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Insurance sector in India is one of the booming sectors of the economy and is growing at the rate of 15-20 per cent annum. Together with banking services, it contributes to about 7 per cent to the country's GDP. Insurance is a federal subject in India and Insurance industry in India is governed by Insurance Act, 1938, the Life Insurance Corporation Act, 1956 and General Insurance Business (Nationalisation) Act, 1972, Insurance Regulatory and Development Authority (IRDA) Act, 1999 and other related Acts. The origin of life insurance in India can be traced back to 1818 with the establishment of the Oriental Life Insurance Company in Calcutta. It was conceived as a means to provide for English Widows. In those days a higher premium was charged for Indian lives than the non-Indian lives as Indian lives were considered riskier for coverage. The Bombay Mutual Life Insurance Society that started its business in 1870 was the first company to charge same premium for both Indian and non-Indian lives. In 1912, insurance regulation formally began with the passing of Life Insurance Companies Act and the Provident Fund Act. By 1938, there were 176 insurance companies in India. But a number of frauds during 1920s and 1930s tainted the image of insurance industry in India. In 1938, the first comprehensive legislation regarding insurance was introduced with the passing of Insurance Act of 1938 that provided strict State Control over insurance business. Insurance sector in India grew at a faster pace after independence. In 1956, Government of India brought together 245 Indian and foreign insurers and provident societies under one nationalised monopoly corporation and formed Life Insurance Corporation (LIC) by an Act of Parliament, viz. LIC Act, 1956, with a capital contribution of Rs.5 crore. The (non-life) insurance business/general insurance remained with the private sector till 1972. There were 107 private companies involved in the business of general operations and their operations were restricted to organised trade and industry in large cities. The General Insurance Business (Nationalisation) Act, 1972 nationalised the general insurance business in India with effect from January 1, 1973. The 107 private
insurance companies were amalgamated and grouped into four companies: National Insurance Company, New India Assurance Company, Oriental Insurance Company and United India Insurance Company. These were subsidiaries of the General Insurance Company (GIC). In 1993, the first step towards insurance sector reforms was initiated with the formation of Malhotra Committee, headed by former Finance Secretary and RBI Governor R.N. Malhotra. The committee was formed to evaluate the Indian insurance industry and recommend its future direction with the objective of complementing the reforms initiated in the financial sector.
INTRODUCTION OF INSURANCE INDUSTRY
Insurance in India can be traced back to the Vedas. For instance, yogakshema, the name of Life Insurance Corporation of India's corporate headquarters, is derived from the Rig Veda. The term suggests that a form of "community insurance" was prevalent around 1000 BC and practiced by the Aryans. Burial societies of the kind found in ancient Rome were formed in the Buddhist period to help families build houses, protect widows and children. Bombay Mutual Assurance Society, the first Indian life assurance society, was formed in 1870. Other companies like Oriental, Bharat and Empire of India were also set up in the 1870-90s. It was during the swadeshi movement in the early 20th century that insurance witnessed a big boom in India with several more companies being set up. As these companies grew, the government began to exercise control on them. The Insurance Act was passed in 1912, followed by a detailed and amended Insurance Act of 1938 that looked into investments, expenditure and management of these companies' funds. By the mid-1950s, there were around 170 insurance companies and 80 provident fund societies in the country's life insurance scene. However, in the absence of regulatory systems, scams and irregularities were almost a way of life at most of these companies. As a result, the government decided nationalizes the life assurance business in India. The Life Insurance Corporation of India was set up in 1956 to take over around 250 life companies.
Insurance Companies: IRDA has so far granted registration to 12 private life insurance companies and 9 general insurance companies. If the existing public sector insurance companies are included, there are currently 13 insurance companies in the life side and 13 companies operating in general insurance business. General Insurance Corporation has been approved as the "Indian reinsurer" for underwriting only reinsurance business. Particulars of the life insurance companies and general insurance companies including their web address is given below:
LIFE INSURERS Public Sector Life Insurance Corporation of India Private Sector Allianz Bajaj Life Insurance Company Limited Birla Sun-Life Insurance Company Limited HDFC Standard Life Insurance Co. Limited ICICI Prudential Life Insurance Co. Limited ING Vysya Life Insurance Company Limited Max New York Life Insurance Co. Limited MetLife Insurance Company Limited Om Kotak Mahindra Life Insurance Co. Ltd. SBI Life Insurance Company Limited TATA AIG Life Insurance Company Limited AMP Sanmar Assurance Company Limited Dabur CGU Life Insurance Co. Pvt. Limited
www.allianzbajaj.co.in www.birlasunlife.com www.hdfcinsurance.com www.iciciprulife.com www.ingvysayalife.com www.maxnewyorklife.com www.metlife.com www.omkotakmahnidra.com www.sbilife.co.in www.tata-aig.com www.ampsanmar.com www.avivaindia.com
GENERAL INSURERS Public Sector National Insurance Company Limited New India Assurance Company Limited Oriental Insurance Company Limited United India Insurance Company Limited Private Sector Bajaj Allianz General Insurance Co. Limited ICICI Lombard General Insurance Co. Ltd. IFFCO-Tokio General Insurance Co. Ltd. Reliance General Insurance Co. Limited Royal Sundaram Alliance Insurance Co. Ltd. TATA AIG General Insurance Co. Limited Cholamandalam General Insurance Co. Ltd. Export Credit Guarantee Corporation HDFC Chubb General Insurance Co. Ltd. REINSURER General Insurance Corporation of India www.gicindia.com www.bajajallianz.co.in www.icicilombard.com www.itgi.co.in www.ril.com www.royalsun.com www.tata-aig.com www.cholainsurance.com www.ecgcindia.com www.nationalinsuranceindia.com www.niacl.com www.orientalinsurance.nic.in www.uiic.co.in
BACKGROUND OF INSURANCE INDUSTRY
In India, insurance has a deep-rooted history. It finds mention in the writings of Manu ( Manusmrithi ), Yagnavalkya ( Dharmasastra ) and Kautilya ( Arthasastra ). The writings talk in terms of pooling of resources that could be re-distributed in
times of calamities such as fire, floods, epidemics and famine. This was probably a pre-cursor to modern day insurance. Ancient Indian history has preserved the earliest traces of insurance in the form of marine trade loans and carriers’ contracts. Insurance in India has evolved over time heavily drawing from other countries, England in particular. 1818 saw the advent of life insurance business in India with the establishment of the Oriental Life Insurance Company in Calcutta. This Company however failed in 1834. In 1829, the Madras Equitable had begun transacting life insurance business in the Madras Presidency. 1870 saw the enactment of the British Insurance Act and in the last three decades of the nineteenth century, the Bombay Mutual (1871), Oriental (1874) and Empire of India (1897) were started in the Bombay Residency. This era, however, was dominated by foreign insurance offices which did good business in India, namely Albert Life Assurance, Royal Insurance, Liverpool and London Globe Insurance and the Indian offices were up for hard competition from the foreign companies. In 1914, the Government of India started publishing returns of Insurance Companies in India. The Indian Life Assurance Companies Act, 1912 was the first statutory measure to regulate life business. In 1928, the Indian Insurance Companies Act was enacted to enable the Government to collect statistical information about both life and non-life business transacted in India by Indian and foreign insurers including provident insurance societies. In 1938, with a view to protecting the interest of the Insurance public, the earlier legislation was consolidated and amended by the Insurance Act, 1938 with comprehensive provisions for effective control over the activities of insurers. The Insurance Amendment Act of 1950 abolished Principal Agencies. However, there were a large number of insurance companies and the level of competition was high. There were also allegations of unfair trade practices. The Government of India, therefore, decided to nationalize insurance business. An Ordinance was issued on 19th January, 1956 nationalising the Life Insurance sector and Life Insurance Corporation came into existence in the same year. The LIC absorbed 154 Indian, 16 non-Indian insurers as also 75 provident societies— 245 Indian and foreign insurers in all. The LIC had monopoly till the late 90s when the Insurance sector was reopened to the private sector. The history of general insurance dates back to the Industrial Revolution in the west and the consequent growth of sea-faring trade and commerce in the 17th
century. It came to India as a legacy of British occupation. General Insurance in India has its roots in the establishment of Triton Insurance Company Ltd., in the year 1850 in Calcutta by the British. In 1907, the Indian Mercantile Insurance Ltd, was set up. This was the first company to transact all classes of general insurance business. 1957 saw the formation of the General Insurance Council, a wing of the Insurance Associaton of India. The General Insurance Council framed a code of conduct for ensuring fair conduct and sound business practices. In 1968, the Insurance Act was amended to regulate investments and set minimum solvency margins. The Tariff Advisory Committee was also set up then. In 1972 with the passing of the General Insurance Business (Nationalisation) Act, general insurance business was nationalized with effect from 1st January, 1973. 107 insurers were amalgamated and grouped into four companies, namely National Insurance Company Ltd., the New India Assurance Company Ltd., the Oriental Insurance Company Ltd and the United India Insurance Company Ltd. The General Insurance Corporation of India was incorporated as a company in 1971 and it commence business on January 1sst 1973. This millennium has seen insurance come a full circle in a journey extending to nearly 200 years. The process of re-opening of the sector had begun in the early 1990s and the last decade and more has seen it been opened up substantially. In 1993, the Government set up a committee under the chairmanship of RN Malhotra, former Governor of RBI, to propose recommendations for reforms in the insurance sector. The objective was to complement the reforms initiated in the financial sector. The committee submitted its report in 1994 wherein, among other things, it recommended that the private sector be permitted to enter the insurance industry. They stated that foreign companies be allowed to enter by floating Indian companies, preferably a joint venture with Indian partners.
