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Life Insurance Industry-Past, Present & the Future

LIFE INSURANCE INDUSTRY-PAST, PRESENT & THE FUTURE
Jagendra Kumar Corporate Head (Trg), Shriram Group Companies,Jaipur

In recent times, there has been growing awareness about life insurance products and the various benefits they offer to individuals. Offerings like unit linked insurance plans (ULIPs) have done their bit to draw individuals towards the insurance segment. Also tax benefits, presently under Section 80C of the Income Tax Act, have contributed to their allure and helped in popularizing insurance products. Conversely, there are products like medical insurance or mediclaim as it is commonly referred to, which can add value to an individual’s insurance portfolio, but are relatively lesser known. Let’s start off with why people need Life Insurance in the first place. An insurance policy is primarily meant to protect the income of the family’s breadwinners. The idea is if any one or both die, their dependents may hereto continue to live comfortably. The circle of life begins at birth, followed by education, marriage and eventually, after a lifetime of work, we look forward to a life of retirement. Our finances too tend to change as we go through the various phases of our life. In the first twenty years of our life, we are financially and emotionally dependent on our parents and there are no financial commitments to be met. In the next twenty years, we gain financial independence and provide for our families. This is also the stage when our income may be insufficient to meet the growing expenses of a young household. In the following twenty years, as our children grow and become financially independent, we see our savings grow, a nest egg put away for life after retirement. The final twenty years of life, post retirement is the time to reap the rewards of our hard work. It is important to remember that with time, our needs and aspirations tend to change and we have to ensure that we have a suitably dynamic financial plan WHY LIFE INSURANCE? Very often it is said that before you let the worry get into your head, buy Life Insurance. Why? Life Insurance provides protection to your family - your family gets a specified sum in a lump sum when they need it the most i.e. when you are not around. While the emotional loss cannot be mitigated, the lump sum received from an insurance company can help take care of your family’s financial future. Life Insurance policies also offer tax benefits though tax saving should not be the primary reason an individual should look at a Life Insurance policy. Finally, Life Insurance contracts allow an individual to save money in a tax efficient

Bimaquest - Vol. VIII Issue I, January 2008 q 41

There are financial tools that help us determine the “risk of dying early” leading to the quantum of Life Insurance required.8000 after deducting Rs 2000 for personal expenses. The amount of money that will earn Rs 96000 p. This is only a representation of the value of HLV./. Insurance happens to be a mega opportunity in India. your income generating assets. Gross premium collection is nearly 2 per cent of GDP and funds available with LIC for investments are 8 per cent of GDP. children’s education. spouse income. So what should we do? Start with calculating the Human Life Value (HLV). Met Life etc.Life Insurance Industry-Past. It is important that 42 q Bimaquest . This is the greatest mystery. Most people never do believe that they can succumb to destiny and they think. That is the paradox that makes people avoid life insurance! That also makes agents take the wrong line of selling Insurance as a tax saving and/or Investment product (ULIP). workmen etc. And this part of the population is also subject to weak social security and pension systems with hardly any old age income security. Sadly. The most important question is what is the value of your life? Heard of this Yaksha question: What is the greatest mystery on earth? Yudhisthir answers. It is not the exact way of calculating your HLV. there is very little compulsion. In the case of life insurance. This itself is an indicator that growth potential for the insurance sector is immense. etc are also to be factored in. With largest number of life insurance policies in force in the world. General insurance is often bought because there are compulsions under the law (motor vehicles. all that these tools try and determine is the present value of your future earnings keeping in mind your future goals and aspirations. January 2008 . While the algorithms may be different. conceptually.Vol. A very simple way of looking at it is as following: Imagine a monthly income of Rs 10000 and the net income provided to the family is Rs. Life insurance is not bought in India. The tendency is to defer the decision. it adds about 7 per cent to the country’s GDP. liabilities. Thus the annual income provided to your family is Rs 96000. Indian consumers have bought life insurance for reasons of tax saving rather than the core need of providing for one’s family in case of death of breadwinner. The future income growth. It is a business growing at the rate of 15-20 percent annually and presently is of the order of Rs 450 billion. they will live a long and healthy life.) or from the financiers asking for insurance as collateral security. VIII Issue I. But no one thinks that for himself. Present & the Future manner and allow savings to grow to help meet our future financial obligations. A prudent financial plan needs to build in the risk of dying too early to ensure that our family’s financial future is protected. MYTHS ABOUT LIFE INSURANCE Nearly 80 per cent of Indian population is without life insurance cover while health insurance and non-life insurance continue to be below international standards.a. public liability. The possibility of death is either ignored or not considered imminent. Together with banking services. Various private insurers like Bajaj Allianz.00. “Every one has to die.000. that is not always true. at 8% interest rate is Rs 12. have placed on their websites the HLV calculators to make you understand the HLV and your life insurance needs better.

