companies Act of 1956 and have approximately US$ 20 million of investment capital. The specific licensing requirements that Private Indian Companies must fulfill are set forth in the Registration on Indian Insurance Companies Regulations. which are expected to be introduced by early next year. and their investment in such company is capped at 26 percent. 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's online service for issue and renewal of licenses to agents. they must obtain a license from the IRDA before being permitted to write business. Global insurers are now permitted to set up and register a domestic company in order to write business in India. they must form a joint venture with an Indian  . However. to participate in the market. Lifting Of Barriers To Foreign Investment The IRDA Act also lifts certain barriers to foreign direct investment in Indian insurance industry. private companies can now operate in India's insurance industry. Since being set up as an independent statutory body the IRDA has put in a framework of globally compatible regulations. However. To have its license application considered. 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.  Entry Of Private Companies Under the IRDA Act.1 OPENING UP OF INSURANCE SECTOR – 1999 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 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 equity investments limit is the same for global reinsures seeking to write business in India. It further says that India would need $ 100 Billion over the next five years tomeet its infrastructure needs. and brokers in India. Given the rate of savings in India. Since the IRDA first enacted these rules. Additionally. Report on Infrastructure says that 85% of funds for infrastructure development have to come from the domestic industry.2 ECONOMIC LIBERALIZATION Economic liberalizations in brief refers to the efforts taken by state toward faster economic development by adopting changes in existing economic policy. but they are required to put up a capital of approximately US$ 45 million in order to establish a domestic company.partner that is able to invest the remaining funds. up from the current level of $ 3 to $ 3.  Need for Global Integration: Recent economic liberalization started few years ago have started bringing in new investments from global giants and the government was hard pressed to facilitate global integration by lowering trade barriers for the free flow of technology. Thus liberalization of insurance creates an environment for the generation of longtermcontractual funds for infrastructural investment. reinsures. On the other hand. intellectual and financial capital. no global reinsurer has established a domestic company. reaching a faster growth path also implies attracting foreign direct investment inflows of $ 10 Billion every year. rules and Regulations and bringing flexibility in administrative control and procedures economic liberalization encourage the use of new technology and improve knowledge n the production process by global participation and marketing.5 Billion. global companies are pushing for the right to establish branch offices in India. 6. In addition. A recent proposal has been put forward to increase foreign direct investment to 49 percent. most of the top international reinsurance companies operate from their overseas offices by sharing the reinsurance risks picked up by the GIC. there is much . 13 new life insurance companies have entered the market. reforms are essential if the Indian economy is to achieve and sustain a growth rate of 7 to 8 per cent per annum. Instead. These changes are likely to substantially increase the presence of international insurers.

LIC despite all its handicaps has been growing at a healthy clip of around 20%. As early as 1994. Operating in a particular region would expose them to the economic downtrends in the region and derail their profits.5%. speed and flexibility. Insurance companies survive on the principle of spreading of risk. Critics counter that the benefit will be slim. an insurer cannot afford to operate in a niche market. their share was 1 per cent after 20 years. In Korea. The new entrants will therefore be private Indian companies. In Taiwan for example.  Privatization: Start Up Strategy: Potential private entrants therefore expect to score in the areas of customer service. They point out that their entry will mean better products and choice for the consumer. No matter what the size of each player. International insurers often derive a significant part of their business from multinational operations. new entrants find insurance attractive because even a small share of a large and growing market can be profitable. the growth in life insurance premium has been a meager 1. The figure at Commercial Union was 76 per cent in that year. because new players will concentrate on affluent. Insurance is definitely going to be one area that will assist in mobilization of these funds. In China.moreroom to grow and one can expect an additional revenue of about $ 10 Billion a year entering the market to enhance infrastructure.  Multinationals' interest: Multinational insurers are indeed keenly interested in emerging insurance because their home markets are saturated while emerging countries have low insurance penetrations and high growth rates. In any case. In the developed world.many of the UK’s largest life and general insurers derived 40 per cent to 60 per cent of their total premium from outside their home markets. foreign companies took only a 3 per cent share even seven years after opening up. While the impact of global operations on their business may be large. It moved up to 6th largest in 1996. private insurers have not made much headway. was only the 30th largest market in the world by premium volume in 1971. a large and complex market like India. urban . The other reason why these large MNCs are interested in India is the economies of the insurance market. The Korean insurance market for example. Yet. typically foreign insurers take only a small share of an individual country’s market. As compared to this. in India multinational insurers will be restricted to a minority shareholding in new companies.

private insurers would be best served by a middle-market approach. Based on these. even more than banking. There is room for more for not only the existing companies but also for any number of competitors. Therefore. LIC will appoint a consultant which can provide them broad terms of reference on what changes are required to tackle the impending competition. LIC and GIC. both are trying to reposition themselves by having re-engineering done on the structure and operations of their respective organizations. Insurance. in the long run 'middlemarket' offers the greatest potential as in terms of it is the second largest market in the world. This might seem a logical strategy from the point of view of new players. is a volume game. . A very exclusive approach is unlikely to provide meaningful numbers. This may still be an urban market but goes beyond the affluent segment. A change in the GIC Act will enable the corporation to float a joint venture company for health insurance. the fear that new companies will displace public companies is misplaced. Other areas that the GIC is looking at are savings-linked insurance products and use of alternate distribution channels including banc assurance.  Repositioning by Nationalized Sector: Floodgates of competition opened up by the privatization of insurance industry did throw a challenge to the well-protected nationalized sector and it seems they have picked up the gauntlet. Life Insurance Corporation is at present going through presentations from top management consultants. These consultants have been asked to narrate their experiences in countries where the insurance sector has been opened up for private competition so that the public sector player can draw lessons. Consequently. Also in progress is the co-ordination of all foreign operations of the group. GIC has already identified the areas that need to be activated and given a shape through the four subsidiary companies.2 per cent. Start-up costs-such as those of setting up a conventional distribution network-are large and high-end niches offer better returns. However. Today hardly 20 per cent of the population in India is insured and insurance Premium (life as well as non-life) account for just 2 per cent of GDP as against the G-7 average of 9. Foremost is the area of providing health insurance services.customers as foreign banks did until recently. targeting customer segments that are currently untapped.

