Chapter-I Introduction

The insurance industry in India has seen an array of changes in the past one decade. The economic scenario which emerged after globalization,

privatization and liberalization has thrown a new challenge before the insurance sector. Now it has to be more competitive in order to meet the needs and demands of its customers. The reforms contributed to increase the awareness of the insuring public about the wider range of choice of insurance products and the price offered by the competing insurers in the market. The customers know well about their rights and remedies, availability of various grievance redressal mechanisms, progressive decontrol and detariffication of pricing of insurance products, particularly in the non- life insurance segments. The technical know-how, expertise and wide experience of multinationals that have joined with the Indian companies have revolutionized almost all aspects of insurance industry in India. The insurance industry has an important socio- economic function to discharge and as such it plays a leading role within the financial system in a country. It has a decided advantage over most other financial activities in the present economic world. It provides funds, largely in the long-term, to repair or compensate for the real value and cost of damages, accident and various losses in all fields of material activities, as well as life and health. An evolving insurance sector is of vital importance for economic growth. While

encouraging savings habit, it also provides a safety net to both enterprises and individuals. The insurance industry also provides crucial financial

intermediation services, transferring funds from the insured to capital investment, which is critical for continued economic expansion and growth, simultaneously generating long-term funds for infrastructure development. Development of the insurance sector is necessary to support the structural changes in the economy.

The insurance industry has also succumbed to the general trend towards globalized markets and risks. This general trend is evident in the fact that in recent years there has clearly been more rapid growth in global trade, direct investment and portfolio investments than in the production of goods and services. Liberalization of insurance services involves removing restrictions to foreign and domestic investment and allowing firms the freedom to set rates. The benefits of liberalization of the insurance markets are multi-faceted. Foreign insurance companies can enhance the efficiency of the local insurance markets by providing superior customer services, introducing new products and transferring technological and managerial know- how. It increases competition and encourages a more pronounced specialization according to comparative advantage. The opening up of the insurance market can be favourable to form an efficient capital market, to encourage domestic production, innovation and trade. India's rapid growth rate over the decade has been one of the most significant developments in regional markets and also in global economy. Today India is one of the fastest growing economies of the world. It is now Asia's third largest economy and has made inroads into the global top 10 in terms of Gross Domestic Product (GDP). The service sector has contributed significantly in Indias growth story in the recent years. GDP originating from the service sector recorded a growth rate of 11 per cent in 2006-07 (Annual Report of IRDA, 2007). The contours of insurance business have been changing across the globe and the rippling effect of the same can be observed in the Indian market as well. Insurance Industry is a growth-oriented industry. In India too, the industry has started to reveal the potential after liberalization and privatization of the sector. India is geographically large and has the world's second largest population but it also has one of the lowest penetration rates for general insurance in Asia in terms of premium as a percentage of GDP. This situation reflects the fact that India's insurance market is still in its infancy, meaning good growth potential. Strong economic growth of India in the last decade

combined with a population of over a billion makes it one of the potentially largest insurance markets in the future. The increased economic activity coupled with recent reforms in general insurance market, would certainly help to expand the market in the years to come. The reforms and the opening up of the insurance sector invited many Indian and foreign companies to start up their business. It has been estimated that insurance sector growth is more than three times the growth of economy in India. It is the reason that large number of foreign and domestic companies are investing in insurance sector in India. Insurance sector reforms were started in India following to the report of R.N. Malhotra Committee, which was set up in 1993 with an objective of creating a more efficient and competitive financial system suitable for the Indian economy. The Committee strongly felt that in order to improve the customer services and increase the spread of the insurance, this sector should be opened up to competition. The reforms in insurance sector resulted in to liberalization, privatization and globalization of insurance industry in India. In India, the market share of Public Insurance Companies has been challenged in recent years by a variety of forces-from internet

disintermediation to aggressive marketing by new entrants, financial services deregulation, compliance pressure, competition from other investment vehicles and of course customer empowerment. The changing insurance industry dynamics present many opportunities for insurers, but capturing these opportunities requires a well-defined and proactive business response. The insurers must re-evaluate how they handle customer interactions, align their offering with customer purchasing criteria, better understanding, and act on the drivers of customer satisfaction, loyalty and defection. At the same time, they can optimize distributor strategy by proactively seeking to retain and attract quality distributors. Since the onset of reforms, the competition and service quality has definitely improved in terms of underwriting, product innovation, distribution channels, marketing of product and assurance of policy. The reforms have also brought in new industry risks in terms of increased competition, inadequately

