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ION AND PRIVATE INSURANCE COMPANIES Report submitted in partial fulfillment of t

he requirements for Post Graduate in Management PROJECT GUIDE: SUBMITTED BY: Pro
f. Usha Kiran Rai Shashank Tripathi FMS BHU MBA IV Sem (Finance) FMS BHU CONTENT
S Acknowledgement Introduction Concept of Insurance Global Insurance Industry Pe
rformance of Indian Industry Insurance sector reforms in India New avenues for g
rowth of the Insurance industry Research Methodology Research Objectives Researc
h Design Research Process Limitations of the Study Significance of the study Ana
lysis and Interpretation Findings & Conclusions References 2 ACKNOWLEDGEMENT I m
ust acknowledge my indebtedness to various personalities, but for whom, this pro
ject could not have seen the light of the day. I am profoundly grateful to Prof.
Usha Kiran Rai, Faculty of Management Studies, BHU who agreed to become my ment
or and guide for the project and gave me the opportunity to

work on this project. I am also grateful, for her support and guidance throughou
t this project with valuable information and giving me a better insight of the t
hings, without which the successful culmination of this project would not have b
een possible. Not only did she inspired me throughout the progress of the projec
t, but, also motivated me to get an insight into the field of my work. I would a
lso like to extent my immense gratitude to Prof. A. K. Agrawal, and respected De
an Prof. Deepak Barman, Faculty of Management Studies, BHU who allowed me to cho
ose the topic for my Dissertation. Shashank Tripathi 3 CHAPTER 1 INTRODUCTION 4
1. CONCEPT OF INSURANCE : Life has alwa ys been an uncertain thing. To be secure
against unpleasant possibilities, alwa ys requires the utmost resourcefulness a
nd foresight on the part of man. To pra y or to pay for protection is the spirit
of the humanity. Man has bee n accustomed to pray God for protection and securi
ty from time immemorial. In modern days Insurance Companies want him to pay for
protection and security. The insurance man says "God helps those who help themse
lves"; probably he is correct. Too many people in this countr y are not in emplo
yme nt; and work for too many no longer gua ra ntees income security. Several mi
llions are part-time, self employed and low-earning workers living under pitiabl
e circumstances where there is no security cover against risk. Further the inher
ent changing employment risks, the prospect of continual change in the work plac
e with its attendant threats of unemployment and low pa y especially after the a
d option of New Economic Polic y and the imminent life cyc le r isks - a new sou
rce of insecurity which inc ludes the cha nging demands of family life, sepa rat
ion, divorce and elderly dependents are tormenting the society. Risk has become
central to one's life. It is within this background life insurance polic y has b
een introduced by the insurance companies covering risks at various levels. Life
insurance coverage is aga inst disableme nt or in the event of death of the ins
ured, economic support for the dependents. It is a measure of social security to
livelihood for the insured or dependents. This is to make the right to life mea
ningful, worth living and right to livelihood a me ans for sustenance. Therefore
, it goes without saying that an appropriate life insurance policy within the pa
ying capacity and means of the insured to pay premium is one of the social secur
ity measures envisaged under the India n Constitution. Hence, right to social se
curity, protection of the

family, economic empowerment to the poor and disadvantaged are integral part of
the right to life and dignity of the person gua ranteed in the constitu tion. Ma
n finds his security in income (money) which enables him to buy food, clothing,
shelter and other necessities of life. A person has to earn income not only for
him self but also for his dependents, viz., wife and children. He has to provide
le gally for his family needs, and so he has to keep aside something regularly
for a rainy day and for his old age. This fundamental need for security for self
and depende nts proved to be the mother of invention of the institution of life
insurance. 5 What is Insurance : The business of insurance is related to the pr
otection of the economic values of assets. Every asset has a value. T he asset w
ould have been created through the efforts of the owner. The asset is valuable t
o the owner, because he expects to get some benefit from it. The benefit ma y be
an income or some thing else. It is a benefit be cause it meets some of his nee
ds. In the case of a factory or a cow, the product generated by is sold and inco
me generated. In the case of a motor car, it provides comfort and convenienc e i
n transportation. There is no direct income. Every a sset is expec ted to last f
or a certain period of time during which it will perform. After that, the benefi
t may not be available. There is a life-time for a machine in a factory or a cow
or a motor car. None of them will la st for ever. The owner is aware of this an
d he can so manage his affairs that by the end of that period or life-time, a su
bstitute is ma de ava ilable. Thus, he makes sure that the value or income is no
t lost. However, the asset ma y get lost earlier. An accident or some other unfo
rtunate event may destroy it or make it non-functional. In that case, the owner
and those deriving benefits from there, would be deprived of the benefit and the
planned substitute would not have been ready. There is an adverse or unpleasant
situation. Insurance is a mechanism that helps to reduce the effect of such adv
erse situations. Insurance, in law and economics, is a form of risk management p
rimarily use d to hedge against the risk of a contingent loss. Insurance is de f
ined as the equitable transfer of the risk of a potential loss, fro m one entity
to another, in exc hange for a premium. Insurer, in economics, is the company t
hat sells the insuranc e. Insurance rate is a factor used to

determine the amou nt, called the premium, to be charged for a certain amount of
insurance coverage. Risk management, the practice of appraising and controlling
risk, has evolved as a discrete field of study and practice. Origin of Insuranc
e PRACTICE OF INSURANCE IN INDIA: 1818-1956 It is claimed that insurance was pra
cticed in India even in Vedic times in one form or the other. The Sanskrit term
"Yogakshema " in the Rigveda me ant some kind of insurance, which was practiced
by the Aryans in India nearly 3000 years ago. During the Mughal period insuranc
e took firm roots. There are eve n references to the cover a gainst war risks. L
osses due to the passage of ro ya l troops through farms were compensated b y th
e Sta te as a gesture of goodwill. The ye ar 1818 is an epoch -making year in th
e histo ry of our country. The first Life Insurance Company on India soil appe a
rs to have been started in this ye ar. A group of Europeans pioneered the establ
ishment of the Oriental Life Insurance Society to afford relief to the distresse
d relatives of European. The venture was not quite successful but the company wa
s reformed in 1829.The renewed Company also got into trouble in 1833 when Agency
Hou se of Calcutta, partners of the same, fell. 6 Prince Dwarkanath Tagore was
the only solvent partner & the sole responsibility for carrying on the instituti
on developed on him. Meanwhile, e arly in Janury1834, the Government made up its
mind to establish a Public Insurance Company & a Committee was set up for this
purpose .A number of foreign Insurance Companies then operating in the country v
iewed this move with alarm. The y set up Committees of the ir own enquire into t
heir individual affairs. Dwarkanath Tagore, too, had a Committee appointed to lo
ok into the affairs of the Oriental. As a result, another company was born out o
f the previous one in the name of "New Oriental Company" In the reorganization o
f the "Oriental" in the year 1834, two other gentlemen were associated. One was
Ramta nu Lahiri and the other Rustamjee Cowasjee. The latter was another promine
nt figure of the business world. Rustamjee entered insurance business in 1828, h
e was already known to the community and the Government as a we althy Parsi merc
hant. Rustamjee's connection with insurance also started with "Laudable Societi
es", but he was later on associated with Companies like "Sun Life Office (1834)
", New Orienta l (1835),Universal Life (1835) , New Laudable (1840) , and Indian
Laud able (1841) . He was

also on the Committee of the Union Insurance Company which was formed b y a grou
p of five persons. This Company was issuing policies covering river-risks only.
He was intimately connected with the Committee of Insurance Offices in Ca lcutta
. Rusta mjee Cowasjee & Dwarkanath Tagore was probably the first Indians to join
in partnership business with the Europeans & in the field of insurance the y we
re pioneers on this side of the country. Apart from Calcutta, several enterprisi
ng people in Bombay started in 1823 the "Bombay Life" Assurance Company. The com
pany went into liquidation soon and could not revive. In 1829, the "Madras Equit
able "was formed. It fina lly ceased to function in 1921 due to financial diffic
ulties after the First World War. The effort to set up a public insurance compan
y at the government level also went in vain, mainly from objection of private op
erators. Majority of the early attempts to form insurance offices were in the pr
ovince of Bengal. This was due to its political & economic importance at that ti
me. The contribution of Raja Ram Mohan Roy, one of the greatest social reformers
of India, to the development of life insurance is very great. He was deeply con
cerned about the sad plight of de sperate widows and helple ss orphans. OVERSEAS
INSURERS Initially, when Life Offices were established in large numbers in Brit
ain, some of them ventured to issue sterling policies to the British residents i
n India. Premiums collected here were credited to England largely for British be
neficiaries. Business seems to have been brisk and profitable and was usually un
der short term policie s. Insurance mortality tables and insufficient mortality
data of Englishmen in India made the premiums heavy-hea vier than at home. Insur
ance was denied to the "natives" even if they wa nted it- for their lives were a
lways considered risky and sometimes valueless. When Indian lives were accepted
as a very special case, the extras charged were still hea vier. Promine nt among
st the companies which came to India around this period was the "Med ical Inva l
id and General" incorporated in London in 1841. As more areas were annexed and t
he 7 ruling power, with vested interests in developing trade, took charge , the
"Medical" extended its area of operation, established large connections, absorbe
d the" Agra Life" and in 1835, took over the "New Oriental". P.M. Tate, the then
manager of the "Medical", was a keen businessman, widely liked, influential a n
d shrewd. With W.F. Ferguson, who was

the manager of the "New Oriental" before amalgamation, he commenced very active
operations which were temporarily affected by the 1857 "Mutiny". The Universal L
ife Insurance Company established in England in 1836 opened its Indian Branch in
1840 and enjoyed a long period of successful operations until it was taken over
b y the "North British" in May 1901. Insurance exceeding Rs. 10 crores were iss
ued in India during this period. Another English Company ope rating in India at
that time was the Colonia l Life Assurance Company. It was established in 1846 u
nder the auspices of the Standard Life Assurance Company. The original prospectu
s of this company declared its purpose as "extending to the Colonies of Great Br
itain and to Indian the full benefit of Life Assurance". It appointed agents wit
h local boards whic h were first established on Calcutta, Bombay, Madras and Col
ombo. Later on this company was taken over by the "Standard Life" and made valua
ble contribution to investigations into the mortality experience of assured live
s in India. Eventually it ceased its operations in India in 1938. It is difficul
t to say which was the oldest Life Policy in India, but the oldest known appears
to be one sold by the Royal Insurance (which commenced business in India in 184
5) on the life was to Cursetjee Furdonjee on 6th January 1848, no reference to a
ny earlier polic y being available. In the year 1853, the Liver pool and London
and Globe Insurance Compa ny established in England in 1836, commenced business
in India. Sir Charles Forbes was its first agent, succeeded by M/s. Forbes, Forb
es and Campbell. It a ccepted only European live s and commenced insuring Indian
lives only after 1929.This too, was mainly to oblige good agents of the Company
for classes other than life business. The North British and Mercantile was the
next company to appear on the Indian scene. It started fire insurance business i
n the year 1861 and life business 1864. The London Assurance started life busine
ss in 1864, limited principally to European lives and closed down its life depar
tment when the Life Assurance Companies Act 1912 made submission of returns comp
ulsory. On 3rd December, 1870, seven earnest men of Bomba y with just se ven rup
ees for initia l expenses gave shape to a plan of offering insurance to the publ
ic without the risk of ruin and the "Bombay Mutual Life Assurance Society" came
into existence. This was followed by the Orie ntal Life Assurance Company in1874
, the Bharat in 1896 and the Empire of India in 1897. THE BIRTH OF INDIAN INSURE