The dynamic growth of insurance buying is partly affected by the (changing) income elasticity of insurance demand.Based on this relation and other considerations.9%. . At the end of 2003. It has been shown that insurance penetration and per capita income have a strong non-linear relationship. it can be postulated that by 2014 the penetration of life insurance in India will increase to 4.4% and that of non-life insurance to 0. Yet. there are strong arguments in favour of sustained rapid insurance business growth in the coming years.CHAPTER 7 GROWTH OF INSURANCE SECTOR IN INDIA Notwithstanding the rapid growth of the sector over the last decade. including India’s robust economic growth prospects and the nation’s high savings rates. only slightly bigger than that of Denmark and comparable to that of Ireland. the Indian insurance market (in terms of premium volume) was the 19th largest in the world. This was despite India being the second most populous country in the world as well as the 12th largest economy. insurance in India remains at an early stage of development.

Dhoot said that rural and semi-urban India will contribute US $35 billion to the Indian insurance industry by 2010. The projections of the Chamber are based on feedback that it received from its various constituents.8% against 5. ASSOCHAM President. A large part of rural India is still untapped due to poor distribution. Releasing the analysis. including US $20 billion by way of life insurance and the rest US $15 billion through non-life insurance schemes. 6. added Mr. Urban sector insurance is estimated to reach US $25 billion by 2010. life insurance US $15 billion and non-life insurance US $10 billion. engaged in the insurance business.2% in US.1 INDIA’S INSURANCE INDUSTRY LIKELY TO JUMP BY 500% IN 2010: ASSOCHAM : The Associated Chambers of Commerce and Industry of India (ASSOCHAM) has projected about 500% hike in the size of domestic insurance business which will grow to US$ 60 billion by 2010 from the current size of around US$ 10 billion as the growing competitive age is developing a larger appetite among people for wider insurance coverage. Venugopal N.5% in UK and about 8% in South Korea. ASSOCHAM findings .7. Dhoot. highlighting that India’s life insurance premium as a percentage of GDP is currently estimated at 1. large distances and high costs relative to returns. Mr.

In both volumes and profitability therefore. insurance will definitely be one option that the rural Indian is going to accept. casual labours. Insurance companies mostly focus on manufacturing sector. This is because penetration is already good and companies receive good services. as a whole will not be a big growth area for insurance companies. motivating purchase and rendering insurance services. An extensive rural agent network for sale of insurance products could be established. weavers. they are into more than one profession. however. To understand the prospects for insurance companies in rural India. the services sector is taking a large and growing share of India GDP. construction workers and shopkeepers and so on. . craftsmen. understand and measure. The agent can play a major role in creating awareness. Nearly 20% of all farmers in rural India own a Kissan Credit cards.reveals that in the coming years the corporate segment. The rural market offers tremendous growth opportunities for insurance companies and insurers should develop viable and cost-effective distribution channels. The 25 million credit cards used till date offer a huge data base and opportunity for insurance companies. ASSOCHAM believes that insurers should enter into tie-ups or understandings with government agencies to ensure the success of the insurance schemes. their peculiar needs and their occupational structures. There are farmers. build consumer awareness and confidence. their daily lives. This offers immense opportunities for expansion opportunities. when well see more innovations in agriculture in the form of corporatization or a more professional approach from the farmers side. milkmen. ASSOCHAM has suggested that insurer’s strategy should be to stimulate demand in areas that are currently not served at all. The need of the hour is to have innovative policies that have explicit benefits for the people to observe. In the near future. ASSOCHAM suggests that insurance needs to be packaged in such a form that it appears as an acceptable investment to the rural people. More often than not. the scope for expansion is modest. The Paper found that there are a total 124 million rural households. it is very important to understand the requirements of India's villagers. There should be nothing to stop insurance companies from trying to pursue their own unique policies and target whatever needs that they want to target in rural India.

1 per cent of GDP in 2006-07. . up from 1. The Indian insurance sector is on a bull run.1 ISSUES AND CHALLENGES OF INSURANCE INDUSTRY IN TERMS OF GROSS DOMESTIC PRODUCT .2 per cent in 1999-2000. The average Indian now spends 5.CHAPTER 8 ISSUES AND CHALLENGES OF INSURANCE INDUSTRY IN INDIA The increased growth in the Indian middle income group has posed incremental growth in the insurance sector in India which has proved to be a major issues and challenges in terms of Gross Domestic Product (GDP) which is discussed below: 8. With the largest number of life insurance policies in force in the world. far ahead of China where insurance accounts for just 1. India's insurance sector accounted for 4.7 per cent of the GDP and even the US where insurance penetration stands at 4 per cent of the GDP.4 times as much on life insurance as what s/he did seven years ago when the industry was yet to be opened up for private participation.

increased to 2. and to 3 per cent in 2006-07.2 billion from the previous year's US$ 9. They are allocating a small amount of their take-home to buy insurance products given their rising equated monthly installment (EMI) payments for home mortgage and other loans. the life insurance industry registered a growth of 110 per cent in fiscal 2006-07. the number of players in this segment has also increased to 17 (16 in private sector).9 per cent. the scope for growth is enormous.52 per cent. The impetus for growth has come from both public and private insurers. Life insurance penetration in India which was less than 1 per cent till 1990-91 .1 LIFE INSURANCE AND GENERAL INSURANCEGROWTH  Life Insurance Life insurance led by the Life Insurance Corporation (LIC). Indian insurance companies recorded a 19. 8. 2007. The growth in insurance premium collections has spelt an opportunity for the equity market too. As India is in the cusp of grasping potential opportunities in the insurance industry. The life insurance market has grown rapidly over the past six years.1 billion and the assets under management were at US$ 152.6 billion as on March 31. taking the total business to US$ 19. risk and compliance mechanisms that will allow the partnerships to act in the best interest of the policyholder. the minimal foreign investment allowed within the country increase the need for partnerships to operate in the Indian environment.9 per cent growth in premium in dollar terms (adjusted for inflation) in 2006-07. with Life Insurance . Nonetheless. The industry's investment in the equity market stood at US$ 38.1 billion. compared to the world market growth rate of 2. Also. This poses challenges of governance. Clearly.Indians are now setting aside a larger chunk of their income on life insurance when measured as a percentage of GDP. This rate of growth of the industry looks particularly impressive when seen against the fact that the combined penetration of both life and non-life is less than 2 per cent of the GDP compared to world average of 7. with new business premiums growing at over 40 per cent per year owing to the entry of a host of new players with significant growth aspirations and capital commitments. The sector wise growth and potential is underscored below to enhance the understanding of the Indian insurance segment.53 per cent in 2005. one needs to understand that investing for the long term is key.

