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Serial no: 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 Title Insurance Types of insurance Regulatory difference Need of life insurance Indian life insurance History Insurance v/s assurance Overview List of Life insurers FDI Policies Insurance Market LIC Market share of companies Present scenario Indian economy 2005-06 Indian economy 2006-07 During Recession Past, Present and Future Myths about life insurance Cause, effect Criticism Bibliography Page no:
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Insurance is a risk management technique primarily used to hedge against the risk of a contingent, uncertain loss that may be suffered by those individuals or entities who have an insurable interest in scarce resources, by transferring the possibility of this loss from one interested person, persons, or entity to another. The scarce resources referred to here fall into three divisions: human resources, financial resources, and capital, or tangible resources. In the context of insurance, scarce resources are also known as "exposures," because they are "exposed" to perils, those things, or forces, which cause destruction or reduction, in the usefulness, or value, of an exposed resource. Human resources are thus exposed to perils such as illness or death; financial resources to legal judgements that may result from negligent acts, and capital resources to physical perils such as fire, theft, windstorm, and vandalism, to name but a few. A hazard is the cause of a peril. It is that thing or condition which increases the likelihood of a peril. Thus perils and hazards are identified by the exposure that they threaten. For example a slippery roadway could be viewed as a financial hazard, capital hazard, or human hazard by automobile owners, and 2
rightly so, since this condition increases the likelihood of an automobile accident that might result in an unfavorable legal judgement, automobile damage, and bodily injury. In the context of commercial trade, insurance is further defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for consideration, payment, in the form of a risk premium. The insurance premium develops at an actuarilydetermined rate. This rate is a factor used to determine the amount of premium to charge for a certain limit, and type, of insurance on the scarce resource. The premium can further be viewed as a guaranteed, known, relatively small financial loss to the insured, paid to the insurer, in exchange for the insurer's promise to compensate (indemnify) the insured in the case of a loss to the insured resource(s). The insured receives a contract, called the insurance policy, which details the conditions and circumstances under which the insured will be indemnified. Insurance involves pooling funds from many insured entities (known as exposures) to pay for the losses that some may incur. The insured entities are therefore protected from risk for a fee, with the fee being dependent upon the frequency and severity of the event occurring. In order to be insurable, the risk insured against must meet certain characteristics in order to be an insurable risk. Insurance is a commercial enterprise and a major part of the financial services industry, but individual entities can also self-insure through saving money for possible future losses.
Types of insurance
Any risk that can be quantified can potentially be insured. Specific kinds of risk that may give rise to claims are known as perils. An insurance policy will set out in details which perils are covered by the policy and which are not. Below are non-exhaustive lists of the many different types of insurance that exist. A single policy may cover risks in one or more of the categories set out below. For example, vehicle insurance would typically cover both the property risk (theft or damage to the vehicle) and the liability risk (legal claims arising from an accident). A home insurance policy in the U.S. typically includes coverage for damage to the home and the owner's belongings, certain legal claims against the owner, and even a small amount of coverage for medical expenses of guests who are injured on the owner's property. Business insurance can take a number of different forms, such as the various kinds of professional liability insurance, also called professional indemnity (PI), which are 3
In some countries. The policy may include inventory. for the legal responsibility to others for bodily injury or property damage. and the business owner's policy (BOP). especially for people who rent housing. 3. require drivers to buy some. When a car is used as collateral for a loan the lender usually requires specific coverage. 2. Most countries. In some geographical areas. Maintenance-related issues are typically the homeowner's responsibility. of these coverages. such as in a traffic collision. in a way analogous to how homeowners' insurance packages the coverages that a homeowner needs. for the cost of treating injuries. which packages into one policy many of the kinds of coverage that a business owner needs. Home insurance Home insurance provides coverage for damage or destruction of the policyholder's home.discussed below under that name. Medical coverage. Liability coverage. or this can be bought as a separate policy. for damage to or theft of the car. the policy may exclude certain types of risks. Coverage typically includes: 1. Property coverage. such as flood or earthquake that require additional coverage. but not all. such as the United Kingdom. insurers 4 . Auto insurance A wrecked vehicle in Copenhagen Auto insurance protects the policyholder against financial loss in the event of an incident involving a vehicle they own. rehabilitation and sometimes lost wages and funeral expenses.
etc. sickness and unemployment insurance Workers' compensation. dental insurance is often part of an employer's benefits package. paying a stipend each month to cover medical bills and other necessities. like medical insurance. such as doctors. protects policyholders for dental costs. Accident. long-term policies are generally obtained only by those with at least six-figure incomes. Long-term disability insurance covers an individual's expenses for the long term. along with health insurance. Short-term disability insurance covers a person for a period typically up to six months. It provides monthly support to help pay such obligations as mortgage loans and credit cards.S. Health insurance Great Western Hospital. up until such time as they are considered permanently disabled and thereafter. Dental insurance. but considering the expense. or employers' liability insurance. and Canada. Swindon Health insurance policies cover the cost of medical treatments.offer a package which may include liability and legal responsibility for injuries and property damage caused by members of the household. Insurance companies will often try to encourage the person back into employment in 5 . lawyers. Short-term and long-term disability policies are available to individuals. is compulsory in some countries Disability insurance policies provide financial support in the event of the policyholder becoming unable to work because of disabling illness or injury. including pets. In the U.
such as auto. and require the same kinds of actuarial and investment management expertise that life insurance requires. they are the complement of life insurance and. Crime insurance is a form of casualty insurance that covers the policyholder against losses arising from the criminal acts of third parties. funeral and other final expenses. Life insurance policies often allow the option of having the proceeds paid to the beneficiary either in a lump sum cash payment or an annuity.preference to and before declaring them unable to work at all and therefore totally disabled. In that sense. Disability overhead insurance allows business owners to cover the overhead expenses of their business while they are unable to work. Total permanent disability insurance provides benefits when a person is permanently disabled and can no longer work in their profession. Workers' compensation insurance replaces all or part of a worker's wages lost and accompanying medical expenses incurred because of a job-related injury. and may specifically provide for income to an insured person's family. a company can obtain crime insurance to cover losses arising from theft or embezzlement. workers compensation. Casualty Casualty insurance insures against accidents. from an underwriting perspective. and some liability insurances. Annuities and pensions that pay a benefit for life are sometimes regarded as insurance against the possibility that a retiree will outlive his or her financial resources. Life Life insurance provides a monetary benefit to a descendant's family or other designated beneficiary. are the mirror image of life insurance. often taken as an adjunct to life insurance. 6 . Annuities provide a stream of payments and are generally classified as insurance because they are issued by insurance companies. not necessarily tied to any specific property. burial. It is a broad spectrum of insurance that a number of other types of insurance could be classified. are regulated as insurance. Political risk insurance is a form of casualty insurance that can be taken out by businesses with operations in countries in which there is a risk that revolution or other political conditions could result in a loss. For example.
as did friendly societies during Victorian times. other income tax saving vehicles (e. the tax law provides that the interest on this cash value is not taxable under certain circumstances. In the U. are financial instruments to accumulate or liquidate wealth when it is needed. like casualty insurance. The Greeks and Romans introduced burial insurance circa 600 AD when they organized guilds called "benevolent societies" which cared for the surviving families and paid funeral expenses of members upon death. 7 . in some cases the benefit derived from tax deferral may be offset by a low return. the type of policy and other variables (mortality. Guilds in the Middle Ages served a similar purpose.g. The termproperty insurance may. and the UK.Certain life insurance contracts accumulate cash values. Property This tornado damage to an Illinois home would be considered an "Act of God" for insurance purposes Property insurance provides protection against risks to property. inland marine insurance or boiler insurance. However.). In many countries. etc. market return. which may be taken by the insured if the policy is surrendered or which may be borrowed against.earthquake insurance. This may include specialized forms of insurance such as fire insurance. 401(k) plans. such as annuities and endowment policies. home insurance. flood insurance. IRAs. Roth IRAs) may be better alternatives for value accumulation. Burial insurance Burial insurance is a very old type of life insurance which is paid out upon death to cover final expenses. theft or weatherdamage. Moreover. This leads to widespread use of life insurance as a tax-efficient method of saving as well as protection in the event of early death. such as the cost of a funeral... the tax on interest income on life insurance policies and annuities is generally deferred. Some policies. such as the U. such as fire. This depends upon the insuring company.S.S.
be used as a broad category of various subtypes of insurance. Builder's risk insurance is coverage that protects a person's or organization's insurable interest in materials. Earthquake insurance policies generally feature a high deductible. Builder's risk insurance is typically written on an "all risk" basis covering damage arising from any cause (including the negligence of the insured) not otherwise expressly excluded. insects. including air traffic control and refuelling operations for international airports through to smaller domestic exposures. drought. Most ordinary home insurance policies do not cover earthquake damage. 8 . Crop insurance may be purchased by farmers to reduce or manage various risks associated with growing crops. such as passenger and third-party liability. and associated liability risks. some of which are listed below: US Airways Flight 1549 was written offafter ditching into the Hudson River Aviation insurance protects aircraft hulls and spares. frost damage. or disease. or equipment breakdown insurance) insures against accidental physical damage to boilers. Rates depend on location and hence the likelihood of an earthquake. Such risks include crop loss or damage caused by weather. Earthquake insurance is a form of property insurance that pays the policyholder in the event of an earthquake that causes damage to the property. Builder's risk insurance insures against the risk of physical loss or damage to property during construction. hail. fixtures and/or equipment being used in the construction or renovation of a building or structure should those items sustain physical loss or damage from an insured peril. Airports may also appear under this subcategory. as well as the construction of the home. Boiler insurance (also known as boiler and machinery insurance. equipment or machinery.
Fidelity bond is a form of casualty insurance that covers policyholders for losses incurred as a result of fraudulent acts by specified individuals. the federal government created the National Flood Insurance Program which serves as the insurer of last resort. or homeowners insurance (often abbreviated in the real estate industry as HOI). Most homeowners' insurance covers only owner-occupied homes. Landlord insurance covers residential and commercial properties which are rented to others. Home insurance. Fire aboard MV Hyundai Fortune Marine insurance and marine cargo insurance cover the loss or damage of vessels at sea or on inland waterways. and of cargo in transit. is the type of property insurance that covers private homes. Hurricane Katrina caused over $80bn of storm and flood damage Flood insurance protects against property loss due to flooding. as outlined above. Many insurers in the U.S. It usually insures a business for losses caused by the dishonest acts of its employees. do not provide flood insurance in some parts of the country. regardless of the method of 9 . also commonly called hazard insurance. In response to this.
Many marine insurance underwriters will include "time element" coverage in such policies. in the wake of 9/11. which extends the indemnity to cover loss of profit and other business expenses attributable to the delay caused by a covered loss. marine cargo insurance typically compensates the owner of cargo for losses sustained from fire.S. When the owner of the cargo and the carrier are separate corporations. Supplemental natural disaster insurance covers specified expenses after a natural disaster renders the policyholder's home uninhabitable. the Terrorism Risk Insurance Act 2002 (TRIA) set up a federal Program providing a transparent system of shared public and private compensation for insured losses resulting from acts of terrorism. Surety bond insurance is a three-party insurance guaranteeing the performance of the principal. In the U. shipwreck. Periodic payments are made directly to the insured until the home is rebuilt or a specified time period has elapsed. etc. Windstorm insurance is an insurance covering the damage that can be caused by wind events such as hurricanes.. but excludes losses that can be recovered from the carrier or the carrier's insurance. Volcano insurance is a specialized insurance protecting against damage arising specifically from volcanic eruptions.transit. The demand for terrorism insurance surged after 9/11 Terrorism insurance provides protection against any loss or damage caused by terroristactivities. 10 . The program was extended until the end of 2014 by the Terrorism Risk Insurance Program Reauthorization Act 2007 (TRIPRA).
market reforms led to an increase in the market and by 1995 a comprehensive Insurance Law of the People's Republic of China was passed. The concept requires that the insured have a "stake" in the loss or 11 . followed in 1998 by the formation of China Insurance Regulatory Commission (CIRC). National Insurance Academy. Legal When a company insures an individual entity. The insurance industry in China was nationalized in 1949 and thereafter offered by only a single state-owned company. Life & General Insurance companies. the insured in the case of certain losses only up to the insured's interest. Indemnity – the insurance company indemnifies. both passed in 1992 and effective 1994. and a nonprofit coalition of state insurance agencies called the National Association of Insurance Commissioners works to harmonize the country's different laws and regulations. In 1978. there are basic legal requirements. the Third Non-Life Directive and the Third Life Directive. created a single insurance market in Europe and allowed insurance companies to offer insurance anywhere in the EU (subject to permission from authority in the head office) and allowed insurance consumers to purchase insurance from any insurer in the EU. which has broad regulatory authority over the insurance market of China. insurance is regulated by the states under the McCarran-Ferguson Act. In the European Union. In India. Several commonly cited legal principles of insurance include: 1. which was eventually suspended as demand declined in a communist environment. the People's Insurance Company of China.Regulatory differences In the United States. or compensates. which was constituted by an act of parliament. Pune is apex insurance capacity builder institute promoted with support from Ministry of Finance and by LIC. Insurable interest – the insured typically must directly suffer from the loss. Insurance Regulatory and Development Authority (IRDA). As per the section 4 of IRDA Act' 1999. The National Conference of Insurance Legislators (NCOIL) also works to harmonize the different state laws. with "periodic proposals for federal intervention". 2. IRDA is insurance regulatory authority. Insurable interest must exist whether property insurance or insurance on a person is involved.
