Insurance sector in INDIA

PRIVATISATION IN INSURANCE SECTOR IN INDIA

INTRODUCTION :

Insurance may be described as a social device to reduce or eliminate risk of loss to

life and property. Under the plan of insurance, a large number of people associate

themselves by sharing risks attached to individuals. The risks which can be insured

against, include fire, the perils of sea, death and accidents and burglary. Any risk

contingent upon these, may be insured against at a premium commensurate with

the risk involved. Thus collective bearing of risk is insurance.

DEFINITION :

General definition:

In the words of John Magee, “Insurance is a plan by which large number of people

associate themselves and transfer to the shoulders of all, risks that attach to

individuals.”

Fundamental definition:

In the words of D.S. Hansell, “Insurance may be defined as a social device

providing financial compensation for the effects of misfortune, the payment being

made from the accumulated contributions of all parties participating in the

scheme.”

Contractual definition:

In the words of justice Tindall, “ Insurance is a contract in which a sum of money

is paid to the assured as consideration of insurer’s incurring the risk of paying a

large sum upon a given contingency.”

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INSURANCE SECTOR IN INDIA

Insurance sector in INDIA is booming up but not to level comparative with

the developed economies such as Japan, Singapore etc. Also with the opening of

the insurance sector to the private players have provided stiff competition

resulting into quality products. Also there is a need to restructure the Indian

Government owned “ Life insurance Corporation of India “ so as to maximize

revenue and in turn profits. IRDA regulations and norms for the allocation of funds

need to have a comprehensive look. In the phase of declining interest rates and

rising inflation the funds need to be applied in productive areas so as to generate

high returns. Also in terms of clients servicing areas such as premium payments,

after sales service, policy dispatch, redressal of grievances has to be amended. In

the current scenario, LIC has to provide flexible products suited to the customer’s

requirements. Also a proper and systematic risk management strategy needs to be

adopted. After the increase in terrorism and destructive events around the global

world such as September 11 attack on World Trade Centre, US – Taliban war, US

– Iraq war etc.. An alternative to reinsurance such as asset backed securities is

emerging out in the developed economies. Catastrophe bonds are one of the

alternatives for reinsurance. Finally some policies such as pure term and pension

schemes needs to be addressed massively at both the urban and the rural segment

so as to generate high premium income which will help in the development and

growth of the economy.

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HOW BIG IS THE INSURANCE MARKET ?

Insurance is an Rs.400 billion business in India, and together with banking services

adds about 7% to India’s GDP. Gross premium collection is about 2% of GDP and

has been growing by 15-20% per annum. India also has the highest number of life

insurance policies in force in the world, and total investible funds with the LIC are

almost 8% of GDP. Yet more than three-fourths of India’s insurable population has

no life insurance or pension cover. Health insurance of any kind is negligible and

other forms of non-life insurance are much below international standards. To tap

the vast insurance potential and to mobilize long-term savings we need reforms

which include revitalizing and restructuring of the public sector companies, and

opening up the sector to private players. A statutory body needs to be made to

regulate the market and promote a healthy market structure. Insurance Regulatory

Authority (IRA) is one such body, which checks on these tendencies.

BOTTLENECKS – GOVERNMENT / RBI REGULATIONS:

The IRDA bill proposes tough solvency margins for private insurance firms, a 26%

cap on foreign equity and a minimum capital of Rs.100 crores for life and general

insurers and Rs. 200 crores for reinsurance firms. Section 27A of the Insurance Act

stipulates that LIC is required to invest 75% of its accretions through a controlled

fund in mandated government securities. LIC may invest the remaining 25% in

private corporate sector, construction, and acquisition of immovable assets besides

sanctioning of loans to policyholders.

These stipulations imposed on the insurance companies had resulted in lack of

flexibility in the optimisation of risk and profit portfolio. If this inflexibility

continues, the insurance companies will have very little leverage to earn more on

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their investments and they might not be able to offer as flexible products as offered

abroad.The government might provide more autonomy to insurance companies by

allowing them to invest 50 % of their funds as per their own discretions. Recently

RBI has issued stiff guidelines, which had dealt a severe blow to the plans of banks

and financial institutions to enter the insurance sector. It says that non-performing

assets (NPA) levels of the prospective players will have to be 1% point lower than

the industry average (presently 7.5%). RBI has also stipulated that all prospective

entrants need to have a net worth of Rs. 500 crores. These guidelines have made it

virtually impossible for many banks to get into the insurance business. Also banks

and FI’s who are planning to enter the business cannot float subsidiaries for

insurance. RBI has taken too much caution to make sure that the new sector does

not experience the kind of ups and downs that the non-bank financial sector has

experienced in the recent past. They had to rethink about these guidelines if India’s

strong banks and financial institutions have to enter the new business. The

insurance employees’ union is offering stiff resistance to any private entry. Their

objections are(a)that there is no major untapped potential in insurance business in

India;(b)that there would be massive retrenchment and job losses due to

computerization and modernization; and(c)that private and foreign firms would

indulge in reckless profiteering and skim the ‘urban cream’ market, and ignore the

rural areas.But all these fears are unfounded. The real reason behind the protests is

that the dismantling of government monopoly would provide a benchmark to

evaluate the government’s insurance services.

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PRIVATISATION:-

MEANING:-

In a narrow sense Privatisation implies the induction of private ownership in

publicly owned enterprises. But in broader sense it implies besides private

ownership, the induction of private management and control in the public sector

enterprises.

OBJECTIVES:-

Effective Utilization of Resources

Economic Growth

Encourages Capital Formation

Reduce Size of Public Sector

Dispose of Loss-Making Govt. Unit

ADVANTAGES:-

Reduction In Monopoly of Public Sector units

Effective Management

More Funds available With Govt.

Increase in Profitability

High Industrial growth rate

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Increase in efficiency of Public Sector

Encouragement to Innovation

Quick Decision making

DISADVANTAGES:-

Class Struggle

Unemployment & Corruption

Inflation

Non Acceptable by Trade Union

Public monopolies have been turned into private monopolies

Economic Imbalances

Wastage & Misallocation of Resources

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PRIVATIZATION IN INSURANCE SECTOR

1) The Narasimha Rao government (1991-96) which unleashed liberal changes in

India's rigid economic structure could not handle this political hot potato.

Ironically, it is the coalition government in power today which has declared its

intention of opening up insurance to the private sector. Ironical because this

government is at the mercy of support from the left groups which have been the

most vociferous opponents of any such move.

2) All segments of the financial sector had been opened to private players with better

product, services & social objective

3) International players are eyeing the vast potential of the Indian market and are

already making plans to come in.

HOW IMPORTANT IS PRIVATISATION IN INDIA The first order issue is that of competition policy. When the government hinders

competition by blocking entry or FDI, this is deeply damaging. Once competitive

conditions are ensured, there are, indeed, benefits from shifting labour and capital

to more efficient hands through privatisation, but this is a second order issue.

The difficulties of governments that run businesses are well-known. PSUs face

little "market discipline". There is neither a fear of bankruptcy, nor are there

incentives for efficiency and growth. The government is unable to obtain

efficiency in utilising labour and capital; hence the GDP of the country is lowered

to the extent that PSUs control labour and capital.

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When an industry has large PSUs, which are able to sell at low prices because

capital is free or because losses are reimbursed by periodic bailouts, investment in

that entire industry is contaminated. This was the experience of Japan where the

"zombie firms" - loss-making firms that were artificially rescued by the

government - contaminated investment in their industries by charging low prices

and forcing down the profit rate of the entire industry.

Further, in many areas, the government faces conflicts of interest between a

regulatory function and an ownership function. As an example, the Ministry of

Petroleum crafts policies which cater for the needs of government as owner, which

often diverge from what is best for India.