experienced managers, unknown risk exposure due to different risk aggregates, information risks and mismatching of assets and liabilities (Standard & Poor's, 2007). 1.1 Changing Scenario of General Insurance Industry The General Insurance Sector dominated by General Insurance Corporation (GIC) and its four subsidiaries since nationalization of insurance, has started looking different now. The major happenings in the last few years of privatization can be summarized as below: Functional autonomy of subsidiaries of GIC has been granted. GIC has been instructed to stop writing direct business and act as Indian reinsure. IRDA has finalized various guidelines and regulations. Competition was reintroduced in 2000 with the licensing of the first private company. Large number of new entrants in the private sector are already operational. The intense competition brought about by deregulation has encouraged the industry to innovate in all areas, from underwriting, marketing, policyholder servicing, etc. Aggressive marketing strategies by private sector insurers have buoyed consumer awareness of risk and expanded the markets for products. Competition in a deregulated environment has allowed market forces to set premiums that are appropriate for exposures and push insurers to differentiate their products and services. Innovations in distribution and use of information technology have followed as public and private insurers compete to market their products. Allowing insurers to issue their own policy wordings w.e.f. April 1, 2008, and set their own rates w.e.f. Jan. 1, 2007 have enabled insurers to tailor products to meet client needs. So, the private sector was allowed into insurance business in 2000. However, foreign ownership was restricted not to exceed 26 per cent of
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foreign investment. Table 1 reveals that six companies from the public sector and 15 companies from the private sector have already entered into general insurance business in India. The increasing demand and novelty of business opportunities in the insurance market lured more and more players to enter into this field. Table 1.1 List of General Insurance Companies in India
Sr. No. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. Name of the Company The Oriental Insurance Company Limited The New India Assurance Company Limited National Insurance Company Limited United India Insurance Company Limited Agriculture Insurance Company of India Limited Export Credit Guarantee Corporation Limited Royal Sundram Alliance Insurance Company Limited Reliance General Insurance Company Limited IFFCO Tokio General Insurance Company Limited TATA AIG General Insurance Company Limited Bajaj Allianz General Insurance Company Limited ICICI Lombard General Insurance Company Limited Appolo DKV Health Insurance Company Limited Future General India Insurance Company Limited Universal Sompo General Insurance Company Limited Star Health and Allied Insurance Company Limited Cholamandalam General Insurance Company Limited HDFC-Chubb General Insurance Company Limited Shri Ram General Insurance Company Limited Bharti Axa General Insurance Company Limited Raheja QBE General Insurance Company Limited

Source: www.irdaindia.org

It is evident from the above table that as a result of the introduction of reforms in the insurance sector in India, many large and well established world class private companies have entered into the arena to grab new opportunities in the non-life insurance sector. It is essential that this involvement should be channelised into a positive factor for the growth of the Indian insurance sector in particular and the Indian economy in general. 1.2 Spread and Growth of Insurance in India and Global Perspective The spread of insurance is measured in terms of insurance penetration and measure of density. To see the growth and opportunities in the insurance sector in any country, insurance penetration, insurance density, premium
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income and growth in premium should be measured. India is geographically large and has the world's second largest population, i.e., 1.13 billion in 2007 (Moody's ICRA Global, 2008). Despite such a huge population, the insurance penetration and density as compared to the world levels is quite insignificant. Tables 2 and 3 explain the life insurance penetration and density respectively. Table 1.2 Life Insurance Penetration
Country India China Brazil Russia United States United Kingdom Japan South Africa World 2001 2.15 1.34 0.36 1.55 4.40 10.73 8.85 15.19 4.68 2002 2.59 2.03 1.05 0.96 4.60 10.19 8.64 15.92 4.76 2003 2.88 2.30 1.28 1.12 4.38 8.62 8.61 12.96 4.59 2004 2.53 2.21 1.36 0.61 4.22 8.92 8.26 11.43 4.55 2005 2.53 1.78 1.33 0.12 4.14 8.90 8.32 10.84 4.34 2006 4.10 1.70 1.30 0.10 4.00 13.10 8.30 13.00 4.50 2007 4.00 1.80 1.40 0.10 4.20 12.60 7.50 12.50 4.40 2008 4.00 2.20 1.40 0.00 4.10 12.80 7.60 12.50 4.10