to Indian farmers who previously had no access to insurance.Corporation (LIC) being the dominant player (market share of about 74 per cent). against US$ 5. against US$ 2. 2007. i. Private sector players' market share has grown to about 40 per cent in FY 2008 as compared to the public sector's 60 per cent.04 billion in 2006-07.63 per cent during 2007-08 driven a robust performances by private players. The Government of Andhra Pradesh after piloting the 'Arogya Sri' health insurance scheme in three districts plans to issue health cards to 18 million BPL (below the poverty line) families.63 billion in premium during 2007-08. including those pertaining to pre-existing conditions. b) IRDA has removed administered pricing mechanism. 2007. about 60 million of the State's 80 million people will have insurance cover. streamlining of sales and distribution channels along with targeted advertising and marketing campaigns. total non-life premium collections totaled US$ 6.  General Insurance The general insurance industry grew 12.e. The Karnataka Government has partnered with the private sector to provide coverage at a low cost in the Yeshaswini Insurance scheme. Consequently. As a result. 13 private sector players clocked premium growth of 28. c) The control rate on fire. The kid's insurance segment in the insurance sector is witnessing increased activity. de-tariffing in respect of fire and engineering along with motor insurance of general insurance for premium.59 billion in 2007-08. engineering and workmen’s compensation insurance classes has been removed from 1 September.85 per cent. the scheme provides coverage for major surgical operations. d) Some state governments have also taken a dynamic role in this sector.  Government Initiatives The Government has taken many proactive steps to give a boost to this sector: a) Foreign direct investment up to 26 per cent is permitted under the automatic route subject to obtaining a license from the IRDA. The 13 non-life insurers collected US$ 2.85 billion collected in 2006-07. effective from 1 January. Launched in 2002. According .94 per cent. Innovative Trends in insurance sector in India has been spurred by product innovation. While the public sector could increase its premiums by just 3.

non-life insurance market will touch an estimated US$ 25 billion. market penetration tends to rise as incomes increase. Hence the new insurers will have to be ready for locking up their capital for at least 5 years before earning any profits. particularly in life insurance. 100 crores. as they are not suitable to the needs of the consumers.5 billion by 2010. term insurance . Further the new insurers will have to compete with the established insurance companies like LIC and GIC which have a corporate image and market presence for several years.  New Insurers The new insurers will have to invest a minimum capital of Rs. for every one per cent increase in the GDP.managing home and being financially independent as distributors of insurance). Hence old as well as new insurers will have to offer innovative products to the consumers. The generation of profit normally starts in the sixth year. with its huge middle-class households and growing economy has exhibited huge potential for this sector. The setting up of various offices and distribution network is a time consuming process. of which US$ 35 billion will come from rural and semi-urban areas. which in turn has helped women through a micro-entrepreneurship initiative (women have flexibility .to industry estimates. 20-30 per cent of business of many companies comes from children-specific insurance policies alone. insurance premiums increase by at least 4 per cent. Thus.2 CHALLENGES BEFORE THE INDUSTRY The new as well as the old insurers will have to face a number of challenges in the liberalized market. Besides they will face problems of shortage of trained manpower for the insurance industry. an increase in the number of working women has led to a demand for life insurance policies. health insurance. The domestic insurance industry in India is estimated to be around US$ 60. Current estimates say that. India.  Expectation Of The Consumers Today LIC has more than 60 products and GIC has more than 180 products to offer in the market. The normal gestation period is of five years. currently. But most of them are outdated. The consumers are particularly expecting good pension plans. Emerging lifestyle trends amid a changing fabric of the Indian society have also modified social and financial behavior. For instance. 8. While the life insurance market is expected to grow to US$ 35 billion.

the consumers are confused in the market. bank branches. from the life insurers. Hence there will be competition among the channels.  Consumer Grievance Redressal The insurers will have to face an acute problem of the redressal of the consumers. The Insurance Regulatory Development Authority (IRDA). Similarly the consumers expect innovative products from the general insurers for managing healthcare. property insurance.  Consumer Education Very soon the market will be flooded by a large number of products by a fairly large number of insurers operating in the Indian market. corporate intermediaries. there will be multiple distribution channels.and investment products like unit-linked insurance. his judgement will be binding on insurers. intense competition will grow among the old and new insurers in the market to win the consumers. it is so because only 62% of the population of India is literate and less than 10% well educated. grievances for deficiency in products and services. Even with limited range of products offered by LIC and GIC. The consumer organizations and the media also can play very important role in education of the consumers. Hence. under Consumer Protection Act 1986. the consumer courts are operating at district. This will pose a great challenge to the insurers in the liberalized insurance market. accident insurance and other products related to the personal line of insurance. affinity groups and direct marketing through telesales and Internet. Their confusion will further increase in the face of a large number of products in the market. . The existing level of awareness of the consumers for insurance products is very low. The new insurers will operate with the help of multiple distribution channels but the existing insurers may be forced to operate only with the help of agents. Further.  Distribution Channel In the liberalized insurance market. This will result in expansion of the insurance market and will also enable the needy consumer to purchase appropriate products. Some channels will be cheaper than others. which will include agents. The consumers also expect reduction in the premium of the insurance products as the mortality rate in India has come down by three times in the last 50 years. brokers. the regulatory body has already appointed Ombudsman for looking into the grievances of the policyholders. Hence it is necessary that all the insurers should undertake the extensive plan for education of consumers. Even the educated consumers are ignorant about the various products of insurance.

because they see India emerging as one of the biggest markets in the Asian region.3 PRIVATE V/S PUBLIC INSURANCE SECTOR-ONE OF THE MAJOR CHALLENGE Private players in the life insurance business are growing at a scorching pace. While the private insurance companies have attained 13 to 14 per cent share of the overall insurance market."We have to struggle to complete a deal in the metros now. driving sales. because policyholders are comparing products and asking for better deals. in 2000. Private insurance companies are essentially joint ventures with global insurance companies holding a maximum of 26 per cent stake. Within three years of their inception. brokers and corporate agents. their share in the key metros (Mumbai and Delhi) is as high as 30 to 40 per cent. And after seven years in the industry. Prudential Corporation Asia managing director South Asia and greater China. This will be a challenge to the insurers. . private mutual funds accounted for just 9 per cent of a market that had been dominated by the Unit Trust of India.contributes almost 70 per cent of our total sales. In the competitive market. “Our bancassurance channel--with tie-ups with four banks-. thereby. Compare this to new generation private-sector banks. The foreign partners are investing heavily in the Indian market and." predicts Dan Bardin. awareness level of the consumers will increase and it will help consumers to fight for their legal right for deficiency in services.state and the national level. 8. mainly by creating alternative distribution channels--such as associations with banks. which took nine years for 20 per cent share in the Indian banking industry. chairman of the Life Insurance Corporation of India." says Aviva CEO Stuart Purdy. “India will become the biggest market for us in the next three to four years. they have seized about 14 per cent of the market. Hence the number of legal cases filed by the consumers against insurers is likely to increase substantially in future." says S B Mathur. There’s another dimension to the insurance numbers game. Private players have certainly done their bit to increase the penetration levels of insurance.

