CHAPTER 1 INTRODUCTION TO INSURANCE INDUSTRY

Humans have always sought security. This quest for security was an important motivating force in the earliest formations of families, tribes, and other groups. The groups have been the primary source of both emotional and physical security since the beginning of humankind. Humans today continue their quest to achieve security and reduce uncertainty. We still rely on groups for financial stability. With industrialization our physical and economic security has diminished. Mankind is exposed to many serious hazards, which cause stoppage of income. The biggest worry any human being has is the economic worry. He is always thinking of tomorrow and the days to come and he will be planning to meet the demands of his family, his business and that of his own needs. The economic worries may arise due to stoppage of income. Our income dependent, wealth- acquiring lifestyle renders us and our families more vulnerable to environmental and social changes over which we have no control. There may be accidents, sickness disability, or due to premature death of the breadwinner. It is impossible to prevent such calamities. But it is always possible to provide against the loss of income that may result out of such these perils with the help of the insurance.

1.1 INSURANCE IN INDIA
Insurance in India started without any regulation in the Nineteenth Century. It was a typical story of a colonial era: a few British insurance companies dominating the market serving mostly large urban centers. After the independence, it took a dramatic turn. Insurance was nationalized. First, the life insurance companies were nationalized in 1956, and then the general insurance business was nationalized in 1972. Only in 1999 private insurance companies have been allowed back into the business of insurance with a maximum of 26% of foreign holding. In what follows, is described how and why of regulation and deregulation. The entry of the State Bank of India with its proposal of bank assurance brings a new dynamics in the game. The collective experience of the other countries in Asia already deregulated their markets and have allowed foreign companies to participate is studied. If the experience of the other countries is any guide, the dominance of the Life

Insurance Corporation( LIC) and the General Insurance Corporation(GIC) is not going to disappear any time soon.

1.2 WHAT IS INSURANCE?
Insurance may be described as a social device to reduce or eliminate risk of loss to life and property. Under the plan of insurance, a large number of people associate themselves by sharing risks attached to individuals. The risks which can be insured against include fire, the perils of sea, death and accidents and burglary. Any risk contingent upon these, may be insured against at a premium commensurate with the risk involved. Thus collective bearing of risk is insurance.  Definition General definition: In the words of John Magee, “Insurance is a plan by which large number of people associate themselves and transfer to the shoulders of all, risks that attach to individuals.” Fundamental definition: In the words of D.S. Hansell, “Insurance may be defined as a social device providing financial compensation for the effects of misfortune, the payment being made from the accumulated contributions of all parties participating in the scheme.” Contractual definition: In the words of justice Tindall, “Insurance is a contract in which a sum of money is paid to the assured as consideration of insurer’s incurring the risk of paying a large sum upon a given contingency.”

 Insurance = Collective Bearing Of Risk
Insurance is nothing but a system of spreading the risk of one onto the shoulders of many. While it becomes somewhat impossible for a man to bear by himself 100% loss to his own property or interest arising out of an unforeseen contingency, insurance is a method or process which distributes the burden of the loss on a number of persons within the group formed for this particular purpose. Insurance is the science of spreading of the risk. It is the system of spreading the losses of an Individual over a group of Individuals. Insurance is a method of sharing of financial losses of a few from a common fund formed out of Contribution of the many who are equally exposed to the same loss. What is uncertainty for an Individual becomes a certainty for a Group. This is the basis of All Insurance Operations. Basic Human trait is to be averse to the idea of risk taking. Insurance, whether life or non-life, provides people with a reasonable degree of security and assurance that they will be protected in the event of a calamity or failure of any sort. Thus insurance convert uncertainties to certainty.

Insurance in its pure form is a social good and in a number of cases can be classified as a public good (that is, it generates desirable externalities). Insurance companies, mutual and cooperatives enable individuals and firms to protect themselves against infrequent but extreme losses at a cost which is small compared to the feared loss. They do this through the workings of the law of large numbers and the central limit theorem which ensure that a sufficiently large number of reasonably homogenous risks will produce well behaved and highly predictable aggregate results. Insurance by its nature is an intangible good, involving payment in advance for an unknowable quality of delivery in the future. Thus trust is a critical element, and public good classes such as health, disability and work place injury or illness have to date often been delivered through state entities. However, most classes of insurance are usually delivered through private markets and insurance regulation tends to reflect solvency concerns and information asymmetry between suppliers and policyholders: many countries have explicit reference to insurance contracts in their civil codes and specialized laws including specific provisions for retail (B to C) markets. As fiscal pressures mount there is an increasing trend to entrust more social good classes, such as workman’s compensation and annuities, to the private sector and this adds to the pressure for effective market conduct and prudential regimes. Thus, in India insurance is generally considered as a tax-saving device instead of its other implied long term financial benefits. Indian people are prone to investing in properties and gold followed by bank deposits. They selectively invest in shares also but the percentage is very small. Even to this day, Life Insurance Corporation of India dominates Indian insurance sector. With the entry of private sector players backed by foreign expertise, Indian insurance market has become more vibrant.

CHAPTER 2 HISTORICAL PERSPECTIVE
2.1 A PEEP INTO THE INSURANCE
The story of insurance is probably as old as the story of mankind. The same instinct that prompts modern businessmen today to secure themselves against loss and disaster existed in primitive men also. They too sought to avert the evil consequences of fire and flood and loss of life and were willing to make some sort of sacrifice in order to achieve security. Though the concept of insurance is largely a development of the recent past, particularly after the industrial era – past few centuries – yet its beginnings date back almost 6000 years. The insurance sector in India has come a full circle from being an open competitive market to nationalisation and back to a liberalized market again. Tracing the developments in the Indian insurance sector reveals the 360-degree turn witnessed over a period of almost two centuries.  Milestones In The Life Insurance Business In India The history of life insurance in India dates back to 1818 when it was conceived as a means to provide for English Widows. Interestingly in those days a higher premium was charged for Indian lives than the non-Indian lives as Indian lives were considered more risky for coverage. The Bombay Mutual Life Insurance Society started its business in 1870. It was the first company to charge same premium for both Indian and non-Indian lives. The Oriental Assurance Company was established in 1880.Till the end of nineteenth century insurance business was almost entirely in the hands of overseas companies. Chronology 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.

. the first general insurance company established in the year 1850 in Calcutta by the British.  Milestones In The General Insurance Business In India The General insurance business in India. the National Insurance Company Ltd. 1957: General Insurance Council. LIC formed by an Act of Parliament. 1956. with a capital contribution of Rs. on the other hand.. Chronology 1907: The Indian Mercantile Insurance Ltd. 5 crore from the Government of India. set up.1938: Earlier legislation consolidated and amended to by the Insurance Act with the objective of protecting the interests of the insuring public. a wing of the Insurance Association of India. the New India Assurance Company Ltd. can trace its roots to the Triton Insurance Company Ltd. and the United India Insurance Company Ltd. 1972 nationalized the general insurance business in India with effect from 1st January 1973. These were subsidiaries of the General Insurance Company (GIC). viz.107 insurers amalgamated and grouped into four companies viz. 1968: The Insurance Act amended to regulate investments and set minimum solvency margins and the Tariff Advisory Committee set up.. frames a code of conduct for ensuring fair conduct and sound business practices. the first company to transact all classes of general insurance business. 1972: The General Insurance Business (Nationalisation) Act. . the Oriental Insurance Company Ltd. LIC Act. The General Insurance Corporation of India was incorporated as a company in 1971 and it commence business on January 1st 1973. 1956: 245 Indian and foreign insurers and provident societies taken over by the central government and nationalised.

There are now 29 insurance companies operating in the Indian market – 14 private life insurers. The deepening of the health database over time will also allow players to develop and price products for larger segments of society. the insurance industry in India today stands at a crossroads as competition intensifies and companies prepare survival strategies in a detariffed scenario. the private players are active in the liberalized environment. are opportunities in the pensions sector where regulations are being framed.There. and as it matures and new players enter. product innovation and enhancement will increase. The health insurance sector has tremendous growth potential. With many more joint ventures in the offing. For years now. through life and disability and standard property risks (fire. burglary. There is pressure from both within the country and outside on the Government to increase the Foreign Direct Investment (FDI) limit from the current 26% to 49%. and become the backstop for significant sections of the banking and shadow banking sectors. The IRDA has issued the first licence for a standalone health company in the country as many more players wait to enter. Most of the private insurance companies have formed joint venture partnering well recognized foreign players across the globe.CHAPTER 3 PRESENT SCENARIO OF INSURANCE INDUSTRY Today the insurance sector is a major global industry covering a huge range of risks ranging from natural disasters and environmental hazard. The insurance sector was opened up for private participation four years ago. . Less than 10 % of Indians above the age of 60 receive pensions. The insurance market have witnessed dynamic changes which includes presence of a fairly large number of insurers both life and non-life segment. In the latter case the sector has developed overlaps with. which would help JV partners to bring in funds for expansion. and so forth) to various types of liability under tort and civil codes to protecting the balance sheets of credit granting institutions. explosion. nine private non-life insurers and six public sector companies.