Source: Compiled from IRDA Annual Reports from 2000-01 to 2008-09. Note: 1. Insurance penetration is measured as ratio (in per cent) of premium to total GDP. 2. Data relates to calendar years.

Table 1.2 explains Life Insurance penetration in the global perspective. Life insurance penetration is measured as a ratio (in percentage terms) of the insurance premium to the Gross Domestic Product (GDP). As is evident from Table 2, there is an increasing trend in the life insurance penetration in India and has almost doubled from 2.15 per cent to 4.00 per cent during the period under study. The figures are quite impressive if a comparison is made with other fast developing nations like China, Brazil and Russia but still, India is far behind developed nations like United States, United Kingdom, Japan, South Africa, though stagnation is apparent in the life insurance penetration of these developed nations. The world-wide penetration of life insurance is also

stagnant; rather it declined from 4.68 in 2001 to 4.10 in 2008. In the Indian context, no doubt life insurance penetration has increased during the period under study, but it is still very low as compared to the developed nations. Table 3 exhibits the life insurance density in the global perspective. Life insurance density is calculated as a ratio (in percentage terms) of premium to

total population. The life insurance density in India also shows an increasing trend but still the figures are unimpressive in the global perspective. Table 1.3 Life Insurance Density (USD)
Country India China Brazil Russia United States United Kingdom Japan South Africa World 2001 9.1 12.2 10.8 33.2 1602.0 2567.9 2806.4 377.2 235.0 2002 11.7 19.5 27.2 23.1 1662.6 2679.4 2783.9 360.5 247.3 2003 2004 2005 2006 2007 12.9 15.7 18.3 33.2 40.4 25.1 27.3 30.5 34.1 44.2 35.8 45.9 56.8 72.5 95.3 33.9 24.8 6.3 4.0 6.1 1657.5 1692.5 1753.2 1789.5 1900.6 2617.1 3190.4 3287.1 5139.6 5730.5 3002.9 3044.0 2956.0 2829.3 2583.9 476.5 545.5 558.3 695.6 719.0 267.1 291.5 299.5 330.6 358.1 2008 41.2 71.7 115.4 5.4 1922.0 5582.1 2869.5 707.0 369.7

Source: Compiled from IRDA Annual Reports from 2000-01 to 2008-09. Note: 1. Insurance density is measured as ratio (in per cent) of premium to total population. 2. Data relates to calendar years.

Life insurance density has witnessed an impressive growth from 9.1 per cent to 41.20 per cent in the post-reform period, i.e., from 2001 to 2008. The figures related to China also present a similar story, whereas Brazil has improved very fast on this parameter. United Kingdom tops in terms of life insurance density, i.e., 5582.1. World-wide, the life insurance density has shown an increasing trend and it increased from 235.0 to 369.7 during the period under study. As is evident from the table, despite such a massive growth in the life insurance density in India in the post-reform period, still it is disproportionately small and is just one-ninth of the world average. Table 1.4 General Insurance Penetration
Country India China Brazil Russia United States United Kingdom Japan South Africa World 2001 0.56 0.86 1.78 1.51 4.57 3.45 2.21 2.78 3.15 2002 0.67 0.96 1.74 1.81 4.98 4.56 2.22 2.86 3.38 2003 0.62 1.03 1.68 2.13 5.23 4.75 2.20 2.92 3.48 2004 0.65 1.05 1.63 2.21 5.14 3.68 2.25 2.95 3.43 2005 0.61 0.92 1.68 2.15 5.01 3.55 2.22 3.03 3.18 2006 0.60 1.00 1.60 2.30 4.80 3.40 2.20 3.00 3.00 2007 0.60 1.10 1.60 2.40 4.70 3.00 2.10 2.80 3.10 2008 0.60 1.00 1.60 2.30 4.60 2.90 2.20 2.90 2.90

Source: Compiled from IRDA Annual Reports from 2000-01 to 2008-09. Note: 1. Insurance density is measured as ratio (in per cent) of premium to total population. 2. Data relates to calendar years.