Causa proxima. 6. Material facts must be disclosed. as if the asset was not insured. What that "stake" is will be determined by the kind of insurance involved and the nature of the property ownership or relationship between the persons. according to some method. 4. life insurance is generally not considered to be indemnity insurance.000 and wins. 5. The difference is significant on paper.e.. the insurer may sue those liable for insured's loss. an "indemnity" policy. 2. but rather "contingent" insurance (i. There are generally two types of insurance contracts that seek to indemnify an insured: 1. the asset owner must attempt to keep the loss to a minimum. a visitor to your home slips on a floor that you left wet and sues you for $10. Utmost good faith – the insured and the insurer are bound by a good faith bond of honesty and fairness. Subrogation – the insurance company acquires legal rights to pursue recoveries on behalf of the insured. prior to the happening of a specified event or peril. Accordingly. and a "pay on behalf" or "on behalf of" policy. Contribution – insurers which have similar obligations to the insured contribute in the indemnification. and the dominant cause must not be excluded 7. or proximate cause – the cause of loss (the peril) must be covered under the insuring agreement of the policy. 12 . but rarely material in practice.000 to pay for the visitor's fall and then would be "indemnified" by the insurance carrier for the out of pocket costs (the $10. for example. 3. Principle of loss minimization . Indemnification To "indemnify" means to make whole again. for example.damage to the life or property insured. or to be reinstated to the position that one was in. Under an "indemnity" policy the homeowner would have to come up with the $10.In case of any loss or casualty. to the extent possible. a claim arises on the occurrence of a specified event).000). An "indemnity" policy will never pay claims until the insured has paid out of pocket to some third party.
property.saving for life's important goals. the insured. An insured is thus said to be "indemnified" against the loss covered in the policy. the amount of coverage (i.Under the same situation. Modern day investments include gold. When insured parties experience a loss for a specified peril. Generally. the remaining margin is an insurer's profit. at a minimum. by means of a contract. Need for Life Insurance Today. corporation.asset appreciation or asset protection. and exclusions (events not covered). insurance products also have a strong inbuilt wealth 13 . the coverage entitles the policyholder to make a claim against the insurer for the covered amount of loss as specified by the policy. The fee paid by the insured to the insurer for assuming the risk is called the premium. it becomes imperative to make the right choice when investing your hard-earned money. the particular loss event covered. life insurance is unique in that it gives the customer the reassurance of asset protection. the premium. etc. Asset Protection From an investor's point of view. along with a strong element of asset appreciation. Life insurance is a unique investment that helps you to meet your dual needs . Most modern liability insurance is written on the basis of "pay on behalf" language. the period of coverage.) becomes the 'insured' party once risk is assumed by an 'insurer'. Given the plethora of choices.e. fixed income instruments. a "pay on behalf" policy. While most financial instruments have the underlying benefit of asset appreciation. the following elements: identification of participating parties (the insurer. So long as an insurer maintains adequate funds set aside for anticipated losses (called reserves). the insuring party. Simultaneously.. called an insurance policy. The core benefit of life insurance is that the financial interests of one’s family remain protected from circumstances such as loss of income due to critical illness or death of the policyholder. an investment can play two roles . the amount to be paid to the insured or beneficiary in the event of a loss). mutual funds and of course. and protecting your assets. life insurance. the beneficiaries). an insurance contract includes. or association of any type. the insurance carrier would pay the claim and the insured (the homeowner in the above example) would not be out of pocket for anything. Let us look at these unique benefits of life insurance in detail. there is no shortage of investment options for a person to choose from. Insurance premiums from many insureds are used to fund accounts reserved for later payment of claims — in theory for a relatively few claimants — and for overhead costs. An entity seeking to transfer risk (an individual.
mortgage Children's education. For a young. the instrument in which you invest should offer corresponding benefits pertinent to the new life stage.creation proposition. planning for one's retirement will begin to take precedence. As one grows older. the goal changes to planning for the education or marriage of their children. and hence ensures that the financial goals of that life stage are met. Asset protection & wealth creation creation and protection plans Retirement solutions Middle aged with Planning for retirement & grown up kids asset protection Across all lifestages Health plans & mortgage protection Health Insurance 14 . Life insurance is the only investment option that offers specific products tailormade for different life stages. newly married couple. as your life stage and therefore your financial goals change. It thus ensures that the benefits offered to the customer reflect the needs of the customer at that particular life stage. Clearly. The customer therefore benefits on two counts and life insurance occupies a unique space in the landscape of investment options available to a customer. it could be buying a house. they decide to start a family. Once. The table below gives a general guide to the plans that are appropriate for different life stages. Goal based savings Each of us has some goals in life for which we need to save. Life Stage Primary Need Life Insurance Product Wealth creation plans Young & Single Young & Just married Married with kids Asset creation Asset creation & protection and mortgage protection plans Wealth creation Education insurance.
but it provided only fire insurance. South Carolina in 1732.2015 projected to be the 'Golden Age' for the Indian insurance industry. buy Life Insurance. Life Insurance contracts allow an individual to save money in a tax India Insurance: History Insurance began as a way of reducing the risk of traders. The first society to sell life insurance was the Amicable Society for a Perpetual Assurance Office. Episcopalian priests organized a similar fund in 1769.e. the companies have been required to search their records for such policies. The first insurance company in the United States was formed in Charleston. ship owners and underwriters met to discuss deals at Lloyd's Coffee House.S. the Indian insurance sector been allowed to flourish. New York Life for example reported that Nautilus sold 485 slaveholder life insurance policies during a two-year period in the 1840s. with several national and international players competing and growing at rapid rates. they added that their trustees 15 . began in the late 1760s. In response to bills passed in California in 2001 and in Illinois in 2003. "burial clubs" covered the cost of members' funeral expenses and helped survivors monetarily. Why? Life Insurance provides protection to your family . Modern life insurance started in 17th century England. Life Insurance policies also offer tax benefits though tax saving should not be the primary reason an individual should look at a Life Insurance policy. The Presbyterian Synods in Philadelphia and New York created the Corporation for Relief of Poor and Distressed Widows and Children of Presbyterian Ministers in 1759. the lump sum received from an insurance company can help take care of your family’s financial future. While the emotional loss cannot be mitigated. predecessor to the famous Lloyd's of London. when you are not around. many insurance companies in the United States insured the lives of slaves for their owners. Thanks to reforms and the easing of policy regulations. WHY LIFE INSURANCE? Very often it is said that before you let the worry get into your head. Life insurance dates only to ancient Rome. this growth can only increase. as early as 2000 BC in China and 1750 BC in Babylon. with the period from 2010 . Finally.your family gets a specified sum in a lump sum when they need it the most i. Prior to the American Civil War. The sale of life insurance in the U.The Indian Insurance Industry India insurance is a flourishing industry. originally as insurance for traders: merchants. and as Indians become more familiar with different insurance products. but fewer than half a dozen survived. Between 1787 and 1837 more than two dozen life insurance companies were started.
The entry of the private players and the increased use of the new distribution are in the limelight today. With such a large population and the untapped market area of this population Insurance happens to be a very big opportunity in India. when the Oriental Life Insurance Company was formed in Kolkata. with the passing of the Life Insurance Act of 1912.In spite of all this growth the statistics of the penetration of the insurance in the country is very poor. The Indian Insurance Companies Act was passed in 1928. Indian Mercantile Insurance Limited was the first company to handle all forms of India insurance.voted to end the sale of such policies 15 years before the Emancipation Proclamation. This is an indicator that growth potential for the insurance sector is immense in India. 1972. Established in 1907.The competition LIC started facing from these companies were threatening to the existence of LIC .since the liberalization of the industry the insurance industry has never looked back and today stand as the one of the most competitive and exploring industry in India. the Life Insurance Corporation Act. Today it stands as a business growing at the rate of 15-20 per cent annually. The use of new distribution techniques and the IT tools has increased the scope of the industry in the longer run. Since then the insurance industry has gone through many sea changes . it adds about 7 per cent to the country’s GDP . 1938. It was due to this immense growth that the regulations were introduced in the insurance sector and in continuation Malhotra Committee was constituted by the government in 1993 to examine the various aspects of the industry. Together with banking services. The history of the Indian insurance sector dates back to 1818. Insurance Regulatory and Development Authority (IRDA) Act. The Insurance sector in India governed by Insurance Act. 1999 and other related Acts. 1956 and General Insurance Business (Nationalisation) Act. This act empowered the government of India to gather necessary information about the life insurance and non-life insurance organizations operating in the Indian financial markets. The key element of the reform process was Participation of overseas insurance companies with 26% capital. Creating a more efficient and competitive financial system suitable for the requirements of the economy was the main idea behind this reform. The Triton Insurance Company Ltd formed in 1850 and was the first of its kind in the general insurance sector in India. Milestone’s in the life insurance business in India Year Milestones in the life insurance business in India 16 . A new era began in the India insurance sector. Nearly 80% of Indian populations are without Life insurance cover and the Health insurance.
with a capital contribution of Rs. 1968 1972 Indian Insurance: Sector Reform 17 . the New India Assurance Company Ltd. 245 Indian and foreign insurers and provident societies taken over by the central government and nationalised.1912 1928 1938 1956 The Indian Life Assurance Companies Act enacted as the first statute to regulate the life insurance business The Indian Insurance Companies Act enacted to enable the government to collect statistical information about both life and non-life insurance businesses 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. GIC incorporated as a company. the National Insurance Company Ltd. The General insurance business in India. 107 insurers amalgamated and grouped into four companies viz. Some of the important milestones in the general insurance business in India are given in the table 2. LIC Act. LIC formed by an Act of Parliament.. set up. 5 crore from the Government of India. 1956. the Oriental Insurance Company Ltd. The General Insurance Business (Nationalisation) Act. 1972 nationalised the general insurance business in India with effect from 1st January 1973.. the first company to transact all classes of general insurance business General Insurance Council. Table 2: Milestone’s in the general insurance business in India Year Milestones in the general insurance business in India 1907 1957 The Indian Mercantile Insurance Ltd. viz. the first general insurance company established in the year 1850 in Calcutta by the British.. and the United India Insurance Company Ltd. frames a code of conduct for ensuring fair conduct and sound business practices The Insurance Act amended to regulate investments and set minimum solvency margins and the Tariff Advisory Committee set up. can trace its roots to the Triton Insurance Company Ltd. on the other hand.
while "assurance" is the provision of cover for an event that is certain to happen. and rather than refer to themselves using both insurance and assurance titles. theft. as well as to initiate different policy measures to help sustain growth in the Indian insurance sector. This committee was also in charge of recommending the future path of insurance in India. Solvency Margin. "insurance" refers to providing cover for an event that might happen (fire.irdaindia. The Authority has notified 27 Regulations on various issues which include Registration of Insurers. The recommendations of the committee put stress on offering operational autonomy to the insurance service providers and also suggested forming an independent regulatory body. making them more appropriate and effective for the Indian market. Re-insurance. Investment and Accounting Procedure. In the United States both forms of coverage are called "insurance". principally due to many companies offering both types of policy. etc. The goals of the IRDA are to safeguard the interests of insurance policyholders.). Protection of policy holders' interest etc. Applications were invited by the Authority with effect from 15th August. 2000 for issue of the Certificate of Registration to both life and nonlife insurers. flood. The Malhotra Committee attempted to improve various aspects of the insurance sector. Obligation of Insurers to Rural and Social sector. The Authority has its Head Quarter at Hyderabad. It led to the formation of the Insurance Regulatory and Development Authority (IRDA) in 2000. The Insurance Regulatory and Development Authority Act of 1999 brought about several crucial policy changes in the insurance sector of India. Insurers' business model 18 .org Insurance v/s Assurance The specific uses of the terms "insurance" and "assurance" are sometimes confused. The aim of the Malhotra Committee was to assess the functionality of the Indian insurance sector. Regulation on insurance agents. they instead use just one. in jurisdictions where both terms are used.The formation of the Malhotra Committee in 1993 initiated reforms in the Indian insurance sector. Detailed information on IRDA is available at their web-site www. In general.