With the advent of the 20th century, the glorious renaissanc e of swadeshi days
dawned. At the same time, well- to do Indians realized the potentiality of India
n Insurance business. The Swadeshi movement of 1905-1907 gave rise to more insur
ance companies. The United India in Madras, National Indian and Nationa l Insura
nce in Calcutta and the Cooperative Assurance at Lahore were established in 1906
. In 1907, Hindustan Co-operative Insurance Company took its birth in one of the
rooms of the Jorasanko House of the great poet Rabindranath Tagore, in Calcutta
. The Indian Mercantile (1907) was started in Bombay, 8 General Assurance (1908)
at Ajmer and the Swadeshi Life (Later Bombay Life) in Bombay in 1908. The end o
f the First World War (1914-18) witnessed a n influx of insurance companies in I
ndia. Famous Indian business houses started new insurance companies. Industrial
and Prudential Bombay, Western India, Satara, were floated before the war, but b
y 1919, companies like Jupiter General, New India, Vulcan Insurance Company etc.
came into being. Pandit K.Santhanam with blessing of Lala Lajpat Rai and Pa ndi
t Motilal Nehru started Laxmi Insurance Co. Similarly, Andhra Insurance was star
ted in M asulipatnam, with the initiative of stalwarts like Dr. Pattabhi Sitaram
aiah. From political platforms also, national leaders supported this cause. It i
s duty to every Indian to support only Indian Insurance. The keynote of our Swar
aj is in placing a ll our insurance with our Indian companies", said Mahatma Gan
dhi in his m essage. "I hope Indians will realize the importance of patriotism o
nly through Indian insurance institution", stated Pandit Jawaharlal Nehru. Thus,
the cause of Indian insuranc e became a national issue. The pursuit to boost In
dian insurance represented a crusade to extricate the Indian economy from foreig
n domination. PROGRESS IN INSURANCE BUSINESS The growth of Life Insurance in con
crete terms could be said to being during the first two decades of twentieth cen
tury when most of the major companies were founded. They grew in terms of rise i
n the number of companies, in terms of number of polic ies and sum assured as we
ll as total life fund. Indian Insurance Year Book, published for the first time
in 1914, gives the figure of the total business-in -force as 22.44 crore whic h
grew to Rs. 298 crore in 1938. In 1914, there were only 44companies tra nsacting
insuranc e business in India, and during the next 25 years their number rose to
176. The total progress on all the primary

heads, viz. life fund (Rs. 50.50 crore), premium income (Rs. 10.50 crore) and ne
w business (Rs. 43.30 crore) indicate that Indian Insurance Business had been ma
king a definite headway during this years. The inter-war -years thus saw rapid
growth life insurance in India. The promotion of new life insurance companies co
ntinued to be almost a craze and insurance companies mushroomed. In this period,
176 insurance companies were formed and many of them failed. Thus unhealthy gro
wth was harmful to the interest of the polic y holde rs and insuranc e business
in India. Feeling concerned about it, the All India Life Assurance Offices' Asso
ciation urged upon the Governme nt in 1932 to undertake the insurance legislatio
n to (a) Compulsorily register all Life Insurance companies. (b) Secure a deposi
t of Rs.2 lakh from all Life Insurance companies. (c) Compe l foreign companies
doing business in India to keep sufficient funds in India securities to meet the
ir liabilities under all polic ie s issue d in India. 9 INSURANCE ACT, 1938 The
Insurance Act, 1938, was the first comprehensive legislation gove rning not only
life but also non- life bra nche s of insurance to provide strict state control
over insurance business. In sub- sections to dealt with provide nt companies, m
utual offices a nd co-operative societies as well. The silent features of the Ac
t were as follows: (A) Constitution of a Department of Insurance under a superin
tendent ve sted with wide powers of supervision and control over all kinds of in
surance companie s. (B) Regulation for the compulsory registration of insurance
companies and for filing of returns of investme nt and financ ia l conditions. (
C) Provisions for deposit, to prevent insurers of inadequ ate financial resource
s of spe culative concerns for commencing business. (D) Provisions that 55% of t
he net life fund of an Indian or non- Indian insurer should invested in Indian G
overnment and approved securities with at least 25% in Indian Government Rupee s
ecurities.. All other companie s, i.e., foreign companies must invest 100% of th
eir Indian liabilitie s in Indian Government and approved securities, with at le
ast 33.3% Indian Government securities. (E) Prohibition of rebating, restriction
of commission, lice nsing of agents etc. Maximum rates of commission were fixed
at 40% of the first premiums and 5% of the renewal premium in respect of life a
ssurance business. The agent must be licensed, to

improve the status of the profession. (F) Periodical valuation of Indian Insura
nce business of foreign companies and the business of Indian companies. (G) Prov
ision for polic yholders' directors, making it possible for the re presentatives
of policyholders to be on the Board of directors. (H) Standardization of policy
conditions required all companies to file standard forms and tables of premium
approved by an Actuary. Under this requirement, the initia l deposit for life in
surance business was raised from Rs. 25000 in Government securitie s to Rs. 5000
0 in cash approved securities, which was subsequently to be raised by installmen
ts to Rs. 2 lakh within a specified time limit. 10 GROWTH OF LIFE BUSINESS IN IN
DIA: 1914-1948 Sr 1914 1930 1940 1945 1948 no 1 No of insurers 44 68 195 215 209
200 189 (a) India n 44 68 179 (91.79) (93.02) (90.43) (b) Non-India n - - 16 15
20 Total No. of 2 748997 1628381 2714000 3016000 policies In force 1371963 2376
000 2791000 (a) India n - 513925 (68.61) (84.25) (87.55) (90.15) (b) Non-India n
- 220703 181247 261000 234000 (c) India n outside India - 14369 75171 77000 202
000 Total business in 3 force 22.44 258.42 304.03 573.07 712.76 225.51 459.43 56
6.38 (a) India n (Rs. Crore) 22.44 84.89 (32.85) (74.17) (80.17) (79.46)

(b) Non-India n - 69.76 60.12 91.85 101.08 (c) India n outside India - 3.77 18.4
21.79 45.3 Total life funds 4 (Rs. Crore) 6.36 20.53 62.41 107.4 150.39 Note :
Figures in brackets show percentage of the total. 11 Nationalization THE LIFE IN
SURANCE CORPORATION OF INDIA: 1956 This was the first step taken towards the nat
ionalization of life insurance business in India. On 20th January, 1956 all life
insurance companies were taken over by 43 nominated custodians. The custodians
were experienced senior executives of private insurance companies, reporting dir
ectly to the Finance Ministry. From the word go, the complex task of running the
industr y on a permanent basis and c ontinuing the services to polic y holders
without interruption were their major concerns. The actual work of integration h
ad to await le gislation. The custodians managed the insurance companie s till 1
-09-1956, when Life Insurance Corpora tion was established under the genera l di
rection and control of the Ministry of Finance. The Ordinance provide d for the
transfer of the control of 154 Indian insurers, 16 non Indian insurers and 75 pr
ovident societies. These arrangements were designed to ensure that no inconvenie
nce whatsoever was caused to the policy holders. With the Government take over t
he ma nagement aimed towards the evolution of a common uniform premium rate, pol
icy conditions and service and working procedures and above all to help promote
team spirit. The corporation, a body corporate shall consist of not more than 15
members appointed b y the Central Government, one of them being appointe d by t
he government as chairman. The capital of the corporation was at Rs 5 crore prov
ided by the ce ntral government. INSURANCE SECTOR REFORMS In 1993, Malhotra Comm
ittee, headed by former Finance Secretary and RBI Governor R.N. Malhotra was for
med to evaluate the Indian Insurance industry and re commended its future direct
ion. The Malhotra committee was set up with the objective of complementing the r
eforms initiated in the financial sector. The reforms were aimed at "creating a
more efficient a nd c ompetitive financ ial system suitable for the requirements
of the economy keeping in mind the structural change s currently underway and r
ecognizing that insurance is an important part of the over all financial system
where it was necessary to address the need for similar reforms...". In 1994, the
committee submitted the report and some of the key recommendations

included: (1) STRUCTURE Government stake in the Insurance Companies to be brough

t down to 50%. Government should take over the holdings of GIC and its subsidiar
ies so that these subsidiaries can act as independent corporations. All the insu
rance companies should be given greater freedom to operate 12 (2) COMPETETION Pr
ivate Companies with minimum paid up capital of Rs.1 bn should be allowed to ent
er the industry. No Company should deal in both Life and General Insurance throu
gh a single entr y. Foreign Companies may be allowed to enter the industry in co
llaboration with the domestic companies. Postal Life Insurance should be allowed
to operate in the rural market. Only one State Leve l Life Insurance Company sh
ould be allowed to operate in each state. (3) REGULATORY BODY The Insurance Act
should be cha nged An Insurance Regulatory Body should be set up. Controller of
Insurance (Currently a part from the Fina nce Ministry)should be made independen
t (4) INVESMENTS Mandatory Investments of LIC Life Fund in government securities
to be reduced from 75% to 50%. GIC and its subsidiaries are not to hold more th
an 5% in any company (There current holdings to be brought down to this leve l o
ver a period of time). (5) CUSTOMER SERVICE LIC should pay interest on d elays o
n payments beyond 30 days. Insurance Companies must be encouraged to set up unit
linked pension plans Computerization of operations and updating of technology t
o be carried out in the insurance industry. The committee emphasized that in ord
er to improve the customer service and increase the coverage of insurance indust
ry should opened up to competition. But at the same time, the committee felt the
need to exercise caution as any failure on the part of new players could ruin t
he public confidence in the industr y. Hence, it was decided to allow competitio
n in a limited way by stipulating the

minimum capital requirement of Rs. 100 crores. The committee felt the need to pr
ovide gre ater autonomy to insurance companies in order to improve their perform
ance and enable them to act as independent companies with economic motives. For
this purpose, it had proposed setting up an independent regulatory bod y. 13 Lib
EVELOPMENT AUTHORITY Reforms in the Insurance sector were initiated with the pas
sa ge of the IRDA Bill in Parliament in December 1999. The IRDA since its incorp
oration as a statutory body in April 2000 has fastidiously stuck to its schedule
of framing regulations and registering the private sector insurance companies.
The other decision taken simultaneously to provide the supporting systems to the
insurance sector and in particular the life insurance compa nies wa s the launc
h of the IRDA's online service for issue and renewal of licenses to agents. The
app roval of institutions for imparting training to age nts has a lso ensured th
at the insurance companies would have a trained workforce of insurance agents in
place to sell their products, which are expected to be introduced by early next
year. Since being set up as an independent statutory body the IRDA has put in a
framework of globally compatible regulations. In the private sector 14 life ins
urance co mpanies have been registered. ENTRY OF PRIVATE COMPANIES Under the IRD
A Act, private companies ca n now operate in India's insurance industry. However
, they must obtain a license from the IRDA before being permitted to write busin
e ss. To have its license application considered, a domestic private company mus
t be registered in accordance with the Companies Act of 1956 and have approximat
e ly US$ 20 million of investment capital. The specific licensing requirements t
hat Private Indian Companies must fulfill are set forth in the Registration on I
ndian Insurance Companie s Regulations, published by the IRDA 2000. LIFTING OF B
ARRIERS TO FOREIGN INVESTMENT The IRDA Act also lifts certain barriers to foreig
n direct investment in Indian insurance industry. Global insurers are now permit
ted to set up and register a domestic company in order to write business in Indi
a. However, regulations stipulate that the y have a capital base of at least US
$ 20 million, and their investment in such company is capped at 26 percent. Thus
, to participate in the market, they must form a joint venture with an India n p
artner that is able to inve st the remaining funds. The equity investments limit
is the same for global reinsures seeking to write business in India, but they a
re required to put up a capital of approximately US$ 45 million in order to esta
blish a domestic company. 14 Since the IRDA first enacted these rules, 13 new li
fe insurance companies have entered the market. On the other hand, no global rei
nsurer has established a domestic company. Instead, most of the top internationa
l reinsuranc e companies operate from their

overseas offic es by sharing the reinsurance risks picked up by the GIC. A recen
t proposal ha s been put forward to increase foreign direct investment to 49 per
cent. In addition, global companies are pushing for the right to establish branc
h offices in India. These changes are likely to substantially increase the pres
ence of international insurers, reinsurers, and brokers in India. The IRDA Insur
ance Brokers Act in India 2002 permitted overseas insurance and reinsurance brok
ers to enter the market, but with the same equity cap as that governing the oper
ations of foreign insurers and reinsurers. Thus, foreign brokers must also form
a joint venture with an Indian partner in order to establish an Indian broking h
ouse. The 2002 IRDA legislation established four broker categories, one of which
brokers must select when applying for a license: 1. Category 1A : Direct Genera
l Insurance Broker 2. Category 1B : Direct Life Insurance Broker 3. Category 2 :
Reinsurance Broker 4. Category 3: Composite Broker 5. Category4: Others, for ex
ample Insurance Consultants a nd Risk Management Consultants. Each category has
different solvenc y mar gins and capital adequacy ratios, and all categories nee
d to carry professional indemnity insurance at different minimum levels. In the
years since market libe ralization wa s initiated, the insurance sector has witn
essed some impressive changes. The needs of insurance and reinsurance buyers hav
e grown; the market is introducing new products to address these needs; and the
services of brokers are now seen as critic al to making informed insurance and r
einsurance decisions. OVERVIEW OF THE CURRENT INSURANCE MARKET In the years sinc
e the IRDA Act initiated market reforms, the insurance sector has experie nced s
ome remarkable cha nges. The entry of a large number of Indian a nd Foreign priv
ate companies in life insurance business has to lead greater choice in terms of
products and services. Incre ased consumer awareness of the be nefits a nd impor
tance of insura nce and reinsurance has generated many more buyers; and new dist
ribution channels_ among them brokers, bank assurance, the Internet, and corpora
te agents_ have provided additional wa ys of getting products and services to cu
stomers. 15 Private insurance companies have to date written a small percentage
of business in this secto r during the last three years, but they have ushered i
n a competitive environment that has accelerated market growth. State owned insu
rers still write the bulk of insurance business, and they have the net worth req
uired to underwrite large corporate risks without depending almost entirely on r
einsurance support. However, their focus on re structuring is beginning to put t
hem at a disadvantage against private competitors. Over the next few years, the
share of the market held by the public insurers is expected to drop substantiall
y, with private companie s assuming a growing percentage of the business written
. At present there are 15 private insurers with two standalone private players a
nd remaining private-foreign joint ve nture. Purpose and Need of Insurance : Ass
ets are insured, because they are likely to be destroyed through accidental occu