Further, the figures related to general insurance present a more dismal picture. Table 1.4 explains the General Insurance Penetration in India as well as at the global level. General Insurance Penetration is measured as a ratio of premium to Gross Domestic Product (GDP). The table reveals that in the post-reforms period, the general insurance penetration has registered a marginal increase. In 2001, it was 0.56 and then it increased to 0.65 in 2004, but it again slipped to 0.60 in 2008. At the global level, the general insurance penetration has witnessed stagnation. In United States, it increased marginally from 4.57 to 4.60 during the period under study. The figures in the case of other countries also present a similar trend. The world average also declined marginally from 3.15 to 2.90 during the corresponding period. The position of general insurance sector in India is quite discouraging as compared to other developing nations. An attempt has been made to examine the General Insurance Density at the global level and in the Indian perspective. The General Insurance Density is measured as a ratio of premium to total population. Table 5 highlights the General Insurance Density in US Dollar terms. Table 1.5 General Insurance Density (USD)
Country India China Brazil Russia United States United Kingdom Japan South Africa World 2001 2.4 7.8 53.2 32.6 1664.1 825.9 701.1 69.1 158.2 2002 3.0 9.2 45.0 43.5 1799.0 1199.7 714.7 64.8 175.6 2003 3.5 11.2 46.8 64.3 1980.0 1441.4 768.0 107.4 202.5 2004 4 12.9 55.2 89.6 2062.6 1318.0 830.8 141.0 220.0 2005 4.4 15.8 72.1 116.5 2122.0 1311.9 790.4 156.2 219.0 2006 5.2 19.4 88.4 146.9 2134.2 1327.1 760.4 160.2 224.2 2007 2008 6.2 6.2 14.7 19.3 106.9 129.1 203.3 268.1 2164.4 2177.4 1383.2 1275.7 736.0 829.2 159.5 163.6 249.6 264.2

Source: Compiled from IRDA Annual Reports from 2000-01 to 2008-09. Note: 1. Insurance density is measured as ratio (in per cent) of premium to total population. 2. Data relates to calendar years.

Table 1.5 clearly explains that the general insurance density in India has increased from $2.4 in 2001 to $6.2 in 2008, while in the case of United States, it increased from $1664.1 to $2177.4 during the same period. Even the developing countries like China, Brazil and Russia registered an impressive

growth in the General Insurance density. A world-wide increasing trend in the general insurance density from $158.2 to $264.20 can be observed from the table, during the period under study. It is clearly evident from the tables 4 & 5 that the General Insurance penetration and Density in India is too low as compared to the world levels. It seems that even the reform process has failed to provide the desired results despite the fact that Indian insurance sector is still unexplored and untapped. Trends in Gross Direct Premium Gross Direct Premium is one of the important and main indicators of the performance of the insurance business. The Gross Direct Premium of the public sector general insurance companies for the period 1993-94 to 1999-00 has been presented in Table 1.6. Table 1.6 Gross Direct Premium of Public Sector General Insurance Companies in Pre-Reform Period
Year National New India Oriental United India Total 1993-94 1994-95 1995-96 1996-97 860.1 957.4 1207.3 1456.5 (11.31) (26.10) (20.64) 1616.6 1777 2131.9 2433.6 (9.92) (19.97) (14.15) 1006.4 1098.1 1325.6 1524.2 (9.11) (20.71) (14.98) 1151.8 1319.2 1554.8 1798.3 (14.53) (17.85) (15.66) 4634.9 5151.7 6219.6 7212.6 (11.15) (20.73) (15.96) 1997-98 1636.5 (12.35) 2688.5 (10.47) 1709.5 (12.15) 1962.7 (9.14) 7997.2 (10.87) (Rs. in crore) 1998-99 1999-00 1853.5 2042.1 (13.26) (10.17) 3017.6 3306.5 (12.24) (9.57) 1969.9 2166.5 (15.23) (9.98) 2260.8 2390.5 (15.18) (5.73) 9101.8 9905.6 (13.81) (8.83)

Source : Annual Reports of Public Sector General Insurance Companies from 1993-94 to 1999-00. Note : Figure in parentheses show growth rate in Gross Direct Premium.

