You are on page 1of 61


Bachelor of Commerce Financial Markets Semester V

In Partial Fulfillment of the requirements

For the Award of Degree of Bachelor of Commerce Financial Markets

Submitted by


H.R. COLLEGE OF COMMERCE & ECONOMICS 123, D.W. Road, Churchgate, Mumbai 400 020.

College Name (With Address)


This is to certify that Shri / Miss Aayasha Jain of B.Com.-Financial Markets Semester V (2013 - 2014 ) has successfully completed the project on INSURANCE INDUSTRY IN INDIA under the guidance of Ms. Poonam Jain.

Course Co-ordinator


Project Guide / Internal Examiner

External Examiner


I Aayasha Jain the student of B.Com.- Financial Markets Semester V (2013 - 2014 ) hereby declare that I have completed the Project on INSURANCE INDUSTRY IN INDIA

The information submitted is true and original to the best of my knowledge.

Signature of the Student Name of the Student Roll No.


INDEX Sr no. 1. 2. 3. 4. 6. 7. 8. 9. 10. Executive Summary Objectives of Study Introduction History Present Scenario India in the International Context Indian Life Insurance Industry Indian General Insurance Industry Microinsurance : Unlocking Indias huge insurance potential IRDA and its Role Marketing Strategies of Various Insurance Companies Changing Market Dynamics: Evolution of mindset of the Indian population Underlying growth drivers & Emerging Trends in India Issues and Challenges The Way Ahead Research Methodology Limitations of Study Suggestions Conclusion Bibliography Topic Page no.


INSURANCE DENSITY IN SELECT COUNTRIES 2011 INSURANCE PENETRATION IN SELECT COUNTRIES-2011 PENETRATION AND DENSITY IN INDIA Market Share of all Life Insurance Companies in India Growth in the Indian general insurance industry Non-life Insurer Market Share Comparison of GWP by non-life insurers GWP Growth Percentage Maturity model of distribution

Indian economy and industry has undergone significant transformation since 1991moving away from state controlled to a competitive market economy. The most remarkable of this transformation has been noted in the financial sector, particularly, in the Indian Insurance Industry which has opened up to all competitors- integrating financial services to the global economy. IRDA was established in 1999 to protect the interest of policyholders for promoting and ensuring orderly growth of the insurance industry and for matters connected therewith and also to amend the Insurance Act 1938, LIC Act 1956 and G.I. Business Act 1972. Under IRDA Act, 1999, Indian Insurance company means, any insurer being a company which is formed and registered under the companies Act, 1956, in which the aggregate holding of equity shares by a foreign company do not exceed 26% paid up equity capital of such Indian Insurance company and whose sole purpose is to carry on life or general or re-insurance business. Enhancement of this 26% to 49% is at higher level discussion stage. FDI cannot be viewed from the financial perspective alone. It brings experience sharing, technology up gradation, specialized skills, better operational efficiency, improved perceptions by reinsurance companies, and faster evolution of industry. The Indian insurance industry seems to be in a state of flux. While there has been a perceptible change in the market dynamics since liberalization and economic reforms, a considerable amount needs to be done for future growth and development of the market in an orderly and sustained manner. Notwithstanding the strong improvement in penetration and density in the last 10 years, India largely remains an under-penetrated market. Since Indian Insurance market is getting integrated into Global Insurance Industry, we must analyze and understand the prospects of Insurance business in India in the light of following trends and also to study the challenges faced by the insurance industry and how can we overcome them.

To understand the prospects of Insurance business in India. To study the Indian Life and General Insurance Industry. To analyse the present scenario of the Insurance Industry. To know the significance and role of IRDA in Indian Insurance Industry. To study the growth drivers and the emerging trends in insurance sector. To know what are the problems faced by in insurance sector in India.

Insurance is the backbone of a countrys risk management system. Risk is an inherent part of our lives. The insurance providers offer a variety of products to businesses and individuals in order to provide protection from risk and to ensure financial security. They are also an important component in the financial intermediation chain of a country and are a source of long term capital for infrastructure and long-term projects. Through their participation in financial markets, they also provide support in stabilizing the markets by evening out any fluctuations. The insurance business is broadly divided into life, health, and non-life insurance. Individuals, families, and businesses face risks of premature death, depletion in income because of retirement, health risks, loss of property, risk of legal liability, etc. The insurance companies offer life insurance, pension and retirement income, property insurance, legal liability insurance, etc., to cover these risks. In addition, they offer several specialized products to meet the specific needs and requirements of businesses and individuals. Businesses also depend on these companies for various property and liability covers, employee compensation, and marine insurance. Insurance does influence the growth and development of an economy in several ways. The availability of insurance can mitigate the impacts of risk by providing products which help organizations and individuals to minimize the consequences of risk and has a positive effect on industry growth as entrepreneurs are able to cover their risks. In the absence of a full range of insurance products and/or deficient products in terms of coverage and scope, the risk-taking abilities would be hampered and chances are that the economic activities would turn out to be high-risk activities. The implications of leaving various risks uncovered can be significant and the impact of losses can be devastating creating a huge burden on the governments. Therefore, a strong and competitive insurance industry is considered imperative for economic development and growth. However, the contribution of the insurance companies is also dependent on the fact that they are able to pool risks effectively. Only then would it be possible to cover these risks at an affordable and reasonable cost as the insurance provider will be able to spread the risks throughout the economy. The insurance companies have a pivotal role in offering insurance products which meet the requirements and expectations of the customers and, at the same time, are affordable. The future growth of this sector will depend on how effectively the

insurers are able to come up with product designs suitable to our context and how effectively they are able to change the perceptions of the Indian consumers and make them aware of the insurable risks. The future growth also depends on how service oriented insurers are going to be. On the demand side, the rise in incomes will trigger the growth of physical and financial assets. With the growth of infrastructure projects, the demand for insurance to cover the project and the risks during operations will increase. The other growth trigger is the increase in international trade. However, servicing of the large domestic market in India is a real challenge. Some of these challenges pertain to the demand conditions, competition in the sector, product innovations, delivery and distribution systems, use of technology, and regulation.

Classification of Insurance Industry




Fire Insurance

Marine Insurance

Health Insurance

Motor Vehicle


The history of the Indian insurance sector dates back to 1818, when the Oriental Life Insurance Company was formed in Kolkata. The Triton Insurance Company Ltd formed in 1850 and was the first of its kind in the general insurance sector in India. Established in 1907, Indian Mercantile Insurance Limited was the first company to handle all forms of Indian insurance. A new era began in the India insurance sector, with the passing of the Life Insurance Act of 1912. The Indian Insurance Companies Act was passed in 1928. This act empowered the government of India to gather necessary information about the life insurance and non-life insurance organizations operating in the Indian financial markets. Sector Reform in Indian insurance was initiated by the formation of the Malhotra Committee in1993. The aim of the Malhotra Committee was to assess the functionality of the Indian insurance sector. This committee was also in charge of recommending the future path of insurance in India. The Malhotra Committee attempted to improve various aspects of the insurance sector, making them more appropriate and effective for the Indian market. The recommendations of the committee put stress on offering operational autonomy to the insurance service providers and also suggested forming an independent regulatory body. The Insurance Regulatory and Development Authority Act of 1999 brought about several crucial policy changes in the insurance sector of India. It led to the formation of the Insurance Regulatory and Development Authority (IRDA) in 2000.The goals of the IRDA were to safeguard the interests of insurance policyholders, as well as to initiate different policy measures to help sustain growth in the Indian insurance sector. The Authority has notified 27 Regulations on various issues which include Registration of Insurers, Regulation on insurance agents, Solvency Margin, Re-insurance, Obligation of Insurers to Rural and Social sector, Investment and Accounting Procedure, Protection of policy holders' interest etc. In India license raj was reduced and reduced tariffs and interest rates ended many public monopolies, allowing automatic approval of foreign direct investment in insurance sector. India has progressed towards a free-market economy, with a substantial reduction in state control of the economy and increased financial liberalisation. Today there are 24 general insurance companies including the ECGC and Agriculture Insurance Corporation of India and 23 life insurance companies

operating in the country. The insurance sector is a colossal one and is growing at a speedy rate of 15-20%. Together with banking services, insurance services add about 7% to the countrys GDP. A well-developed and evolved insurance sector is a boon for economic development as it provides long- term funds for infrastructure development at the same time strengthening the risk taking ability of the country. Important events in the History of Indian Insurance Industry: 1912 First piece of insurance regulation promulgated Indian Life Insurance Company Act,1912 1928 1938 Promulgation of the Indian Insurance Companies Act Insurance Act 1938 introduced, the first comprehensive legislation to regulate insurance business in India. 1956 1972 1993 1994 1995 1996 Nationalization of life insurance business in India. Nationalization of general insurance business in India. Setting-up of the Malhotra Committee Recommendations of Malhotra Committee released Setting-up of Mukherjee committee Setting-up of an (interim) Insurance Regulatory Authority (IRA) 1997 1997 Mukherjee committee Report submitted but not made public The government gives greater autonomy to LIC, GIC and its subsidiaries with regard to the restructuring of boards and flexibility in investment norms aimed at channeling funds to the infrastructure sector 1998 The cabinet decides to allow 40% foreign equity in private sector companies - 26% to foreign companies and 14% to non-resident Indians, overseas corporate Bodies and foreign institutional investors 1999 The standing committee headed by Murali Deora decides that foreign equity in private insurance should be limited to 26%. The IRA Act was renamed the Insurance Regulatory and Development Authority (IRDA) Act


