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About Insurance Industry

"Insurance is a contract between two parties whereby one party called
undertakes in exchange for a fixed sum called premiums, to pay the
other party called insured a fixed amount of money on the happening
of a certain event."Insurance is a protection against financial loss
arising on the happening of an unexpected event. Insurance
companies collect premiums to provide for this protection. A loss is
paid out of the premiums collected from the insuring public and the
Insurance Companies act as trustees to the amount collected. For
Example, in a Life Policy, by paying a premium to the Insurer, the
family of the insured person receives a fixed compensation on the
of the insured. Similarly, in a car insurance, in the event of the car
meeting with an accident, the insured receives the compensation to
the extent of damage. It is a system by which the losses suffered by a
few are spread over many, exposed to similar risks.
Logic of insurance
It is a system by which the losses suffered by a few are spread over
many, exposed to similar risks. Insurance is a protection against
financial loss arising on the happening of an unexpected event.
Insurance companies collect premiums to provide for this protection. A
loss is paid out of the amount premiums collected from the insuring
public and the Insurance Companies act as trustees to the collected.
Need of insurance
Insurance is desired to safeguard oneself and one's family against
possible losses on account of risks and perils. It provides financial
compensation for the losses suffered due to the happening of any
unforeseen events. By taking life insurance a person can have peace of
mind and need not worry about the financial consequences in case of
any untimely death. Certain Insurance contracts are also made
compulsory by legislation. For example, Motor Vehicles Act 1988,
stipulates that a person driving a vehicle in a public place should hold
a valid insurance policy covering “Act" risks. Another example of
compulsory insurance pertains the Environmental Protection Act,
wherein a person using or to carrying hazardous substances (as
defined in the Act) must hold a valid public liability (Act) policy.

Insurance in India
Insurance is a federal subject in India and has a history dating back to
1818. Life and general insurance in India is still a nascent sector with
huge potential for various global players with the life insurance
premiums accounting to 2.5% of the country's GDP while general
insurance premiums to 0.65% of India's GDP. The Insurance sector in
India has gone through a number of phases and changes, particularly
in the recent years when the Govt. of India in 1999 opened up the
insurance sector by allowing private companies to solicit insurance and
also allowing FDI up to 26%. Ever since, the Indian insurance sector is
considered as a booming market with every other global insurance
company wanting to have a lion's share. Currently, the largest life
insurance company in India is still owned by the government.
History of Insurance in India
Insurance in India has its history dating back till 1818, when Oriental
Life Insurance Company was started by Europeans in Kolkata to cater
to the needs of European community. Pre-independent era in India saw
discrimination among the life of foreigners and Indians with higher
premiums being charged for the latter. It was only in the year 1870,
Bombay Mutual Life Assurance Society, the first Indian insurance
company covered Indian lives at normal rates.
At the dawn of the twentieth century, insurance companies started
mushrooming up. In the year 1912, the Life Insurance Companies Act,
and the Provident Fund Act were passed to regulate the insurance
business. The Life Insurance Companies Act, 1912 made it necessary
that the premium rate tables and periodical valuations of companies
should be certified by an actuary. However, the disparage still existed
as discrimination between Indian and foreign companies. The oldest
existing insurance company in India is National Insurance Company
Ltd, which was founded in 1906 and is doing business even today. The
Insurance industry earlier consisted of only two state insurers: Life
Insurers i.e. Life Insurance Corporation of India (LIC) and General
Insurers i.e. General Insurance Corporation of India (GIC). GIC had four
subsidiary companies. With effect from December 2000, these
subsidiaries have been de-linked from parent company and made as
independent insurance companies: Oriental Insurance Company
Limited, New India Assurance Company Limited, National Insurance
Company Limited and United India Insurance Company Limited.
Life Insurance Corporation Act, 1956
Even though the first legislation was enacted in 1938, it was only in 19
January 1956, that life insurance in India was completely nationalized,
through a Government ordinance; the Life Insurance Corporation Act,
1956 effective from 1.9.1956 was enacted in the same year to, inter-
alia, form LIFE INSURANCE CORPORATION after nationalization of the
245 companies into one entity. There were 245 insurance companies
of both Indian and foreign origin in 1956. Nationalization was
accomplished by the govt. acquisition of the management of the
companies. The Life Insurance Corporation of India was created on 1
September, 1956, as a result and has grown to be the largest
insurance company in India as of 2006 .