Such possible occurrences are called perils. Fire, floods, breakdowns, lightenin
g, earthquakes, etc, are perils. If such perils can cause damage to the asset, w
e say that the asset is exposed to that risk. Perils are the events. Risks are t
he consequential losses or damages. The risk to a owner of a building, because o
f the peril of an earthquake, may be a few lakhs or a few crores of rupees, depe
nding on the cost of the building and the contents in it. The risk only means th
at there is a possibility of loss or damage. The damage may or may not happen. I
nsurance is done against the contingenc y that it may happen. There has to be an
uncertainty about the risk. Insurance is relevant only if there are uncertainti
es. If there is no uncertainty about the occurrence of an eve nt, it cannot be i
nsured against. In the case of human being, death is certain, but the time of de
ath is uncertain. In the case of person who is terminally ill, the time of death
is not uncertain, though not exactly known. He c annot be insured. Insured does
not protect the asset. It does not prevent its loss due to peril. The peril can
not be avoide d through insurance. The peril can sometimes be avoided through be
tte r safety and damage control management. Insurance only tries to reduce the i
mpact of the risk on the owner of the asset and those who depend on that asset.
It only compensates the losses
and that too, not fully. Only economic consequenc
es can be insured. If the loss is not financial, insurance ma y not be possible.
Example of non-economic losses are love a nd affe ction of parents, leadership
of managers, sentimenta l attachme nts to family heirlooms, innovative a nd crea
tive abilities, etc. 16 How Insurance Works? The mechanism of insurance is very
simple. People who are exposed to the same risks come together and agree that, i
f any one of them suffers a loss, the others will share the loss and make good t
o the person who lost. All people who send goods by ship are exposed to the same
risks, whic h are related to water damage, ship sinking, piracy, etc. Those own
ing factories are not exposed to these risks, but they are exposed to different
kinds of risks like, fire, hailstorms, earthquake, lightning, burglary, etc. Lik
e this, different kinds of risks can be identified and separate groups made, inc
luding those exposed to such risks. By this method, the heavy loss that any one
of them may suffer (all of them may not suffer such losses at the same time) is
divided into bearable small losses by all. In other words, the risk is spread

among the community and the likely big impact on one is reduced to smaller manag
eable impacts on all. If a Jumbo Jet with more than 350 passengers cra shes, the
loss would run into several crores of rupees. No airline would be able to bear
such a loss. It is unlikely that many Jumbo Jets will crash at same time. If 100
airline companies flying Jumbo Jets, come together into an insuranc e pool, whe
never one of the Jumbo Jets in the pool crashes, the loss to be borne b y each a
irline would come down to a few la khs of rupees. T hus, insurance is a business
of sharing . There are certain principles, which make it possible for insurance t
o remain a fair arrangement. The first is that it is difficult for any one indiv
idual to bear the consequences of the risks that he is exposed to. It will becom
e bearable whe n the community shares the burden. The second is that the perils
should occur in an acc idental manner. Nobody should be in a position to make th
e risk happen. In other words, none in the group should set fire to his assets a
nd ask others to share the costs of damage. This would be taking unfair advantag
e of an arrangement put into place to protect people from risks they are exposed
to. The occurrence has to be random, accidenta l, and not the deliberate cre at
ion of the insured pe rson. The ma nner in which the loss is to be shared can be
determined before-hand. It ma y be proportional to the risk that each person is
e xposed to. This would be indicative of the benefit he would receive if the pe
ril befe ll him. The share could be collected from the members after the loss ha
s occurred or the likely shares ma y be collected in advance, at the time of adm
ission to the group. Insurance companies collect in advance and create a fund fr
om which the losses are paid. The collection to be made from each person in adva
nce is determined on assumptions. While it may not be possible to tell beforehan
d, which person will suffer, it ma y be possible to tell, on the basis of past e
xperiences, how many persons, on an avera ge, ma y suffer losses. The following
two examples explain the abo ve concept of insurance: 17 Example 1 In a villa ge
, there are 400 houses, each valued at Rs. 20000. Each ye ar, on the average, 4
houses get burnt, resulting into a total loss of Rs. 80000. If all the 400 owner
s come together and contribute Rs. 200 each, the common fund would be Rs. 80000.
this is enough to pay Rs. 20000 to each of the 4 owners whose houses got burnt.
Thus, the risk of 4 owners

is spread over 400 house-owners of the village. Example 2 There are 1000 persons
who are all aged 50 and are healthy. It is expected that of these, 10 persons m
ay die during the year. If the economic value of the loss suffered by the family
of each dying person is taken to b e Rs. 20000, the total loss would work out t
o Rs. 200000. If each person in a group contributed Rs. 200 a year, the common f
und would be Rs. 200000. This would be enough to pa r Rs. 20000 to the family of
each of the ten persons who die. Thus, the risks in the case of 10 persons, are
shared by 1000 persons. Insurance of Human Asset A human being is an income gener
ating asset. One s manual labour, professional skills and business acumen are the
assets. This asset also can be lost through unexpectedly early death or through
sickness and disabilities caused by accidents. Accidents may or may not happen.
Death will happen, but the timing is uncertain. If it happe ns aro und the time
of one s retirement, when it could be expe cted that the income will normally ce
ase, the person concerned could have made some other arrangements to meet the co
ntinuing needs. But if it happens much earlier when the alternate arrangements a
re not in place, there can be losses to the person and dependents. Insurance is
necessary to help those dependent on the income. A person, who may have made arr
angements for his needs after his retireme nt, also would need insurance. This i
s because the arrangements would have been made on the basis of some expectation
s like, likely to live for a nother 15 years, or that childre n will look after
him. If any of these expectations do not become true, the original arrangement w
ould become inadequate and there could be difficulties. Living too long can be a
s much a problem as dying too young. Both are risks, which need to be safeguarde
d against. Insurance takes care. 18 Insurance of Intangibles : The concept of in
surance has been exte nded beyond the coverage of tangible assets. Exporters run
risk of losses if the importers in the other country default in pa yments or in
collecting the goods. They will also suffer heavily du e to sudden changes in c
urrency exchange rates, economic policies or political disturbances in the other
country. These risks are insured. Doctors run the risk of being c harged with n
egligence and subsequent liability for damages. The amounts in question can be f
airly large, beyond the capacity of individuals

to be ar. These are insured. Thus, insurance is e xtended to intangibles. In som

e countries, the voice of a singer or the legs of a dancer may be insured. Types
of Insurance : Any risk that ca n be quantified c an potentially be insured. Sp
ecific kinds of risk that ma y give rise to claims are known as "perils". An ins
urance polic y will set ou t in detail which perils are covered by the policy an
d which are not. Below is a (non-exhaustive) list of the many different types of
insurance that e xist. A single policy ma y cover risks in one or more of the c
ategories set forth below. For e xample, auto insuranc e would typica lly cover
both property risk (covering the risk of theft or damage to the car) and liabili
ty risk (covering legal claims from causing an accident). A homeowners insuranc
e policy in the U.S. typically includes property insurance covering damage to t
he home and the owners belongings, liability insurance covering certain legal c
laims against the owner, and even a small amount of health insurance for medical
expenses of guests who are injured on the owners property. Automobile insuranc
e known in the UK as motor insurance, is pr obably the most common form of insu
rance and ma y cover both legal liability claims aga inst the driver a nd loss o
f or damage to the insureds vehicle itself. Throughout most of the United State
s an auto insurance policy is required to le gally op erate a motor vehicle on p
ublic roads. In some jurisdictions, bodily injury compensation for automobile ac
cident victims has been changed to a no-fault system, which re duces or eliminat
e s the ability to sue for compensation but provides automatic eligibility for b
enefits. Aviation insurance insures against hull, spares, deductible, hull war a
nd liability risks. Boiler insurance (also known as boiler and machiner y insura
nce or equipment breakdown insuranc e) insures against acc idental physical dama
ge to equipment or machiner y. Builders risk insurance insures against the risk
of physical loss or damage to property during construction. Builders risk insu
rance is typica lly written on an "all risk" basis covering damage due to any ca
use (including the negligence of the insure d) not otherwise expressly excluded.
19 Business insurance can be any kind of insurance that protects businesses aga
inst risks. Some principal subtypes of business insurance are (a) the various ki
nds of professional liability insurance, also called professional indemnity insu
rance, which are discussed below

under that name; and (b) the business owners polic y (BOP), which bundles into o
ne policy ma ny of the kinds of coverage that a business owner needs, in a way a
nalogous to how homeowners insuranc e bundles the coverage that a homeowner nee
ds. Casualty insurance insure s against accidents, not necessarily tied to any s
pecific property. Credit insurance repays some or all of a loan back when certa
in things happen to the borrower such as unemployment, disability, or death. Mor
tga ge insurance (which see below) is a form of credit insurance, although the n
ame credit insurance more often is used to refer to policies that cover other ki
nds of debt. Crime insurance insures the policyholder against losses arising fro
m the criminal acts of third parties. For example, a company can ob tain crime i
nsurance to cover losses arising from theft or embezzlement. Crop insura nce "Fa
rmers use crop insurance to reduce or mana ge various risks associated with grow
ing crops. Such risks include crop loss or damage caused b y weather, hail, drou
ght, frost damage, insects, or disease, for insta nce." Defense Base Act Workers
 compensation or DBA Insurance provides coverage for civilian workers hired by
the government to perform contracts outside the US and Canada. DBA is required f
or all US citizens, US residents, US Green Card holders, and all employees or su
bcontractors hired on overseas government contracts. Depending on the countr y,
Foreign Nationals must also be covered under DBA. This coverage typically inc lu
des expenses related to medical treatment and loss of wages, as well as disabili
ty and death benefits. Directors and officers liability insurance protects an or
ganization (usually a corporation) from costs associated with litigation resulti
ng from mistakes incurred b y directors and officers for which they are liable.
In the industry, it is usually called "D&O" for short. Disability insurance poli
cies provide financial suppo rt in the event the polic yholder is unable to work
because of disabling illness or injury. It provides monthly support to help pa
y such obligations as mortgages and credit cards. o Total permanent disability i
nsurance provides benefits when a person is permanently disabled and can no long
er work in their profession, often taken as an adjunct to life insurance. Errors
and omissions insurance : See "Professional liability insurance" under "Liabili
ty insurance". Expatriate insurance provides individuals and organizations opera
ting outside of their home

country with protection for automobiles, property, health, liability and busines
s pursuits. Financ ial loss insurance protects individuals and companies a gains
t various financial risks. For example, a business might purchase cover to prote
ct it from loss of sales if a fire in a factory prevented it from carrying out i
ts business for a time. Insurance might also cover the failure of a creditor to
pay money it owes to the insured. This type of insurance is frequently 20 referr
ed to as "business interruption insuranc e." Fidelity bonds and surety bonds are
inc luded in this categor y, although these products provide a benefit to a thi
rd party (the "obligee") in the event the insured party (usually referred to as
the "obligor") fa ils to perform its obligations under a contract with the oblig
e. Health insurance policies will often cover the cost of private medical treatm
ents if the National Health Service in the UK (NHS) or other publicly-funded hea
lth programs do not pa y for them. It will often result in quicker health care w
here better facilities are available. Home insurance or homeowners insurance: Se
e "Property insurance". Liability insurance is a very broad superset that covers
legal claims against the insured. Many types of insurance include an aspect of
liability coverage. For example, a homeowners insurance policy will normally in
clude liability coverage which protects the insured in the event of a claim brou
ght by someone who slips and falls on the property; automobile insuranc e also i
ncludes an aspect of liability insurance that indemnifies against the harm that
a crashing car can cause to others lives, health, or property. The protection o
ffered by a liability insurance polic y is twofold: a legal defense in the event
of a lawsuit commenced against the polic yho lder and indemnific ation (payment
on behalf of the insured) with respect to a settlement or court verdict. Liabil
ity policies typically cover only the ne gligence of the insured, and will not a
pply to results of willful or intentional acts by the insured. o Environmenta l
liability insurance protects the insured from bodily injur y, property damage an
d cleanup costs as a result of the dispersal, release or escape of pollutants. o
Professional liability insurance a lso called professional indemnity insurance,
protects professional practitioners such as architects, lawyers, doctors, and a
ccountants aga inst potential negligence claims made by their patients/clients.
Professional liability insuranc e may take on different names depending on the p
rofession. For example, professional liability insuranc e in refere nce to the m
edical profession may be called malpractice