Indian insurance industry is a flourishing industry with several national and international players competing and growing at rapid rates. All this can be attributed to the reforms leading to the relaxation of the policy regulations that ignited the growth of the Indian insurance industry. The level of awareness and consciousness has risen among people for the need to insure them and elevation in the levels of literacy, population and urbanisation has added fuel to the fire leading to ever growing demand of the insurance products. The period from 2010-2015 has been regarded as the GOLDEN AGE for the Indian insurance industry probably because of the future prosperous growth predictions of the industry. deployed in long term projects like infrastructure as the tenure matching becomes easy. The Indian Insurance Sector is a colossal one and is growing at a speedy rate of 15-20%. Together with banking services, insurance services add about 7% to the countrys GDP. Overall insurance penetration (premium as percentage of GDP) in India has increased from 2.3% in 2001 to 5.2% in 2011. The LIFE INSURANCE CORPORATION OF INDIA dominated the industry till 1990s after which few private players started entering the market. The entry of the private players in the industry around 2000-2001 initiated the growth of the industry. A study conducted by the Federation of Indian chamber of commerce and industry and the US based Boston Consulting Group reveals that the awareness and total penetration of insurance services [premiums as % of GDP] in India has increased from 2.3% in 2001 to 5.2% in 2011. The report further provided information that the number of life insurance policies in the year 2011 was 12 times more than the last decade and number of people taking the health insurance has risen 25 times. India is a US $41billion industry. Currently, in India only two million people {.2% of the total population of 1 billion} are covered under Mediclaim whereas in developed nations like USA about 75% of the total population are covered under some insurance scheme. As far as the conventional plan of life insurance policies are concerned, there is a growth of 11% in policies and 22% in premium according to the Minister of State for Finance. The Indian health insurance market accounted for 3.2 per cent of the overall insurance industry in the fiscal year 2011-2012. d by public-sector companies, the top six private health insurance companies increased their cumulative market share from 17.2 per cent to 29.1 per cent during 2007 to 2011.


At the end-September 2012, there are 52 insurance companies operating in India; of which 24 are in the life insurance business and 27 are in general insurance business. In addition, GIC is the sole national reinsurer. The Government has

decided to hike foreign direct investment (FDI) limit in the insurance sector to 49 per cent from the existing 26 per cent. The move is expected to ripe benefits soon, in terms of more foreign investments into the country.



In the life insurance business, India ranked 10th among the 156 countries, for which the data is published by Swiss Re. During 2011-12, the life insurance premium in India declined by 8.5 per cent (inflation adjusted). During the same period, the global life insurance premium declined by 2.7 per cent. The share of Indian life insurance sector in global life insurance market stood at 2.30 per cent during 2011, as against 2.54 per cent in 2010.

The non-life insurance sector witnessed a significant growth of 13.5 per cent during 2011-12. Its performance is far better when compared to global non-life premium, which expanded by a meager 1.8 per cent during the same period. The share of Indian non-life insurance premium in global non-life insurance premium increased slightly from 0.57 per cent in 2010-11 to 0.62 per cent in the year 201112. India stood at 19th rank in global non-life premium income.




Penetration and Density in India 1. The potential and performance of the insurance sector is universally assessed with reference to two parameters, viz., insurance penetration and insurance density. These two are often used to determine the level of development of the insurance sector in a country. Insurance penetration is defined as the ratio of premium underwritten in a given year to the Gross Domestic Product (GDP). The insurance penetration in India, which surged consistently till 2009-10, has slipped since 201011 on account of slowdown in life insurance premium as compared to the growth rate of the Indian economy. Life insurance penetration had consistently gone up from 2.15 per cent in 2001 to 4.60 in 2009, before slipping to 4.40 per cent in 2010 and further slipping to 3.40 per cent in 2011. 2. However, penetration of the non-life insurance sector in the country has remained near constant in the range of 0.55-0.75 per cent over the last 10 years (0.71 per cent in 2010 and 0.70 in 2011).


3. Insurance density is defined as the ratio of premium underwritten in a given year to the total population (measured in USD for convenience of comparison)( Per capita premium). India has reported consistent increase in insurance density every year since the sector was opened up for private competition in the year 2000. However, for the first time in 2011, there was a fall in insurance density. The life insurance density in India has gone up from USD 9.1 in 2001 to USD 49.0 in 2011 though it reached the peak of USD 55.7 in 2010. The Insurance density of non-life sector reached the peak of USD 10.0 in 2011 from its level of USD 2.4 in 2001.



Life Insurance in India was nationalised by incorporating Life Insurance Corporation (LIC) in 1956. All private life insurance companies at that time were taken over by LIC. In 1993 the Government of Republic of India appointed RN Malhotra Committee to lay down a road map for privatisation of the life insurance sector. While the committee submitted its report in 1994, it took another six years before the enabling legislation was passed in the year 2000, legislation amending the Insurance Act of 1938 and legislating the Insurance Regulatory and Development Authority Act of 2000. The same year the newly appointed regulator Insurance Regulatory and Development Authority IRDA- started issuing licenses to private life insurers.

LIST OF LIFE INSURANCE COMPANY IN INDIA 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. Aegon Religare Life Insurance Co. Ltd. Aviva Life Insurance Co. India Ltd. Bajaj Allianz Life Insurance Co. Ltd. Bharti AXA Life Insurance Co. Ltd. Birla Sun Life Insurance Co. Ltd. Canara HSBC Oriental Bank of Commerce Life Insurance Co.Ltd. DLF Pramerica Life Insurance Co. Ltd. Edelweiss Tokio Life Insurance Co. Ltd Future Generali India Life Insurance Co. Ltd. HDFC Standard Life Insurance Co. Ltd. ICICI Prudential Life Insurance Co. Ltd. IDBI Federal Life Insurance Co. Ltd. IndiaFirst Life Insurance Co. Ltd ING Vysya Life Insurance Co. Ltd. Kotak Mahindra Old Mutual Life Insurance Ltd. Life Insurance Corporation of India Max Life Insurance Co. Ltd. PNB MetLife India Insurance Co. Ltd. Reliance Life Insurance Co. Ltd. Sahara India Life Insurance Co. Ltd.

21. 22. 23 24.

SBI Life Insurance Co. Ltd. Shriram Life Insurance Co. Ltd. Star Union Dai-Ichi Life Insurance Co. Ltd. Tata AIA Life Insurance Co. Ltd

Figure .4 Market Share of All Life Insurance Companies

Premium For the first time in 12 years, the life insurance industry witnessed a decline in the first year premium collected in FY12, which declined from INR1,258 billion in FY11 to INR1,142 billion, a drop of approximately 10%. There is a perceptible shift in the life insurance market as the sales of Unit Linked Insurance Plans (ULIP) products witnessed a drop in sales and customer move toward traditional products.Indian life insurance sector collected new business premiums worth Rs 11,742.7 crore (US$ 1.92 billion) for April-May 2013, according to data from IRDA. Life insurers collected Rs 1,07,010.7 crore (US$ 17.5 billion) worth of new premiums for the financial year ended March 31, 2013.