General Insurance Business (Nationalization)
Act, 1972
The General Insurance Business (Nationalization) Act, 1972 was
enacted to nationalize the 100 odd general insurance companies and
subsequently merging them into four companies. All the companies
were amalgamated into National Insurance, New India Assurance,
Oriental Insurance, and United India Insurance which were
headquartered in each of the four metropolitan cities.
Insurance Regulatory and Development
Authority (IRDA) Act,
Till 1999, there were not any private insurance companies in Indian
insurance sector. The Govt. of India then introduced the Insurance
Regulatory and Development Authority Act in 1999, thereby de-
regulating the insurance sector and allowing private companies into
the insurance. Further, foreign investment was also allowed and
capped at 26% holding in the Indian insurance companies. In recent
years many private players entered in the Insurance sector of India.
Companies with equal strength started competing in the Indian
insurance market. Currently, in India only 2 million people (0.2 % of
total population of 1 billion), are covered under Medi claim, whereas in
developed nations like USA about 75 % of the total population are
covered under some insurance scheme. With more and more private
players in the sector this scenario may change at a rapid pace
Different Insurance Companies
Insurance is an upcoming sector, in India the year 2000 was a
landmark year for life insurance industry, in this year the life insurance
industry was liberalized after more than fifty years. Insurance sector
was once a monopoly, with LIC as the only company, a public sector
enterprise. But nowadays the market opened up and there are many
private players competing in the market. There are fifteen private life
insurance companies has entered the industry. After the entry of these
private players, the market share of LIC has been considerably
reduced. In the last five years the private players is able to expand the
market (growing at 30% per annum) and also has improved their
market share to 18%. For the past five years private players have
launched many innovations in the industry in terms of products,
market channels and advertisement of products, agent training and
customer services etc.
The various life insurers entered India:-
1. Bajaj Allianz Life Insurance Company Limited
2. Birla Sun Life Insurance Co. Ltd
3. HDFC Standard life Insurance Co. Ltd
4. ICICI Prudential Life Insurance Co. Ltd.
5. ING Vysya Life Insurance Company Ltd.
6. Max New York Life Insurance Co. Ltd
7. Met Life India Insurance Company Ltd.
8. Kotak Mahindra Old Mutual Life Insurance Limited
9. SBI Life Insurance Co. Ltd
10. Tata AIG Life Insurance Company Limited
11. Reliance Life Insurance Company Limited.
12. Aviva Life Insurance Co. India Pvt. Ltd.
13. Sahara India Life Insurance Co, Ltd.
14. Shriram Life Insurance Co, Ltd.
15. Bharti AXA Life Insurance Company Ltd.
16. Future General Life Insurance Company Ltd.
17. IDBI Fortis Life Insurance Company Ltd.
18. Canara HSBC Oriental Bank of Commerce Life Insurance
19. AEGON Religare Life Insurance Company Limited.
20. DLF Pramerica Life Insurance Co. Ltd.
21. Star Union Dai-ichi Life Insurance Comp. Ltd.
The various other general Insurance Companies are
1. National Insurance Company Limited.
2. Reliance General Insurance.
3. Star Health Plus Insurance.
4. Oriental Insurance Company.
5. United India Insurance Company Ltd.
6. New India Assurance Company Ltd.
7. Bajaj Allianz General Insurance Company Ltd.
8. Universal Sompo Insurance Company Ltd.
9. Future General Insurance Company Ltd.
10. ICICI Lombard General Insurance Ltd.
i) Protection against risk of untimely death
Life insurance is a product, which offers protection against the risk of
the full sum assured is made available under a life assurance policy,
whereas under other savings schemes, the total accumulated savings
alone will be available.
ii) Protection during old age
Life insurance can also be used as a means of saving for one’s future.
There are a number of life insurance policies, which in addition to life
cover also provide the means of investing one’s income. The sum as
per the policy will be received only after a period of time. This amount
thus provides for the old age.
iii) Forced savings
Payment of life insurance premiums is compulsory and becomes a
Savings in other scheme can be easily withdrawn and may be used for
less worthy purpose. Termination of a life insurance policy by the
policyholder usually results in substantial loss in benefits under the
policy to the policyholder. One is thus encouraged to save and keep
one’s policy alive.
iv) Educational requirements and charity
The object of insurance may be to serve as a security to educational
funds in respect of loans advanced for educational purpose or to
provide donations to charitable institutions like hospital and school.