Maybe you would like your grandchildren to receive some money from you as well. and you would like to sustain the same standard of living for your wife in your absence. “I do not know.do we believe that destiny will announce its arrival in our lives? Will destiny always allow you to complete your tax planning for the year and then strike? The answer is a resounding ‘no’. Present & the Future each one of us put some thought into the potential exposure of our family to the risk of the primary wage earners risk of dying too early and arrive at the level of protection required. These myths will help explain why the number of individuals insured and the average amount of insurance cover per individual is so low in our country. The answer is. The way in which the contract works is that the premium that each of us pays gets invested after deducting for the cost of mortality Bimaquest .Vol. VIII Issue I. since the same incentives are available to all insurance companies. smart marketing and aggressive distribution. lack of education has made customers believe that insurance is a tax-planning tool and the protection element is only a marketing strategy. All of this is very encouraging for the life insurance sector. but true.are we buying Life Insurance to save taxes or are we buying it to protect our family’s financial future? Since people believe that nothing ever can happen to them.how much is the guaranteed return that a Life Insurance contract can give. Individuals buy “enough” Life Insurance to get tax breaks just before the financial year ends.Life Insurance Industry-Past. What most individuals fail to understand is that life insurance contracts are long-term contracts. Life insurance can help you achieve such goals. Tax benefits have been driving LIC’s business over the years and the same will drive private player’s too. even in your absence. GUARANTEED RETURNS The question we need to ask is . let us delve on some of the myths surrounding Life Insurance in India. The moot question is . five per cent of our new business must cover rural India and the figure must reach 15 per cent by the fifth year. individuals expect life insurance companies to give “high guaranteed” returns. that’s the triple whammy combination that has enabled fledgling private insurance companies to sign up Indian customers faster than anyone ever expected. You are accustomed to a certain standard of living. However. January 2008 q 43 . the decision on quantum of insurance cover and timing is made just before the financial year ends. As stipulated by the Insurance Regulatory Development Authority. There is a large potential in rural India. Life insurance protects you and your loved ones in the event that you meet with an untimely demise. are now suddenly turning to the private sector and snapping up the new innovative products on offer. TAX SAVING CONCEPT The question that we should ask ourselves is . Sad. Before we get into the recommended approach to Life Insurance. who have always seen life insurance as a tax saving device. Indians. Innovative products.” Unfortunately. this is the way Life Insurance has been largely sold in this country.

SELECTION OF RIGHT PRODUCT Almost all the insurance companies offer what is called an “illustration” to customers the illustration is designed to help the customer understand the policy values better.Life Insurance Industry-Past. it would help to look at the past record of the foreign partner in the joint venture and the ability of the Indian partner to continue to infuse capital.Vol. With volatility in interest rates and capital markets. Given such an economic environment. January 2008 . besides. Since the premium is paid over a period of time. Private players realize what they are up against and are. insurance companies that offered guaranteed return policies to their policyholders are going down. What is needed most is the guaranteed return and wider risk coverage. It already has about 10 lakh agents and that number is likely to go up to 11 lakh by the end of the current fiscal. VIII Issue I. Present & the Future and other administrative expenses of the insurance company. it is foolhardy to expect that the “high guaranteed return” policies can continue for very long. the investment return that the insurance company can generate on our savings depends upon the prevailing investment opportunities at the time when the premium is paid. tailoring their strategy to suit the circumstances. they hope to have about 1-lakh agents. Given the long-term nature of the Life Insurance contract. Given that all the private sector insurance players are new to the business. where is the scope for the insurance company to offer a fixed return to their policyholders but have an earning stream that is highly volatile and variable? Interest rates on Government of India securities have fallen by over three hundred basis points in the last three years. From a customer point of view. THE STIFF COMPETITION The competition is stiff and. least of all on LIC’s. it is important to look at the profile of the life insurance company that is underwriting the risk. Private players only select freshers and. it is very simple to compare the product with other company products because almost all insurers have their web portals with their product details. five years down the line. The classic example is Japan where with interest rates at sub zero levels. Even cost comparisons can be made through premium calculators.000 agents. In such a scenario. Right now most of them have about 5000 to 8. given the capital-intensive nature of the business. consequently. Again. the level of investment return that an insurance company can generate can vary substantially. it is imperative that each customer understands and is able to determine the benefits of the product. Again. if you are buying Life Insurance for the “high guaranteed return” the policy offers. please examine the company and the product again. either undergoing training or already on 44 q Bimaquest . There is no question of competing with LIC. No company is allowed to poach on another’s agents. Riders are very economical and one should always choose the desired riders along with the basic life insurance policy. Your insurance company may not be able to pay you the promised return when your family needs the money most. there’s a behemoth to contend with.