where it is selling life policies on the back of fixed deposits and bonds. They have mobile phones and have opened bank accounts. If a customer has already bought an LIC plan. In sharp contrast." he points out. "The rural populace is managing their money well and no longer keeping it under their beds. The multi-channel approach adopted by private insurance companies has proved to be a boon in terms of costing and their ability to capture business. has tied up with various chit funds and transport finance companies in the country. most of the LIC's policies continue to be sold through its tied-agency network. most private insurance companies focused their energies on the top 20 cities. is also leaning towards alternative distribution channels that will contribute to 45 per cent of total sales. Today they are moving to smaller cities. this has fuelled growth opportunities for us." says Max New York Life CEO Anuroop Tony Singh. With the increase in buying power. AMP Sanmar.OM Kotak Mahindra Life. which is ranked eighth among private players. prior to the industry being ." says OM Kotak Mahindra Life CEO Shivaji Dam. Earlier. "We [private insurers] are becoming an alternative to LIC. his second policy is likely to be bought by the private insurance sector on account of various reasons--more specifically flexibility and transparency. in line with the contribution from its tied agency force. The state life corporation acknowledges that it is unable to maintain its lead in some metros: penetration by the private-sector insurers has come of age and they are giving the LIC a run for its money. Its ad spend more than doubled to Rs 81 crore (Rs 810 million) in fiscal 2003."The potential in smaller cities is increasing and companies are moving to smaller cities and towns because these are increasingly becoming more prosperous with a rise in agricultural income. another private player. And that's making the private sector optimistic about its future in the Indian insurance market. against Rs 37 crore (Rs 370 million) in 1999-2000. They are not very different from their urban counterparts when it comes to purchasing life insurance covers. Perhaps this partly explains why the LIC has increased its advertising spend multifold since the insurance sector was privatized. A senior company official cites the example of Vijaywada where a significant portion of the income is derived from farming activities.

This also gets reflected in the average sum assured by private insurance companies being higher than that of the LIC. Against this is the LIC's average premium of Rs 3." points out Dam.But it's not the increased spend on advertising alone that has helped private players in grabbing market share.000-odd life insurance advisors of the private insurance companies.Of course.200. private insurance companies are capitalizing on global relationships. while that of OM Kotak Mahindra Life is equally high at Rs 20. But it's not as if LIC has lost out on group insurance. the LIC aims for the masses through its 2. While the private players are targeting the upper middle-class and high net-worth individuals. Life insurance advisors of private sector insurance companies adopt the need-based selling approach. Birla Sun Life's average premium stands at Rs 24.Meanwhile. . "Business deals are often a call away since we capitalize on AIG's global relationship with multinational companies such as GE and Kodak."The private insurance agents sell better than their counterparts at the LIC. recording a 119 per cent growth in new premium income and 50 per cent increase in the number of lives covered. to Rs 92 crore (Rs 920 million) the following year. The insurance major's group business reached new heights in fiscal 2004. Policies sold by the private players tend to be of a higher value. In fiscal 2003. unlike the LIC's agency force that pushes the number of policies.048 branches spread across semi-rural and rural towns. private insurers spent Rs 143 crore (Rs 1. the private insurance sector has also been steadily increasing its ad spend.400.privatized. from Rs 29 crore (Rs 290 million) in fiscal 2001 when the industry opened up. OM Kotak has gone a step further and tied up with Swiss Life International so that it can capitalize on the latter's relationship with 300 multinational subsidiaries and affiliates.500. One of the key differential factors responsible for their growing market is the 150."The key in product sales lies in offering unbundled and transparent products that give customer value.Of course. compared to the 18 per cent average industry growth in new premium income for the same period." says Tata AIG Life Ian Watts. there's also a difference in the target client of the privateand the state-run insurance companies.43 billion) on advertising." says Dam.Still.For instance. new business income for private companies has grown at 146 per cent in fiscal 2004.

And even though the LIC was late (January 2004) in pushing its unitlinked product "Bima Plus".7-lakh unitlinked policies. "The stock market has helped to a certain extent and has contributed to our growth and performance.Aviva has shown a compounded aggregate growth rate of 36 per cent since the inception of its fund." He adds: "Growth is coming faster in insurance companies with unit-linked plans.79 to 43.000 policies sold by ICICI Prudential were unitlinked plans. the highest sales figure in the industry. annual returns and bonus calculations.5-5 million) since the "savvy investor thinks it best to invest in unit-linked products." agrees Birla Sun Life CEO Nani Javeri. Ninetyfive per cent of the policies sold by Birla Sun Life and over 80 per cent of the 436." .And the switch from traditional products to unit-linked plans gained momentum as the Sensex climbed higher: the returns on such policies are linked to the equity market. it managed to mop up a premium income of Rs 373 crore (Rs billion) with the sale of just under 1. the interest in unit-linked plans only increased.Dam claims that OM Kotak has sold several policies of Rs 25-50 lakh (Rs 2. With many companies guaranteeing the capital investment (some like Birla Sun Life even guarantee 3 per cent assured returns on its unit-linked plans).The advantage with unit-linked plans is that they offer policyholders transparency in terms of costs.25 per cent respectively.The biggest draw in insurance in fiscal 2004 was unit-linked plans. Returns on OM Kotak's balanced and growth funds stand at 31.