Underwriting performance is measured by something called the "combined ratio" which is the ratio of expenses/losses to premiums. the insurer will use discretion to reject or accept risks through the underwriting process.underwriting expenses. minus the amount paid out in claims. while anything over 100 indicates an underwriting loss. Rating for different risk characteristics involves at the most basic level comparing the losses with "loss relativities" . 2. and to also offer a competitive price which consumers will accept. Loss ratios and expense loads are also used. initial ratemaking involves looking at the frequency and severity of insured perils and the expected average payout resulting from these perils. A combined ratio of less than 100 percent indicates an underwriting profit. Thereafter an insurance company will collect historical loss data. which usesstatistics and probability to approximate the rate of future claims based on a given risk. Through underwriting. The most complicated aspect of the insurance business is the actuarial science of ratemaking (price-setting) of policies.a policy with twice as money policies would therefore be charged twice as much. A company with a combined ratio over 100% may nevertheless remain profitable due to investment earnings. and comparing these prior losses to the premium collected in order to assess rate adequacy. By investing the premiums they collect from insured parties. is the insurer's underwriting profit on that policy. Profit can be reduced to a simple equation: Profit = earned premium + investment income . At the most basic level. more complex multivariate analyses through generalized linear modeling are sometimes used when multiple characteristics are involved and a univariate analysis could produce confounded results. the process by which insurers select the risks to insure and decide how much in premiums to charge for accepting those risks. the amount of premium collected and the investment gains thereon. bring the loss data to present value. However. 19 . After producing rates. Upon termination of a given policy. Other statistical methods may be used in assessing the probability of future losses.Underwriting and investing The business model is to collect more in premium and investment income than is paid out in losses. Insurers make money in two ways: 1.incurred loss .
the insured may take out a separate insurance policy add on. Float. Insurers start investing insurance premiums as soon as they are collected and continue to earn interest or other income on them until claims are paid out. but this opinion is not universally held. is the amount of money on hand at any given moment that an insurer has collected in insurance premiums but has not paid out in claims. the underwriting loss of property and casualty insurance companies was $142.3 billion in the five years ending 2003. determines if coverage is available under the terms of the insurance contract. the reasonable monetary value of the claim. and if so. as the result of float. Claims may be filed by insureds directly with the insurer or through brokers or agents. most notably Hank Greenberg. or available reserve. Insurance company claims departments employ a large number of claims adjusters supported by a staff of records management and data entry clerks.Insurance companies earn investment profits on "float". Some insurance industry insiders. such as those produced by ACORD. or may accept claims on a standard industry form. Claims Claims and loss handling is the materialized utility of insurance. the float method is difficult to carry out in an economically depressed period. 20 . and authorizes payment. or insurance. usually in close cooperation with the insured. Bear markets do cause insurers to shift away from investments and to toughen up their underwriting standards. In the United States. The Association of British Insurers (gathering 400 insurance companies and 94% of UK insurance services) has almost 20% of the investments in the London Stock Exchange. The policyholder may hire their own public adjuster to negotiate the settlement with the insurance company on their behalf. For policies that are complicated. Naturally. which covers the cost of a public adjuster in the case of a claim. Incoming claims are classified based on severity and are assigned to adjusters whose settlement authority varies with their knowledge and experience. This tendency to swing between profitable and unprofitable periods over time is commonly known as the underwriting. do not believe that it is forever possible to sustain a profit from float without an underwriting profit as well. called loss recovery insurance. where claims may be complex. But overall profit for the same period was $68. cycle. The insurer may require that the claim be filed on its own proprietary forms. The adjuster undertakes an investigation of each claim. it is the actual "product" paid for. so a poor economy generally means high insurance premiums.4 billion.
the plaintiff. Towards achieving this objective. Disputes between insurers and insureds over the validity of claims or claims handling practices occasionally escalate into litigation (see insurance bad faith). Commissions to agents represent a significant portion of an insurance cost and insurers such as State Farm that sell policies directly via mass marketing campaigns can offer lower prices. or independent. If a claims adjuster suspects under-insurance. fraudulent insurance practices are a major business risk that must be managed and overcome. monitor litigation that may take years to complete. and policyholders' servicing. meaning they write only for one company. claims procedure in both life and non-life. and claims overpayment leakages. As part of this balancing act. the Authority has taken the following steps: IRDA has notified Protection of Policyholders Interest Regulations 2001 to provide for: policy proposal documents in easily understandable language. who is under no contractual obligation to cooperate with the insurer and may in fact regard the insurer as a deep pocket. The existence and success of companies using insurance agents (with higher prices) is likely due to improved and personalized service. speedy settlement of claims. The adjuster must obtain legal counsel for the insured (either inside "house" counsel or outside "panel" counsel). the condition of average may come into play to limit the insurance company's exposure. insurers seek to balance the elements of customer satisfaction. • 21 . administrative handling expenses. In managing the claims handling function. and appear in person or over the telephone with settlement authority at a mandatory settlement conference when requested by the judge. Protection of the interest of policy holders: IRDA has the responsibility of protecting the interest of insurance policyholders. meaning that they can issue policies from several companies. The Regulation also provides for payment of interest by insurers for the delay in settlement of claim. Marketing Insurers will often use insurance agents to initially market or underwrite their customers. setting up of grievance redressal machinery. • The insurers are required to maintain solvency margins so that they are in a position to meet their obligations towards policyholders with regard to payment of claims.Adjusting liability insurance claims is particularly difficult because there is a third party involved. Agents can be captive.
• The Authority takes up with the insurers any complaint received from the policyholders in connection with services provided by them under the insurance contract. The private companies have come out with products called ULIPs (Unit Linked Investment Plans) which offer both life cover as well as scope for savings or investment options as the customer desires. The same year that the newly appointed insurance regulator . While the committee submitted its report in 1994.It is obligatory on the part of the insurance companies to disclose clearly the benefits. Indian life insurance industry overview All life insurance companies in India have to comply with the strict regulations laid out by Insurance Regulatory and Development Authority of India (IRDA). terms and conditions under the policy.Insurance Regulatory and Development Authority IRDA --started issuing licenses to private life insurers. remains by far the largest player in the market. These types of plans are subject to a minimum lock-in period of three years to prevent misuse of the significant tax benefits offered to such plans under the Income Tax Act. All private life insurance companies at that time were taken over by LIC. • Life insurance in India Life Insurance is the fastest growing sector in India since 2000 as Government allowed Private players and FDI up to 26%. The advertisements issued by the insurers should not mislead the insuring public. legislation amending the Insurance Act of 1938 and legislating the Insurance Regulatory and Development Authority Act of 2000. it took another six years before the enabling legislation was passed in the year 2000. Life Insurance in India was nationalised by incorporating Life Insurance Corporation (LIC) in 1956. In 1993 the Government of Republic of India appointed RN Malhotra Committee to lay down a road map for privatisation of the life insurance sector. Life Insurance Corporation of India (LIC). • All insurers are required to set up proper grievance redress machinery in their head office and at their other offices. the state owned behemoth. Comparison of such products with mutual funds would be erroneous 22 .
6. Ltd 15. 4. 2008) Apart from Life Insurance Corporation. 22. 16. the public sector life insurer. 23 . 12. SBI Life Insurance Life Metlife India Life Insurance ICICI Prudential Life Insurance Bajaj Allianz Life Max New York Life Insurance Sahara Life Insurance Tata AIG Life HDFC Standard Life Birla Sunlife Kotak Life Insurance Aviva Life Insurance Reliance Life Insurance Company Limited . 7. 17. most of them joint ventures between Indian groups and global insurance giants. 11. 10. there are 22 other private sector life insurers. Life Insurer in Public Sector 1. 13. 8. 20. 2. 5.Formerly known as AMP Sanmar LIC ING Vysya Life Insurance Shriram Life Insurance Bharti AXA Life Insurance Co Ltd Future Generali Life Insurance Co Ltd IDBI Fortis Life Insurance AEGON Religare Life Insurance DLF Pramerica Life Insurance CANARA HSBC Oriental Bank of Commerce LIFE INSURANCE India First Life insurance company limited Star Union Dia-ichi Life Insurance Co. Life Insurance Corporation of India Insurers in Private Sector 1. 19. 21. 14. 3. 9. 18.List of Life Insurers (as of Sept.
date of commencement of the policy and their adopting organizations are as follows: 24 . issued disclosure norms for Indian Life Insurance Companies seeking to make an initial public offer for sale of equity shares to the public. foreign participation in an Indian insurance company is restricted to 26. The Union Budget for fiscal 2005 had recommended that the ceiling on foreign holding be increased to 49. Indian Life Insurance companies can opt for a public issue of equity through an Initial Public Offer (IPO) after 10 years of operations. The Indian government has supported an increase in the FDI limit. The Insurance Regulator has stipulated that foreign investment in Indian Insurance companies be limited to 26% of total equity issued (FDI limit) with the balance being funded by Indian promoter entities. Some of the insurance policy options. In October 2010. The limit to foreign investment includes both direct and indirect investment and has been a cause of significant lobbying by foreign insurance companies for a change in regulations to increase the FDI limit to 49% of equity issued.0%.0% of its equity / ordinary share capital. Under the Insurance Guidelines. requirements for policy coverage. which requires a change in the Insurance Act. Securities and Exchange Board of India (SEBI). The Indian government has tabled the bill in the Upper House of Parliament in August 2010. A change in the Insurance Act requires a passage of the bill in both houses of Parliament.Foreign Direct Investment (FDI) Policy in Insurance Sector As per the current (Mar 06) FDI norms. Initial Public Offer (IPO) rules for Indian Life Insurance Companies A key piece of legislation impacting on the Life Insurance industries capital raising abilities is the lock-in period of 10 years for investment to be limited to promoter group equity investments. Indian Insurance Policies The insurance industry in 2010 in India has flourished and is offering more and more options to the citizens of the country. the securities market regulator.
Jana Shree Bima Yojana In this insurance policy.25000 on due to accidental death.2001. a minimum membership of the group should be 25. There is an insurance coverage of Rs 2.5000 per annum. Mediclaim Insurance Policy This policy helps in reimbursing the medical expenses. Videsh Yatra Mitra Policy It is for providing benefits for medical expenses during the period of overseas travel. 3. The limitcoverage is fixed at Rs. Social Security Group Scheme This scheme is administered by Life Insurance Corporation of India for fulfilling the requirement of the weaker section in the society. The premium amount is fixed at Rs.1.000. Shiksha Sahyog Yojana This scheme is working since December 31. 7. 6.000 on natural death and Rs 50. This policy was started in the year 1998 by four General Insurance Companies. The age coverage is from 5-80 years. 200 for single member. Here there is a tax benefit of upto Rs 10. Under this scheme an educational scholarship of Rs. This scheme is working since August 10th.000 for accidental death. This scheme covers the peoples in the age group of 18-60 years and aninsurance of Rs. The premium collection for the adults upto the age of 45 years is Rs. Jan Arogya Bima Policy Generally this scheme covers a special group of population who are unable to pay for high cost of medical treatments. 70 and for children it is Rs. 2000.5000 for natural death and of Rs. 50. 4. 5. Bhagya Shree Child Welfare Bima Yojana 25 . 2.300 per quarter per child is given for a period of four years.