which facilitates the easy transfer of your money to your successors. January 2008 q 45 . The growing popularity of the private insurers shows in other ways. Present & the Future the streets. Naming a contingent beneficiary is always practical. you need to be aware of the different kinds of beneficiaries in life insurance. as these monies are not considered to be a part of your assets. Insurers know that there is enough business for everybody. which is why good agents are important in this business.5 per cent in the next two years on renewable business. your children will qualify for your insurance money if you nominate them as contingent or secondary beneficiaries. Suppose that your first beneficiary dies near the time of your own death. In life insurance. All you have to do is to indicate the names of these recipients and the amount of proceeds that they are going to get. Bimaquest . But in the annuity or pension products business. but the ratio will come down to 50 per cent by the end of their 10th year in operation. even in the specified grace period. The state owned company still dominates segments like endowments and money back policies. If you have named your minor child as a beneficiary. Nonetheless. While in irrevocable beneficiary clause as in the case of absolute assignments.Vol. you cannot change your assignee’s name unless they consent to it. they have a virtual monopoly with over 90 percent of the customers. Even if an insurer gets 1 to 2 per cent of the 250 to 300 million insurable Indians. All insurance agents’ earnings are commission-based. the recipient can be changed any time during the policy. They are coining money in new niches that they have introduced. The commission rate declines to 5 per cent in the fourth year. because you have missed the deadline your policy will lapse. Unlike the non-life segment. you will have to appoint a guardian/appointee who will administer the insurance proceeds upon your death. FEW PROMINENT REASONS OF FAILURE 1. Lapsation of policy: It can happen that due to certain circumstances you forget to pay your premiums. Unfortunately. VIII Issue I. They want them to remain committed. Beneficiary: The most prominent feature of a life insurance policy is the beneficiary clause. In that case. However. They make a 40 per cent commission in the first year on new business and 7.Life Insurance Industry-Past. All insurers are careful about selecting and training their agents. a lapsed 2. selling life insurance requires a more personal touch. As revocable beneficiary. Consequently. With an irrevocable assignee. You can have your children as multiple beneficiaries. it would have covered a lot of ground. A contingent beneficiary can get life insurance proceeds if the primary beneficiary dies before he or she can receive the assets. As of now about 60 per cent of the agents work on a part-time basis. creditors cannot touch the policy proceeds. the private insurers have already wrested over 33 percent of the market. policies are ‘sold’ not ‘bought’. And in the popular unit-linked insurance schemes. your insurance company can stop covering you or may provide you reduced insurance coverage equivalent to the total premiums paid formerly (also called paid-up policies).

your insurance company will use your cash value to settle the loan. As a result. You are entitled to enjoy the fruits of your insurance company’s labor. 3. whole life insurance and variable life insurance are more attractive because of the presence of built-in cash value. which will solve your liquidity problems. if you fail to pay the premiums in the grace period. such as the increase in the cash surrender value if your policy is maintained for the full term. Term life insurance policies do not offer cash values. Cash Surrender Value: Permanent life insurance policies like universal life insurance. 7. the ongoing interest you receive from your investment account gradually increases your cash value. dividends if you own a participating policy. Consult your insurance advisor to about the full consequences of these issues before deciding whether the policy should be cashed or kept. Cash Value is a part of your premium is put in savings or another investment account according to the type of policy you purchase.Life Insurance Industry-Past. Present & the Future policy may be renewed in some plans. you won’t lose your life insurance . 5. you need to consider many factors before surrendering your policy. If you are incapable of repaying your policy loan. The above non-forfeiture options may differ from one insurance company to another. The interest is relatively low and the policy loan can be repaid in a lump sum or installments. The interesting aspect of these policies is that you can surrender your policy and get the accrued cash value in your hands provided you have a substantial amount of cash value. although the exact renewal procedure varies among different insurers. Dividends: Dividends are the earnings paid out by the insurer to its shareholders and/ or policyholders. VIII Issue I. Revival of policy is not simple. for example.Vol. Policy Loan: Another positive characteristic of a life insurance policy is that you can take out a policy loan against your policy to cater to your emergency needs. However. January 2008 . 6. Surrender: It is always easy to terminate (surrender) your policy and get the entire cash surrender value.your accumulated cash value will come to your rescue with the following options. 4. the psyche of the Indian insurance seeker has been such that they have been averse to term insurance plans. Other than payment of interest the life insured has to undergo the medical examination and accordingly the policy terms may be revised. Non-Forfeiture Options: In permanent life insurance policies. the sum assured is paid only upon the unfortunate death 46 q Bimaquest . Term plans require regular premium payments to be made throughout the tenure of the policy. THE INDIAN PSYCHE Traditionally.