mainly by free trade and free mobility. The world has never experienced globalization at this level of intensity before. Competition is tough now due to globalization. Daly. This is a changing world. Government gives more emphasis on export and entrepreneurship. which is providing better opportunities for private player in India.1 GLOBALIZATION . but also by easy or uncontrolled economic purposes. marketing has taken a new dimension and it is them most challenging task now.GIC & LIC's monopoly market approach is no more prevalent in India. After globalization.societies have been interconnected for years. Everything is changing according to the need of the time. The new horizon of marketing in the field of finance and insurance in present scenario is a good sign of development. Economic growth and social development in present scenario is due to sudden change in industrial policy and economic planning. Marketing is the major concept for developing any type of business. The new market scenario for insurance is growing. so every one thinks of being global. Liberalization. an analyst of Global Policy Forum. and industrialists think about making things global."THE DYNAMIC FORCE" Many people consider globalization nothing new . Business has positioned the entire economy. characterizes globalization as. Herman E.CHAPTER 9 EMERGING TREND IN INDIAN INSURANCE SECTOR Market by 2015." . There are no stringent rules or regulations for making any business house or industry. privatization and globalization is the basic concept of success in all aspect of development. no doubt it is a flying bird. Globalization has been the basic mantra after 1991. Everyone has to compete for better success. "Global integration of many former nationaleconomies into global economy. particularly in countries like India and China. 9. or the speed at which it is transforming and integrating societies. Change is the eternal law of nature. The IRDA is the major body.

Aviva. Insurance being an integral part of financial service could not claim immunity to the impact of the globalization process and opened up to private and global players world over. This study confines its attention to four growth-enhancing facets of globalization that have been among its key drivers. communication and transport. integrated. For the economist. For along time.He further clarifies that globalization is not internationalization -globalization brings about a single. which had sound growth potentialities."The New Path Maker" After globalization. including India. it has different dynamic force for different person. the two most important insurance players were LIC &GIC. From a multi-disciplinary angle. a philosophy and a process. insurance sector has become more prosperous.  MNCs . .MNCs into their markets. The world-class MNCs constantly pursued their strategy of gaining access to every promising market world over. particularly in developing countries like China and India. finance. it is an epoch dominated by global capitalism. For a historian. The consequence was that some of the markets. Sociologists see globalization as the celebration of diversity and the convergence of social preferences in matters of life style and social values. while internationalization is a federation of nations cooperating as sovereign units to advance the national interest of all members. So many MNCsare now entering into the insurance sector which is now a booming sector. To the political scientist. Several factors have been responsible for this phenomenon. which affects human beings as profoundly as any previous event. in order to expand their network and control over the respective local economies. so many MNCs are the major path maker for economic growth. adopted some sort of selfprotectionistmechanisms by imposing certain deliberate politico-legal restrictions in order to restrict the entry of capital goods of these.  New Horizons Of Insurance Market After Globalization After 1970. globalization is essentiallytheemergence of a global market. But discipline specific studies explain only a part of the phenomenon. ranging from the expansion of cultural influences across borders to the enlargement of economic and business relations throughout the world.Now so many MNCs have entered into the same sector like BajajAllianz. globalization may be treated as phenomenon. global economy. Though globalization has become a broad heading for a multitude of global interactions. namely trade. it represents the gradual erosion of state sovereignty.

 New Market Scenario & Insurance Insurance market in present scenario though is a booming sector. Understanding market synergy and cognisation of perception of customer in the insurance field is very difficult. associates companies. Western Europe. The insurance business is concerned with North America. which finance international trades. Japan and Oceania. but the market has changed from simpler to complex. Together these region’s accounts for about 91 % of the world annul premium. less challenging to more challenging. The Economic Value Addition (EVA) has taken the major concern of the same business. Marine cargo insurance provides risk coverage for shippers and the banks. Indian life insurer operates in more than 30 countries through agencies. Going domestic to international is a very difficult task..e. branches. These operations earn foreign exchange. By region’s North America and western Europe are growing moderately while oceanic. This role becomes all the more important in the context of an active government policy to encourage exports.  Globalization Of Insurance Market Insurance not plays an important role in national economy but also in international economy. i.Birla Sunlife. The Regulatory Boardlike 'IRDA' is playing a very crucial role for the benefit of the insurance holder. eastern Europe and Africa display growth above lone –term trends to a global context globalization of life insurance helps companies practices underwriting discipline in one regions globalization of the insurance industry received a big boost. the element of investment and the element of protection. . The market is becoming tougher gradually. Insurance is nowacting on two dimensions. ICICI Prudential. Latin America. The premium and interest rate can't be violated for better profit and development. etc.


This brought about greater efficiency and quick service delivery. Also internet is used for sending premium notices to policy holders through e-mails Companies like LIC (www.MARKET SHARES OF PRIVATE PLAYER OF LIFE INSURANCE IN 2009 9.iciciprudential.com) all have websites from which people can . Internet is today used to even sell insurance policies. in fact.licindia. Computers were introduces in the mid 1960’s and by the 1980’s the Unit Phased Machines were phased out and the entire process was computerized.  Internet Today. the internet has completely changed the service delivery process.2 TECHNOLOGY TREND IN INSURANCE MARKET  Computerization Initially. proving to be one of the widely used distribution networks for selling insurance policies. Internet is. in the late 1950’s the insurance companies used Unit Record Machines (Electro Magnetic Machines) to process data punched into cards.com). ICICI (www.

various schemes. prices.get the information about their products. the policy holder need not visit a branch for paying the premium or collecting the receipts. People can also purchase the product through this website. and lots of other information. A policy holder having an account in any bank which is a member of the local clearing house can opt for ECS debit to pay premiums. The advantage here is that once the option is exercised. This service is 24x7 and they have the Interactive Voice Response (IVR) systems at all the branches. the premium amount will be directly debited to the bank account of the policyholder and the receipt will be issued by the designated branch office. . On the day indicated by the policy holder.  Call Centres and SMS services Almost all the insurance companies have their own call centres which cater to the phone based queries of the policyholders.  Electronic Clearance Service (ECS) Almost all the big organizations today provide the ECS facility to its customers.