There is a fundamental loss of credibility when a government regulator faces PSUs

in its sector: there is mistrust in the minds of private investors, who demand very

high rates of return on equity in return for bearing regulatory risk.

These arguments have led many economists to advocate large-scale privatisation,

so as to clear the slate, and get on with the task of building a mature market

economy. The role model in this regard is Germany.

The privatisation of the insurance sector would open up exciting new career

options and new jobs would be created. A few insurers estimated a figure of 1lakh,

after comparing the work forces in India and the UK. At present, life products

comprise a big chunk, or 98%, of LIC’s business. Pension comprises a mere 2%.

Now with increase in life expectancy rate, people have to start planning their

retirements. Hence pension business is expected to grow once the industry opens.

The demand for healthcare is growing due to population increase, greater urban

migration and alarming levels of pollution. Healthcare insurance is more important

for families with smaller savings because they would not be able to absorb the

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financial impact of adverse events without insurance cover. Foreign insurance

companies like Aetna (world’s largest healthcare insurance provider) and Cigna

have been providing Managed Care services across the globe. Managed Care

integrates the financing and delivery of appropriate health care services to covered

individuals.

WHO’S GOING WITH WHOM?

Indian Company Foreign PartnerKotak Mahindra Chubb , US

Tata Group AIG , US

Sundram Finance Winterthur ,SWITZERLAND

Sanmar Group GIO of AustraliaM A Chidambaram MetLife

Bombay Dyeing General Accident, UK

DCM Shriram Royal Sum Alliance , UK

Dabur Group Liberty Mutual Fund , USA

Godrej J. Rothschild , UK

ITC Eagle star , UK

S K Modi Group Legal and General , Australia

CK Birla Group Zurich Insurance, Switzerland

Ranbaxy Cigna , USA

lpic Finance Allianz GERMANY

20th Century Finance Canada LifeVyasa Bank ING

Cholmandalam Guardian Royal Exchange ,UK

SBI Alliance CapitalHDFC Standard Life, UK

ICICI Prudential , UK

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IDBI PrincipalMax India New York Life

WHY PRIVATISE, WHAT MARKET STRUCTURE TO

HAVE FINALLY, WHAT ROLE FOR REGULATOR ?

The decision to allow private companies to sell insurance products in India rests

with the lawmakers in Parliament. These are the passage of the Insurance

Regulatory Authority (IRA) Bill, which will make IRA a statutory regulatory body,

and amending the LIC and GIC Acts, which will end their respective monopolies.

In 1994 the government appointed a committee on insurance sector reforms (which

is known as the Malhotra Committee) which recommended that insurance business

be opened up to private players and laid down several guidelines for orchestrating

the transition. In particular, we do not address many other related questions such as

whether foreign (and not just private) players should be allowed, what cap should

there be on foreign equity ownership, whether banks and other financial

institutions should be allowed to operate in the insurance business, whether firms

should be allowed to sell both life and -non-life insurance, and so on. The three

questions that we address are

(a) Why should insurance be opened up to private players?

(b) If opened up, what should be the appropriate market structure(many

unregulated players or a few regulated players); and finally,

(c) What is the role of the regulator in insurance business?

Why allow entry to private players?

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The choice between public and private might amount to choosing between the

lesser of two evils. An insurance contract is a "promise to pay" contingent on a

specified event. In the case of insurance and banking, smooth functioning of

business depends heavily on the continuation of the trust and confidence that

people place on the solvency of these financial institutions. Insurance products are

of little value to consumers if they cannot trust the company to keep its promise.

Furthermore, banking and insurance sectors are vulnerable to the "bank run"

syndrome, wherein even one insolvency can trigger panic among consumers

leading to a widespread and complete breakdown. This implies the need for a

public regulator, and not public provision of insurance. Indeed in India, insurance

was in the private sector for a long time prior to independence.

The Life Insurance Corporation of India (LIC) was formed in 1956, when the

Government of India brought together over two hundred odd private life insurers

and provident societies, under one nationalized monopoly corporation, in the wake

of several bankruptcies and malpractice’s'. Another important justification for

Nationalisation was to raise the much-needed funds for rapid industrialization and

self-reliance in heavy industries, especially since the country had chosen the path

of state planning for development. Insurance provided the means to mobilize

household savings on a large scale. LIC's stated mission was of mobilizing savings

for the development of the country.

The non-life insurance business was nationalized in 1972 with the formation of

General Insurance Corporation (GIC).Thus the fact that insurance is a state

monopoly in India is an artifact of recent history the rationale for which needs to

be examined in the context of liberalization of the financial sector. If traditional

infrastructure and "semi-public goods" industries such as banking, airlines,

telecom, power, and even postal services (courier) have significant, private sector

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presence, continuing a state monopoly in provision of insurance is indefensible.

This is not to deny that there are some valid grounds for being cautious about

private sector entry. Some of these concerns are:(a) That there would be a tendency

of private companies to "skim" the markets; thus private players would concentrate

on the lucrative mainly urban segment leaving the unprofitable segment to the

incumbent LIC.(b) That without adequate regulation, the funds generated may not

be deployed in sectors (which yield long-term social benefits), such as

infrastructure and public goods; similar without regulation, private firms may

renege on their social sector investment obligations. Meeting these concerns

requires a strong regulatory body. Another commonly expressed fear is that there

would be massive job losses in the industry as a whole due to computerization.

This however does not seem to be corroborated by the countries' experience'.

WHAT SHOULD BE THE MARKET STRUCTURE ?

Individuals buying an insurance contract pay a price (called the "premium") to the

insurance company and the insurance company in turn provides compensation if a

specified event occurs. By making such contractual arrangements with a large

number of individuals and organizations the insurance company can spread the

risk. This gives insurance its "social" character in the sense that it entails pooling

of individual risks. The price of insurance i.e., the premium is based on average

risk. This premium is too high for people who perceive themselves to be in a low

risk category. If the insurer cannot accurately determine the risk category of every

customer and prices insurance on the basis of average risk, he stands to lose all the

low risk customers. This in turn increases the average risk, which means premia

have to be revised upwards, which in turn drives away even more customers and so

on. This is known as the problem of "adverse selection". Adverse selection

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problem arises when a seller of insurance cannot distinguish between the buyer's

type i.e., whether the buyer is a low risk or a high type. In the extreme case, it may

lead to the complete breakdown of insurance market. Another phenomenon, the

problem of "moral hazard" in selling insurance, arises when the unobservable

action of buyer aggravates the risk for which insurance is bought. For example,

when an insured car driver exercises less caution in driving, compared to how he

would have driven in the absence of insurance, it exemplifies moral hazard.

THE ROLE OF IRA :

(a) The protection of consumers’ interest,

(b) To ensure financial soundness of the insurance industry and

(c) To ensure healthy growth of the insurance market.

These objectives must be achieved with minimum government involvement and

cost. IRA’s functioning can be financed by levying a small fee on the premium

income of the insurers thus putting zero cost on the government and giving itself

autonomy.

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SOME INSURANCE PRODUCTS NOT AVAILABLE IN

INDIA :

Associated Market Quest after a study of some of the international markets,

points out the following areas for new product development:

1. Industry all risk policies

2. Large projects risk cover

3. Risk beyond a floor level

4. Extended public and product liability cover

5. Broking and captivities.

6. Alternative risk financing

7. Disability insurance

8. Antique insurance

9. Mega show insurance

10. Celebrity visits to the country.

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SO WHAT CAN THE PRIVATE INSURERS DO ?