There is lots of saving and investment plans in the market. More customers are buying products and services based on their true needs and not just traditional money back policies.3. At present the distribution channels that are available in the market are listed below. Indians. · 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.g. The rural consumer is now exhibiting an increasing propensity for insurance products. 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.2. Saturation of markets in many developed economies has made the Indian market even more attractive for global insurance majors.e. have always seen life insurance as a tax saving device. there are still some key new products yet to be introduced . health products. However.500 and Rs. which is not considered very appropriate for long term protection and savings.India with about 200 million middle class household shows a huge untapped potential for players in the insurance industry. Customers are offered unbundled products with a variety of benefits as riders from which they can choose.900 as premium . Consumers remain the most important centre of the insurance sector. The insurance sector in India has come to a position of very high potential and competitiveness in the market. are now suddenly turning to the private sector that are providing them new products and variety for their choice. Computerisation of operations and updating of technology has become imperative in the current scenario. The insurance agents still remain the main source through which insurance products are sold. A research conducted exhibited that the rural consumers are willing to dole out anything between Rs. The concept is very well established in the country like India but still the increasing use of other sources is imperative. Foreign players are bringing in international best practices in service through use of latest technologies.

In the insurance the awareness level for life insurance is the highest in rural India. accidents and cattle insurance. .each year. but the consumers are also aware about motor.

the rules of the game have begun to change. Despite its more than teeming one billion populations. In such a scenario. Although India boasts a saving rate of around 25 per cent. The profile of the Indian consumer is also evolving. . What really increases the appeal of insurance is the benefit of protection to assets and lives from insurance products. Consumers are increasingly more aware and are actively managing their financial affairs. With the entry of competition. while boundaries between various financial products are blurring. 51st in the world. India still has a low insurance penetration of 1.95 per cent. pricing. the distribution of insurance products is expected to play an increasingly important role from strategic (structuring of product supply). the differentiators among the different players are the products. people are increasingly looking not just at products.1 SHRI N. The market is already beginning to witness a wide array of products from players whose number is set to grow. and service.RANGACHARY – CHAIRMAN OF IRDA The insurance landscape in India is undergoing a tectonic shift. cost-efficient (reduction of intermediation costs) and/or market oriented (customerservice) points of view. In this context.CHAPTER 4 VIEWS OF SOME EMINENT PERSONALITIES ON CURRENT DEVELOPMENTS IN INSURANCE SECTOR 4. Today. less than5 percent is spent on insurance.

and flexibility. With the passing of Insurance Amendment bill. necessary to create viable insurance industry. Most of these private companies have signed joint agreements with foreign 26% equity partner. In view of this. Life Insurance Corporation of India (LIC) was nationalized in 1956 and General Insurance of India (GIC) which was nationalized in 1972. 4. Although. the penetration level.but at integrated financial solutions that can offer stability of returns along with total protection. multi . Overcoming challenges to development requires leadership. Within a short time of two years there are twelve private life insurance & seven private nonlifeinsurance companies have started their operations in India. commitment. creativity. The passing of Insurance Regulatory &Development Authority (IRDA) Bill in 1999 finally paved the way for opening up of the insurance sector to private Indian and foreign players. the insurance managers need to understand more about the details that go into the formulation of insurance products to make it attractive in a competitive market.2 SHRAWAN JALAN – MANAGER OF ASSURANCE Insurance in India had been under public sector for over four decades. as well as the capital and technical assistance. remained low. this vision alone will help to bring the new ideas. the public sector insurance companies had made significant contributions in the development of insurance sector in India. however. Besides helping in expanding the insurance coverage geographically so that "every family in every remote village in the country feels safe and secure".

The private insurance companies are adopting one or more of following options available to them to survive in the era of strong competition: ● Gaining profitability by way of underwriting good risks and better policy administration.. ● Better distribution channel (through Bancassurance& internet). Understanding the customer better will enable insurance companies to design appropriate products. even now traditional channel of agency system is considered as the most effective channel of distributions. determine price correctly and increase profitability. and ● Training of agents . Privatisation of insurance sector has changed mindset of customers.g. ● Adequate re-insurance management. bancassurance and cooperative societies have also come into place and provide wider choice to the insurers. ● Use of information technology. corporate agency. One of the most important challenges for the private insurers is to offer products that meet ever changing customer needs. However.distribution channels for e. ● Timely claims settlement and management. ● Development of new products specially healthcare and pension plan to gain business growth. Customers are now looking at insurance as complete financial solution offering stable returns coupled with total protection. ● Improve customer service and retain the confidence of the clients. brokerage.

COLONIAL ND POST COLONIAL The economic history of India since Indus Valley Civilization to 1700 AD can be categorized under this phase. It will grow to 60% of size of the US economy. started by Indian government. There was a two-way depletion of resources. After India got independence from this colonial rule in 1947. Then came the phase of Colonization. by 2035 India would be the third largest economy of the world just after US and China. First five year plan for the development of Indian economy came into implementation in 1952.25% GDP.1 PRE. Each village was economically independent as all the economic needs were fulfilled with in the village. During Indus Valley Civilization Indian economy was very well developed. The history of Indian economy can be broadly divided into three phases: Pre. The arrival of East India Company in India ruined the Indian economy. which is evident from the coins of various civilizations found at the site of Indus valley. These Five Year Plans. For this various policies and schemes were formulated.3% in 1700 AD to 3. Colonial and Post Colonial 5. During this phase India's share of world income declined from 22. If on one hand agriculture received the immediate attention on the other side industrial sector was developed at a fast pace to provide employment opportunities to . is going to touch new heights in coming years. It had very good trade relations with other parts of world.8% in 1952. the third largest economy in the world. each village in India was a self sufficient entity. the Global Investment Bank. As predicted by Goldman Sachs.Colonial. British used to buy raw materials from India at cheaper rates and finished goods were sold at higher than normal price in Indian markets. the process of rebuilding the economy started. in terms of purchasing power. This booming economy of today has to pass through many phases before it can achieve the achieve the current milestone of 7. focused on the needs of Indian economy. Before the advent of East India Company.CHAPTER 5 ECONOMIC BEFORE ECONOMY AND INSURANCE REFORMS India economy.COLONIAL.

 Introduction of reforms in labour laws to generate more employment opportunities for the growing population of India. Trade liberalization. then Finance Minister in the government of P V Narsimha Rao.the growing population and to keep pace with the developments in the world.2% . the committee submitted the report and some of the key recommendations included: A. Malhotra Committee. which helped Indian economy to gain momentum.2 INSURANCE SECTOR REFORMS In 1993. proved to be the stepping-stone for Indian economic reform movements. introduction of new technology. The Gross Domestic Product (GDP) at factor cost...". These include:  Maintaining fiscal discipline  Orientation of public expenditure towards sectors in which India is faring badly such as health and education. In 1994. headed by former Finance Secretary and RBI Governor R.3 % in 1951-52.  Reorganization of agricultural sector. reached 9% in financial year 2005-06 and presently at 7.Malhotra was formed to evaluate the Indian Insurance industry and recommended its future direction. The Malhotra committee was set up with the objective of complementing the reforms initiated in the financial sector. tax reforms and opening up to foreign investments were some of the important steps. The Economic Liberalization introduced by Man Mohan Singh in 1991. which was 2. financial liberalization. The reforms were aimed at "creating a more efficient and competitive financial system suitable for the requirements of the economy keeping in mind the structural changes currently underway and recognizing that insurance is an important part of the over all financial system where it was necessary to address the need for similar reforms. reducing agriculture's dependence on monsoon by developing means of irrigation. Since then Indian economy has come a long way. 5.N. Structure .  Introduction of financial reforms including privatization of some public sector banks.

· Government should take over the holdings of GIC and its subsidiaries so that these subsidiaries can act as independent corporations. Competition · Private Companies with minimum paid up capital of Rs. · Only one State Level Life Insurance Company should be allowed to operate in each state. . The committee emphasized that in order to improve the customer service and increase the coverage of insurance industry should opened up to competition.· Government stake in the Insurance Companies to be brought down to 50%. CUSTOMER SERVICE · LIC should pay interest on delays on payments beyond 30 days. But at the same time. D. · Insurance Companies must be encouraged to set up unit linked pension plans · Computerization of operations and updating of technology to be carried out in the insurance industry. · All the insurance companies should be given greater freedom to operate B. · No Company should deal in both Life and General Insurance through a single entry. · 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).1 bn should be allowed to enter the industry. · Foreign Companies may be allowed to enter the industry in collaboration with the domestic companies. the committee felt the need to exercise caution as any failure on the part of new players could ruin the public C. · Controller of Insurance (Currently a part from the Finance Ministry)should be made independent INVESMENTS · Mandatory Investments of LIC Life Fund in government securities to be reduced from 75% to 50%. Regulatory Body · The Insurance Act should be changed · An Insurance Regulatory Body should be set up. E. · Postal Life Insurance should be allowed to operate in the rural market.