A brief history of the Insurance sector
The business of life insurance in India in its existing form started in India in the year 1818 with the establishment of the Oriental Life Insurance Company in Calcutta. Some of the important milestones in the life insurance business in India are:
1912: The Indian Life Assurance Companies Act enacted as the first statute to regulate the life insurance business.
1928: The Indian Insurance Companies Act enacted to enable the government to collect statistical information about both life and non-life insurance businesses.
1938: Earlier legislation consolidated and amended to by the Insurance Act with the objective of protecting the interests of the insuring public. 1956: 245 Indian and foreign insurers and provident societies taken over by the central government and nationalised. LIC formed by an Act of Parliament, viz. LIC Act, 1956, with a capital contribution of Rs. 5 crore from the Government of India. The General insurance business in India, on the other hand, can trace its roots
to the Triton Insurance Company Ltd., the first general insurance company established in the year 1850 in Calcutta by the British.
Some of the important milestones in the general insurance business in India are:
1907: The Indian Mercantile Insurance Ltd. set up, the first company to transact all classes of general insurance business. 1957: General Insurance Council, a wing of the Insurance Association of India, frames a code of conduct for ensuring fair conduct and sound business practices.
1968: The Insurance Act amended to regulate investments and set minimum solvency margins and the Tariff Advisory Committee set up. 1972: The General Insurance Business (Nationalisation) Act, 1972 nationalised the general insurance business in India with effect from 1st January 1973.
107 insurers amalgamated and grouped into four companies viz. the National Insurance Company Ltd., the New India Assurance Company Ltd., the Oriental Insurance Company Ltd. and the United India Insurance Company Ltd. GIC incorporated as a company.
PRESENT SCENARIO OF INSURANCE INDUSTRY
India with about 200 million middle class household shows a huge untapped potential for players in the insurance industry. Saturation of markets in many developed economies has made the Indian market even more attractive for global insurance majors. The insurance sector in India has come to a position of very high potential and competitiveness in the market. Indians, have always seen life insurance as a tax saving device, are now suddenly turning to the private sector that are providing them new products and variety for their choice. Consumers remain the most important centre of the insurance sector. After the entry of the foreign players the industry is seeing a lot of competition and thus improvement of the customer service in the industry. Computerisation of operations and updating of technology has become imperative in the current scenario. Foreign players are bringing in international best practices in service through use of latest technologies The insurance agents still remain the main source through which insurance products are sold. The concept is very well established in the country like India but still the increasing use of other sources is imperative. At present the distribution channels that are available in the market are listed below. • • • • • Direct selling Corporate agents Group selling Brokers and cooperative societies Bancassurance
Customers have tremendous choice from a large variety of products from pure term (risk) insurance to unit-linked investment products. Customers are offered unbundled products with a variety of benefits as riders from which they can choose. More customers are buying products and services based on their true needs and not just traditional moneyback policies, which is not considered very appropriate for longterm protection and savings. There is lots of saving and investment plans in the
market. However, there are still some key new products yet to be introduced - e.g. health products. The rural consumer is now exhibiting an increasing propensity for insurance products. A research conducted exhibited that the rural consumers are willing to dole out anything between Rs.3,500 and Rs.2,900 as premium each year. In the insurance the awareness level for life insurance is the highest in rural India, but the consumers are also aware about motor, accidents and cattle insurance. In a study conducted by MART the results showed that nearly one third said that they had purchased some kind of insurance with the maximum penetration skewed in favor of life insurance. The study also pointed out the private companies have huge task to play in creating awareness and credibility among the rural populace. The perceived benefits of buying a life policy range from security of income bulk return in future, daughter's marriage, children's education and good return on savings, in that order, the study adds.
FEATURES OF INSURANCE INDUSTRY
Insurance Policy India provides the clients with the details required for the coverages in the policy, date of commencement of the policy and their adopting organizations. It plays a important role in the Indian insurance sector. The Insurance Policy India is regulated by certain acts like the Insurance Act (1938), the Life Insurance Corporation Act(1956), General Insurance Business Nationalization) Act(1972), Insurance Regulatory and Development Authority IRDA) Act(1999). The insurance policy determines the covers against risks, sometime opens investment options with insurance companies setting high returns and also informs about the tax benefits like the LIC in India. There are two types of insurance covers: 1. Life insurance 2. General insurance Life insurance – this sector deals with the risks and the accidents affecting the life of the customer. Alongside, this insurance policy also offers tax planning and investment returns. There are various types of life Insurance Policy India: a. Endowment Policy b. Whole Life Policy c. Term Life Policy d. Money-back Policy e. Joint Life Policy f. Group Insurance Policy General Insurance – this sector covers almost everything related to property, vehicle, cash, household goods, health and also one's liability towards others. The major segments covered under general Insurance Policy India are: a. Home Insurance b. Health Insurance c. Motor Insurance d. Travel Insurance
Some of the well known Insurance Policy India are:
Social Security Group Scheme – a scheme covering the age group of 18-60 years and an insurance of Rs.5000 for natural death and of Rs.25000 on due to accidental death. Shiksha Sahyog Yojana – a scheme providing an educational scholarship of Rs.300 per quarter per child is given for a period of four years. Jan Arogya Bima Policy – a scheme for the adults upto the age of 45 years is Rs. 70 and for children it is Rs. 50. The limit coverage is fixed at Rs.5000 per annum. Mediclaim Insurance Policy – a scheme covering the age group from 5-80 years with a tax benefit of up to Rs 10,000. Jana Shree Bima Yojana – this is a coverage of Rs 2,000 on natural death and Rs 50,000 for accidental death. The premium amount is fixed at Rs. 200 for single member. Videsh Yatra Mitra Policy – a scheme covering medical expenses during the period of overseas travel. Bhagya Shree Child Welfare Bima Yojana – a scheme covering one girl child in a family upto the age of 18 whose parents age does not exceed 60 years, with a premium of Rs.15 per annum. Raj Rajeshwari Mahila Kalyan Yojana – a scheme providing protection to woman in the age group of 10 to 75 years with an insurance of Rs. 25,000 and premium Rs.15 per annum. Ashray Bima Yojana – a scheme covering workers in case of loss of jobs. Personal Accident Insurance Scheme for Kissan Credit Card – a scheme covering all the KCC holders up to an age of 70 years. Insurance coverage includes 50,000 for accidental death and 25,000 for partial disability. The functions of Insurance can be bifurcated into two parts: 1. Primary Functions 2. Secondary Functions 3. Other Functions
The primary functions of insurance include the following:
Provide Protection - The primary function of insurance is to provide protection against future risk, accidents and uncertainty. Insurance cannot check the happening of the risk, but can certainly provide for the losses of risk. Insurance is actually a protection against economic loss, by sharing the risk with others. Collective bearing of risk - Insurance is a device to share the financial loss of few among many others. Insurance is a mean by which few losses are shared among larger number of people. All the insured contribute the premiums towards a fund and out of which the persons exposed to a particular risk is paid. Assessment of risk - Insurance determines the probable volume of risk by evaluating various factors that give rise to risk. Risk is the basis for determining the premium rate also. Provide Certainty - Insurance is a device, which helps to change from uncertainty to certainty. Insurance is device whereby the uncertain risks may be made more certain.