A variable risk transfer mechanism is the capital market. This is because capital

market is huge and can take on the risk that insurance companies run. The solution

is Asset-backed securities (ABS). A private insurer can bundle off policies with

similar maturity and quality and sell them as securities to retail investors. The

private insurer can float a Special-Purpose Vehicle(SPV) and sell the policies

concerned to this entity. The SPV can bundle the policies and sell them as

securities to retail investors at attractive yields. The premium on the policies

underlying the ABS can be invested by the SPV in low-risk, highly liquid

instruments. The benefits of the SPV are First; the SPV is a separate entity from

the insurer. This enables easy rating of the ABS, as the credit rating agency will be

able to identify the underlying assets. Second, by selling the policies to the SPV,

the insurer removes the assets from its balance sheet. This means that the private

insurer frees capital that can be used for further business and lastly, the SPV is not

affected by the financial health of the insurer.

So when the policyholders (underlying the ABS) lodge the claims with the private

insurer, the private insurer simply passes on the claims to the SPVs. The SPV, in

turn will liquidate its investments and meet the claims. The SPV will stop paying

interest on the ABS. The retail investors, therefore, bear a sizable portion of claims

of the policyholders. There can of course be many variants to the ABS. The most

risky ABS, from the investors’ angle, will be those that stop interest payments and

delay principal repayments of claims are honored. Also buying ABS helps retail

investors truly diversify their portfolio. This is because probability of claims from,

say, a hurricane is largely unrelated to the economic factors or industry-specific

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factors that drive equity and bond values. Besides, investors get attractive yields

for taking the risk. If mutual funds invest in ABS, retail investors need not estimate

the risk associated with the investment, the fund manager will do the needful. The

problem of adverse selection, on the other hand, can be reduced if the ABS are

credit-enhanced by a third party and rated by a credit rating agency.In India, debt

market is not deep and liquid enough to receive products such as asset-backed

securities. Moreover, regulatory restrictions, such as high stamp duty and a not-so-

efficient judicial system, may act as deterrents. Finally the alternative risk transfer

market will only develop once the need for such risk transfer assumes importance

some time in the future.

MARKET POTENTIAL FOR PRIVATE LIFE

INSURANCE COMPANIES IN INDIA

It has been found out that:

* 85 percent of the Indians prefer LIC than any other insurance companies.

* 'Prevention of Loss', 'Assured Returns' and 'Long term Investment' are the

important factors influencing Indians in opting for Life Insurance

* Only few of the Indians are aware of private life insurance companies.

* Most of the Indians are of the opinion that private insurance companies

would be able to perform well in the long run.

* Most of the Indians are interested in 'Money back' policies than others

* Most of them are interested in insuring for an amount of Rs. 1- 2 lakhs

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* There is significant relationship existing between monthly household

income and amount insured

* Based on the monthly household income, Indians prefer to their

investment needs like bank deposit, post office schemes, real estate,

insurance, gold, chit funds, shares etc.

* Agents are mostly responsible for selling insurance products in India

CAPITAL NORMS FOR NEW INSURANCE COMPANIES :

One of the contentious issues raised by foreign companies seeking an entry into the

insurance sector in India is the minimum paid up capital requirements. The

Malhotra committee (1994) recommended Rs 100 crores as the norm. The

multilateral insurance working group (an industry forum representing most of the

interested foreign and Indian companies seeking an entry into the insurance sector)

has recommended Rs. 50 crore. The IRA is also reported to considering agraded

pattern for capitalization of the companies keeping in mind the volume of business

likely to be handled by them.

THE INSURANCE POTENTIAL :

The main reason why the leading insurance companies in the world and the leading

corporate group in India have shown a keen interest in the insurance sector, is the

vast potential for future business. Restricted, as the market has been, through the

operations of the two monopolies (LIC and GIC), it is generally felt that the sector

can grow exponentially if it is opened up. The decade 1987-97 has witnessed a

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compounded growth rate of marginally more than 10% in life insurance business.

LIC predicts for itself that its business has potential to grow by 16.27% p.a. in a

decade 1997-2007 (LIC, 1997).If we take a look at insurance coverage index for

the age group of 20-59 years a considerable gap between India and other countries

in Asia can be observed. In this scenario, naturally insurance companies see a vast

potential.

RESTRUCTURING OF LIC AND GIC :

In the insurance sector as of today and in all probabilities for a long time to come,

LIC and GIC will form a very significant part. The reasons for these are many.

Firstly, they have been in business for a long time and therefore, are in position to

know business conditions better than any new entrant.

Secondly, the network of branches and agents is large, deep and penetrating, which

will take a long time for any other entrant to replicate.

Thirdly, (especially the LIC), has a kind of government backing which instills

faith in all would-be policy holders, much more than a private company can hope

to generate. The envisaged private sector participation in the insurance sector is

unlikely to take this advantage away from LIC and GIC. In the short run atleast.

LIC and GIC will continue to command a very high market presence and in the

long run it will take a very good market player to dislodge LIC and GIC from their

prime positions. This also means that the reform in insurance sector will

necessarily mean the reform of LIC and GIC.

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OPPORTUNITIES AND CHALLENGES

OPPORTUNITIES

As compared to the Western countries, where they have already reached a stage of

saturation, India can exploit some golden opportunities in the following fields.

1. Mass Marketing:

India is a highly populated country and would continue to be so in the near future.

New players may tend to favour the "creamy" layer of the urban population. But, in

doing so, they may well miss a large chunk of the insurable population. A strong

case in point is the current business composition of the dominant market leader -

the Life Insurance Corporation of India. The lion's share of its new business comes

from the rural and semi-rural markets. In a country of 1 billion people, mass

marketing is always a profitable and cost-effective option for gaining market share.

The rural sector is a perfect case for mass marketing.

Competition in rural areas tends to be "kinder and gentler" than that in urban

areas, which can easily be termed cutthroat. Identifying the right agents to harness

the full potential of the vibrant and dynamic rural markets will be imperative.

Rural insurance should be looked upon as an opportunity and not an obligation. A

smaller bundle of innovative products in sync with rural needs and perceptions,

and an efficient delivery system are the two aspects that have to be developed in

order to penetrate the rural markets.

2. Job Opportunities:

Job opportunities are likely to increase manifold. The liberalization of the

insurance sector promises several new job opportunities for those who are

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equipped with degrees in finance. Finance professionals who had witnessed a

slump in the job market would be much relieved.

There will be demand for marketing specialists, finance experts and human

resource professionals. Apart from this, there will be high demand for

professionals in streams like underwriting and claims management, and actuarial

sciences.

3. Inflow of Funds:

There could be a huge inflow of funds into the country. Given the industry's huge

requirement of start-up capital, the initial years after opening up are bound to see a

strong inflow of foreign capital. A rise in the equity share of foreign partners to 49

percent will act as a boost to them.

4. Reinsurance:

Huge capacity is likely to be created in the area of reinsurance. Apart from pure

reinsurance activities, which involves providing insurance protection, there will be

a revolution in service-related fields like training, seminars, workshops, know-how

transfer regarding risk assessment and rating, risk inspections, risk management

and devising new policy covers, etc.

5. Marketing Strategies:

Also, with more players in the market, there will be significant increase in

advertising, brand building, and this will benefit whole lot of ancillary industries.

A substantial shift is likely to take place in the distribution of insurance in India.

Many of these changes will echo international trends. Worldwide, insurance

products move along a continuum from pure service products to pure commodity

products. Initially, insurance is seen as a complex product with a high advice and

service component. Buyers prefer a face-to-face interaction and place a high

premium on brand names and reliability.

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As products become simpler and awareness increases, they become off-the-shelf,

commodity products. Sellers move to remote channels such as the telephone or

direct mail. Various intermediaries, not necessarily insurance companies, sell

insurance. In some countries like Netherlands and Japan, insurance is marketed

using the Post Office's distribution channels. At this point, buyers look for low

price. Brand loyalty could shift from the insurer to the seller.

6. Bancassurance:

In other markets, notably Europe, this has resulted in bank assurance: banks

entering the insurance business. The Netherlands led with financial services firms

providing an entire range of products including bank accounts, motor, home and

life insurance, and pensions. Other European markets have followed suit. In

France, over half of all life insurance sales are made through banks. In the UK,

almost 95% of banks and building societies are distributing insurance products

today.