insurance. Notaries public may take out errors and omissions insurance (E &O). O
ther potentia l E&O policyholders include, for example, real estate brokers, hom
e inspectors, appraisers, and website developers. Life insurance provides a mone
tar y benefit to a decedents family or other designated beneficiary, and may sp
ecifically provide for burial, funeral and other final expenses. Life insuranc e
policie s often allow the option of having the proceeds paid to the benefic iar
y either in a lump sum cash payme nt or an annuity. o Annuities provide a strea
m of payments and are generally cla ssified as insurance be cause the y are issu
ed b y insurance companies and regulated as insurance a nd require the same kind
s of actuarial a nd inve stment management expertise that life insura nce requir
es. Annuities and pensions that pay a benefit for life are sometimes regard ed a
s insurance against the possibility that a retiree will outlive his or her finan
cia l resources. In that sense, they are the complement of life insurance a nd,
from an underwriting perspective, are the mirror image of life insurance. Locked
funds insurance is a little-known hybrid insurance policy jointly issued by gov
ernments and b anks. It is used to protect public funds from tamper b y unauthor
ized parties. In special cases, a government may authorize its use in protecting
semiprivate funds 21 which are liable to tamper. The terms of this type of insu
rance are usually very strict. Therefore it is used only in extre me cases where
maximum security of funds is required. Marine insurance and marine cargo insura
nce cover the loss or da mage of ships at sea or on inla nd waterways, and of th
e cargo that may be on them. When the owner of the cargo and the carrier are sep
arate corporations, marine cargo insurance typically compensates the owner of ca
rgo for losses sustained from fire, shipwreck, etc., but excludes losses that ca
n be recovered from the carrier or the carriers insurance. Many marine insuranc
e underwriters will include "time element" coverage in suc h policies, which ext
ends the indemnity to cover loss of profit and other business expenses attributa
ble to the delay caused b y a covere d loss. Mortgage insurance insures the lend
er against default by the borrower. National Insurance is the UKs version of so
cial insurance (which see below). No-fault insurance is a type of insura nce pol
icy (typically automobile insurance) where insurers are indemnified by their own
insurer regardless of fault in the incident. Nuclear incident insurance covers
damages resulting from an incident involving

radio active materials and is generally arranged at the national level. (For the
United States, see the PriceAnderson Nuclear Industries Indemnity Act.) Pet ins
urance insures pe ts aga inst accide nts and illnesses - some companies cover ro
utine/wellness care and burial, as well. Political risk insurance can be ta ken
out b y businesse s with operations in countries in which there is a risk that r
evolution or other political conditions will result in a loss. Pollution Insuran
ce A first-party coverage for contamination of insured property either b y exter
nal or on-site sources. Coverage for liability to third parties arising from con
tamination of air, water or land due to the sudden and accidental release of haz
ardous materials from the insured site. The policy usually covers the costs of c
leanup a nd may include coverage for releases from underground storage tanks. In
tentional acts are spe cifically exc luded Property insurance provides protectio
n against risks to property, such as fire, theft or weather damage. This include
s specialized forms of insurance such as fire insura nce, flood insuranc e, eart
hquake insurance, home insurance, inland marine insurance or boiler insurance. P
urchase insurance is aimed at providing protection on the products people purcha
se. Purchase insurance can cover individual purchase protection, warranties, gua
rante es, care plans and even mobile phone insurance. Such insurance is normally
very limited in the scope of problems that are covered by the polic y. Retrospe
ctively Rated Insurance is a method of establishing a premium on large commercia
l accounts. The fina l premium is based on the insureds actual loss experience
during the policy term, sometimes subject to a minimum and maximum premium, with
the final premium determined by a formula. Under this plan, the current years
premium is based partially (or wholly) on the current years losses, although th
e premium adjustments ma y take months or years beyond the current years expira
tion date. The rating formula is guaranteed in the insurance contrac t. Formula:
retrospective premium = converted loss + basic premium tax multiplier. Numerous
variations of this formula ha ve be en developed and are in use. Social insuran
ce can be many things to many pe ople in many countries. But a summary of 22 its
essence is that it is a collection of insurance coverage (including components
of life insuranc e, disability income insurance, unemplo yme nt insurance, healt
h insurance, and

others), plus retirement savings, that mandates participation by a ll citizens.

By forcing everyone in society to be a policyholder and pay premiums, it ensures
that everyone can become a claimant when or if he/she needs to. Along the way t
his inevitably becomes related to other concepts such a s the justice system a n
d the we lfare state. This is a large, complicated topic that engenders tremendo
us debate, which can be further studied in the following articles (and others):
o Social welfare provision o Social security o Social safety net o National Insu
rance o Social Security (United States) o Social Security debate (United States)
Terrorism insurance provides protection against any loss or damage caused by te
rrorist act ivit ies. Title insurance provides a gua rantee that title to real p
roperty is vested in the purchaser and/or mortgagee, free and clear of liens or
encumbrances. It is usually issued in conjunction with a search of the public re
cords performed at the time of a real estate transaction. Travel insurance is an
insurance cover taken by those who travel abroad, which covers certain losses s
uch as medica l expenses, lost of personal belongings, travel de lay, personal l
iabilities, etc. Workers compensation insuranc e replaces all or part of a work
ers wage s lost and accompanying medical expense incurred because of a job-rela
ted injur y. Advantage s of Life Insur ance : Life insurance ha s no competition
from any other bu siness. Many people think that life insuranc e is an investme
nt or a means of saving. This is not a correct view. When a person saves, the am
ount of funds available at any time is equal to the amount of money set aside in
the past, plus interest. This is so in a fixed deposit in the bank, in national
savings certificates, in mutual funds and all other savings instruments. If the
money is invested in buying shares and stocks, there is the risk of the money b
eing lost in the fluctuations of the stock market. Even if there is no loss, the
available money at any time is the amou nt invested plus appreciation. In life
insuranc e, however, the fund available is not the total of the savings already
made (pre miums paid), but the amount one wished to have at the end of the savin
gs period (which is the next 20 or 30 years). The final fund is secured from the
very beginning. 23 One is paying for it later, out of the savings. One has to p
ay for it only as long

as one lives or for a lesser period if so chosen. There is no other scheme which
provides this kind of benefit. Therefore life insurance has no substitute. Even
so, a comparison with other forms of savings will show that life insurance has
the following adva ntages. In the event of death, the settlement is easy. The he
irs can collect the mone ys quicker, because of the facility of nomination and a
ssignme nt. The fac ility of nomination is now available for some bank accounts.
There is a certain amount of compulsion to go though the plan of savings. In ot
her forms, if one changes the original plan of savings, there is no loss. In ins
urance, there is a loss. Certain c annot claim the life insurance moneys. They c
an be protected against attachme nts by courts. There are tax benefits, both in
income tax and in capita l gains. M arketability and liquidity are better. A lif
e insurance polic y is property and can be transferred or mortgaged. Loans can b
e raised aga inst the policy. The following tenets he lp agents to believe in th
e benefits of life insurance. Such faith will enhanc e their determination to se
ll and their perseverance. Life insurance is not only the best possible wa y for
family protection. There is no other way. Insurance is the only way to safeguar
d against the unpredictable risks of the future. It is unavoidable. The terms of
life are hard. The terms of insurance are easy. The value of human life is far
greater than the value of prope rty. Only insurance can preserve it. Life insura
nce is not surpassed by many other savings or investment instrument, in terms of
security, marketability, stability of value or liquidity. Insurance, including
life insurance, is essentia l for the conservation of many bu sinesses, just as
it is in the preservation of homes. Life insurance enhances the existing standar
ds of living. Life insurance helps people live financ ia lly solvent live s. Lif
e insurance perpetuates life, libe rty and the persu it of happiness. Life insur
ance is a wa y of life. 24 The Business of Insurance : Insurance companie s are
called insurers. The business of insurance is to (a) bring together persons with
common insurance interests (sharing the same risks), (b) collect the share or c
ontribution (called premium) from all of them, and (c) pay out compensation (cal
led c la ims) to those who suffer. The premium is determined on the same lines a
s indicated in the

examples above, but with some further refinements. In India, insurance business
is c lassified primarily as life and non-life or general. Life insuranc e inc lu
des all risks related to the lives of human beings and Ge neral insurance covers
the rest. General insurance has three classifications viz., Fire (dealing with
all fire re lated risks), Marine (dealing with all tra nsport related risks a nd
ships) and Miscellaneo us (dealing with all others like liability, fidelity, mo
tor crop, personal accide nt, etc.). Personal accident and sic kness insuranc e,
which are related to human beings, is classified as non-life in India, but is c
lassified as life , in many other countries. What is Non-life in India is termed as
Property and Casualty in some other countries. The premium is based on expectati
ons of the losses. These expectations are b ased on studies of occurrences in th
e past and the use of statistical principles. There is, in statistics, a  law of
lar ge numbers . When you toss a coin, the chance of a head or tail coming up is
half. If the coin is tossed 10 times, one cannot be sure that the head will com
e up 5 times. If the coin is tossed 1 million times, the number of heads will be
closer to half a million proportionately than in the ca se of 10. The variation
will be less as a perce ntage. So also, the larger the numbers (of risks) inclu
ded in the pool, the better the chances that the assumptions regarding the proba
bility of the risk occurring, which is the basis of premium calculation, will be
realized in practice. In order to be amenable to statistical predictions, insur
ers have to insure lar ge numbers of risks. Larger the spread of business better
is the experience in relation to expectations. The business of insurance is not
hing but one of sharing. It spreads losses of an individual over the group of in
dividuals who are exposed to similar risks. People who suffer loss get relief be
cause their loss is made good. People who do not suffer loss are relieved becaus
e the y were spared the loss. The insurer is in the position of a trustee as it
is mana ging the common fund, for and on behalf of the community of polic yholde
rs. It has to e nsure that nobody is a llowed to take undue advantage of the arr
angement. That means that the management of the insurance business requires care
to prevent entr y (into the group) of people whose risks are not o f the same k
ind a s well as paying claims on losses that are not accidental. The decision to
allow entry is the process of underwriting of risk. Underwriting includes asses
sing the risk, which means, making an evaluation of how much is the exposure to
risk. The premium to be charged depends on this assessment of the risk. Both und
erwriting and claim

settlements have to be done with great care. 25 Criticism of Insurance Companies

: Some people believe that modern insurance companie s are mone y-making busine
sses which have little interest in insurance. They argue that the purpose of ins
urance is to spread risk so the reluctance of insurance companies to take on hig
h-risk cases (e.g. houses in areas subject to flooding, or young drivers) runs c
ounter to the princ iple of insurance. Other criticism s include: Insuranc e pol
ic ies contain too many exclusion clauses. For example, some house insuranc e po
licies do not cover damage to garden walls. Most insurance compa nies now use ca
ll centre and staff atte mpt to answer questions b y reading from a script. It i
s difficult to speak to anybod y with expe rt knowledge. Role of Insurance in Ec
onomic Development : For economic develop ment, investments are necessary. Inves
tments are made out of savings. A life insurance company is a major instrument f
or the mobilization of savings of people, particularly from the middle and lower
income groups. These savings are channeled into investments for economic growth
. As on 31.3.2002, the total investments of the LIC exceeded Rs. 245000 crores,
of which more than Rs. 130000 crores were directly in Government (both State and
Centre) related securitie s, more than Rs. 12000 crores in the State Electricit
y Boards, nearly Rs. 20000 crores in housing loa ns and Rs. 4000 crores in water
supply and sewerage systems. Other investments included road transport, setting
up industrial estates and directly financing industr y. Inve stments in the cor
porate sector (shares, debentures and term loans) exceeded Rs. 30000 crores. The
se directly affect the lives of the people and their economic well-being. A life
insurance company will have large funds. These amounts are collected by way of
premiums. Every premium represents a risk that is covered by that premium. In ef
fect, therefore, these vast amounts represent pooling of risks. The funds are co
lle cted and held in tru st for the benefit of the polic yholders. The ma nageme
nt of life insurance companies are required to keep this aspects in mind and ma
ke all its decisions in ways that benefit the community. This applies also to it
s investments. That is why successful insurance companies would not be found inv
esting in speculative ventures. Their investments, as in the case of the LIC, be
nefit the society at large. Apart from investments, business and trade benefit t
hrough insurance. Without insurance, trade and commerce will find it difficult t
o face the impact to major perils like

