PRIVATISATION IN INSURANCE SECTOR IN INDIA

INTRODUCTION : 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.”

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PRIVATISATION IN INSURANCE SECTOR IN INDIA

INSURANCE SECTOR IN INDIA
Insurance sector in INDIA is booming up but not to level comparative with the developed economies such as Japan, Singapore etc. Also with the opening of the insurance sector to the private players have provided stiff competition resulting into quality products. Also there is a need to restructure the Indian Government owned “ Life insurance Corporation of India “ so as to maximize revenue and in turn profits. IRDA regulations and norms for the allocation of funds need to have a comprehensive look. In the phase of declining interest rates and rising inflation the funds need to be applied in productive areas so as to generate high returns. Also in terms of clients servicing areas such as premium payments, after sales service, policy dispatch, redressal of grievances has to be amended. In the current scenario, LIC has to provide flexible products suited to the customer’s requirements. Also a proper and systematic risk management strategy needs to be adopted. After the increase in terrorism and destructive events around the global world such as September 11 attack on World Trade Centre, US – Taliban war, US – Iraq war etc.. An alternative to reinsurance such as asset backed securities is emerging out in the developed economies. Catastrophe bonds are one of the alternatives for reinsurance. Finally some policies such as pure term and pension schemes needs to be addressed massively at both the urban and the rural segment so as to generate high premium income which will help in the development and growth of the economy.

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PRIVATISATION IN INSURANCE SECTOR IN INDIA

HOW BIG IS THE INSURANCE MARKET ?
Insurance is an Rs.400 billion business in India, and together with banking services adds about 7% to India’s GDP. Gross premium collection is about 2% of GDP and has been growing by 15-20% per annum. India also has the highest number of life insurance policies in force in the world, and total investible funds with the LIC are almost 8% of GDP. Yet more than three-fourths of India’s insurable population has no life insurance or pension cover. Health insurance of any kind is negligible and other forms of non-life insurance are much below international standards. To tap the vast insurance potential and to mobilize long-term savings we need reforms which include revitalizing and restructuring of the public sector companies, and opening up the sector to private players. A statutory body needs to be made to regulate the market and promote a healthy market structure. Insurance Regulatory Authority (IRA) is one such body, which checks on these tendencies.

BOTTLENECKS – GOVERNMENT / RBI REGULATIONS:
The IRDA bill proposes tough solvency margins for private insurance firms, a 26% cap on foreign equity and a minimum capital of Rs.100 crores for life and general insurers and Rs. 200 crores for reinsurance firms. Section 27A of the Insurance Act stipulates that LIC is required to invest 75% of its accretions through a controlled fund in mandated government securities. LIC may invest the remaining 25% in private corporate sector, construction, and acquisition of immovable assets besides sanctioning of loans to policyholders.

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RBI has taken too much caution to make sure that the new sector does not experience the kind of ups and downs that the non-bank financial sector has experienced in the recent past. 500 crores.(b)that there would be massive retrenchment and job losses due to computerization and modernization. The real reason behind the protests is that the dismantling of government monopoly would provide a benchmark to evaluate the government’s insurance services.PRIVATISATION IN INSURANCE SECTOR IN INDIA These stipulations imposed on the insurance companies had resulted in lack of flexibility in the optimisation of risk and profit portfolio.5%). Page 4 . and ignore the rural areas. RBI has also stipulated that all prospective entrants need to have a net worth of Rs.But all these fears are unfounded. If this inflexibility continues. Recently RBI has issued stiff guidelines. Also banks and FI’s who are planning to enter the business cannot float subsidiaries for insurance.The government might provide more autonomy to insurance companies by allowing them to invest 50 % of their funds as per their own discretions. It says that non-performing assets (NPA) levels of the prospective players will have to be 1% point lower than the industry average (presently 7. The insurance employees’ union is offering stiff resistance to any private entry. These guidelines have made it virtually impossible for many banks to get into the insurance business. the insurance companies will have very little leverage to earn more on their investments and they might not be able to offer as flexible products as offered abroad. Their objections are(a)that there is no major untapped potential in insurance business in India. and(c)that private and foreign firms would indulge in reckless profiteering and skim the ‘urban cream’ market. They had to rethink about these guidelines if India’s strong banks and financial institutions have to enter the new business. which had dealt a severe blow to the plans of banks and financial institutions to enter the insurance sector.

Unit ADVANTAGES: Reduction In Monopoly of Public Sector units  Effective Management Page 5 . the induction of private management and control in the public sector enterprises. But in broader sense it implies besides private ownership. OBJECTIVES: Effective Utilization of Resources  Economic Growth  Encourages Capital Formation  Reduce Size of Public Sector  Dispose of Loss-Making Govt.PRIVATISATION IN INSURANCE SECTOR IN INDIA PRIVATISATION:MEANING:In a narrow sense Privatisation implies the induction of private ownership in publicly owned enterprises.

PRIVATISATION IN INSURANCE SECTOR IN INDIA  More Funds available With Govt.  Increase in Profitability  High Industrial growth rate  Increase in efficiency of Public Sector  Encouragement to Innovation  Quick Decision making DISADVANTAGES: Class Struggle  Unemployment & Corruption  Inflation  Non Acceptable by Trade Union  Public monopolies have been turned into private monopolies  Economic Imbalances  Wastage & Misallocation of Resources Page 6 .

Once competitive conditions are ensured. Ironical because this government is at the mercy of support from the left groups which have been the most vociferous opponents of any such move. HOW IMPORTANT IS PRIVATISATION IN INDIA The first order issue is that of competition policy. there are. benefits from shifting labour and capital to more efficient hands through privatisation. services & social objective 3) International players are eyeing the vast potential of the Indian market and are already making plans to come in. but this is a second order issue. it is the coalition government in power today which has declared its intention of opening up insurance to the private sector. Page 7 . this is deeply damaging. When the government hinders competition by blocking entry or FDI. 2) All segments of the financial sector had been opened to private players with better product.PRIVATISATION IN INSURANCE SECTOR IN INDIA PRIVATIZATION IN INSURANCE SECTOR 1) The Narasimha Rao government (1991-96) which unleashed liberal changes in India's rigid economic structure could not handle this political hot potato. Ironically. indeed.

after comparing the work forces in India and the UK. The role model in this regard is Germany. Further. and get on with the task of building a mature market economy. which are able to sell at low prices because capital is free or because losses are reimbursed by periodic bailouts. The government is unable to obtain efficiency in utilising labour and capital. the Ministry of Petroleum crafts policies which cater for the needs of government as owner.contaminated investment in their industries by charging low prices and forcing down the profit rate of the entire industry. nor are there incentives for efficiency and growth. At present. hence the GDP of the country is lowered to the extent that PSUs control labour and capital. investment in that entire industry is contaminated. who demand very high rates of return on equity in return for bearing regulatory risk. There is neither a fear of bankruptcy. The privatisation of the insurance sector would open up exciting new career options and new jobs would be created. As an example. in many areas.PRIVATISATION IN INSURANCE SECTOR IN INDIA The difficulties of governments that run businesses are well-known. When an industry has large PSUs. A few insurers estimated a figure of 1lakh. the government faces conflicts of interest between a regulatory function and an ownership function.loss-making firms that were artificially rescued by the government . There is a fundamental loss of credibility when a government regulator faces PSUs in its sector: there is mistrust in the minds of private investors. These arguments have led many economists to advocate large-scale privatisation. so as to clear the slate. PSUs face little "market discipline". which often diverge from what is best for India. life products Page 8 . This was the experience of Japan where the "zombie firms" .

or 98%. greater urban migration and alarming levels of pollution.PRIVATISATION IN INSURANCE SECTOR IN INDIA comprise a big chunk. UK Eagle star . Rothschild . Now with increase in life expectancy rate. The demand for healthcare is growing due to population increase. Pension comprises a mere 2%. Switzerland Cigna . Managed Care integrates the financing and delivery of appropriate health care services to covered individuals.SWITZERLAND GIO of Australia MetLife General Accident. USA J. US AIG . Hence pension business is expected to grow once the industry opens. of LIC’s business.UK Page 9 . WHO’S GOING WITH WHOM? Indian Company Kotak Mahindra Tata Group Sundram Finance Sanmar Group M A Chidambaram Bombay Dyeing DCM Shriram Dabur Group Godrej ITC S K Modi Group CK Birla Group Ranbaxy lpic Finance 20th Century Finance Vyasa Bank Cholmandalam Foreign Partner Chubb . UK Legal and General . UK Royal Sum Alliance . Foreign insurance companies like Aetna (world’s largest healthcare insurance provider) and Cigna have been providing Managed Care services across the globe. UK Liberty Mutual Fund . US Winterthur . people have to start planning their retirements. Healthcare insurance is more important for families with smaller savings because they would not be able to absorb the financial impact of adverse events without insurance cover. USA Allianz GERMANY Canada Life ING Guardian Royal Exchange . Australia Zurich Insurance.