but also because they pay a survival benefit if the policy holder survives the term. as they like to receive a return as a reward for investing. since it is a combination of both endowment term insurance. It provides financial protection against the death of the policyholder. there are no returns from a term plan. On the first count. he is paid nothing.Life Insurance Industry-Past. However. cooperative sector as per IRDA regulation. The LIC is subject to similar. LIC has been fairly successful having built up a large regional distribution network comprising 2. there are no survival benefits. VIII Issue I. However. To worsen matters. January 2008 q 47 . Since being set up as an independent statutory body. 15 life insurance companies have been registered. Similarly. given the ‘LIC tag’.Vol. A mediclaim policy or car insurance or home insurance or factory/warehouse insurance doesn’t offer returns. the Indian insurance market. although somewhat less restrictive portfolio allocation constraints as pension funds. They fail to appreciate that insurance is about ‘insuring’ and not ‘investing’. Reforms in the Insurance sector were initiated with the passage of the IRDA Bill in Parliament in December 1999. mainly owing to the comparatively low interest rate paid on life insurance funds. particularly in rural areas. has not made a significant contribution to savings mobilization. some 75 percent of annual portfolio investments must be allocated to Central/State government securities or socially oriented purposes. the IRDA has put in a framework of globally compatible regulations. Jeevan Anand. rural areas now account for over 25 percent of new policies. in other words. LIC in 1956. The opening up of the sector is likely to lead to greater spread and deepening of insurance in India and this may also include restructuring and revitalizing of the public sector companies. In the private sector. with an estimated $5 in annual premiums paid per capita. 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. If the policyholder survives the tenure. Since then. Bimaquest . throughout his lifetime. charged with the tasks of making life insurance available throughout the country. so typically there should not be any expectations of a return. Like other long-term saving instruments. MONOPOLY REGIME AND OPENING UP The life insurance sector was nationalized and consolidated into one entity viz. has always been among the preferred plans. The absence of survival benefits makes these plans rather unpopular among policyholders. A host of private Insurance companies operating in both life and non-life segments have started selling their insurance policies since 2001. while the remaining 25 percent can be invested in private sector. the LIC has been a monopoly operator.048 branches. This gave a fillip to endowment plans not only because they pay the sum assured on the unfortunate death of the policyholder during the policy term. and mobilizing savings by providing attractive insurance products. life insurance has experienced a relative decline recently. now some private players have introduced the ‘Term Plans’ where the proceeds are also paid on maturity of the policy if the insured survives. Present & the Future of the policyholder during the policy tenure. insurance advisors weren’t interested in educating insurance seekers about why term plans are a must-have for every individual regardless of age.

Foreign holding in Indian insurance companies is limited to 26 per cent. Having said that. but its communist allies oppose such a move. The agency model is the dominant sales channel accounting for more than 85 per cent of fresh premiums but overall inactivity and attrition is much higher at 50-55 per cent than the global average of 25 per cent.100 from the current Rs 1. while it is marginal at best in the unbanked segment. adding only 1. In rural areas. The average household premium will rise to Rs 3. Online insurer ebix. we get a picture of the true potential of the life insurance sector in India.com’s expansion into India is a major step for the company to become a global supplier of internet-based insurance tools for consumers and insurance professionals. if we consider that India’s population is over one billion and growing.com plans to enter the Indian market following deregulation of its insurance sector. The total premium could go up to $80-100 billion by 2012 from the present $40 billion as higher per capita income increases per capita insurance intensity. A life insurance policy covers one’s personal self.300 as will penetration by the existing and new players. It could rise to 5. Opportunities include health insurance and pensions. India’s ratio of life insurance premium to its GDP is around 4 per cent against 6-9 per cent in the developed world. VIII Issue I. The government wants to increase the cap to 49 percent. the penetration is lower than potential. In several segments of the population. Online insurer ebix.Life Insurance Industry-Past. of India dominates the industry with over 70 percent market share. The market is moving beyond single-premium policies and unit linked insurance products which are easier to sell. the penetration of life insurance in the mass market is about 65%. Unlike with general insurance. life insurance penetration in the banked segment is estimated to be about 40%. Considering the world’s largest population and an annual growth rate of nearly 7 per cent. much lower than the developed market level of 69%.com can offers the Indian market a business-to-consumer internet portal where consumers have more choice while purchasing insurance and an internet-based agency management system that will help agents work more efficiently with multiple carriers. Present & the Future POTENTIAL OF LIFE INSURANCE BUSINESS IN INDIA India’s life insurance market has grown rapidly over the past six years. and it’s considerably less in the low-income unbanked segment. January 2008 . Insurance penetration in India is currently about 4% of its GDP. India has 17 life insurers and the stateowned Life Insurance Corp. In a diverse country such as India it is imperative that a universal insurance infrastructure be created to maximize efficiency in the insurance industry. For example. with new business premiums growing at over 40% per year. The premium income of India’s life insurance market is set to double by 2012 on better penetration and higher incomes. the report said.5-2 per cent of total healthcare expenditure in India was currently covered by insurance.Vol.1-6.2 by 2012 in tandem with the country’s demographic profile. though private players have been growing aggressively. LIC 48 q Bimaquest . India offers great opportunities for insurers. US based online insurance company ebix. in urban areas. it is not like insuring a vehicle.000-4.

