1.

Introduction Brief history of insurance sector: The insurance sector in India has completed all the facets of competition from being an open competitive market to being nationalized and then getting back to the form of a liberalized market once again. The history of the insurance sector in India reveals that it has witnessed complete dynamism for the past two centuries approximately.

With the establishment of the Oriental Life Insurance Company in Kolkata, the business of Indian life insurance started in the year 1818

In the year 2000, the Government of India opened up the life insurance market to private players. Till then, the Indian life insurance industry had been dominated by Life Insurance Corporation of India (LIC), the only player in the insurance market. This monopoly had created such a strong brand identity and awareness for LIC that LIC became a generic word for life insurance in India.

After deregulation, many domestic and international players entered the life insurance market. However, the Indian insurance industry continued to face various problems such as low penetration (only 22% of the insurable population were insured) and low premium to GDP ratio (of 1.3). Growth was also hampered by the existing customer perception that life insurance was a tax saving tool. Another problem was that the entry of many players had cluttered up the market.

Important milestones in the Indian life insurance business

1912: The Indian Life Assurance Companies Act came into force for regulating the life insurance business

1928: The Indian Insurance Companies Act was enacted for enabling the government to collect statistical information on both life and non-life insurance businesses.

1938: The earlier legislation consolidated the Insurance Act with the aim of safeguarding the interests of the insuring public.

1956: 245 Indian and foreign insurers and provident societies were taken over by the central government and they got nationalized. LIC was formed by an Act of Parliament, viz. LIC Act, 1956. It started off with a capital of Rs. 5 crore and that too from the Government of India.

The history of general insurance business in India can be traced back to Triton Insurance Company Ltd. (the first general insurance company) which was formed in the year 1850 in Kolkata by the British.

Important milestones in the Indian general insurance business

1907: The Indian Mercantile Insurance Ltd. was set up which was the first company of its type to transact all general insurance business.

1957: General Insurance Council, an arm of the Insurance Association of India, framed a code of conduct for guaranteeing fair conduct and sound business patterns.

1968: The Insurance Act improved for regulating investments and set minimal solvency levels and the Tariff Advisory Committee was set up.

1972: The General Insurance Business (Nationalization) Act, 1972 nationalized the general insurance business in India. It was with effect from 1st January 1973.

107 insurers integrated and grouped into four companies viz. the National Insurance Company Ltd., the New India Assurance Company Ltd., the Oriental Insurance Company Ltd. and the United India Insurance Company Ltd. GIC was incorporated as a company.

2. An overview of Indias insurance market

Insurance in India used to be tightly regulated and monopolised by state-run insurers. Following the move towards economic reform in the early 1990s, various plans to revamp the sector finally resulted in the passage of the Insurance Regulatory and Development Authority (IRDA) Act of 1999. Significantly, the insurance business was opened on two fronts. Firstly, domestic privatesector companies were permitted to enter both life and non-life insurance business. Secondly, foreign companies were allowed to participate, albeit with a cap on shareholding at 26%. With the introduction of the 1999 IRDA Act, the insurance sector joined a set of other economic sectors on the growth march. During the 2003 financial year1, life insurance premiums increased by an estimated 12.3% in real terms to INR 650 billion (USD 14 billion) while non-life insurance premiums rose 12.2% to INR 178 billion (USD 3.8 billion). The strong growth in 2003 did not come in isolation. Growth in insurance premiums has been averaging at 11.3% in real terms over the last decade.

3. List of Insurance companies in India. Table no. 1 LIFE INSURERS Public Sector Life Insurance Corporation of India Private Sector Allianz Bajaj Life Insurance Company Limited Birla Sun-Life Insurance Company Limited HDFC Standard Life Insurance Co. Limited ICICI Prudential Life Insurance Co. Limited ING Vysya Life Insurance Company Limited Max New York Life Insurance Co. Limited MetLife Insurance Company Limited Om Kotak Mahindra Life Insurance Co. Ltd. SBI Life Insurance Company Limited TATA AIG Life Insurance Company Limited AMP Sanmar Assurance Company Limited Dabur CGU Life Insurance Co. Pvt. Limited www.allianzbajaj.co.in www.birlasunlife.com www.hdfcinsurance.com www.iciciprulife.com www.ingvysayalife.com www.maxnewyorklife.com www.metlife.com www.omkotakmahnidra.com www.sbilife.co.in www.tata-aig.com www.ampsanmar.com www.avivaindia.com www.licindia.com Websites

GENERAL INSURERS Public Sector National Insurance Company Limited New India Assurance Company Limited Oriental Insurance Company Limited United India Insurance Company Limited Private Sector Bajaj Allianz General Insurance Co. Limited ICICI Lombard General Insurance Co. Ltd. IFFCO-Tokio General Insurance Co. Ltd. Reliance General Insurance Co. Limited Royal Sundaram Alliance Insurance Co. Ltd. TATA AIG General Insurance Co. Limited Cholamandalam General Insurance Co. Ltd. Export Credit Guarantee Corporation HDFC Chubb General Insurance Co. Ltd. www.bajajallianz.co.in www.icicilombard.com www.itgi.co.in www.ril.com www.royalsun.com www.tata-aig.com www.cholainsurance.com www.ecgcindia.com www.nationalinsuranceindia.com www.niacl.com www.orientalinsurance.nic.in www.uiic.co.in

REINSURER General Insurance Corporation of India www.gicindia.com

Some of the important milestones in the life insurance business in India are given in the table 2. Table 2: milestones in the life insurance business in India Year Milestones in the life insurance business in India

1912

The Indian Life Assurance Companies Act enacted as the first statute to regulate the life insurance business

1928

The Indian Insurance Companies Act enacted to enable the government to collect statistical information about both life and non-life insurance businesses

1938

Earlier legislation consolidated and amended to by the Insurance Act with the objective of protecting the interests of the insuring public.