Key Trends of 2012 Private bank led insurers have fared much better than insurers dependent on agency distribution in volumes (2) Share of single premium policies, which had inched up after the new ULIP guidelines, has reversed now as new ULIP schemes have stabilised. (3) Overall ticket sizes have remained flat for private insurers in FY12 but bank led insurers have done better with growth in average ticket sizes aiding overall volumes. Performance of the Key Market Players: The insurance companies have seen a higher profit margin for financial year 201213, as compared to the previous fiscal. Life insurance industry, in particular, which has seen a slowdown in new business premium collection, has also fared better in terms of profitability.The largest player in the private life insurance industry ICICI Prudential Life Insurance, the life insurance arm of ICICI Bank posted a 8.09% rise in profit after tax for the full year ended March 2013. The private life insurer posted net profit of Rs 1,496 crore compared to Rs 1,384 crore for full year ended March 2012. In terms of premiums, ICICI Lifes annualised premium equivalent (APE) increased by 13% to Rs 3,532 crore in FY2013 from Rs 3,118 crore in FY2012. The assets under management at March 31, 2013 were Rs 74,164 crore (US$ 13.7 billion). SBI Life Insurance posted profit of Rs 622 crore for financial year 2012-13, an increase of 12% over the previous fiscal. Atanu Sen, MD & CEO, SBI Life Insurance had said that despite the continued tough environment, they were able to change the business mix and sustain a profitable growth primarily due to their brand strength, multi distribution model and high productivity of our retail channels. Bancassurance has been a major driver of growth for the insurance companies. Insurers, backed by bank partners have seen not just higher premiums, but also an increase in profit margins. IDBI Federal Life Insurance, which achieved break-even in its fifth year operation in FY2012-13 has about 74% of its premium coming from its bank channel.Another leading life insurer HDFC Life has seen a 66.5% growth in net profit and posted net profit of Rs 451 crore in financial year 2012-13. The company recorded 16% positive growth in new business premium income (Individual business) and 11% growth in total premium income. Further, Max Life Insurance reported a net profit of Rs 423.4 crore for the financial year 2012-13.Rajesh Sud, CEO & Managing Director, Max Life Insurance had said, "Our continued focus on

fundamentals and efforts to differentiate in the market place based on our advice based sales, diversified distribution architecture and comprehensive product portfolio helped us achieve a profitable growth in a tough year for the industry." (Business Standard)

Products offered by Indian Insurance Industry

Term Insurance Policies- The basic premise of a term insurance policy is to secure the immediate needs of nominees or beneficiaries in the event of sudden or unfortunate demise of the policy holder. The policy holder does not get any monetary benefit at the end of the policy term except for the tax benefits he or she can choose to avail of throughout the tenure of the policy. In the event of death of the policy holder, the sum assured is paid to his or her beneficiaries. Term insurance policies are also relatively cheap to acquire compared to other insurance products.

Money-back Policies- Money back policies are basically an extension of endowment plans wherein the policy holder receives a fixed amount at specific intervals throughout the duration of the policy. In the event of the unfortunate death of the policy holder, the full sum assured is paid to the beneficiaries. The terms again might slightly vary from one insurance company to another.

Unit-linked Insurance Policies (ULIP) - Unit linked insurance policies again belong to the insurance-cum-investment category where one gets to enjoy the benefits of both insurance and investment. While a part of the monthly premium pay-out goes towards the insurance cover, the remaining money is invested in various types of funds that invest in debt and equity instruments. ULIP plans are more or less similar in comparison to mutual funds except for the difference that ULIPs offer the additional benefit of insurance.

Pension Policies-Pension policies let individuals determine a fixed stream of income post retirement. This basically is a retirement planning investment scheme where the sum assured or the monthly pay-out after retirement entirely depends on the capital invested, the investment timeframe, and the age at which one wishes to retire. There are again several types of pension plans that cater to

different investment needs. Now it is recognized as insurance product and being regulated by IRDA. The decade gone by Since the opening of the sector in 2001, Indian life insurance industry has gone through two cycles -- the first one being characterised by a period of high growth (CAGR of approx. 31 percent in new business premium between 2001-10) and a flat period (CAGR of around 2 percent in new business premium between 2010-12). During this period, there has been increase in penetration (from 2.3 percent in FY01 to 3.4 percent in FY12), increased coverage of lives, substantive growth through multiple channels (agency, banc-assurance, broking, direct, corporate agency amongst others) and increased competitiveness of the market (from four private players in FY01 to 23 private players in FY12).The sluggish period being experienced today by the Indian life insurance companies brings to fore the big challenge of profitability. The industrys participants have been struggling to achieve profitability in the face of high operating losses primarily on account of distribution and operating models. Cumulative losses for private life insurers are in excess of INR 187 billion till March 2012, majority of which have gone towards funding losses rather than for meeting solvency requirements. Figure.5 represents the equity in the business vis--vis the balance in the profit and loss during FY02 and FY12. The trend line represents the first year premium earned by private life insurance companies.


The period FY05 to FY10 was primarily dominated by linked life insurance business especially in case of the private sector insurance players. Performance of the Linked plans is directly linked to primary capital markets. The period FY06 to FY08 witnessed boom in the countrys capital market which benefited the insurance companies in turn. FY09 and FY10 witnessed slow down in the economy and thereby impacted the sale of policies. IRDA during July 2010 (and with modification in September 2010) came up with Unit Linked Insurance Plan (ULIP) guidelines capping upfront charges, returns and the commission pay-outs impacting the basis on which ULIPs were developed. Immediately following these guidelines, during FY11 and FY12, the industry witnessed a shift in the product mix from linked products to non-linked or commonly known traditional products. The premiums fell at an annual rate of around 19 percent (Exhibit 1) during FY11 and FY12. Currently, the premium mix of the industry is at a similar mix as of FY04 depicting almost a reset of the life insurance business.



In India, The General Insurance Business (Nationalisation) Act, 1972 nationalized 107 general insurance companies business. Accordingly the General Insurance Corporation of India functioned with the following subsidiaries. General Insurance Company Ltd. - New India Assurance Company Ltd. - United India Insurance Company Ltd. & - Oriental Insurance Company Ltd.

After the implementation of the Insurance (Amendment) Act 2002, private players have been allowed to conduct insurance business in India. The public sector units in the general insurance industry have a good past performance: they have a reliable profit and dividend paying record accompanied by a steady growth in financial resources. They have contributed enormously to the development of the country by investments in the Government and socially oriented sectors. They are collectively recognized as one of the largest financial institutions in the country. The ventures initiated by the industry in the area of Mutual Funds and Housing Finance have done exceedingly well in recent years. Any insurance other than Life Insurance falls under the classification of General Insurance. It comprises of : Insurance of property against fire, theft, burglary, terrorism, natural disasters etc Personal insurance such as Accident Policy, Health Insurance and liability insurance which covers legal liabilities. Errors and Omissions Insurance for professionals, credit insurance etc. Policy covers such as coverage of machinery against breakdo wn or loss or damage during the transit. Policies that provide marine insurance covering goods in transit by sea, air, railways, waterways and road and cover the hull of ships. Insurance of motor vehicles against damages or accidents and theft

All these above mentioned form a major chunk of non-life insurance business. General insurance products and services are being offered as package policies offering a combination of the covers mentioned above in various permutations and combinations. There are package policies specially designed for householders, shopkeepers, industrialists, agriculturists, entrepreneurs, employees and for professionals such as doctors, engineers, chartered accountants etc. Apart from standard covers, General insurance companies also offer customized or tailor-made policies based on the personal requirements of the customer. Historical developments in the Indian general insurance industry The overall general insurance industry growth has kept pace with the GDP growth in the country and general insurance penetration has varied in a narrow band After liberalisation of the Indian insurance industry in the year 1999- 2000, the Indian general insurance industry has witnessed rapid growth. The industry, in terms of gross direct premium, has grown from INR 11,446 crore in FY02 to INR 57,964 crore in FY12, which corresponds to a compounded annual growth rate (CAGR) of 17.6 percent. Insurance density, which is defined as the ratio of premium underwritten in a given year to the total population, has increased from USD 2.4 in 2001 to USD 10 in 2011. The growth in the general insurance industry has kept pace with the nominal GDP growth rate resulting in general insurance penetration remaining stable in the range of 0.55% to 0.75% over the last 10 years.
Figure .6- Growth in the Indian general insurance industry


LIST OF GENERAL INSURANCE COMPANIES IN INDIA 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. Bajaj Allianz General Insurance Company Limited IFFCO Tokio General Insurance Company Limited HDFC ERGO General Insurance Company Limited ICICI Lombard General Insurance Company Limited The New India Assurance Company Limited The Oriental Insurance Company Limited Max Bupa Health Insurance Company Limited Royal Sundaram Alliance Insurance Company Limited United India Insurance Company Limited SBI General Insurance Company Limited Tata AIG General Insurance Company Limited Reliance General Insurance Company Limited Cholamandalam MS General Insurance Company Limited National Insurance Company Limited Shriram General Insurance Company Limited Bharti Axa General Insurance Company Limited Future Generali India Insurance Company Limited Agriculture Insurance Company of India Star Health and Allied Insurance Company Limited Apollo Munich Health Insurance Company Limited Universal Sampo General Insurance Company Limited Export Credit and Guarantee Corporation of India Limited Raheja QBE General Insurance Company Limited L&T General Insurance Company Limited Liberty Videocon General Insurance Company Limited Magma HDI General Insurance Company Limited Religare Health Insurance Company Limited

MARKET SHARES Market continues to be dominated by PSUs, including Agriculture Insurance Company (AICI) and Export Credit & Guarantee Corp. (ECGC) at 58% and the rest is divided between private players. Pie A, shows the split of four PSUs, AIC,