UK Prudential . In particular. and amending the LIC and GIC Acts. WHAT MARKET STRUCTURE TO HAVE FINALLY. whether firms should be allowed to sell both life and -non-life insurance. what should be the appropriate market structure(many unregulated players or a few regulated players). whether banks and other financial institutions should be allowed to operate in the insurance business. what cap should there be on foreign equity ownership. we do not address many other related questions such as whether foreign (and not just private) players should be allowed. These are the passage of the Insurance Regulatory Authority (IRA) Bill. (c) What is the role of the regulator in insurance business? Page 10 . which will make IRA a statutory regulatory body. and finally. WHAT ROLE FOR REGULATOR ? The decision to allow private companies to sell insurance products in India rests with the lawmakers in Parliament. and so on. UK Principal New York Life WHY PRIVATISE. which will end their respective monopolies. In 1994 the government appointed a committee on insurance sector reforms (which is known as the Malhotra Committee) which recommended that insurance business be opened up to private players and laid down several guidelines for orchestrating the transition.PRIVATISATION IN INSURANCE SECTOR IN INDIA SBI HDFC ICICI IDBI Max India Alliance Capital Standard Life. The three questions that we address are (a) (b) Why should insurance be opened up to private players? If opened up.

This implies the need for a public regulator. The Life Insurance Corporation of India (LIC) was formed in 1956. banking and insurance sectors are vulnerable to the "bank run" syndrome. Another important justification for Nationalisation was to raise the much-needed funds for rapid industrialization and self-reliance in heavy industries. Insurance provided the means to mobilize household savings on a large scale. in the wake of several bankruptcies and malpractice’s'. LIC's stated mission was of mobilizing savings for the development of the country. and not public provision of insurance. The non-life insurance business was nationalized in 1972 with the formation of General Insurance Corporation (GIC). smooth functioning of business depends heavily on the continuation of the trust and confidence that people place on the solvency of these financial institutions.Thus the fact that insurance is a state monopoly in India is an artifact of recent history the rationale for which needs to Page 11 .PRIVATISATION IN INSURANCE SECTOR IN INDIA Why allow entry to private players? The choice between public and private might amount to choosing between the lesser of two evils. wherein even one insolvency can trigger panic among consumers leading to a widespread and complete breakdown. insurance was in the private sector for a long time prior to independence. In the case of insurance and banking. Furthermore. An insurance contract is a "promise to pay" contingent on a specified event. especially since the country had chosen the path of state planning for development. Indeed in India. under one nationalized monopoly corporation. when the Government of India brought together over two hundred odd private life insurers and provident societies. Insurance products are of little value to consumers if they cannot trust the company to keep its promise.

thus private players would concentrate on the lucrative mainly urban segment leaving the unprofitable segment to the incumbent LIC. private firms may renege on their social sector investment obligations. Some of these concerns are:(a) That there would be a tendency of private companies to "skim" the markets. airlines. WHAT SHOULD BE THE MARKET STRUCTURE ? Individuals buying an insurance contract pay a price (called the "premium") to the insurance company and the insurance company in turn provides compensation if a specified event occurs. private sector presence. continuing a state monopoly in provision of insurance is indefensible. the premium is based on average risk. he stands to lose all the Page 12 . power. such as infrastructure and public goods. This however does not seem to be corroborated by the countries' experience'. Another commonly expressed fear is that there would be massive job losses in the industry as a whole due to computerization. telecom. similar without regulation. and even postal services (courier) have significant.(b) That without adequate regulation. By making such contractual arrangements with a large number of individuals and organizations the insurance company can spread the risk..e. This premium is too high for people who perceive themselves to be in a low risk category. The price of insurance i. the funds generated may not be deployed in sectors (which yield long-term social benefits). If the insurer cannot accurately determine the risk category of every customer and prices insurance on the basis of average risk. This is not to deny that there are some valid grounds for being cautious about private sector entry.PRIVATISATION IN INSURANCE SECTOR IN INDIA be examined in the context of liberalization of the financial sector. This gives insurance its "social" character in the sense that it entails pooling of individual risks. If traditional infrastructure and "semi-public goods" industries such as banking. Meeting these concerns requires a strong regulatory body.

(b) To ensure financial soundness of the insurance industry and (c) To ensure healthy growth of the insurance market. whether the buyer is a low risk or a high type. Another phenomenon. which means premia have to be revised upwards. which in turn drives away even more customers and so on. THE ROLE OF IRA : (a) The protection of consumers’ interest.PRIVATISATION IN INSURANCE SECTOR IN INDIA low risk customers. In the extreme case. Page 13 . Adverse selection problem arises when a seller of insurance cannot distinguish between the buyer's type i. when an insured car driver exercises less caution in driving. These objectives must be achieved with minimum government involvement and cost. IRA’s functioning can be financed by levying a small fee on the premium income of the insurers thus putting zero cost on the government and giving itself autonomy. For example.e. arises when the unobservable action of buyer aggravates the risk for which insurance is bought. it exemplifies moral hazard. This is known as the problem of "adverse selection". This in turn increases the average risk.. it may lead to the complete breakdown of insurance market. compared to how he would have driven in the absence of insurance. the problem of "moral hazard" in selling insurance.

6. 3. Page 14 . 2. 10. 8. Alternative risk financing Disability insurance Antique insurance Mega show insurance Celebrity visits to the country.PRIVATISATION IN INSURANCE SECTOR IN INDIA SOME INSURANCE PRODUCTS NOT AVAILABLE IN INDIA : Associated Market Quest after a study of some of the international markets. points out the following areas for new product development: 1. 5. 7. 4. Industry all risk policies Large projects risk cover Risk beyond a floor level Extended public and product liability cover Broking and captivities. 9.

The SPV. The SPV can bundle the policies and sell them as securities to retail investors at attractive yields. the SPV is not affected by the financial health of the insurer. highly liquid instruments. The solution is Asset-backed securities (ABS).PRIVATISATION IN INSURANCE SECTOR IN INDIA SO WHAT CAN THE PRIVATE INSURERS DO ? A variable risk transfer mechanism is the capital market. The private insurer can float a Special-Purpose Vehicle(SPV) and sell the policies concerned to this entity. in turn will liquidate its investments and meet the claims. The SPV will stop paying Page 15 . Second. as the credit rating agency will be able to identify the underlying assets. by selling the policies to the SPV. The benefits of the SPV are First. This means that the private insurer frees capital that can be used for further business and lastly. So when the policyholders (underlying the ABS) lodge the claims with the private insurer. A private insurer can bundle off policies with similar maturity and quality and sell them as securities to retail investors. The premium on the policies underlying the ABS can be invested by the SPV in low-risk. This enables easy rating of the ABS. This is because capital market is huge and can take on the risk that insurance companies run. the SPV is a separate entity from the insurer. the insurer removes the assets from its balance sheet. the private insurer simply passes on the claims to the SPVs.

Moreover. regulatory restrictions. from the investors’ angle. debt market is not deep and liquid enough to receive products such as asset-backed securities. Besides. If mutual funds invest in ABS. The problem of adverse selection. * 'Prevention of Loss'. such as high stamp duty and a not-soefficient judicial system. The most risky ABS. This is because probability of claims from. MARKET POTENTIAL FOR PRIVATE LIFE INSURANCE COMPANIES IN INDIA It has been found out that: * 85 percent of the Indians prefer LIC than any other insurance companies. The retail investors. bear a sizable portion of claims of the policyholders. may act as deterrents. say. investors get attractive yields for taking the risk. therefore. Also buying ABS helps retail investors truly diversify their portfolio.PRIVATISATION IN INSURANCE SECTOR IN INDIA interest on the ABS. There can of course be many variants to the ABS.In India. retail investors need not estimate the risk associated with the investment. the fund manager will do the needful. Finally the alternative risk transfer market will only develop once the need for such risk transfer assumes importance some time in the future. on the other hand. 'Assured Returns' and 'Long term Investment' are the important factors influencing Indians in opting for Life Insurance Page 16 . can be reduced if the ABS are credit-enhanced by a third party and rated by a credit rating agency. a hurricane is largely unrelated to the economic factors or industry-specific factors that drive equity and bond values. will be those that stop interest payments and delay principal repayments of claims are honored.

insurance. * Most of the Indians are of the opinion that private insurance companies would be able to perform well in the long run. The Malhotra committee (1994) recommended Rs 100 crores as the norm. Indians prefer to their investment needs like bank deposit. The multilateral insurance working group (an industry forum representing most of the interested foreign and Indian companies seeking an entry into the insurance sector) has recommended Rs. The IRA is also reported to considering agraded pattern for capitalization of the companies keeping in mind the volume of business likely to be handled by them.2 lakhs * There is significant relationship existing between monthly household income and amount insured * Based on the monthly household income. 1. post office schemes. * Agents are mostly responsible for selling insurance products in India CAPITAL NORMS FOR NEW INSURANCE COMPANIES : One of the contentious issues raised by foreign companies seeking an entry into the insurance sector in India is the minimum paid up capital requirements. * Most of the Indians are interested in 'Money back' policies than others * Most of them are interested in insuring for an amount of Rs. real estate. 50 crore. Page 17 . gold. shares etc.PRIVATISATION IN INSURANCE SECTOR IN INDIA * Only few of the Indians are aware of private life insurance companies. chit funds.