this makes a difference. Although these consumers will be highly accessible.and third-tier cities and small towns. LIC’s has been the growth driver for the entire life insurance Bimaquest . The Indian life insurance industry could witness a rise in the insurance sector premiums between 5. However. Total market premiums are likely to more than double during this period.the highest recorded by the corporation in any single month. LIC has benefited. This implies a higher annual growth in new business annual premium equivalent (APE) of 19% to 23% from 2007 to 2012. This has enabled the corporation post new business premium of Rs 55.1% and 6. It would not be wrong to say that a lot of the advantage of advertising by new private sector insurance companies has by default gone to LIC. Present & the Future has been in business for 50 years now and has not covered the entire population base yet. LIC has issued about 120 million policies till now.1%. About 250 to 300 million Indians are still insurable. with new premium income of US$ 1 billion.2% of GDP in 2012. While they have created a lot of awareness through private insurer’s advertisements.1% of gross domestic product to 6.2% in 2010-2012. Its assets have been estimated at $37 billion and in the last quarter it reported a 60 per cent growth in new business. Why? Because LIC has a much wider branch network. and buyers are surer of LIC because it has been in existence for long. Some LIC agents continue to follow the unethical practice of offering discounts from their commissions to new policy buyers. from the current 4.LOWER THAN POTENTIAL Management consultancy firm McKinsey has forecast that India’s life insurance industry will be double in the next five years from $40 billion to $80-100 billion in 2012. players will have to reckon with intense competition that is only going to increase and extend to other segments as well. That is the kind of potential one is talking about in life insurance in India.Vol. Based on MGI forecasts. The large part of the growth would come from second. since 60% of the very rich (annual income over Rs 10 lakh) would be concentrated in the top eight cities. This growth would improve the level of insurance penetration from 5. LIC’s premium collection in March ’07 was higher than the premium collected in the whole of whole of ’03-04. January 2008 q 49 .Life Insurance Industry-Past.934 crore in ’06-07. from about $40 billion to $80-100 billion. Over 5. LIC’s business is growing at the rate of 20 per cent every year. a 118% growth over the previous year.000 tier-IV small towns will account for as much as 40% of these two classes in 2025.AHEAD OF ALL LIC of India has mobilized Rs 12. LIC. 26 tier-II cities with population greater than one million and 33 tier-III towns with the population of more than 5 lakh will account for 25% of the middle class and newly bankable class in 2025. if an insurer decided to be a niche player and concentrated on metros and their suburbs. they will have a big market. VIII Issue I.361 crore of new business premiums in March ’07 . PENETRATION. they are more comfortable about its safety.

406 crore from Rs 35. The rise in premium is on the back of unit-linked policies which account for nearly 70% of the total individual premium. which is substantially higher than the 72% as on March 106.Life Insurance Industry-Past. operating in 40 countries through 107 companies. ICICI Prudential continues to be the largest private life insurance player with a market share of 7% followed by Bajaj Allianz Life Insurance which has a market share of 5.927 crore. There are a large section of people who do not want to commit premium payments for every year. In March the corporation booked over Rs 4. IRDA gave clearance to a joint venture between Kishore Biyani’s Pantaloon Retail India and Italian insurance firm The Generali Group to start insurance businesses. The new life insurance company will be capitalised at Rs 325 crore. Single premium plans are a demand of the market. The company has been christened Canara HSBC Oriental Bank of Commerce Life Insurance Company Limited.7% to Rs 75. it also granted approval to Future Generali India Insurance Company to transact general insurance business. of which Canara Bank will contribute Rs 102 crore. which grew 381% recording new business premium of Rs 931 crore. The high growth has enabled SBI Life to move into the number three positions after Bajaj Allianz Life Insurance. followed by SBI Life Insurance which grew 209% to Rs 2. Canara Bank would take a 51 per cent stake in the company. Besides. the private life insurance industry has recorded a growth of 89% with total new business premium for the year standing at Rs 19. VIII Issue I. would transact life insurance business.7%.897 crore during the current financial year. HSBC would provide a range of management services. NEW JOINT VENTURE SET UPS Canara Bank.Vol. The joint venture. HSBC Rs 177 crore and OBC Rs 46 crore. Meanwhile. While both Canara Bank and OBC offer an extensive client base. which is nearly 44% of the premium raised by the corporation during the current fiscal. The surge in sales in March attributed to higher sales of unit linked insurance and group insurance business.252 crore in the corresponding period last year. Generali is one of the largest insurance groups in the world. It ranks 22 in the list of Fortune 500 companies and is the largest corporation in Italy with an asset base of over 300 billion euro. The companies that have recorded the fastest growth in the current year include Reliance Life Insurance. Collection from single premium plans amount to Rs 24. complementary distribution networks and broad local market knowledge.566 crore. which would include nominating executives for certain senior roles. Under the terms of the agreement. 50 q Bimaquest . Future Generali India Life Insurance Company Ltd. Present & the Future industry which grew 110. Oriental Bank of Commerce (OBC) and HSBC Insurance (Asia-Pacific) Holdings Ltd have signed an agreement to jointly establish a life insurance company in the country. January 2008 . The rise in premium gives LIC a market share of over 74% of the total new business premium mobilized in India. while HSBC and OBC will hold 26 per cent and 23 per cent stake respectively. product range and proven bancassurance capabilities. HSBC brings to the partnership its considerable insurance experience.826 crore in group insurance. which accounted for nearly 30% of total collections.471 crore as against Rs 10.