ECGC and all private sector general insurers as a block at 42%. Pie B, further elaborates the respective market shares of various private players, notable among which are ICICI Lombard, BAGIC, ITGI and HDFC ERGO with market shares of 9%, 6%, 4% and 4% respectively. Others in the chart include Star Health, SBI General, Universal Sompo, Apollo Munich, L&T General, Max Bupa, Raheja QBE, Religare and Magma HDI.
Figure .7- Non-life Insurer Market Share

Performance of key market players (2012-13): The insurance companies have seen a higher profit margin for financial year 201213, as compared to the previous fiscal. The general insurance arm of ICICI Bank has also performed better than financial year 2011-12. The gross premium income of ICICI Lombard increased by 19.8% to Rs 6,420 crore in FY13 from Rs 5,358 crore in FY12. ICICI Lombard General Insurance posted a net profit of Rs 306 crore for year ended March 2013 compared to a loss of Rs 416 crore for FY2012.The commercial third party motor pool was dismantled from April 2012 and a declined risk pool was put in place. This has led to reduction in losses for general insurers, who had made high provisioning for this segment. With an increase in premiums, it is expected that this loss will be brought down further. Bajaj Allianz General Insurance, for example, saw a 138.6% growth in net profit in FY13 over previous fiscal. Public general insurers have also seen a significant rise in profitability, apart from a double digit increase in annual premium growth. New India Assurance posted profit after tax (PAT) of Rs 843.6 crore for financial year 2012-13, compared to net profit of Rs 179.3 crore posted in FY12. The company collected total premiums of Rs 10,038 crore in India, recording a growth rate of 18%.Similarly, private general insurer

HDFC ERGO General Insurance posted net profit of Rs 154.49 crore for the year ended March 31, 2013 as compared to a net loss of Rs 39.69 crore posted in the previous fiscal. (Business Standard) GROSS WRITTEN PREMIUM As per latest statistics released by the Insurance Regulatory and Development Authority (IRDA), the Gross Written Premium (GWP) figures for the period April to November FY2012-13 for the General Insurance (non-life and health) industry in India was INR44,451 Crores (USD8,386 Million). The corresponding figure for the last fiscal (FY2011-12) was INR37,235 Crores (USD7,025 Million).

Source: IRDA BAGIC: Bajaj Allianz General TAGIC: Tata AIG General As earlier, the PSU general insurers continue to lead, with ICICI Lombard and BAGIC close behind them.

GROWTH RATES The GWP growth rates for general insurers ranked over premium collected is shown in the following graph. During the period April to November FY2012-13 the non-life industry registered a growth of 19.4% against a growth of 23.9% in FY2011-12 for the same period.


Figure .9- GWP Growth Percentage

Changes in the regulatory environment substantially impacted the industry dynamics Apart from macro-economic, social, and demographic growth drivers, the evolving regulatory landscape had a significant impact on the growth and profitability trends in the industry. The most notable of them was the price detariffication in 2007 which significantly impacted the premium rates and growth for commercial lines and health insurance. Though the overall insurance penetration has remained in a narrow range, coverage of underlying risks has increased considerably The insurance penetration statistics may not represent the true perspective on coverage of the underlying risk due to changes in the premium rates across segments which were significantly influenced by the regulations. In our estimates, the risk coverage has grown at an annual growth rate of approximately 25 percent. For example, in the health insurance segment, the number of persons covered has increased from approximately 80 lakhs in FY04 to approximately 7.3 crore without taking into consideration the Rashtriya Swasthya Bima Yojna (RSBY) which has additionally covered more than 16 crore people by FY12. Even in commercial lines business, the premium growth over the years indicates

considerable increase in the underlying risk coverage, especially considering the impact of price detariffication. Overall, while the industry achieved significant growth over the past 5 years, the profitability of industry deteriorated sharply Factors affecting the profitability of industry A multitude of factors adversely impacted the industry profitability over the last five years Price detariffication provided freedom to general insurance companies to decide the premium rates in most of the product segments Between FY06 and FY12, 10 new companies have entered the general insurance business. Intensifying competition and focus on growth by the new entrants led to competitive pricing pressure Focus on growth by the insurers across the industry led to higher bargaining power of the intermediaries and limited control on the claims cost Limited or no increase in the TP premium rates for a number of years coupled with issues pertaining to third party liability caps as under The Motor Vehicles Act, led to extraordinarily high claims ratio in the segment which impacted the overall profitability and solvency requirements for the general insurance companies.


MICROINSURANCE Unlocking Indias huge insurance potential

Microinsurance refers to insurance products which are designed to provide risk cover for low-income people. Generally, these products are focused towards providing adequate coverage to this customer segment with flexible payment schedules for the lower premiums. Although there are various benchmarks to distinguish

microinsurance from insurance, product design (size of premium and risk cover) and access are key differentiators for microinsurance products. Simple products which are easily accessible through an efficient distribution process to keep the overall cost of products low are qualified under microinsurance. Global overview and comparison with India The last decade witnessed strong growth in the microinsurance sector worldwide with emergence of three strong growth regions Asia, Latin America and Africa. The growth in Asia, which accounts for roughly 80 percent of the global microinsurance market, is driven by large and dense populations, interest from public and private insurers, penetration of distribution channels and active government initiatives. While India and China have been at the forefront, other Asian countries, such as Bangladesh, the Philippines and Indonesia are also witnessing rapid growth in microinsurance.1 Latin America and Africa, which account for 15 percent and 5 percent of the global microinsurance, respectively, are other promising growth markets for the sector. The following table depicts the growth of the microinsurance sector during the last decade.
Table: Estimated outreach of microinsurance: millions of risks covered

Note: *Data for 100 poorest countries only Source: 'Protecting the poor: A Microinsurance compendium,' vol. II, Munich Re, Microinsurance Network and International Labor Office, 2012, p11.


Insurers are increasingly making an effort to cover the population by introducing need-based and easy-to-understand products. In Central and Eastern Europe, growth in microinsurance has not been as swift as compared to Asian and Latin American regions. Microinsurance in India The microinsurance business took its roots in India with a few schemes launched by non government organizations (NGOs), micro finance institutions (MFIs), trade unions, hospitals and cooperatives to create an insurance fund against a specific peril. These schemes were outside the ambit of the regulations and operated more on good faith of these institutions. The microinsurance landscape changed with the first set of regulations published in 2002 entitled the Obligations of Insurers to Rural Social Sectors. The regulations essentially promulgated a quota system to force new private sector insurers to sell a percentage of their insurance policies to de facto low-income clients. The Government of India formed a consultative group on microinsurance in 2003 to look into the issues faced by the microinsurance sector. The group highlighted the apathy of insurance companies towards microinsurance business, non-viability of standalone microinsurance programmes and huge potential of alternative channels amongst others. The Reserve Bank of India allowed regional rural banks (RRBs), which have good distribution reach in rural areas, to sell insurance as corporate agent, in 2004. In order to support the development and facilitate the growth of the sector, the insurance regulator Insurance Regulatory Development Authority (IRDA) came up with the microinsurance regulation in 2005. It was a pioneering approach which put India among the few countries to draft and implement specific microinsurance regulations. While the microinsurance regulations had a relatively narrow scope, focussing only on the partner-agent model, it nonetheless relaxed some of the conditions to facilitate distribution efficiency and perpetrated the view to extend microinsurance from a social perspective to a commercial business opportunity.


The Indian microinsurance market is marked by various players operating a number of schemes:
Figure 1.0- Number of policies & New business premium

Distribution channels Distribution of microinsurance products is dependent on factors such as collaboration, relationship and trust with the low-income group while holding down associated costs. MFIs, NGOs, Regional Rural Banks, Self-help groups (SHGs) and their federations and cooperatives are the most-preferred distribution channels led by their vast established networks and proximity to the target market. The selection of the right channel mix primarily depends on the region and product segment. In India and the Philippines, MFIs are predominately being used to distribute microinsurance products, while, in Brazil, utility and telecom companies are increasingly being used. However, insurers are continuously innovating and introducing distribution channels that are not only cost efficient but also have a wider reach. Technology is being extensively used to distribute microinsurance products more efficiently and effectively. For example, mobile banking is gaining prominence as it is not only an enabler of client communications, but is also helpful in premium and data collection. However, the channel has limitations where face-to-face interaction is required. Key regulations: Rural and social obligations, 2002 and Microinsurance regulations, 2005 In order to promote mass insurance coverage, the regulator established obligations of insurers to rural or social sectors in 2002 and has since amended it. While the

rural sector obligations aim to cover the hinterland which is predominantly agrarian, the social sector includes unorganised, informal sector comprising economically vulnerable classes across rural and urban areas.