deep and penetrating.27% p. In the short run atleast. The reasons for these are many. through the operations of the two monopolies (LIC and GIC). Restricted. In this scenario. they have been in business for a long time and therefore. The decade 1987-97 has witnessed a compounded growth rate of marginally more than 10% in life insurance business. (especially the LIC).PRIVATISATION IN INSURANCE SECTOR IN INDIA THE INSURANCE POTENTIAL : The main reason why the leading insurance companies in the world and the leading corporate group in India have shown a keen interest in the insurance sector. in a decade 1997-2007 (LIC. 1997). RESTRUCTURING OF LIC AND GIC : In the insurance sector as of today and in all probabilities for a long time to come. Secondly. the network of branches and agents is large.If we take a look at insurance coverage index for the age group of 20-59 years a considerable gap between India and other countries in Asia can be observed. naturally insurance companies see a vast potential. Firstly. LIC and GIC will form a very significant part. is the vast potential for future business. it is generally felt that the sector can grow exponentially if it is opened up. as the market has been. LIC predicts for itself that its business has potential to grow by 16. has a kind of government backing which instills faith in all would-be policy holders.a. The envisaged private sector participation in the insurance sector is unlikely to take this advantage away from LIC and GIC. Page 18 . are in position to know business conditions better than any new entrant. much more than a private company can hope to generate. which will take a long time for any other entrant to replicate. Thirdly.

Competition in rural areas tends to be "kinder and gentler" than that in urban areas. Identifying the right agents to harness Page 19 . where they have already reached a stage of saturation. A strong case in point is the current business composition of the dominant market leader the Life Insurance Corporation of India. OPPORTUNITIES AND CHALLENGES OPPORTUNITIES As compared to the Western countries. Mass Marketing: India is a highly populated country and would continue to be so in the near future. in doing so. India can exploit some golden opportunities in the following fields. mass marketing is always a profitable and cost-effective option for gaining market share. In a country of 1 billion people. The rural sector is a perfect case for mass marketing. they may well miss a large chunk of the insurable population. The lion's share of its new business comes from the rural and semi-rural markets. New players may tend to favour the "creamy" layer of the urban population.PRIVATISATION IN INSURANCE SECTOR IN INDIA LIC and GIC will continue to command a very high market presence and in the long run it will take a very good market player to dislodge LIC and GIC from their prime positions. But. 1. which can easily be termed cutthroat. This also means that the reform in insurance sector will necessarily mean the reform of LIC and GIC.

the initial years after opening up are bound to see a strong inflow of foreign capital. and an efficient delivery system are the two aspects that have to be developed in order to penetrate the rural markets. Page 20 . A rise in the equity share of foreign partners to 49 percent will act as a boost to them. finance experts and human resource professionals. Job Opportunities: Job opportunities are likely to increase manifold. seminars. 2. there will be a revolution in service-related fields like training. workshops. Rural insurance should be looked upon as an opportunity and not an obligation. risk management and devising new policy covers. A smaller bundle of innovative products in sync with rural needs and perceptions. Apart from pure reinsurance activities. which involves providing insurance protection. etc. know-how transfer regarding risk assessment and rating. Apart from this. risk inspections. Finance professionals who had witnessed a slump in the job market would be much relieved. 3. Given the industry's huge requirement of start-up capital. The liberalization of the insurance sector promises several new job opportunities for those who are equipped with degrees in finance. There will be demand for marketing specialists. there will be high demand for professionals in streams like underwriting and claims management. and actuarial sciences. 4. Reinsurance: Huge capacity is likely to be created in the area of reinsurance.PRIVATISATION IN INSURANCE SECTOR IN INDIA the full potential of the vibrant and dynamic rural markets will be imperative. Inflow of Funds: There could be a huge inflow of funds into the country.

In India too. Various intermediaries. Other European markets have followed suit. and pensions. Marketing Strategies: Also. and this will benefit whole lot of ancillary industries. Sellers move to remote channels such as the telephone or direct mail. sell insurance. In some countries like Netherlands and Japan. over half of all life insurance sales are made through banks. buyers look for low price. Brand loyalty could shift from the insurer to the seller. there will be significant increase in advertising. In France. this has resulted in bank assurance: banks entering the insurance business. with more players in the market. almost 95% of banks and building societies are distributing insurance products today. they become off-the-shelf. Initially. A substantial shift is likely to take place in the distribution of insurance in India. Bancassurance: In other markets. The Netherlands led with financial services firms providing an entire range of products including bank accounts. banks hope to maximize expensive existing networks by selling a range of products. motor. insurance products move along a continuum from pure service products to pure commodity products. insurance is seen as a complex product with a high advice and service component.PRIVATISATION IN INSURANCE SECTOR IN INDIA 5. Many of these changes will echo international trends. notably Europe. distribution Page 21 . insurance is marketed using the Post Office's distribution channels. In the UK. At this point. As products become simpler and awareness increases. home and life insurance. brand building. Many bankers have shown an inclination to enter the insurance market by leveraging their strengths in the areas of brand image. 6. Worldwide. Buyers prefer a face-to-face interaction and place a high premium on brand names and reliability. commodity products. not necessarily insurance companies.

effective branding of products and services and product differentiation will be some of the challenges faced by new companies. CHALLENGES If one has opportunities. 7. the price of insurance products. The four main challenges facing the industry are product innovation. distribution. personalized and flexible products. Information Technology Worldwide interest in E-commerce and India's predominant position in Information Technology and software development are also likely to be major factors in the marketing of insurance products in the immediate future. Technology: Page 22 . having the right product mix through add-on benefits and riders. but there are a few challenges and threats as well. Finding niche markets. insurance for consumer items such as refrigerators can be offered at the point of sale. Insurers in India should also explore distribution through non-financial organizations. customer service. The number of Internet account is increasing and the trend has already been set by some of the leading insurers and insurance brokers worldwide. therefore. and investments. 1. For example. one has to face challenges. face to face contact with the clients and telemarketing coupled with advanced information technology systems.PRIVATISATION IN INSURANCE SECTOR IN INDIA network. No doubt India has a lot of opportunities coming her way. Flexible products and new technology will play a crucial role in reducing the cost and. it is like two sides of the same coin. Unit-linked personal insurance products might find greater acceptability with rising customer awareness about customized.

1 23. and maintain clear-cut objectives and constant monitoring at all levels. 2. the entry of private players ensures that the customer will be the beneficiary in the long run. They have to overcome regulatory hurdles. and focus on customer service. commitment to excellence. As has been seen in other financial services.10. Major Players In The Insurance Sector Today S.2000 2 23. Technology will play an increasing role in aiding design and administering of products. as well in efforts to build life-long customer relationships. and ethics. Date of Reg.2000 Name of the Company HDFC Standard Life Insurance Company Ltd. It will also result in enlarging the market and extending the reach of insurance across the country. effective organizations will employ technology in a strategic way so to achieve a competitive edge. Royal Sundaram Alliance Insurance Company Limited Page 23 . investment in technology will only help as long as firms find the right people: people with the right attitude. values. apart from the normal issues facing any new company. At the same time. Also. many new Indian private insurance players will need to cope with the challenges of working with a joint venture partner.PRIVATISATION IN INSURANCE SECTOR IN INDIA In today's highly competitive financial services environment. Competition: Thus. The critical success factor is a top-down emphasis on exceeding customer expectations with quality people. excellent products.10.No. change the attitude of new recruits and satisfy some very high customer expectations. the players will have to consider the Indian market as a long-term investment. They will be competing with large and well-entrenched government-owned players. and legendary service.

2001 12. IFFCO Tokio General Insurance Co. ICICI Prudential Life Insurance Company Ltd.2001 31.08.2001 03.2001 02.2002 14. The market is already beginning to witness a wide array of products from players whose number is set to grow. the rules of the game are set to change.08.05.01.2002 06.2000 24. Ltd. Bajaj Allianz General Insurance Company Limited ING Vysya Life Insurance Company Private Limited ICICI Lombard General Insurance Company Limited.2001 02. Ltd.2005 Reliance General Insurance Company Limited. Aviva Life Insurance Co. Bajaj Allianz Life Insurance Company Limited Metlife India Insurance Company Pvt.01.12.PRIVATISATION IN INSURANCE SECTOR IN INDIA 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 23. Max New York Life Insurance Co.2001 30. Tata AIG Life Insurance Company Ltd. Ltd.11.08. AMP Sanmar Life Insurance Company Limited.2001 06.01.02. Shriram Life Insurance Company Ltd. In such a scenario.2002 27.2001 03.07.2001 22.2000 04.2002 15. Sahara India Insurance Company Ltd.2002 27.2000 10.03. SBI Life Insurance Company Limited . The Way Ahead With the entry of competition. Export Credit Guarantee Corporation Ltd. the differentiators among the different Page 24 . HDFC-Chubb General Insurance Co.05.10.02. Ltd. Ltd Kotak Mahindra Old Mutual Life Insurance Limited TATA AIG General Insurance Company Ltd.2000 15.08. Birla Sun Life Insurance Company Ltd.2004 17.11.2001 03. India Pvt. Cholamandalam General Insurance Company Ltd.08.11.01.08.