1956

245 Indian and foreign insurers and provident societies taken over by the central government and nationalised. LIC formed by an Act of Parliament, viz. LIC Act, 1956, with a capital contribution of Rs. 5 crore from the Government of India.

The General insurance business in India, on the other hand, can trace its roots to the Triton Insurance Company Ltd., the first general insurance company established in the year 1850 in Calcutta by the British. Some of the important milestones in the general insurance business in India are given in the table 3

Table 3: milestones in the general insurance business in India Year 1907 Milestones in the general insurance business in India The Indian Mercantile Insurance Ltd. set up, the first company to transact all classes of general insurance business 1957 General Insurance Council, a wing of the Insurance Association of India, frames a code of conduct for ensuring fair conduct and sound business practices 1968 The Insurance Act amended to regulate investments and set minimum solvency margins and the Tariff Advisory Committee set up. 1972 The General Insurance Business (Nationalisation) Act, 1972 nationalised the general insurance business in India with effect from 1st January 1973. 107 insurers amalgamated and grouped into four companies viz. the National Insurance Company Ltd., the New India Assurance Company Ltd., the Oriental Insurance Company Ltd. and the United India Insurance Company Ltd. GIC incorporated as a company.

4. Competitors Profile Life Insurers S.No NAME OF THE COMPANY NAME OF NAME OF TELEPHONE NO./FAX & WEB

APPOINTED No./E-MAIL ADDRESS

PRINCIPAL ACTUARY OFFICER 1. Bajaj Allianz Life Insurance Mr. Sam Mr. Wakeling

Andrew Tel Fax .

: :

020-4026666 020-4026789

Company GE Plaza,

Limited Airport Road

. Ghosh ,

YerawadaPune 411 006 2. Birla Sun Life Insurance Co. Ltd Mr. Vikram J. Mr. Kedar Mulgund Tel 6th Floor, Vaman Centre, Mahmi Road, Road : 022 5678 3333

Fax: 022 5678 3232

Makhwana off Andheri-Kurla

, Andheri(E), MUMBAI-400 059. 3. HDFC Standard Life Insurance Mr.D.M. Co. Ltd Satwalekar Mr. Nick Taket Tel Fax: : 022-67516666 022-2822 8844

"Trade Star", 2nd floor, 'A' Wing, Kondivita Road Junction AndheriKurla Road Andheri (East)

Mumbai 400 059. 4. ICICI Prudential Life Insurance Ms. Co. Shikha Mr. Azim Mithani Tel :022-56621996

Ltd Sharma

Fax: 022-56622031

ICICI Prulife Towers , 1089, Appasaheb Marathe Marg,

Prabhadevi, Mumbai 400 025.

5.

ING

Vysya

Life

Insurance Mr.Kshitij Ltd. Jain

Ms.

Hemamalini Tel

080-25328000

Company

Ramakrishnan

Fax: 080-25559764

ING Vysya Home, 5th Floor, #22 Mahatma gandhi Road Bangalore560 001. 6. Life Insurance Corporation of Shri IndiaYogakshema, Marg, Post Box Jeeva No. T S. Mr. Gorakh Nath Tel Fax: E-Mail chairman@licindia.com Charles Tel Fax: : 0124-2561717 0124-2561764 56598701;56598702 22824386 ;

Bima Vijayan 19953

Agarwal

MUMBAI 400 021 7. Max New York Life Insurance Co. Mr. Gary R. Mr.John Ltd 11th Floor, DLF Square , Jacaranda Marg, DLF City , Phase-II, Benett Poole

GURGAON 122 002. 8. Met Life India Pvt. Insurance Mr. Ltd. Relan Rajesh Mr. K. P. Sarma Tel Fax: : 080-26438638 080-26521970

Company

Brigade Seshamahal, No. 5, Vani Vilas Road ,

Toll Free No. 1-600-44-6969

Basavanagudi, BANGALORE560 004. 9. Kotak Mahindra Old Mutual Life Mr. Gaurang Mr. Insurance Limited 6th Floor Penisula Chambers, Penisula Ganpatrao Lower MUMBAI-400 013. 10. SBI Life Insurance Co. Ltd Mr.Uday Mr. Rao I Sambasiva Tel Fax: : 022-56392000 022-56621471 Turner Morrison Building, 2nd Sankar Roy Floor, 16, Bank Street, Fort Corporate Kadam Park, Park Parel, Shah A. Tel : 022-5663 5000

Venkatasubramanian Fax:022-5663 5111

Mumbai-400 023. 11. Tata AIG Life Insurance Company Mr.Trevor Limited 5th 7 6th Floor, Peninsula Tower, Peninsula Corporate Park Bull Mr. Heerak Basu Tel Fax : : 022-56516000 022-56550711

Ganpatrao Kadam Marg, Lower Parel, MUMBAI 400 013. 12 Reliance Life Insurance Company Mr. Limited. 1st Sahar Next Andheri to Floor, Plaza Kohinoor Kurla Midas, Complex, Hotel, Road, Nandagopal P Ms. Pournima Gupte Tel : 022-30883444

Fax: 022-30886587

Andheri (East) ,Mumbai-400 059 13 Aviva Life Insurance Co. India Pvt. Ltd. Mr. Albert Paterson Mr. Khasnobis Chandan Tel: 0124-280 4141