What Is IRDA, What Is Their Role In The Indian Insurance Industry?

In 1999, the IRDS was set up under the IRDA Act. Companies, aspiring to carry on insurance and reinsurance business in India, are required with IRDA, which is the sole authority for granting license to agents. IRDA is an abbreviation of the Insurance regulatory and Development Authority which is a financial sector in industrial market in India. This is a body that was specifically put in place to regulate and at the same time ensure that the insurance business in India is being developed. One of the major roles of the IRDA body is to make sure that the interest of those holding insurance policies has been protected. There are a number of duties, roles and responsibilities that are assigned to the IRDA team so as to bring the insurance awareness to the policy holder and the service providers in India. It is the role of the IRDA to provide the certification and registration to the service provider of the insurance products. The process of certificate registration for the insurance company, withdrawals, renewals, modifications, suspension and as well cancellation is done by the IRDA. The same body is in the front t line to come up with the guidelines that specifies the qualifications in the requisite. It also foresees that all the code of conduct by the insurance company and as well the policy holders are followed to the latter. The same body is responsible for all the practical assessment for the agents in an insurance firm. It is the duty of the IRDA body to look into training issues that concerns he intermediaries and the agents of a given insurance company. To avoid conflicts that normally arise in the curse of surveyors analyzing and assessing losses that the insured has suffered, it provides an extensive guidance to the code of conducts that should be followed. In the process of making assessment and surveys as well as the conducting of the insurance activity efficiency is put in place by IRDA. It is the role of the Insurance Regulatory and development Authority to take care, monitor and offer guidance to all the activities that relate the professional organizations with the companies that offer insurance service to consumers. Moreover, it ensures that all the transactions by the insurance companies have been levied accordingly and all the fees paid. It gives mandate or it takes the roles of forming enquiries so as to make investigations in the issues that affect the service


providers of the insurance. In the above ways, they are playing a vital role in the field of insurance industry of India The Insurance regulatory and Development Authority (IRDA), batted for a hike in the foreign direct investment (FDI) limit to 49 per cent in the sector from the present 26 per cent.I am in favour of hike in the FDI limit for the insurance sector. Unless we go for 49 per cent, we will not have the kind of capital required to underpin the growth of the industry. This sector requires a lot of money, IRDA Chairman J. Hari Narayan said on the sidelines of a summit here.



LIC In India people mostly take insurance as an investment rather than risk cover. LIC though enjoying the first mover advantage continuously revamps its strategies to maintain a firm position in the industry. Being in the industry for more than 50 years experience definitely improves performance of the company. LIC has taken following steps to increase its market competitiveness and retain its dominant position in the insurance market: 1. Product development -Every year by taking market review it introduces new innovative plans and also withdraws those plans which have less market response. For example LIC observed that there is a top potential for the health insurances business. So in the year 2007-08 it had started one Health Insurance Department and the first product Health Plus was launched on 4 February, 2008. People also welcomed it. 2. Agents- LIC very well understands the pivotal role of the agents in selling of insurance policies. To promote them the corporation also gives stipends at the start of their career and to enable them to settle down in the profession. As on 31-03-2008 there were 17,684 urban career agents and 22,324 rural career agents. 3. Microinsurance Plan- The LIC of India, not only concentrates on celebrity marketing and rich class segment but also launches insurance plan under a separate business vertical to extend security to the less privileged section of the society under business vertical Jeevan Madhur plan that was launched in Sept. 2006 by the LIC. It was observed that within 2.5 years it had provided 4.3 cover to the approx 2.5 million lives. TATA AIG This company thrives on some of the salient features that include:

force for 10 years or more, if payable on death or maturity


Availability of doctors, SMS campaigns, help lines, e commerce, network marketing, portal services plus crystal claim services, etc. are the other few marketing strategies of the company.

IDBI FEDERAL LIFE INSURANCE COMPANY LIMITED The company has come up with a really beautiful ad for the promotion of its childsurance product with the tag line plan jo fail na ho which attracted n ationwide attention. It is also engaging its personnel and actuaries to come up with novel, innovative and mind boggling products to attract and retain its loyal customers and increase its market share or in other words its reach. So that everyone gets maximum out of whatever minimum they have.

SBI LIFE INSURANCE COMPANY LIMITED The company adopted both a reactive and proactive strategy that would fit the long term and short term at the same time. They were selling insurance policies across India to create goodwill for their products. Before finding a solution to the circumstances and business problems, the company tries to assess whether it is in house or out of shelf problem and tries to fit what is best for them but seldom go they reinventing the wheel. The company tried to go nearer to point of sale and offer more self service options by opening more number of retail outlets.

HDFC STANDARD LIFE INSURANCE They continuously focus on developing new channels for distribution of their products. They provide commission for the increased business brought by the sales force. Continuous monitoring, focused efforts, cost variabalization , outsourcing initiatives, reducing operating expenses to strengthen marketing channels and other promotional programmes are some of the initiatives taken by the company. All the companies operating in the industry offer almost the same kind of products with little modifications done here and there. This has led to intensifying the competition in the industry. So the point which should now be emphasised by the firms in the industry should be in terms of penetration of masses and service aspects.



There has been a radical change in the mindset of people in the last 10- 15 years regarding the insurance policies and its use. People earlier used to take this just as a means of protection but now people try to grab the multiple benefits which the products promise to provide ranging from security to investments to tax benefits to additional income and what not. The reason can be attributed to the level of illumination caused in the mindset of people owing to the region wide literacy and sector reforms initiated by the government. Other reasons are the increased level cover and additional premiums provided to the beneficiary, rising per capita income of the country, urge among people to protect their dependents, ensure high quality of life proof from any uncertainty, pricing and promotional strategies used by the companies, rising population, marital status of the people, changing buying and expenditure pattern of people owing to changing trends and western influence not only on terms of attire but also to copy their entire lifestyle, illustrating the example that more than 80% of people in the U.S are insured. Sometimes, reference group influence, technical aspects of the product which is the reliability, durability, comfort and convenience of the product also acts as a strong motivation to buy and use the new and evolving insurance policies and become a part of the so called elite and educated crowd. The above mentioned factors have definitely provided the industry a new shape and provided enormous development and growth opportunities for various companies existing in the industry. The only point of concern here is that how can the companies turn this changing and evolving mindset into their benefit. The only thing which can be done here is to touch the emotional part of the individuals which will ignite the buying thrive in the individuals to purchase and use the insurance products. India is a country that can provide home to multiple companies in the industry, the reason can only be because of the innumerable benefits that the government is providing in addition to the huge and tremendous domestic demand that may also restrict the firms to go to international borders to maintain their profit margins. The urge of increased demand created by the more liberalised and radical mindset of the population is an incentive for the industry.



Despite strong improvement in penetration and density in the last 10 years, India largely remains an under-penetrated market. The market today is primarily dependent on push, tax incentives and mandatory buying for sales. There is very little customer pull, which will come from growing financial awareness and increasing savings and disposable income.In the long run the insurance industry is still poised for a strong growth as the domestic economy is expected to grow steadily. This will lead to rise in per capita and disposable income, while savings are expected to be stable. 1. Growing economy and purchasing power The demand for insurance products is likely to increase due to the exponential growth of household savings, purchasing power, the middle class and the countrys working population. The working population (2560 years) is expected to increase from 675.8 million in 2006 to 795.5 million in 2026. Increased incomes are expected to result in large disposable incomes, which can be tapped by the financial sector in general and the insurance sector in particular. 2. Rising focus on rural market More than two-thirds of Indias population lives in rural areas without proper access to insurance products. Micro insurance is seen as the most suitable channel to ensure coverage in these areas. Poor insurance literacy and awareness high transaction costs and inadequate understanding of client needs and expectations has restricted the supply for micro-insurance products. As a result, the market remains significant

underserved, creating a vast opportunity to reach a considerable number of customers. From a modest beginning, micro insurance was able to grow to a respectable size with a total premium of INR15.43 billion collected under life and non-life micro insurance portfolios in 2011; life insurance premium contributed INR11.49 billion and nonlife insurance premium contributed INR3.93 billion to the overall amount.

In the life insurance sector, individuals generated new business premium worth INR1.30 billion under 3.6 million policies, the group business amounted to INR1.55 billion under 15.3 million lives. LIC contributed most of the business procured in this portfolio by garnering INR1.23 billion of individual premium from 2.95 million lives and INR1.38 billion of group premium under 13.3 million lives. There has been a steady growth in the design of products catering to the needs ofthe poor, with LIC leading the race.