PRIVATISATION IN INSURANCE SECTOR IN INDIA players are products. With the breakdown of traditional forms of social security like the joint family system. while boundaries between various financial products are blurring. people are increasingly looking not just at products. Consumers are increasingly more aware and are actively managing their financial affairs. which makes it all the more necessary to start saving early to ensure long term wealth creation. and service. Consumers today also seek products that offering flexible options. pricing. Health and Wealth Protection.Life. consumers are now concerned with the need to provide for a comfortable retirement. The trend in developed economies where people live longer and retire earlier is now emerging in India too. insurance products will need to be customized. but at integrated financial solutions that can offer stability of returns along with total profits. preferring products with benefits unbundled and customizable to suit their diverse needs. This trend has been further driven by the long-term decline in interest rates. To satisfy these myriad needs of customers. Insurance today has emerged as an attractive and stable investment alternative that offers total protection . Today. Page 25 . Today's consumers are increasingly interested in products to help build wealth and provide for retirement income.

Let us look at the strategies adopted by the players in the market. Though the share of the term plans in the product portfolio is quite negligible. Page 26 . Shift in the product portfolio: Earlier the entire industry was revolving around investment and savings oriented plans. I. close to a third of the policies fall into this category must be an encouraging news to the players. Typically a term plan does not provide anything by way of maturity. on the assured returns platform. all the players are deliberately focusing on selling pure risk covers in an effort to capture the new customers. the customer has been portrayed as the king and to his delight. the products are redesigned and customized suiting his need taking into account his paying capacity and multiple benefits. the shift towards the term products is already visible. Globally. To much of his chagrin. The premium on such products is low as it covers only the risk aspect and does not factor in investments or savings.PRIVATISATION IN INSURANCE SECTOR IN INDIA STRATEGIES ADOPTED BY THE PLAYERS IN THE MARKET Gone were the days when the customers were forced to take up the kind of products whatever coming from LIC's and GIC's stables. Even the market leader LIC has withdrawn some of the products. As the interest rates are moving southwards. he has also got an option of withdrawing his offer within a period of 15 days (free-look period) if he is not satisfied with the policy features. unlike moneyback or endowment policies. which are positioned. But now.

Later. the companies resort to educate the customers about the salient features of the products. As the awareness level about these unique products is much lower. Value For Money (VFM): The sea change since the sector opened up has been on the way the basic products have been packaged innovatively. This is possible through the introduction of riders. Page 27 . II. Riders have become the major instruments for the organizations to lure the customers away from the competitors. Riders are nothing but add-ons coming along with the base policies for a slightly additional premium. which have added value to the risk cover at minimal cost. LIC has also started announcing riders along with the main policies dancing to the tune of the market forces. The removal of 30% cap on the premium of the base policy for the health riders alone has come as a shot in the arm for many players since this is used as an Unique Selling Proposition by many private players vis a vis the LIC. These schemes are expected to yield better returns when compared to normal insurance schemes. Riders can also be availed by the existing policyholders.PRIVATISATION IN INSURANCE SECTOR IN INDIA Unit linked products are also gaining momentum in this country. Om Kotak and Birla Sun Life have launched unit linked schemes focusing on equity. often tailor made to provide a bundle of benefits to the customers. This could see many non-life players going out of the business as life insurers offer a plethora of personal line products as add-ons. debt and gilt edged stocks.

studying life expectancy and health statistics across age groups. * TATA AIG has offered a specialized life insurance package where the insured Page 28 . Tapping the Niche Markets: Private insurers are concentrating much on designing attractive products by investing heavily on research. are the women and the children segments. Similarly a Buy & Sell Agreement cover from the same company permits a business enterprise to take out a life plan on each of its partners. it faces stiff competition from the private players in these segments. The products are designed with a technical team of actuaries and a product development team working closely together to target the niche market. to ensure that the company continues. income levels. professionals and regions on their own instead of relying on data with state insurers. which have attracted almost all the players. * METLIFE INDIA INSURANCE COMPANY has recently launched a Charitable Trust Policy in Kolkata. Though the State insurer has had a chunk of products sufficiently for a longer time. The innovations for the niche markets are abound and to name a few….PRIVATISATION IN INSURANCE SECTOR IN INDIA III.. which has evoked a lot of interest especially among the Marwaris business community who want to set up a temple in their name after their death. * The other segments.

traditionally done on a deduction from the payroll. for the first time in the country. is spreading the concept in India too. Worksite Marketing is a distribution method used to offer voluntary insurance products (employee benefits) to employees at their place of work with the sponsorship or backing of their employer.10 lacs policy for a 10 year term for a 30 year old under the preferred term plan. the regular term premium works out to Rs.3400 for a similar cover. This policy covers claims pertaining to professional negligence. The policy has been designed with the assistance from Bombay Chartered Accountants Society.PRIVATISATION IN INSURANCE SECTOR IN INDIA and the employers of the insured have a say in it. has launched a specialized product for Accountants (after tasting the success with specialized products such as Directors and Officers policy in India) in its bid to segment the market for professional indemnity policies.to non-smokers at much cheaper price. AIG. * Any other way to promote non-smoking? Or to reward those who give up smoking? OM KOTAK MAHINDRA has taken an initiative by offering a term insurance plan . As against an annual premium of Rs. the intention of the company is quite appreciated. Though there are apprehensions in the industry circle about the success of the policy. The policyholder carries the policy with himself throughout his life. wrongful acts committed in the performance duties. which has adopted this practice in different places across the world. Termed as Worksite Marketing. * TATA AIG GENERAL INSURANCE. Page 29 .2400 on a Rs.a pure protection product . It also provides for coverage of all legal expenses incurred in defending such claims. even if it happens to change the organizations.

IRDA has also defined what it meant by 1. The offspring can be insured against unfortunate congenital defects. 75% of the male population should be engaged in agricultural pursuit. rural. IV. Secondly. 3. State owned General Insurers have started aggressively marketing these kinds of products. all the companies are swarming the rural market. Of the 11 private sector life insurers. Since the penalty for not adhering to the obligation includes Rs. the density of the population should be less than 400 persons per square kilometer. Towards ensuring equitable distribution of insurance policies in every nook and cranny of the country. 10 companies substantially performed in the rural sector with the percentage of policies issued in the rural sector standing higher than 5% level mentioned.PRIVATISATION IN INSURANCE SECTOR IN INDIA * Even the unborn child's future can be safeguarded now. It goes from 5% to 15% over the period of 5 years for life insurance and from 2% to 5% in case of general insurance. all the players have turned their eyes towards the rural market. Thrust to the rural markets:Thanks to the norms stipulated by the regulator IRDA. The place should have a population of less than 5000 2. The rural obligation on part of the new private insurance companies is incremental in nature. Most of the non-life insurers achieved the base level of 2% gross premium from rural sector.5 lacs penal fee and upto 3 years of imprisonment of the Chief of the organization. IRDA stipulates the rural obligations to be met by the players over the years. The Page 30 .

V.000 agents and planned to increase it to 1 million by this year). Co-operative banks. Self-Help Groups (SHGs).No 01 02 03 04 05 06 07 Bajaj Insurer Alliance Banks / Corporate Agencies (GeneralJammu & Kashmir Bank. SBI Life ICICI Prudential LIC of India Metlife Bank (Life Insurance) SBI branches and branches of its subsidiaries Allahabad Bank.50. For instance. Om Kotak Life Insurance is successful in selling the single premium policy in rural market. Punjab & Sind Bank InsuranceAndhra Bank. The following table shows the strategic alliances the insurers have entered into to distribute their products. Karur Vysya Bank.PRIVATISATION IN INSURANCE SECTOR IN INDIA challenge lies in reaching the critical mass with the redesigned products. South India Bank. Insurance) United India Company Ltd. Reaching the doorsteps of the villagers through non-conventional channels like Regional Rural Banks (RRBs). Federal Bank. Citibank. Lord Krishna Bank. Punjab and Maharashtra Co-operative Banks Corporation Bank. Tapping unconventional distribution channel: Nevertheless all the players depend heavily on their agents force to reach out (LIC has reached a figure of 8. Indian Bank. Oriental Bank of Commerce Karnataka Bank. ITCs e-choupal is also being tried by the players. Bank of India. Sl. Federal Bank New India Assurance CompanyPunjab National Bank (General Insurance) Vijaya Ltd. Dhanalakshmi Bank. Jammu & Kashmir Bank Page 31 . And the organizations have been fairly successful in their efforts. they are trying out other distribution channels also like banks and corporate agencies in addition to the channels mentioned above.