The table given above shows the trend in gross direct premium during the period of this study. There is an upward trend in gross direct premium income of the public sector general insurance companies in pre-liberalization period. New India Assurance emerged as the largest public sector general insurance company during all the years of pre-reform period followed by United India Insurance, Oriental Insurance and National Insurance companies. The growth rate of gross direct premium over the previous year has been calculated for all the public sector general insurance companies to evaluate the
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impact of privatization on the growth of public sector general insurance companies by comparing the growth of the pre- and post- privatization period. Tables 1.6 and 1.8 exhibit that growth rate of public sector general insurance companies during the pre-reform period is higher than the post-reform period. It clearly shows that the privatization has negatively affected the growth rate of public sector general insurance companies. It is mainly due to the strong competition posed by the private sector, their better marketing strategies and innovative products. The private sector companies have shaken the state owned insurance companies and forced them to act immediately to sustain higher growth rate in the insurance sector. Market Share in Gross-Direct Premium: The market share of different players in the gross direct premium during the period of study has been presented in Table 1.7. The performance of insurance companies can be examined further by looking at the trend in their market share during the pre- and post-reform period. This trend also differentiates the performance of four public sector general insurance companies. Table 1.7 Market Share in Gross-Direct Premium of Public Sector General Insurance Companies in Pre-reform Period
(Percentage) Year National New India Oriental United India Total 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 18.55 18.58 19.42 20.19 20.46 20.37 20.62 34.88 34.49 34.27 33.75 33.62 33.15 33.38 21.71 21.32 21.31 21.32 21.38 21.64 21.87 24.86 25.61 25.00 24.93 24.54 24.84 24.13 100 100 100 100 100 100 100

Source: Annual Reports of Public Sector General Insurance Companies from 1993-94 to 1999-00.

Table 1.7 brings out that in the pre-privatization period, i.e., 1993-94 to 1999-00, there is insignificant change in the market share of four public sector companies among themselves. New India Assurance emerged as the largest public sector general insurance company with a market share of 34.88 per cent and 33.38 per cent in the years 1993-94 and 1999-00 respectively, followed by

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United India Insurance with a market share of more than 24 per cent during the same period. However, in the post-privatization period, i.e., 2000-01 to 200708, there has been a significant change in the whole scenario. Table 1.8 Gross Direct Premium of General Insurance Companies during the Post-reforms Period
(Rs. in crores)
Name of Company National New India Oriental United Total Public Sector Royal Sundaram Reliance IFFCO-Tokio Tata AIG ICICI Lombard 2000-01 2227.7 (9.09) 3493.1 (5.64) 2247.1 (3.72) 2524.0 (5.58) 10491.9 (5.92) 0.24 (-) 1.07 (-) 5.83 (-) (-) 2001-02 2439.41 (9.50) 4198.06 (20.18) 2498.64 (11.19) 2781.48 (10.20) 11917.59 (13.59) 71.13 (29537.5) 77.46 (7139.3) 70.51 (1109.43) 78.46 (-) 2002-03 2869.87 (17.65) 4812.79 (14.64) 2868.15 (14.79) 2969.63 (6.76) 13520.44 (13.45) 184.44 (159.30) 185.68 (139.71) 213.33 (202.55) 233.93 (198.15) 2003-04 3399.97 (18.47) 4921.47 (2.26) 2899.74 (1.10) 3063.47 (3.16) 14284.65 (5.65) 257.70 (39.72) 161.06 (-13.26) 322.24 (51.05) 343.52 (46.85) 2004-05 3810.65 (12.08) 5103.16 (3.69) 3090.55 (6.58) 2944.46 (-3.88) 14948.82 (4.65) 330.70 (28.33) 161.68 (0.38) 496.64 (54.12) 448.24 (30.48) 2005-06 3536.34 (-7.20) 5675.44 (11.21) 3609.77 (16.80) 3154.78 (7.14) 15976.44 (6.87) 458.64 (38.69) 162.33 (0.40) 892.72 (79.75) 572.70 (27.77) 2006-07 3827.12 (8.22) 5936.78 (4.60) 4020.78 (11.39) 3498.77 (10.90) 17283.45 (8.18) 598.20 (30.43) 912.23 (461.96) 1144.47 (28.20) 710.55 (24.07) 2989.07 (88.84) 1786.34 (40.40) 311.73 (41.58) 194.00 (-3.45) 8646.57 (61.24) 25930.02 (21.51) 2007-08 4022.00 (5.09) 6152.00 (3.62) 3900.20 (-3.00) 3739.60 (6.88) 17813.80 (3.07) 694.41 (16.08) 1946.40 (113.4) 1128.20 (-1.42) 782.64 (10.15) 3307.10 (10.64) 2379.90 (33.23) 522.34 (67.56) 220.60 (13.71) 10981.60 (27.00) 28795.40 (11.005)