IRDA has been endeavoring to improve penetration of micro insurance through multiple initiatives and believes that there is tremendous scope for growth. According to the regulator, ways to increase penetration include the following: Insurers need to innovate to reduce per policy costs as ticket size is small. One way is to go for group schemes due to their low cost of distribution, low overhead costs, easy underwriting norms, and support of nodal agency in remittance of premiums and claims. This is easily accessible through community leadership. Insurers should use latest technological innovations such as mobile-based communications and internet to increase insurance penetration and reduce cost of operations. Currently, eligibility for micro- insurance agency is limited to MFIs,SHGs, NGOs. This needs to be expanded to grocery stores, embedded into various farm equipments etc. to bring in a variety of ways to distribute them as it besets the most. 3. Rising demand for motor insurance During FY03FY10, the number of passenger cars has increased at a CAGR of 15.6%. This trend is likely to continue due to strong growth in the auto segment, resulting from an increase in consumer income levels due to which more than 28 million policies were sold in FY10. During FY11, motor insurance accounted for 42.7% of the non-life insurance segment reporting a growth of 28.2% over the previous year.


4. Robust growth in health insurance Evolving medical technology and increasing demand for better health care has resulted in a significant rise in the demand for health insurance. The Indian health insurance industry was valued at INR99.4 billion as of FY11. From the period FY03FY10, the industry has grown at a CAGR of 32.59%. Share of health insurance was 26% of the total non-life insurance premium in FY11. Health insurance premiums are expected to increase to INR300 billion by 2015. Under the social security schemes, the Government of Indias Rashtriya Swathya Bima Yojna (RSBY) launched in 2007 for families below poverty line in the unorganized sector has gained significant in the recent years. By bearing an expense of INR30, families are insured for INR30,000. With 75% funding coming from the Government of India, the scheme ensure cashless coverage of health services through smartcard and also provides a transport allowance with an upper limit of INR1,000. Public or private insurers, based on a bidding process, can opt for providing health insurance in the state for a particular district/set of districts. IRDA has also relaxed certain requirements with respect to solvency ratio of such insurers, in a view to promote health insurance in the country. As of end July 2011, five states had implemented the scheme with 23.6 million cards being issued at a total expenditure of INR100 billion. The demand for insurance products is likely to increase due to the exponential growth of household savings, purchasing power, the middle class and the countrys working population. Listed below, are the various underlying growth drivers for Indias insurance industry:

Growing of the financial industry as a whole Growth of life and non-life industry Promoting innovation and removing inefficiency Competition and orderly growth Growth of specific insurance segments such as motor insurance

5. Emerging trends Multi-distribution- To increase market penetration, insurance companies need to expand their distribution network. In the recent past, the industry has witnessed

the emergence of alternate distribution channels. The typical distribution channels used by insurance companies now include bancassurance, direct selling agents, brokers, online distribution, corporate agents such as non-banking financial companies (NBFCs) and tie-ups of para-banking companies with local corporate agencies (for example NGOs) in remote areas. Agencies have been the most important and effective channel of distribution hitherto. According to the industry, the role of agents has started evolving from merely a prospecting and selling role to an advisory and service related one. Bancassurance in India has taken a different and perhaps an increased involvement in distributing insurance products with banks becoming joint venture partners of insurers. This makes them more committed to use theircustomer base and infrastructure. A few alternative distribution channels have evolved in the recent years such as: Online/internet: The internet penetration in India has been on the rise, whereby increased number of people have access to internet both through computers as well as through mobile phones, including population in tier-2 and tier-3 cities. Direct Marketing and telemarketing: With increasing telecom penetration in India, the use of direct marketing via database marketing is growing. Direct access to the customer and savings in intermediary cost make it an attractive option for the companies and is the key in development of the channel. NGOs and affinity groups (SHGs)- With IRDA allowing NGOs/SHGs to distribute micro insurance, insurers can access the untapped areas at relatively lower costs using the existing relationships of such entities. Globally, various insurance markets are at different stages of development, which is also reflected in their insurance distribution networks. Where insurance penetration is low, face-to-face interaction in the form of agents is required to educate customers. As the insurance penetration develops, other distribution channels such as independent financial advisors (IFAs), brokers, bancassurance and electronic channels come to the fore to supplement the agency model. The following figure explains the evolution of the insurance distribution network across countries For sustainable growth, various markets have developed alternative distribution channels, including extensions of the career and tied agency system such as

brokerage, along with bancassurance, financial advisors and electronic channels. Among the alternative channels, bancassurance has grown rapidly in the past few years, especially in Asia. The global downturn has had insurers analysing the profitability of their bancassurance business and taking a re-look at their organizational relationship with the bank. For insurers in strategic alliances with integrated models, the bancassurance business has been more successful compared to businesses where the bank is a pure product distributor. Concentrating on retaining and strengthening the tied agency system during these times of uncertainty is a focused strategy being adopted across various markets.

Product innovation- With customers asking for increased levels of customization, product innovation is one of the best strategies for companies to increase their market share. This also creates increased efficiency as companies can maintain reduced unit costs, offer improved services, commissions and generate higher sales. Regulatory changes, especially those with respect to health insurance portability and micro insurance, offer considerable potential for insurance companies to be more innovative, while others such as product design guidelines is likely to stifle innovation, if not conceived and implemented in an appropriate manner. Micro insurance is important not only from social and economic perspective but also from insurers perspective for new avenues for sustainable profitable growth in future. Even the pension sector, due to its inadequate penetration (only 10% of the working population is covered), offers avenues for innovation.

Claims management- Timely and efficient management of claims is crucial for performance in the industry. Delay in claim settlement generally results in higher claims cost. The incurred claims ratio, which measures the claims incurred to the premiums earned in the same period, stood at 97% for public insurers and 87% for private insurers in FY11 for the non-life insurance business. In the life insurance business, LIC paid benefits constituting 55% of premiums underwritten while the figures for private insurers stood at 35%. Some insurers have managed to limit the claims ratio by deploying in-house team of surveyors, engineers etc., stringent and sophisticated underwriting policy, geographical focus in certain


segments and higher reinsurance cession especially for more complex lines of business.

Profitable growth-In the period following the liberalization of the insurance sector (FY00FY05), most insurers were heavily inclined to achieve growth at the cost of profitability. In recent years, most players have shifted from the philosophy of growth versus profitability to profitable growth by focusing on expanding product range, developing innovative products and building robust distribution channels. Profitability continues to be a big concern and insurers have now shifted their focus on their bottom line to avoid exerting pressure on solvency and share capital. In the last two years, most private insurers have been reducing their operating expenses in a move toward profitability. The life insurance industry reported a net profit of INR 26.57billion in FY11 against a loss of INR9.89 billion in FY10. At the same time the non-life insurance industry posted loss of INR10.18 billion in FY11 against a profit of INR 12.04 billion in FY10.

6. Regulatory trends The IRDA has mandated regulatory changes in order to promote a competitive environment in both the life and non-life insurance sectors. With Health insurance portability being introduced, insured persons are likely to get credits for the covered term across the industry and will be limited to a specific insurance company. The regulator envisaged that this initiative will compel the insurance industry to act toward standardization of costs incurred on treatments, fix accountability and transparency about costs and push insurers to think about product innovations to survive competition. The IRDA has recently dismantled the third-party liability pool in motor insurance and replaced it with the declined risk pool. While it is likely to have widespread implications on the size and loss ratio of the pool, the move is expected to drive the industry toward risk-based pricing. Recent regulations pertaining to cap on ULIP charges and increase in the lock in period, translated to reduction in overall distributor payouts, which in turn reduced the overall contribution of ULIPs to new business premium. With a cap on surrender charges, insurers showing profits due to release of lapse reserves will need to develop long term efficiencies to be able to sustain the market. Other recent regulatory developments include changes in the

Finance Act 2012 impacting tax exemption of life insurance policies and service tax liability, proposed guidelines for the design of life insurance products, servicing of orphan policies and standardization of the proposal form, all of which have far reaching consequences for the industry. There is enough potential for positive growth of the Indian insurance industry given the focused, synergistic efforts of the regulator, government and industry players in the backdrop of rising demand for insurance. The industry does, however, face numerous challenges primarily on the product designing, distribution and regulatory front. The following sections throw light on typical challenges faced by the life and non-life industry.



The Indian insurance industry seems to be in state of flux. While there has been a perceptible change in the market dynamics since liberalization and economic reforms, a considerable amount needs to be done for future growth and development of the market in an orderly and sustained manner. Notwithstanding the strong improvement in penetration and density in the last 10 years, India largely remains an under-penetrated market.

Life insurance: Issues and Challenges In FY12, the life insurance industry witnessed a decline in the first year premium collected which dropped from INR1, 258 billion in FY11 to INR1, 142 billion, a drop of approximately 10%. This was owing to the following challenges that the industry faced in 1. Governance and regulatory issues -There are a number of regulatory changes and their likely implications on the growth of the life insurance industry. Cap on ULIP charges & increase in lock in period Restriction on high distribution partner Payouts Reduction in overall contribution of ULIPs to new business premium

Compulsory purchase of annuity in pension plan-Even in case the policy is surrendered, 2/3 of accumulated funds will be used to purchase an annuity.