The most common types include: term life policies. This policy is working since October 19. joint life policies. whole life policies. unit-linked insurance plans. Here a maximum amount of Rs. Ashray Bima Yojana The policy is covering workers in case of loss of jobs since October 10. Raj Rajeshwari Mahila Kalyan Yojana This scheme provides protection to woman in the age group of 10 to 75 years with an insurance of Rs.3000 assistance is given to the workers till he/she gets an alternative opportunity. 8. General insurance plans are also available to cover motor insurance. For years now.This policy covers one girl child in a family upto the age of 18 whose parents age does not exceed 60 years. Insurance Market The insurance sector was opened up for private participation four years ago. travel insurance and health insurance. home insurance.000 for accidental death and 25. 9. Insurance coverage includes 50. 25. Under this scheme all the KCC holders are covered up to an age of 70 years.000 and premium Rs. more and more insurance companies are now emerging in the Indian insurance sector. Due to the growing demand for insurance. pension plans. several international leaders in the insurance sector are trying to venture into the India insurance industry. a range that is growing as the economy matures and the wealth of the middle classes increases. endowment policies. 10. loan cover term assurance policies. 1998. Personal Accident Insurance Scheme for Kissan Credit Card This scheme is working since 2001.2001.000 for partial disability India Insurance Policies at a Glance Indian insurance companies offer a comprehensive range of insurance plans. and annuities. With the opening up of the economy.15 per annum. This scheme is working since October 19.15 per annum. The insurance market have witnessed dynamic changes which includes presence of a fairly large 26 . the private players are active in the liberalized environment.1998 with a premium of Rs. group insurance policies.
the public sector companies still call the shots. ICICI Prudential Life Insurance Company continues to lead the private sector with a 7. Less than 10 % of Indians above the age of 60 receive pensions.53% of the non-life market.number of insurers both life and non-life segment. whereas ICICI Lombard General Insurance Company is the leader among the private non-life players with a 8. With many more joint ventures in the offing. the insurance industry in India today stands at a crossroads as competition intensifies and companies prepare survival strategies in a detariffed scenario. nine private non-life insurers and six public sector companies. National Insurance. Life Insurance Corporation of India (LIC). There are opportunities in the pensions sector where regulations are being framed. The country’s largest life insurer.82% in new business premium income in November 2005. The IRDA has issued the first licence for a standalone health company in the country as many more players wait to enter. which would help JV partners to bring in funds for expansion. There are now 29 insurance companies operating in the Indian market � 14 private life insurers. Similarly. The deepening of the healthdatabase over time will also allow players to develop and price products for larger segments of society.11% market share. Most of the private insurance companies have formed joint venture partnering well recognized foreign players across the globe. 27 . Also as the private sector controls over 26. Oriental Insurance and United India Insurance � had a combined market share of 73. But the reality is that the intense competition in the last five years has made it difficult for new entrants to keep pace with the leaders and thereby failing to make any impact in the market. the four public-sector non-life insurers � New India Assurance. 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%.26% market share in terms of fresh premium. had a share of 74. The health insurance sector has tremendous growth potential.47% as of October 2005. and as it matures and new players enter. ICICI Lombard has focused on growing the market for general insurance products and increasing penetration within existing customers through product innovation and distribution. product innovation and enhancement will increase. State Insurers Continue To Dominate There may be room for many more players in a large underinsured market like India with a population of over one billion.18% of the life insurance market and over 26.
. product innovation and newer standards of underwriting. The battle has so far been fought in the big urban cities. while piloting the bill. Global Standards While the world is eyeing India for growth and expansion.65% of GDP. The year 2005 was a testing phase for the general insurance industry with a series of catastrophes hitting the Indian sub-continent. there will be considerable improvement in customer service levels. Insurance companies will vie with each other to capture market share through better pricing and client segmentation. The industry now deals with customers who know what they want and when. but in the next few years. Fiji. insurers have successfully managed to tide over the crisis without any adverse impact on their balance sheets. viz. with robust reinsurance programmes in place. in a spirit of trusteeship.D. innovative sales methods and creditworthiness. products. With the industry all set to move to a detariffed regime by 2007. which has set its sight on becoming a major global player following a Rs280-crore investment from the Indian government. The then Finance Minister. 1956. Indian companies are becoming increasingly world class. outlined the objectives of LIC thus: to conduct the business with the utmost economy. 1956 by an Act of Parliament. Shri C.Reaching Out To Customers No doubt. the customer profile in the insurance industry is changing with the introduction of large number of divergent intermediaries such as brokers. and are more demanding in terms of better service and speedier responses. the opportunities in the Indian market place is immense. Intense Competition In a de-tariffed environment. However. underwriting criteria. The next five years will be challenging but those that can build scale and market share will survive and prosper. competition will manifest itself in prices. Sri Lanka. withcapital contribution from the Government of India. the UK. to charge premium no higher than warranted by strict 28 . increased competition will drive insurers to rural and semi-urban markets. Life Insurance Corporation Act. Nepal and will soon start operations in Saudi Arabia. It also plans to venture into the African and Asia-Pacific regions in 2006.5% of GDP and general insurance premiums being 0. and bancassurance. Deshmukh. The company now operates in Mauritius. corporate agents. LIFE INSURANCE CORPORATION OF INDIA (LIC) Life Insurance Corporation of India (LIC) was formed in September. Take the case of LIC. With life insurance premiums being just 2.
Nepal by the name of Life Insurance Corporation (Nepal) Limited in collaboration with Vishal Group Limited. Nairobi. 2000 in Kathmandu. There has been an almost total failure of the public health care system in India.C. Some Areas of Future Growth Life Insurance The traditional life insurance business for the LIC has been a little more than a savings policy. term life policies would be the main line of business. thereby making insurance widely popular. 1996). Ken-India Assurance Company Limited. namely. Pension The pension system in India is in its infancy. Bahrain. gratuities and pension funds. An off-shore company L. This creates an opportunity for the new insurance companies. Mauritius and United Kingdom. LIC has built up a vast network of 2. a local industrial Group. Thus. (Mauritius) Off-shore Limited has also been set up in 2001 to tap the African insurance market. LIC is associated with joint ventures abroad in the field of insurance. Kuala Lumpur and Life Insurance Corporation (International) E. to invest the funds for obtaining maximum yield for the policy holders consistent with safety of the capital.C. Term life (where the insurance company pays a predetermined amount if the policyholder dies within a given time but it pays nothing if the policyholder does not die) has accounted for less than 2% of the insurance premium of the LIC (Mitra and Nayak.7% is private and the rest is public. Since nationalisation. 4. The Life Insurance Corporation of India also transacts business abroad and has offices in Fiji. The Corporation has registered a joint venture company in 26th December.048 branches.5% are out of pocket expenditure (Berman. For the new life insurance companies. Health Insurance Health insurance expenditure in India is roughly 6% of GDP. What is even more striking is that 4. to render prompt and efficient service to policy holders. United Oriental Assurance Company Limited.actuarial considerations. Of that.I. Most of the pension schemes 29 . much higher than most other countries with the same level of economic development. There are generally three forms of plans: provident funds. 2001). private insurance companies will be able to sell health insurance to a vast number of families who would like to have health care cover but do not have it. 100 divisions and 7 zonal offices spread over the country.
The market share was distributed among the private players. NAME OF THE INSURANCE COMPANY AND THE SHARE HOLDING PATTEN Name of the Insurance Company Agricultural Insurance Co Bajaj Allianz General Insurance Co. LIC market share has decreased from 95% (2002-03) to 81 %( 2004-05). Since the advent of the private players in the market the industry has seen new and innovative steps taken by the players in this sector. there is a huge scope for the development of pension funds in India. 1997). most workers do not have any retirement benefits to fall back on after retirement. MARKET SHARE OF INDIAN INSURANCE INDUSTRY The introduction of private players in the industry has added value to the industry. As a result LIC down the yearshave seen the declining phase in its career. 2000). The finance minister of India has repeatedly asserted that a Latin American style reform of the privatized pension system in India would be welcome (Roy. it is not clear whether such a wholesale privatization would really benefit India or not (Sinha. 30 Shareholding Bank and Public Ins Co Privately Held Privately Held . Given all the pros and cons. The new players have improved the service quality of the insurance.are confined to government employees (and some large companies). Total assets of all the pension plans in India amount to less than USD 40 billion. The initiatives taken by the private players are very competitive and have given immense competition to the on time monopoly of the market LIC. Cholamandalam MS General Insurance Co. Ltd. Ltd. The vast majority of workers are in the informal sector. Though LIC still holds the 75% of the insurance sector but the upcoming natures of these private players are enough to give more competition to LIC in the near future. As a result. Therefore.The following companies has the rest of the market share of the insurance industry.
Ltd. Royal Sundaram Alliance General Insurance Co. Ltd. Ltd. United India Insurance Co. Ltd. Ltd. Oriental Insurance Co. New India Assurance Co.Export Credit Guarantee Company HDFC Chubb General Insurance Co. MetLife Insurance Co. Ltd. of which one is a Public Sector Undertaking and the balance 12 are Private Sector Enterprises. Public Sector Privately Held Privately Held Privately Held Public Sector Public Sector Public Sector Privately Held Privately Held Privately Held Public Sector There are a total of 13 life insurance companies operating in India. IFFCO-Tokio General Insurance Co. Ltd. National Insurance Co. Reliance General Insurance Co. List of Companies are indicated below:NAME OF THE LIFE INSURANCE COMPANY AND THE SHARE HOLDING PATTEN Name of the company Allianz Bajaj Life Insurance Co Aviva Life Insurance Birla Sun Life Insurance Co HDFC Standard Life Insurance Co ICICI Prudential Life Insurance Co ING Vysya Life Insurance Co. Nature of Holding Private Private Private Private Private Private Public Private Private 31 . ICICI Lombard General Insurance Co. Ltd. Ltd. Life Insurance Corporation of India Max New York Life Insurance Co. Tata AIG General Insurance Co. Ltd.
AIG Life Insurance Company Private Private Private Private NAME OF THE PLAYER MARKET SHARE (%) Name of the Player LIFE INSURANCE CORPORATION OF INDIA ICICI PRUDENTIAL BIRLA SUN LIFE BAJAJ ALLIANZ SBI LIFE INSURANCE HDFC STANDARD TATA AIG MAX NEW YARK AVIVA OM KOTAK MAHINDRA ING VYSYA MET LIFE Market share (%) 82. The insurance sector in India has come to a position of very high potential and competitiveness in the market.36 1.63 2.80 1.Om Kotak Mahindra Life Insurance Reliance insurance SBI Life Insurance Co TATA.56 2.37 0. Saturation of markets in many developed economies has made the Indian market even more attractive for global insurance majors. are now suddenly turning to the private sector that are providing them new products and variety for their choice.90 0.51 0.79 0. 32 . have always seen life insurance as a tax saving device. Indians.03 1.3 5.29 0.21 PRESENT SCENARIO OF INSURANCE INDUSTRY India with about 200 million middle class household shows a huge untapped potential for players in the insurance industry.
accidents and cattle insurance. In a study conducted by MART the results showed that nearly one third said that they had purchased some kind of insurance with the maximum penetration skewed in favor of life insurance. Foreign players are bringing in international best practices in service through use of latest technologies The insurance agents still remain the main source through which insurance products are sold. A research conducted exhibited that the rural consumers are willing to dole out anything between Rs 3. which is not considered very appropriate for long-term protection and savings. Consumers remain the most important centre of the insurance sector. More customers are buying products and services based on their true needs and not just traditional moneyback policies. Recession is an outcome of slowdown in economy and is 33 . healthproducts.900 as premium each year. children's education and good return on savings. The concept is very well established in the country likeIndia but still the increasing use of other sources is imperative. Economic growth spurs insurance activities and a recession creates manifold problems for the insurance industry. in that order. Customers are offered unbundled products with a variety of benefits as riders from which they can choose. At present the distribution channels that are available in the market are listed below: Direct selling Corporate agents Group selling Brokers and cooperative societies Bancassurance Customers have tremendous choice from a large variety of products from pure term (risk) insurance to unit-linked investment products. there are still some key new products yet to be introduced . The study also pointed out the private companies have huge task to play in creating awareness and credibility among the rural populace. The rural consumer is now exhibiting an increasing propensity for insurance products.e. Computerisation of operations and updating of technology has become imperative in the current scenario. but the consumers are also aware about motor. the study adds. There is lots of saving and investment plans in the market. In the insurance the awareness level for life insurance is thehighest in rural India. The perceived benefits of buying a life policy range from security of income bulk return in future. 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. Insurance industry follows closely the fortune of the financial sector and is directly impacted by the movements at the macro-economic level. daughter's marriage.500 and Rs 2.g. However.