28.14 211.66 486.73 873.86 1582.86 (-) (-) (652.17) (129.96) (79.54) (81.13) Bajaj Allianz 141.96 296.48 476.53 851.62 1272.29 (-) (-) (108.85) (60.73) (78.71) (49.40) Chomandalam 14.79 97.05 169.25 220.18 (-) (-) (-) (556.19) (74.39) (30.09) HDFC Chubb 9.49 112.95 175.63 200.94 (-) (-) (-) (1090.20) (55.49) (14.41) 7.14 467.65 1349.80 2257.83 3507.62 5362.66 Total Private - (6449.72) (188.63) (67.27) (55.35) (52.89) Sector 10499.00 12385.24 14870.25 16542.49 18456.45 21339.10 Total (17.97) (20.06) (11.25) (11.57) (15.62) Source :Annual Report of IRDA from 2000-01 to 2007-08. Note :Figures in Parenthesis show growth in gross direct premium in percentage.

Table 1.9 exhibits that New India Assurance emerged as the largest public sector company during the pre- and post-reform periods. However, United India insurance from its second place slipped to the fourth and market share of about 24 per cent during the pre-reform period to 12.99 per cent in 2007-08. Oriental General Insurance Company which was at the third place during the pre reform-period maintained the same position, but National

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Insurance Company from its fourth place climbed to the second. The study also reveals that the market share of all the public sector general insurance companies decreased sharply due to the entry of private companies in the field. The table reveals that there has been an increasing trend in Gross Direct Premium of the general insurance companies belonging to both the public and private sectors during the post-reforms period. However, the growth rate is higher in the case of private sector companies as compared to public sector companies. Among the private sector companies, ICICI Lombard emerged as the largest company followed by Bajaj Allianz during the period under study. In 2007-08, Reliance General Insurance company registered the highest growth rate in the whole insurance sector. Further, the trend in growth rate has been higher during the post-reforms period. It shows that the privatization of insurance sector has a positive impact on the growth of general insurance industry. Table 1.9 Market Share of General Insurance Companies in Post-reform Period
(Percentage)
Name of Company National New India Oriental United Total Public sector Royal Sundaram Reliance Iffco Tokio Tata Aig ICICI Lombard Bajaj Allianz Chomandalam HDFC Chubb Total Private Sector Total 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 21.22 33.27 21.40 24.04 99.93 0.01 0.06 0.07 100.00 19.70 33.90 20.17 22.46 96.22 0.57 0.63 0.57 0.63 0.23 1.15 3.78 100.00 19.30 32.37 19.29 19.97 90.92 1.24 1.25 1.43 1.57 1.42 1.99 0.10 0.06 9.08 100.00 20.55 29.75 17.53 18.52 86.35 1.56 0.97 1.95 2.08 2.94 2.88 0.59 0.68 13.65 100.00 20.65 27.65 16.75 15.95 81.00 1.79 0.88 2.69 2.43 4.73 4.61 0.92 0.95 19.00 100.00 16.57 26.60 16.92 14.78 74.87 2.15 0.76 4.18 2.68 7.42 5.96 1.03 0.94 25.13 100.00 14.76 22.90 15.51 13.49 66.65 2.47 2.31 3.52 4.41 2.74 11.53 6.89 1.20 0.75 33.35 100.00 6.76 3.92 2.72 11.48 8.27 1.82 0.77 38.15 100.00 13.96 21.36 13.54 12.99 61.85

Source: Annual Report of IRDA from 2000-01 to 2007-08.