For this purpose. Chapter 6 LIBERALIZING INSURANCE INDUSTRY  LIBERALISATION A relaxation of previous government restrictions. usually in areas of social or economic policy.The benefits of privatization include: -better quality products -lower priced products -more efficient firms which have lower costs -makes costs lower for other firms who use the product the privatized firm produces -this increases employment and incomes across the economy -Government no longer needs to subsidize product . and it allows more financial instruments to be developed so people can choose the one that suits them -Liberalization removes government regulations on the economy. it had proposed setting up an independent regulatory body. higher incomes and lowers inflation -Promotes technological advancement. which promotes jobs. The benefits are: -Promotes competition.confidence in the industry. which leads to lower costs and prices for consumers -Competition promotes efficiency. 100 crores. The committee felt the need to provide greater autonomy to insurance companies in order to improve their performance and enable them to act as independent companies with economic motives. lower prices. Hence. again creating jobs and growing incomes  PRIVATIZATION It is the incidence or process of transferring ownership of business from the public sector (government) to the private sector (business). so resources are wasted much much less -Liberalization allows financial markets to provide loans to people who previously may not have been able to access loans that they can pay off.The private sector is more efficient than the public sector. it was decided to allow competition in a limited way by stipulating the minimum capital requirement of Rs.

increasing incomes and lowering prices/costs -Countries can produce what they are best at and trade it for goods other countries can produce well. If politicized. -Globalisation increases competition. by increasing incomes and jobs -It allows people to migrate between countries. the backdrop of US experience provides some pointers for Indian policymakers. This leads to higher efficiency as people can move to the jobs they do best. GLOBALIZATION Globalization is often used to refer to economic globalization. regulations have potential to adversely affect the pricing of risks. . and hence the viability of the insurance companies. This means higher incomes for all and increased jobs. it brings into focus the importance of portfolio management in the insurance business and the nature and impact of portfolio related regulations on the asset quality of the insurance companies. that is. and the spread of technology. government decision on important recommendations in insurance sector has been withheld pending the development of national consensus on the subject. integration of national economies into the international economy through trade.The benefits of globalization include: -Allows specialization. Finally. migration. increasing labour force mobility. the possible liberalizing of the insurance industry would be very much apart of the ongoing economic reforms. again creating jobs and growing incomes In this context. allowing both countries to benefit -Countries which have a low savings level can borrow money from overseas to invest. capital flows. It also provides a rationale for the increased autornatisation of insurance companies. so all countries can reep the benefits of improved technology. especially in the non-life industry. foreign direct investment. making firms more efficient -Globalisation puts downward pressure on inflation -Promotes technological advancement.There are several reasons for discussion of liberalizing India's insurance industry:  First. so countries can produce more goods more efficiently. and the increased emphasis on agent independent marketing strategies for their products. thus increasing their incomes and jobs -It makes technology improvements flow between countries.  Secondly.

The other decision taken simultaneously to provide the supporting systems to the insurance sector and in particular the life insurance companies was the launch of the IRDA's online service for issue and renewal of licenses to agents. which are expected to be introduced by early next year. However. In the private sector 14 life insurance companies have been registered. The specific licensing requirements that Private Indian Companies must fulfill are set forth in the Registration on Indian Insurance Companies Regulations. a domestic private company must be registered in accordance with the Companies Act of 1956 and have approximately US$ 20 million of investment capital. To have its license application considered.  Entry Of Private Companies Under the IRDA Act. Lifting Of Barriers To Foreign Investment The IRDA Act also lifts certain barriers to foreign direct investment in Indian insurance industry. Thirdly.1 OPENING UP OF INSURANCE SECTOR – 1999 THE 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. However. 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. to participate in the market. regulations stipulate that they have a capital base of at least US $ 20 million. Published By The IRDA 2000. and their investment in such company is capped at 26 percent. Thus. Since being set up as an independent statutory body the IRDA has put in a framework of globally compatible regulations. Global insurers are now permitted to set up and register a domestic company in order to write business in India. to oppose the idea of competition because it encourages unhealthy & illegal practice 6.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. they must form a joint venture with an Indian  . private companies can now operate in India's insurance industry. they must obtain a license from the IRDA before being permitted to write business.

and brokers in India. It further says that India would need $ 100 Billion over the next five years tomeet its infrastructure needs. intellectual and financial capital. but they are required to put up a capital of approximately US$ 45 million in order to establish a domestic company. In addition. Instead.  Need for Global Integration: Recent economic liberalization started few years ago have started bringing in new investments from global giants and the government was hard pressed to facilitate global integration by lowering trade barriers for the free flow of technology. A recent proposal has been put forward to increase foreign direct investment to 49 percent. rules and Regulations and bringing flexibility in administrative control and procedures economic liberalization encourage the use of new technology and improve knowledge n the production process by global participation and marketing. there is much . reinsures.5 Billion. 13 new life insurance companies have entered the market. The equity investments limit is the same for global reinsures seeking to write business in India. global companies are pushing for the right to establish branch offices in India. up from the current level of $ 3 to $ 3. reforms are essential if the Indian economy is to achieve and sustain a growth rate of 7 to 8 per cent per annum. Report on Infrastructure says that 85% of funds for infrastructure development have to come from the domestic industry. 6.partner that is able to invest the remaining funds. most of the top international reinsurance companies operate from their overseas offices by sharing the reinsurance risks picked up by the GIC. Thus liberalization of insurance creates an environment for the generation of longtermcontractual funds for infrastructural investment. These changes are likely to substantially increase the presence of international insurers. Given the rate of savings in India. reaching a faster growth path also implies attracting foreign direct investment inflows of $ 10 Billion every year. no global reinsurer has established a domestic company. Additionally.2 ECONOMIC LIBERALIZATION Economic liberalizations in brief refers to the efforts taken by state toward faster economic development by adopting changes in existing economic policy. On the other hand. Since the IRDA first enacted these rules.

As compared to this.5%. the growth in life insurance premium has been a meager 1. because new players will concentrate on affluent. typically foreign insurers take only a small share of an individual country’s market.  Privatization: Start Up Strategy: Potential private entrants therefore expect to score in the areas of customer service. Insurance companies survive on the principle of spreading of risk.many of the UK’s largest life and general insurers derived 40 per cent to 60 per cent of their total premium from outside their home markets. Insurance is definitely going to be one area that will assist in mobilization of these funds. speed and flexibility. The new entrants will therefore be private Indian companies. No matter what the size of each player. It moved up to 6th largest in 1996. new entrants find insurance attractive because even a small share of a large and growing market can be profitable. LIC despite all its handicaps has been growing at a healthy clip of around 20%. urban . in India multinational insurers will be restricted to a minority shareholding in new companies. foreign companies took only a 3 per cent share even seven years after opening up. In any case. private insurers have not made much headway. their share was 1 per cent after 20 years. The Korean insurance market for example. Critics counter that the benefit will be slim.  Multinationals' interest: Multinational insurers are indeed keenly interested in emerging insurance because their home markets are saturated while emerging countries have low insurance penetrations and high growth rates.moreroom to grow and one can expect an additional revenue of about $ 10 Billion a year entering the market to enhance infrastructure. The other reason why these large MNCs are interested in India is the economies of the insurance market. International insurers often derive a significant part of their business from multinational operations. Yet. In China. Operating in a particular region would expose them to the economic downtrends in the region and derail their profits. The figure at Commercial Union was 76 per cent in that year. was only the 30th largest market in the world by premium volume in 1971. They point out that their entry will mean better products and choice for the consumer. While the impact of global operations on their business may be large. In Korea. In Taiwan for example. In the developed world. an insurer cannot afford to operate in a niche market. a large and complex market like India. As early as 1994.

GIC has already identified the areas that need to be activated and given a shape through the four subsidiary companies. This might seem a logical strategy from the point of view of new players. This may still be an urban market but goes beyond the affluent segment. both are trying to reposition themselves by having re-engineering done on the structure and operations of their respective organizations. Insurance. Therefore. is a volume game. LIC and GIC. private insurers would be best served by a middle-market approach. Other areas that the GIC is looking at are savings-linked insurance products and use of alternate distribution channels including banc assurance. Also in progress is the co-ordination of all foreign operations of the group. the fear that new companies will displace public companies is misplaced. Start-up costs-such as those of setting up a conventional distribution network-are large and high-end niches offer better returns. . These consultants have been asked to narrate their experiences in countries where the insurance sector has been opened up for private competition so that the public sector player can draw lessons.customers as foreign banks did until recently. A very exclusive approach is unlikely to provide meaningful numbers. A change in the GIC Act will enable the corporation to float a joint venture company for health insurance. Today hardly 20 per cent of the population in India is insured and insurance Premium (life as well as non-life) account for just 2 per cent of GDP as against the G-7 average of 9. even more than banking. However. LIC will appoint a consultant which can provide them broad terms of reference on what changes are required to tackle the impending competition. targeting customer segments that are currently untapped. in the long run 'middlemarket' offers the greatest potential as in terms of it is the second largest market in the world. Life Insurance Corporation is at present going through presentations from top management consultants.2 per cent. There is room for more for not only the existing companies but also for any number of competitors. Consequently. Foremost is the area of providing health insurance services. Based on these.  Repositioning by Nationalized Sector: Floodgates of competition opened up by the privatization of insurance industry did throw a challenge to the well-protected nationalized sector and it seems they have picked up the gauntlet.