The trend in developed economies where people not only live longer and retire earlier are now emerging in India. and service. the focus may shift more to the period for which the cover was offered and the risk underwritten. With the entry of competition. Instead of categorizing insurance by class. where companies are allowed to do only life or non-life business today. Where once the fear was one of dying too early. Today. the differentiators among the different players are the products. the rules of the game are set to change. A lifting of the bar on composite insurance. This trend has been further driven by the long-term decline in . people are increasingly looking not just at products. insurance products today offer competitive returns. now. consumers are now concerning themselves with the need to provide for a comfortable retirement. while boundaries between various financial products are blurring. In terms of returns. To satisfy these myriad needs of customers. the profile of the Indian consumer is also evolving. Already there is demand for permitting the industry to underwrite pure risk and leaving investment decisions to policyholders. what really increases the appeal of insurance is the benefit of life protection from insurance products along with health cover benefits. Health and Wealth. In such a scenario. with increasing longevity. Consumers are increasingly more aware and are actively managing their financial affairs. insurance products will need to be customized.CHAPTER 10 FUTURE SCENARIO OF INSURANCE INDUSTRY Presently India is building an upsurge in consumer awareness. Insurance today has emerged as an attractive and stable investment alternative that offers total protection — Life. preferring products with benefits unbundled and customizable to suit their diverse needs. The market is already beginning to witness a wide array of products from players whose number is set to grow. putting immense and unavoidable pressure on the insurance industry. but also at integrated financial solutions that can offer stability of returns along with total protection. can also be expected. pricing. the fear also is one of living too long and outliving one's assets. Meanwhile. With the breakdown of traditional forms of social security like the joint family system. Consumers today also seek products that offering flexible options.

investment linked. estimated around 314 million can afford insurance from their own financial resources. Indian insurance market offers tremendous opportunities to prospective insurers. Today's consumers are increasingly interested in products to help build wealth and provide for retirement income. However the success of the insurance industry will primarily depend upon meeting the rising expectations of the consumers who will be the real king in the liberalized insurance market in future. which makes it all the more necessary to start saving early to ensure long term wealth creation. Only 10% of the market share has been tapped by LIC and GIC and the balance 90% of the market still remains untapped. This all adds up to major change in demand for insurance products. each Individual now has arranged insurance cover for himself and for his family.000 crores in the year 1999. Hence. The size of the existing insurance market is very large and is growing at the rate of 10% per year. sales of new products like single premium. whole life and term will remain popular. The estimated potential of the Indian insurance market in terms of premium was around Rs. retirement products. This vast potential can be tapped only by a large number of insurers. In fact all the citizens in the middle class. coverage of insurers. Hence. With the increase in the life span of individuals and disintegration of the joint family system. The huge fund from insurance investments can be utilized for financing the infrastructure industry as well as a support to other industries in the country. Hence insurance industry is likely to play a key role in changing the economic landscape of the country. variable life and annuity products are also set to rise. 3. While sales of traditional life insurance products like individual. the regulator should issue licenses to a large number of insurers if the insurance market has to grow at a fast rate. has to grow very fast. The remaining population has to be given subsidized insurance with the help of the government as well as the insurers. which was around 7% of the population in 1999.interest rates. 44. . To serve 100 crores of population.

00 crores of New Business in 1957 the corporation crossed 1000. and it took another 10 years for LIC to cross 2000.CASE STUDY 11 COMPARISON BETWEEN LIC AND ICICI PRUDENTIAL 11. It may be seen that from about 200. It worked wonders with the performance of the corporation. Since life insurance contracts are long term contracts and during the currency of the policy it requires a variety of services need was felt in the later years to expand the operations and place a branch office at each district headquarter. apart from its corporate office in the year 1956.1 COMPANY PROFILE OF LIC AND ICICI PRUDENTIAL  Company Profile Of Life Insurance Corporation Of India Life Insurance Corporation of India was created on 1st September. 1956. Re. 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.00 crore mark of new business. As a result of reorganization servicing functions were transferred to the branches. and branches were made accounting units. providing them adequate financial cover at a reasonable cost. 33 divisional offices and 212 branch offices.00 crores only in the year 1969-70. . But with reorganization happening in the early eighties. by 1985-86 LIC had already crossed 7000. LIC had 5 zonal offices.00 crore Sum Assured on new policies.organization of LIC took place and large numbers of new branch offices were opened.

LIC’s ECS and ATM premium payment facility is an addition to customer convenience. Over 47 years.66. Ahmedabad. Hyderabad(South-Central Zone).Dun & Bradstreet (India 500). and Kolkotta (Eastern Zone). LIC has launched its SATELLITE SAMPARK offices. Pune and many other cities. 47. With a vision of providing easy access to its policyholders. 7 zonal offices and the Corporate office. Info Centres have been commissioned at Mumbai. New Delhi (Northern Zone). Life Insurance Corporation of India was established by an Act of Parliament on 1st September.1 in the list of top 500 companies on the basis of Net Worth(Rs. Hyderabad. LIC has become a household name for providing security for a lifetime and is synonymous to life insurance in India. LIC has tied up with some Banks and Service providers to offer on-line premium collection facility in selected cities. . The digitalized records of the satellite offices will facilitate anywhere servicing and many other conveniences in the future. Bhopal (Central Zone). Its Central Office is located in Mumbai. LIC continues to be the dominant life insurer even in the liberalized scenario of Indian insurance and is moving fast on a new growth trajectory surpassing its own past records.Today LIC functions with 2048 fully computerized branch offices. Kolkata. Apart from on-line Kiosks and IVRS. New Delhi. Chennai (Southern Zone). It also has seven zonal offices each located in Mumbai(Western Zone).277 million). The satellite offices are smaller. Kanpur (NorthCentral Zone). Chennai. Life Insurance Corporation of India is a wholly owned undertaking of the Government of India. LIC’s wide Area Network covers 100 divisional offices and connects all the branches through a Metro Area Network. Bangalore. LIC ranks No. 951 million) as well as Net Profit(2. 100 divisional offices. leaner and closer to the customer. 15. It has a network of over 2000(2048) branches and more than nine lakh agents. 1956.

it leverages its state-of-the-art IT infrastructure to provide superior quality of service to customers. train the advisors about the product and he is also a paid up employee of the company. He is. Advisors main job is to sell policy and in return the advisors get huge return like high commission.25 billion with ICICI Bank and Prudential PLC holding 74% and 26% stake respectively.000 insurance advisors to interface with and advise customers. for all purposes. . Manager will get a fixed salary and the commission on the policies sold by his advisor and the commission of the policies which he has already sold. Further. recognition etc. Company Profile Of Icici Prudential Life Insurance ICICI Prudential Life Insurance Company is in to selling life insurance products. ICICI Prudential’s equity base stands at Rs. Tiger team manager is one who gets to sell the policy an get commission. an authorized salesman for insurance. Advisors can become the Unit Manager of the company if they pass the pinnacle program. with a wide range of flexible products that meet the needs of Indian customer at every step in life. At present it is growing at a tremendous pace. 9. ICICI Prudential was amongst the first private sector insurance companies to begin operations in December 2000 after receiving approval from Insurance Regulatory Development Authority (IRDA). a Premier Financial Powerhouse and Prudential PLC. ICICI Prudential Life Insurance Company is a joint venture between ICICI Bank. rewards. Now we can say there is no close competitor to ICICI Prudential. a leading international financial services group headquartered in the United Kingdom. ICICI Prudential has recruited and trained about 56. 1 private life insurance in the country. ICICI Prudential has retained its position as No. The advisors are considered as the brand ambassadors of the company or the working partner who doesn’t have to invest to get returns but just work with the company to make money. For the past five years. The company mainly depends on advisors.