In India too, banks hope to maximize expensive existing networks by selling a

range of products. Many bankers have shown an inclination to enter the insurance

market by leveraging their strengths in the areas of brand image, distribution

network, face to face contact with the clients and telemarketing coupled with

advanced information technology systems. Insurers in India should also explore

distribution through non-financial organizations. For example, insurance for

consumer items such as refrigerators can be offered at the point of sale.

7. Information Technology

Worldwide interest in E-commerce and India's predominant position in

Information Technology and software development are also likely to be major

factors in the marketing of insurance products in the immediate future. The number

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of Internet account is increasing and the trend has already been set by some of the

leading insurers and insurance brokers worldwide.

CHALLENGES

If one has opportunities, one has to face challenges; it is like two sides of the same

coin. No doubt India has a lot of opportunities coming her way, but there are a few

challenges and threats as well.

The four main challenges facing the industry are product innovation, distribution,

customer service, and investments. Unit-linked personal insurance products might

find greater acceptability with rising customer awareness about customized,

personalized and flexible products. Flexible products and new technology will play

a crucial role in reducing the cost and, therefore, the price of insurance products.

Finding niche markets, having the right product mix through add-on benefits and

riders, effective branding of products and services and product differentiation will

be some of the challenges faced by new companies.

1. Technology:

In today's highly competitive financial services environment, effective

organizations will employ technology in a strategic way so to achieve a

competitive edge. Technology will play an increasing role in aiding design and

administering of products, as well in efforts to build life-long customer

relationships. At the same time, investment in technology will only help as long as

firms find the right people: people with the right attitude, values, and ethics,

commitment to excellence, and focus on customer service. The critical success

factor is a top-down emphasis on exceeding customer expectations with quality

people, excellent products, and legendary service. As has been seen in other

financial services, the entry of private players ensures that the customer will be the

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beneficiary in the long run. It will also result in enlarging the market and extending

the reach of insurance across the country.

2. Competition:

Thus, apart from the normal issues facing any new company, many new Indian

private insurance players will need to cope with the challenges of working with a

joint venture partner. They will be competing with large and well-entrenched

government-owned players. They have to overcome regulatory hurdles, change the

attitude of new recruits and satisfy some very high customer expectations. Also,

the players will have to consider the Indian market as a long-term investment, and

maintain clear-cut objectives and constant monitoring at all levels.

Major Players In The Insurance Sector Today

S.No. Date of Reg. Name of the Company

1 23.10.2000 HDFC Standard Life Insurance Company Ltd.

2 23.10.2000 Royal Sundaram Alliance Insurance Company

Limited

3 23.10.2000 Reliance General Insurance Company Limited.

4 15.11.2000 Max New York Life Insurance Co. Ltd.

5 24.11.2000 ICICI Prudential Life Insurance Company Ltd.

6 04.12.2000 IFFCO Tokio General Insurance Co. Ltd

7 10.01.2001 Kotak Mahindra Old Mutual Life Insurance

Limited

8 22.01.2001 TATA AIG General Insurance Company Ltd.

9 31.01.2001 Birla Sun Life Insurance Company Ltd.

10 12.02.2001 Tata AIG Life Insurance Company Ltd.

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http://www.hdfcinsurance.com/

http://www.tata-aig.com/

http://www.birlasunlife.com/

http://www.tata-aig.com/

http://www.omkotakmahindra.com/

http://www.omkotakmahindra.com/

http://www.itgi.co.in/

http://www.iciciprulife.com/

http://www.maxnewyorklife.com/

http://www.reliancegeneral.co.in/

http://www.royalsundaramalliance.com/

http://www.royalsundaramalliance.com/


11 30.03.2001 SBI Life Insurance Company Limited .

12 02.05.2001 Bajaj Allianz General Insurance Company

Limited

13 02.08.2001 ING Vysya Life Insurance Company Private

Limited

14 03.08.2001 ICICI Lombard General Insurance Company

Limited.

15 03.08.2001 Bajaj Allianz Life Insurance Company Limited

16 06.08.2001 Metlife India Insurance Company Pvt. Ltd.

17 03.01.2002 AMP Sanmar Life Insurance Company Limited.

18 14.05.2002 Aviva Life Insurance Co. India Pvt. Ltd.

19 15.07.2002 Cholamandalam General Insurance Company

Ltd.

20 27.08.2002 Export Credit Guarantee Corporation Ltd.

21 27.08.2002 HDFC-Chubb General Insurance Co. Ltd.

22 06.02.2004 Sahara India Insurance Company Ltd.

23 17.11.2005 Shriram Life Insurance Company Ltd.

The Way Ahead

With the entry of competition, the rules of the game are set to change. The market

is already beginning to witness a wide array of products from players whose

number is set to grow. In such a scenario, the differentiators among the different

players are products, pricing, and service. Consumers are increasingly more aware

and are actively managing their financial affairs. Today, while boundaries between

various financial products are blurring, people are increasingly looking not just at

Page 24

http://www.metlife.co.in/

http://www.allianzbajaj.co.in/

http://www.icicilombard.com/

http://www.icicilombard.com/

http://www.ingvysyalife.com/

http://www.ingvysyalife.com/

http://www.bajajallianz.co.in/

http://www.bajajallianz.co.in/

http://www.sbilife.co.in/


products, but at integrated financial solutions that can offer stability of returns

along with total profits. To satisfy these myriad needs of customers, insurance

products will need to be customized. Insurance today has emerged as an attractive

and stable investment alternative that offers total protection - Life, Health and

Wealth Protection. Consumers today also seek products that offering flexible

options, preferring products with benefits unbundled and customizable to suit their

diverse needs.

The trend in developed economies where people live longer and retire earlier is

now emerging in India too. With the breakdown of traditional forms of social

security like the joint family system, consumers are now concerned with the need

to provide for a comfortable retirement. This trend has been further driven by the

long-term decline in interest rates, which makes it all the more necessary to start

saving early to ensure long term wealth creation. Today's consumers are

increasingly interested in products to help build wealth and provide for retirement

income.

Page 25


STRATEGIES ADOPTED BY THE PLAYERS IN THE

MARKET

Gone were the days when the customers were forced to take up the kind of

products whatever coming from LIC's and GIC's stables. But now, the customer

has been portrayed as the king and to his delight, the products are redesigned and

customized suiting his need taking into account his paying capacity and multiple

benefits. To much of his chagrin, he has also got an option of withdrawing his offer

within a period of 15 days (free-look period) if he is not satisfied with the policy

features. Let us look at the strategies adopted by the players in the market.

I. Shift in the product portfolio:

Earlier the entire industry was revolving around investment and savings oriented

plans. As the interest rates are moving southwards, all the players are deliberately

focusing on selling pure risk covers in an effort to capture the new customers. The

premium on such products is low as it covers only the risk aspect and does not

factor in investments or savings. Even the market leader LIC has withdrawn some

of the products, which are positioned, on the assured returns platform. Though the

share of the term plans in the product portfolio is quite negligible, the shift

towards the term products is already visible. Typically a term plan does not

provide anything by way of maturity, unlike moneyback or endowment policies.

Globally, close to a third of the policies fall into this category must be an

encouraging news to the players.

Page 26


Unit linked products are also gaining momentum in this country. Om Kotak and

Birla Sun Life have launched unit linked schemes focusing on equity, debt and gilt

edged stocks. These schemes are expected to yield better returns when compared to

normal insurance schemes. As the awareness level about these unique products is

much lower, the companies resort to educate the customers about the salient

features of the products.