Fax: 0124-280 4151

5th floor, JMD Regent Square, Mehrauli Gurgaon - 122001 14 Sahara India Life Insurance Co, Ltd. Sahara Kopoorthala Lucknow 226024 15 Shriram Life Insurance Co, Ltd. Regd. Office : 3-6-478, 3rd Floor, Anand Estate, Liberty Road, Himayat Nagar, Mr R Mr N S Sastry Tel: 040-23434466-72 India Bhawan, Complex, Mr. N.C. Mr. K K Dharni Tel: 0522-2337777 road,

Sharma

Fax: 0522-2378200

Duruvasan

Fax: 040-23434488

Hyderabad - 500029 16 Bharti AXA Life Insurance Company 61/62, Vakola, Hotel, Kalpataru Opp. Ltd. Synergy, Hyatt (E) Mr. Nitin Mr. K. S. Tel: 022 40306300/6301 Fax: 022 - 40306347

Chopra

Gopalakrishnan

Grand

Santacruz

Mumbai 400 055

5. Market Share of Different Players in Insurance Industry \

Sl.No 1 2 3 4 5 6 7 8 9 10 11 12 13 14

Insurer LIC Bajaj Allianz ING Vysya AMP Sanmar SBI Life Tata AIG HDFC Standard ICICI Prudential Birla SunLife Aviva Kotak Mahnidra Old Mutual Max New York Met Life Sahara Life

Market Sahre(%) 73.91 6.12 0.63 0.54 1.52 1.78 2.96 7.11 1.84 1.12 0.71 1.32 0.40 0.06

6. Present Scenario of Insurance Industry India with about 200 million middle class household shows a huge untapped potential for players in the insurance industry. Saturation of markets in many developed economies has made the Indian market even more attractive for global insurance majors. The insurance sector in India has come to a position of very high potential and competitiveness in the market. Indians, have always seen life insurance as a tax saving device, are now suddenly turning to the private sector that are providing them new products and variety for their choice. Consumers remain the most important centre of the insurance sector. After the entry of the foreign players the industry is seeing a lot of competition and thus improvement of the customer service in the industry. Computerisation of operations and updating of technology has become imperative in the current scenario. Foreign players are bringing in international best practices in service through use of latest technologies The insurance agents still remain the main source through which insurance products are sold. The concept is very well established in the country like India but still the increasing use of other sources is imperative. At present the distribution channels that are available in the market are listed below. Direct selling Corporate agents Group selling Brokers and cooperative societies Banc assurance Customers have tremendous choice from a large variety of products from pure term (risk) insurance to unit-linked investment products. Customers are offered

unbundled products with a variety of benefits as riders from which they can choose. More customers are buying products and services based on their true needs and not just traditional moneyback policies, which is not considered very appropriate for long-term protection and savings. There is lots of saving and investment plans in the market. However, there are still some key new products yet to be introduced - e.g. health products. The rural consumer is now exhibiting an increasing propensity for insurance products. A research conducted exhibited that the rural consumers are willing to dole out anything between Rs 3,500 and Rs 2,900 as premium each year. In the insurance the awareness level for life insurance is the highest in rural India, but the consumers are also aware about motor, accidents and cattle insurance. In a study conducted by MART the results showed that nearly one third said that they had purchased some kind of insurance with the maximum penetration skewed in favor of life insurance. The study also pointed out the private companies have huge task to play in creating awareness and credibility among the rural populace. The perceived benefits of buying a life policy range from security of income bulk return in future, daughter's marriage, children's education and good return on savings, in that order, the study adds.

7. Industry potential The industry size in terms of premium touched Rs 2 lakh crore last year clocking a robust 27% between 2004-05 and 2008-09. Despite the down turn in the economy, private life insurers continued go gain market share ( 59%) in terms of weighted collected premium. Speaking at an ET in Campus event on ' Life insurance growth steady in a weak economic scenario", at the Department of management studies, IIT, Madras on Friday, Srinivasan said the life market is set attract two more players to the existing 21. Reliance Life will be the first player to go public in the New Year. Quoting Mckinsey report, he said the market is forecast to grow by 17% per annum and reach a size of Rs 3,435 Billion- Rs 4 122 Billion by 2012. The private players' growth is driven by significant capital infusion to build distribution scale. Since 2000, the level playing field has allowed them to compete effectively against the public sector LIC. While these players have opportunities to increase share, key challenges facing them are retention of talent ( high churn of employees), no benchmarks available for costing and outdated risk tables ( more than a decade old). Like at the global level, there are other challenges like climate change, terrorism, regulatory intervention, inflation, legal risks etc., " Insurance is every body's need. But, nobody's want. That is why life insurance is never bought but sold. Everyone thinks, he or she is safe and has no risks in life. This poses challenges in selling products with cover well as promising high return on the investment", he explained. Luckily, India scores high over China when it comes to demographic profile ( young population) , premium growth rate, penetration level ( 4% of GDP) and as an investment destination. " India is among the fastest growing markets and its share has been growing rapidly over the years except the marginal decline in 2008" Srinivasan told the management students.

Rising affluence is expected to increase the insurable population significantly by 2015. By then, 100 million people are estimated to be added to the working population. Talking of Bharti-Axa Life Insurance, Srinivasan said both are strong national brands backed by their large client base, financial strength and distribution reach. " We want to be an aggressive player to achieve a top five market position by 2012 through a multidistribution, multi product platform", he said. S&Ps article The Indian Non-Life Insurance Sector Is A Goldmine Of Growth Potential concludes that the countrys insurance industry has emerged as one of the fastest developing markets of the global insurance industry. Credit analyst Damien Magarelli explained that Indias non-life sector, which includes property/casualty and health insurance, has one of the lowest penetration rates in Asia. A word from our sponsor: Catlin is a specialty insurer and reinsurer working in partnership with businesses to provide creative risk management solutions and excellent financial security. With offices worldwide, Catlin is known for its disciplined underwriting, superior client service, diversified product offering and effective risk management solutions. Learn more at CatlinUS.com. S&P noted that from 1994 through 2008, Indian regulators phased out price controls for the major insurance segments, shifting the industrys dynamics and creating both opportunities and challenges for the non-life insurers. Private insurers took advantage of the opportunities and consistently improved their market share and emerged as serious competitors to the public insurers. And, during the past 10 years, the non-life sector maintainedon absolute levelsan impressive growth momentum.