CHAPTER 7 GROWTH OF INSURANCE SECTOR IN INDIA Notwithstanding the rapid growth of the sector over the last decade.9%. The dynamic growth of insurance buying is partly affected by the (changing) income elasticity of insurance demand.Based on this relation and other considerations.4% and that of non-life insurance to 0. . Yet. only slightly bigger than that of Denmark and comparable to that of Ireland. It has been shown that insurance penetration and per capita income have a strong non-linear relationship. insurance in India remains at an early stage of development. the Indian insurance market (in terms of premium volume) was the 19th largest in the world. including India’s robust economic growth prospects and the nation’s high savings rates. This was despite India being the second most populous country in the world as well as the 12th largest economy. there are strong arguments in favour of sustained rapid insurance business growth in the coming years. it can be postulated that by 2014 the penetration of life insurance in India will increase to 4. At the end of 2003.

Venugopal N. Mr. Dhoot said that rural and semi-urban India will contribute US $35 billion to the Indian insurance industry by 2010. including US $20 billion by way of life insurance and the rest US $15 billion through non-life insurance schemes. Dhoot. A large part of rural India is still untapped due to poor distribution.1 INDIA’S INSURANCE INDUSTRY LIKELY TO JUMP BY 500% IN 2010: ASSOCHAM : The Associated Chambers of Commerce and Industry of India (ASSOCHAM) has projected about 500% hike in the size of domestic insurance business which will grow to US$ 60 billion by 2010 from the current size of around US$ 10 billion as the growing competitive age is developing a larger appetite among people for wider insurance coverage. Urban sector insurance is estimated to reach US $25 billion by 2010.5% in UK and about 8% in South Korea. highlighting that India’s life insurance premium as a percentage of GDP is currently estimated at 1. life insurance US $15 billion and non-life insurance US $10 billion. 6.7. engaged in the insurance business. Releasing the analysis.2% in US. ASSOCHAM findings . The projections of the Chamber are based on feedback that it received from its various constituents. added Mr. large distances and high costs relative to returns. ASSOCHAM President.8% against 5.

the scope for expansion is modest. This offers immense opportunities for expansion opportunities. however. casual labours. The 25 million credit cards used till date offer a huge data base and opportunity for insurance companies. Nearly 20% of all farmers in rural India own a Kissan Credit cards. ASSOCHAM believes that insurers should enter into tie-ups or understandings with government agencies to ensure the success of the insurance schemes. Insurance companies mostly focus on manufacturing sector. when well see more innovations in agriculture in the form of corporatization or a more professional approach from the farmers side.reveals that in the coming years the corporate segment. The need of the hour is to have innovative policies that have explicit benefits for the people to observe. An extensive rural agent network for sale of insurance products could be established. To understand the prospects for insurance companies in rural India. The rural market offers tremendous growth opportunities for insurance companies and insurers should develop viable and cost-effective distribution channels. ASSOCHAM has suggested that insurer’s strategy should be to stimulate demand in areas that are currently not served at all. construction workers and shopkeepers and so on. In both volumes and profitability therefore. ASSOCHAM suggests that insurance needs to be packaged in such a form that it appears as an acceptable investment to the rural people. understand and measure. . milkmen. the services sector is taking a large and growing share of India GDP. insurance will definitely be one option that the rural Indian is going to accept. weavers. There are farmers. their peculiar needs and their occupational structures. The agent can play a major role in creating awareness. In the near future. craftsmen. This is because penetration is already good and companies receive good services. they are into more than one profession. their daily lives. The Paper found that there are a total 124 million rural households. it is very important to understand the requirements of India's villagers. motivating purchase and rendering insurance services. build consumer awareness and confidence. as a whole will not be a big growth area for insurance companies. 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. More often than not.

1 ISSUES AND CHALLENGES OF INSURANCE INDUSTRY IN TERMS OF GROSS DOMESTIC PRODUCT . far ahead of China where insurance accounts for just 1. India's insurance sector accounted for 4.7 per cent of the GDP and even the US where insurance penetration stands at 4 per cent of the GDP. up from 1.1 per cent of GDP in 2006-07. . The average Indian now spends 5. The Indian insurance sector is on a bull run.2 per cent in 1999-2000. With the largest number of life insurance policies in force in the world.CHAPTER 8 ISSUES AND CHALLENGES OF INSURANCE INDUSTRY IN INDIA The increased growth in the Indian middle income group has posed incremental growth in the insurance sector in India which has proved to be a major issues and challenges in terms of Gross Domestic Product (GDP) which is discussed below: 8.4 times as much on life insurance as what s/he did seven years ago when the industry was yet to be opened up for private participation.

Clearly. 8.increased to 2. They are allocating a small amount of their take-home to buy insurance products given their rising equated monthly installment (EMI) payments for home mortgage and other loans. and to 3 per cent in 2006-07.1 billion. taking the total business to US$ 19. with new business premiums growing at over 40 per cent per year owing to the entry of a host of new players with significant growth aspirations and capital commitments.53 per cent in 2005. the scope for growth is enormous. the number of players in this segment has also increased to 17 (16 in private sector).9 per cent growth in premium in dollar terms (adjusted for inflation) in 2006-07. the life insurance industry registered a growth of 110 per cent in fiscal 2006-07. As India is in the cusp of grasping potential opportunities in the insurance industry.2 billion from the previous year's US$ 9. compared to the world market growth rate of 2.9 per cent.Indians are now setting aside a larger chunk of their income on life insurance when measured as a percentage of GDP. The industry's investment in the equity market stood at US$ 38. This poses challenges of governance. Life insurance penetration in India which was less than 1 per cent till 1990-91 . risk and compliance mechanisms that will allow the partnerships to act in the best interest of the policyholder.52 per cent. 2007. The life insurance market has grown rapidly over the past six years. This rate of growth of the industry looks particularly impressive when seen against the fact that the combined penetration of both life and non-life is less than 2 per cent of the GDP compared to world average of 7.1 billion and the assets under management were at US$ 152.6 billion as on March 31. The sector wise growth and potential is underscored below to enhance the understanding of the Indian insurance segment. the minimal foreign investment allowed within the country increase the need for partnerships to operate in the Indian environment.1 LIFE INSURANCE AND GENERAL INSURANCEGROWTH  Life Insurance Life insurance led by the Life Insurance Corporation (LIC). with Life Insurance . The growth in insurance premium collections has spelt an opportunity for the equity market too. Nonetheless. The impetus for growth has come from both public and private insurers. Indian insurance companies recorded a 19. one needs to understand that investing for the long term is key. Also.

While the public sector could increase its premiums by just 3.  General Insurance The general insurance industry grew 12. de-tariffing in respect of fire and engineering along with motor insurance of general insurance for premium. Consequently. total non-life premium collections totaled US$ 6. Launched in 2002. The Government of Andhra Pradesh after piloting the 'Arogya Sri' health insurance scheme in three districts plans to issue health cards to 18 million BPL (below the poverty line) families. streamlining of sales and distribution channels along with targeted advertising and marketing campaigns. c) The control rate on fire. the scheme provides coverage for major surgical operations.e.  Government Initiatives The Government has taken many proactive steps to give a boost to this sector: a) Foreign direct investment up to 26 per cent is permitted under the automatic route subject to obtaining a license from the IRDA. including those pertaining to pre-existing conditions. According . As a result.85 per cent. Innovative Trends in insurance sector in India has been spurred by product innovation. 2007. The 13 non-life insurers collected US$ 2. against US$ 5.63 billion in premium during 2007-08. against US$ 2. engineering and workmen’s compensation insurance classes has been removed from 1 September. d) Some state governments have also taken a dynamic role in this sector.63 per cent during 2007-08 driven a robust performances by private players. The kid's insurance segment in the insurance sector is witnessing increased activity.Corporation (LIC) being the dominant player (market share of about 74 per cent). to Indian farmers who previously had no access to insurance.04 billion in 2006-07.85 billion collected in 2006-07. 2007. 13 private sector players clocked premium growth of 28. i. The Karnataka Government has partnered with the private sector to provide coverage at a low cost in the Yeshaswini Insurance scheme.59 billion in 2007-08.94 per cent. b) IRDA has removed administered pricing mechanism. effective from 1 January. Private sector players' market share has grown to about 40 per cent in FY 2008 as compared to the public sector's 60 per cent. about 60 million of the State's 80 million people will have insurance cover.