fire, earthquake, floods, etc. Financiers, like banks, collapse if the factory,
fina nced by it, is reduces to ashes by terrible fire. Insurers cover also the l
oss to financ iers, if their debtors default. 26 2. GLOBAL INSURANCE INDUSTRY :
The global insurance industry is one of the largest sectors of finance. It range
s from consumer to corporate and industrial insurance, and even reinsurance, or
insurance of insurance. The major insurance markets of the world are obviously t
he US, Europe, Japan, and South Korea. Emerging markets are found throughout Asi
a, specifically in India and China, and are also in Latin America. With the inte
rnet a nd other forms of high-spee d communication, companies and individuals ar
e now able to purchase insurance and related financial products from almost anyw
here in the world. Increasing affluence, especially in developing countries, and
a rising unde rstanding of the need to protect wealth and human capita l has le
d to significant growth in the insurance industry. Given the evolving and growin
g socio-economic conditions worldwide, insurance companies are increasingly reac
hing out across borders and are offering more competitive and customized product
s than ever before. Over the past ten years, global insurance premiums have rise
n by more than 50%, with annual growth rates ranging between 2 and 10%.In 2004,
global insurance premiums amounted to $3.3 trillion. The majority of insurance c
omes from developed nations such as most of Europe, the US, and Japan. In 2004,
premiums in North American amounted to $1,217 billion, while the European Union
generated $1,198 billion, and Ja pan produced $492 billion. The UK amounted to $
295 billion. The four biggest generators of insurance premiums comprised almost
two-thirds of premiums for 2004, the US and Japan amount to half, while they onl
y ma ke up 7% of the world s population. In contrast, the emerging markets that m
ake up 85% of the world s population produced only 10% of the premiums. The leadi
ng global insurance companies are: Zurich Financial Services, AXA Berkshire Hath
awa y/ Berkshire Hathawa y Re Allianz

A viva ING Group Munich RE Group American International Group (AIG) Nippon Life
Insurance Assicurazioni Generali 27 GLOBAL LIFE INSURANCE DENSITY : Cont i n en
t /Cou nt ry 2 0 0 2 ** 20 0 4 * * 2 0 0 6* * Nor t h A m e ri ca 1 5 6 3 . 8 1
6 17 . 2 1 7 3 1 .8 Uni t e d S t a t es 16 6 2 .6 1 6 92 . 5 1 7 8 9 .5 C a na
da 5 .9 7 2 2 .9 10 7 1 .9 La t i n Am e ri ca 2 9 .1 3 7 . 2 5 1 .3 Bra z i l 1
0 . 8 3 5. 8 5 6 . 8 Me x ic o 3 .2 4 1. 3 4 9 . 9 Uru gua y 1 7 .8 N /A 16 . 6
Arge nt i na 1 9 .7 3 4 . 5 43 . 8 Pa na m a 3 4 2. 4 4 7 . 2 C hi le 2 2 .1 1 3
8 .3 2 0 0 1 * *
2 0 0 3 ** 2 0 0 5 **
15 65 . 7 16 8 6 .3 16 57 . 5 17 5 3 .2 6 5 7 .3 9 2 6 .1 1 2 0 4 .1 3 0 4 2 .0
2 7 .2 45 . 9 7 2 .5 5 9 .2 50 . 2 6 2 .9 1 5 . 4 1 5 .5 2 4 . 2 3 5 .4 4 4 .6 5
0 . 6 5 1 .2 1 0 3 .5 1 6 4 .5
1 5 0 8. 6
1 6 02
6 7
2 6 .3
21 . 5
6 8 . 8
39 .

1 7 4 .9 C olom bi a 1 2 .5 14 . 3 2 0 .5 Eu rope 2 7 2 6 .9 9 1 1 .8 Uni t e d

kin gdom 26 7 9 .4 3 19 0 . 4 5 1 3 9 .6 S wi t z er la nd 30 9 9 .7 3 2 75 . 1
3 1 1 1 .8 Ne t he rl a nds 12 9 6 . 1 1 9 36 . 5 2 0 7 1 .6 Fra nc e 8. 2 17 67
. 9 24 7 4 .6 Be l giu m 13 2 3 . 6 2 2 91 . 2 2 4 2 7 .7 S we de n 1 2 3 2 . 2
1 76 4 . 3 2 2 1 4 .6 De nm a rk 15 7 4 .9 2 31 0 . 5 2 8 4 0 .8 Ge rm a ny 7 3
6 .7 1 0 21 . 3 1 1 3 6 .1 I ta l y 7 2 0 .8 12 38 . 3 14 4 9 .8 Au st ri a 2 8
1 1 1 09 5 . 1 Port u gal 9 6 1 1 .4 11 1 3 .7 S pa in 9 1 4 8 8 .6 6 1 5 .8 6
51 . 0
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c h.c om 28
ra t i o of
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t o t
3. PERFORMANCE OF INDIAN INSURANCE INDUSTRY : Performance up to October 2006 The
performance growth rate that was 22.8 percent as at September 2006 has mo ved u
p to 23.3 percent at the end of October 2006, an improvement of significance. Th
e total premium at the end of October is Rs.14,628 crore as against Rs.11,855 cr
ore. The established players have added Rs.807 crore at a growth rate of 8.3 per
cent with the new players adding Rs.1966 crore at a growth rate of 62 percent. H
ere a gain, ICICI Lombard has achieved a n accretion of Rs.887 crore; whereas th
e total accretion of all the established players is Rs 807 crores, a truly impre
ssive record. New India with Rs.286 crore, closely followed by Oriental with Rs.
277 crore are the major contributors for the established players. Re liance, a l
ate starter in the race for premium acquisition has recorded an accretion of Rs.
357 crore as against a meager last year renewal of Rs.89 crore. The growth path
is now led by several players: with eight out of the twelve pla yers ha ving ac
hieved accretions in exc ess of Rs.100 crore and more at the end of October 2006
. With the im minent detariffing aro und the corner in January 2007, the next tw
o months should witness even more fierce battles for supremacy of the market tur
f. A few of the new players are inching towards breaking into the big league pre
mium players of yesteryears and this may happen sooner than one thought. Interes
ting and cha llenging times are certainly ahead for all the pla yers. Premiums R
ise 163.68% over October, 2006 Individual premium: The life insurance industry u
nderwrote Individual Single Premium of Rs.1336610.10 lakh for the period ended O
ctober, 2006 of which the private insurers garnered Rs.118242.78 lakh a nd LIC g
arnered Rs.1218367.32 lakh. The corresponding numbers for the previous year were
Rs.443296.40 lakh for the industry, with private insurers underwriting Rs.64530
.68 lakh and LIC Rs.378765.72 la kh. The Individual Non-Single Premium underwrit
ten during April-Oc tober, 2006 was Rs.1771903.71 lakh of which the private insu
rers underwrote Rs.536863.16 lakh and LIC Rs.1235040.55 lakh. The corresponding
numbers for the previous year were Rs.743586.24 lakh, Rs.260432.63 lakh and Rs.4
83153.61 lakh respectively. Group premium: The industry underwrote Group Single
Premium of Rs.467348.58 lakh of which the private insurers underwrote Rs.30147.7
4 lakh and LIC Rs.437200.84 lakh. The lives covered being 7678192, 456696 and 72
21496 respectively. The corresponding numbers for the previous year were Rs.1713
82.70 lakh with private insurers underwriting Rs.17261.98 lakh and LIC Rs.154120
.72 lakh and the lives covered being 8547743, 397721 and 8150022 respective ly.
The Group Non-Single Premium underwritten during April-October, 2006 was Rs.5322
1.05 lakh which was underwritten entirely by the private insurers, covering 2366
084 lives. The

corresponding numbers for the previous year were Rs. 18031.15 lakh and covering
1277400 lives. 29 Segment-wise segregation: A further segregation of the premium
underwritten during the period indicates that Life, Annuity, Pension and Hea lt
h contributed Rs.2329869.52 lakh (64.24%), Rs.74006.48 lakh (2.04%), Rs.1221904.
91 lakh (33.69%) and Rs.897.90 lakh (0.02%) respectively. In respect of LIC, the
bre ak up of life, annuity a nd pension categories was Rs.1677831.45 lakh (58.0
4%), Rs.69437.82 la kh (2.40%) and Rs.1143339.44 lakh (39.55%) respectively. In
case of the private insurers, Rs.652038.07 lakh (88.58%), Rs.4568.66 lakh (0.62%
), Rs.78565.47 lakh (10.67%) and Rs.897.90 lakh (0.12%) respectively was underwr
itten in the four segments. Unit linked and conventional premium: Analysis of th
e statistics in terms of linked and non-linked premium indicates that 49.46% of
the business was underwritten in the non-linked category, and 50.54% in the link
ed category, i.e., Rs.1793702.35 lakh and Rs.1832976.45 la kh respective ly. In
case of LIC, the linked and non-linked premium was 41.38% and 58.62% respectivel
y, as against whic h for the private insurers taken together this stood at 86.53
% and 13.47% respectively. During the corresponding period of the previous year,
linked and non- linked premium indicates that 54.74% of the busine ss was under
written in the non-linked category, and 45.26% in the linked category, i.e., Rs.
752509.54 lakh and Rs.622185.30 lakh respective ly. In case of LIC, the linked a
nd non-linked premium was 33.96% and 66.04% respectively, as a gainst which for
the private insurers taken together this stood at 77.02% and 22.98% respe ctivel
y. Growth momentum continues in October 2006 with 25.3 percent All-round growth
: The month of October 2006 has been the month of extraordinar y growth for the
nonlife insurers with the growth rate high at 25.3 percent. This ac hie ved rate
is only slightly below that of September of 25.8 percent. As against the monthl
y renewals of Rs.1772 crore in Octobe r last year, the premium income scaled in
2006 is Rs.2220 crore. The established players have recorded an accretion of Rs.
151 crore at a growth rate of 11.3 percent. The new players have had an accretio
n of Rs.297 crore at a growth rate of 63 percent. Among the former, New India le
ads with an accretion of Rs.60 crore followed by Orie ntal with Rs.56 crore. But
the stellar performances in the month have come from ICICI Lombard that has p r
oduced a massive accretion of Rs.167 crore with Reliance adding Rs.56 crore to i
ts meager renewal premium of Rs.12 crore. The new pla yers ha ve continued to ma
intain a strong grip on the ir market share that stands at 35 percent. Two point
s of interest to the market have emerged. One is that the monthly accretion of I
CICI Lombard at Rs.167 crore is higher than the combined accretion achieved by a
ll the established players of Rs.151 crore. This performance should stand out a
s of interest to the market. The second point of market interest is that for the
first time, the October monthly premium of ICICI Lombard at Rs.310

crore has exceeded the monthly premium performances of National Insurance and UI
IC that have accomplished premiums of Rs.305 crores and Rs.257 crore respective
ly. The established players do seem to be coming under increasing pressure by th
e new pla yers with their re lentless high growth rates and premium productions.
30 41 per cent growth in life insurance industry in 2006 : New Delhi: Life insu
rance sector grew by 41 per cent in 2005-06 due to better performance of countr
ys largest life insurer, LIC, and private players like Baja j Allianz and ICICI
Prudential. The 15 life insurance companies together collected Rs 35,898 crore
in the fisc al ended March this year, compared to Rs 25,343 crore in the previou
s fiscal, according to data compiled by regulator IRDA. Life Insurance Corporati
ons premium income rose more than 28 per cent to Rs 25,645 crore after it sold
3 .16 crore policies as against Rs 19,972 crore collected a year a go. However,
LICs market share dipped by 6.63 per cent to 71.44 per cent from 78.07 per cent
in the year ago period due to stiff competition and aggressive marketing of pri
vate life insurers. The 14 private pla yers were able to steadily increase their
market share from 21.93 per cent to 28.56 per cent in a years time by collecti
ng Rs 10,252 crore during the pe riod under review. Private sector life insuranc
e business jumps 90% : In a tough battle to expand market shares the private sec
tor life insurance industry consisting 14 life insurance companies at 26% have l
ost 3% of market share to the state owned Life Insurance Corporation (LIC) in th
e domestic life insurance industry in 200607. According to the figures released
by Insurance Regulatory & Development Authority the total premium these 14 compa
nies have shot up b y 90% to Rs 19,471.83 crore in 2006-07 from Rs 10, 252 crore
. LIC with a total pr emium mobilization of Rs 55,934 crore has been able retain
a market sha re of 74.26 % during the reporting period. In total the life insur
ance industry in first year premium has grown by 110% to Rs 75, 406 crore during
2006-07. The 2006-07 performance has thrown a few surprises in the ranking amon
g the private sector life insurance companies. New entrants like Re liance Life
a nd SBI Life had shown a huge growth of over 381% and 210% respectively during
the year. Reliance Life which has become one of the top five companies ended the
year with a premium of Rs 930 crore during the year. Though ICICI Prude ntial L
ife Insurance remained as the No 1 private se ctor life