8. Insurance development and potential Notwithstanding the rapid growth of the sector over the last decade, insurance in India remains at an early stage of development. At the end of 2003, the Indian insurance market (in terms of premium volume) was the 19th largest in the world, only slightly bigger than that of Denmark and comparable to that of Ireland.2 This was despite India being the second most populous country in the world as well as the 12th largest economy. Yet, there are strong arguments in favour of sustained rapid insurance business growth in the coming years, including Indias robust economic growth prospects and the nations high savings rates. 3 The dynamic growth of insurance buying is partly affected by the (changing) income elasticity of insurance demand. It has been shown that insurance penetration and per capita income have a strong non-linear relationship.4 Based on this relation and other considerations, it can be postulated that by 2014 the penetration of life insurance in India will increase to 4.4% and that of non-life insurance to 0.9%.
.

What will it take to realise this potential?

While the macro-economic backdrop remains favourable to growth, there are still major hurdles to overcome in order for India to realise this growth potential. This report will cover some of the key challenges and issues that have to be tackled by the Indian insurance market. On the regulatory side, there are outstanding issues concerning solvency regulations, further liberalising of investment rules, caps on foreign equity shareholdings5 as well as the enforcement of price tariffs in the non-life insurance sector. The proliferation of bancassurance is rapidly changing the way insurance products are distributed in India. This will also have strong implications on the process of financial convergence and capital market development in India. Health insurance is still underdeveloped in India but offers huge potential, as there will be increasing needs to purchase private health cover to supplement public programmes. Likewise, the deficiencies in current pension schemes should offer significant opportunities to private providers.

 With the majority of the population still residing in rural areas, the development of rural insurance will be critical in driving overall insurance market development over the longer term. 4 While the current cap on foreign ownership in Indian insurance companies is set at 26%, the Indian Government Budget 2004-05 proposes to raise the cap to 49%.

India in the international context The Indian insurance market is the 19th largest globally and ranks 5th in Asia, after Japan, South Korea, China and Taiwan.6 In 2003, total gross premiums collected amount to USD 17.3 billion, representing just under 0.6% of world premiums. Similar to the pattern observed in other regional markets, and reflecting the countrys high savings rate, life insurance business accounted for 78.5% of total gross premiums collected in the year, against 21.5% for non-life insurance business.

Insurance penetration

Insurance penetration (premiums as a percentage of GDP) has remained stable at a relatively low level in the early 1990s. Total insurance penetration in India was 1.5% in 1990 and was not much higher by the middle of the decade. By 2003, total penetration had risen to 2.88%, comprising 2.26% life insurance business and 0.62% non-life insurance business. In the context of international comparison, insurance penetration in India is low but commensurate with its level of per capita income. In 2003, India had the 11th highest insurance penetration in Asia and ranked 54th worldwide.

9. Insurance growth and profitability The Indian life insurance industry is at the threshold of launching Phase III growth and bringing the Insurance industry to a stable position, ensuring stable profitable growth. This fact emerges out of a study done by Confederation of Indian Industry (CII) and Ernst & Young (E&Y) on, Indian Insurance sector, Stepping into the next decade.

Most large Insurance players are now expected to decelerate the pace of distribution growth and increase their focus on the retention of channel partners and improve channel productivity. Insurance companies are poised for a quantum leap in performance with unprecedented growth opportunities, notwithstanding a temporary sliding growth curve. India is fast emerging as one of the worlds most dynamic insurance markets with significant untapped potential, the report said. During the Phase III, the role of the Insurance Regulator - the Insurance Regulatory and Development Authority (IRDA) will become more critical and it is in the finalization stage of its regulations, which would be instrumental in navigating the future course of the insurance industry. IRDA has introduced certain regulations to help improve disclosures, profitability and capital as well as ensure consumer protection. Further, the regulator is amid finalizing the norms for the initial public offering (IPO) of insurance companies. In a sector where none of the players are listed, the IPO of insurance companies could be a milestone in the future growth of the sector. The period FY 00-05, post sector liberalization, called Phase I witnessed an unprecedented surge in sales of insurance products when the industry had been relying on regular capital infusions from the promoters as its lifeline. To meet their commitment toward claim settlement and reserve creation, promoters had been investing additional capital resulting in cash burn. Growth was heavily inclined versus profitability. FY 0509, the Phase II, saw players focus on an expanding product range, developing innovative products and building a robust distribution channel. Insurers were shifting to profitable growth.