100 crores. The setting up of various offices and distribution network is a time consuming process. with its huge middle-class households and growing economy has exhibited huge potential for this sector. as they are not suitable to the needs of the consumers. For instance.5 billion by 2010. insurance premiums increase by at least 4 per cent. But most of them are outdated. India.2 CHALLENGES BEFORE THE INDUSTRY The new as well as the old insurers will have to face a number of challenges in the liberalized market. term insurance . which in turn has helped women through a micro-entrepreneurship initiative (women have flexibility . non-life insurance market will touch an estimated US$ 25 billion. health insurance. Hence old as well as new insurers will have to offer innovative products to the consumers. The normal gestation period is of five years. of which US$ 35 billion will come from rural and semi-urban areas. market penetration tends to rise as incomes increase. Hence the new insurers will have to be ready for locking up their capital for at least 5 years before earning any profits. Current estimates say that. Further the new insurers will have to compete with the established insurance companies like LIC and GIC which have a corporate image and market presence for several years. currently. The consumers are particularly expecting good pension plans. Besides they will face problems of shortage of trained manpower for the insurance industry.to industry estimates. Emerging lifestyle trends amid a changing fabric of the Indian society have also modified social and financial behavior.  Expectation Of The Consumers Today LIC has more than 60 products and GIC has more than 180 products to offer in the market. 20-30 per cent of business of many companies comes from children-specific insurance policies alone.  New Insurers The new insurers will have to invest a minimum capital of Rs. 8. Thus. The domestic insurance industry in India is estimated to be around US$ 60. The generation of profit normally starts in the sixth year. for every one per cent increase in the GDP. particularly in life insurance. an increase in the number of working women has led to a demand for life insurance policies.managing home and being financially independent as distributors of insurance). While the life insurance market is expected to grow to US$ 35 billion.

Further. affinity groups and direct marketing through telesales and Internet. The new insurers will operate with the help of multiple distribution channels but the existing insurers may be forced to operate only with the help of agents. which will include agents. there will be multiple distribution channels.  Distribution Channel In the liberalized insurance market. intense competition will grow among the old and new insurers in the market to win the consumers. The consumer organizations and the media also can play very important role in education of the consumers. This will pose a great challenge to the insurers in the liberalized insurance market. This will result in expansion of the insurance market and will also enable the needy consumer to purchase appropriate products. bank branches. The existing level of awareness of the consumers for insurance products is very low. the regulatory body has already appointed Ombudsman for looking into the grievances of the policyholders. Even the educated consumers are ignorant about the various products of insurance. . it is so because only 62% of the population of India is literate and less than 10% well educated. from the life insurers.  Consumer Grievance Redressal The insurers will have to face an acute problem of the redressal of the consumers. Hence there will be competition among the channels. the consumer courts are operating at district. corporate intermediaries. grievances for deficiency in products and services. Similarly the consumers expect innovative products from the general insurers for managing healthcare. Even with limited range of products offered by LIC and GIC. The consumers also expect reduction in the premium of the insurance products as the mortality rate in India has come down by three times in the last 50 years. brokers. under Consumer Protection Act 1986.and investment products like unit-linked insurance.  Consumer Education Very soon the market will be flooded by a large number of products by a fairly large number of insurers operating in the Indian market. the consumers are confused in the market. Their confusion will further increase in the face of a large number of products in the market. property insurance. his judgement will be binding on insurers. Some channels will be cheaper than others. accident insurance and other products related to the personal line of insurance. Hence it is necessary that all the insurers should undertake the extensive plan for education of consumers. Hence. The Insurance Regulatory Development Authority (IRDA).

" says Aviva CEO Stuart Purdy. Private players have certainly done their bit to increase the penetration levels of insurance. because they see India emerging as one of the biggest markets in the Asian region.state and the national level.contributes almost 70 per cent of our total sales. “Our bancassurance channel--with tie-ups with four banks-. . 8. There’s another dimension to the insurance numbers game. driving sales." says S B Mathur. In the competitive market. brokers and corporate agents. in 2000. Private insurance companies are essentially joint ventures with global insurance companies holding a maximum of 26 per cent stake. they have seized about 14 per cent of the market. Prudential Corporation Asia managing director South Asia and greater China. awareness level of the consumers will increase and it will help consumers to fight for their legal right for deficiency in services. thereby. Within three years of their inception. While the private insurance companies have attained 13 to 14 per cent share of the overall insurance market. The foreign partners are investing heavily in the Indian market and. This will be a challenge to the insurers. because policyholders are comparing products and asking for better deals. their share in the key metros (Mumbai and Delhi) is as high as 30 to 40 per cent. “India will become the biggest market for us in the next three to four years.3 PRIVATE V/S PUBLIC INSURANCE SECTOR-ONE OF THE MAJOR CHALLENGE Private players in the life insurance business are growing at a scorching pace. And after seven years in the industry. Hence the number of legal cases filed by the consumers against insurers is likely to increase substantially in future."We have to struggle to complete a deal in the metros now. mainly by creating alternative distribution channels--such as associations with banks." predicts Dan Bardin. Compare this to new generation private-sector banks. chairman of the Life Insurance Corporation of India. which took nine years for 20 per cent share in the Indian banking industry. private mutual funds accounted for just 9 per cent of a market that had been dominated by the Unit Trust of India.

is also leaning towards alternative distribution channels that will contribute to 45 per cent of total sales. prior to the industry being . Today they are moving to smaller cities. most of the LIC's policies continue to be sold through its tied-agency network." says Max New York Life CEO Anuroop Tony Singh. With the increase in buying power. Perhaps this partly explains why the LIC has increased its advertising spend multifold since the insurance sector was privatized. "We [private insurers] are becoming an alternative to LIC. which is ranked eighth among private players. has tied up with various chit funds and transport finance companies in the country. And that's making the private sector optimistic about its future in the Indian insurance market. in line with the contribution from its tied agency force. most private insurance companies focused their energies on the top 20 cities. Earlier. against Rs 37 crore (Rs 370 million) in 1999-2000. AMP Sanmar. "The rural populace is managing their money well and no longer keeping it under their beds.OM Kotak Mahindra Life." he points out. The multi-channel approach adopted by private insurance companies has proved to be a boon in terms of costing and their ability to capture business. They are not very different from their urban counterparts when it comes to purchasing life insurance covers." says OM Kotak Mahindra Life CEO Shivaji Dam. They have mobile phones and have opened bank accounts. where it is selling life policies on the back of fixed deposits and bonds. A senior company official cites the example of Vijaywada where a significant portion of the income is derived from farming activities. If a customer has already bought an LIC plan."The potential in smaller cities is increasing and companies are moving to smaller cities and towns because these are increasingly becoming more prosperous with a rise in agricultural income. another private player. The state life corporation acknowledges that it is unable to maintain its lead in some metros: penetration by the private-sector insurers has come of age and they are giving the LIC a run for its money. In sharp contrast. Its ad spend more than doubled to Rs 81 crore (Rs 810 million) in fiscal 2003. this has fuelled growth opportunities for us. his second policy is likely to be bought by the private insurance sector on account of various reasons--more specifically flexibility and transparency.

This also gets reflected in the average sum assured by private insurance companies being higher than that of the LIC. unlike the LIC's agency force that pushes the number of policies.Of course.400."The private insurance agents sell better than their counterparts at the LIC.For instance.privatized. the LIC aims for the masses through its 2. to Rs 92 crore (Rs 920 million) the following year. OM Kotak has gone a step further and tied up with Swiss Life International so that it can capitalize on the latter's relationship with 300 multinational subsidiaries and affiliates.048 branches spread across semi-rural and rural towns. One of the key differential factors responsible for their growing market is the 150." points out Dam. private insurance companies are capitalizing on global relationships. new business income for private companies has grown at 146 per cent in fiscal 2004.But it's not the increased spend on advertising alone that has helped private players in grabbing market share.Of course. there's also a difference in the target client of the privateand the state-run insurance companies. While the private players are targeting the upper middle-class and high net-worth individuals. "Business deals are often a call away since we capitalize on AIG's global relationship with multinational companies such as GE and Kodak. .Meanwhile. But it's not as if LIC has lost out on group insurance." says Dam. compared to the 18 per cent average industry growth in new premium income for the same period.500.Still. Life insurance advisors of private sector insurance companies adopt the need-based selling approach. In fiscal 2003. Birla Sun Life's average premium stands at Rs 24. from Rs 29 crore (Rs 290 million) in fiscal 2001 when the industry opened up. recording a 119 per cent growth in new premium income and 50 per cent increase in the number of lives covered. private insurers spent Rs 143 crore (Rs 1.200." says Tata AIG Life Ian Watts.43 billion) on advertising.000-odd life insurance advisors of the private insurance companies. the private insurance sector has also been steadily increasing its ad spend. while that of OM Kotak Mahindra Life is equally high at Rs 20."The key in product sales lies in offering unbundled and transparent products that give customer value. Policies sold by the private players tend to be of a higher value. Against this is the LIC's average premium of Rs 3. The insurance major's group business reached new heights in fiscal 2004.