Northern Rock.812 crore.51.60 2.21.90 .061 1.90 0 50 .7 243.56 118.50 3.50 um Net 3.791 crore in the previous fiscal. This situation has led to liquidity crunch worldwide and cash flow has dried up.149.676 5.30 784.0 33.1 6.80 .30 .evidenced by successive periods of negative growth in production.09. Citigroup.69 7 8 1 7 . 3.19 2 2 99 ed 34 .941.80 93 . Current recession actually started in late 2007 when subprime crisis reared its ugly head though manifestations became visible only in 2008.04 82.2 20. with an 18% increase in total premium received during the year to Rs 2. e.2 90.195 10. Incurr 8 37 .291 4. the Life Insurance Council said in a statement.20 238.428 463.313 1.013 Earne .37 . Consumer confidence is shaken and the demand for products and services are at abysmally low level. Financial Results for 2003/2004 of General Insurance Companies INR Millions Fire Portfolio Natio New Orien Unite Bajaj Chola HDF ICICI IFFC Relia Royal TAT Total nal India tal d Allia Manda C Lomb O nce Sunda A India nz lam CHU ard Tokio Gener ram AIG BB al Gross 5.3 67.g.57 18.8 2. The industry had collected premium worth Rs 2. Lehman Brothers.6 505.61. Bradford & Bingley and many others have either failed or are in bad shape due to severe losses.025 crore over the previous fiscal. Freddie Mac.108 60. AIG.73 d Premi um Net 900.21 40.639.20 .613.202 254.43 93. According to the council's data.02 134.482 7. new business premium jumped 25% to Rs 1.26 40. Merrill lynch.75 0. 34.90 00 .43 27. 1.355 6. Several significant casualties have been reported.006 crore last year. The life insurance industry witnessed a steady growth in 2009-10 financial year.213 crore in FY'10 from Rs 87. while renewal premium of the industry grew by 13% to Rs 1.211 264. 1.823 Premi .65 . Washington Mutual.
915.00 487. 1.05 69. 18.3.947. 13.0 133.32 44. 58. 7.837.27 15.70 189.121.286.Claim s Operat 1.20 471.8 Profit/ 7 0 Loss 5.87 . Earned 63 32 93 96 5 86 92 23 Premiu m Net 914.21 155.95 92.145.789 Premiu 79 50 40 40 30 0 90 0 00 .1 44.015 398.004. 3.30 21.481.69 25. 132.981. 11.974 2.30 .948. 207.6 59.320.83 127.0 244.107.548.10 3.697.26 70 .355.081.413. . 1.01 -0.17 -0.1 156.-8.316. 20.3 674.209.75 35 1.59 m Net 1.60 35.0 13.04 5 45 41 60 d 9 Claims Operat 1.59 9 3 4 26 90 Profit/ Loss Financial Results for 2003/2004 of Marine Insurance Companies Marine Portfolio Natio New Orien Unite Bajaj Chola HDF ICICI IFF Relia Royal TAT Total nal India tal d Allia Mandal C Lomb CO nce Sundar A India nz am CHU ard Toki Gener am AIG BB o al Gross 1. 1.17 657.60 1.24 . 3.20 21.355.888.01 64. 596.30 0.5 15. 2.4 117.1 4.9 717.02 5.287.334 225. ing . Incurre 1 8 4 4 92. 9.3.096.125. 1.80 309.1 .4 460.42 383.984.15 151.5 819.5 43.30 15.66 1972.616 2.25 -70.28 196. 3.001.90 1. 69.52 26.04 119.10 18.5 65 8 Financial Results for 2003/2004 of Insurance Companies Miscellaneous Portfolio National Gross Premium Net New India Oriental United India Bajaj Chola HDFC ICICI IFFCO Relia Allianz Mandalam CHUBB Lombard Tokio Gene 657.056.86 101. 2.65 ing 28 89 4 3 33.70 2.
421.095.79 790.104.30 23.12 35.724.0 1.094. 1.37 1.88 Profit/Loss -172. 1.88 -1. 36 . 31.99 27.703.893 6.88 16.851.90 00 .653.259.1 Net Worth Movement For The Past Three Years INR Millions Nation New Orient United Bajaj Chola HDF ICICI IFFC Relian Royal TAT al India al India Allian Mandal C Lomb O ce Sundar A z am CHU ard Tokio Gener am AIG BB al 200 9.366. 2.Earned Premium Net Incurred Claims 19.876.16 -301. 00 00 00 0 00 200 10. 14.90 3.28 263.050.62 1.319.75 -43.002.139.728.91. 13.42 269. 39. 2.80 00 02 1.010.50 5.283.28 33.068.26 Profit/Loss -168. 1. 21.5 Financial Results for 2003/2004 of Total portfolio Total National Gross Premium Net Earned Premium Net Incurred Claims New India Oriental United India Bajaj Chola HDFC ICICI IFFCO Relia Allianz Mandalam CHUBB Lombard Tokio Gene 970.235.610 397.234.219 13.141.020.639.88 56. 1.353.325.634.0 1.68 1.085.721 34.446 1.40 30.327.8 811.81 1.193.40 31. 120 .040 8.765.098.38 2.86 3.40 1.313.596.70 . 1.55 19.69 1.093.70 43 0 20 98 93 83 3 97 03 200 8.997.434 11.21 762.04 14. Operating -3.50 238.06 208.419.336.306. 1.298. Operating -231.234.58 479.30 176.135.54 728.999.6 1.70 28.018 1.01 -295.23 -2. 1.00 50 .89 896.52 237. 1.98 -60.300.094.69 49.57 21.05 700.70 4.506. 1.32 222.975.1.959.297.002.129.222.000.894. 1.53 492.45 1.878.47 18.31 2. 1.214.75 156.79 15.9 1.018 1.60 23.01 -55.
Despite fluctuations in the output the growth in the basic goods sector was marginally higher than in the previous year at 6%. Food Products (5.9% in AprilNovember 2005-06.2006 In April . by 7. production grew faster only for Cement at 10.9% respectively. 7.3%).00 . Jute and other fiber textiles (4.November 2005-06 Production of Finished Steel.37 million was made at the end of December 2005-06. In contrast overall growth in the intermediate goods sector went down by more than half to 3%. • Highest ever addition to telephone network of 28.4%) and Rubber (1.8%). Index of six core infrastructure industries grew at a slower pace of 4.November 2005-06 than it did last year and remained the main growth driver in the current year. Sectors with positive growth rate in November 2005-06 are Cotton Textiles (13. Basic Metals (13.304 90 . However in the consumer goods sector it was the consumer nondurable that registered a significant pick up in growth even as the growth in the consumer durable goods segment. Coal and Power grew up at a lower rate than last year. Manmade textiles (3.1% and 4. Manufacturing continued to grow faster in April. Growth in the capital goods sector was up by 3 percentage points to 15.6% in the April.November period of 2005-06. In the April. marginally below the growth rate last year. Total phones stood at almost 125 million on account of 23.November 2005 -06 overall industrial productions achieved a growth rate of 8.7 • 37 . Among the six core infrastructure industries.2%).8%). Transport (11. Industry was aided by the buoyancy in both the consumer and investment goods sectors.2%.3 %. The index indicates a slowdown in the month of November 2005.80 75 0 95 32 82 73 6 97 Indian Economy in 2005 .8%).4% in AprilNovember period of current year.40 .3%).
• The total credit of SCBs increased in December 2005-06. the non-oil imports decelerated sharply in the second consecutive month of Q3 2005-06.million cellular phones booked in April.6%). • Textile and Edible oil became cheaper. and Food products (5. Government Borrowings reduced further.2%).6% in the last month of Q3 200506. however. further picking up to exceptionally all time high levels. Expenditure in the plan category also rose by 19. Commodities with slow prices increase in December of 2005 are Minerals (29. • 38 . Mobile phone network also added a record of 4. • Broad Money grew at higher magnitude of 12% in the fiscal year upto December 2005.06 this was mainly due to higher growth credit to the commercial sector.December 2005-06.9%). Vegetables (15%) . Sugar KG (8. Lower government borrowings are also reflected in low investments made by SCB.5 % and Textile by 3. Cement (9. For the first time in the last eight months collections from income tax showed a positive going up by 22.44%.7%).9%). Mineral Oil (11. ascribed to higher non -food credit. In November 2005-06 Gross tax collections increased at a marginally lower rate. which registered a decline. aggregate deposits in Scheduled Commercial banks increased by 14% by December 2005.7%). Both the indices recorded a 5% rise in November against the previous month of 2005-06.1%. On the other hand. Non-Plan Expenditure accelerated by 7. and Chemical Products (3. Drugs and Medicines (6. Corporation tax however decelerated for the first time after five months in November 2005-06.6%.2%). %. Exports increased at a higher rate of 16. The revenue receipts and net tax revenue in the April November period of 2005-06 went up by 16.9%).5% and 22% respectively.8%.19% in December 2005-06 where as Imports grew at 8. Sensex and Nifty increased to 9390 and 2835 points respectively. • Over all commodity prices index increased by 4. In December 2005 Oil imports exhibited a sharp rise by 63% over a negative 18% in the December 2004.4% fall in the same period of last FY. Fuel with (7.9%) have become expensive with prices rising faster than the other commodities . price of Edible oil was reduced by 7.46 million phones in December 2005-06. Stock Markets had shown resilience in November 2005-06. Food grains (4.7% as compared to a 8. primarily because of increased expenditure in the revenue head.
Growth in April-October 2005 period of the major commodities for Indian exports are: Transport equipments (48%), Iron ore (40%), Machinery & instruments (31.9%), Basic Chemicals Pharmaceuticals (22.5%), Manufacture of Metals (20.1%), Rubber Glass (18.4%), Readymade Garments (15.9%), Electronic Goods (3.5%) and Iron and Steel (0.7%). Major partners for Indian exports in April-October 2005 are: Singapore with 68% Growth, Sri Lanka (54%), Netherlands (53.2%), China (48.8%), UK (37.6%), Hong Kong (34.7%), EU (25.2%), France (24.9%), Japan (20.9%,) Germany (18%), UAE (15.6)%, Belgium (15.1)% and Italy (8.6). Growth in major commodities for India's imports are Iron and Steel (95%), Metal scrap and ores (57%), Fertilizers (57.4%), Artificial Resins ( 56.7%), Transport Equipments (53%), Machinery (48.9%), Textile Yarn Fabric (36.5%), Pearls, Precious stones (36.4%), Gold and Silver (34.1)%, Organic and Inorganic Chemicals (20.6)% and Electronic Goods (18.3%), Major Importing Partners for India are: Russia (62%), Germany (48.1%), China (47%), Switzerland (43.1%), Hong Kong (42.6%), UAE (40%), Australia (37%), EU (30%), UK (29.9%), South Korea (29.8%), USA (21.8%), Belgium (21.%), Singapore (19.7%), Japan (12.9%) and Malaysia (6.7%).
Total Foreign Investment in the April - October 2005-06 went up to $ 8472 million. October 2005-06 figures show a drop in Total Foreign Investment inflow due to erosion in Portfolio Investments, however, Foreign Direct Investment firmed up in the beginning Of Q3 2005-06.
In December 2005-06 Foreign Exchange Reserves fell by 3.4%, from $ 142.1 billion in November 2005-06 to $ 137.2 billion. This is mostly due to the sale of dollars for the redemption of IMDs (India Millennium Deposits).
Indian Currency exchange rates vis-à-vis USD remained unchanged at Rs 45.7 in last month of Q3 2005-06 against previous month of 2005-06 and in the same period INR position weakened against Euro at Rs 54.15 , changing by 0.47% .
Indian Economy 2006 - 2007
Economic growth, at times euphoric, is expected in India for the period 2006-2007. The better performance in the services sector and manufacturing industries will act as the main parameters for maintaining the economic growth, what the evidences tell. The real GDP growth in the country is calculated in the range of 7.5-8.0 per cent during the year 2006-07. Presently the Indian Economy is coming across various 39
risks both in the domestic scenario as well as in the international scenario. The global economy suffers from the problem of record level of international crude oil prices, overall inflationary pressures and rising international interest rates. In the same direction the Indian Economy also suffers from the problem of monsoon, infrastructure bottlenecks, and fiscal imbalances. Though there are a larger number of ongoing imbalances continuing over the world, still to what extent different sectors in the Indian Economy have responded in the period of 2006-07. Agriculture Sector: Let us analyze Agriculture once considered, as the "Back bone of Indian Economy" is justified to what extent for the Indian Economy today. As to statistics, the actual growth in the agricultural sector during the first four years of the Tenth Five Year Plan was two per cent per annum on an average basis. The slower rate of economic growth in the country is being marked due to stagnation in domestic production in the commodities such as wheat, sugar and pulses. The declining production in the agricultural sector is generally marked due to some constraints like infrastructure bottlenecks, particularly in regard to irrigation facilities; continue to impede speedy adoption of improved technology. However after analyzing the present scenario on the Indian agriculture, in terms of its success story and challenges ahead it's the time for justifying "Indian Agriculture as the backbone of Indian Economy". All the Planners, thinkers, and economists tell about services sector, which has the highest percentage share in country's Gross Domestic Product. But to what extent this fast rising services sector is able enough to solve the problem of inequality, poverty and mal nutrition in the Indian Economy. Really it fails and it is the agriculture, which can solve the above problems.