It is evident from Table 1.9 that the market share of public sector general insurance companies has continuously declined, whereas that of private

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sector companies has increased during the whole period under study. This has been due to the higher growth rate shown by the private sector general insurance companies. In 2000-01, the market share of public sector was 99.93 per cent and that of private sector was only 0.07 per cent. However, in 2007-08, the market share of the public sector came down 61.85 per cent and that of private sector increased to 38.15 per cent. It shows that 38.15 per cent of the market share was captured by the private sector in terms of gross direct premium. The public sector general insurance companies have experienced a large branch expansion network since nationalization, but the quantitative expansion has not always been matched by a corresponding improvement in the performance. Even the large number of initiatives taken by the public sector companies have failed to meet the competition thrown by the private sector. As a result, the market share of public sector companies has declined greatly. The insurance industry as a whole has started to reveal the potential after liberalization and privatization of the sector. The growth rate of public sector general insurance companies has been higher during the pre-reforms period than the post-reforms period. Further, the performance of private sector general insurance companies in terms of growth rate of gross direct premium has been higher than that of the public sector. The private sector general insurance companies captured 38.15 per cent market share in terms of gross direct premium during the year 2007-08. So, the private sector general insurance companies have created ripples in the public sector general insurance companies and have forced them to review their style of working and strategies. These public sector general insurance companies have to leverage upon their strengths to give a tough fight to the private sector. The preceding discussion leads to the fact that although insurance penetration and density has witnessed an increasing trend in the post-reforms period, yet it has a long way to cover to even come closer to the developed nations. No doubts, we are better off in some areas when a comparison is made with the fast developing countries like China, Brazil and Russia.

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The whole situation can be attributed to the reason that the foreign insurers have mainly focused their attention on the developed urban market of India and not the lower income group people residing in rural areas. So, to get the true benefit of globalization, it is necessary for foreign insurers and the private insurers to cover the untapped and undeveloped areas of India like rural insurance sector in India. But this may not be a cost effective venture, as opening offices and branches in small villages is a very costly exercise .Therefore, in order to tap the rural sector, some innovative measures like bancassurance, collaboration of co-operative societies in villages, collaboration with panchayats and local governments, etc. need to be taken. For example, with the help of co-operative societies in Punjab, Bhai Kanhiya (previously called Sanjivini) health insurance scheme was launched for the co-operative society members of the village. Another area that could be covered is agriculture, which has remained largely uninsured despite being the chief occupation of the Indian rural people. With the entry of the insurance sector in this field, the problems of the agriculture community like suicide by farmers, destruction of crops due to natural calamities etc. can be solved by providing them with agriculture insurance which covers their risks. Thus, their financial worries can be overcome which will finally result in their prosperity and wellbeing. 1.3 Need and Significance of the Study The reforms of Indian insurance sector have brought substantial changes in the level of competition, business environment, managing strategies, service quality and the advance technology front. The wind of liberalization, globalization & privatization has opened new vistas in the insurance industry in the generation of an intensely competitive environment. The post-liberalized insurance industry in India has been witnessing a discernible shift from the sellers to the buyers market. The reformed insurance industry has offered a plethora of new customer friendly products, new delivery channels like bancassurance, corporate agents, brokers and direct selling through the internet,