The secondary functions of insurance include the following:
Prevention of Losses - Insurance cautions individuals and businessmen to adopt suitable device to prevent unfortunate consequences of risk by observing safety instructions; installation of automatic sparkler or alarm systems, etc. Prevention of losses cause lesser payment to the assured by the insurer and this will encourage for more savings by way of premium. Reduced rate of premiums stimulate for more business and better protection to the insured. Small capital to cover larger risks - Insurance relieves the businessmen from security investments, by paying small amount of premium against larger risks and uncertainty. Contributes towards the development of larger industries - Insurance provides development opportunity to those larger industries having more risks in their setting up. Even the financial institutions may be prepared to give credit to sick industrial units which have insured their assets including plant and machinery.
The other functions of insurance include the following:
Means of savings and investment - Insurance serves as savings and investment, insurance is a compulsory way of savings and it restricts the unnecessary expenses by 14
the insured's For the purpose of availing income-tax exemptions also, people invest in insurance. Source of earning foreign exchange - Insurance is an international business. The country can earn foreign exchange by way of issue of marine insurance policies and various other ways. Risk Free trade - Insurance promotes exports insurance, which makes the foreign trade risk free with the help of different types of policies under marine insurance cover.
The insurance industry originated in India in the year 1818 with the formation of Life Insurance Corporation in Calcutta. The idea behind starting LIC was to provide insurance coverage for English widows and different premium was charged for the English and for the Indians. In 1870 Bombay Mutual Life Insurance Society established its Insurance business and the same premium was charged for both Indians and English. In 1912 the Insurance sector came under the purview of regulations when the government passed the Life Insurance Companies Act. But it was in the year 1938 when the government came up with the first legislation to bring the insurance sector under state control.
In 1956, the Government of India nationalized insurance companies bringing Indian Insurance sector under the purview of the Government. These state owned Insurance companies became highly inefficient and bureaucratic, had excess manpower and countless delay in settlement of claims but the nation did not have an alternative. Any effort by the government to privatize the industry met with stiff resistance from the trade unions.
Post Liberalization Policies regarding Insurance
Under the recommendation of Malhotra Committee the Insurance Regulatory And Development Authority was set up to monitor and control the Insurance industry Some of the initiatives taken by the government after Insurance sector reforms are:
Government to have not more than 50 per cent stake in insurance companies. Insurance sector to be opened up for private companies and any number of
insurance enterprises can operate.
Private players with minimum paid up capital of Rs.1 billion should be given
opportunity to do business.
Foreign companies can enter Indian market through joint ventures with Indian
The state controlled Insurance companies like LIC and GIC faced stiff competition from private insurance companies post reforms. The monopoly of the national Insurance companies came to an end. The private Insurance companies were able to exploit the shortcomings in the state run Insurance companies. The private insurance companies launched a variety of new insurance products like health care, pension plans, annuity plans, income protection, market linked products which were welcomed by the end customers. The business for the private sector boomed in both urban and rural sector alike.
FDI Policy Regarding Insurance Sector
THE Finance Minister, while presenting the first Budget of the UPA government, has proposed to raise the FDI cap in three sectors. Elaborating upon the decision he said, “The NCMP declares that FDI will continue to be encouraged and actively sought, particularly in areas of infrastructure, high technology and exports. Three sectors of the economy fully meet this description. They are telecommunications, civil aviation and insurance.” The specific proposal for the insurance sector is to raise the FDI cap from 26 to 49 per cent. We argue below that this move is unjustifiable on several grounds.
Bodies that regulate the sector:
For better regulation purpose of the insurance sector the government has established following bodies; 1. IRA: Insurance Regulatory Authority. 2. IRDA: Insurance Regulatory and Development Authority. 3. TAC: Tariff Advisory Committee. 1. IRA: INSURANCE REGULATORY AUTHORITY: The IRA, under the chairmanship of Rangachary, was set-up in January 1996. The IRA Bill has to be passed by parliament to make the IRA a statutory body. Comprehensive legislation aimed at reviewing the insurance Act of 1938 and repealing the life insurance corporation Act of 1956 have to be passed. The IRA is also preparing an internal rating system to screen all applications, as entry will be in phases. The joint venture status of life insurance companies (with
majority holding of the domestic partner) is likely to be approved by the parliament. Consensus also seems to be emerging on the minimum of Rs.1 bn capital stipulations for new insurance companies. The IRA has stipulated a minimum rural presence for all companies. The exhaustive guidelines have been issued for the appointment of intermediaries (brokers, agents, surveyors and actuaries). Feature of IRA: 1. The Bill allowed for up to 26% foreign equity participation in the insurance sector. 2. The current India monopoly companies were required to bring down their equity holding to 26% within a period of 10 years. Government pronouncement: 1. IRA will be sole Authority, which will be responsible for awarding of, licenses i.e. little or no government or political interference in licensing process. 2. No restriction on the number of licenses. 3. No composite license for life insurance business. 4. Licensing to be only on national basis (no city by city approach) 5. IRA allowed for up to 26% foreign equity participation in the life insurance sector. 6. The current Indian monopolies companies are required to bring down their equity holding to 26% within a period of 10 years. IRA proposals: 1. New player should start their business within 15-18 months. 2. Trafficking of licenses not to be permitted. 3. IRA to seek business plan with 5-year protection for all applicants. 4. A system of direct brokers to be introduced. 5. IRA to vet top management appointments.
2. IRDA: INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY:The Insurance Regulatory and Development Authority, constituted under the IRDA Act, 1999, provide for the establishment of an authority to protect the interest policyholders, to regulate, promote and ensure orderly growth of the life insurance industry. Business Requirement:A company will not be issued a license unless the IRDA is satisfied with the sound financial condition, the general character of management, the volume of business, the capital structure, earning prospects for the insurers and that the interests of the general public will be served if registration is granted to the insurer. Foreign insurance companies have been allowed to have a maximum 26% share holding. No life insurance company can be registered under the Act unless they have a paid up capital of Rs.100 crores. Every life insurer shall deposit with the reserve bank of India one percent of the total gross premium written in India in any financial year, not exceeding Rs.10 crores. This amount would not be susceptible to any assignment or charge nor would it be available for the discharge of any liabilities other than liabilities arising out of policies issued, so long as any such liabilities remain undercharged. Investment of Assets:Every insurer is required to invest, and keep invested, assets equivalent to not less than the net liabilities as follows: a. b. 25 % in government securities, a least 25% of the said sum in government securities or other
approved securities and c. the balance in any approved investment rated as “very stron” or
more by reputed rating agencies, which include various debt instruments on which dividend on its ordinary shared for the five years immediately preceding or for at least five out of the six or seven years immediately
preceding have been paid and which have priority in payment over ordinary shares of the company in winding up. The IRDA may in the interest of the policyholder’s directions relation the time, manner and other conditions and investments of assets to be held by an insurer. The IRDA may also direct the insurer to realize the investment, if it sees the investments to be unsuitable or undesirable. The Act prohibits an insurer from directly or indirectly investing policyholder funds outside India. Further, every insurer has to always maintain an excess of the value of his assets over the amount of his liabilities of not less than Rs. 50 crores in the case of an insurer carrying of life insurance business. If at any time an insurer does not maintain the required solvency margin, he is required to submit a financial plan, as per directions issued by the IRDA, indicating a plan of action to correct the deficiency within three months. In order to ensure that the company does not risk the money of the policyholder’s, the Act provides that an insurer who does not comply with the aforesaid provisions may be deemed to be insolvent and may be would up by the court. Insurers are required to get an actuary to investigate the financial conditions of the life insurance business including a valuation of liabilities every year in order to ensure continual compliance In order to maintain transparency in its dealings, insurers would have to keep separate account relating to funds of shareholders and policyholders.
3. TARIFF ADVISORY COMMITTEE:
The tariff advisory committee established under the Act is empowered to control and regulate the rates, terms, and etc. that may be offered by insurers in respect of any risk or of any category of risks. It is provided that in fixing, amending or modifying such rates etc. the committee shall try to ensure as far as possible that there is no unfair discrimination between risk of essentially the same hazard and also that consideration is given to past and prospective loss experience. Every insurer is required to make payment to the TAC of the prescribed annual fees.