insurance company during the year Bajaj Allia nz overtook ICICI Prudentia l in t
erms of monthly market share in March, for the first time ever. Bajajs market s
hare among private players in non-single premium for March stood at 29.1% vs. IC
ICI Prudentials 23.8%. Bajaj ga ined 4.6 percentage point market share among pr
ivate sector players for FY07. Among other private pla yers, SBI Life and Re lia
nce Life continued to do well, each gaining 4% market share in FY07. SBI Lifes
growth was driven by increasing contribution from ULIP premiums. Another notable
development of the 2006-07 performance has been the expansion of reta il market
s by the life insurance comapnies. Bajaj Allianz Life insurance has added 20 lak
h policies while ICICI Pru dential has expanded over 19 lakh policies during the
year. 31 Building a Vibrant Insurance Mar ket in India : Indias insurance indu
stry is a n example of the positive effects of competition and new investors in
the ma rketplace. As we know, India opened its insurance market to the private s
ector in 1999 when parliament passed a new law establishing an indepe ndent regu
latory body to oversee the insurance market. The law opened the door for partici
pation of private insura nce companies and a limited participation of foreign in
surance companies through joint ventures with Indian companies. The law also cha
rged insurance companies to ma ke available insurance products and services to t
he huge segment of the population that are vulnerable and not necessarily part o
f the formal economy. The results of the liberalization are there for everyone t
o see. The insurance markets -both life and non-life -- have grown impressively.
IRDA is working on a regulator y framework that helps level the pla ying fie ld
for all type s of insurance companies, irrespective of their ownership. Since 1
999, IRDA has licensed 22 new private Indian insurance companies, an overwhe lmi
ng number of which have globa l insurance companies as their partners. To date,
the industry has attracted foreign direct investment of $235 million. In 2006, I
ndian insuranc e companies mobiliz ed over $29 billion, nearly four times as muc
h as in 1999 ($8 billion). In other countries, this kind of capital mobilization
provides crucial resources for investment in infrastructure, corporate business
es, longterm bonds, and municipal projects. Once India does more to free insuran
ce companies to invest in such important sectors, it too can gain benefit from t
his long-term financial resource. Other improvements are occurring as we ll. New
insurance products such as product

liability insurance, professional liability insurance, small/medium size enterpr

ise insurance, weather insurance, and group health insurance for the poor have b
een launched. Private insura nce companies are also using banks, microfinance in
stitutions and cooperatives to increase their market share and compete with well
-entrenched stateowned insurance companies. The marketplace is getting competiti
ve, but the market share of private insurance companies remains very low in the
10-15 percent range. The heavy hand of government still dominates the market, wi
th price controls, limits on ownership, and other re straints. We have see n wha
t happens in India when a market is truly opened up. We saw it in the IT sector,
we saw it in the telecom sector, and we are seeing it in the aviation sector. W
hy cant insurance be next? Indias insurance market remains ver y small compare
d with some of the major emerging markets. South Africa and South Korea, with a
fraction (onetwentieth) of Indias population, do at least twice as much insuran
ce business as Indian companies did in 2004. This is a major missed opportunity
for Indias economy. A vibrant insurance market can support the economy by provi
ding long-term capital -- equity and debt -- to the private sector. For example,
in the U.S. over two-thirds of financial assets of insurance companies are in c
orporate bonds and equities, municipal securities and commercial mortgages. Insu
rance also shields hou seholds and businesses from irrecoverable loss, such as f
rom major natural disasters, illness and death. In India, 80 percent of health c
are is privately provided, yet only 10 percent of the population has access to h
ealth insurance. Therefore, many individua l households ha ve to pay the full ou
t-of-pocket costs for health treatment. What will expand the insurance industry
and help it contribute to the economy? Major policy a nd institutional issues ha
ve to be addressed and changed. 32 Insurance is a capital-intensive industry. It
is also a long-gestation business. Indias insurance industry needs capital, an
d a major source of capital would be from foreign investors, who are now limited
to 26 perce nt ownership. India needs to raise the cap on Foreign Direct Invest
ment (FDI) to attract capital for the industry. For some time there has been an
understanding that the FDI cap will be ra ised to 49 percent, and many companies
entered the Indian market with this e xpectation. Fa ilure to follow through in
raising the cap is increasingly seen by investors as a bre ach of faith. This p
romise needs to be delivere d, not 5 years from now, but soon, if India wishes t
o regain its cre dibility in the eyes of foreign investors. Increasing the cap o

FDI will both enha nce the growth of the insurance indu stry and improve global
confidence in India as a business and investment destination. The cap should be
raised above 50 percent within a short period so that fore ign investors would h
ave manageme nt control commensurate with their investment and the flow of FDI t
o the sector will increa se. Leading foreign companies bring more than capital t
o the insurance industry. They also bring generations of successful experience i
n mana ging and growing the industry. The benefit of the long-term capital that
the insurance industry mobilizes is also being lost as a source of long-term cap
ital. In India, ove r 60 percent of the insurance industrys financ ial a ssets
are locked in government securities. Investment guide lines for insurance compan
ies prescribed b y the regulator must be changed to allow and promote access to
insurance funds by the corporate sector and infrastructure projects. There is al
so a strong case for raising the FDI cap for reinsurance and auxiliary insurance
services, such as brokerage and actuarial services. Major lines of non-life ins
urance business such as fire and car continue to be governed b y a pricing re gi
me that is administered and not risk-based. This distorts the market and makes i
t inefficient. It has prevented the emergence of a culture of underwriting in in
surance companies. The IRDA needs to dismantle this regime to make these segme n
ts of the market truly competitive. The IRDA should also seek to create a regula
tory regime that promotes the most efficient use of capital, eliminates avoidabl
e micro-manageme nt of business practices, allows companies to price their produ
cts prudentia lly, and levels the playing fie ld between private and state-owned
insurance companie s. When mar kets are competitive and responsive to consumer
demand and preference, it is the consumer that benefits in terms of lower cost a
nd incre ased ability to manage r isks. Hea lth is an area that is underserved b
y the insurance industry. India as an economy has high health spending but poor
health outcomes. With no pooled risk sha ring from insurance policies and a heal
th care system that is primarily private, the cost to individuals becomes a majo
r economic bu rden. For this rea son, many microfinance institutions are finding
that a primary use of micro loans to the poor is to pay medical bills. The curr
ent minimum capital requirement of $22 million capital for setting up a health i
nsurance company is a significant barrier to entry, particularly when FDI is res
tricted to 26 percent. The lack of data from both health providers and from e xi
sting claims makes

risk-based pricing of hea lth insurance products difficult. The absenc e of an a

ppropriate regulatory framework that enforces a minimum level of service and hyg
iene standards is 33 an important reason the health insurance market in India is
so underdeveloped. It is not surprising that not a single health insurance comp
any is among the 22 new private insurance companies lice nsed since 1999. Clearl
y, the IRDA a nd the Ministr y of Health need to work in tandem to solve these p
roblems. Another area where the insurance industry is not doing its job is he lp
ing mitigate the risks for personal and business loss from natural catastrophes.
In the past decade, India and China a ccounted for one-fourth of the global eco
nomic losses from natural disasters. Insurance availability in India for natura
l catastrophes is almost ne gligible. As we have seen with the Indian Ocean tsun
ami, the absence of a "safety net" for property lost in a disaster has led to su
bstantial personal loss and slowed economic recovery. Insurance Sector Reforms i
n India: Challenges and Opportunities : Insurance in India starte d without any
regulations in the nineteenth ce ntury. It was a typical story of a colonial era
: a few British insurance companies dominating the market serving mostly large u
rban centers. After the independence, the Life Insurance Company was nationalize
d in 1956, and then the general insurance business was nationalized in 1972. Onl
y in 1999 private insurance compa nies were allowed back into the business of in
surance with a ma ximum of 26 per cent of foreign holding (World Bank Economic R
eview 2000). The entr y of the State Bank of India with its proposal of bank ass
urance brings a new dynamics in the game. On July 14, 2000 Insurance Regulatory
and Development Authority bill was passed to protect the interest of the policyh
olders from private and fore ign players. The following companies are entitled t
o do insurance business in India. The private insuranc e joint ventures have col
lected the premium of Rs.1019.09 crore with the investment of just Rs.3,000 cror
e in three ye ars of liberalization. The private insurance pla yers have signifi
cantly improving their market share when compared to 50 years Old Corporation (i
.e. LIC). As per the figures compiled by IRDA, the Life Insurance Industry recor
ded a total premium underwritten of Rs. 10,707.96 crore for the period under rev
iew. Of this, private players contributed to Rs.1, 019.09 crore, accounting for
10 percent. Life Insurance Corporation of India (LIC), the public sector giant,
continued to lead with a premium collection of Rs.9,688.87 crore, translating in
to a market share of 90 pe r cent. In terms of number of policie s and scheme s

private sector accounted for only 3.77per cent as compared to 96.23 per cent sha
re of LIC (The Economic Times, 21March 04). he ICICI Prudential topped among the
private playe rs in terms of premium collection. It recorded a premium of Rs. 36
4.9 crore and a market share of 25 per cent, followed b y Birla Sun Life with a
premium under- written Rs.170 crore and a market share of 15 percent, HDFC Stand
ard with 132.7 crore and Max New York Life with Rs.76.8 crore with a market shar
e of approximately 15 per cent each. Unlike their counterpart in the life insura
nce business, private non-life insurance companies have not yet started addressi
ng the retail market. All is set to change in the coming years. Like in the bank
ing sector, nonlife insurance companies will soon ha ve no choice but to focus o
n individual bu yers. The latest series of bomb attacks, attack on parliament, a
ttack on Ayodhya, attacks of the Maoists, nature calamities like tsunami, floods
and drought, ragging are prevailed in the country and need not to sa y about th
e farmer who has been insecure about rains, seeds, crops and suitable price for
his crop. In developed countrie s, the owners have insured 34 even pet dogs. Whe
reas in India about 80 percent of human beings a nd major natural resources have
not been insured in globalization er a. It is, therefore , an urgent need to ex
plore the challenges and opportunities faced b y the insurance sector in India.
Indias Insurance Industry Likely To Jump By 500% In 2010: ASSOCHAM : The Associat
ed Chambers of Commerce and Industry of India (ASSOCHAM) has projected about 500
% hike in the size of domestic insurance business which will grow to US$ 60 bill
ion b y 2010 from the current size of around US$ 10 billion as the growing compe
titive age is developing a larger appetite among people for wider insurance cove
rage. The projections of the Chamber are based on fee dback that it received fro
m its various constituents, engaged in the insurance business, highlighting that
India s life insurance premium as a percentage of GDP is currently estimated at
1.8% against 5. 2% in US, 6.5% in UK and about 8% in South Korea. Releasing the
analysis, ASSOCHAM President, Mr. Venugopal N. Dhoot said that rural and semi-ur
ban India will contribute US $35 billion to the Indian insurance industry b y 20
10, inc luding US $20 billion by way of life insurance and the rest US $15 billi
on through non-life insurance schemes.  A large part of rural India is still unta
pped due to poor distribution, large dista nces and

high costs relative to returns. Urban sector insurance is estimated to reach US

$25 billion by 2010, life insurance US $15 billion and non- life insurance US $1
0 billion , added Mr. Dhoot. ASSOCHAM findings reveals that in the coming years
the corporate segment, as a whole will not be a big growth area for insurance co
mpanies. This is because pe netration is already good and c ompanies receive goo
d services. In both volumes a nd profitability therefore, the scope for expansio
n is modest. ASSOCHAM has suggested that insurer s strategy should be to stimulat
e demand in areas that are currently not served at all. Insurance companies most
ly focus on manufacturing sector; however, the services sector is taking a large
a nd growing share of India s GDP. This offers immense opportunities for expansi
on opportunities. To understand the prospects for insurance companies in rural I
ndia, it is very important to understand the requirements of Indias villa gers,
their daily lives, their peculiar needs and their occupational structures. Ther
e are farmers, craftsme n, milkmen, wea vers, casua l labours, construction work
ers and shopkeepers and so on. More often than not, they are into more than one
profession. The rural market offers tremendous growth opportunities for insuranc
e companies and insurers should develop viable and cost-effective distribution c
hannels; build consumer awareness and c onfidence. The Paper found that there ar
e a total 124 million rural households. Nearly 20% of all farmers in rural India
own a Kissa n Credit cards. The 25 million credit cards used till date offer a
huge data base and opportunity for insurance companies. An extensive rural age n
t network for sale of insurance products could be 35 established. The agent can
play a major role in creating awarene ss, motivating purchase and rendering insu
rance services. There should be nothing to stop insurance companies from trying
to pursue their own unique policies and target whatever needs that they want to
target in rural India. ASSOCHAM suggests that insurance needs to be pa ckaged in
such a form that it appears as an acceptable investment to the rural people. In
the near future, when we ll see more innovations in agriculture in the form of
corporatization or a more professiona l approach from the farmers side, insuranc
e will definitely be one option that the rural Indian is going to accept.