What is more.Vol. The government plans to amend the Act passed in 1956 to give more flexibility to the largest insurance company to expand its footprint. as it has already established its presence in some of the Oceania markets. It has offices in the UK. after State Bank of India. Bahrain. Present & the Future EYING ABROAD Although Japanese insurance companies account for one-fifth of the total life insurance premium in the world.381. While the basic life insurance policy protects the bread-earner and his loved ones. Bimaquest . like Fiji. While the insurance industry in the UK is growing at 1012%. LIC has been growing at 4-5% annually. Moreover. Financial sector juggernaut LIC of India is now on the look out for a potential buy abroad. they have been slow to expand internationally as most companies were going through a consolidation phase locally. there is no difference in professional men and women and they both have the same earning power and both contribute to the family kitty. insurance companies are targeting women with specially-designed products. investment towards creating a fortune for needs in future or pension for the golden years.26% during the period against the industry average of 177. to acquire a company abroad. For LIC. Its premium income soared to 182. When the whole world seems to be riding on ‘woman power’. require prior passage of the amendments to the LIC Act. insurance products not only provide security for family. The crash in interest rates to near-zero levels in Japan had made it difficult for insurance companies to generate surpluses to cover costs. therefore. however. RIDING ON WOMAN POWER A woman has unique needs and concerns when it comes to preparing for the future. Both incomes are important for family lifestyle and standard. LIC commands a 77% market share.44%. The company is planning to use its massive cash reserve to finance the acquisition of a company in the New Zealand and Australia markets. January 2008 q 51 . But its UK operations have not been able to grow at the expected rate. a buyout of an insurance company Down Under could make sense. Nepal. although they don’t have any specific product for them. he also needs some protection against health risks specific to women. It is understood that it has been capitalised a couple of times. In today’s society. some insurance companies also offer some discounts to women.57 crore as in August ’06. but also help in savings. to enable the company to raise its paid-up capital from Rs 5 crore to Rs 100 crore.Life Insurance Industry-Past. Kenya and Mauritius other than Fiji. VIII Issue I. Its new premium grew 191% to Rs 10. The plan would. at par with private insurers. can insurance companies remain far behind? Today even banks and financial institutions are regularly churning out innovative schemes to woo the dames? Insurance traditionally has been targeted at the earning member of the family as insurance means helping the family to maintain the standard of living for a few years in case something unfortunate happens to the main breadwinner. If approved. LIC would become the second public sector financial institution. There is a strong-felt need for women to also insure and invest and.