Registration of referral agents There have been a slew of regulations around turnover criteria to be a referral partner and cap on referral fee income as well as share of income through referral business. Training of tele-callers has been made mandatory.

Guidelines around agents Persistency norms: The regulation stipulates a minimum level of persistency to be achieved by each licensed agent. This is expected to reduce the agency force in the industry.

License renewal: IRDA has mandated a minimum business requirement norm for licensing agent. This is expected to reduce part-time agents thus improve customer service Despite the regulatory mandating changes in the life insurance industry with the intention to protect the interests of policy holders, the changes were too sudden for the industry to sustain, leading to de-growth. Changes related to ULIP and pension plans have caused a negative impact on the respective product segments. Similarly, the agency business has become unattractive due to the recent changes. The industry players need to incorporate numerous modifications to sustain the impact of the regulatory changes. 2. Taxation- The insurance industry is facing challenges with respect to taxation on both the demand and supply side. On one hand, the service tax charged to insurance companies has been increased to 12% from the existing 10% rate on life insurance policies where entire premium is not toward risk covered increased to 3% for the first year and maintained at 1.5% for subsequent years policies at a time when mutual funds are exempt from such tax. On the other hand, the 2012 Budget mandated that the sum assured be at least 10 times the premium (from the existing 5 times), compulsory service tax has been levied on all insurance. Further, with effect with effect from April, 2012, benefits under thenational pension schemes will not be clubbed under the one lakh benefit under section 80C making it an unfavourable avenue for long term savings. The age of senior citizens for the purpose of tax benefits on insurance premium or returns has been reduced from 65 years to 60 years. 3. Products strategy and design- At a time when the highest NAV guaranteed ULIP were selling aggressively in the market, the IRDA banned the product in order to keep a tab on life insurers resorting to riskier fund management to conform to their commitment of guaranteed returns. Not only did these products attract an increased premium, but they also offer little protection to policyholders. According to IRDA, customers are being lured with the promise of a decent maturity benefit, but in case of claims the benefit or amounts are sometimes lower than the premiums. The basic underlying principle of a life insurance policy is it should have sufficient risk cover. The regulator is keen to oversee the product design more closely to better protect

policyholders falling prey to low or insignificant life risk covers. The challenge for insurers, therefore, is to develop innovative products without crossing the boundaries of insurability. While the changes in ULIP guidelines resulted in a significant decline in the products share of industry sales and pension guidelines continue to be restrictive leading to a vacuum in this product line, the proposed changes in product design for life insurance products could further adversely impact the already declining fortunes of the sector in a considerable manner. The changes in product design being envisaged through these guidelines, if not implemented in an appropriate manner after conducting detailed impact assessments and establishing credible timelines, is likely to result in diminishing the scope for product innovation, increasing commoditization, as well as substantial product

alterations/withdrawals resulting in increased lapsation. 4. Customer service- Mis-selling has grabbed the attention of the industry in recent times. Each distribution channel was faced with typical challenges in customer servicing. There is a gap between the managements perception of customer expectation and the actual customer expectation. Life insurers need to adequately understand what the customer really expects from his life insurance policy by obtaining regular feedback, conducting key client studies and tracking customer complaints to develop a product according to customer expectations. Customer grievance includes any dissatisfaction expressed by customers regarding service delivery, product expectations or any other aspect of business. The Grievances Cell of the Authority was set up by the regulator to receive grievances from the policyholders. In FY11, a total of 9,656 complaints were received; 27% from LIC and balance from private insurers. Insurers should lay down a detailed customer grievance handling process, which includes efficient tracking, quality of resolution, timely tracking and accurate reporting. Complaints received should be analyzed to check adherence and effectiveness of the process laid down. Further, they need to be analysed with the intention to bring about modifications to existing processes. 5. Prospects and challenges of distribution various channels- The use of internet to distribute life insurance products has only emerged recently, but has not made a significant impact so far, partly because of the substantial advisory component of most life insurance products. While most companies have adopted a multi-distribution approach, share of direct channel, brokers and other alternate

channels remains low. Most companies are seen to be focusing on cost efficient channels, therefore there has been an increased focus on these channels for select product classes, which are low involvement, e.g., protection covers and health insurance. While direct selling and other modes have remained steady, the growth in market share may be attributed to the universal banking model of selling savings and investment products under one umbrella and increased customer trust in the institutional form of selling. 6. Compensation- There are numerous compensation-related challenges for the efficiency of the their distribution models to deliver on objectives. Specific to tied agents, the compensation framework does not provide for treating a tenured and high performing agent as different from others and allow payment of higher commission rates or support allowances to encourage such agents. Also, there is no mechanism, which allows compensation to an individual agent for any other services rendered by him to the insurer. Further, the regulatory compensation structure does not differentiate between a retail agent and an organized distributor such as a corporate agent or a broker. They are paid similar commissions. In addition the commission rate decreases after 10 years of existence of an insurer, which imposes further burdens. Corporate agents also help reduce the distribution expenses of an insurer through provision of infrastructure, manpower supply and assistance in marketing but are not permitted to be compensated beyond the stipulated commission structure. Low penetration continues to be a critical hurdle for insurers. To increase the reach, insurers need to tap rural and semi-urban areas. As the cost of setting up operations in rural/semi-urban areas is far lower as compared to those in metros and urban areas, adopting suitable and cost-effective strategies to tap these areas will not only help increase penetration but also manage distribution.


Non-life insurance: Issues and Challenges The non-life insurance industry has been growing in excess of 20% over the last two years however the penetration was as low as 0.7% of the GDP in FY10. 1.Product pricing, innovation and simplicity

Innovation primarily involves showcasing the unique value proposition to survive the competitive market. Regulatory restrictions, pressure of performance, lack of maturity of markets and constant risk of mis-selling make innovation challenging in the Indian insurance industry. Ironically, however, with more or less all market players offering similar prices, innovation is the only differentiating factor. Lack of maturity of markets and constant risk of mis-selling make innovation challenging in the Indian insurance industry. Ironically, however, with more or less all market players offering similar prices, innovation is the only differentiating factor.

Simplicity -Majority of insurance products are sold through agents and insurance is seen as a push product by the customers. Products are sometimes pushed by intermediaries without adequately explaining the benefits and limitations of the policy, leading to a sense of dissatisfaction among the customers. There is an immediate need for simplicity in wording of contracts. Especially in the personal lines, insurers need to be meticulous in specifying exclusions, restrictive features, clauses for cancellation and renewability, etc., and simultaneously ensuring that the applicant fully understands the nuances

Prior to de-tariffication, price could not be varied, leading to a uniform trend in pricing devoid of any ambiguity. With de-traffiication the regulator expected the pricing to be determined by competitive forces. Howe ver, post de-tariffication, insurershave been operating at extremely low prices, with certain players invariably depending on investment income to offset operational losses, thus increasing the ratio for the de-tariffied lines. Such price wars could prove fatal and eventually lead to quality taking a back seat. The key challenge for non-life insurance companies is balancing growth with profitability, with pricing playing an important role.


2. Distribution- The direct channel suffers from the inability to penetrate the rural areas where there is a need to push the product by understanding the social and cultural norms. While in bancassurance the growth has been limited due to exclusive rules. Exclusivity rule has also led to high fees demanded by the bank increasing acquisition costs for insurance companies. Currently banks are prohibited from offering commission to the bank employees for selling insurance products; hence, quality of service may be affected. For brokers penetration is largely restricted to commercial products, which is limited by the slow growth of the commercial segments. Advisory-based distribution channels and online channel for certain segments are likely to become significant going forward. With the industry already suffering from poor operational performance, less expensive channels such as online sales are increasingly being explored by insurers for simpler segments such as motor, travel, and health segments on account of new online technology. 3. Governance and regulatory changes- There are a number of regulatory initiatives that are expected to impact the growth of the industry. Proposed hike in FDI limit- Previous indications of hike in FDI limit in the Insurance sector to 49% from the current 26% may now take longer than previously anticipated. The Bill to this affect has been hanging for more than four years now Insurance M & A guildlines- IRDA issued the norms for M&As of general insurance companies in June 2011 mandating interested parties to file draft agreement of the proposed merger and respective balance sheets with the regulator for seeking approval. . The proposed change will increase administrative costs and may cause delays. Regulatory changes in the non-life insurance industry are primarily aimed at reducing inefficiency and increasing competiveness with the idea of bringing about product innovation.The regulator now needs to focus on increasing the penetration of the nonlife insurance segment in the country. 4. Standardization to reduce claims loss- The Indian health insurance industry suffers from high claims ratio of more than 80% (observed in the last six years) in comparison to the international benchmark of 60%70%. This is attributed to high


frequency and high severity of claims. Health claims stood at 99% in FY11 as compared to 108% in FY10. High ratio during the year is attributed to: Low pricing of group health covers on account of high bargaining power of corporate organizations Non-standard rates of treatment due to absence of supplier management. Frequent frauds