At the end of the deferment period when the premium ceases. . The similar product marketed by ICICI Prudential Life Insurance Company is Forever Life.  The amount you receive depends on the premium you pay till the stipulated date and the option you choose. The table below shows the summarised comparison of LIC’s New Jeevan Suraksha-I vs. Additionally you can also opt for an insurance cover during the deferment period by taking the Term Rider add on. this policy can. a comprehensive retirement solution that is developed keeping in mind your capabilities and needs with respect to your retirement planning. after a stipulated date. To combat the increase in longevity. The salient features of this plan are as under:  It provides regular income for life. ICICI’s Forever Life. at your option. This plan provides a lot of flexibility in terms of various pension options for you to choose from.  Postponement of retirement age.  It also offers life cover during the deferment period.2 LIC NEW JEEVAN SURAKSHA VS ICICI PRUDENTIAL FOREVER LIFE LIC’s New Jeevan Suraksha offers cool comfort to serve the young.11. It is an ideal solution for people as it not only offers retirement benefits but also takes care of our protection needs (with term rider option). this plan provides regular guaranteed income at old age and helps in planning to meet requirements for current and future needs. pay you a lump sum amount and a suitable pension for your lifetime. the middle aged and the old which has also the security and safety backing of Government of India.


The Training Program also explains them the importance of the smallest of the customer .e. . but it is just to make-up for the loss of customer satisfaction.3 INNOVATION STRATEGY IN LIC& ICICI PRUDENTIAL  Innovation Strategy In Lic LIC has realised the importance of personal involvement and has included it in the training program itself. This is the main reason why LIC conducts training programs for the newly recruited Agents as well as the other Employees. The service provider should plan certain compensation B. In any kind of breakdown situations LIC try to offer a rational explanation and demonstrate sensitivity and concern to the customer rather than defending themselves. “SO IT DOSENT TAKE MUCH OF TIME FOR THE HANDS OF THE LIC LOGO TO COME CLOSER FOR APOLOGY” LIC has established elaborate Grievance Redressal Machinery at different level as per the customer requirement. Once the Agent is recruited he needs to undergo a compulsory training program designed by LIC. LIC gas also set up Policyholder Councils and Zonal Advisory Boards to understand the problems of their customer situated in any part of the city.11. empowered and interested in setting things right. Offers a Fair Fix to Problem Customers want wrong to be set right and expects service contact employee to be skilled.i. There are Complaint cells which are specially set up to listen up to each and every customer’s problems. customer who is just seeking general information. “free service” etc. The Agents and Employees are trained to Apologise to its customers even if they are not at fault. It could be like “it’s on us”. A. Offers Some Compensation for the Inconvenience Compensation here wouldn’t mean of just monetary compensation or some extreme measures like firing the Branch Manager Etc.

e. Innovation takes time to spread through the special system. Complaint Handling In a vast Organization like LIC. grievances of customers do arise occasionally. . a) Awareness: The consumer becomes aware of the innovation but lacks information about it. the Company should fulfill its commitments. C. In order to redress these grievances LIC has established elaborate Grievance Redressal Machinery. LIC makes sure that none of the Agents provide any kind of wrong information or false promises to its customers which mislead them. It would include Internal and External Follow-up. E. Keep the Promises It basically means that the Company should keep the promises made to the Customer before or at the time of service provision i. LIC ask their Agents to give reasonable commitments so that they could be fulfilled by the Company or the Agent on behalf of the Company. Innovation Strategy In Icici Prudential An innovation refers to any good. catering to the various needs and aspirations of millions of policyholders. b) Interest: The consumer is stimulated to see the information about the innovation.policies in advance for various types of situations and deliver it as and when the situation is faced. That is perceived by someone as new. or idea. Adopters of new products have moved through the following five stages. The idea may have long history. Internal Follow-up would be to ensure that the solutions they put in motion are actually executed and the External part would be to get feedback from the customer whether he is satisfy. service. The consumer adoption process focuses on the mental process through which an individual passes from first hearing about an innovation to final adoption.  D. Follow Up This is the most important step in Service Recovery as it ensures that whether the implemented Service Recovery was Satisfactory or not. but it is an innovation to the person who sees it as new.

An acknowledged record of performance. they have been providing service to around 12 crore policy holders and their track has been well acknowledged as reflected through continual upgradation of service standards culminating into a world class performance in the area of claim settlement operations. A. Wide network of branches covering rural areas. A large and well. b. the launching of the IVRS facility. Well accepted brand equity throughout the country. In addition to this. LIC has an established and well administered Grievance Redressal Mechanism and with Ombudsman intervention. c. Futuristic Approach Till today. It is well acknowledged that LIC has been able to provide appropriate IT support in furtherance of prompt service to their valued policy holders. MAN and Wide Area Network operations has helped the co-operation improve its servicing. It is now that reality exists in the are of marketing (i. However.c) Evaluation: The Consumer considers whether to try the innovation or not. sales and after sales service operations).e. It will now . The complex task of conversion of computerization of all the branches with their conversion as Front Line offices has been completed in a phase manner. d. In addition to this. LIC has implemented strategic moves for business growth. as well as ensured quality improvement in service standards. As on today.spread agency organization. d) Trial: The consumer tries the innovation to improve his estimate of its value e) Adoption: The consumer decides to make full and regular use of the innovation 11. LIC enjoyed a monopoly.4 EMERGING TREND IN LIC & ICICI PRUDENTIAL  Emerging Trend In Life Insurance Corporation With the emergence of competition. Adequate yield with high risk cover being offered keeping the policy holders satisfied in the existing in the economic scenario e. the customers appear to be well attended. this mechanism has to be restructured keeping in view the additional legal provisions laid down by the regulator as expounded in the IRDA act. LIC’s strength lies in : a.