The objective is to enlarge the scope of disclosures made by agents and such transparency will be in the interest of the entire insurance sector. Within the MDRT. 5. Whatever be the case. Agents will also have to give a break-up of the money spent on various expenses. this is one domain which will become a strong focus point for them in the near future. where the insurance company 52 q Bimaquest . which is 801. Acturial-funded products have a complex structure. the Court of Table (CoT) and Top of Table ( ToT). the experience has been the complaints of mis-selling emerge after a period when policyholders discover that their investments were performing far worse than they were told to expect. while to qualify for the TOT. however. he has to do thrice the MDRT business. In the UK. Women investors have shown longer investment tenure and regular saving habits. While the features of ULIPs vary from product to product. an Indian insurance agent has to get a premium of Rs. the onus will be on agents to indicate the explanation that customers have been given on the nature of investment. ING Vysya Life Insurance Company doesn’t have any product targeted specifically at women. On the other hand IRDA has taken the first step to crack the whip on agents misleading customers on unit-linked insurance plans. VIII Issue I.Life Insurance Industry-Past.92 lakh to his insurance company or earn a commission of Rs. To qualify for tht MDRT. if an agent is accused of mis-selling. Insurers also feel that the women-specific insurance market is expected to grow much faster than the overall insurance sector. a prestigious international trade association of insurance agents. Life insurance agents from India are moving fast into the realm of global insurance. the future products are aimed to target these two specific characteristics and would span over both health and investment domain.781 qualifiers. Present & the Future For instance. In the UK. To start with. So. The MDRT has a total of 35. Which is 1% of the total insurance agents or advisors in the world. it has tightened the norms for sale of actuarial-funded unit-linked products which are on their way out. insurance companies’ penchant for woman customers is growing by the day and not without reasons.931 agents for 2007 compared with 532 in 2006. For the agent to qualify for the CoT. insurance agent has to do six times the business required for the MDRT. IRDA appears to be taking the UK route to tackle mis-selling of policies. has more than tripled to 1. January 2008 . Similarly. there are three levels such as the basic MDRT.Vol. the onus is upon the insurer to prove that the policy was explained. AGENTS A remarkable achievement is that India’s third largest private sector insurance company SBI life Insurance has been ranked fifth across the world in terms of number of MDRT members. No wonder. 23. The Regulator intends asking customers and agents to sign illustrations on the entire gamut of ULIP products offered by insurers. women enjoy lower rates of premium than men owing to their longevity.98 lakh. insurers in India will now have to retain documentary evidence to prove that the policy was properly explained to the insured. The total number of Indian agents registering with the Million Dollar Round Table.

Aviva Life Insurance is the other company that has been asked to withdraw actuarial-funded products. in this document. This will form part of the policy document. will have to explain what component actually goes towards life cover and what towards investment. which convert into real money only in the future. IRDA is understood to have extended the deadline for Bajaj Allianz to phase out its actuarial-funded product or capital unit. if need be. Death due to accidents. Disability. the regulator has stipulated that the total premium collected under this product between August 2007 and September 15. 2007. the segment does have its fair share of positives. Present & the Future allocates significant sums to the policyholder’s account in the first year. The Regulator is in the process of modifying the guidelines for ULIPs so that products with high concentration of investments will be treated as mutual funds and term products if the proportion is tilted towards a greater risk. Investment and Savings.Vol. these initial allocations are notional i. transparency standards and understanding of such products among customers. The regulator has also introduced safeguards to see that actuarial-funded products are not sold aggressively while they are being phased out. Surgeries.Although ULIPs may have become popular for more’ wrong’ reason that ‘right’ ones. IRDA has also proposed to make it mandatory for insurance companies to issue sales of document with illustration as a part of the over all policy document. This would give an idea to policyholders about the instruments they are investing in and risks are taking.Life Insurance Industry-Past. IRDA justified the withdrawal of these products. The Regulator has clarified that the Bimaquest . in the form of actuarial units. In the case of Bajaj Allianz. This is set to be replicated in other ULIPs as well in due course. Customers should have an idea as to what the risk and the return in the policy are when they subscribe to them. Flexibility. However. ULIP PRODUCTS The regulator had given an indication that checks would be in place to prevent mis-selling of ULIPs. VIII Issue I. The right reasons includes multiple benefits to the customers like Life protection. Adjustable Life Cover. The company. The regulator has asked private insurer Bajaj Allianz Life Insurance to ensure that policyholders investing in the actuarial-funded products sign on sales illustration given out by agents. The reviewed is aimed at bringing in better information. which have become popular investment instruments. The downside of such products is that there is not much balance in the policyholder’s account in the initial years. January 2008 q 53 . and IRDA will have the authority to inspect it at a later stage. Options to take additional cover against. Transparency. Investment Options. However this order of IRDA is stayed by the High Court of Chennai. for instance. saying that its objective was to enable the policyholders of ULIP products to compare features and charges across products and companies. 2007 should not exceed the average growth in sales posted in the previous quarter of July 31.e. Liquidity and Tax Planning. The entire exercise is aimed at ensuring that the customer is fully aware of the features of the product. Critical Illness.