II. Value For Money (VFM):

The sea change since the sector opened up has been on the way the basic products

have been packaged innovatively, often tailor made to provide a bundle of benefits

to the customers. This is possible through the introduction of riders, which have

added value to the risk cover at minimal cost. Riders are nothing but add-ons

coming along with the base policies for a slightly additional premium. Riders have

become the major instruments for the organizations to lure the customers away

from the competitors. The removal of 30% cap on the premium of the base policy

for the health riders alone has come as a shot in the arm for many players since this

is used as an Unique Selling Proposition by many private players vis a vis the LIC.

Later, LIC has also started announcing riders along with the main policies dancing

to the tune of the market forces. This could see many non-life players going out of

the business as life insurers offer a plethora of personal line products as add-ons.

Riders can also be availed by the existing policyholders.

Page 27


III. Tapping the Niche Markets:

Private insurers are concentrating much on designing attractive products by

investing heavily on research, studying life expectancy and health statistics across

age groups, income levels, professionals and regions on their own instead of

relying on data with state insurers. The products are designed with a technical team

of actuaries and a product development team working closely together to target the

niche market. The innovations for the niche markets are abound and to name a

few…..

* METLIFE INDIA INSURANCE COMPANY has recently launched a

Charitable Trust Policy in Kolkata, which has evoked a lot of interest especially

among the Marwaris business community who want to set up a temple in their

name after their death. Similarly a Buy & Sell Agreement cover from the same

company permits a business enterprise to take out a life plan on each of its

partners, to ensure that the company continues.

* The other segments, which have attracted almost all the players, are the women

and the children segments. Though the State insurer has had a chunk of products

sufficiently for a longer time, it faces stiff competition from the private players in

these segments.

* TATA AIG has offered a specialized life insurance package where the insured

and the employers of the insured have a say in it. Termed as Worksite Marketing,

AIG, which has adopted this practice in different places across the world, is

Page 28


spreading the concept in India too. Worksite Marketing is a distribution method

used to offer voluntary insurance products (employee benefits) to employees at

their place of work with the sponsorship or backing of their employer, traditionally

done on a deduction from the payroll. The policyholder carries the policy with

himself throughout his life, even if it happens to change the organizations.

* TATA AIG GENERAL INSURANCE, for the first time in the country, has

launched a specialized product for Accountants (after tasting the success with

specialized products such as Directors and Officers policy in India) in its bid to

segment the market for professional indemnity policies. The policy has been

designed with the assistance from Bombay Chartered Accountants Society. This

policy covers claims pertaining to professional negligence, wrongful acts

committed in the performance duties. It also provides for coverage of all legal

expenses incurred in defending such claims.

* Any other way to promote non-smoking? Or to reward those who give up

smoking? OM KOTAK MAHINDRA has taken an initiative by offering a term

insurance plan - a pure protection product - to non-smokers at much cheaper price.

As against an annual premium of Rs.2400 on a Rs.10 lacs policy for a 10 year term

for a 30 year old under the preferred term plan, the regular term premium works

out to Rs.3400 for a similar cover. Though there are apprehensions in the industry

circle about the success of the policy, the intention of the company is quite

appreciated.

* Even the unborn child's future can be safeguarded now. The offspring can be

insured against unfortunate congenital defects. State owned General Insurers have

started aggressively marketing these kinds of products.

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IV. Thrust to the rural markets:-

Thanks to the norms stipulated by the regulator IRDA, all the players have turned

their eyes towards the rural market. Towards ensuring equitable distribution of

insurance policies in every nook and cranny of the country, IRDA stipulates the

rural obligations to be met by the players over the years.

The rural obligation on part of the new private insurance companies is incremental

in nature. It goes from 5% to 15% over the period of 5 years for life insurance and

from 2% to 5% in case of general insurance. IRDA has also defined what it meant

by rural.

1. The place should have a population of less than 5000

2. Secondly, the density of the population should be less than 400 persons per

square kilometer.

3. 75% of the male population should be engaged in agricultural pursuit.

Of the 11 private sector life insurers, 10 companies substantially performed in the

rural sector with the percentage of policies issued in the rural sector standing

higher than 5% level mentioned. Most of the non-life insurers achieved the base

level of 2% gross premium from rural sector. Since the penalty for not adhering to

the obligation includes Rs.5 lacs penal fee and upto 3 years of imprisonment of the

Chief of the organization, all the companies are swarming the rural market. The

challenge lies in reaching the critical mass with the redesigned products. And the

organizations have been fairly successful in their efforts. For instance, Om Kotak

Life Insurance is successful in selling the single premium policy in rural market.

Reaching the doorsteps of the villagers through non-conventional channels like

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Regional Rural Banks (RRBs), Co-operative banks, Self-Help Groups (SHGs),

ITCs e-choupal is also being tried by the players.

V. Tapping unconventional distribution channel:

Nevertheless all the players depend heavily on their agents force to reach out

(LIC has reached a figure of 8,50,000 agents and planned to increase it to 1

million by this year), they are trying out other distribution channels also like

banks and corporate agencies in addition to the channels mentioned above.

The following table shows the strategic alliances the insurers have entered into

to distribute their products.

Sl.No Insurer Banks / Corporate Agencies

01Bajaj Alliance (General

Insurance)

Jammu & Kashmir Bank, Karur Vysya Bank,

Punjab & Sind Bank

02United India Insurance

Company Ltd.

Andhra Bank, Indian Bank, South India Bank,

Federal Bank

03New India Assurance Company

Ltd.

Punjab National Bank (General Insurance) Vijaya

Bank (Life Insurance)

04 SBI Life SBI branches and branches of its subsidiaries

05 ICICI Prudential

Allahabad Bank, Bank of India, Citibank, Federal

Bank, Lord Krishna Bank, Punjab and Maharashtra

Co-operative Banks

06 LIC of India Corporation Bank, Oriental Bank of Commerce

07 MetlifeKarnataka Bank, Dhanalakshmi Bank, Jammu &

Kashmir Bank

08 AMP SanmarKerala based Co-operative Banks – Peruntalmanna

Bank and Manjeri Bank

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09 Birla SunLifeCitibank, Deutsche bank, IDBI Bank, Catholic

Syrian Bank, Bank of Rajasthan, Bank of Muscat

10 HDFC Standard Life Insurance Indian Bank, Union Bank

11 Dabur CGU LifeLakshmi Vilas Bank, Canara Bank, Amex, ABN

Amro Bank

LIC is also exploring ways to rope in Regional Rural Banks (RRBs) across the

country. Cross-selling could be another key strategy in selling insurance provided

the restrictions on the functioning of corporate agencies are lifted. Once the curbs

are removed, the market may see a wave of cross-selling. Royal Sundaram

Alliance may offer household insurance with Sundaram Housing Finance and sell

customers of Sundaram Finance Mutual Fund a whole range of insurance products.

ICICI-Prudential and HDFC Standard will tie up with their parent companies to

use their network. .

Once the much-awaited Insurance Brokers Regulations comes into force, the

industry is poised to change the way the insurance products are sold with the entry

of brokers. While an insurance agent represents an insurance company and offers

only the products of that company, an insurance broker is independent and

represents a number of insurers. He can also compare the benefits of different

policies and premiums to find the best coverage for the customer.

VI Cause Related Marketing (CRM):-

Cause Related Marketing has become the order of the day in Insurance industry.

By creating a goodwill about the organizations, the insurers are making an attempt

to change the negative attitude of the people towards insurance products. For

instance,

Page 32


* Towards serving the society in a better way, LIC has adopted a novel way

through its Bima Grams policy. Accordingly, LIC pays 25% of the premium

collected from the villagers or Rs.25000 whichever is lesser for undertaking

developmental work in the villages provided,

- The population of the village is between 1000 and 5000

- Life insurance coverage for atleast one person in 75% of the households

- Acquisition of 100 new policies in a single year

* Iffco-Tokio General Insurance Company is planning to launch a novel insurance

policy Sankat Karan for farmers in which for the every purchase of 50kg bag of

fertilizers, insurance worth Rs.4000 would be provided to the farmers. The policy

will remain in force for a period of 12 months from the date of purchase.