7-lakh unitlinked policies.Aviva has shown a compounded aggregate growth rate of 36 per cent since the inception of its fund. "The stock market has helped to a certain extent and has contributed to our growth and performance. it managed to mop up a premium income of Rs 373 crore (Rs billion) with the sale of just under 1. annual returns and bonus calculations." agrees Birla Sun Life CEO Nani Javeri.25 per cent respectively." He adds: "Growth is coming faster in insurance companies with unit-linked plans.And even though the LIC was late (January 2004) in pushing its unitlinked product "Bima Plus". the highest sales figure in the industry. With many companies guaranteeing the capital investment (some like Birla Sun Life even guarantee 3 per cent assured returns on its unit-linked plans).The biggest draw in insurance in fiscal 2004 was unit-linked plans. the interest in unit-linked plans only increased.The advantage with unit-linked plans is that they offer policyholders transparency in terms of costs.Dam claims that OM Kotak has sold several policies of Rs 25-50 lakh (Rs 2. Returns on OM Kotak's balanced and growth funds stand at 31." .And the switch from traditional products to unit-linked plans gained momentum as the Sensex climbed higher: the returns on such policies are linked to the equity market.5-5 million) since the "savvy investor thinks it best to invest in unit-linked products.79 to 43. Ninetyfive per cent of the policies sold by Birla Sun Life and over 80 per cent of the 436.000 policies sold by ICICI Prudential were unitlinked plans.

Globalization has been the basic mantra after 1991." . Government gives more emphasis on export and entrepreneurship. The IRDA is the major body. no doubt it is a flying bird. The new market scenario for insurance is growing."THE DYNAMIC FORCE" Many people consider globalization nothing new . privatization and globalization is the basic concept of success in all aspect of development. Everything is changing according to the need of the time. Competition is tough now due to globalization.1 GLOBALIZATION . but also by easy or uncontrolled economic purposes. 9. The world has never experienced globalization at this level of intensity before. After globalization. mainly by free trade and free mobility. Herman E. There are no stringent rules or regulations for making any business house or industry. or the speed at which it is transforming and integrating societies. characterizes globalization as. The new horizon of marketing in the field of finance and insurance in present scenario is a good sign of development. Business has positioned the entire economy. so every one thinks of being global. Daly. Liberalization. and industrialists think about making things global. Change is the eternal law of nature. an analyst of Global Policy Forum. particularly in countries like India and China. marketing has taken a new dimension and it is them most challenging task now. Everyone has to compete for better success.societies have been interconnected for years.CHAPTER 9 EMERGING TREND IN INDIAN INSURANCE SECTOR Market by 2015.GIC & LIC's monopoly market approach is no more prevalent in India. This is a changing world. Marketing is the major concept for developing any type of business. Economic growth and social development in present scenario is due to sudden change in industrial policy and economic planning. "Global integration of many former nationaleconomies into global economy. which is providing better opportunities for private player in India.

global economy. particularly in developing countries like China and India.  New Horizons Of Insurance Market After Globalization After 1970. namely trade.Now so many MNCs have entered into the same sector like BajajAllianz. To the political scientist. Insurance being an integral part of financial service could not claim immunity to the impact of the globalization process and opened up to private and global players world over. This study confines its attention to four growth-enhancing facets of globalization that have been among its key drivers. in order to expand their network and control over the respective local economies. From a multi-disciplinary angle. Sociologists see globalization as the celebration of diversity and the convergence of social preferences in matters of life style and social values. Aviva.  MNCs . it is an epoch dominated by global capitalism. which had sound growth potentialities. The consequence was that some of the markets. The world-class MNCs constantly pursued their strategy of gaining access to every promising market world over. which affects human beings as profoundly as any previous event. insurance sector has become more prosperous. including India. the two most important insurance players were LIC &GIC. finance."The New Path Maker" After globalization. communication and transport. a philosophy and a process.He further clarifies that globalization is not internationalization -globalization brings about a single.MNCs into their markets. . For a historian. globalization may be treated as phenomenon. so many MNCs are the major path maker for economic growth. integrated. For the economist. Several factors have been responsible for this phenomenon. it has different dynamic force for different person. For along time. ranging from the expansion of cultural influences across borders to the enlargement of economic and business relations throughout the world. globalization is essentiallytheemergence of a global market. while internationalization is a federation of nations cooperating as sovereign units to advance the national interest of all members. it represents the gradual erosion of state sovereignty. But discipline specific studies explain only a part of the phenomenon. adopted some sort of selfprotectionistmechanisms by imposing certain deliberate politico-legal restrictions in order to restrict the entry of capital goods of these. So many MNCsare now entering into the insurance sector which is now a booming sector. Though globalization has become a broad heading for a multitude of global interactions.

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. which finance international trades. i.  New Market Scenario & Insurance Insurance market in present scenario though is a booming sector. The premium and interest rate can't be violated for better profit and development. Marine cargo insurance provides risk coverage for shippers and the banks. These operations earn foreign exchange. the element of investment and the element of protection. The Economic Value Addition (EVA) has taken the major concern of the same business. Understanding market synergy and cognisation of perception of customer in the insurance field is very difficult.e. This role becomes all the more important in the context of an active government policy to encourage exports. branches. . Japan and Oceania.. Indian life insurer operates in more than 30 countries through agencies. associates companies. ICICI Prudential. By region’s North America and western Europe are growing moderately while oceanic. Going domestic to international is a very difficult task. Western Europe. The market is becoming tougher gradually. The insurance business is concerned with North America. etc. but the market has changed from simpler to complex.  Globalization Of Insurance Market Insurance not plays an important role in national economy but also in international economy. Together these region’s accounts for about 91 % of the world annul premium. less challenging to more challenging. Insurance is nowacting on two dimensions.Birla Sunlife. The Regulatory Boardlike 'IRDA' is playing a very crucial role for the benefit of the insurance holder.

GROWTH OF LIFE INSURANCE SOME FACTS (MAY 2008): Share (%) .

Also internet is used for sending premium notices to policy holders through e-mails Companies like LIC (www. Internet is today used to even sell insurance policies.iciciprudential. ICICI (www. Internet is. in fact. the internet has completely changed the service delivery process.MARKET SHARES OF PRIVATE PLAYER OF LIFE INSURANCE IN 2009 9. in the late 1950’s the insurance companies used Unit Record Machines (Electro Magnetic Machines) to process data punched into cards.licindia. Computers were introduces in the mid 1960’s and by the 1980’s the Unit Phased Machines were phased out and the entire process was computerized.2 TECHNOLOGY TREND IN INSURANCE MARKET  Computerization Initially.  Internet Today. proving to be one of the widely used distribution networks for selling insurance policies.com) all have websites from which people can . This brought about greater efficiency and quick service delivery.com).

On the day indicated by the policy holder. A policy holder having an account in any bank which is a member of the local clearing house can opt for ECS debit to pay premiums. prices.  Call Centres and SMS services Almost all the insurance companies have their own call centres which cater to the phone based queries of the policyholders. and lots of other information. People can also purchase the product through this website. the policy holder need not visit a branch for paying the premium or collecting the receipts. This service is 24x7 and they have the Interactive Voice Response (IVR) systems at all the branches. The advantage here is that once the option is exercised. various schemes. the premium amount will be directly debited to the bank account of the policyholder and the receipt will be issued by the designated branch office. .get the information about their products.  Electronic Clearance Service (ECS) Almost all the big organizations today provide the ECS facility to its customers.

In such a scenario. Health and Wealth. pricing. but also at integrated financial solutions that can offer stability of returns along with total protection. can also be expected. insurance products will need to be customized. while boundaries between various financial products are blurring. The trend in developed economies where people not only live longer and retire earlier are now emerging in India. now. the focus may shift more to the period for which the cover was offered and the risk underwritten. with increasing longevity. A lifting of the bar on composite insurance. putting immense and unavoidable pressure on the insurance industry. Instead of categorizing insurance by class. Consumers today also seek products that offering flexible options. With the entry of competition. what really increases the appeal of insurance is the benefit of life protection from insurance products along with health cover benefits. Insurance today has emerged as an attractive and stable investment alternative that offers total protection — Life. and service. the fear also is one of living too long and outliving one's assets. This trend has been further driven by the long-term decline in . the profile of the Indian consumer is also evolving. the rules of the game are set to change. Where once the fear was one of dying too early. where companies are allowed to do only life or non-life business today. preferring products with benefits unbundled and customizable to suit their diverse needs. Consumers are increasingly more aware and are actively managing their financial affairs. In terms of returns. Already there is demand for permitting the industry to underwrite pure risk and leaving investment decisions to policyholders. insurance products today offer competitive returns. Today. the differentiators among the different players are the products. To satisfy these myriad needs of customers.CHAPTER 10 FUTURE SCENARIO OF INSURANCE INDUSTRY Presently India is building an upsurge in consumer awareness. The market is already beginning to witness a wide array of products from players whose number is set to grow. Meanwhile. people are increasingly looking not just at products. consumers are now concerning themselves with the need to provide for a comfortable retirement. With the breakdown of traditional forms of social security like the joint family system.