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greater use of computerization and information technology. Close on the heels of the success of the privatization initiatives in the banking sector, the insurance industry has become another success story on the positive benefits of the competition and of allowing entry of private and foreign players. The reforms at this stage need to be reviewed in order to assess their compatibility vis-a-vis the growth and the performance of insurance industry in India. The Public Sector General Insurance Companies have experienced branch expansion network since nationalization. But quantitative expansion has not always been matched by a corresponding improvement in the quality of customer service and performance. The rapid expansion of insurance companies since nationalization has given rise to a number of problems related to the image, operational efficiency, productivity, and the quality of portfolio of the system as a whole. They had been receiving persistent complaints about deterioration in the customer service. Since the onset of the reforms, these insurance companies have been compelled to review their philosophy and method of working, in order to be ready for competition with private sector companies. The urgent response that is required from the existing public insurers is clear that they must remain competitive by doing things better and faster, and by ensuring cost effectiveness with performance. Large number of initiatives have been taken by these public sector companies to compete with private sector companies. But still the public sector companies need to reassess their present status after having modified their approach & philosophy in the post-reform period. Today, in this liberalized world, in order to sustain them, the insurance companies have to ensure quality products at a competitive price. Companies can lower the price of the product by reducing the cost. Their survival depends upon their performance in profitability, productivity, efficiency and service quality. So, there is a need to evaluate how these companies are performing in the post-liberalized era of insurance sector in India. The present study Performance Evaluation of General Insurance Companies: A Study of Post-Reform Period" is an attempt in this direction.
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1.4 Objectives of the Study The specific objectives of the study are as follows: 1. To study the conceptual frame work of the reforms process in the Insurance Industry in India. 2. To examine the effect of reforms on the performance of the Public Sector General Insurance companies. 3. To appraise the comparative performance of the Public Sector and the Private Sector General Insurance companies. 4. To assess the comparative service quality level of General Insurance companies in India. 5. To identify the gaps in the performance and to make suggestions to improve the performance of the General Insurance Industry in India. 1.5 Chapter Scheme The study has been structured into the following eight chapters: Chapter-I : Introduction-This chapter presents an overview of Indian insurance industry and global perspective with the main emphasis on general insurance sector. It also highlights specific objectives of the study and explains the need for the present research work. Chapter-II : Review of Literature-The present chapter is an attempt to review the studies already carried out on different aspects of insurance industry such as efficiency, productivity, profitability, service quality and other insurance related areas. It lends support to draw some important conclusions that can serve as a guide mark for the study. Chapter-III : Research Design- In this chapter, the methodology adopted for the purpose of this study has been explained. It encompasses the
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purpose, data collection and scope of the study. The hypotheses formulated for testing the objectives are also stated. Chapter-IV : Reform Process of Indian Insurance Sector-This chapter provides an overview of reform process of insurance sector in India. Chapter-V : Efficiency and Productivity Analysis of General Insurance Industry in India- This chapter discusses the concept of efficiency and productivity, appraises comparative efficiency and

productivity of both the public and private sector general insurance companies in the post-reforms period, and also assesses the efficiency of public sector general insurance companies in the pre- and post-reforms period. Chapter-VI : Profitability Analysis of Indian General Insurance Industry-It compares the profitability of the public and private sector general insurance companies in the post-reforms period, the profitability of the public sector in the pre- and post-reforms period, and also examines the factors affecting profitability. Chapter-VII : Service Quality Analysis of Indian General Insurance

Companies- This chapter assesses the service quality level of general insurance companies. Chapter-VIII: Summary of Findings, Conclusion and Suggestions.

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References
Annual Reports of IRDA from 2000-01, 2001-02, 2002-03, 2003-04,2004-05, 2005-06, 2006-07, 2007-08, 2008-09. Annual Reports of National Insurance Company Limited from 1993-94, 199495, 1995-96, 1996-97, 1997-98, 1998-99, 1999-2000. Annual Reports of New India Assurance Company Limited 1993-94, 1994-95, 1995-96, 1996-97, 1997-98, 1998-99, 1999-2000. Annual Reports of Oriental Insurance Company Limited from 1993-94, 199495, 1995-96, 1996-97, 1997-98, 1998-99, 1999-2000. Annual Reports of United India Insurance Company Limited from 1993-94, 1994- 95, 1995-96, 1996-97, 1997-98, 1998-99, and 1999-2000. Moody's ICRA Global (2008), "Indian General Insurance Industry Outlook: Major Changes Expected as Deregulation Continues" April. http://www.icra.in/Files/Articles/Insurance-ICRA Moody's -200704.pdf accessed on Aug.10, 2009. Standard and Poor's (2007), "Regional Challenges" Asia Insurance Post, October, pp. 19-21.

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