Canara Bank. Bank of Muscat HDFC Standard Life Insurance Indian Bank. the industry is poised to change the way the insurance products are sold with the entry of brokers. Cross-selling could be another key strategy in selling insurance provided the restrictions on the functioning of corporate agencies are lifted. ICICI-Prudential and HDFC Standard will tie up with their parent companies to use their network. Union Bank Lakshmi Vilas Bank. . Once the much-awaited Insurance Brokers Regulations comes into force. Deutsche bank. Once the curbs are removed. For Page 32 . ABN Dabur CGU Life Amro Bank LIC is also exploring ways to rope in Regional Rural Banks (RRBs) across the country. He can also compare the benefits of different policies and premiums to find the best coverage for the customer. the market may see a wave of cross-selling.PRIVATISATION IN INSURANCE SECTOR IN INDIA 08 09 10 11 AMP Sanmar Birla SunLife Kerala based Co-operative Banks – Peruntalmanna Bank and Manjeri Bank Citibank. VI Cause Related Marketing (CRM):Cause Related Marketing has become the order of the day in Insurance industry. Amex. the insurers are making an attempt to change the negative attitude of the people towards insurance products. By creating a goodwill about the organizations. an insurance broker is independent and represents a number of insurers. While an insurance agent represents an insurance company and offers only the products of that company. Bank of Rajasthan. Royal Sundaram Alliance may offer household insurance with Sundaram Housing Finance and sell customers of Sundaram Finance Mutual Fund a whole range of insurance products. IDBI Bank. Catholic Syrian Bank.

Tariff Advisory Committee (TAC) maintains discipline in the market and makes sure that the insurance companies do not resort to under pricing to gain market share. LIC has adopted a novel way through its Bima Grams policy. The policy will remain in force for a period of 12 months from the date of purchase. * Birla Sun Life Insurance has adopted 332 villages around Renukoot and actively involved in improving the lives of the residents. By fixing a tariff for a product.25000 whichever is lesser for undertaking developmental work in the villages provided. VII De-tariffing in General Insurance: Though the issue of de-tariffing in general insurance has been debated upon at length. insurance worth Rs. IRDA is now working on detariffing the general insurance sector Page 33 .Acquisition of 100 new policies in a single year * Iffco-Tokio General Insurance Company is planning to launch a novel insurance policy Sankat Karan for farmers in which for the every purchase of 50kg bag of fertilizers. the response from the industry is quite mixed. - The population of the village is between 1000 and 5000 . Accordingly.PRIVATISATION IN INSURANCE SECTOR IN INDIA instance. * Towards serving the society in a better way. LIC pays 25% of the premium collected from the villagers or Rs.Life insurance coverage for atleast one person in 75% of the households .4000 would be provided to the farmers.

Page 34 . the end user is likely to see another cola war like. Once the motor insurance premium is detariffed. the Government is contemplating on coming out with obligations to be met by the private insurers in this segment (like rural business). Sensing the indifferent attitude of the private general insurers towards motor insurance.PRIVATISATION IN INSURANCE SECTOR IN INDIA beginning with commercial vehicle business since it constitutes more than two fifth of the non-life business volume. Both IRDA and TAC are working out the modus operandi of the deregulations of motor premium.

* Tata AIG Life Insurance Company Ltd. * Max New York Life Insurance Co.... * Aviva Life Insurance Co.PRIVATISATION IN INSURANCE SECTOR IN INDIA PRIVATE PLAYERS IN INDIAN LIFE INSURANCE * Allianz Bajaj Life Insurance Company Ltd.. Ltd. * MetLife India Insurance Company Pvt.. * SBI Life Insurance Company Ltd. * HDFC Standard Life Insurance Company Ltd. * ING Vysya Life Insurance Company Private Ltd.. * ICICI Prudential Life Insurance Company Ltd... * Om Kotak Mahindra Life Insurance Co. Ltd. Ltd... * AMP SANMAR Assurance Company Ltd.. Ltd. Page 35 ... * Sahara India Insurance Company Ltd. India Pvt. * Birla Sun Life Insurance Company Ltd.

400025 Website: www. this company has over 2100 branches. which is a leading international financial services group headquartered in the United Kingdom.com Page 36 . ICICI Prudential Life Insurance Company is the first life insurer in India that received a National Insurer Financial Strength rating of AAA (Ind) from Fitch ratings.000 advisors and 18 banc assurance partners. Contact Address ICICI Pru Life Towers 1089 Appasaheb Marathe Marg Prabhadevi. ICICI Prudential began the operations in December 2000.PRIVATISATION IN INSURANCE SECTOR IN INDIA ICICI PRUDENTIAL LIFE INSURANCE COMPANY LTD. Today. ICICI Prudential Life Insurance Company is a joint venture between ICICI Bank. Mumbai . which is one of India's foremost financial services companies. ICICI Prudential Life Insurance Company has various insurance plans that have been designed for different individuals. and Prudential plc. ICICI Prudential has been voted as India's Most Trusted Private Life Insurer for three consecutive years. as every individual has different insurance needs.116 micro-offices. which include 1. over 290.iciciprulife.

PRIVATISATION IN INSURANCE SECTOR IN INDIA Given below is a list of plans provided by ICICI Prudential Life Insurance Company: Life Insurance Plans Education Insurance Plans • • • • • Premium Guarantee Plans Retirement Solutions • • • Diabetes Care Active Diabetes Assure Life Stage Pension LifeTime Super Pension LifeLink Super Pension • InvestShield Life New • • • • Smart Kid New Unit-linked Regular Premium Smart Kid New Unit-linked Single Premium Smart Kid Regular Premium • ICICI Pru Group Solutions Advantage • • • • • InvestShield CashBank Group Super Annuation Group Gratuity Plan Annuity Solutions Group Term Insurance Plan Group Term Insurance in lieu of EDLI Protection Plans • • • • • ForeverLife Plan Immediate Annuity Pure Protect Life Guard Save 'n' Protect CashBak Home Assure Health Coverage Plans • Wealth Creation Plans • • • • • Health Saver Medi Assure Hospital Care Crisis Cover Micro Insurance Plans • • • • • Wealth Advantage LifeStage Assure LifeTime Gold LifeLink Super LifeStage RP ICICI Pru Sarv Jana Plan Rural Plans Cancer Care • • ICICI Pru Suraksha ICICI Pru Suraksha Kavach Page 37 .

With over 115 years of financial experience. supported by the best technology. Bajaj Allianz Life Insurance ensures excellent insurance and investment solutions by offering customized products. Currently. Pune .PRIVATISATION IN INSURANCE SECTOR IN INDIA ALLIANZ BAJAJ LIFE INSURANCE COMPANY LTD Bajaj Allianz Life Insurance Co. Contact Address Bajaj Allianz Life Insurance Co.bajajallianzlife. is a joint venture between Allianz SE.co.in Page 38 . Bajaj Allianz is one of India's leading and fastest growing insurance companies. Ltd. Allianz SE is present in over 70 countries around the world. In June 2008.000 Insurance Consultants. that manage assets worth over a Trillion. Bajaj Allianz is into both life insurance and general insurance. Ltd. Airport Road Yerawada. one of the world's largest insurance companies. Bajaj Allianz entered into partnership with Thomas Cook India to provide travel finance. GE Plaza.411006 Website: www. Allianz SE is a leading insurance corporation globally and one of the largest asset managers in the world. and Bajaj Finserv. it has presence in more than 550 locations with over 60. Today.

PRIVATISATION IN INSURANCE SECTOR IN INDIA
A comprehensive list of policies and products offered by Bajaj Allianz Life Insurance Co. Ltd. is as follows:
Unit Linked Plans • Regular Premium 1. 2. 3. 4. 5. 6. 7. New UnitGain Super UnitGain Plus Gold New UnitGain Plus New UnitGain YoungCare YoungCare Plus New FamilyGainR • 1. 2. Single Premium • New UnitGain Premier SP New UnitGain Plus SP Pension Plans • 1. Annuity Pension Guarantee • • 1. Retirement • Future Income Generator Working Women House Wives 1. Group Term Life(Employer Employee) Term Plans • • • 5. Protector Term Care New Risk Care • 6. 1. CashGain 3. 4. Money Back 3. 4. 1. 2. InvestGain SaveCare Economy SP Life Time Care Super Saver 1. 2. Credit Shield Group Term Life(Non Employer Employee) Group Suraksha Swayam Shakti Suraksha Group Loan Protector Group Income Protection Employer Employee • • • • Family Assure Fortune Plus Capital Shield CenturyPlus II • Non Employer Employee 9. • Endowment Group Plans Traditional Plans • ChildGain 7. 8. 5. 4. 3. New UnitGain Easy Pension Plus RP New UnitGain Easy Pension Plus SP Future Secure Children Plans 6. • • • Care First Health Care Family CareFirst 4. 5. Health Plans 3. New Group Superannuation Care Group Save Plus Group Term Life in lieu of EDLI Group Leave Encashment Scheme Group Annuity Group Superannuation Gold Group Gratuity Gold Micro Insurance • • • Alp Nivesh Yojana Jana Vikas Yojana Saral Suraksha Yojana Other Plans