TAX POLICY AND INSURANCE SECTOR: Another factor, which affects the insurance sector, is the tax policy. The tax reforms in India are such that it encourages the citizens to invest in the insurance sector. The tax policy of the government is particular relevant for life insurance which is a long-term contract and inculcates among the policyholders the habit of saving. Taxation of returns on investment influences, investment decisions and high rates of taxation will discourage the desire to save. Already in India there are complaints that the rates of return on life policies are not what they could be. Therefore tax incentives play a vital role in determining the attractiveness of such policies. Such tax breaks are available in many countries and have helped in the development of their life sector. In western countries the gain from the proceeds of a life insurance policy is paid free of tax. Provided the policy satisfies certain qualifying conditions. Non-qualifying policies get basic rate tax relief, though higher rate taxpayers may still have to pay tax on the gain, although at a reduced rate. The insurance companies can use such tax concessions rate. The insurance companies can use such tax concessions to design products for different categories of taxpayers. The other factors, which affect the insurance sector, are the employment law, and government stability. These are the factors, which affect the insurance industry
KEY SUCCESS FACTORS
In order to succeed in any of the business it is very necessary to make and follow the strategies. Strategies are very important for any of the business. Following are the general strategies, which are recommending to the insurance sector. One approach is to focus upon product quality, which will instill confidence in minds of the customers that they would be offered best product from out of the several available products. The other approach, is to focus on the customers need, would involve a heavy investment in developing relationships with policyholders. Under this approach, one can expect a range of products and services designed to give the customer what he specially desires. The third approach is of greater market segmentation under which the population should be divided into several homogeneous groups and product, and services would be targeted towards such selected markets. The effort would be to “tie” clients to their company- by customized combination of coverage, easy payment plan, risk management advice, and convenient quick claim handling. Porter Generic Strategies: One of the expert Michel porters has identified three internally consistent generic strategies, which can be used singly or in combination: overall cost leadership is clearly under stable. In a differentiation strategy, a company seeks to be unique in its industry along some dimensions that are widely valuable by the customer. May be the lowest cycle time for settling a claim under say, a med claim policy could be differentiating factor. In a cost focus, a company seeks a cost advantage in its target segment, while in differentiation focus; a company seeks a differentiation target. Marginal Different Product: Another strategy would be for the companies to design products that will make comparison-shopping difficult. They could offer a wide variety of covers with marginal differences and varying prices, whose terms and conditions are difficult to compare for consumers who may not have sufficient experience in purchasing insurance and who would find it difficult to make a clear choice. If the consumer is offered a unique policy, he will have no alternative coverage with which can be
compared. Given the combination policy, which can offer protection against a number of losses, the consumer will find comparison even more difficult. Designing New Strategies:
The existing insurance companies cannot be satisfied with concentrating on the consolidation of their existing markets, but have to achieve further growth and penetration. They must, therefore, concentrating on strengthening existing points of service, designing new channel of distribution, direct contact with their ultimate customers, and front line employee empowerment. They also need to refresh their marketing set up. The new comers, on the other hand give priority to tapping the market, left unexploited by the public sector companies. Move towards Rural Market: It is one of the most important suggestions; data says that rural market is still uncovered by this sector. We believe that the sector should move towards tie rural market. Insurance penetration can be achieved by tapping the neglected Rural Markets. There is vast potential for insurance growth in the rural sector. A recent survey by foundation for research, training and Education in insurance (FORTE) suggests that insurance can be sold profitably to rural communities in India. The survey reveals that • • There is distinct hierarchy of needs in rural areas. Rural people find security in groups the saving habit is very strong in rural areas. • Average saving across the most important socio-economic strata comes to 3035% of annual income or Rs.13,500 annually, which is significant. • There is high level of awareness about life insurance and fairly high-level about 36% already own life insurance. • • 51% of these who own life insurance would like to buy more. Amongst the savers, a significant percentage does not save through formal financial modes or institutions.
Rural buyers of insurance prefer a half yearly mode of premium payment to coincide with the time of the harvest. Thus there are very much chances for any of the companies to work over this scenario. So we believe and suggest all the players to move towards the rural areas.
Motivation of sales force:
A life insurance company should constantly be involved in the process of motivating the sales force in the turbulent times. The following strategies are recommending; Building relationship is real perk. One should be sure to build in networking times for agents during the program-in addition to entertainment and education. Web should be frequently used for creating gift ideas. Hold sales contests in the forth quarter. It is the best times ti motivates agents who wants to qualify for a trip. Consider a contrast within the contest ‘for- top-tier producers; additional rewards for additional milestones that are met, such as air and guest room upgrades.
Use of Internet:
The present scenario is such that the products sold with the help of Internet. The technological advancement is such that force the companies to take such steps. Still the full-fledged use of Internet is not done in our country. As suggestion earlier the Internet based life insurance will help the companies to reduce the transaction cost and time. At the time it can improve the quality of service to its customers, which is the mission of the company.
Political Factors Affecting Life Insurance Industry:
Within India political ambitions and rise of communalism, fissiparous tendencies are on the rise and may well continue for quite some time to time. Therefore, it expected that the insurance companies might consider offering political risk coverage also. The only area where Indian insurers consider giving cover is with regard to customs duty change under certain conditions. Certain type of political risk at the international level has serious implications for exporters. The term ‘political risk’ has a wider connotation than commonly understood or assumed. It covers events arising not just from politics, but risks in the course of international transactions. In this connection, it may be noted that export credit insurance has evolved out of uncertainties relating to international trade, particularly due to problems arising out of foreign legal jurisdiction, political changes and currency exchange difficulties faced by many developing countries.
Economical Factors Affecting Life Insurance Industry
Interest rate at bank and interest rate of P.F variation very much affect to life insurance industry, because people always attract by higher return. Therefore, they do not prefer lower return policy. Unemployment also affects insurance industry, because the unemployment people will not have earning, so saving also affect to life insurance sector Life insurance industry will directly affected by Earthquake, Monsoon, and Natural calamity. Because of these events turns into lots of death, so the life insurance companies have to pay claim against policy. Infant mortality rate and maternity mortality rate are also affecting to life insurance. Typical Indian want luxurious product against low income, so that they prefer installment or annuity (EMI), so that they may not have extra saving to invest in life insurance.
Socio-Cultural FACTORS affecting Life Insurance Industry:
The basic social factors that affect the life insurance sector are as under: Population Life style
Educational level Level of earning Societal benefits These are the major social factors, which
affect the life insurance sector. We will discuss all of them in brief. Population: Growth in the population is a major factor pushing up the demand. It is also going to exert a special influence on the life insurance market in other ways. Apart from exerting pressure on demand for goods and services, and through that, ill effects of uncontrolled growth of population also could spur the growth of demand. For example, overcrowding in public places of entertainment, public support, or too many vehicles on the road can result in hazards like stampedes and pollution, which require covers and still are not sold on a large scale today. Thus the positive as well as the negative aspects of population growth are going to spur demand. Life style: The peculiar lifestyle of a country or an age also influences the insurance business. Change therein produces different demands for life insurance. For e.g. All over the world, family size is shrinking and the fact that in decades to come, both presents are more frequently likely to work outside the home will mean that there could be a greater possibility of property loss. Similarly, a larger number of vehicleson the roads for people commuting to their jobs or business would mean larger incidence of accidents. This will increase the demand for life insurance products. Of course, there is also the other possibility that wherever it is possible, some people will try to spend a part of their time working at home either because they would like to be with their families or because they find it more convenient. Activities like life insurance and financial services are particularly well suited for such arrangements. In recent times, there has been a surge in the high end business of the LIC. For instance, as against 90 policies each worth more than Rs 10 million in 1999-2000, the number was as high as 900 policies in the next year. Or again, the number of jeevan shri policies jumped from 88,000 to a total of 2,33,000 policies in the same period. 26
Level of education: India is one of the developing countries: the level of education is very low here. The literacy rate is very poor. More than 50% of the population is still uneducated or more or less not educated. Thus the people are not able to understand the concept of the life insurance. Among the educated people the quality of the education is still a big question mark. Thus the awareness is not created and it has become a big challenge for the industry. Thus one of the factors, which affect the life insurance sector, is low level of education. Level of earning: Another factor, which affects the life insurance sector, is the level of earning. In India the rule of 80-20 is working. The 80% of the total population is having the 20% of the wealth and the 20% of the total population is having 80% of total wealth. Thus the richer are richer and poorer are poorer. Due to this the life insurance sector is affected very much. Societal benefits: In view of the fact that large sections of India have inadequate life insurance cover, an important social responsibility of the government relates to spreading it far and wide. In addition, the government attempts to extent life insurance with certain social obligations in view in both urban and the rural areas through such means special schemes for the weaker sections, and by tilting of the life insurance companies’ investments in favour of social developments. The social changes emerging in the country provide opportunities for insurers to sell financial services products such as family health care programmed, retirement plans disability insurance, long-term care for senior citizens and different employee benefit plans The population in the age group 15-55 is usually regarded as the insurable population, since this can be considered as the main “active” age group ( in the sense of working, earning. And supporting others), and beyond this range life risk may be considered to be not worth insuring.