ASSOCHAM believes that insurers should enter into tie-ups or understandings with
governme nt age ncies to ensure the success of the insurance schemes. The ne ed
of the hour is to have innovative policie s that have explicit benefits for the
people to observe, understand and measure. Indian Insurance Industry: New Avenu
es for Growth 2012 : Description: With an annua l growth rate of 15-20% and the
largest number of life insurance policies in force, the potential of the Indian
insurance industry is huge. Total value of the Indian insurance market (2004-05)
was estimated at Rs. 450 billion (US$10 billion). According to government sourc
es, the insurance and banking services contribution to the countrys gross domes
tic product (GDP) is 7% out of whic h the gross premium collection forms a signi
ficant part. The funds availab le with the stateowned Life Insurance Corporation
(LIC) for investme nts are 8% of GDP. Till date, only 20% of the total insurabl
e population of India is covered under various life insurance schemes, the penet
ration ra tes of health a nd other non-life insurances in India is also well bel
ow the international level. These facts indicate the of im mense growth potentia
l of the insurance sector. The year 1999 saw a revolution in the Indian insuranc
e sector, as major structural changes took place with the ending of government m
onopoly and the passage of the Insurance Regulator y and Develop ment Au thority
(IRDA) Bill, lifting all entry restrictions for private pla yers and allowing f
oreign players to enter the market with some limits on direct foreign ownership.
Though, the existing rule says that a foreign partner can hold 26% equity in a
n insurance company, a proposal to inc rease this limit to 49% is pending with t
he governme nt. Since opening up of the insurance sector in 1999, foreign invest
ments of Rs. 8.7 billion have poured into the Indian market and 21 private compa
nies have been granted licenses. Innovative products, smart marketing, and aggre
ssive distribution ha ve e nabled fledgling private insurance companies to sign
up Indian c ustomers faster than anyone expected. Indians, who had a lways seen
life insurance as a tax saving device, are now suddenly turning to the private s
ector and snapping up the new innovative products on offer. The life insurance i
ndustry in India grew b y an impressive 36%, with premium income from new busine
ss at Rs. 253.43 billion during the fiscal year 2004-2005, braving stiff competi
tion from private insurers. This report,  Indian Insurance Industry: New Avenues
for Growth 2012 , finds that the market share of the state behemoth, LIC, has cl

21.87% growth in business at Rs.197.86 billion by selling 2.4 billion new polici
e s in 36 2004-05. But this was still not enough to arrest the fall in its marke
t share, as private players grew by 129% to mop up Rs. 55.57 billion in 2004-05
from Rs. 24.29 billion in 2003-04. Though the total volume of LICs bu siness in
creased in the last fiscal year (2004-2005) compared to the previous one, its ma
rket share came down from 87.04 to 78.07%. The 14 private insurers increased the
ir market share from about 13% to about 22% in a ye ars time. The figures for t
he first two months of the fiscal year 2005-06 also speak of the growing share o
f the private insurers. The share of LIC for this period has further come down t
o 75 percent, while the private players have grabbed over 24 percent. There are
presently 12 general insurance companies with four public sector companies and e
ight private insurers. According to estimates, private insurance companies colle
ctively have a 10% share of the non-life insurance market. Though the focus of t
his market researc h re port is on the pote ntial growth on the Indian Insurance
Sector, it also talks about the market size, market segme ntation, and key de v
elopments in the market after 1999. 37 CHAPTER 2 RESEARCH METHODOLOGY 38 RESEARC
H OBJECTIVES: 1. To compare the performance of LIC and private insurance compani
es in India. 2. To find out the performances of LIC and private insurance compan
ies in each category (size. growth, productivity a nd efficie ncy) 3. To compare
grievance management of LIC and private insurance companies. RESEARCH DESIGN :
a. Type of research design : Analytical Research b. Data collection : Secondary
Sources c. Statistica l T ools : Ratio Ana lysis Bar Graph RESEARCH PROCESS In t
his research my research objective was to compa re the pe rformance of LIC and P
rivate insuranc e companies. For this purpose I decided the four broad categorie
s under which I have compared the LIC and Private insurance companies. These are
: 1. Size 2. Growth 3. Productivity 4. Grie vance Handling Under these Broad Cat
egories I have analyzed 13 factors which are: 1. Size

Total Premium Total Income Size of Balance Sheet Total number of Policies Total
number of Branches 2. Growth Growth in Premium Growth in Income 39 Growth in num
ber of Policies Growth in Market share 3. Produ ctivity Business per Branch Inco
me per Branch New Premium per Branch 4. Grie vance Handling I have used the Se c
ondary data of last five financial years. I ha ve collected data from the variou
s balance sheet of LIC and other private insurance companies, web sites and in s
ome cases I personally met some emplo yees of some insurance companies. I tried
to find out most of the information required to compare the LIC and private insu
rance companies. In Analysis I have found all the required data and on the basis
of performance ga ve the rank to LIC and Private Insurance Companies on each fa
ctor and then points. Now these Points have been multiplied with the we ightage
of that factor. And then after the a nalysis of each factor a consolidated point
tab le has been prepared to know that which sector is performing better than ot
her. The Weightage for different categories are: Factors Weightage Size 25% A. T
otal Premium 5% B. Total Income 5% C. Balance Sheet Size 5% D. Total No. of Poli
cies 5% E. Total No. of Branches 5% Growth 40% A. First Premium 10% B. Growth in
Income 10%

C. Increase in No. of Policies 10% D. Growth in Market Share 10% Productivity 15

% A. Business per Branch 5% B. Income Per Branch 5% C. First Premium per Branch
Grievance Handling 20% 40
LIMITATIONS: 1. Could reach to a limited number of documents of different insura
nce companies in regard to the management and other policies and resultant figur
es so as to identify the exact cause of their lag in performance. 2. Due to th e
limited time could not study all the insurance companies original documents ind
ividually. 3. Non-Proficiency in technical aspects of insurance companies might
have hindered the best analysis of the findings. SIGNIFICANCE OF THE STUDY: The
Detailed Study has been done with the purpose of finding out the relative share
of LIC and Private Insurance in India. It is useful for the people associated wi
th the Insurance Industry and the research associates related to the Insurance S
ector in India. This study will acquaint them with the data of all the banks com
plied at one place along with the findings, conclusion and recommendations. 41 C
ores) FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08 63533 75127 90792 127822 1497
89 LIC 3120 7727 15083 28253 51561 Private Insurers TOTAL 66653 82854 105875 156
075 201350 PREMIUM OF LIC 149789 160000 127822 140000 120000 90792 100000 80000
63533 75127

60000 40000 20000 0 FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08 PREMIUM OF PVT
INSURERS 60000 51561 50000 40000 28253 30000 20000 15083 7727 10000 3120 0 FY 03
-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08 43 points after multiplying by Avg. Pre
mium weightage ( In Crore s) Rank points (7.5%) LIC 101412.20 1 1 7.5 Private In
surance Co. 21148.80 2 0.5 3.75 Average premium of LIC is much more than that of
all insurance companies altogether. LIC s avera ge premium of the last five ye a
rs is nearly five time s the average premium of the all other private insurance
companies. It can be said that up to that time their were less number of private
players in the fie ld of insurance but then also undoubtedly LIC is the king. (
B) TOTAL INCOME : (Rs. In crores) FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08 9
3089 112393 132147 174425 206363 LIC 4323 9049 18863 24242 52648 Private Insurer
s TOTAL 97412 121442 151010 198667 259011 INCOME OF LIC 250000 206363 200000 174
425 132147 150000 93089 112393 100000 50000 0 FY 03-04 FY 04-05 FY 05-06 FY 06-0
7 FY 07-08

44 INCOME OF PVT INSURERS 60000 51561 50000 40000 30000 24242 18863 20000 9049 1
0000 4323 0 FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08 points after multiplyin
g by Avg. Income weightage ( In Crores) Rank points (7.5%) LIC 143683.40 1 1 7.5
Private Insurance Co. 21825.00 2 0.5 3.75 All over income of LIC is much more t
han than of private players. It is due to the fact that LIC being a government a
gency is being trusted by lot of companies and has large number of shares in big
corporates. 45 (C) SIZE OF BALANCE SHEET : (Rs. In crores) FY 03-04 FY 04-05 FY
05-06 FY 06-07 FY 07-08 346022 416910 531390 625956 776904 LIC 6585 13653 28910
53048 100774 Private Insurers TOTAL 352607 430563 560300 679004 877678 BALANCE
SHEET SIZE OF LIC 1000000 776904 800000 625956 531390 600000 346022 416910 40000
0 200000 0 FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08 BALANCE SHEET SIZE OF PV
T INSURERS 120000 100774

100000 80000 53048 60000 40000 28910 20000 6585 13653 0 FY 03-04 FY 04-05 FY 0506 FY 06-07 FY 07-08 46 Avg. Balance Sheet points after Size multiplying by ( In
Crores) Rank points weightage (7.5%) LIC 539436.40 1 1 7.5 Private Insurance co
. 40594.00 2 0.5 3.75 Total average size of balance sheet of LIC in the last fiv
e years is certainly higher than that of private insurance companies. There is a
huge gap in this value. It is obvious that LIC has bigger balance sheet as bein
g working in the insurance field for quite large time. As compared to average ba
lance sheet size of 40,594 crores of private insurance companies, LIC s average b
alance sheet size goes to much high as that of 5,39,436.4 crores. (D) TOTAL NUMB
ER OF POLICIES : FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08 26968069 23978123
31590515 38229292 37612599 LIC 1658847 2233075 3871410 7922294 13261558 Private
Insurers TOTAL 28626916 26211198 35462117 46151586 50874157 47 TOTAL NUMBER OF P
OLICIES 60000000 50874157 50000000 46151586 40000000 35462117 LIC 28626916 30000
000 26211198 PVT.INSURERS INDUSTRY 20000000 10000000 0 FY 03-04 FY 04-05 FY 05-0
6 FY 06-07 FY 07-08 points after

multiplying by Avg. number of weightage policies Rank points (7.5%) LIC 31675670
1 1 7.5 Private Insurance Co. 5789437 2 0.5 3.75 LIC is an undoubted leader in
the field of average number of policies per year in the last five years. It is s
een that private insurance companies are gaining momentum and are trying to defe
at LIC in case of new insurances. Main reason behind LIC having such a large num
ber of policies is the trust of a common man. LIC being a government agency has
got a faith of indian mass. People are not yet prepared to give their savings in
the hands of private players. 48 (E) NUMBER OF BRANCHES : FY 03-04 FY 04-05 FY
05-06 FY 06-07 FY 07-08 2196 2197 2220 2301 2522 LIC 416 804 1645 3072 6391 P ri
vate Insurers TOTAL 2612 3001 3865 5373 8913 10000 8913 9000 8000 7000 6391 6000
5373 LIC 5000 PVT INSURERS 3865 4000 3072 INDUSTRY 2612 3001 3000 2196 2197 222
0 2301 2522 1645 2000 1000 416 804 0 FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-0
8 points after %growth in multiplying by number of weightage branches Rank point
s (7.5%)

LIC 14.8 2 0.5 3.75 Private Insurance Co. 1436 1 1 7.5 When the matter of total
number of branches comes its very much obvious that LIC, being the oldest existi
ng insurance company in India, has the large number of offices in the countryby
any single insurance company. Since the number of private insurance companies is
increasing, with continuous expansion in their business, now the number of bran
ches of all private players has crossed the number of branches of LIC. 49 2. GRO
WTH : o (A) FIRST PREMIUM : ( ) Rs. In crores FY 03-04 FY 04-05 FY 05-06 FY 1734
7 20653 28515 55934 59996 LIC 2440 5564 10270 19425 33715 Private Insurers TOTAL
19787 26217 38785 75359 FIRST PREMIUM OF LIC 70000 55934 59996 60000 50000 4000
0 28515 30000 17347 20653 20000 10000 0 FY 03-04 FY 04-05 FY 05-06 FY FIRST PREM
IUM OF PVT INSURERS 40000 33715 35000 30000 25000 19425 20000 15000 10270 10000
2440 5564 5000 0 FY 03-04 FY 04-05 FY 05-06 FY 50
06-07 FY 07-08
06-07 FY 07-08
06-07 FY 07-08