* Birla Sun Life Insurance has adopted 332 villages around Renukoot and actively

involved in improving the lives of the residents.

VII De-tariffing in General Insurance:

Though the issue of de-tariffing in general insurance has been debated upon at

length, the response from the industry is quite mixed. By fixing a tariff for a

product, Tariff Advisory Committee (TAC) maintains discipline in the market and

makes sure that the insurance companies do not resort to under pricing to gain

market share. IRDA is now working on detariffing the general insurance sector

beginning with commercial vehicle business since it constitutes more than two fifth

of the non-life business volume. Both IRDA and TAC are working out the modus

Page 33


operandi of the deregulations of motor premium. Sensing the indifferent attitude of

the private general insurers towards motor insurance, the Government is

contemplating on coming out with obligations to be met by the private insurers in

this segment (like rural business). Once the motor insurance premium is detariffed,

the end user is likely to see another cola war like.

PRIVATE PLAYERS IN INDIAN LIFE INSURANCE

Page 34


* Allianz Bajaj Life Insurance Company Ltd.,

* Aviva Life Insurance Co. India Pvt. Ltd.,

* AMP SANMAR Assurance Company Ltd.,

* Birla Sun Life Insurance Company Ltd.,

* HDFC Standard Life Insurance Company Ltd.,

* ICICI Prudential Life Insurance Company Ltd.,

* ING Vysya Life Insurance Company Private Ltd.,

* Max New York Life Insurance Co. Ltd.,

* MetLife India Insurance Company Pvt. Ltd.,

* Om Kotak Mahindra Life Insurance Co. Ltd.,

* SBI Life Insurance Company Ltd.,

* Sahara India Insurance Company Ltd.,

* Tata AIG Life Insurance Company Ltd.,

ICICI PRUDENTIAL LIFE INSURANCE

COMPANY LTD.

Page 35


ICICI Prudential Life Insurance Company is a joint venture between ICICI Bank,

which is one of India's foremost financial services companies, and Prudential plc,

which is a leading international financial services group headquartered in the

United Kingdom. ICICI Prudential began the operations in December 2000. Today,

this company has over 2100 branches, which

include 1,116 micro-offices, over 290,000

advisors and 18 banc assurance partners.

ICICI Prudential Life Insurance Company is

the first life insurer in India that received a

National Insurer Financial Strength rating of

AAA (Ind) from Fitch ratings. ICICI Prudential has been voted as India's Most

Trusted Private Life Insurer for three consecutive years. ICICI Prudential Life

Insurance Company has various insurance plans that have been designed for

different individuals, as every individual has different insurance needs.

Contact Address

ICICI Pru Life Towers

1089 Appasaheb Marathe Marg

Prabhadevi, Mumbai - 400025

Website: www.iciciprulife.com

Given below is a list of plans provided by ICICI Prudential Life Insurance Company:

Life Insurance Plans

Education Insurance

Plans

Smart Kid New

Unit-linked

Regular

Premium Guarantee

Plans

InvestShield

Life New

InvestShield

CashBank

Retirement Solutions

Life Stage

Pension

LifeTime Super

Pension

LifeLink Super

Diabetes Care

Active

Diabetes Assure

ICICI Pru Group

Solutions Advantage

Page 36


Premium

Smart Kid New

Unit-linked

Single Premium

Smart Kid

Regular

Premium

Wealth Creation

Plans

Wealth

Advantage

LifeStage

Assure

LifeTime Gold

LifeLink Super

LifeStage RP

Protection Plans

Pure Protect

Life Guard

Save 'n' Protect

CashBak

Home Assure

Micro Insurance

Plans

ICICI Pru

Sarv Jana

Plan

Pension

ForeverLife

Plan

Immediate

Annuity

Health Coverage Plans

Health Saver

Medi Assure

Hospital Care

Crisis Cover

Cancer Care

Group Super

Annuation

Group Gratuity

Plan

Annuity

Solutions

Group Term

Insurance Plan

Group Term

Insurance in

lieu of EDLI

Rural Plans

ICICI Pru

Suraksha

ICICI Pru

Suraksha

Kavach

ALLIANZ BAJAJ LIFE INSURANCE COMPANY LTD

Bajaj Allianz Life Insurance Co. Ltd. is a joint venture between Allianz SE, one of the world's largest insurance companies, and Bajaj Finserv. Allianz SE is a leading insurance corporation globally and one of the largest asset managers in the world, that manage assets worth over a Trillion. With over 115 years of financial experience, Allianz SE is present in over 70 countries around the world. Bajaj

Page 37


Allianz is into both life insurance and general insurance. Today, Bajaj Allianz is one of India's leading and fastest growing insurance companies. Currently, it has presence in more than 550 locations with over 60,000 Insurance Consultants.

In June 2008, Bajaj Allianz entered into partnership with Thomas Cook India to provide travel finance. Bajaj Allianz Life Insurance ensures excellent insurance and investment solutions by offering customized products, supported by the best technology.

Contact Address

Bajaj Allianz Life Insurance Co. Ltd.

GE Plaza, Airport Road

Yerawada, Pune - 411006

Website: www.bajajallianzlife.co.in

A comprehensive list of policies and products offered by Bajaj Allianz Life Insurance Co. Ltd. is as follows:

Unit Linked Plans

Regular

Premium

1. New UnitGain

Super

2. UnitGain Plus

Gold

3. New UnitGain

Plus

3. New UnitGain

Easy Pension

Plus RP

4. New UnitGain

Easy Pension

Plus SP

5. Future Secure

Traditional Plans

Health Plans

Care First

Health Care

Family CareFirst

Children Plans

ChildGain

Group Plans

Non Employer

3. New Group

Superannuation

Care

4. Group Save Plus

5. Group Term Life

in lieu of EDLI

6. Group Leave

Encashment

Scheme

Page 38


4. New UnitGain

5. YoungCare

6. YoungCare Plus

7. New FamilyGain-

R

Single Premium

1. New UnitGain

Premier SP

2. New UnitGain

Plus SP

Pension Plans

Annuity

1. Pension

Guarantee

Retirement

1. Future Income

Generator

2. Swarna Vishranti

Endowment

1. InvestGain

2. SaveCare

Economy SP

3. Life Time Care

4. Super Saver

Money Back

1. CashGain

Term Plans

Protector

Term Care

New Risk Care

Women Insurance Plans

House Wives

Working Women

Employee

1. Credit Shield

2. Group Term

Life(Non

Employer

Employee)

3. Group Suraksha

4. Swayam Shakti

Suraksha

5. Group Loan

Protector

6. Group Income

Protection

Employer

Employee

1. Group Term

Life(Employer

Employee)

2. New Group

Gratuity Care

7. Group Annuity

8. Group

Superannuation

Gold

9. Group Gratuity

Gold

Micro Insurance

Alp Nivesh

Yojana

Jana Vikas

Yojana

Saral Suraksha

Yojana

Other Plans

Family Assure

Fortune Plus

Capital Shield

CenturyPlus II

HDFC STANDARD LIFE INSURANCE

Established on 14th August 2000, HDFC Standard Life Insurance Co. Ltd. is a

joint venture between Housing Development Finance Corporation Limited (HDFC

Limited) - India's leading housing finance institution, and a Group Company of the

Standard Life Plc, UK. The Company is one of leading private insurance

companies, offering a range of individual and group insurance solutions, in India.

Being a joint venture of top financial services groups, HDFC Standard Life has

Page 39


adequate financial expertise to manage long-term investments safely and

resourcefully.