1 lac contribution per member per year.Vol. online selling and bancassurance are increasing their share in the business of all the companies. unit linked insurance policies health care for as little as Rs100 per month. Private insurance ventures. There’s a wide range of products and services competing to deliver the best value to customers. The life insurance industry is growing at 30 per cent each year. Pension products are developing in a big way. are trying to tap 54 q Bimaquest . Also. Increasing the insurance sector FDI limit to 49 per cent is the foremost issue. it’s one of the fastest growing industries in the country. New products are launched targeting niche markets. Expansion coupled with a rapidly growing business is the big reason for the fresh capital infusion at regular intervals. farmers and also rural and semi-urban masses. but could not withdraw any amount. professionals. all companies are well above the solvency margin of 150%. Now FBT restricted to more than Rs. Now is the time for expansion and launching their services beyond metros and big cities. Almost 90 per cent of the people in the country have no old age benefits or health cover. Present & the Future policyholders in the unit-linked scheme could remain invested in the policy for another five years after the maturity. Private players have captured a sizeable chunk of the market in these six years. and new players are offering a plethora of new and innovative products. and sales channels to suit the customer’s convenience. Meanwhile. to provide financial flexibility to the existing players and make the Indian market attractive for foreign investment.Life Insurance Industry-Past. to get the real benefits of mass business and exponential growth. Pension and health are two areas that have tremendous growth potential in the future. The new insurance companies aims to fulfill the needs of high net worth individuals. VIII Issue I. the fringe benefit tax (FBT) needs to be eased. January 2008 . especially for group products like superannuation schemes. Alternate channels of distribution like corporate brokers. The objective was to ensure that the insurance companies cannot act as a fund manager while it can only provide the option to the policyholder for waiting for a better NAV. and will benefit a large section of people in the organized and unorganized sector. which has increased the market. The upside includes improved service. riders with policies. small and medium enterprises. FBT has caused this market to stagnate. Most private insurers have stabilized their operations in the last five years and fine-tuned their business models. as companies find it increases their costs by more than 30 per cent. The Regulator has observed that the proportion of unit linked insurance plans in the total product portfolio has gone up by 6570 per cent. The annuity market has also started growing. The decision to continue with the scheme after maturity will be purely at the option of policyholders. and most companies have withdrawn this product. The prospects for India’s insurance sector are good on the back of expected buoyant economic growth and rising levels of wealth in society. with the Life Insurance Corporation of India’s (LIC) share in the new business falling to 74 per cent.which ties the fortunes of the insurance company and its investors to the vagaries of the stock market. allowed to compete with stateowned Life Insurance Corporation and non-life companies beginning 2000. need-focused products with flexibility.

Present & the Future expanding demand for insurance in an economy growing nine percent a year. This is evident from that around 40 per cent of the insurance business of any insurer takes place in March. In India micro-insurance is defined by the size of the policy (Rs 5. fire and motor insurance portfolios that are non-commercial or of lower asset value. household. At present. As much as 75% of investments made in ULIPs get routed to the stock markets at SBI Life. The IRDA is currently toying with the idea of allowing insurance companies to issue composite policies for micro-insurance Buyers soon be able to insure their life as well as their motor pump by buying a single policy. At least 60% of the funds from unit-linked products are invested in the equity market.14 per cent of its GDP compared with the global average of 7. Life insurers’ total investment in equities was close to Rs 1.000 sum assured) and covers health. ULIPs are sold like hot cakes but still they are under constant scrutiny. as most people do not realize that insurance is for the security and benefits of their dependants. Dismally low life insurance penetration rates. the total investment in equities rose sharply over the last few years. which has seen annual premiums double to more than 20 billion dollars since 2000. there are 16 companies providing life insurance in the country. individual companies will now be allowed to design composite products within broad parameters. The MF industry registered a total AUM of Rs 4. A single agency system can sell these packaged composite products.Vol. They will be branded as micro-insurance products for file and use.52 per cent. ULIPs have given Life Insurance market a big boost to grow and expend.Life Insurance Industry-Past. While the objective of life insurance is to provide a lump sum amount in the eventuality of untimely death of the insured. while the investment in equities stood at Rs 1. January 2008 q 55 . while total AUM stood at about Rs 6.1 lakh crore. With the growth in ULIPs. qqq Bimaquest . most Indians buy insurance to save taxes. Insurance products are sold rather than bought. strong GDP growth and the expected rise in savings The life insurance industry is close to eclipsing the mutual fund sector in terms of its total investment in equities through the success of unit-linked products. As per the new regulation. is being driven by the absence of a social security system and low penetration dating back to the decades when government-owned insurers enjoyed a monopoly. a growing need for social and old age security. The IRDA will soon issue broad guidelines authorizing composite products for micro-insurance. The demand. And this is expected to rise to only 4 per cent.59 lakh crore. insurance is seen with an improper perspective. VIII Issue I. As per figures compiled by the Life Insurance Council.000-Rs 50. This means a vast majority of Indian population is left to be covered by insurance.86 lakh crore till July 2007. which marks the deadline for submission of investment details for computation of income-tax liabilities. The reason behind foreign companies making a beeline to enter the insurance business in the country is pretty obvious: Insurance in India is only 3. In India.5 lakh crore as of March 2007.

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