Indian Industries have entered in to an atmosphere of higher competition in the era of globalization. The resilience shown by the industrial sector against the hardening of global oil prices is reflective of inherent strengths and capabilities that the industrial sector has built up over the years since the initiation of economic reforms in the country. Besides higher levels of investment, issues of governance and management including policies relating to appropriate pricing and user charges would need to be addressed to achieve satisfactory results. Given the rising international crude oil prices and stagnant 40
domestic crude oil production, an integrated approach to efficient use of energy - both oil and non-oil energy resources - assumes importance.
India's services sector has grown very fast as it holds a larger portion of young peoples. The educated young masses in India have brought tremendous success for the country in the recent years. The services sector in the country has benefited from the availability of vast skilled labour. In the coming years, India is expected to benefit further from the demographic dividend emanating from a higher proportion of younger population. For this demographic dividend to be reaped fully, improvements in education, skills, health and governance would be needed so that the Indian labour force is globally competitive. There is need to improve the availability of educational facilities at all levels - primary, secondary and tertiary - to equip the labour with the necessary skills to maintain current competitive advantage.
The external sector of the Indian economy is also performing better. India is in a path to capture 1% of the global trade in the near future. Merchandise export growth of 24 per cent per annum, on average, in the past four years points to the growing competitiveness of Indian manufacturing. Improvements in infrastructure assume critical importance for maintaining and improving our competitiveness as also encouraging investment in export production and sustaining the pace of export growth in the longer term. For the full potential of earnings from exports of services to be realised, issues relating to skill enhancement and quality of education assume greater importance. Demand for education, especially higher education, is expected to grow immensely in the coming years in view of the demand emanating from knowledge intensive nature of the services sector as well as demands from the manufacturing sector.
Recession hits general insurance industry
The industry is faced with twin challenges: economic slowdown and lower margins due to freeing up of premium rates.The slowdown in economic activities in India has led to a sharp reduction in asset creation in the Indian industries. This along with rigorous cost cutting measures in all businesses has directly impacted the general insurance (non-life) industry in the country. The 16-players industry together collected Rs 30,601 crore as premium underwritten in 2008-09, up only 9.10 per cent from Rs 28,051 crore in 2007-08. This was the slowest growth in gross premium underwritten in the last five years. The general insurance industry’s premium collection grew 22 per cent in 2006-07 and 12 per cent in 2007-08. 41
United India and Oriental. in 2006 .1 per cent in 2007.a fast growth from just about 20 per cent four years ago. engineering and motor own damage (OD) segments. insurance companies have aggressively expanded their scale of operation and a slowdown in the premium growth rates may imply higher levels of underwriting losses. while the other three grew only by single digit.6 per cent for the Indian non life insurance industry as against a world average of 3. pointed out CARE report. CARE said. “Following detariffing. On the other hand. a low level of insurance penetration in India also throws up opportunities in terms of untapped market potential. De-tariffication One of the major milestones in the Indian general insurance industry has been the withdrawal of premium pricing restrictions post January 2007. health. despite the slowdown. — in 1994 marine cargo. Shriram General. Royal Sudaram. CARE is a Mumbai-based credit rating agency. personal accident. But all private players together managed sober 12 per cent growth. aviation. premium rates in fire as well as motor42 . like fire insurance. Penetration as measured by the premium to GDP ratio stood at 0. General insurance companies also made losses because abolition of tariffs has led to a virtual price war in certain lines of business like Fire and Engineering insurance. In addition. This is mainly because of the “reduced ability to recompense the higher cost of operation”.The most important reason for the drop in business was that many small and medium businesses either did not buy insurance covers. Bharti AXA are three new players to join the fray. Interestingly. Among the private players IFFCO-Tokio did the best with 22 per cent growth in premium underwritten in 2008-09. or went for lower cover to save on premium expenditure. Cost catching up Private companies now account for 41 per cent of the total premium underwritten by the industry . the fire and motor segment as well as the higher underwriting losses posted by both the private as well as public sector companies. taking total number of private companies to 12. Writes the CARE report: The de-tariffing of Indian general insurance industry has occurred in three phases.Fire. Also the sharp drop in sales of commercial vehicles. tractors and near stagnation in car sales led to a big drop in insurance premium underwritten. This is evident from the higher claims ratio in both. According to a report prepared by CARE Ratings. National. Bajaj Allianz are the other two players to manage a decent growth. there are four companies from the public sector: New India. Among the government companies only United India could manage to grow14 per cent.marine hull segment and in 2007 . the general insurance industry attracted many new players last year. Universal Sompo. But the largest private player ICICI-Lombard and the second biggest Reliance General almost stagnated (see table). in the recent past.
The continual entry of new private players coupled with the intense competition sparked off by the detariffication of general insurance sector has also resulted in strengthening the bargaining power of the customer and development of customer centric insurance products. While Fire segment has seen premium correction up to 70 per cent. the Fire segment saw the claims ratio rising from 58 per cent for 2008-07 to 69 per cent in 2007-08. children’s education. This is the greatest mystery. liabilities. at 8% interest rate is Rs 12. But no one thinks that for himself. Indian consumers have bought life insurance for reasons of tax saving rather than the core need of providing for one’s family in case of death of breadwinner.00. Thus the annual income provided to your family is Rs 96000. motor segment has witnessed decline in rates upto 30-40 per cent. while short term scenario for the general insurance sector appears to be challenging the long term prospects definitely present ample opportunities for growth. This is only a representation of the value of HLV. have placed on their websites the HLV calculators to make you understand the HLV and your life insurance needs better. The most important question is what is the value of your life? Heard of this Yaksha question: What is the greatest mystery on earth? Yudhisthir answers.a. The ability to price effectively will also imply an increased focus on risk management by the insurance companies. the untapped market potential holds the opportunity to grow faster. going forward adjustment in premium rates would occur when the industry matures and consolidation takes place. On the whole. The outlook Considering the high level of underwriting losses. That is the paradox that makes people to avoid life insurance! That also makes agents take the wrong line of selling Insurance as a tax saving and Investment product (ULIP).8000 after deducting Rs 2000 for personal expenses. While the government’s plan to raise FDI cap in insurance companies from 26 to 49 per cent will lead to more capital flowing in. So what should we do? Start with calculating the Human Life Value (HLV). A very simple way of looking at it is as following: Imagine a monthly income of Rs 10000 and the net income provided to the family is Rs.OD saw a considerable fall. Insurance happens to be a mega opportunity in India. With largest number of life insurance policies in force in the world. It is not the exact way of calculating your HLV. The future income growth.000. Various private insurers like Bajaj Allianz. spouse income. Met Life etc.” said CARE in its report. “Every one has to die. The amount of money that will earn Rs 96000 p. etc are also to be factored in. It is a business growing at the rate of 15-20 percent annually and presently is of the order of Rs 450 43 . Life Insurance Industry-Past./. Present & the Future Manner and allow savings to grow to help meet our future financial obligations. your income generating assets. As a result.
You are accustomed to a certain standard of living. And this part of the population is also subject to weak social security and pension systems with hardly any old age income security.do we believe that destiny will announce its arrival in our lives? Will destiny always allow you to complete your tax planning for the year and then strike? The answer is a resounding ‘no’. Maybe you would like your grandchildren to receive some money from you as well. These myths will help explain why the number of individuals insured and the average amount of insurance cover per individual is so low in our country. it adds about 7 per cent to the country’s GDP. Together with banking services.billion. As stipulated by the Insurance Regulatory Development 44 . General insurance is often bought because there are compulsions under the law (motor vehicles. lack of education has made customers believe that insurance is a tax-planning tool and the protection element is only a marketing strategy. conceptually. Before we get into the recommended approach to Life Insurance. In the case of life insurance. The possibility of death is either ignored or not considered imminent. The moot question is . Life insurance can help you achieve such goals. Life insurance is not bought in India. since the same incentives are available to all insurance companies. There is a large potential in rural India. Sad. Sadly. It is important that each one of us put some thought into the potential exposure of our family to the risk of the primary wage earners risk of dying too early and arrive at the level of protection required. public liability.) or from the financiers asking for insurance as collateral security. they will live a long and healthy life. workmen etc. and you would like to sustain the same standard of living for your wife in your absence. that is not always true. even in your absence. Most people never do believe that they can succumb to destiny and they think. There are financial tools that help us determine the “risk of dying early” leading to the quantum of Life Insurance required. MYTHS ABOUT LIFE INSURANCE Nearly 80 per cent of Indian population is without life insurance cover while health insurance and non-life insurance continue to be below international standards. Life insurance protects you and your loved ones in the event that you meet with an untimely demise. the decision on quantum of insurance cover and timing is made just before the financial year ends.are we buying Life Insurance to save taxes or are we buying it to protect our family’s financial future? Since people believe that nothing ever can happen to them. all that these tools try and determine is the present value of your future earnings keeping in mind your future goals and aspirations. TAX SAVING CONCEPT The question that we should ask ourselves is . While the algorithms may be different. The tendency is to defer the decision. This is an indicator that growth potential for the insurance sector is immense. this is the way Life Insurance has been largely sold in this country. there is very little compulsion. However. A prudent financial plan needs to build in the risk of dying too early to ensure that our family’s financial future is protected. Individuals buy “enough” Life Insurance to get tax breaks just before the financial year ends. but true. let us delve on some of the myths surrounding Life Insurance in India. Tax benefits have been driving LIC’s business over the years and the same will drive private player’s too. Gross premium collection is nearly 2 per cent of GDP and funds available with LIC for investments are 8 per cent of GDP.
it would help to look at the past record of the foreign partner in the joint venture and the ability of the Indian partner to continue to infuse capital. individuals expect life insurance companies to give “high guaranteed” returns. are now suddenly turning to the private sector and snapping up the new innovative products on offer. Given such an economic environment. Indians. “I do not know.how much is the guaranteed return that a Life Insurance contract can give. smart marketing and aggressive distribution. The way in which the contract works is that the premium that each of us pays gets invested after deducting for the cost of mortality and other administrative expenses of the insurance company. the level of investment return that an insurance company can generate can vary substantially.Authority. it is imperative that each customer understands and is able to determine the benefits of the product. GUARANTEED RETURNS The question we need to ask is . five per cent of our new business must cover rural India and the figure must reach 15 per cent by the fifth year. Again. From a customer point of view. Riders are very economical and one should always choose the desired riders along with the basic life insurance policy. The classic example is Japan where with interest rates at sub zero levels. that’s the triple whammy combination that has enabled fledgling private insurance companies to sign up Indian customers faster than anyone ever expected. who have always seen life insurance as a tax saving device.” Unfortunately. In such a scenario. Given the long-term nature of the Life Insurance contract. Even cost comparisons can be made through premium calculators. Given that all the private sector insurance players are new to the business. where is the scope for the insurance company to offer a fixed return to their policyholders but have an earnings stream that is highly volatile and variable? Interest rates on Government of India securities have fallen by over three hundred basis points in the last three years. insurance companies that offered guaranteed return policies to their policyholders are going down. All of this is very encouraging for the life insurance sector. 45 . The answer is. the investment return that the insurance company can generate on our savings depends upon the prevailing investment opportunities at the time when the premium is paid. if you are buying Life Insurance for the “high guaranteed return” the policy offers. Your insurance company may not be able to pay you the promised return when your family needs the money most. What is needed most is the guaranteed return and wider risk coverage. Innovative products. Again. it is important to look at the profile of the life insurance company that is underwriting the risk. given the capitalintensive nature of the business. Since the premium is paid over a period of time. What most individuals fail to understand is that life insurance contracts are long-term contracts. it is foolhardy to expect that the “high guaranteed return” policies can continue for very long. please examine the company and the product again. With volatility in interest rates and capital markets. SELECTION OF RIGHT PRODUCT Almost all the insurance companies offer what is called an “illustration” to customers the illustration is designed to help the customer understand the policy values better. it is very simple to compare the product with other company products because almost all insurers have their web portals with their product details.