There is one opinion, which suggests that in our country the age group 15-55 as the base is not totally suitable. Due to various factors including the unemployment problem, real earning starts from around the age of 25 for salaried persons. For others, particularly small entrepreneurs, traders and businessman, the starting age is a little higher. Only in the affluent sector of society life insurance can be taken before personal earning starts. Thus, number wise life insurance below the age of 25 is not so significant (although amount wise it need not be so). On the other hand, people over the age of 50 rarely apply for fresh life insurance, mainly because in India the normal retirement age is around 60 years. Also, a high percentage of the population in the lower income group does not remain “insurable” after the age of 50. thus, in our country the practical age range for insurable population actually narrows down to 25 to 50.
Technological Factors Affecting Life Insurance Industry:
Internet as an intermediary in the current Indian market customer is not aware about the intrinsic value of insurance. He thinks of insurance only in the mount of March as a tax saving measure. The security provide by an insurance cover is rarely thought about. In such a scenario Internet can be an effective medium for educating the consumers about insurance. It serves as a single window for disseminating product, process and procedural information to the consumers. Product development and target marketing through the Internet: with increase in the number of insurance companies there will be a need for market segmentation and subsequently product designed for each of them. In such a scenario Internet can be a effective channel for pushing product specific information to a particular market segment. Consumer feedback about a particular product as well as suggestions for different types or covers can also be generated through the Internet. Maintaining the database The most important facto that is affecting the insurance industry is the marinating the database of the customers. The insurance industry having a huge list of the customers. In order to maintain it in manual format it is really the work of stupidity. With the change in time the computers has taken the work of this things. Thus with the development of the technology it has becoming possible to maintain such huge 28
database very easily. A person can switch over to the computer and get the details of the customer very easily. Thus maintaining the database has really become easy due to the development in technology. E-business insurance in India: The Internet has played a vital role in transforming the business of the 21 st century. Computers are now being used extensively for creating a storing data, information with the help of complex and sophisticated technological tools in every kind of business. This change having been widely accepted, the advantages are numerous such as fast processing improved. Efficiency, cost reduction among several other benefits. However, with every positive change, there is an evil attached and technology is no exception. In technical is an evil attached and technology is no exception. In technical terms, increased sophistications of technology brings with it, an increased factor of risk involved. The risk can be of various attributes, for example, the risk of data being lost due to a virus attack, the theft of important and confidential information and so on, which ultimately results in losses for the business entity. With this change in the business process, insurers have to devise new methods for assessing, underwriting and servicing claims for the so-called e-business insurance. Insurers face challenges to ascertain risks, in order to quantify them because such risks don’t have any past data, which makes it all the more difficult for actuaries. Moreover, what financial impact a particular risk can have is very difficult to be determined. For example, if some hackers obtain credit card information of few customers, it’s a loss for banks, their credibility, customers and also their brand. Will an insurance policy cover all of this is million dollars question hence; the difficulty is to design a cover first of all, which really answers the needs of customers. But even after designing and pricing such products with difficulty, the challenge to underwrite and handle claims for such policies remains existent.
Top 10 Players in Insurance Companies in India Life Insurance Corporation of India
Life Insurance Corporation (LIC) came into existence on 1st September 1956 through the amalgamation of 154 Indian insurance companies, 16 non-Indian companies and 75 provident. The amalgamation was achieved with the help of Life Insurance Act passed by the Parliament in the same year. The LIC was created with the goal of reaching all the insurable people in the country and providing them financial coverage at a reasonable price. In the year 1956, LIC had 5 zonal offices, 33 divisional offices and 212 branch offices. With time there was a need for a branch office at every district headquarter and many branches were opened, which raised the pace of the organization. LIC now has 2048 fully computerized branch offices, 100 divisional offices, 7 zonal offices and the corporate office. At present, online premium collection facility is being offered in selected cities as LIC has tied up with some banks and service providers. For providing customer satisfaction the organization has introduced various schemes such as ECS, ATM premium payment facility, IVRS, Info centers which are set up in various cities including Mumbai, Bangalore, Chennai, Kolkata, New Delhi, Pune and many more. It has also come up with SATELLITE SAMPARK offices providing easy access to policyholders. LIC has crossed many milestones and set standards for itself fostering unmatched performance. Objectives
Holding the money with obligation and using it in the best possible manner in the interests of the policyholder and the community.
Bringing attractive savings plans and making them easily accessible to the policyholders.
Giving attractive returns to the people and keeping in mind national priorities. Being trustworthy to the customers and develop the spirit of corporate social responsibility. 30
Bajaj Allianz General Insurance Company Limited
Bajaj Allianz General Insurance Company Limited is a joint venture between Bajaj Auto Limited and Allianz AG of Germany. Bajaj Allianz General Insurance came into existence on 2nd May 2001, when it got certification of Registration from the Insurance and Regulatory Development Authority. Bajaj Auto has a share of 74%, whereas Allianz has the remaining 26%. In the very first year, the company made a strong position for itself in the industry and was reckoned amongst the top private insurers. The premium income of the company as on 31st March 2006 was Rs. 1285 crores, whereas the profit after tax made was Rs. 52 crores. Bajaj Allianz has a Pan India network covering over 100 towns from Jammu to Thiruvananthapuram and aims to spread its operations in many other cities. The vision of the organization is to be the first choice for customers, and provide job satisfaction to the employees and create shareholder value. The organization strives to excel in its products and services, providing total customer satisfaction. Bajaj Allianz serves customers in all areas of General and Health Insurance as well as Risk Management. It has in-depth knowledge of the local market and extensive distribution network with expertise, stability and experience. It has a capital base of Rs.147 crores, and is allowed to serve both the General and Health insurance. It has achieved iAAA rating, by ICRA Limited and has the highest claimspaying ability and a stable position in the market. In a 2006 survey, Business World has rated it among the Most Respected Companies, putting it at No.2 position in Insurance sector. The Company provides the following products under general insurance:
• • • •
Travel Insurance Asset Insurance Health Insurance Corporate Insurance
ICICI Prudential Life Insurance Company
ICICI Prudential is a joint venture between ICICI bank and Prudential plc, both having strong operations in their respective countries. ICICI bank is one of the leading banks in India providing quality financial services and Prudential is an international financial service provider headquartered at United Kingdom. ICICI and Prudential have respective shares of 74% and 26%. The Company started operating in December 2000. Currently, total capital with the company is Rs. 18.15 billion. ICICI Prudential was the first insurance company in India to receive a National Insurer Financial Strength rating of AAA (Ind.) from Fitch ratings. It has been given the honour of being among the Most Trusted Brands in the industry by Economic Times for 3 consecutive years. It has a network of 450 branches, over 1,50,000 insurance advisors and 18 banc assurance partners. As the organization grows and develops, it keeps introducing new range of products and services and enhancing the quality of plans and solutions given to the customers. The distribution network is one of the best, and is spreading across the length and breadth of the country. As on December 31, 2006, it had made imprints in over 360 cities and towns in India. It has over 1,75,000 advisors across the country, serving clients with full commitment. It has tied up with ICICI Bank, Bank of India, Federal Bank, Lord Krishna Bank, some co-operative banks, NGOs, MFIs and corporates for making inroads into the rural areas.
ICICI Lombard General Insurance About the various player of life insurance sector:
ICICI Lombard General Insurance Company Limited is a joint venture between ICICI Bank Limited and Fairfax Financial Holdings Limited. ICICI bank is India's second largest bank; Fairfax is Canada-based, engaged in general insurance, reinsurance, insurance claims management and investment management. ICICI Lombard General Insurance Company commenced its operations in general insurance business in August 2001. ICICI Lombard is India's number one private insurance company; it is also the first general insurance company to be given certification of ISO 9001:2000. The
company provides simple and fast documentation, fast claims settlement, online policy issuance, and comprehensive product line. It has also been given iAAA rating by ICRA for having highest claims paying ability. In the very first year of operations, it was able to reach financial breakeven and achieve underwriting breakeven in the second year. Security is provided through encryption and it is the first company to provide digitally signed documents. It has been honored as the most Customer Responsive Company by the Economic Times. Times of India has designated it as the Best Housing Insurance in the Smart Living Awards by 360 degrees. It has also been awarded Gold Shield for "Excellence in Financial Reporting". It is among the top three companies to be awarded the "General Insurance Company of the Year" at the 10th Asia Insurance Industry Awards.