There are large untapped areas, which have yet not benefited from the upside of insurance. Imparting financial literacy, incentivizing Indian households to transfer savings from physical assets to financial assets and taking the distribution network to rural areas are expected to help bring more and more individuals within the insurance ambit. While insurance penetration in India is higher than that in countries such as China and Brazil, it still has a long way to go. Indias growing consumer class, rising insurance awareness, increasing domestic savings and investments are among the most critical factors that have positively driven the market penetration of the insurance products among its consumer segments Risk management also plays a very critical role in the insurance business. In the next three to four years, India plans to shift from the current solvency I norms to risk-based solvency norms, called the solvency II model. This change will result in the better apportionment of risk in the backdrop of the actual risk associated with the asset. With the rising competition, the industry may also witness consolidation among smaller players and the emergence of some large players. The regulator is in the process of finalizing guidelines for mergers and acquisitions in the insurance space in India. The government, regulator and the insurance companies are now focused on maintaining a favorable environment for sustainable growth, higher contribution of the industry to economic development and the increasing reach of insurance to the underdeveloped areas of the country. Indias low level of insurance penetration and density has to be viewed in the context of the countrys early stage of economic development. Per capita income in India is currently at around USD 600 but is expected to increase rapidly, which could bring in an era of accelerated demand for insurance. International experience tends to suggest that demand for insurance will take off once per capita income has surpassed the USD 1000 mark (Figure 3.4). This income level is deemed high enough for households to consider insurance protection, particularly as many people begin to own their homes and cars.

The empirical relationship between insurance demand elasticity and per capita income can be characterised as a bell-shaped curve. Elasticity remains relatively low at a low income level but increases at an accelerated rate once it has passed the USD 1000 level. The following chart depicts the current position of different emerging markets as well as their expected position by 2013.

10. Products Offered Various products offered under the general insurance ambit are briefly introduced below: Automobile

Auto insurance provides defense against loss due to theft or traffic accidents. In the last 45 years, the number of passenger cars has increased substantially. This trend is likely to continue due to strong growth in the auto segment resulting from an increase in consumer income levels. Auto insurance consists of two categories in India: third-party liability and auto own damage. Auto insurance has been a loss making business because of low pricing and very high-claim payouts. But recently, the prices have increased by 70150%, which would help to minimize losses. The auto own damage category, which accounted for 70% of the business in FY07, has been detariffed since January 2007. Health

As the health insurance sector is becoming unprofitable for public sector units due to low premium structures, new private players are considering it as the next target segment. Health insurance is expected to become the second-largest general insurance class of business with a contribution of 26% in the total premium income by FY10. This increase is likely to be due to ageing population, technological advancement in medical sciences and rising demand for better healthcare.

Fire

Fire insurance business in India is governed by the All India Fire Tariff, which lays down the terms of coverage, premium rates and conditions of the fire policy. Due to the fixed pricing policy, the insurance market in India over the last few years has had a low loss ratio of 45%. As of now, the fire insurance segment is dominated by four public sector companies, namely New India Assurance, National Insurance, United India Insurance and Oriental Insurance.

Engineering

Engineering insurance is one of the most profitable insurance segments. It helps to cover risks associated with construction, testing, machinery, plant and equipment. Other than the four public sector players, ICICI Lombard and Bajaj Allianz are the two private players who have made good progress in this segment. Marine

The two components of marine insurance, hull and cargo coverage, accounted equally in the overall marine business in FY07. The cargo business underwent pricing deregulation in 1994, whereas the hull segment got deregulated in April 2005. The public sector companies hold a clear monopoly in this sector, as not many private players have taken interest in marine insurance. Others

This includes liability and aviation insurance, which together accounted for 6% of the total premiums in FY07. These two segments experienced slow growth rates of 17% and 2%, respectively, against the sectors aggregate growth rate of 22% in FY07. With the growing services sector, the demand for liability insurance is expected to increase. Innovative products Introduced in the 1980s, the mediclaim policy is one of the sectors most noteworthy products. Over the years, the product has undergone a lot of modifications and still remains among the most popular products in the general insurance space. Over the years, GIC introduced a wide array of products even in non-traditional . Apart from mediclaim insurance, products such as overseas mediclaim insurance, terrorism cover and several rural insurance packages such as Janata Personal accident insurance, insurance for plantations, cattle, pump sets are a few of the more popular ones. Innovations also happened for corporate customers in the form of customerspecific special contingency policies. The entry of new players has improved service levels considerably in the sector. However, it has still not made a significant impact in terms of new product development. Premium growth

The gross premium underwritten from the general insurance sector increased at a CAGR of 19.5% over the period of four years between FY03 and FY08. The growth in the premiums slowed down post detarrification and pricing deregulation. However, it is

expected to resume in the next 34 years, as prices stabilize, distribution processes improve and the cross-selling of products increases. This relaxation would also make it difficult for policymakers to compare various products giving insurers more pricing power. Figure 6 shows gross premiums between FY03 and FY08.

11. Supply and Demand Side Developments Supply of micro insurance

Recently, the International Labour Organization (ILO) (2004a) prepared a list of products of all insurance companies, public as well as private, for the disadvantaged groups in India. Some of the observations made on the basis of the list are presented below: Out of 80 listed insurance products, 45 (55%) cover only a single risk. The other products, covering a package of risks, mostly focus on 2 (20%) or 3 (18%) risks. The available products cover a wide range of risks. However, a broad majority of insurance products cover life (40 products or 52%) or accident-related risks. The health coverage remains very limited (12 products). Most life insurance products (23 out of 42) are addressed to individuals. However, some products may be bought both by individuals and groups. Most life insurance products (55%) have been designed to cover an extended contract duration ranging from 3 to 20 years. Out of 42 life insurance products, 23 are pure risk products. The other 19 products propose various types of maturity benefits. Out of the 12 currently available health insurance products, 7 have been designed and are restricted to groups. Indian insurance industry: The task ahead 27, Out of the total 12 health products, 7 products propose the reimbursement of hospitalization expenses while the other 5 have chosen to narrow down the coverage to some specific critical illnesses. Most of the health insurance products specifically exclude deliveries and other pregnancyrelated illnesses. Most of these products also mention HIV/AIDS among their exclusion clauses.