Women Insurance Plans

Page 39

PRIVATISATION IN INSURANCE SECTOR IN INDIA
2. Swarna Vishranti 2. New Group Gratuity Care

HDFC STANDARD LIFE INSURANCE
Established on 14th August 2000, HDFC Standard Life Insurance Co. Ltd. is a joint venture between Housing Development Finance Corporation Limited (HDFC Limited) - India's leading housing finance institution, and a Group Company of the Standard Life Plc, UK. The Company is one of leading private insurance companies, offering a range of individual and group insurance solutions, in India. Being a joint venture of top financial services groups, HDFC Standard Life has adequate financial expertise to manage long-term investments safely and resourcefully. HDFC Standard Life Insurance offers a range of individual and group solutions, which can be easily personalized to specific needs. Its group solutions have been planned to offer complete flexibility, together with a low charging structure. As of 31 December, 2008, the Company's new business premium income stood at Rs. 1,839.70 Crores; it has covered over 812,811 lives so far. Contact Address HDFC Standard Life Insurance Co. Ltd. 'Trade Star', 2nd floor, 'A' Wing Junction of Kondivita and M.V. Road
Page 40

PRIVATISATION IN INSURANCE SECTOR IN INDIA
Andheri-Kurla Road Andheri (East), Mumbai - 400059 Website: www.hdfcinsurance.com
Given below is a comprehensive list of policies and products on offer by HDFC Standard Life Insurance:
Protection Plans
• •

Retirement Plans
• •

HDFC Unit Linked Enhanced Life Protection II

• •

HDFC Critical Care Plan HDFC SurgiCare Plan

HDFC Term Assurance Plan HDFC Loan Cover Term Assurance Plan

HDFC Personal Pension Plan HDFC Unit Linked Pension II

HDFC Unit Linked Wealth Maximiser Plus Group Plans
• •

HDFC Home Loan Protection Plan

HDFC Unit Linked Pension Maximiser II

HDFC Unit Linked Endowment Winner

Group Term Insurance Plan Group Variable Term Insurance Plan

HDFC Immediate Annuity

Children's Plans
• •

HDFC Endowment Assurance Plan

Group Unit Linked Plan Gratuity

HDFC Children's Plan HDFC Unit Linked Young Star II

Savings & Investment Plans HDFC Unit Linked Endowment Plus II

• •

HDFC Money Back Plan HDFC Single Premium Whole of Life Insurance Plan

Group Unit Linked Plan Superannuation

HDFC Unit Linked Young Star Plus II

Group Unit Linked Plan Leave Encashment

HDFC SimpliLife

• •

HDFC Assurance Plan HDFC Savings Assurance Plan

HDFC Unit Linked YoungStar Champion

HDFC Unit Linked Endowment II

Health Plans

Page 41

Within 4 years of its launch. commitment and seamlessness. and Sun Life Financial Inc. Birla Sun Life Insurance believes in passion. speed. Birla Sun Life Insurance Co. Ltd. Contact Address Birla Sun Life Insurance Company Limited Vaman Centre. The mission of the company is to help people with risk management. a leading global insurance company. 6th Floor Makhwana Road Off Andheri-Kurla Road Page 42 . It also helps in managing the financial situation of firms as well as individuals. Birla Sun Life Insurance is distinguished as the first company in the sector of financial solutions to begin Business Continuity Plan. integrity. an Indian multinational corporation. is a joint venture between Aditya Birla Group.PRIVATISATION IN INSURANCE SECTOR IN INDIA BIRLA SUN LIFE INSURANCE COMPANY LTD. This insurance company has pioneered the unique Unit Linked Life Insurance Solutions in India. BSLI became one of the leading players in the industry of Private Life Insurance Scheme.

Ltd. Mumbai .PRIVATISATION IN INSURANCE SECTOR IN INDIA Andheri (East).com Here is given a comprehensive list of policies and products offered by Birla Sun Life Insurance Co. Protection Plans • Birla Sun Life Insurance PrimeLife Premier Children Plans • Birla Sun Life Insurance Single Premium Group Term Plan • Birla Sun Life Insurance Term Plan • Birla Sun Life Insurance Children's Dream Plan • Birla Sun Life Insurance PrimeLife • Birla Sun Life Insurance Premium Back Term Plan NRI Plans • Birla Sun Life Insurance Flexi Cash Flow Rural Plans • Birla Sun Life Insurance PrimeLife Premier Saving Plans • Birla Sun Life Insurance Flexi Save Plus • Birla Sun Life Insurance Bima Suraksha Super • Birla Sun Life Insurance PrimeLife • Birla Sun Life Insurance Guaranteed Bachat Plan • Birla Sun Life Insurance Flexi Life Line • Birla Sun Life Insurance Bima Dhan Sanchay • Birla Sun Life Insurance Flexi Life Line Plan • Birla Sun Life Insurance Money Back Plus Plan • Birla Sun Life Insurance Single Premium Bond • Birla Sun Life Insurance Bima Kavach Yojana • Birla Sun Life Insurance Flexi Save Plus • Birla Sun Life Insurance GoldPlus II Health Solution Plans Group Plans • Birla Sun Life Insurance Flexi Cash Flow • • • BSLI Health Plan BSLI Universal Health Plan • Birla Sun Life Insurance Group Unit Linked Plan Birla Sun Life Insurance Saral Jeevan Plan • Birla Sun Life Insurance ClassicLife Premier • Birla Sun Life Insurance Group Protection Solutions • Birla Sun Life Insurance Supreme-Life Retirement Plans • Birla Sun Life Insurance Single Premium Bond • Birla Sun Life Insurance Freedom 58 • Birla Sun Life Insurance Dream Plan • Birla Sun Life Insurance Group Superannuation • Birla Sun Life Insurance Page 43 .birlasunlife.400059 Website: www.

15 billion) in 2003-04. Market share is bound to stand reduced as some business goes to the private players. said public sector players have not suffered with the opening up of the sector. Rao expects premium income in the life insurance sector to rise further by 15-16 per cent and non-life insurance premium by 14 per cent in 2005-06. S. Insurance Regulatory & Development Authority. "The health insurance sector is expected to grow by 10-15 per cent.415 crore (Rs 824. Page 44 ." The health and personal line segments are expected to see maximum growth during the current financial year.Insurance SimplyLife • Birla Sun Life Insurance Credit Guard Plan INSURANCE SECTOR GREW 83% AFTER PRIVATISATION The insurance industry has grown by 83 per cent since the opening up of the sector. Remarking on the performance of the insurance industry. L.000 crore (Rs 450 billion) in 2000-01. chairman. "There has been no reduction in growth rates as seen in the case of the Life Insurance Corporation of India It is able to hold on to its existing share in terms of business growth. against Rs 45. The growth comes on the back of healthy demand from the manufacturing sector.PRIVATISATION IN INSURANCE SECTOR IN INDIA • Birla Sun Life Insurance ClassicLife Premier Plan SimplyLife • Birla Sun Life Insurance Flexi SecureLife Retirement Plan II • Birla Sun Life Insurance Group Gratuity Plan • B. Insurance premium income has risen to Rs 82. C S Rao." Rao said at a one-day seminar on 'Growth of Insurance Industry in India' organised by the Indian Merchants' Chamber in Mumbai on Friday.

T. THE FUTURE BOOM SECTOR OF INDIA The reforms in the insurance sector leading finally to the opening of the insurance sector for private participation have brought in its wake major changes not only in the design of the products available in the market but also the manner in which they are marketed. should not be seen as a threat to public sector players. greater job mobility. But this. Greater attention is also being bestowed on the areas like Agricultural Insurance and risk coverage of export-import trade.PRIVATISATION IN INSURANCE SECTOR IN INDIA If the cap on foreign direct investment is increased to 49 per cent from the current 26 per cent. especially in the areas like wealth management and evolution of newer risk management tools. Added to these are the rising trends of convergence of financial services. Page 45 . particularly in the context of reinsurance management.in terms of figure out market shares but is full of potential. new channels of distribution.S INSURANCE. Then there is impact of visible socio-economic changes like greater urbanization. The post-liberalized insurance industry panorama in India is witnessing dramatic changes in terms of a slew of latest products and services. We have today a host of products coupled with a large number of intermediaries who market them. The market structure dominated by a few stabilized public sector players and the 'new' players in the market (some of whom claim their lineage from established international insurance behemoths) is in a state of flux. as a service facilitator etc. There is also the phenomenon of noticeable shifts in consumer preferences impacting the product mix being offered by insurers. growth of the services industry. said Rao. the industry can expect greater entry of players. greater use of I.