The remaining population has to be given subsidized insurance with the help of the government as well as the insurers. has to grow very fast. sales of new products like single premium. To serve 100 crores of population. investment linked. coverage of insurers. Indian insurance market offers tremendous opportunities to prospective insurers. retirement products. Only 10% of the market share has been tapped by LIC and GIC and the balance 90% of the market still remains untapped. estimated around 314 million can afford insurance from their own financial resources. which was around 7% of the population in 1999. The size of the existing insurance market is very large and is growing at the rate of 10% per year. variable life and annuity products are also set to rise. 3. With the increase in the life span of individuals and disintegration of the joint family system. The huge fund from insurance investments can be utilized for financing the infrastructure industry as well as a support to other industries in the country. Hence. which makes it all the more necessary to start saving early to ensure long term wealth creation. 44. Hence. whole life and term will remain popular. This all adds up to major change in demand for insurance products. Hence insurance industry is likely to play a key role in changing the economic landscape of the country. In fact all the citizens in the middle class.interest rates. The estimated potential of the Indian insurance market in terms of premium was around Rs. However the success of the insurance industry will primarily depend upon meeting the rising expectations of the consumers who will be the real king in the liberalized insurance market in future. the regulator should issue licenses to a large number of insurers if the insurance market has to grow at a fast rate. While sales of traditional life insurance products like individual. . This vast potential can be tapped only by a large number of insurers.000 crores in the year 1999. Today's consumers are increasingly interested in products to help build wealth and provide for retirement income. each Individual now has arranged insurance cover for himself and for his family.

As a result of reorganization servicing functions were transferred to the branches. by 1985-86 LIC had already crossed 7000. 33 divisional offices and 212 branch offices.organization of LIC took place and large numbers of new branch offices were opened. It may be seen that from about 200. Re. . But with reorganization happening in the early eighties. LIC had 5 zonal offices.1 COMPANY PROFILE OF LIC AND ICICI PRUDENTIAL  Company Profile Of Life Insurance Corporation Of India Life Insurance Corporation of India was created on 1st September.00 crores of New Business in 1957 the corporation crossed 1000. Since life insurance contracts are long term contracts and during the currency of the policy it requires a variety of services need was felt in the later years to expand the operations and place a branch office at each district headquarter. providing them adequate financial cover at a reasonable cost.00 crore Sum Assured on new policies.00 crores only in the year 1969-70.00 crore mark of new business. It worked wonders with the performance of the corporation. and branches were made accounting units. with the objective of spreading life insurance much more widely and in particular to the rural areas with a view to reach all insurable persons in the country. 1956. and it took another 10 years for LIC to cross 2000.CASE STUDY 11 COMPARISON BETWEEN LIC AND ICICI PRUDENTIAL 11. apart from its corporate office in the year 1956.

Hyderabad(South-Central Zone). Bhopal (Central Zone). LIC ranks No. Bangalore. With a vision of providing easy access to its policyholders.Today LIC functions with 2048 fully computerized branch offices. 15. The satellite offices are smaller. Over 47 years.277 million). Its Central Office is located in Mumbai. The digitalized records of the satellite offices will facilitate anywhere servicing and many other conveniences in the future. It has a network of over 2000(2048) branches and more than nine lakh agents. It also has seven zonal offices each located in Mumbai(Western Zone). Hyderabad. 7 zonal offices and the Corporate office. Ahmedabad. LIC’s wide Area Network covers 100 divisional offices and connects all the branches through a Metro Area Network.1 in the list of top 500 companies on the basis of Net Worth(Rs. New Delhi (Northern Zone). LIC’s ECS and ATM premium payment facility is an addition to customer convenience. Pune and many other cities. 951 million) as well as Net Profit(2. Chennai. and Kolkotta (Eastern Zone). LIC continues to be the dominant life insurer even in the liberalized scenario of Indian insurance and is moving fast on a new growth trajectory surpassing its own past records. Kolkata. Info Centres have been commissioned at Mumbai. New Delhi. 100 divisional offices. Chennai (Southern Zone). Life Insurance Corporation of India was established by an Act of Parliament on 1st September. LIC has launched its SATELLITE SAMPARK offices. 47. LIC has become a household name for providing security for a lifetime and is synonymous to life insurance in India.Dun & Bradstreet (India 500). .66. Apart from on-line Kiosks and IVRS. Life Insurance Corporation of India is a wholly owned undertaking of the Government of India. 1956. leaner and closer to the customer. LIC has tied up with some Banks and Service providers to offer on-line premium collection facility in selected cities. Kanpur (NorthCentral Zone).

ICICI Prudential has recruited and trained about 56. Advisors can become the Unit Manager of the company if they pass the pinnacle program. a leading international financial services group headquartered in the United Kingdom. recognition etc. with a wide range of flexible products that meet the needs of Indian customer at every step in life. The advisors are considered as the brand ambassadors of the company or the working partner who doesn’t have to invest to get returns but just work with the company to make money. Advisors main job is to sell policy and in return the advisors get huge return like high commission. Further. Tiger team manager is one who gets to sell the policy an get commission. 1 private life insurance in the country. for all purposes.25 billion with ICICI Bank and Prudential PLC holding 74% and 26% stake respectively. an authorized salesman for insurance. ICICI Prudential Life Insurance Company is a joint venture between ICICI Bank. ICICI Prudential was amongst the first private sector insurance companies to begin operations in December 2000 after receiving approval from Insurance Regulatory Development Authority (IRDA). it leverages its state-of-the-art IT infrastructure to provide superior quality of service to customers. Manager will get a fixed salary and the commission on the policies sold by his advisor and the commission of the policies which he has already sold. The company mainly depends on advisors. ICICI Prudential’s equity base stands at Rs. He is. ICICI Prudential has retained its position as No. . For the past five years. At present it is growing at a tremendous pace. Now we can say there is no close competitor to ICICI Prudential. rewards. 9. a Premier Financial Powerhouse and Prudential PLC. train the advisors about the product and he is also a paid up employee of the company.000 insurance advisors to interface with and advise customers. Company Profile Of Icici Prudential Life Insurance ICICI Prudential Life Insurance Company is in to selling life insurance products.

The salient features of this plan are as under:  It provides regular income for life. this plan provides regular guaranteed income at old age and helps in planning to meet requirements for current and future needs. a comprehensive retirement solution that is developed keeping in mind your capabilities and needs with respect to your retirement planning. This plan provides a lot of flexibility in terms of various pension options for you to choose from. after a stipulated date. ICICI’s Forever Life.11. at your option.2 LIC NEW JEEVAN SURAKSHA VS ICICI PRUDENTIAL FOREVER LIFE LIC’s New Jeevan Suraksha offers cool comfort to serve the young. Additionally you can also opt for an insurance cover during the deferment period by taking the Term Rider add on. . pay you a lump sum amount and a suitable pension for your lifetime. The table below shows the summarised comparison of LIC’s New Jeevan Suraksha-I vs. To combat the increase in longevity. the middle aged and the old which has also the security and safety backing of Government of India. It is an ideal solution for people as it not only offers retirement benefits but also takes care of our protection needs (with term rider option).  It also offers life cover during the deferment period. The similar product marketed by ICICI Prudential Life Insurance Company is Forever Life.  The amount you receive depends on the premium you pay till the stipulated date and the option you choose. At the end of the deferment period when the premium ceases.  Postponement of retirement age. this policy can.

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i.3 INNOVATION STRATEGY IN LIC& ICICI PRUDENTIAL  Innovation Strategy In Lic LIC has realised the importance of personal involvement and has included it in the training program itself. LIC gas also set up Policyholder Councils and Zonal Advisory Boards to understand the problems of their customer situated in any part of the city. Offers a Fair Fix to Problem Customers want wrong to be set right and expects service contact employee to be skilled. There are Complaint cells which are specially set up to listen up to each and every customer’s problems.e. This is the main reason why LIC conducts training programs for the newly recruited Agents as well as the other Employees.11. The Training Program also explains them the importance of the smallest of the customer . Offers Some Compensation for the Inconvenience Compensation here wouldn’t mean of just monetary compensation or some extreme measures like firing the Branch Manager Etc. “SO IT DOSENT TAKE MUCH OF TIME FOR THE HANDS OF THE LIC LOGO TO COME CLOSER FOR APOLOGY” LIC has established elaborate Grievance Redressal Machinery at different level as per the customer requirement. “free service” etc. customer who is just seeking general information. It could be like “it’s on us”. A. The Agents and Employees are trained to Apologise to its customers even if they are not at fault. In any kind of breakdown situations LIC try to offer a rational explanation and demonstrate sensitivity and concern to the customer rather than defending themselves. empowered and interested in setting things right. but it is just to make-up for the loss of customer satisfaction. The service provider should plan certain compensation B. Once the Agent is recruited he needs to undergo a compulsory training program designed by LIC. .

b) Interest: The consumer is stimulated to see the information about the innovation. Complaint Handling In a vast Organization like LIC. but it is an innovation to the person who sees it as new.  D. C.policies in advance for various types of situations and deliver it as and when the situation is faced. The idea may have long history. grievances of customers do arise occasionally. Keep the Promises It basically means that the Company should keep the promises made to the Customer before or at the time of service provision i. catering to the various needs and aspirations of millions of policyholders. It would include Internal and External Follow-up.e. service. The consumer adoption process focuses on the mental process through which an individual passes from first hearing about an innovation to final adoption. . Innovation Strategy In Icici Prudential An innovation refers to any good. LIC makes sure that none of the Agents provide any kind of wrong information or false promises to its customers which mislead them. That is perceived by someone as new. or idea. LIC ask their Agents to give reasonable commitments so that they could be fulfilled by the Company or the Agent on behalf of the Company. the Company should fulfill its commitments. Innovation takes time to spread through the special system. a) Awareness: The consumer becomes aware of the innovation but lacks information about it. Adopters of new products have moved through the following five stages. E. Follow Up This is the most important step in Service Recovery as it ensures that whether the implemented Service Recovery was Satisfactory or not. Internal Follow-up would be to ensure that the solutions they put in motion are actually executed and the External part would be to get feedback from the customer whether he is satisfy. In order to redress these grievances LIC has established elaborate Grievance Redressal Machinery.