Growth in First points after Growth in Premium multiplying First Premium (in Abs
oute by (in Percentage Terms) (in weightage Terms) crores) Rank points (10%) LIC
245.85 42649 2 0.5 5 Private Insurance Co. 1281.76 31275 1 1 10 Though LIC has
attained more growth in absolute terms i.e. Rs.42649 crores but private players
being so less in number five years back has achieved a dream come true growth of
1281.76 % which is certainly a matter of pride for them. (B) GROWTH IN INCOME :
( ) Rs. In crores FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08 12101 19303 1975
4 42277 31988 LIC 2692 4725 9814 5379 28406 Private Insurers TOTAL 14793 24028 2
9568 47656 60394 % GROWTH IN INCOME : FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 0708 14.9 20.7 17.5 32 18.3 LIC 165 109.3 108.4 28.5 117 Private Insurers TOTAL 17
.8 24.6 24.3 31.5 30.3 51 180 165 160 140 117 109.3 108.4 120 100 LIC 80 PVT INS

28.5 17.8 24.6 24.3 31.5 30.3 18.3 14.9 20.7 17.5 20 0 FY 03-04 FY 04-05 FY 05-0
6 FY 06-07 FY 07-08 Growth in points after Growth in Income multiplying Income (
in Absoute by (in Percentage Terms) (in weightage Terms) crores) Rank points (10
%) LIC 164.34 19887 2 0.5 5 Private Insurance Co. 955.20 25714 1 1 10 Here LIC h
as neither attained more growth in absolute terms i.e. Rs.19887 crores as compar
ed to 25714 crores of private pla yers nor has got more growth in terms of perce
ntage.this shows that private players are doing great job in enhancing their bus
iness. (C) INCREASE IN NUMBER OF POLICIES : FY 03-04 FY 04-05 FY 05-06 FY 06-07
FY 07-08 1475992 -2989946 7632584 6638585 -616693 LIC 804696 574228 1638335 4050
884 5339264 Private Insurers TOTAL 2280688 9270919 10689469 4722571 2415718 52 %
INCREASE IN NUMBER OF POLICIES : FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08 5
.79 -11.09 31.75 21.01 -1.6 LIC 94.21 34.62 73.37 104.64 67.4 Private Insurers T
OTAL 8.6 -8.4 35.3 30.1 10.2 % GROWTH IN NO. OF POLICIES 120 104.64 100 94.21 80
73.37 67.4 LIC

60 PVT INSURERS 35.3 30.1 34.62 40 INDUSTRY 31.75 21.01 20 10.2 8.6 5.79 0 -1.6
FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08 -8.4 -11.09 -20 Growth in Growth in
points after number of number of multiplying policies policies by (in Percentag
e (in Absoute weightage Terms) Terms) Rank points (10%) LIC 39.47 10644530 2 0.5
5 Private Insurance Co. 699.44 11602711 1 1 10 Private players are doing extrem
ely well a s they a re increasing their customer base rapidly. 53
(D) MARKET SHARE : 26.1 FY 07-08 73.9 25.8 FY 06-07 74.2

26.5 PVT. INSURERS FY 05-06 73.5 LIC 21.2 FY 04-05 78.8 12.3 FY 03-04 87.7 0 20
40 60 80 100 LIC is still the market leader in insurance industry with 73.9 % sh
are. But we cannot forget that in last five years market share of LIC has decrea
sed. It was 87.7 % in year 2003-04 which came down to 73.9 % in 2007-08. 54 3. P
RODUCTIVITY : (A) BUSINESS PER BRANCH : (Rs. In crores) FY 03-04 FY 04-05 FY 0506 FY 06-07 FY 07-08 28.93 34.20 40.9 55.55 59.20 LIC 7.5 9.61 9.17 9.2 8.07 Pri
vate Insurers BUSINESS PER BRANCH 70 59.2 60 55.55 50 40.9 40 34.2 LIC 28.93 30
PVT INSURERS 20 7.5 9.61 9.17 9.2 8.07 10 0 FY 03-04 FY 04-05 FY 05-06 FY 06-07
FY 07-08 points after Av g. Business multiplying by Per Branch (In weightage cro
res) Rank points (5%) LIC 43.756 1 1 5 Private Insurance Co. 8.71 2 0.5 2.5 Avg
business per branch of LIC is much higher than that of whole private

insurance 55
(B) INCOME PER BRANCH : (Rs. In crores) FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 0
7-08 42.39 51.16 59.52 75.80 81.80 LIC 10.41 11.25 11.47 7.89 8.23 Private Insur
ers INCOME PER BRANCH 90 81.8 75.8 80 70 59.52 60 51.16 50 42.39 LIC 40 PVT INSU
RERS 30 20 10.41 11.25 11.47 7.89 8.23 10 0 FY 03-04 FY 04-05 FY 05-06 FY 06-07
FY 07-08 Avg. Income Per points after Branch (In multiplying by crores) Rank poi
nts weightage (5%) LIC 62.134 1 1 5 Private Insurance Co. 9.864 2 0.5 2.5 Averag
e income per branch of LIC is much more than that of private insurance companies
. Its almost six times the total value of all the private companies. 56 (C) NEW
PREMIUM PER BRANCH : ( crores) FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08
7.90 9.40 12.84 24.30 23.78 LIC 5.86 6.92 6.24 6.32 5.28 Private Insurers NEW P
REMIUM PER BRANCH 30 24.3 23.78

25 20 15 LIC 12.84 PVT INSURERS 9.4 10 7.9 5.86 6.92 6.24 6.32 5.28 5 0 FY 03-04
FY 04-05 FY 05-06 FY 06-07 FY 07-08 Avg. New Premium Per points after Branch (I
n multiplying by crores) Rank points weightage (5%) LIC 15.644 1 1 5 Private Ins
urance Co. 6.124 2 0.5 2.5 This value tells us about increase in the business of
an insurance compa ny in a period. Here we see that LIC is ahead of private ins
urance companies in case of increasing their business. 57 4. GRIEVANCE HANDLING
: TOTAL NUMBER OF GRIEVANCES : FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08 474
704 851 354 651 LIC 45 195 540 507 1406 Private Insurers NUMBER OF GRIEVANCES RE
SOLVED : FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08 39 123 215 313 80 LIC 26 8
3 216 450 1103 Private Insurers % OF GRIEVANCES RESOLVED : FY 03-04 FY 04-05 FY
05-06 FY 06-07 FY 07-08 8.2 17.5 25.3 88.4 12.2 LIC 57.7 42.6 40.0 88.7 78.4 Pri
vate Insurers 58 GRIEVANCES IN LIC 800 704 651

700 540 507 600 474 450 500 400 TOTAL 300 216 RESOLVED 200 123 80 39 100 0 FY 03
-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08 GRIEVANCES IN PVT. COMPANIES 1600 1406 1
400 1103 1200 1000 800 TOTAL 540 507 600 450 RESOLVED 400 216 195 200 45 26 83 0
FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08 % OF GRIEVANCES RESOLVED 100 88.4
88.7 90 78.4 80 70 57.7 60 50 LIC 42.6 40 40 PVT INSURERS 25.3 30 17.5 20

12.2 8.2 10 0 FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08 59 points after multi
plying by % Grievances weightage resolved Rank points (7.5%) LIC 25.37 2 0.5 3.7
5 Private Insurance Co. 69.70 1 1 7.5 Grievance Ha ndling is one of the major is
sues in any organization. It plays an important role in Insurance sector. People
do attract towards companies who handles their grievances. Here we see that pri
vate players are much ahead of LIC when the matter comes to grievance management
. In the last five years LIC has resolved only 25.37 % of cases brought in front
of them while the percentage of cases resolved in case of private players is 69
.7 % . This shows that private players are very serious about their image and ar
e working hard to provide the solution of the problems of the people as early as
possible. 60 TOTAL POINTS TABLE: Private Insurance Factors LIC Companies Size A
. Total Premium 7.5 3.75 7.5 3.75 B. Total Income 7.5 3.75 C. Balance Sheet Size
7.5 3.75 D. Total No. of Policies 3.75 7.5 E. Total No. of Branches Growth A. F
irst Premium 5 10 5 10 B. Growth in Income C. Increase in No. of Policies 5 10 D
. Market Share 10 5 Productivity 5 2.5 A. Business per Branch

5 2.5 B. Income Per Branch C. First Premium per Branch 5 2.5 Grievance Handling
3.75 7.5 Total Score 77.75 72.75 61 CHAPTER 4 FINDINGS & CONCLUSIONS 62 FINDINGS
& CONCLUSIONS: LIC is the giant of the insurance sector. The overall size of LI
C is much more than that of all private insurance companies. Private insurers ar
e in expansion mode and are increasing their size but are still much behind LIC.
Total premium deposits in LIC is much higher than the private insurance compani
es. Total premium of LIC in FY 07-08 was 149789 crores which three time s more t
han that of private insurance companies. Income of LIC is much greater than priv
ate insurance companies. Last year total income fro m investments of LIC was 482
44.14 crores which was nearly equal to the total income of the all private insur
ance companies. By this we can imagine how big the LIC is. Size of balance sheet
of private insurance companies are lagging much behind LIC. Balance sheet of LI
C is se ven times bigger than that of private insurance companies. If we see the
total number of policies issued by LIC and private insurance companies, we find
that there is a huge gap between them. No doubt that LIC is a well established
player in the field of insurance and many private companies have just started th
e ir business. Hence it is obvious that LIC is having large number of policyhold
e rs. Number of branches of private insurance companies is increasing as the new
players are entering in this market. Also the established players are in expans
ion phase and hence are expanding there business. There are ma ny private insura
nce companies and hence there tota l number of branches has gone past LIC in the
la st fina nc ia l year. But offices of private insurance companies are mostly
in urban are as and still it is LIC which covers most of the area. Hence we see
that LIC is leading when it comes to size. It is giant in insurance sector havin
g huge network and customer base.

We see that due to excellent service quality and attractive offers private insur
ance compa nies have started getting a number of customers. They are growing rap
idly. Though LIC is also increasing its customer base but private insurance comp
anies are moving at a fast pace. Though the income of private insurance companie
s is negligible when compared with LIC but then also the pace with which they ar
e increasing their income is tremendous. Private insurance companies are expandi
ng their business and will c ertainly going to give a tough competition to LIC i
n the coming days. LIC is certa inly having a large customer base. Private insur
ance companies are not having that much numb er of customer base but they are in
creasing it rapidly. T he y have re gistered a decent growth of 104.64 % in numb
er of new policies in the year 2006-07. Last ye ar also their growth rate was 67
.4 %. 63 LIC, being the oldest pla yer in the existing insurance market, has the
biggest market share of 73.9 % whic h was 87.3% five years earlier. We see that
private insurance companies are penetrating in the customer base of LIC. Overal
l we can see that private insurance companies are giving a tough competition to
the LIC and will certainly create a good business for themselves in the coming d
ays. There are many new e ntrants in this sector. There are many private insuran
c e companies who have reported loss in this a nd previous years. This is the ma
in reason why private insurance companies la g behind LIC in case of business pe
r branch. There is a big differenc e betwe en them. Same is the case when it com
es to income pe r branch. LIC is much ahead of private insuranc e companies in t
his field. They are undoubted champions in insurance when it comes to profit ear
ning. New busine ss is increasingly going towards private insurance companies bu
t still the customer base of LIC is ver y strong. In issuing new policies per br
anch also, they are ahead of private insurance companies though not by very larg
e margin. Customer base of LIC is very strong and still business per branch, pro
fit per branch or premium per branch, they are leading much ahead of private ins
urance companies. LIC ha s not shown their good concern when the matter of griev
a nce handling comes. Private insurance companies are far ahead in this matter.
LIC has just resolved 25% cases in the last five years while private insurance c
ompanies have resolved nearly 70% cases. This is a matter from where customer sh
ift starts. We have seen the

rapid increase in customer base of private insurance companies which ca n be ver

y much affected b y this factor. Overall we have seen tha t still LIC is very fa
mous but private insurance companies are growing at exceptionally fast pace. Pri
vate companies show due concern in grievance management and brings innovative sc
hemes to attract the customers. Right now they are giving good competition to LI
C and very soon they will give very tough competition to Life Corporation of Ind
ia. 64 REFRENCES : Data on Indian Insurance from Differ
ent statistics from Journals published by Insurance Regula
tory & Development Authority. Ma nageme nt of financial institutions by R.M. Sri
nomictime Different Survey on Insurance sector conducted by IIRC. Profile
of Indian Insurance Companies by IRDA. www www.relianceli www.bajaja m/ http:
// 65