Most products, whether life or nonlife, require a single payment of premium, i.e., a one time payment upon subscription. Private insurance companies have three times more products than public companies. As per the IRDA statistics, public insurance companies still play a predominant role in the

present coverage of the rural and social sectors. This is primarily a result of the number of years these incumbent public insurers have been operating in the market. Demand for microinsurance

On the demand side too, the ILO (2004b) has prepared an inventory of microinsurance schemes operational in India. Based on this list, some of the observations are made below: The inventory lists 51 schemes that are operational in India. Most schemes are still at a very nascent stage, having begun their operations only during the last few years. Of the 39 schemes for which this information is available, around 24 schemes came up during the last 4 years, and about 7 schemes have been operating for more than a decade. As regards the beneficiaries, the 43 schemes for which the information is available cover 5.2 million people. Most insurance schemes (66%) are linked with microfinance services provided by specialized institutions (17 schemes) or non-specialized organizations (17 schemes). Nearly 22% of the schemes are implemented by community based organizations, and 12% by healthcare providers. Life and health are the two most popular risks for which insurance is demanded: 59% of schemes provide life insurance and 57% of them provide health insurance. In SEWAs experience, health insurance tops the list of risks for which the poor need insurance. There are 25 out of 37 schemes that have received some external funds to initiate their schemes. In addition, there are 20 out of 32 schemes that have received external technical assistance in the form of advisory services, technical services, training or even referral services for their schemes. In a majority of the schemes, special staff has been recruited to manage insurance activities. The other schemes have been relying on their regular staff to undertake the additional responsibilities linked to managing these schemes. Most schemes (74%) operate in four states in South India: Andhra Pradesh (27%), Tamil Nadu (23%), Karnataka (17%) and Kerala (8%), while the two western states (Maharashtra 12% and Gujarat 6%) account for 18% of the schemes. Around 56% of these schemes deal with one single risk

12. Distribution Channel Penetrating the insurance market through new distribution channels:

The competitive landscape of the Indian insurance industry coupled with the introduction of new products has given way to an increasing customer base and the emergence of new distribution channels. Distribution accounts for the largest element in insurers costs and impacts their profitability. Besides, it also influences product design and directly impacts the market image of distributors. The insurance market in India has a good range of distribution channels, but direct sales agents dominate and account for a majority of all Indian life and general insurance premiums. Traditionally, captive agents wrote the bulk of an insurance companys business. Public sector insurance companies had their branches in almost all parts of the country and attracted local people to become their agents. These agents were from various segments in society and collectively covered the entire spectrum of society. But post liberalization, people have started buying insurance products from independent producers and institutional channels such as banks, broker-dealers and wire houses. The widening and strengthening of distribution channels has helped the insurance industry to become more competitive and healthy. Today, a lot of insurance policies are bought online. The developmentof information technology and the emergence of online and offline insurance education and training has initiated a marked change in the range and quality of insurance services. Direct sales agents dominate various insurance distribution channels, as the case is in the rest of Asia. But the share of other low-cost channels such as bancassurance, brokers and direct distribution is likely to rise due to the removal of tariffs. The distribution channels in the insurance industry are discussed in the following sections: Agents Agents constitute an integral part of the distribution channels that reach out to corporate clients as they prefer to deal directly with insurers to obtain discounts. About 7075% of the Indian general insurance premiums come through direct sales agents who are largely employed by public sector insurance companies.

 The life insurance industry has more than two million tied agents (in-house sales force), of which LIC accounts for about one million. Since private sector players have entered the market at a relatively later stage, the number of agents in their network has been limited. As distribution through agents requires a long gestation period as well as investment, private players prefer to select other distribution options. The growing distribution network of private players has been illustrated below: Number of agents FY05 FY06 FY07 ICICI Prudential 57,000 72,000 234,000 Bajaj Allianz 47,000 85,000 170,000 HDFC Standard 23,671 33,000 74,000 Kotak Mahindra 9,000 12,523 20,000 Reliance Life 7,664 20,231 106,000 Birla Sun Life 9,468 17,986 50,000

12. Insurance trends in India With the de-regulation in Indian Insurance industry, the monopoly of public sector companies in life insurance and general insurance has come to an end. This has augmented the innovative practices initiated by the private players. Growth in the interactive technology such as internet has further created a wave of excitement in the insurance market. Indian economy and Indian Insurance sector is committed to a double digit growth. Heres a glimpse of Insurance Industry over 190 years. Background : Insurance is a Rs 450 billion industry in India. The value of the market is determined by gross premium incomes. The life insurance segment writes about 80% of the overall market value. Indian Insurance market was at its all time high in 2003 with a growth of about 17.4% over the previous year. Since 2001 Insurance is growing at the rate of 1520 % annually. The growth in the insurance industry is affected by volatility in real estate rates, GDP rates and long term interest rates. Fluctuations in exchange rates also affect the growth in this sector. The gross premium as a percentage of the GDP has gone up from 2.3 in the year 2000 to 4.8 in 2006. Together with banking services, it adds about 7% to the countrys GDP. Economy driven trends A] Ancient Historical Times : Insurance is as old as human society itself. The ancient origin of insurance is Emerigon, whose brilliant and learned Traite des Assurances, first published in 1783, is still read with respect and admiration. The result shows that insurances were known to the ancients such as Romans, Phoenicians Rhodians, although the business of underwriting commercial risks was probably not highly developed. The histories of Livy and Suetonius shows that the contractors who undertook to transport provisions and military stores to the troops in Spain stipulated that the government should assume all risk of loss by reason of perils of the sea or capture and this was probably the first time when insurance