In addition to this. LIC has an established and well administered Grievance Redressal Mechanism and with Ombudsman intervention. LIC enjoyed a monopoly.4 EMERGING TREND IN LIC & ICICI PRUDENTIAL  Emerging Trend In Life Insurance Corporation With the emergence of competition.c) Evaluation: The Consumer considers whether to try the innovation or not. the launching of the IVRS facility. As on today.spread agency organization. Wide network of branches covering rural areas. b. It is well acknowledged that LIC has been able to provide appropriate IT support in furtherance of prompt service to their valued policy holders. d. they have been providing service to around 12 crore policy holders and their track has been well acknowledged as reflected through continual upgradation of service standards culminating into a world class performance in the area of claim settlement operations. However.e. c. Adequate yield with high risk cover being offered keeping the policy holders satisfied in the existing in the economic scenario e. the customers appear to be well attended. Well accepted brand equity throughout the country. It is now that reality exists in the are of marketing (i. as well as ensured quality improvement in service standards. A. The complex task of conversion of computerization of all the branches with their conversion as Front Line offices has been completed in a phase manner. d) Trial: The consumer tries the innovation to improve his estimate of its value e) Adoption: The consumer decides to make full and regular use of the innovation 11. It will now . Futuristic Approach Till today. LIC’s strength lies in : a. An acknowledged record of performance. MAN and Wide Area Network operations has helped the co-operation improve its servicing. LIC has implemented strategic moves for business growth. A large and well. this mechanism has to be restructured keeping in view the additional legal provisions laid down by the regulator as expounded in the IRDA act. sales and after sales service operations). In addition to this.

advertise on television to make people aware of their products and services Gifts: LIC provides diaries. especially outside the railway station or at the backside of the bus. 338 branches were from four new banc assurance relationships which it had forged with Allahabad Bank. C. attendance. With the new face of the market. relationship convinience. The need is to have a comprehensive review of the business keeping in view customer expectations B. so as to understand what the customer desires in terms of product design. Advertisement On Radio satellite channel: Advertisement about LIC are frequently been telecast on radio and satellite channel. Normally its ads are published in Times of India. Advertising Trend In Lic 1) News Papers and Magazines: LIC give ads in the news papers and magazines round the year to continue its brand image and also when new products are introduced. has to have an efficient feed-back system. Television: Companies like LIC. The new players in the market like ICICI. will definitely be very aggressive in the open market. booklets.have to follow a multi-faceted strategy towards customer retention and also expanding to a new clientele. ICICI Prudential has increased the number of bank branches (under banc assurance tie-ups) by about 130 per cent. At the nucleus of this approach is the concept of Customer Relationship management. etc to its customers Hoardings: LIC put its hoardings where there is a mass flow of people. Of these. service procedures. relationship management seems to be the new mantra. In fiscal 2002-2003. core and complimentary on an individual basis. Emerging Trend In Icici Prudential In a significant move. to be in the reckoning. existing customer. HDFC etc. the number of bank branches networked by the company grew by 270 per cent to 642 branches. ICICI Prudential Life Insurance — a joint venture between the ICICI group and Prudential Plc of the UK — has expanded its marketing platform for promoting life insurance products to 1. With this. accessibility. 2) 3) 4) 5)  . in a very gentle and courteous manner. responses in terms of personalized service. attention.500 banks branches from 642 branches through its existing bancassurance tie-up with seven banks. LIC has to go ahead with their former customers. Customer Orientation LIC. pens. reassuring them of their better services with persona.

1) Advertising Trend In Icici Radio: ICICI Prudential advertises on 92. Rs 70 crore in new business premium income which accounts for a growth of 132 per cent over last year’s first quarter.5 red Fm 2) Television: ICICI Prudential has been advertising in outdoor. It worked wonderfully with Mumbai’s officegoers and one that translated into substantial business for the company. The company launched a corporate television campaign – Saat Phere – which took the emotions and thoughts of initial Sindoor corporate film a few steps further. at present. . to talk to the customer through a non-cluttered route. ICICI Bank. the company has also recently released a new advertising campaign through the electronic media on ‘Smart Kid’ Insurance Policy. Mr Gupta informed that after having released advertising campaign through print.000 policies. Mr. ICICI Prudential chief-marketing Saugata Gupta told FE. Rs 102 crore of premiums came through alternate distribution channels which comprises of bancassurance channel. The remaining expansion is from earlier relationships. The Company recently tied up with the Forbes Six Sigma rated Dabbawalla organization in Mumbai for a direct marketing exercise. This policy is positioned as — Child’s plan that leaves nothing to chance.UP with DABBAW ALA: ICICI Prudential tie-up with the Dabbawalla Organization in Mumbai for a direct marketing exercise. and 22. There are 80 active corporate agents.000 crore sum assured mark. outdoor and radio. This channel is serviced by 430 financial service consultants. In a Unique effort to create awareness about a tax saving product. 3) Tie. and thereby have a higher impact. notably ICICI Bank and Bank of India (BoI).” ICICI Prudential has garnered Rs 364 crore as the new business premium income in fiscal 2002-03. the company attached a creative of a bitten apple to Mumbai’s ubiquitous lunchboxes. In addition.South Indian Bank (SIB). Gupta said: “The greatest expansion has come from BoI and Allahabad Bank. TV and press. A. In fact. in the first quarter of this fiscal. Mr. and. product pushing for need-based solutions required for personal financial review is fast emerging. According to Mr. On the company’s new plans. Federal Bank and Lord Krishna Bank. SIB and Federal Bank have also increased the number of branches. It has also crossed Rs 10. Gupta: “Last fiscal. the company has issued around 51.” Further.000 life insurance advisors. As for emerging trends. Gupta explained that private participation in insurance as a tax saving tool for comprehensive financial solution.

1956. The Indian insurance industry has traveled a long way ever since businesses were regulated tightly & concentrated by few insurers of the public sector. It also gave way to propagation of innovative goods & channels for distribution & the supervisory values rising. create a bigger "pie. LIC Act. The insurance industry is a key component of the financial infrastructure of an economy. 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. The insurance sector in India has come to a position of very high potential and competitiveness in the market. 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. ICICI Prudential regularly holds consumer awareness meets on ‘the need for retirement planning’ in different cities such as Pune. viz. Aurangabad. Nagpur. The (non-life) insurance business/general insurance remained with the private sector till 1972. and its viability and strengths have far reaching consequences for not only its money and capital markets. One of the key service industry in India would be health and education Insurance sector in India grew at a faster pace after independence. have always seen life insurance as a tax saving device. Coimbatore. In 1956. with a capital contribution of Rs.' but also for its real sector.4) Seminars. the Indian insurance rate is estimated to rise at a striking rate in India. The launch of new developments in the insurance industry saw many new international insurers entering the market. Bangalore and Mangalore.5 crore." and offer additional consumer choices through . Competition will surely cause the market to grow beyond current rates. Indians. CHAPTER 12 CONCULSION 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. Indian per capita revenue is likely to grow up to more than 6% in coming 10 years & with developing awareness.

" . The early-adopters will then have a clear advantage compared to laggards in gaining the market share and market leadership.—are expected to be removed in near future. Challenges such as developing a common industry code of conduct. Yet. and price options. The will need to make sure right now that their entire infrastructure is in place so that they can reap the benefit of an "unlimited potential. The current impediments for foreign participation – like 26% equity cap on foreign partner.the introduction of new products. public and private sector companies will be working together to ensure healthy growth and development of the sector.the watchdog of the industry) in pension business etc. at the same time. services. ill defined regulatory role of IRDA (Insurance Regulatory development Authority. contributing to a common catastrophe reserve fund. The market is now in an evolving phase where one can expect a lot of actions in coming days. and chalking out agreements between insurers to settle claims to the benefit of the consumer will require concerted effort from both sectors.

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