Suppose that your first beneficiary dies near the time of your own death. But in the annuity or pension products business. Insurers know that there is enough business for everybody. Naming a contingent beneficiary is always practical. All insurers are careful about selecting and training their agents. All you have to do is to indicate the names of these recipients and the amount of proceeds that they are going to get. There is no question of competing with LIC.THE STIFF COMPETITION The competition is stiff and. tailoring their strategy to suit the circumstances. The commission rate declines to 5 per cent in the fourth year.5 per cent in the next two years on renewable business. In that case. As of now about 60 per cent of the agents work on a parttime basis. They want them to remain committed. policies are ‘sold’ not ‘bought’. they hope to have about 1-lakh agents. The growing popularity of the private insurers shows in other ways. Private players realize what they are up against and are. You can have your children as multiple beneficiaries.000 agents. In life insurance. you cannot change your assignee’s name unless they consent to it. consequently. The state owned company still dominates segments like endowments and money back policies. However. creditors cannot touch the policy proceeds. 2. A contingent beneficiary can get life insurance proceeds if the primary beneficiary dies before he or she can receive the assets. which is why good agents are important in this business. As revocable beneficiary. With an irrevocable assignee. they have a virtual monopoly with over 90 percent of the customers. Unfortunately. Private players only select freshers and. the recipient can be changed any time during the policy. there’s a behemoth to contend with. Unlike the non-life segment. which facilitates the easy transfer of your money to your successors. the private insurers have already wrested over 33 percent of the market. it would have covered a lot of ground. If you have named your minor child as a beneficiary. but the ratio will come down to 50 per cent by the end of their 10th year in operation. Lapsation of policy: It can happen that due to certain circumstances you forget to pay your premiums. They are coining money in new niches that they have introduced. FEW PROMINENT REASONS OF FAILURE 1. And in the popular unit-linked insurance schemes. Beneficiary: The most prominent feature of a life insurance policy is the beneficiary clause. No company is allowed to poach on another’s agents. you will have to appoint a guardian/appointee who will administer the insurance proceeds upon your death. Even if an insurer gets 1 to 2 per cent of the 250 to 300 million insurable Indians. All insurance agents’ earnings are commission-based. because you have 46 . While in irrevocable beneficiary clause as in the case of absolute assignments. five years down the line. either undergoing training or already on the streets. you need to be aware of the different kinds of beneficiaries in life insurance. besides. even in the specified grace period. It already has about 10 lakh agents and that number is likely to go up to 11 lakh by the end of the current fiscal. least of all on LIC’s. They make a 40 per cent commission in the first year on new business and 7. selling life insurance requires a more personal touch. Right now most of them have about 5000 to 8. your children will qualify for your insurance money if you nominate them as contingent or secondary beneficiaries. as these monies are not considered to be a part of your assets.
he is paid nothing. you won’t lose your life insurance . The absence of survival benefits makes these plans rather unpopular among policyholders. If the policyholder survives the tenure. in other words. the sum assured is paid only upon the unfortunate death of the policyholder during the policy tenure. Consequently. 7. Term plans require regular premium payments to be made throughout the tenure of the policy. Cash Surrender Value: Permanent life insurance policies like universal life insurance. so typically there should not be any expectations of a return. insurance advisors weren’t interested in educating insurance seekers about why term plans are a must-have for every individual regardless 47 . such as the increase in the cash surrender value if your policy is maintained for the full term. The above non-forfeiture options may differ from one insurance company to another. As a result. for example. Nonetheless. the ongoing interest you receive from your investment account gradually increases your cash value. although the exact renewal procedure varies among different insurers. as they like to receive a return as a reward for investing. If you are incapable of repaying your policy loan. which will solve your liquidity problems. you need to consider many factors before surrendering your policy.missed the deadline your policy will lapse. Term life insurance policies do not offer cash values. 6. 4. However. 5. THE INDIAN PSYCHE Traditionally. The interesting aspect of these policies is that you can surrender your policy and get the accrued cash value in your hands provided you have a substantial amount of cash value. To worsen matters. 3. A mediclaim policy or car insurance or home insurance or factory/warehouse insurance doesn’t offer returns. Non-Forfeiture Options: In permanent life insurance policies. a lapsed policy may be renewed in some plans. You are entitled to enjoy the fruits of your insurance company’s labor. Policy Loan: Another positive characteristic of a life insurance policy is that you can take out a policy loan against your policy to cater to your emergency needs. the psyche of the Indian insurance seeker has been such that they have been averse to term insurance plans. Consult your insurance advisor to about the full consequences of these issues before deciding whether the policy should be cashed or kept. Other than payment of interest the life insured has to undergo the medical examination and accordingly the policy terms may be revised. The interest is relatively low and the policy loan can be repaid in a lump sum or installments. whole life insurance and variable life insurance are more attractive because of the presence of built-in cash value. there are no returns from a term plan. Revival of policy is not simple. there are no survival benefits. They fail to appreciate that insurance is about ‘insuring’ and not ‘investing’.your accumulated cash value will come to your rescue with the following options. Dividends: Dividends are the earnings paid out by the insurer to its shareholders and or policyholders. your insurance company will use your cash value to settle the loan. Cash Value is a part of your premium is put in savings or another investment account according to the type of policy you purchase. if you fail to pay the premiums in the grace period. dividends if you own a participating policy. Surrender: It is always easy to terminate (surrender) your policy and get the entire cash surrender value. Similarly. your insurance company can stop covering you or may provide you reduced insurance coverage equivalent to the total premiums paid formerly (also called paid-up policies).
However. Jeevan Anand. MONOPOLY REGIME AND OPENING UP The life insurance sector was nationalized and consolidated into one entity viz. The opening up of the sector is likely to lead to greater spread and deepening of insurance in India and this may also include restructuring and revitalizing of the public sector companies. now some private players have introduced the ‘Term Plans’ where the proceeds are also paid on maturity of the policy if the insured survives. but also because they pay a survival benefit if the policy holder survives the term. charged with the tasks of making life insurance available throughout the country. in urban areas. The total premium could go 48 . while the remaining 25 percent can be invested in private sector. In several segments of the population. particularly in rural areas. The LIC is subject to similar. cooperative sector as per IRDA regulation. has always been among the preferred plans. Like other long-term saving instruments. life insurance penetration in the banked segment is estimated to be about 40%. POTENTIAL OF LIFE INSURANCE BUSINESS IN INDIA India’s life insurance market has grown rapidly over the past six years. since it is a combination of both endowment term insurance. throughout his lifetime.9%. some 75 percent of annual portfolio investments must be allocated to Central/State government securities or socially oriented purposes. Since then. the IRDA has put in a framework of globally compatible regulations. although somewhat less restrictive portfolio allocation constraints as pension funds. rural areas now account for over 25 percent of new policies. A host of private Insurance companies operating in both life and non-life segments have started selling their insurance policies since 2001. However. LIC has been fairly successful having built up a large regional distribution network comprising 2. On the first count. In rural areas. mainly owing to the comparatively low interest rate paid on life insurance funds. the penetration of life insurance in the mass market is about 65%.of age. while it is marginal at best in the unbanked segment. Insurance penetration in India is currently about 4% of its GDP. In the private sector. and it’s considerably less in the low-income unbanked segment. has not made a significant contribution to savings mobilization. It provides financial protection against the death of the policyholder. and mobilizing savings by providing attractive insurance products. with an estimated $5 in annual premiums paid per capita. This gave a fillip to endowment plans not only because they pay the sum assured on the unfortunate death of the policyholder during the policy term. LIC in 1956. Since being set up as an independent statutory body. Reforms in the Insurance sector were initiated with the passage of the IRDA Bill in Parliament in December 1999. much lower than the developed market level of 6. given the ‘LIC tag’. the penetration is lower than potential. For example. the Indian insurance market.048 branches. The premium income of India’s life insurance market is set to double by 2012 on better penetration and higher incomes. 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. 15 life insurance companies have been registered. with new business premiums growing at over 40% per year. the LIC has been a monopoly operator. life insurance has experienced a relative decline recently.
if we consider that India’s population is over one billion and growing. Some LIC agents continue to follow the unethical practice of offering discounts from their commissions to new policy buyers. Opportunities include health insurance and pensions.up to $80-100 billion by 2012 from the present $40 billion as higher per capita income increases per capita insurance intensity.300 as will penetration by the existing and new players. LIC’s business is growing at the rate of 20 per cent every year. adding only 1. The market is moving beyond single-premium policies and unit linked insurance products which are easier to sell. with new premium income of US$ 1 billion. The agency model is the dominant sales channel accounting for more than 85 per cent of fresh premiums but overall inactivity and attrition is much higher at 50-55 per cent than the global average of 25 per cent. though private players have been growing aggressively. Its assets have been estimated at $37 billion and in the last quarter it reported a 60 per cent growth in new business. About 250 to 300 million Indians are still insurable. LIC has been in business for 50 years now and has not covered the entire population base yet. it is not like insuring a vehicle.com’s expansion into India is a major step for the company to become a global supplier of internet-based insurance tools for consumers and insurance professionals. PENETRATION. they are more comfortable about its safety. this makes a difference. That is the kind of potential one is talking about in life insurance in India. Considering the world’s largest population and an annual growth rate of nearly 7 per cent. Unlike with general insurance. Having said that.com plans to enter the Indian market following deregulation of its insurance sector. and buyers are surer of LIC because it has been in existence for long. of India dominates the industry with over 70 percent market share. The government wants to increase the cap to 49 percent. This 49 .1-6. US based online insurance company ebix. Online insurer ebix. A life insurance policy covers one’s personal self. but its communist allies oppose such a move. While they have created a lot of awareness through private insurer’s advertisements.2 by 2012 in tandem with the country’s demographic profile.com can offers the Indian market a business-to-consumer internet portal where consumers have more choice while purchasing insurance and an internet-based agency management system that will help agents work more efficiently with multiple carriers.LOWER THAN POTENTIAL Management consultancy firm McKinsey has forecast that India’s life insurance industry will be double in the next five years from $40 billion to $80-100 billion in 2012. Foreign holding in Indian insurance companies is limited to 26 per cent.100 from the current Rs 1.5-2 percent of total healthcare expenditure in India was currently covered by insurance. India has 17 life insurers and the stateowned Life Insurance Corp. LIC has issued about 120 million policies till now.000-4. Why? Because LIC has a much wider branch network. Online insurer ebix. The average household premium will rise to Rs 3. It would not be wrong to say that a lot of the advantage of advertising by new private sector insurance companies has by default gone to LIC. In a diverse country such as India it is imperative that a universal insurance infrastructure be created to maximize efficiency in the insurance industry. It could rise to 5. we get a picture of the true potential of the life insurance sector in India. LIC has benefited. the report said. India’s ratio of life insurance premium to its GDP is around 4 per cent against 69 per cent in the developed world. India offers great opportunities for insurers.
growth would improve the level of insurance penetration from 5.826 crore in group insurance. This has enabled the corporation post new business premium of Rs 55.2% of GDP in 2012.AHEAD OF ALL LIC of India has mobilized Rs 12.471 crore as against Rs 10.2% in 2010-2012. they will have a big market. LIC’s premium collection in March ’07 was higher than the premium collected in the whole of whole of ’03-04.7%. players will have to reckon with intense competition that is only going to increase and extend to other segments as well. Total market premiums are likely to more than double during this period. a 118% growth over the previous year.934 crore in ’06-07.361 crore of new business premiums in March ’07 – the highest recorded by the corporation in any single month. 26 tier-II cities with population greater than one million and 33 tier-III towns with the population of more than 5 lakh will account for 25% of the middle class and newly bankable class in 2025.1% and 6. The companies that have recorded the fastest growth in the current year include Reliance Life Insurance. In March the corporation booked over Rs 4.927 crore. since 60% of the very rich (annual income over Rs 10 lakh) would be concentrated in the top eight cities. 50 .1%. from about $40 billion to $80-100 billion. There are a large section of people who do not want to commit premium payments for every year. This implies a higher annual growth in new business annual premium equivalent (APE) of 19% to 23% from 2007 to 2012. which is substantially higher than the 72% as on March 2006. The Indian life insurance industry could witness a rise in the insurance sector premiums between 5. The surge in sales in March attributed to higher sales of unit linked insurance and group insurance business. Although these consumers will be highly accessible.000 tier-IV small towns will account for as much as 40% of these two classes in 2025. LIC. The rise in premium gives LIC a market share of over 74% of the total new business premium mobilized in India.897 crore during the current financial year. the private life insurance industry has recorded a growth of 89% with total new business premium for the year standing at Rs 19. from the current 4. The rise in premium is on the back of unit-linked policies which account for nearly 70% of the total individual premium. Meanwhile. which is nearly 44% of the premium raised by the corporation during the current fiscal. which accounted for nearly 30% of total collections. Single premium plans are a demand of the market.1% of gross domestic product to 6.406 crore from Rs 35. Collection from single premium plans amount to Rs 24.7% to Rs 75.and third-tier cities and small towns. ICICI Prudential continues to be the largest private life insurance player with a market share of 7% followed by Bajaj Allianz Life Insurance which has a market share of 5.566 crore. if an insurer decided to be a niche player and concentrated on metros and their suburbs. The large part of the growth would come from second. followed by SBI Life Insurance which grew 209% to Rs 2. However. The high growth has enabled SBI Life to move into the number three positions after Bajaj Allianz Life Insurance. Based on MGI forecasts. LIC’s has been the growth driver for the entire life insurance industry which grew 110. which grew 381% recording new business premium of Rs 931 crore. Over 5.252 crore in the corresponding period last year.