Privatization of insurance sector has allowed insurance companies to work in the market by depositing 100 crore rupees in the reserve of government. having a required amount in their reserve. with a positive overall Net Employment Outlook of +27%. There have been regular efforts by IRDA for collection and sharing of the data and other information of public interest. Even though this figure represents a decrease of 13 percentage points from the fourth quarter of 2005. India continues to lead all 23 countries surveyed this quarter. However. All in all. the employment outlook remains extremely healthy. impact of globalization etc. Introduction of the sector has changed Page 46 . Insurance and Retail industry sector emerged as the most optimistic sector for a quarter with a Net Employment Outlook of +32%. Insurance undergone rapid and massive changes in all aspects of their business: product and services. For the first time since the Survey was launched in India. interesting things are happening in the Indian insurance scene. data is one of the most needed ingredients in the insurance business development as well as for research and consultancy. the Finance. We believe that progress of the industry should not be constrained by any extraneous conditions in the interest of research and development in the area. market segmentation. sectoral structure. research and education.It is believed that the information sharing has not taken its expected shape in the insurance industry for the purposes of practices. The industry is facing problems in terms of data review as parliament need to register this beforehand. surpassing the Services sector. to open their branch in our country. competitive environment.PRIVATISATION IN INSURANCE SECTOR IN INDIA weakening of traditional family structure. Manpower India today released the Manpower Employment Outlook Survey for the first quarter of 2006 revealing sustained positive hiring intentions of employers in India. This has encouraged many overseas insurance companies.

50. it has truly been an excellent all-round performance. It is necessary that institutions. LIC has retained the status of being the biggest financial institution in the country. The LIC has also procured new premium of Rs 9260 crore through its group portfolio.000 crore. which form a part of this financial system.PRIVATISATION IN INSURANCE SECTOR IN INDIA the employment pattern.813 crore through the sale of 3. governance and accountability structures. Therefore. PUBLIC SECTOR DOMINATION CONTINUES IN INSURANCE SECTOR THE public sector insurance industry recorded another praiseworthy performance for the financial year 2007-08. With the total assests in excess of Rs 7. Today they are silent as the good performance of public sector is not just related to the new premiums under-written but also in terms of innovation skills and setting very high standards of servicing. To be in the global market and have advantage of it. It secured first premium income of Rs 43. It is expected that the total premium income would touch Rs 1. have internal management. These critics had expected the public sector to wilt under the pressure of competition. capital and skill as per the demand and knowledge of market is the requirement.000 crore. which measure up to the highest standards. The LIC achieved a moderate growth over the unprecedented growth it had registered in the previous financial year. It is this splendid performance of LIC that has raised the levels of life insurance premium penetration Page 47 .76 crore policies under individual assurances.00. but people must know how to make profit from it. The remarkable performance of public sector insurance year after year since the opening up of the industry has surprised its critics.

The ICICI prudential with a market share of 8. This level of penetration is higher than those achieved in many developed countries including the United States. the private companies have settled only around 72 per cent of the reported claims and large number of these companies have more than 25 per cent lapsing ratio as against 4 percent of LIC according to the annual report 2006-07 of the IRDA. the opponents of public sector are greatly surprised over the resilience and ability of LIC to innovate and raise its servicing standards.86 per cent of the reported claims. Naturally over 230 million policyholders have placed their unflinching faith and trust in this great institution. better returns to its policyholders and has created unsurpassable records in claim settlements. The seventeen private companies together have a market share of 36.49 crore in a Page 48 . It has maintained a consistent record of settling over 99. These companies secured a gross direct premium income of Rs 16899. It tops in conservation of business with the lowest lapsing ratio in the industry. The operating expenses of LIC are also the lowest in the industry at 5. In the total premium mobilised in the country.64 per cent.54 per cent. the LIC has underwritten new premium of Rs 59182. the share of LIC is in excess of 80 per cent. which translates to a market share of 63. The LIC has been settling over one crore claims each of these years. The performance of the four general insurance companies has been equally good. The IRDA has released the unaudited new business statistics for the year 2007-08. This clearly demonstrated the total domination of LIC in the life insurance industry in India. In contrast.PRIVATISATION IN INSURANCE SECTOR IN INDIA to 4. As per the IRDA. The LIC has been able to offer innovative products.36 per cent.20 crore (on the basis of annualised premium). Eleven companies have a market share of less than 2 per cent. Today.1 per cent of the GDP.93 per cent is a distant second to LIC. It is this sound track record that has earned LIC the trust of the insuring public.

It is now acknowledged that the Indian economy had slowed down in 2007-08. United India has earned a net profit of Rs 631. Despite such good performance. The profitability of all the four companies increased and their underwriting losses have substantially been reduced.32 crores. 2008. The record of private companies in relation to claim settlement is unsatisfactory and some state governments like Maharashtra who had entrusted their social security mediclaim scheme to the private companies have dragged them to courts on the issues of non-settlement of claims. The private companies on the other hand have shown increased underwriting losses. This motivated campaign is aimed to malign and discredit the public sector. The details of other companies are yet to be released but the story could be no different.5 per cent over the previous year. there is wild campaign that the public sector has faltered and its performance is not that satisfactory for the year 2007-08. The agriculture sector on which 60 per cent of India's population is dependent continued to remain crisis ridden. It is true that the public sector could not achieve the rate of growth recorded in the previous year.PRIVATISATION IN INSURANCE SECTOR IN INDIA de-tariffed regime. The manufacturing sector recorded the lowest growth rate for the last three years. We are convinced that the public sector could have performed much better had the government been prudent to accept merger of the four companies. The Page 49 . What are the reasons for the slow down in the growth rates in the insurance industry? We have always held that it is the growth of the economy and levels of disposable incomes that enables the growth of the insurance industry. The decline in the growth rate of the private companies is deliberately not discussed showing a clear bias against the public sector. an increase of 19. But it is equally true of the private sector too which witnessed decline in the growth rates. For the year ending March 31. The government itself had lowered the growth projections.

There is aggressive demand to increase the limits of foreign equity beyond 50 per cent. Despite all these handicaps and the constant attempts to encourage the private sector through governmental policies and the IRDA interventions. The committees further recommend the doing away of the branch licensing and reduction of government Page 50 . The Anwarul Hoda committee has suggested total removal of FDI restrictions in reinsurance and an enactment of a comprehensive law on insurance. The Raghuram Rajan committee on financial sector reforms and the Anwarul Hoda committee on services sector have recommended complete liberalisation of financial sector. The RBI also confirmed decline in the rate of financial savings. These committees have also suggested that foreign investors be permitted to a larger share in the insurance companies and review of investment regulations to allow investment in emerging instruments and derivatives. The slow down in the economy would impact the entire insurance industry. The threat of further liberalisation of the sector continues unabated.PRIVATISATION IN INSURANCE SECTOR IN INDIA services sector that contributes 55 per cent to the GDP did not remain unaffected by the slow down. This shows the shift in the incomes from the household to spend a greater proportion of the incomes on food. Similarly in the banking industry. But many more challenges confront the public sector insurance industry today. the recommendations are for gradual reduction in statutory liquidity ratio and to make priority lending targets to be on market based approach. The RBI confirmed that the household savings declined while corporate savings increased. The Economic Survey 2008 has suggested foreign equity beyond 51 per cent in health insurance. These committees have recommended detariffing of all insurance products and reducing of the solvency margin to 100 per cent as the higher solvency margin rates have started affecting the private companies. the public sector insurance has performed well and this is really creditable.

Insurance Worker.PRIVATISATION IN INSURANCE SECTOR IN INDIA holding in public sector banks to 33 per cent. It is not only the banks but the US insurance companies have also suffered huge losses due to sub-prime lending crisis and swapping of credit derivatives. In the circumstances the struggle to defend the public sector insurance industry has become much more challenging. Therefore. But the government which is committed to liberalise the financial sector would surely make attempts to implement these recommendations. June 2008 issue) Page 51 . The campaign to educate the public about the dangers inherent in the government policies and the need of a strong public sector to better the lives of the people must be further strengthened. This is the urgent task before the insurance employees. But let us also understand that this is possible only when we heighten our campaign and struggle. The Business Standard April 22. These recommendations would be disastrous not just to the financial sector but to the entire national economy. The crisis in the financial markets in the US and Europe would also impact our industry. This struggle has also helped the public sector to consolidate and gain due to the campaign of the employees among the public. The movement led by AIIEA succeeded in preventing the privatisation of insurance sector for over one decade. These recommendations are aimed to integrate the Indian financial sector into the architecture of the global finance capital. 2008 reports that the biggest US insurer AIG has announced losses of over 32 billion dollars in the last one quarter itself compelling the company to announce raising of additional capital amounting to 20 billion dollars. We are confident that LIC and the four general insurance companies would continue to perform well overcoming all obstacles. (Editorial. the US and its insurance companies would exert greater pressure for full liberalisation of Indian insurance sector.

back office and front office staff.PRIVATISATION IN INSURANCE SECTOR IN INDIA IMPACT OF PRIVATISATION ON PUBLIC SECTOR INSURANCE COMPANIES The insurance sector was liberalised and opened to private sector participation to break the monopoly position of public sector companies and provide better insurance coverage. consumer awareness and sensitive and prompt response to the consumers’ grievances are the other features of this market which can easily be discerned. value for money for the customer. Competitive pricing. the central theme is the customer’s choice and his/her convenience. products and services to the citizens and in the process augment flow of long-term resources for financing infrastructure. Page 52 . Be it the evolution of new channels of distribution or innovative product development or the optimal use of the latest state-of-the-art technology. upgrading the quality of agents. high service levels.