Birla Sun Life Insurance Company Limited
Birla Sun Life Insurance Company Limited (BSLI) is a joint venture between Aditya Birla Group and Sun Life Financial Inc. BSLI started functioning in March 2001 after getting the certificate of registration from IRDA. Birla Sun Life Insurance Company Limited introduced unit Linked Life Insurance Solutions in India. Within a short span of time it was able to establish itself as a leading player in the Private Life Insurance Industry. It has been innovative and come up with customer-centric products to provide safety and services. The company has web-enabled IT systems for better customer services and a strong distribution channel which is easily approachable. The company shows corporate governance and a high degree of transparency in all business practices. It has professional knowledge and global expertise of Aditya Birla Group. Birla Sunlife Insurance has been providing first class financial solutions to its customers and has been amongst the top three private sector life insurance companies. Its mission is to be amongst the top players in the eyes of customers and the first choice of insurance and retirement solutions to individuals and groups. These innovative solutions are linked with global and technical expertise and are deployed by a multi channel distribution network and enhanced technology. The company aims at keeping all people associated with it - customers, clients, stakeholders and employees- happy and fully satisfied. It wants to provide value
added products and services to the customers, job satisfaction to employees and highest returns to the shareholders. Qualities like integrity, commitment, passion, and speed are the core values of the company. The products offered by the company are:
TATA AIG General Insurance
Tata AIG General Insurance Company Ltd. is a joint venture between Tata Sons and American International Group, Inc. (AIG). The Tata Group is holding 74 per cent stake and the rest 26 percent is held by AIG. The company has got the expertise, knowledge and strength of both the organizations. Tata AIG General Insurance Company was founded on January 22, 2001. It offers general insurance in various categories, such as automobile, home, personal accident, travel, energy, marine, property and casualty and specialized financial solutions. Jamsetji Tata founded Tata Group in 1860s. It has an estimated turnover of around US $ 14.25 billion. It has spread its operations in various fields such as steel, power, hotels, airlines, software services, communications, etc. Some of its major projects have been Tata Tea, Tata Steel, Tata Chemicals, Titan, Tanishq, Voltas, Westside and Tata Motors. Its imprints are made on the telecommunication and technology sector. Regarding telecommunications, it is the largest international long distance service provider. Approximately two- third of the equity of Tata Sons is held by a host of national institutions in science and technology, medical services and performing arts. By combining the ethical values with business acumen and fulfilling its commitment to the nation, it has become one of the largest groups in India. American International Group, Inc. (AIG) is the leading international player in insurance and financial services. Its network spreads across 130 nations. AIG member companies serve all types of customers, be it commercial or individual. AIG is among the leading insurers and the largest underwriter of insurance. Aircraft leasing, financial products and trading are some of the services offered by AIG. AIG has a global expertise of fulfilling the customer-centric needs. It has specialized investment management capabilities in equities, fixed income, alternative investments and real estate. AIG's stock has been listed in the New York Stock Exchange as well as stock exchanges in London, Paris, Switzerland and Tokyo. 34
The organization caters to individuals, small businesses and corporates. Individual plans include motor, home, accident & health and travel insurance, whereas corporate plans include accident & health, travel, energy, property, marine and liability plans.
New India Assurance Company
Sir Dorab Tata founded New India Assurance Company on 23rd July 1919. It has 1068 offices comprising of 26 regional offices, 393 divisional offices and 648 branches with more than 21,000 employees.It is one of the largest Non- Life insurers in Afro- Asia and the first one to cross Rs. 5,000 crores of Gross Premium. It has a global network expanding in countries like Japan, U.K., Middle East, Fiji and Australia. Its international operations started in 1920 and have spread across 24 countries having a network of 19 branches, 12 agencies, 2 associate companies and 2 subsidiary companies. The company contributes 80% of total overseas premium in India.The company has a highly qualified staff, which excel in both expertise and knowledge and are trained to provide satisfaction to the customers. It is the only company able to establish strong relationships overseas and has a record of successful trading outside India. The performance has been outstanding and the company has been able to maintain a strong position in the market. It has been the pioneer in various fields such as:
• • • • • •
Setting up an Aviation Insurance Department in 1946. Handling the complete insurance requirements of the Indian Shipping Fleet. Introduced its own Training School. Pioneering the concept of 'Model Office Training'. Creating department in Engineering insurance. Satellite insurance. The company wants to develop itself as the best general insurance company in
the industry. It is concerned about the society and community, and provides financial security at reasonable prices. The company gives utmost importance to customer needs and there is transparency in its operations. Some of the policies and schemes introduced by the company are:
• • • • •
Public Liability Policy Jewellers Block Policy Pravasi Bharatiya Bima Yojana Policy Universal Health Insurance Scheme Fire Policy
IFFCO Tokio General Insurance
IFFCO Tokio General Insurance is a customer-centric company aiming to be easily accessible and approachable to all sections of society. It offers products and services that provide quality at reasonable cost. The organization has the deep knowledge of IFFCO and thus developed a business plan that has both stability and integrity.
It has set global standards for itself and is the only private general insurance company in India to make 5 consecutive years of experience. ITGI has been one of the few companies to show underwriting profits within four years of operations. The company focuses on delivering creative solutions to its customers. IFFCO Tokio General Insurance has 273 employees present in 68 cities, dedicated to give full satisfaction to the customers. It is the first company to underwrite mega policies for a fertilizer and automobile client.
The Oriental Insurance Company Ltd.
The Oriental Insurance Company Ltd. (OICL) is one of the general insurance companies under the support of the General Insurance Corporation (GIC) of India. It came into existence in the year 1947 and is one of the oldest organizations in India. It caters to all sections and sectors ranging from MNCs to rural sector. The headquarters of the company are situated at Delhi and it has 21 Regional Offices, 311 Divisional Offices and 635 Branch offices. It has a team of hard working employees, having the talent to take the company to new heights. Also the company shows concern for both the employees and customers. It provides special covers for large projects like power plants, steel plants and chemical plants.
It believes in actively participating in economic growth by being a dynamic organization catering to the society with full commitment and efficiency. The main objectives of the company are to serve the insurance needs of the entire community, provide services at reasonable cost, make optimum utilization of the funds, maintaining global standards, minimization of losses and retention of business.
HDFC Standard Life Insurance Company Limited
HDFC Standard Life Insurance Company Limited is one of the first companies to be licensed by IRDA to operate in the Insurance sector. The company came into existence on 14th August 2000. Both Crisil and ICRA have honored it with AAA Ratings. Similarly Moody's and Standard and Poors have also honoured it AAA ratings. HDFC holds 81.4% share in HDFC and the remaining 18.6% stake is with Standard Life. It integrates the strong expertise and stability of Standard Life and HDFC.
It is one of the most trusted companies; it is easily accessible and approachable, offering value services to its customers. The company aims to provide:
• • • • • •
Innovative products to cater to different needs of different customers Customer service of the highest order Use of technology to improve service standards Value for money for customers Increasing market share Professionalism in carrying out business The values ingrained in the company are to provide financial security to
policyholders, maintain trust and keep innovating to establish it as a unique player.
Insurance Regulatory and Development Authority (IRDA):
Reforms in the Insurance sector were initiated with the passage of the IRDA Bill in Parliament in December 1999. The IRDA since its incorporation as a statutory body in April 2000 has fastidiously stuck to its schedule of framing regulations and registering the private sector insurance companies. The other decisions taken simultaneously to provide the supporting systems to the insurance sector and in particular the life insurance companies were the launch of the IRDA’s online service for issue and renewal of licenses to agents. The approval of institutions for imparting training to agents has also ensured that the insurance companies would have a trained workforce of insurance agents in place to sell their products, 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 12 life insurance and 6 general insurance companies have been registered.
Duties, Power and Functions of IRDA:
Section 14 of IRDA Act, 1999 lays down the duties, powers and functions of IRDA. 1. Subject to the provisions of this Act and any other law for the time being in force, the Authority shall have the duty to regulate, promote and ensure orderly growth of the insurance business and re-insurance business. 2. Without prejudice to the generality of the provisions contained in sub section. The powers and functions of the Authority shall include a) Issue to the applicant a certificate of registration, renew, modify,
withdraw, suspend or cancel such registration; b) Protection of the interests of the policy holders in matters concerning
assigning of policy, nomination by policy holders, insurable interest, settlement of insurance claim, surrender value of policy and other terms and conditions of contracts of insurance;.