26% during the period against the industry average of 177. It has offices in the UK. Financial sector juggernaut LIC of India is now on the look out for a potential buy abroad. HSBC would provide a range of management services. at par with private insurers. While the insurance industry in the UK is growing at 10. Oriental Bank of Commerce (OBC) and HSBC Insurance (Asia-Pacific) Holdings Ltd have signed an agreement to jointly establish a life insurance company in the country.57 crore as in August ’06.NEW JOINT VENTURE SET UPS Canara Bank. as it has already established its presence in some of the Oceania markets. complementary distribution networks and broad local market knowledge. LIC commands a 77% market share. The new life insurance company will be capitalised at Rs 325 crore. LIC has been growing at 4-5% annually. to acquire a company abroad. Nepal. while HSBC and OBC will hold 26 per cent and 23 per cent stake respectively. Kenya and Mauritius other than Fiji. HSBC brings to the partnership its considerable insurance experience. Future Generali India Life Insurance Company Ltd. LIC would become the second public sector financial institution. of which Canara Bank will contribute Rs 102 crore. it also granted approval to Future Generali India Insurance Company to transact general insurance business. product range and proven bancassurance capabilities. Under the terms of the agreement. The company is planning to use its massive cash reserve to finance the acquisition of a company in the New Zealand and Australia markets. like Fiji. But its UK operations have not been able to grow at the expected rate. Generali is one of the largest insurance groups in the world. If approved.12%. to enable the company to raise its paid-up capital from Rs 5 crore to Rs 100 crore. The crash in interest rates to near-zero levels in Japan had made it difficult for insurance companies to generate surpluses to cover costs. operating in 40 countries through 107 companies. It ranks 22 in the list of Fortune 500 companies and is the largest corporation in Italy with an asset base of over 300 billion euro. after State Bank of India. Bahrain. It is understood that it has been capitalised a couple of times. HSBC Rs 177 crore and OBC Rs 46 crore. would transact life insurance business. Canara Bank would take a 51 per cent stake in the company. IRDA gave clearance to a joint venture between Kishore Biyani’s Pantaloon Retail India and Italian insurance firm The Generali Group to start insurance businesses. For LIC. The company has been christened Canara HSBC Oriental Bank of Commerce Life Insurance Company Limited. a buyout of an insurance company Down Under could make sense. however. which would include nominating executives for certain senior roles. require prior passage of the amendments to the LIC Act. The plan would. While both Canara Bank and OBC offer an extensive client base. Its new premium grew 191% to Rs 10. 51 . EYING ABROAD Although Japanese insurance companies account for one-fifth of the total life insurance premium in the world. they have been slow to expand internationally as most companies were going through a consolidation phase locally.44%. The joint venture. The government plans to amend the Act passed in 1956 to give more flexibility to the largest insurance company to expand its footprint. Its premium income soared to 182.381. Besides.
this is one domain which will become a strong focus point for them in the near future. For the agent to qualify for the CoT. there is no difference in professional men and women and they both have the same earning power and both contribute to the family kitty.931 agents for 2007 compared with 532 in 2006.98 lakh. AGENTS A remarkable achievement is that India’s third largest private sector insurance company SBI life Insurance has been ranked fifth across the world in terms of number of MDRT members. ING Vysya Life Insurance Company doesn’t have any product targeted specifically at women. he has to do thrice the MDRT business. can insurance companies remain far behind? Today even banks and financial institutions are regularly churning out innovative schemes to woo the dames? Insurance traditionally has been targeted at the earning member of the family as insurance means helping the family to maintain the standard of living for a few years in case something unfortunate happens to the main breadwinner.92 lakh to his insurance company or earn a commission of Rs. In today’s society. Whatever be the case. has more than tripled to 1. insurance products not only provide security for family. women enjoy lower rates of premium than men owing to their longevity. Within the MDRT. a prestigious international trade association of insurance agents. insurance companies are targeting women with specially-designed products. some insurance companies also offer some discounts to women. insurance agent has to do six times the business required for the MDRT. To qualify for tht MDRT. The Regulator 52 . though they don’t have any specific product for them. there are three levels such as the basic MDRT. insurance companies’ penchant for woman customers is growing by the day and not without reasons. The MDRT has a total of 35. however.RIDING ON WOMAN POWER A woman has unique needs and concerns when it comes to preparing for the future. the future products are aimed to target these two specific characteristics and would span over both health and investment domain.781 qualifiers. When the whole world seems to be riding on ‘woman power’. an Indian insurance agent has to get a premium of Rs. investment towards creating a fortune for needs in future or pension for the golden years. therefore. For instance. the Court of Table (CoT) and Top of Table ( ToT). No wonder. The total number of Indian agents registering with the Million Dollar Round Table. On the other hand IRDA has taken the first step to crack the whip on agents misleading customers on unit-linked insurance plans. Both incomes are important for family lifestyle and standard. Insurers also feel that the women-specific insurance market is expected to grow much faster than the overall insurance sector. There is a strong-felt need for women to also insure and invest and. it has tightened the norms for sale of actuarial-funded unit-linked products which are on their way out. 5. While the basic life insurance policy protects the bread-earner and his loved ones. What is more. he also needs some protection against health risks specific to women. 23. To start with. while to qualify for the TOT. This is 1% of the total insurance agents or advisors in the world. but also help in savings. So. which is 801. Moreover. Life insurance agents from India are moving fast into the realm of global insurance. Women investors have shown longer investment tenure and regular saving habits.
which convert into real money only in the future. the onus is upon the insurer to prove that the policy was explained. New construction and infrastructure projects have dried up and ongoing projects have been stalled due to inadequate cash injection in the market. insurers in India will now have to retain documentary evidence to prove that the policy was properly explained to the insured. Cost-cutting in the corporate sector may lead to reduced expenditure on insurance.e. This situation however is short-lived and Insurers are bound to feel the heat sooner than later. infrastructure projects by governments and energy projects by private as well as governments have either been shelved or being delayed and insurance industry will have to live without large premiums from the project insurance for some time. Inquiries for CAR (Contractors’ All Risks). in the form of actuarial units. Banks are not releasing installments to firms even on limits which were agreed prior to this crisis. In the UK. In the UK. EAR (Erection All Risks). Machinery Breakdown and Equipment Insurance have almost dried up in the last few months. However. The objective is to enlarge the scope of disclosures made by agents and such transparency will be in the interest of the entire insurance sector. Similarly. Medical Insurance. Continued recession shall have impact on property class of business too. The downside of such products is that there is not much balance in the policyholder’s account in the initial years. This has impacted the engineering class of business in the insurance sector. if an agent is accused of mis-selling. where the insurance company allocates significant sums to the policyholder’s account in the first year. IRDA appears to be taking the UK route to tackle mis-selling of policies. Business Interruption or Loss of Profit premiums also shall go down due to reduced profit forecasts for most corporate. Cause-Effect on Insurance Industry Unlike banks that were dumbstruck by the end of third quarter in 2008 due to the unfolding saga of financial crisis. First nine months of performance may see them through despite massive investment losses in the last quarter of 2008. Life insurance sector is likely to see even bigger erosion in volumes and profits. Construction. the onus will be on agents to indicate the explanation that customers have been given on the nature of investment. Employee benefit schemes. Agents will also have to give a break-up of the money spent on various expenses. insurers have shown rather remarkable resilience and in all probability would be declaring year-end results on a positive note. Acturial-funded products have a complex structure. the experience has been the complaints of mis-selling emerge after a period when policyholders discover that their investments were performing far worse than they were told to expect.intends asking customers and agents to sign illustrations on the entire gamut of ULIP products offered by insurers. Workmen’s Compensation. Group Life 53 . While the features of ULIPs vary from product to product. these initial allocations are notional i. Falling market prices of property shall further bring down the premium volume on property insurance.
On one hand it can increase fraud.and Personal Accident Insurance. There are other issues too to ponder. Declining international trade and consequent reduction in export and imports have resulted in inflated inventories and consequent redundancy of work force has increased job loss claims. Policy holders are already requesting cancellation of their policies in order to preserve cash in this moment of crisis. etc. are likely to take maximum hit. most unit-linked policies. business interruption losses and losses arising out of Directors’ and Officers’ liability litigation. a5 45454545454545454545454545454545454545454545454545454545454545454545454 54545454545454545454545454545454545454545454545454545454545454545454545 45454545454545454545454545454545454545454545454545454545454545454545454 54545454545454545454545454545454545454545454545454545454545454545454545 45454545454545454545454545454545454545454545454545454545454545454545454 54545454545454545454545454545454545454545454545454545454545454545454545 45454545454545454545454545454545454545454545454545454545454545454545454 5454545454545454545454545454545454545454545454545454545454545454545454545454 54545454545454545454545454545454545454545454545454545454545454545454545 45454545454545454545454545454545454545454545454545454545454545454545454 54 . With the investment portfolio almost gone. Travel industry including airline companies are witnessing lower traffic resulting into reduced travel insurance premium. Pension Funds and other investment backed insurance products shall show negative NAV (Net Asset Value) and consumer confidence shall further nosedive. Reduced sale of property is resulting in reduced premium income on mortgage insurance and householders’ insurance. All this doesn’t bode well for the insurance sector. Retail insurance sector has similar problems. insurance fraud. Automobile companies are struggling to keep afloat due to negative sales growth. on the other it can help societies and individuals prepare for catastrophes and mitigate the effects of catastrophes on both households and societies. Insurance can influence the probability of losses through moral hazard. Insurance can have various effects on society through the way that it changes who bears the cost of losses and damage. Reduced international trade has also impacted marine cargo and marine hull insurance businesses and premium incomes have dropped substantially. Low consumer confidence and stringent lending norms for retail customers by banks have led to reduced demand for products and services. This directly affects motor insurance premium. Madoff and Satyam Computers are two recent examples to prove the point. Insurance industry is likely to see multiple bad moral hazard cases as depressed market conditions may lead to payment defaults and corporate frauds. Such situation stimulates claims on fire losses.
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metlife.net/vol_i4/paper_13.lifeinsuranceindia.yahoo.scribd.org/wiki/ http://www. in order to take advantage of the potentially large profits.com/question/index? qid=20090908061518AA3YkeP 60 . have even actively sought to collude with uninsured elderly and terminally ill patients.com/doc/41257670/A-Study-on-the-Growthof-Indian-Life-Insurance-Industry http://www.wikipedia. BIBLIOGRAPHY www. these policies are guaranteed losses from the insurers' perspective.policies will with absolute certainty be paid out.my-life-insured.net/ http://in.com/about/corporate-profile/metlifehistory/index.com/2008/v22/part7/p2 www.pdf Metlife Annual Report http://en.com GOOGLE SEARCH ENGINE www.scholarshub.yahoo. Some purchasers.com/metlife.scribd.html http://www.tourindia.irdaindia.com/2011/04/22/life-insuranceindustry-in-india-list-of-all-life-insurers-sbiavivahdfclic-and-bestlife-insurance-company-in-india/ http://in. and created policies that would have not otherwise been purchased. Likewise.com/question/index? qid=20090218210806AAFzNpl http://www.answers.com/doc/24688258/Birla-Sun-Life-InsuranceCompanyin-Recession-Period http://www.php http://greenworldinvestor.acadjournal.org www.answers.
html 61 . http://blogs.siliconindia.com/Pinky/Top_10_Life_Insurance_Co mpanies_in_India-bid-4yPZ38gx22775513.
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