HDFC Standard Life Insurance offers a range of individual and group solutions,

which can be easily personalized to specific needs. Its group solutions have been

planned to offer complete flexibility, together with a low charging structure. As of

31 December, 2008, the Company's new business premium income stood at Rs.

1,839.70 Crores; it has covered over 812,811 lives so far.

Contact Address

HDFC Standard Life Insurance Co. Ltd.

'Trade Star', 2nd floor, 'A' Wing

Junction of Kondivita and M.V. Road

Andheri-Kurla Road

Andheri (East), Mumbai - 400059

Website: www.hdfcinsurance.com

Given below is a comprehensive list of policies and products on offer by HDFC Standard Life

Insurance:

Protection Plans

HDFC Term

Assurance Plan

HDFC Loan

Cover Term

Assurance Plan

HDFC Home

Loan Protection

Plan

Retirement Plans

HDFC Personal

Pension Plan

HDFC Unit

Linked Pension

II

HDFC Unit

Linked Pension

Maximiser II

HDFC

HDFC Unit

Linked

Enhanced Life

Protection II

HDFC Unit

Linked Wealth

Maximiser Plus

HDFC Unit

Linked

Endowment

HDFC Critical

Care Plan

HDFC

SurgiCare Plan

Group Plans

Group Term

Insurance Plan

Group Variable

Term Insurance

Page 40


Children's Plans

HDFC

Children's Plan

HDFC Unit

Linked Young

Star II

HDFC Unit

Linked Young

Star Plus II

HDFC Unit

Linked

YoungStar

Champion

Immediate

Annuity

Savings & Investment

Plans

HDFC Unit

Linked

Endowment

Plus II

HDFC

SimpliLife

HDFC Unit

Linked

Endowment II

Winner

HDFC

Endowment

Assurance Plan

HDFC Money

Back Plan

HDFC Single

Premium Whole

of Life

Insurance Plan

HDFC

Assurance Plan

HDFC Savings

Assurance Plan

Health Plans

Plan

Group Unit

Linked Plan -

Gratuity

Group Unit

Linked Plan -

Superannuation

Group Unit

Linked Plan -

Leave

Encashment

BIRLA SUN LIFE INSURANCE COMPANY LTD.

Birla Sun Life Insurance Co. Ltd. is a joint venture between Aditya Birla Group, an

Indian multinational corporation, and Sun Life Financial Inc, a leading global

insurance company. Birla Sun Life Insurance is distinguished as the first company

in the sector of financial solutions to begin Business Continuity Plan. This

insurance company has pioneered the unique Unit Linked Life Insurance Solutions

Page 41


in India. Within 4 years of its launch, BSLI became one of the leading players in

the industry of Private Life Insurance Scheme.

Birla Sun Life Insurance believes in passion, integrity, speed, commitment and

seamlessness. The mission of the company is to help people with risk management.

It also helps in managing the financial situation of firms as well as individuals.

Contact Address

Birla Sun Life Insurance Company Limited

Vaman Centre, 6th Floor

Makhwana Road

Off Andheri-Kurla Road

Andheri (East), Mumbai - 400059

Website: www.birlasunlife.com

Here is given a comprehensive list of policies and products offered by Birla Sun Life Insurance Co. Ltd.

Protection Plans

Birla Sun Life

Insurance Term

Plan

Birla Sun Life

Insurance

Premium Back

Term Plan

Saving Plans

Birla Sun Life

Insurance

Guaranteed Bachat

Birla Sun Life

Insurance

PrimeLife Premier

Birla Sun Life

Insurance

PrimeLife

Birla Sun Life

Insurance Flexi

Cash Flow

Birla Sun Life

Insurance Flexi

Children Plans

Birla Sun Life

Insurance

Children's Dream

Plan

Rural Plans

Birla Sun Life

Insurance Bima

Suraksha Super

Birla Sun Life

Insurance Bima

Birla Sun Life

Insurance Single

Premium Group

Term Plan

NRI Plans

Birla Sun Life

Insurance

PrimeLife Premier

Birla Sun Life

Insurance

PrimeLife

Page 42


Plan

Birla Sun Life

Insurance Money

Back Plus Plan

Birla Sun Life

Insurance Gold-

Plus II

Birla Sun Life

Insurance Saral

Jeevan Plan

Birla Sun Life

Insurance

Supreme-Life

Birla Sun Life

Insurance Dream

Plan

Birla Sun Life

Insurance

ClassicLife

Premier

B. S. L.Insurance

SimplyLife

Save Plus

Birla Sun Life

Insurance Flexi

Life Line

Birla Sun Life

Insurance Single

Premium Bond

Health Solution Plans

BSLI Health Plan

BSLI Universal

Health Plan

Retirement Plans

Birla Sun Life

Insurance

Freedom 58

Birla Sun Life

Insurance Flexi

SecureLife

Retirement Plan II

Dhan Sanchay

Birla Sun Life

Insurance Bima

Kavach Yojana

Group Plans

Birla Sun Life

Insurance Group

Unit Linked Plan

Birla Sun Life

Insurance Group

Protection

Solutions

Birla Sun Life

Insurance Group

Superannuation

Plan

Birla Sun Life

Insurance Group

Gratuity Plan

Birla Sun Life

Insurance Credit

Guard Plan

Birla Sun Life

Insurance Flexi

Life Line Plan

Birla Sun Life

Insurance Flexi

Save Plus

Birla Sun Life

Insurance Flexi

Cash Flow

Birla Sun Life

Insurance

ClassicLife

Premier

Birla Sun Life

Insurance Single

Premium Bond

Birla Sun Life

Insurance

SimplyLife

INSURANCE SECTOR GREW 83% AFTER PRIVATISATION

The insurance industry has grown by 83 per cent since the opening up of the

sector. Remarking on the performance of the insurance industry, C S Rao,

chairman, Insurance Regulatory & Development Authority, said public sector

players have not suffered with the opening up of the sector.

Insurance premium income has risen to Rs 82,415 crore (Rs 824.15 billion) in

2003-04, against Rs 45,000 crore (Rs 450 billion) in 2000-01. Rao expects

premium income in the life insurance sector to rise further by 15-16 per cent and

Page 43


non-life insurance premium by 14 per cent in 2005-06. The growth comes on the

back of healthy demand from the manufacturing sector.

"There has been no reduction in growth rates as seen in the case of the Life

Insurance Corporation of India It is able to hold on to its existing share in terms of

business growth. Market share is bound to stand reduced as some business goes to

the private players,"

The health and personal line segments are expected to see maximum growth during

the current financial year.

"The health insurance sector is expected to grow by 10-15 per cent," Rao said at a

one-day seminar on 'Growth of Insurance Industry in India' organised by the Indian

Merchants' Chamber in Mumbai on Friday.

If the cap on foreign direct investment is increased to 49 per cent from the current

26 per cent, the industry can expect greater entry of players. But this, said Rao,

should not be seen as a threat to public sector players.S

INSURANCE, THE FUTURE BOOM SECTOR OF INDIA

The reforms in the insurance sector leading finally to the opening of the insurance

sector for private participation have brought in its wake major changes not only in

the design of the products available in the market but also the manner in which

they are marketed. We have today a host of products coupled with a large number

of intermediaries who market them.

The post-liberalized insurance industry panorama in India is witnessing dramatic

changes in terms of a slew of latest products and services, new channels of

Page 44


distribution, greater use of I.T. as a service facilitator etc. There is also the

phenomenon of noticeable shifts in consumer preferences impacting the product

mix being offered by insurers. The market structure dominated by a few stabilized

public sector players and the 'new' players in the market (some of whom claim

their lineage from established international insurance behemoths) is in a state of

flux- in terms of figure out market shares but is full of potential.