Specifying requisite qualifications, code of conduct and practical
training for intermediary or insurance intermediaries and agents. d) e) f) Specifying the code of conduct for surveyors and loss assessors. Promoting efficiency in the conduct of insurance business Promoting and regulating professional organizations connected with
the insurance and re-insurance business. g) Act. h) Calling for information from, undertaking inspection of, conducting Levying fees and other charges for carrying out the purposes of this
enquiries and investigations including audit of the insurers, intermediaries, insurance intermediaries and other organizations connected with the insurance business; Insurance Regulatory and Development Authority (IRDA) Act: The Insurance Regulatory and Development Authority Act was introduced to end the monopoly of State-owned companies and to invest in the Insurance Regulatory Authority power to control the insurance sector. These powers inter aria are: Imposition of prudential norms such as solvency margins, capital adequacy; Requirements and investment guidelines for insurance companies; Grant of licenses to new companies, and cancellation, suspension and withdrawal of licenses given to insurance companies; Regulation of fund investment by insurance companies; Maintenance of solvency margins; Adjudication of disputes between insurers and intermediaries; and Tariff fixing. As per the section 4 of IRDA Act' 1999, Insurance Regulatory and Development Authority (IRDA, which was constituted by an act of parliament) specify the composition of Authority the Authority is a ten member team consisting of a. A Chairman; 39
b. Five whole-time members; c. Four part-time members, (All appointed by the Government of India)
The IRDA Bill lies down that the Indian promoter must dilute the stake in the private insurance firms from 74 per cent to 26 per cent in ten years. The bill stipulates tough solvency margins -- Rs 500 million for life insurance firms, Rs 500 million or a sum equivalent to 20 per cent of net premium income for general insurance and Rs 1 billion for reinsurance business. The insurer has to maintain separate accounts relating to fund of shareholders and policyholders. The funds of policyholders should be retained within the country but does not cover repatriation of profits and dividends. Insurance companies under the new regime will have to have exposure to rural and social sectors. Foreign investment in insurance, the bill states, is crucial to financing infrastructure and better insurance cover. The key to success in opening up the insurance sector in India is regulation. An example of how poor regulation can destroy a market is the mutual fund industry. A combination of improper marketing practice has resulted in a loss of investor faith in that industry. Incidentally, the insurance industry in India itself has gone through the same phase. One of the reasons for nationalization of the insurance industry (LIC in 1956 and GIC in 1973) was the mismanagement and malpractice of erstwhile private players. But if the statements of IRA officials are anything to go by, the new regulations are expected to be on the right track. N I Rangachary, chairman, IRA, has already provided the timetable for the changes once the Bill is passed. The IRA has already indicated that it will have tough norms for new participants. This is the most compelling reason why private sector (and foreign) companies, which will spread the insurance habit in the societal and consumer interest, are urgently required in this vital sector of the economy. With the nation's infrastructure in a state of imminent collapse, India couldn't have afforded to be lumbered with sub-optimally performing monopoly insurance companies and therefore the passage of the Insurance Regulatory & Development
Authority Bill on December 2, 1999 heralds an era of cautious optimism where stakes are high for all parties concerned. For the Govt. of India, Foreign Direct Investment (FDI) must pour in as anticipated; for foreign insurers, investments must start yielding returns and for the domestic insurance industry - their market penetration should remain intact. On the fringe, the customer is pondering whether all the hype created on liberalization will actually benefit him.
The Insurance Act should be changed An Insurance Regulatory body should be set up Controller of Insurance (Currently a part from the Finance Ministry) should be made independent
• 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 than 5% in any company
(There current holdings to be brought down to this level over a period of time)
Tax policy and Insurance Sector:
Another factor, which affects the insurance sector, is the tax policy. The tax reforms in India are such that it encourages the citizens to invest in the insurance sector. The tax policy of the government is particular relevant for life insurance which is a long-term contract and inculcates among the policyholders the habit of saving. Taxation of returns on investment influences, investment decisions and high rates of taxation will discourage the desire to save. Already in India there are complaints that the rates of return on life policies are not what they could be. Therefore tax incentives play a vital role in determining the attractiveness of such policies. Such tax breaks are available in many countries and have helped in the development of their life sector. In western countries the gain from the proceeds of a life insurance policy is paid free of tax. Provided the policy satisfies certain qualifying conditions. Non-qualifying policies get basic rate tax relief, though higher rate taxpayers may still have to pay tax on the gain, although at a reduced rate. The insurance companies can use such tax concessions rate. The insurance companies can use such tax concessions to design products for different categories of taxpayers. The other factors, which affect the insurance sector, are the employment law, and government stability. These are the factors, which affect the insurance industry
Tariff Advisory Committee:
The tariff advisory committee established under the Act is empowered to control and regulate the rates, terms, and etc. that may be offered by insurers in respect of any risk or of any category of risks. It is provided that in fixing, amending or modifying such rates etc. the committee shall try to ensure as far as possible that there is no unfair discrimination between risk of essentially the same hazard and also that consideration is given to past and prospective loss experience. Every insurer is required to make payment to the TAC of the prescribed annual fees.
Life insurance not plays an important role in national economy but also in international economy. Marine cargo insurance provides risk coverage for shippers and the banks, which finance international trades. This role becomes all the more important in the context of an active government policy to encourage exports. Indian life insurer operates in more than 30 countries through agencies, branches, associates companies. These operations earn foreign exchange. The insurance business is concerned with North America, Western Europe, Japan and Oceania. Together these region’s accounts for about 91 % of the world annul remium. By region’s North America and western Europe are growing moderately while oceanic, Latin America, eastern Europe and Africa display growth above lone –term trends to a global context globalization of life insurance helps companies practices underwriting discipline in one regions globalization of the insurance industry received a big boost.
Countries United Kingdom Japan United States South Africa Australia South Korea India China Malaysia Indonesia Brazil
Insurance Density (Per Insurance Penetration Capita Premiums in (premium as a% of GDP) USD) 12.71 8.70 4.48 14.04 6.04 9.89 1.77 1.12 2.13 0.54 0.36 3028.5 3165.1 1611.4 392.9 1193.5 935.6 7.6 9.5 86.4 4.0 12.9
India and the World Market:
Unfortunately, the progress achieved by the life insurance industry in India, it compares unfavorably not just with the developed countries. But also even with the developing world. The global market for the life insurance is estimated to be around $ 1412.3 billions.
PORTERS FIVE-FORCE ANALYSIS
Porters fives forces model is an excellent model to use to analyse a particular environment of an industry. So for example, if we were entering the PC industry, we would use porters model to help us find out about: 1. Competitive Rivalry 2. Power of suppliers 3. Power of buyers 4. Threats of substitutes 5. Threat of new entrants. The above five main factors are key factors that influence industry performance, hence it is common sense and practical to find out about these factors before you enter the industry. Lets look at them below.
A starting point to analysing the industry is to look at competitive rivalry. If entry to an industry is easy then competitive rivalry will likely to be high. If it is easy for customers to move to substitute products for example from coke to water then again rivalry will be high. Generally competitive rivalry will be high if: • • • • There is little differentiation between the products sold between customers. Competitors are approximately the same size of each other. If the competitors all have similar strategies. It is costly to leave the industry hence they fight to just stay in ( exit barriers)
Power of suppliers
Suppliers are also essential for the success of an organisation. Raw materials are needed to complete the finish product of the organisation. Suppliers do have power. This power comes from: • If they are the only supplier or one of few suppliers who supply that particular raw material.
If it costly for the organisation to move from one supplier to another (known also as switching cost).
If there is no other substitute for their product.
Power of buyers
Buyers or customers can exert influence and control over an industry in certain circumstances. This happens when: • There is little differentiation over the product and substitutes can be found easily. • • Customers are sensitive to price. Switching to another product is not costly.
Threat of substitutes
Are there alternative products that customers can purchase over your product that offer the same benefit for the same or less price? The threat of substitute is high when: • • • Price of that substitute product falls. It is easy for consumers to switch from one substitute product to another. Buyers are willing to substitute.
Threat of new entrant
The threat of a new organisation entering the industry is high when it is easy for an organisation to enter the industry i.e. entry barriers are low. An organisation will look at how loyal customers are to existing products, how quickly they can achieve economy of scales, would they have access to suppliers, would
Government legislation prevents them or encourages them to enter the industry. Legislation prevents them or encourages them to enter the industry.