v) Nomination and assignment
The life insured can name the person or persons to whom the policy
would be payable in the event of his death .the proceeds of a life
insurance policy can be protected against the claims of the creditors of
the life insured by effecting a valid assignment of the policy. The
beneficiaries are fully protected from creditors expect to the extent of
any interest in the policy retained by the insured.21Marketability and
suitability for borrowing
After 3 years, if the policyholder finds that he is unable to continue
of premiums he can surrender a policy for a cash sum. A life insurance
policy is
accepted as a security for a commercial loan.
vi) Loans from the insurance company
A policy holder can take a loan from his insurance company against the
Security of his life insurance policy provided the terms of the terms of
his policy allow such a loan. This loan can be taken usually after a
period of 3 years from
commencement of the policy and is a percentage of its surrender
vii) Investment options
The unit link products gives comprehensive insurance solutions that
to an individual’s dual need of earning potentially high returns as well
as stay for life.
Thus there is an option to invest money in the products that combine
the best of
insurance and investment. In a volatile market conditions it is possible
to secure both as one can hedge the investment with saver investment
vehicles that provide a diversified portfolio.
viii) Tax benefits
The Indian income tax act provides tax concessions to the policyholder
both on payment of premium and on the maturity amount. Under sec
88 the tax benefits on premium paid by an individual for life insurance
policies on his own life\on the life of spouse \children minor or major,
including married daughters.
Under sec 6 of the married women’s property act if a married man
takes a
policy of life insurance on his own life and expenses on the face of it to
be for the
benefit of his wife or of his wife and children or any of them, then it
shall be deemed to be a trust for the benefit of his wife and children or
any of them, According to the interest so expressed and shall not so
long as any object of trust remains be subject to the control of the
husband or to his creditors or form part of his estate. An insurance
policy taken by a married man in the above manner is ideal way to
protect the interest of his wife and children, even after his untimely
Types of insurance products
Term assurance plan- In insurance language this is a “pure risk
cover” and can be described as an insurance or risk management
product in its purest and simplest form.
In case of your untimely death, your dependents will receive the risk-
cover amount or the ‘sum assured’. On the other hand, there is no
survival benefits if you survive the policy term, and you also do not get
back the premiums paid.
Endowment assurance plans- It is a traditional investment-
cum-insurance plan.
In other words, it provides both life cover (in the event of death of life
insured) or
maturity benefits if he/she survives the policy term. Endowment plans
are typically frontloaded.
Therefore it makes sense for you to remain in the policy for at least 12-
Money-back policy- It is a variant of the endowment assurance
difference is that you get the survival benefits intermittently over the
life of the policy.
Thus taking care of his lump-sum monetary requirements to enable
him to meet his financial goals and major commitments. The maturity
benefit is the sum assured value less the survival benefits already paid
under the policy, plus bonuses accrued, if any. Incase of untimely
death the nominee will receive the entire sum assured without
considering the payouts already made to you before the unfortunate

Whole life plan- This policy provides the life assurance cover for
almost the entire life. Most of the insurance companies provide
protection up to the age of 100 years. The sum assured is paid to you
once you reach this age, and the policy is terminated. In this payment
of premium is for whole life, and the sum assured is paid to your
nominee in the event of your death. In other words, this is equivalent
to a term plan over your lifetime.
Pension plan- A pension plan can be looked as more of an
investment product offered by insurers to cater to the “golden”
retirement years of an individual. Also referred to as retirement plans,
these are designed to ensure that you are financially independent
during your retirement years. Most of the pension plans also provide
an optional life assurance cover in them.
Child plan- It basically aims at ensuring the achievement of life
goals of your child.
The goal can be higher education, financial help in establishing a
business or
profession, or even marriage. In a child plan, the life assured can be
the parent or the child. The beneficiary for the policy, however, is the
child. As a child is a minor, the life insurance contract is between the
parent and the insurance company. In case of early
death of the parent, the premium payment is waived off by the
insurance company and the policy continues as originally planned.
Unit Linked Insurance Plan- ULIPs have been the darling of
companies, intermediaries and the insured population alike over the
last five years. The main reason for this popularity is the twin
advantage of a pure life cover (insurance component) and a range of
investment funds or options (savings component) to match your risk
profile. While the pure life cover provides the much needed financial
security to your dependents in the event of your untimely death, the
savings component allows you to participate in the capital markets and
build wealth over the long-term tenure of the policy.
Changing face of Indian insurance industry
Indian life-insurance market is the target market of all the companies
who either want to extend or diversify their business. To tap the Indian
market there has been tie-ups between the major Indian companies
with other International insurance companies to start up their business.