attendance. Emerging Trend In Icici Prudential In a significant move. in a very gentle and courteous manner. has to have an efficient feed-back system. the number of bank branches networked by the company grew by 270 per cent to 642 branches. At the nucleus of this approach is the concept of Customer Relationship management. C. ICICI Prudential has increased the number of bank branches (under banc assurance tie-ups) by about 130 per cent. core and complimentary on an individual basis. Customer Orientation LIC. ICICI Prudential Life Insurance — a joint venture between the ICICI group and Prudential Plc of the UK — has expanded its marketing platform for promoting life insurance products to 1. attention. In fiscal 2002-2003. Of these. advertise on television to make people aware of their products and services Gifts: LIC provides diaries. Television: Companies like LIC. etc to its customers Hoardings: LIC put its hoardings where there is a mass flow of people. HDFC etc. so as to understand what the customer desires in terms of product design. The new players in the market like ICICI. LIC has to go ahead with their former customers. 2) 3) 4) 5)  . reassuring them of their better services with persona. 338 branches were from four new banc assurance relationships which it had forged with Allahabad Bank. booklets. accessibility. With the new face of the market. relationship convinience. service procedures. responses in terms of personalized service. Advertising Trend In Lic 1) News Papers and Magazines: LIC give ads in the news papers and magazines round the year to continue its brand image and also when new products are introduced. relationship management seems to be the new mantra. With this. Advertisement On Radio satellite channel: Advertisement about LIC are frequently been telecast on radio and satellite channel. especially outside the railway station or at the backside of the bus. existing customer. pens. will definitely be very aggressive in the open market. The need is to have a comprehensive review of the business keeping in view customer expectations B. to be in the reckoning.500 banks branches from 642 branches through its existing bancassurance tie-up with seven banks. Normally its ads are published in Times of India.have to follow a multi-faceted strategy towards customer retention and also expanding to a new clientele.

Mr. in the first quarter of this fiscal. product pushing for need-based solutions required for personal financial review is fast emerging. Gupta: “Last fiscal. Mr Gupta informed that after having released advertising campaign through print. A. In a Unique effort to create awareness about a tax saving product. Mr.000 life insurance advisors. TV and press. . SIB and Federal Bank have also increased the number of branches. This policy is positioned as — Child’s plan that leaves nothing to chance. In fact.South Indian Bank (SIB).” Further. According to Mr. Federal Bank and Lord Krishna Bank. It worked wonderfully with Mumbai’s officegoers and one that translated into substantial business for the company. ICICI Prudential chief-marketing Saugata Gupta told FE. 1) Advertising Trend In Icici Radio: ICICI Prudential advertises on 92. The Company recently tied up with the Forbes Six Sigma rated Dabbawalla organization in Mumbai for a direct marketing exercise.” ICICI Prudential has garnered Rs 364 crore as the new business premium income in fiscal 2002-03. In addition. and. to talk to the customer through a non-cluttered route. ICICI Bank.5 red Fm 2) Television: ICICI Prudential has been advertising in outdoor. This channel is serviced by 430 financial service consultants. and 22. The company launched a corporate television campaign – Saat Phere – which took the emotions and thoughts of initial Sindoor corporate film a few steps further. the company has also recently released a new advertising campaign through the electronic media on ‘Smart Kid’ Insurance Policy. at present. There are 80 active corporate agents.UP with DABBAW ALA: ICICI Prudential tie-up with the Dabbawalla Organization in Mumbai for a direct marketing exercise. the company has issued around 51. The remaining expansion is from earlier relationships. the company attached a creative of a bitten apple to Mumbai’s ubiquitous lunchboxes. As for emerging trends. On the company’s new plans.000 crore sum assured mark. It has also crossed Rs 10. and thereby have a higher impact. 3) Tie.000 policies. Gupta said: “The greatest expansion has come from BoI and Allahabad Bank. Rs 70 crore in new business premium income which accounts for a growth of 132 per cent over last year’s first quarter. Gupta explained that private participation in insurance as a tax saving tool for comprehensive financial solution. outdoor and radio. notably ICICI Bank and Bank of India (BoI). Rs 102 crore of premiums came through alternate distribution channels which comprises of bancassurance channel.

It also gave way to propagation of innovative goods & channels for distribution & the supervisory values rising.' but also for its real sector. Nagpur. In 1956. ICICI Prudential regularly holds consumer awareness meets on ‘the need for retirement planning’ in different cities such as Pune. Aurangabad. LIC Act. The launch of new developments in the insurance industry saw many new international insurers entering the market. The insurance industry is a key component of the financial infrastructure of an economy. Competition will surely cause the market to grow beyond current rates. and its viability and strengths have far reaching consequences for not only its money and capital markets." and offer additional consumer choices through . Indians.4) Seminars. Government of India brought together 245 Indian and foreign insurers and provident societies under one nationalised monopoly corporation and formed Life Insurance Corporation (LIC) by an Act of Parliament. Indian per capita revenue is likely to grow up to more than 6% in coming 10 years & with developing awareness. Coimbatore. have always seen life insurance as a tax saving device. CHAPTER 12 CONCULSION Insurance sector in India is one of the booming sectors of the economy and is growing at the rate of 15-20 per cent annum. viz. with a capital contribution of Rs. The (non-life) insurance business/general insurance remained with the private sector till 1972. 1956. Bangalore and Mangalore. There were 107 private companies involved in the business of general operations and their operations were restricted to organised trade and industry in large cities. The insurance sector in India has come to a position of very high potential and competitiveness in the market. One of the key service industry in India would be health and education Insurance sector in India grew at a faster pace after independence. The Indian insurance industry has traveled a long way ever since businesses were regulated tightly & concentrated by few insurers of the public sector. the Indian insurance rate is estimated to rise at a striking rate in India.5 crore. create a bigger "pie.

" .the watchdog of the industry) in pension business etc. at the same time. services. and chalking out agreements between insurers to settle claims to the benefit of the consumer will require concerted effort from both sectors. and price options. Yet.the introduction of new products. ill defined regulatory role of IRDA (Insurance Regulatory development Authority. contributing to a common catastrophe reserve fund. Challenges such as developing a common industry code of conduct. The will need to make sure right now that their entire infrastructure is in place so that they can reap the benefit of an "unlimited potential. The early-adopters will then have a clear advantage compared to laggards in gaining the market share and market leadership.—are expected to be removed in near future. public and private sector companies will be working together to ensure healthy growth and development of the sector. The current impediments for foreign participation – like 26% equity cap on foreign partner. The market is now in an evolving phase where one can expect a lot of actions in coming days.

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