IRDA is expected to implement standardized rates for certain procedures and modify the claims management process for health insurance. This will help reduce the claims ratio further. 5. Better control to prevent fraud- Indian insurance sector incurs a loss of more than 8% of its total revenue collection in a fiscal year. Further the study indicates that the average ticket size of a single fraud ranges between INR25, 000 and INR75,000. Increase in frauds indirectly drives up the premiums collected from policy holders as insurers ultimately recover the losses by increasing the prices. Health insurers need to set up a detailed anti-fraud department to develop and implement a detailed program to combat frauds. In order to reduce fraudulent claims, the IRDA has mandated sharing of claims data and even blacklisting tainted hospitals with a history of submitting inflating bills. Insurers need to adopt a definite methodology to address and reduce risk of frauds within it. 6. Reducing inefficiencies by revisiting third party administrator (TPA) agreements- he infrastructure of TPAs mainly consists of number of hospitals in the network and geographies serviced; other elements of infrastructure include number of branches opened and professional manpower. However, TPA claims

administration involves a lot of inefficiencies including improper dissemination of information, lack of motivation to control claims, minimal scrutiny of claims, and tying up with hospitals and service providers to inflate claims value. The IRDA is proposing to implement a standardized format of service agreements to bring down inefficiencies. Considering the inefficiencies in TPA services, fraudulent activities, increasing customer complaints against TPAs and regulatory stand against TPAs, insurers will likely need to revisit the service contracts with TPAs. In certain cases, there may be a need to reconsider their services to ensure high operational efficiency, fraud control and better customer service.

Issues and challenges impeding the growth of microinsurance Microinsurance (life, disability and health) coverage of the economically

disadvantaged sections of Indian society is dismally low, and will remain so, until the regulators and insurers bring in policy changes and go beyond the traditional distribution models. We further look to identify the key issues and challenges from the perspective of the key microinsurance stakeholders - the un-insured customer, the distribution intermediary and the insurance company. 1. The un-insured customer- Most customers in the target segment have low financial literacy and are unable to view insurance as a risk mitigation tool. Low awareness levels and lack of understanding of underlying benefits creates a barrier to purchase of intangible assets. Further, the insurance companies have been focussing on reducing losses and improving profitability rather than increasing cost effective distribution reach to the lower strata. Poorly designed policies, lack of education, mis-selling through inadequately trained agents and rejections during claims settlement has led to lack of trust with this customer segment. 2. Distribution intermediary- It is imperative to use an effective distribution channel mix to reach out to the target customer segment. Lack of adequate training to the distribution intermediary coupled with lack of motivation, makes it difficult to explain the products to largely uneducated customers. The feasibility of various products is also dependent on the availability of infrastructure, which is often lacking or low in quality. Limited incentive on a low premium product makes it difficult to cover operational costs of reaching out to the customers. Further, delays in claim settlement and complicated formalities by the insurance companies also pose as a road block. It is important for the intermediaries to be able to build personal credibility with the client. Poor governance structure of the intermediaries also poses a

significant challenge in building a sustainable model between the intermediary and the insurance companies.

3. Insurance company- Insurance companies are faced with challenges like high cost of customer acquisition given the high operating and administrative cost involved in reaching remote areas vs. value of premiums and unpredictable payment

capacity of the segment. Moreover, given some of the operating models of the insurance companies the cost of customer service is also high. Regulatory compliance in terms of statutory requirements for customer acquisition,

documentation also forces a cost build up for the companies. The companies do not have enough data on various sub-segments and associated risks for analysis and pricing. As a result, the claims ratio in the microinsurance segment is unpredictable. For microinsurance to succeed, demand has to be generated through building awareness, creating specific and simple products, and above all, by simplifying the processes of underwriting and claims management.



A situation where almost all the major industries are suffering an economic meltdown, Indian insurance industry can be said as one sector that is still experiencing a good economic growth. The adaptability of the industry to mould and shape itself as per the changing trends and lifestyle led it to carve out a safe path of growth and sustenance for itself. All the players in the industry are striving hard to provide the customers with the best possible solution through innovative, varied products and making their services easily accessible and more visible in the market. There is a tough competition in the industry each one trying to grab the market share of the other. Transition of the industry from non linked to unit linked insurance policies is one of the major change that lead to improvisation of the industrys services with the government liberalised policies and IRDA adding tint of flavour propagating the growth. The sector has immense potential as not even 50% of the population is insured in India. Growing population and rising standard of living of the people will further make the task of the companies less burdensome. More and more population can be insured only when the companies go for an extensive market research before actually designing or positioning their products and targeting them to the specific segments so that time and resources both can be saved. The companies should go and tap the rural population has there is huge rigorous strength in that crowd to provide with substantial profit margins. The focus of the insurance companies to target the densely populated areas instead of providing insurance to qualitative segment of the population can sweeten the emerging growing prospects of the industry. Its not far that India will become an insurance giant in the coming few years. A report by Deccan Herald predicts the Indian insurance industry to be worth $400 billion by the year 2020 further increasing the appeal of the industry. In a report titled, "India Life Insurance 2012: Fortune Favors the Bold," McKinsey & Co. sets out the positives. "All factors are in place for the Indian life insurance industry to blossom into one of the fastest-growing financial services markets in the world." So, we can say, the future of the industry is undoubtedly progressive and investment made in this sector would not go futile.


The project report is an overview of Indian Insurance Industry and detail studies about the sector will be done in semester 6 project. The time span was the another constraint, for the preparation report limited time was giving, so very depth research wasnt possible. Primary research has not been done, intend to do in sem 6 project. Detail analysis of insurance companies and product has not been done, will cover it in next report. The biggest limitation was time because the time was not sufficient as there was lot of information to be got & to have it interpretation The data required was secondary & that was not easily available.

Research Methodology
Secondary research: Past data from multiple sources including reports of IRDA and LIC (iii) Critical evaluation of IRDA as a regulator to improve transparency and increase competition amongst the players. Also, the objective of insurance being a social need should preclude the profit motive


In meeting the significant potential, the industry has an increased role and responsibility. Three areas of focus could be a) product innovation matching the risk profile of the policy holders b) reengineering the distribution and more significantly c) making sales and marketing more responsible and answerable.

The key issues and challenges impending growth of microinsurance in India from the perspective of the key stakeholders, can be addressed by way of structural regulatory and policy changes coupled with extensive leverage of emerging technologies.

There is an urgent need to raise FDI cap in the insurance sector from 26 per cent to 49 per cent. Opening up the insurance sector to higher FDI will greatly enhance the industry's reach to semi-urban and rural markets

Regulatory and structural changes should encourage further capital deployment and enable operational flexibility resulting in reduction in customer acquisition and policy management costs.

The focus is to increase penetration of insurance in rural areas. Awareness should be increases as there is a little knowledge about insurance as social security.

Frauds are a rising concern in insurance industry. IRDA will have to play a major role in the clean-up of the insurance sector. It has to come up with regulations that will convert the capitalist motive into a socialist motive without affecting margins. IRDA will have to ensure proper implementation of reforms to curb malpractices in insurance sector.

Providing insurance cover to lower strata of society through various schemes, micro insurance need urgent attention.


Insurance industry in India has now been through a cycle involving high growth and more recent moderation. The next wave of growth will be of different nature and complexity, led by players who change the market dynamics through innovation. With a decade of experience and learning about customer behavior and business economics, Indian insurers are well-placed to select and diffuse innovative ideas. However, this would require that insurers bring about fundamental difference in mindset on how they perceive the role of innovation in achieving profitable growth. The insurers will need to align the people strategies to create a culture of generating new ideas and implementing those using optimal resources. Insurers have the choice of adopting innovation and leap ahead or lag behind. Life insurance has today become a mainstay of any market economy since it offers plenty of scope for garnering large sums of money for long periods of time. A well regulated life insurance industry which moves with the times by offering its customers tailor-made products to satisfy their financial needs is, therefore, essential if we desire to progress towards a worry-free future. Also, Insurance awareness is much needed by the large population. For India to reach its rightful place as a developed nation, it must financially empower its entire population. A key element of this empowerment is a base risk cover that covers elements of life, disability and health. This empowerment can only be achieved through the collaborative efforts of the government, regulators and private enterprises, who must be able to build commercially viable and scalable models for financial inclusion.