The government of India has set up rules that no foreign insurance
company can setup their business individually here and they have to
tie up with an Indian company and this foreign insurance company can
have an investment of only 24% of the total start-up investment.
Indian insurance industry can be featured by:
• Low market penetration.
• Ever growing middle class component in population.
• Growth of customer’s interest with an increasing demand for better
• Application of information technology for business.
• Rebate from government in the form of tax incentives to be insured.
Today, the Indian life insurance industry has a dozen private players,
each of which are
making strides in raising awareness levels, introducing innovative
products and
increasing the penetration of life insurance in the vastly underinsured
country. Several
of private insurers have introduced attractive products to meet the
needs of their target
customers and in line with their business objectives
India: The Next Insurance Giant
Market Performance & Forecast: In 2000, Indian insurance market size
was $21.71 billion. Between 2000 and 2007, it had an increase of
120% and reached $47.89 billion. Between 2000 and 2007, total
premiums maintained an average growth rate of 11.96% and the CAGR
growth during this time frame has been 11.96%. It was one of the most
consistent growth patterns we have noticed in any other emerging
economies in Asian as well as Global markets.

Indian Insurance Market

Indian economy is the 12th largest in the world, with a GDP of $1.25
trillion and 3rd largest in terms of purchasing power parity. With factors
like a stable 8-9 per centannual growth, rising foreign exchange
reserves, a booming capital market and a rapidly expanding FDI
inflows, it is on the fulcrum of an ever increasing growth curve.
Insurance is one major sector which has been on a continuous growth
curve since the revival of Indian economy. Taking into account the
huge population and growing per capita income besides several other
driving factors, a huge opportunity is in store for the insurance
companies in India. According to the latest research findings, nearly
80% of Indian population is without life insurance cover while health
insurance and non-life insurance continues to be below international
standards. And this part of the population is also subjected to weak
social security and pension systems with hardly any old age income
security. As per our findings, insurance in India is primarily used as a
means to
improve personal finances and for income tax planning; Indians have a
tendency to invest in properties and gold followed by bank deposits.
They selectively invest in shares also but the percentage is very small
4-5%. This in itself is an indicator that growth potential for the
insurance sector is immense. It’s a business growing at the rate of 15-
20% per annum and presently is of the order of $47.9 billion.
India is a vast market for life insurance that is directly proportional to
the growth in premiums and an increase in life density. With the entry
of private sector players backed by foreign expertise, Indian insurance
market has become more vibrant. Competition in this market is
increasing with company’s continuous effort to lure the customers with
new product offerings. However, the market share of private insurance
companies remains very low -- in the 10-15% range. Even to this day,
Life Insurance Corporation (LIC) of India dominates Indian insurance
sector. The heavy hand of government still dominates the market, with
price controls, limits on ownership, and other restraints.
Major Driving Factors
✔ Growing demand from semi-urban population
✔ Entry of private players following the deregulation
✔ Rising demand for retirement provision in the ageing population
✔ The opening of the pension sector and the establishment of the new
✔ Rising per capita incomes among the strong middle class, and
✔ Growing consumer class and increase in spending & saving capacity
✔ Public private partnerships infrastructure development
✔ Dearth of innovative & buyer-friendly insurance products
✔ Success of Auto insurance sector

Emerging Areas
✔ Healthcare Insurance & Pension Plans
✔ Mutual fund linked insurance products
✔ Multiple Distribution Networks .i.e. Bank assurance
The upward growth trend started from 2000 was mainly due to
economic policies
adopted by the then Indian government. This year saw initiation of an
era of economic liberalization and globalization in the Indian economy
followed by several reforms and long-term policies that created a
perfect roadmap for the success of Indian financial markets. On the
basis of several macroeconomic factors like increase in literacy rate &
per capita income, decrease in death rate and unemployment, better
tax rebates, growing GDP etc., we estimate that the Indian insurance
sector will grow by $28.65 billion and reach $76.54 billion by 2011 with
a CAGR (compounded annual growth rate) of 12.44% and a growth of
Valuing the invaluable
Both under insurance and over insurance can often be attributed to the
lack of proper understanding of the exact insurance needs for oneself
and the family, and the failure to spot and cover all liabilities properly
and adequately, or being over-conservative in this regard.