PRIVATISATION IN INSURANCE SECTOR IN INDIA The market seems to be expanding and growing but only in depth and not the width of coverage. guaranteed products. operational efficiency through technology etc. Not only the retail market has not been impacted in any perceivable proportion. however. Public sector companies are fast gearing up. LIC and new players. Product Development:There certainly has been a plethora of new and innovative products offered by both. the levels of awareness and also the standards of customer services. In non-life sector. This needs to change. Public sector non-life companies are yet to get their act together. a lot still needs to be done in this area as is evidenced by the FORTE survey. Customer Service:This is an area where new companies are clearly ramping up by bringing in their global best practices. are pretty low. LIC has the widest range of products and customised solutions for the customers. as perceived by the general public. can be sustained only by reaching out to newer markets. And no concerted effort on development of new markets has been seen so far. However. in the life sector. The real time response and turnaround times in delivery of the services have to be up to the customer expectation levels in areas Page 53 . It has shown impressive growth in its traditional product sales. post 2002 have been on account of removal of its high selling single premium. LIC has responded well to competition. the decline in its sales figures. Such growth rates. the challenge seems to be more daunting.

final maturity payment. With the entry of private and foreign players in the Insurance business. Radical changes are taking place in customer profile due to the changing life style and social perception. people have got a lot of options to choose from. the focus of the modern insurers shifted to a Page 54 .PRIVATISATION IN INSURANCE SECTOR IN INDIA like delivery of first premium receipt. premium notice. resulting in erosion of brand loyalty. policy document. CURRENT SCENARIO OF INSURANCE SECTOR Global integration of financial markets resulted from de-regulating measures. To survive. technological information explosion and financial innovations. death claim etc. Liberalisation and Globalisation have allowed the entry of foreign players in the Insurance sector.

The Funds earlier generated by the state owned insurers have been diversified with other new insurers.) Liberalisation and Privatisation :- India's economic development made it a most lucrative Insurance market in the world. The paper focuses the current position of insurance industry. At present there are fourteen companies each in Life and General Insurance. Liberalisation on the Insurance sectors has allowed the foreign players to enter the market with their Indian partners. Before the year 1999. In the wake of reform process and passing Insurance Regulatory and Development Authority (IRDA) Act through Indian parliament in 1999. One additional entrant was made both in the life and in non-life business in 2004 and 2005 respectively.) Competition:- Page 55 . 1. Indian Insurance was opened for private companies.PRIVATISATION IN INSURANCE SECTOR IN INDIA customer-centric relationship. there was monopoly state run LIC transacting life business and the General Insurance Corporation of India with its four Subsidiaries transacting the rest. 2. The industry again saw two and three entrants in the life and non-life business respectively in the year 2001-2002. India offers immense possibilities to foreign Insurers since it is the world's most populous country having over a billion people. Most of the foreign Insurers have joined within the local market. Insurance industry had ten and six entrants in life and non-life sector respectively in the year 2000-2001.

ICICI Prudential 3. National 17. Bajaj Allianz 4. Tata AIG 76. HDFC Standard 5. To survive in the Industry they analyse. LIC 2.75 2. The following table shows the market share of life and non-life insurers MARKET SHARE (%) LIFE INSURERS 1. the emerging requirements of the policyholders / insurers and they are in the forefront in providing essential services and introducing novel products.02 5.98 1. Thereby they become niche specialists. who provide the right service to the right person in right time.07 6. Oriental 17.91 4. United India 17.41 2.PRIVATISATION IN INSURANCE SECTOR IN INDIA Private and Foreign entrants in the Insurance Industry made others difficult to retain their market.15 Page 56 .04 6.72 1. It becomes less viable for them even to maintain the functional networks or competitive standards and services.11 3. ICICI8. Lombard Bajaj Allianz 6. Birla Sun life 6.11 4. Higher customer aspirations lead to new expectations and compel him to move towards the insurer who provides him the best service in time. New India 21.66 NON – LIFE INSURERS 1.

07 100. 11.54 0.08 0.93 76.22 m HDFC-Chubb 0. Sahara Life Private total Public total Grand total Source : www.07 per cent and 72. 12. In the General Insurance sector the private players have captured 27.17 11. followed by Bajaj Allianz and IFFCO-Tokio. 8. Among them ICICI-Lombard is ranked first.03 23.) Information Technology:Page 57 .75 General Agriculture Insurance Co. 13. 10.65 percent in life and non-life business respectively.org Sundaram Cholamandala 1. 9. Private total Public total Grand total IFFCO-Tokio Tata-AIG ECGC Royal 4. private insurers have planned to increase their market share in the next five years. Met Life 14.89 2. The healthy competition in the sector enabled the State owned insurers of our mother country to reduce its market share to 76. 14. SBI Life Max New York Aviva Kotak Mahindra Old Mutual 1. 27.71 0. the private players in the life insurance business have increased their market share to 23.89 Reliance 0. ING Vysya 12.28 1.93 per cent.50 2. Moreover.65 100.46 0.35 72.00 7.35 per cent.46 1.00 2. Among them ICICI prudential is ranked first in capturing the market followed by Bajaj Allianz and HDFC Standard. 10. AMP Sanmar 13.PRIVATISATION IN INSURANCE SECTOR IN INDIA 7.37 0.irdaindia. 3. 9. 8.00 -- In the above table shows. The public insurers have to enrich its approach to withhold its share.

Companies will need to constantly innovate in terms of product development to Page 58 . The impact of Information Technology in Insurance business is being felt at an accelerating pace. With the advent of "database concepts". wider and faster access to products and services. In the initial years IT was used more to execute back office functions like maintenance of accounts.) Product Innovations:Insurers are continuously innovating new products based on forward-looking models. They have developed new products addressing the new challenges in society and products to address the hazards from new environmental issues. cost reduction. new product design and development and many more.PRIVATISATION IN INSURANCE SECTOR IN INDIA Insurers are the earlier adopters of technology. and billing and electronic fund transfer to its benefit clan customers. 4. Because of the Information revolution. At present. Insurance companies are giving customers a distinct claim id to track claims on-line. financial reporting. reconciling broker accounts. entertaining on-line enrollment. these functions are better integrated in an administrative efficiency. New technology gives the policyholders / insured better. client processing etc. The real evolution is however emerged out of Internet boom. The Insurance companies are utilizing the Information technology applications for better customer service. The Internet has provided brand new distribution channels to the Insurers. The technology has enabled the Insurer to innovate new products. customers are free to choose from a wide range of new and innovative products. provide better customer service and deeper and wider insurance coverage to them. eligibility review.

Now days. brand building is going to play a vital role. Moreover.) Customer Education and Services:Page 59 . 5. the Life Insurers are concentrating on the pension schemes and the Non-Life Insurers on many innovative schemes of various realms and thereby enriching their market share. most of them are still grapping with right mix of Distribution Channels for capturing maximum market share to build brand equity. which can be tapped by the insurers to reach the appropriate market segments. determine price correctly and to increase profitability. 6. one should have a portfolio of policies covering all the needs. rating.) Distribution Network:While companies have been successful in product innovation. cooperative societies and panchayats are some of the channels. Rural masses are attracted by the consultative approach adopted by the Insurers.PRIVATISATION IN INSURANCE SECTOR IN INDIA meet ever-changing consumer needs. Corporate agency. While the traditional channel of tied up advisors or agents would be the chief distribution channel. Since a single policy cannot meet all the Insurance objectives. claims and illustration systems. building strong and effective customer relationships and cost effective customer service. Product development is made possible by integrating actuarial. Banc assurance. e-insurance. with increased commoditization of insurance products. Moreover. insurer should innovate and find new methods of delivering the products to customers. the urban masses are tapped with the new techniques provided by Information Technology through Internet. brokerage. At present. they attract the customers through telephone and mobile also. Understanding the customer better will enable Insurance companies to design appropriate products.

PRIVATISATION IN INSURANCE SECTOR IN INDIA Insurance is a unique service industry. BIBLIOGRAPHY (1) Insurance : Ajit Ranade and Rajeev Ahuja. Servicing focus is on enhancing the customer's experience and maximizing his convenience. Unit ICFAI ( Institute of Charter Financial Analyst of (6) Impossible guidelines editorials : Business India. 2000 Page 60 . 28 February 2000. The key industry drivers are related to life style issues in terms of perceiving insurance as a savings instrument rather than for risk cover. need based selling. : KitSadgsrove (3) Complete Guide to Business Risk Management (4) Risk Management Excellence (5) The Insurance Sector India. a key differentiator is the professional customer service in terms of quality of advice on product choice along with policy servicing. This calls the effective CRM system. February 7-20. India Development Report 19992000 (2) Insure for life: Navjit Gill : Business World. : : Economist Int. which eventually creates sustainable competitive advantage and enables to build long lasting relationship. In the present competitive scenario. quality of service and customers awareness.

com Page 61 .licindia.(8) www.PRIVATISATION IN INSURANCE SECTOR IN INDIA (7) Economic Times clippings.

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