process was known. There were friendly societies organized, for the purpose of extending aid to their unfortunate members from a fund made up of contributions from all. These societies undoubtedly existed in China and India in the earliest times. The earliest traces of Insurance in the ancient Indian history was in the form of marine trade loans or carriers contracts, which can be found in Kautilyas Arthashastra, Yajnyavalkyas Dharmashastra and Manus Smriti. These works show that the system of credit and the law of interest were well developed in India. They were based on clear appreciation of hazard involved and the means of safeguarding against it. B] British-India Period : Insurance in India without any regulations started in the nineteenth century. It was a typical story of a colonial era where a few British insurance companies dominated the market serving mostly large urban centers. Company started by Europeans in Calcutta was the first life insurance company on Indian Soil. Bombay Mutual Life Assurance Society indicated the birth of first Indian life insurance company in the year 1870, and covered Indian lives at normal rates. 1930s was the last of the old-style crises in the Indian economy because it marked the beginning of the end of the colonial state and an acceleration of the pace of industrialization as entrepreneurs moved their capital out of the countryside. Independent India reduced its vulnerability to external economic shocks by close control of foreign exchange and by promoting a massive change in the export schedule. Till the end of nineteenth century insurance business was almost entirely in the hands of overseas companies. C] Post Independence era of Indian Insurance : The insurance business grew at a faster pace after independence. Indian companies strengthened their hold on this business but despite the growth that was witnessed, insurance remained an urban phenomenon. During Mrs. Gandhis tenure (from 19661968), there was a split within the business community of protectionists and those who wanted more open trade. But what maintained the momentum was the commitment of

Two Ministers, Ashok Mehta and Subramaniam towards liberalization of the economy. This was seconded with high hope of getting increased foreign aid. Deregulation actually helped the poorest in India as it would eventually create more employment and faster growth. Yet the intense fears of liberalization in the lower middle class and among working class employees of the state sector, pose serious risks in freeing the economy. It might be preferable to introduce liberalization during an economic upswing when the risk of switching jobs is less traumatic. The three liberalization episodes in Indian economic policy have followed clear cyclical patterns. Economic policy has swung broadly between controls and greater openness, with a tendency toward decontrolling larger and more important segments of the economy. D] Nationalization Phase of Indian Insurance : 1944 : The Nationalization of insurance industry gathered momentum in 1944 when a bill to amend the Life Insurance Act 1938 was introduced in the Legislative Assembly. 1956 : 154 Indian insurance companies, 16 non-Indian companies and 75 provident societies were taken over by the central government and nationalised. LIC formed by an Act of Parliament, viz. LIC Act, 1956, with a capital contribution of Rs. 5 Crore from the Government of India. 1972 : The General Insurance Business (Nationalisation) Act, which nationalised the general insurance business in India with effect from 1st January 1973. 107 insurers amalgamated and grouped into four companies viz. the National Insurance Company Ltd., the New India Assurance Company Ltd., the Oriental Insurance Company Ltd. and the United India Insurance Company Ltd. Nationalization was accomplished in two stages; initially the management of the companies was taken over by means of an Ordinance, and later, the ownership too was taken by means of a comprehensive bill. However, it was only in 1956, LIC was nationalised, with the objective of spreading life insurance much more widely and in particular to the rural areas with a view to reach all insurable persons in the country,

providing them adequate financial cover at a reasonable cost.And as of 2007, LIC is Indias leading Insurance company, with 2000 branches, which probably is the highest number of branches across India insurance sector. E] Liberalization of Indian Insurance : 1994 : Insurance sector invited private participation to induce a spirit of competition amongst the various insurers and to provide a choice to the consumers. 1997 : Insurance regulator IRDA was set up as there felt the need: a) To set up an independent regulatory body, that provides greater autonomy to insurance companies in order to improve their performance, b) To Enable them to act as independent companies with economic motives. c) To Protect the interest of holders of insurance policies. d) To Amend the Insurance Act, 1938, the Life Insurance Corporation Act, 1956 and the General insurance Business (Nationalisation) Act, 1972 e) To end the monopoly of the Life Insurance Corporation of India and General Insurance Corporation and its subsidiaries . In the first year of insurance market liberalization (2001) as much as 16 private sector companies including joint ventures with leading foreign insurance companies have entered the Indian insurance sector. Of this, 10 were under the life insurance category and six under general insurance. Thus in all there are 25 players (12-life insurance and 13general insurance) in the Indian insurance industry till date. F] Indian Insurance in 21st Century : 2000 : IRDA starts giving licenses to private insurers : ICICI prudential and HDFC Standard Life insurance first private insurers to sell a policy

2001 : Royal Sundaram Alliance first non life insurer to sell a policy 2002 : Banks allowed to sell insurance plans. As TPAs enter the scene, insurers start setting non-life claims in the cashless mode 2007 : First Online Insurance portal, www.insurancemall.in set up by an Indian Insurance Broker, Bonsai Insurance Broking Pvt Ltd. The Government of India liberalized the insurance sector in March 2000 with the passage of the Insurance Regulatory and Development Authority (IRDA) Bill, lifting all entry restrictions for private players and allowing foreign players to enter the market with some limits on direct foreign ownership. Minimum capital requirement for direct life and Non-life Insurance company is INR1000 million and that for reinsurance company is INR 2000 million. In the 2004-05 budget, the Government proposed for increasing the foreign equity stake to 49%, this is yet to be effected. Under the current guidelines, there is a 26 percent equity cap for foreign partners in direct insurance and reinsurance Company.(World Bank Economic Review2000). Online Insurance In India : Internet access in India has doubled every year over the last five years and forecasts predict this growth to quadruple every year over the next three years. According to emarketer report on India online, in 2007, about 33.2 million people in India accessed internet and thats about 2.9% of Indian population. This figure is going to be 71.6 million people, which will be about 6% of population by 2011. Considering limited access of human-insurance agents in rural areas, there will more demand of purchasing insurance online from these areas, followed by semi-urban areas. The insurance portals that are active in online distribution are www.icicilombard.com, www.bajajallianz.co.in, www.insurancemall.in, www.bimaonline.com, www.insurancepandit.com. Recently, Compare Choose Buy portals like Bonsai Insurance Brokers www.insurancemall.in, have been developed for providing comparison of different types of insurance policies,