Under Insurance
Under insurance, typically occurs when the existing financial liabilities
and insurance needs are fully taken care of. In the event of the
untimely death of the only (or the main earning) member of the family,
his financial liabilities would obviously fall on his dependents, leaving
them in a state of financial distress that could threaten their need of
Over Insurance
Conversely, there are also instances where individuals indulge in life
insurance covers that far exceed in value than what is actually
required. This is a classic case of over insurance, which leads to an
unnecessarily higher premium payment, leaving you much poorer. It
results in unnecessary expenditure that could otherwise be wisely
invested elsewhere.
The need for an adequate insurance cover is never static and keeps on
varying with changes in the life stages and important events of an
individual. The table belown provides an insight into the various life
stages and events when life insurance cover usually requires a

Life stage Requirement for a life insurance cover

Start work life An individual usually does not have any dependent
like spouse or children, thus allowing the need to take a life cover.
However, if
your parents are dependents then you need to take appropriate
life cover on their behalf. Moreover, you may have taken a loan to
finance your higher education or professional studies or purchase a
car. You should
take a suitable insurance cover so that in the event of your
untimely death, the burden of EMI payments does not pass to
your parents or other members of the family.
Recently married Marriage requires a revision of your insurance
needs. This can take a form of increase in life cover, taking into
considerations an
expected increase in expenses and repayment of liabilities, if any.
Also, an insurance cover on the life of the spouse, although for a
lesser amount, can be considered. However, if both the husband and
the wife are working, the extent and value of life insurance coverage
on both lives will depend on their respective remuneration packages,
personal liabilities, as
well as extent of financial dependence on one another.
Birth of children The arrival of a child brings with it a great
amount of
responsibility. At this stage, a revision of insurance needs is
based mainly on securing the financial needs of the child up to
the time he/she has grown up and settled in life.
Purchase of a
house, car, etc
Purchasing a house is a major financial decision not only on
regard to the choice of property but also in regard to the
commitment for repayment of the loan availed to finance the
property. Therefore, you should take out a mortgage redemption
plan to the extent of the outstanding loan amount.
Purchasing a car through a vehicle loan, too, calls for a life cover
of the borrower to the extent of the outstanding loan. The same
holds good for any other asset or event which has been financed
by a loan.
Loan taken for
The loan taken to set up or enhance your profession or business
should be fully covered.
Busting some insurance myths
With a range of products flooding the market, people today are more
confused about insurance than ever. Here are a bagful of myths
floating around and I have made an effort to bust a few of the
significant ones.
1. I don’t want to put my hard-earned money into a pure term
assurance plan if I
don’t even get back all the premiums paid on survival of the term.
➢ A pure term assurance plan is a risk mitigation tool and not an
product. In the event of your untimely death during the policy term,
dependents get a “sum assured” to enable them to continue living
existing lifestyle, repay loan liabilities and meet long-term financial
To achieve this, you only need to pay a premium amount that is a
of the “sum assured”. Moreover unlike investments, where it takes
to build a suitable corpus, the “sum assured” on your insurance policy
payable, in the event of your untimely death, from the date of its
2. It would be enough if only the main breadwinner of the family takes
➢ While the main breadwinner should take out a life insurance policy
on a
priority basis; the other members of the family should also be covered.
the wife is working, then she should be covered to the extent of loss of
income to the family in the event of her untimely death. On the other
even if she is not working, she should be covered, albeit for a smaller
sum, because her contribution to the family, in form of household
has monetary value.
3. I will get back all my premiums when I surrender my endowment
➢ You couldn’t be more wrong! You only get back the “surrender
which is based on the “paid-up value” is a proportion of the original
assured” based on the number of years for which premium was paid
against the total premium-paying years. The paid-up value of the
policy is
also calculated and available as per the policy conditions.
4. Insurance is primarily useful as a tax-saving instrument.
➢ Again, this is a huge misconception! While you do get attractive tax
breaks, the primary objective of insurance is risk mitigations followed
wealth creation for the long term. Many people end up taking this myth
seriously, particularly without considering the costs and benefits
5. After three years, I can walk away from any ULIP, along with the
investment or the fund value.
➢ Sure, you can do that! However, you need to remember that a ULIP,
least in the initial years, is very different from a mutual fund. While a
mutual fund only charges o nominal fund management charge every
a ULIP is front loaded. That means a significant chunk of your premium
allocated across various charges in the initial years of the policy and
the balance gets invested in a fund of your choice. As these charges
off and average over time, it makes sense to stay in a ULIP for at least
years. Therefore, if your investment horizon is just 3-5 years, you
off in a mutual fund, and you can take out a separate term assurance
for the required risk cover.