PORTERS FIVE-FORCE OF INSURANCE INDUSTRY
• • There is cut thought competitions among rivals in life insurance industry There are mainly 13 private organizations and 1 public organization in life insurance competition • Insurance companies deal in identical policies as service levels offered are similar • Ministry of finance controls all the insurance companies that are in the industry at present hence there are less chance of exit.
Power of suppliers:
Policy designer tend to have less leverage to Brgain over premium Insurance is tax exempted so that suppliers bargaining power increases Solvency of private players is not certain
Threat of Substitutes :
Customers deposits in their amount in to bank & post deposits & purchase gold & silver Investment in government securities Money market investment Capital market investment
Power of buyer :
Market is highly segmented Insurance industry very return oriented and switches easily High switching cost creates buyers lock in and makes a buyers bargaining power Exercise bargaining leverage over premium
Threat of new entrants:
• • Life insurance industry entry barriers is moderate The Indian market is highly brand oriented .so it is difficult to introduce new brand • • • The acceptability of new brand is also very low Economies of scale is difficult to find in the initial stage of entry in to market Special permission is required from the government to enter in the insurance sector
MARKET SHARE OF INSURANCE INDUSTRY
Life Insurance Industry grows 49 per cent in April
New Delhi: The life insurance industry clocked 49 per cent growth in new businesses, while general insurance players saw 16 per cent increase in April, the first month of the current financial year. Strong performance by Life Insurance Corporation, ICICI Prudential and SBI Life helped the 16 player-strong life insurance industry to mop up Rs 2,982 crore in April this year compared with Rs 1,996 crore collected in the same month last year, according to data compiled by the Insurance Regulatory and Development Authority. The country’s largest life insurer, LIC, saw new premiums grow 57 per cent to Rs 2,134 crore in April by selling 15,89,684 policies against Rs 1,355 crore a year ago. It had a market share of 71.56 per cent in April. Insurers ICICI Prudential Bajaj Allianz SBI Life HDFC Standard Max New York Life Tata AIG 51 Premium (Rs cr) 271.00 124.00 90.00 70.00 69.00 48.00
Aviva Reliance Life Birla Sunlife Kotak Mahindra Old Mutual ING Vysya Met Life Shriram Life Sahara Life Bharti Axa Life
39.00 33.00 28.00 26.00 22.00 19.00 4.50 1.70 0.72
LIC LIC (Life Insurance Corporation of India) still remains the largest life insurance company accounting for 64% market share. Its share, however, has dropped from 74% a year before, mainly owing to entry of private players with innovative products and better sales force. ICICI Prudential Life Insurance Co Ltd ICICI Prudential Life Insurance Co Ltd is the biggest private life insurance company in India. It experienced growth of 58% in new business premium, accounting for increase in market share to 8.93% in 2007-08 from 6.97% in 2006-07. Bajaj Allianz Life Insurance Co Ltd Bajaj Allianz Life Insurance Co Ltd has reported a growth of 52% and its market share went up to 6.98% in 2007-08 form 5.66% in 2006-07. The company ranked second (after LIC) in number of policies sold in 2007-08, with total market share of 7.36%. SBI Life Insurance Co Ltd SBI Life Insurance Co Ltd in terms of new number of policies sold, the company ranked 6th in 2007-08. New premium collection for the company was Rs 4,792.66 crore in 2007-08, an increase of 87% over last year. Reliance Life Insurance Co Ltd
Reliance Life Insurance Co Ltd Total collected was Rs 2,792.76 crore and its market share went up to 2.96% from 1.23% a year back. It now ranks 5th in new business premium and 4th in number of new policies sold in 2007-08. HDFC Standard Life Insurance Co Ltd HDFC Standard Life Insurance Co Ltd with an income of Rs 2,680 crore in FY2007-08, registering a year-on-year growth of 64%. Its market share is 2.88% and it ranks 6 th among the insurance companies and 5th amongst the private players. Birla Sun Life Insurance Co Ltd Birla Sun Life Insurance Co Ltd market share of the company increased from 1.22% to 2.11% in 2007-08. The company moved to the 7th position in 2007-08 from 8the a year before, pushing down Max New York Life insurance company. Max New York Life Insurance Co Ltd Max New York Life Insurance Co Ltd has reported growth of 73% in 200708. Total new business generated was Rs 641.83 crore as against Rs 387.51 crore. The company was pushed down to the 8th position from 7th in 2007-08. Kotak Mahindra Old Mutual Life Insurance Ltd Kotak Mahindra Old Mutual Life Insurance Ltd the fiscal 2007-08, the company reported growth of 80%, moving from the 11th position to 9th. It captured a market share of 1.19% in 2007-08. Last year the company doubled its branch network to 150 from 74. Aviva Life Insurance Company India Ltd Aviva Life Insurance Company India Ltd ranking dropped to 10th in 2007-08 from 9th last year. It has presence in more than 3,000 locations across India via 221 branches and close to 40 banc assurance partnerships. Aviva Life Insurance plans to increase its capital base by Rs 344 crore. With the fresh investment, total paid-up capital of the insurer would go up to Rs 1,348.8 crore. Current Market Share of LIFE INSURANCE COMPANIES LIC still remains the largest life insurance company accounting for 64% market share. Mainly owing to entry of private players with innovative products and better sales force.
Bajaj Allianz Life Insurance Co Ltd has reported a growth of 52% and its market share went up to 6.98% in 2007-08. The company ranked second (after LIC) in number of policies sold in 2007-08, with total market share of 7.36%. ICICI Prudential Life Insurance Co Ltd is the biggest private life insurance company in India. Accounting for increase in market share to 8.93% in 2007-08. SBI Life Insurance Co Ltd in terms of new number of policies sold, the company ranked 6th in 2007-08. New premium collection for the company was Rs.4,792.66 crore in 2007-08, an increase of 87% over last year. Reliance Life Insurance Co Ltd Total collected was Rs.2,792.76 crore and its MARKET SHARE went up to 2.96% from 1.23% a year back. HDFC Standard Life Insurance Co Ltd with an income of Rs.2,680 crore in FY2007-08, registering a year-on-year growth of 64%. Its MARKET SHARE is 2.88% and it ranks 6th among the insurance companies and 5th amongst the private players. Birla Sun Life Insurance Co Ltd market share of the company increased from 1.22% to 2.11% in 2007-08. The company moved to the 7th position in 2007-08 from 8the a year before. Max New York Life Insurance Co Ltd has reported growth of 73% in 200708. Total new business generated was Rs.641.83 crore as against Rs.387.51 crore. The company was pushed down to the 8th position from 7th in 2007-08. Kotak Mahindra Old Mutual Life Insurance Ltd the fiscal 2007-08, the company reported growth of 80%, moving from the 11th position to 9th. It captured a market share of 1.19% in 2007-08. Aviva Life Insurance Company India Ltd ranking dropped to 10th in 2007-08 from 9th last year. It has presence in more than 3,000 locations across India via 221 branches and close to 40 bancassurance partnerships. Aviva Life Insurance plans to increase its capital base by Rs.344 crore. With the fresh investment, total paid-up capital of the insurer would go up to Rs.1,348.8 crore.
• • • • • Risk protection is provided by this sector only. Insurance having currently good market. Tax exemption. The variety of products is increasing. Insurance to build close relationship with customers.
• • • • Unable to convenience the people about the products. Insurance companies instability Limited working capital Products or services similar to competitors.
• • • • Technology is improving paperless transaction are available. Busy life, customer need flexible and customizable policies. Like mobile banking mobile insurance could be a hit. New innovations in technology-measuring weather variables.
• • • Weather cycles. New substitute product emerging. Increasing expenses and lower profit margins with hard on the smaller agencies and insurance companies. • Government regulations on issues like health care terrorism can quickly change the direction on insurance.
Insurance sector in India is one of the booming sectors of the economy and is growing at the rate of 15-20 per cent annum. One of the key service industry in India would be health and education Insurance sector in India grew at a faster pace after independence. In 1956, Government of India brought together 245 Indian and foreign insurers and provident societies under one nationalised monopoly corporation and formed Life Insurance Corporation (LIC) by an Act of Parliament, viz. LIC Act, 1956, with a capital contribution of Rs.5 crore. The (non-life) insurance business/general insurance remained with the private sector till 1972. There were 107 private companies involved in the business of general operations and their operations were restricted to organised trade and industry in large cities. The insurance sector in India has come to a position of very high potential and competitiveness in the market. Indians, have always seen life insurance as a tax saving device.