their premiums and their purchase online. The policy details are stored digitally and all transactions are made over secure channels. E-insurance offers a new gateway of incomes and provides additional market penetration, which is a need of an hour for Indian Insurance Segment. The First Movers in eDistribution of Insurance goes to 3 companies in India : 1. ICICI Lombard General Insurance 2. Bajaj Allianz General Insurance 3. www.insurancemall.in ( Created by Bonsai Insurance Broking.)

Government policy driven trends. Insurance and risk management make up an immense global industry. According to a survey conducted by a leading global insurance firm, Swiss Re, worldwide insurance premiums totaled $4.33 trillion in 2010 (the latest data available), up from $4.06 trillion in 2009. This was equal to 6.89% of global GDP. Global life insurance premiums were $2.52 trillion during 2010, while all other types of insurance totaled $1.81 trillion. In America alone, the insurance business employed about 2.23 million people in 2010. Gross insurance premiums totaled $1.16 trillion (per SwissRe). More than 4,000 companies underwrite insurance in America, but the industry is dominated by a handful of major players. Total insurance premium volume for 2010 in industrialized nations was $3.6 trillion. In emerging nations, where the fastest growth is to be found, total premiums were $650 billion, up 10.9% over the previous year, including $128 billion in Latin America and the Caribbean; $33 billion in the Middle East and Central Asia; and $67 billion in Africa. Again, these figures are from Swiss Re (www.swissre.com/sigma/).

Premiums on a per capita basis remain very low in much of the world, pointing to excellent long-term opportunity for expansion of sales of insurance products of all types, including annuities. It would be hard to overstate the importance of emerging nations, especially China, India, Brazil and Indonesia, to the future growth of the insurance industry. Total premiums in China were $215 billion in 2010. That may not sound like much compared, for example, to $310 billion in the U.K., but Chinas premiums were up 26.2% over the previous year, while the U.K.s were down by 2.7%. Indias premiums in 2010 totaled $78 billion, up a respectable 4.9%. Much of the world is still clearly a fertile field for expansion of companies that are willing and able to invest time and money in emerging markets. The insurance market in the emerging world will be boosted by a combination of rising household incomes, increasing education and financial sophistication among consumers, extending life spans, and a tradition of families relying on personal savings and initiative rather than government social programs to provide for retirement funds and health care. Massive amounts of insurance company earnings come from the sale of annuities and other retirement and investment products, along with profits (or losses) that insurance underwriters earn on the investment of their own assets and reserves. 2008s stock market meltdown had a significant effect on profits and assets at life insurance companies in particular, and property & casualty companies to a lesser degree. Insurance companies also hold immense investments in real estate, hedge funds, private equity, venture capital funds and other types of investments. The global financial crisis hurt nearly all of these asset classes and thus hit the capital base of the insurance industry in a hard way. At the same time, business bankruptcies, unemployment and cost-cutting by both businesses and consumers hurt insurance sales. However, a recovery in stock and bond markets that began in the spring of 2009 and ran through late 2011 provided a boost to the investment earnings of the insurance industry.

14. Executive Summery

Insurance is the subject matter ofsolicitation. Please read the offerdocument before investing. The growing demand for insurancearound the world is having a positive effect on the insurance industry in alleconomies. For India, increasing GDP,coupled with the growth in demand, hasopened many doors for the countrysinsurance industry. Both the life and general insurancesectors in India, which were nationalized in the 1950s and 1960s, respectively,were liberalized in 2000. Since then, the Indian insurance sector has seen rapid growth. The total premium of theinsurance industry has grown at a CAGRof 28.1% during FY03-07. In terms oftotal premiums, the Indian insurancesector is ranked as the fifth-largestinsurance market in Asia as of FY07. Post reforms, the number of playershave increased from four in life insuranceand eight in general insurance in 2000to 21 and 20 (including one reinsurer),respectively, in 2008. The life insurance sector grew at animpressive CAGR of 29.3% during FY03-07. This growth has been primarilydue to rising awareness of insurance,increasing life expectancy rates,changing demographics, greater productinnovation, etc. A large number ofprivate sector players have entered thismarket as customers and demand highlycustomized products and prompt service. The percentage share of the privatesector is expected to increase each year.The growing life insurance marketemphasizes the shift from the currentsolvency regime of 150% to risk-basedcapital. Every company is expected toprovide the quality of underwriting it canquantify for itself in view of its risk-takingability. The stress is on valuing assetsas well as liabilities. Companies aremoving towards making arrangementsto implement Solvency II norms, but this is expected to become mandatory notbefore 2012. During FY03-07, the general insurancesector grew at a CAGR of 21.3%. Auto and health insurance are the two mostpromising sectors and are expected to garner a large share of the total premium in the future. A stringentregulatory environment, with a rigidtariff regime, has been responsible for relatively slower growth in the generalinsurance sector. As on date,

all segments, except motorthird party, has been DE tariffed. Thegrowth in premiums in the generalinsurance industry has slowed down postdetoxification and pricing deregulation,which started in FY07.

15. References: 1. www.irda.com 2. www.Insurance industry.com 3. www. Sherkhan.com 4. http://www.topnews.in/indian-insurance-industry-have-stable-profitable-growth-2286879