Added to these are the rising trends of convergence of financial services, especially

in the areas like wealth management and evolution of newer risk management

tools, particularly in the context of reinsurance management. Greater attention is

also being bestowed on the areas like Agricultural Insurance and risk coverage of

export-import trade. Then there is impact of visible socio-economic changes like

greater urbanization, greater job mobility, growth of the services industry,

weakening of traditional family structure, impact of globalization etc. All in all,

interesting things are happening in the Indian insurance scene.

Insurance undergone rapid and massive changes in all aspects of their

business: product and services, sectoral structure, market segmentation,

competitive environment.It is believed that the information sharing has not taken

its expected shape in the insurance industry for the purposes of practices, research

and education. However, data is one of the most needed ingredients in the

insurance business development as well as for research and consultancy. There

have been regular efforts by IRDA for collection and sharing of the data and other

information of public interest. The industry is facing problems in terms of data

review as parliament need to register this beforehand. We believe that progress of

the industry should not be constrained by any extraneous conditions in the interest

of research and development in the area.

Page 45


Manpower India today released the Manpower Employment Outlook Survey for

the first quarter of 2006 revealing sustained positive hiring intentions of employers

in India. India continues to lead all 23 countries surveyed this quarter, with a

positive overall Net Employment Outlook of +27%. Even though this figure

represents a decrease of 13 percentage points from the fourth quarter of 2005, the

employment outlook remains extremely healthy. For the first time since the Survey

was launched in India, the Finance, Insurance and Retail industry sector emerged

as the most optimistic sector for a quarter with a Net Employment Outlook of

+32%, surpassing the Services sector.

Privatization of insurance sector has allowed insurance companies to work in the

market by depositing 100 crore rupees in the reserve of government. This has

encouraged many overseas insurance companies, having a required amount in their

reserve, to open their branch in our country. Introduction of the sector has changed

the employment pattern, but people must know how to make profit from it. To be

in the global market and have advantage of it, capital and skill as per the demand

and knowledge of market is the requirement. It is necessary that institutions, which

form a part of this financial system, have internal management, governance and

accountability structures, which measure up to the highest standards.

PUBLIC SECTOR DOMINATION CONTINUES IN

INSURANCE SECTOR

THE public sector insurance industry recorded another praiseworthy performance

for the financial year 2007-08. The remarkable performance of public sector

insurance year after year since the opening up of the industry has surprised its

critics. These critics had expected the public sector to wilt under the pressure of

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competition. Today they are silent as the good performance of public sector is not

just related to the new premiums under-written but also in terms of innovation

skills and setting very high standards of servicing. Therefore, it has truly been an

excellent all-round performance.

The LIC achieved a moderate growth over the unprecedented growth it had

registered in the previous financial year. It secured first premium income of Rs

43,813 crore through the sale of 3.76 crore policies under individual assurances.

The LIC has also procured new premium of Rs 9260 crore through its group

portfolio. It is expected that the total premium income would touch Rs 1,50,000

crore. With the total assests in excess of Rs 7,00,000 crore, LIC has retained the

status of being the biggest financial institution in the country. It is this splendid

performance of LIC that has raised the levels of life insurance premium penetration

to 4.1 per cent of the GDP. This level of penetration is higher than those achieved

in many developed countries including the United States.

The IRDA has released the unaudited new business statistics for the year 2007-08.

As per the IRDA, the LIC has underwritten new premium of Rs 59182.20 crore (on

the basis of annualised premium), which translates to a market share of 63.64 per

cent. The seventeen private companies together have a market share of 36.36 per

cent. The ICICI prudential with a market share of 8.93 per cent is a distant second

to LIC. Eleven companies have a market share of less than 2 per cent. In the total

premium mobilised in the country, the share of LIC is in excess of 80 per cent.

This clearly demonstrated the total domination of LIC in the life insurance industry

in India.

Today, the opponents of public sector are greatly surprised over the resilience and

ability of LIC to innovate and raise its servicing standards. The LIC has been able

to offer innovative products, better returns to its policyholders and has created

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unsurpassable records in claim settlements. The LIC has been settling over one

crore claims each of these years. It has maintained a consistent record of settling

over 99.86 per cent of the reported claims. It tops in conservation of business with

the lowest lapsing ratio in the industry. In contrast, the private companies have

settled only around 72 per cent of the reported claims and large number of these

companies have more than 25 per cent lapsing ratio as against 4 percent of LIC

according to the annual report 2006-07 of the IRDA. The operating expenses of

LIC are also the lowest in the industry at 5.54 per cent. It is this sound track record

that has earned LIC the trust of the insuring public. Naturally over 230 million

policyholders have placed their unflinching faith and trust in this great institution.

The performance of the four general insurance companies has been equally good.

These companies secured a gross direct premium income of Rs 16899.49 crore in a

de-tariffed regime. The profitability of all the four companies increased and their

underwriting losses have substantially been reduced. For the year ending March

31, 2008, United India has earned a net profit of Rs 631.32 crores, an increase of

19.5 per cent over the previous year. The details of other companies are yet to be

released but the story could be no different. We are convinced that the public

sector could have performed much better had the government been prudent to

accept merger of the four companies. The private companies on the other hand

have shown increased underwriting losses. The record of private companies in

relation to claim settlement is unsatisfactory and some state governments like

Maharashtra who had entrusted their social security mediclaim scheme to the

private companies have dragged them to courts on the issues of non-settlement of

claims.

Despite such good performance, there is wild campaign that the public sector has

faltered and its performance is not that satisfactory for the year 2007-08. This

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motivated campaign is aimed to malign and discredit the public sector. It is true

that the public sector could not achieve the rate of growth recorded in the previous

year. But it is equally true of the private sector too which witnessed decline in the

growth rates. The decline in the growth rate of the private companies is

deliberately not discussed showing a clear bias against the public sector. What are

the reasons for the slow down in the growth rates in the insurance industry? We

have always held that it is the growth of the economy and levels of disposable

incomes that enables the growth of the insurance industry. It is now acknowledged

that the Indian economy had slowed down in 2007-08. The government itself had

lowered the growth projections. The agriculture sector on which 60 per cent of

India's population is dependent continued to remain crisis ridden. The

manufacturing sector recorded the lowest growth rate for the last three years. The

services sector that contributes 55 per cent to the GDP did not remain unaffected

by the slow down. The RBI confirmed that the household savings declined while

corporate savings increased. This shows the shift in the incomes from the

household to spend a greater proportion of the incomes on food. The RBI also

confirmed decline in the rate of financial savings. Despite all these handicaps and

the constant attempts to encourage the private sector through governmental

policies and the IRDA interventions, the public sector insurance has performed

well and this is really creditable.

But many more challenges confront the public sector insurance industry today. The

slow down in the economy would impact the entire insurance industry. The threat

of further liberalisation of the sector continues unabated. There is aggressive

demand to increase the limits of foreign equity beyond 50 per cent. The Economic

Survey 2008 has suggested foreign equity beyond 51 per cent in health insurance.

The Raghuram Rajan committee on financial sector reforms and the Anwarul Hoda

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committee on services sector have recommended complete liberalisation of

financial sector. These committees have recommended detariffing of all insurance

products and reducing of the solvency margin to 100 per cent as the higher

solvency margin rates have started affecting the private companies. These

committees have also suggested that foreign investors be permitted to a larger

share in the insurance companies and review of investment regulations to allow

investment in emerging instruments and derivatives. The Anwarul Hoda committee

has suggested total removal of FDI restrictions in reinsurance and an enactment of

a comprehensive law on insurance. Similarly in the banking industry, the

recommendations are for gradual reduction in statutory liquidity ratio and to make

priority lending targets to be on market based approach. The committees further

recommend the doing away of the branch licensing and reduction of government

holding in public sector banks to 33 per cent. These recommendations are aimed to

integrate the Indian financial sector into the architecture of the global finance

capital. These recommendations would be disastrous not just to the financial sector

but to the entire national economy. But the government which is committed to

liberalise the financial sector would surely make attempts to implement these

recommendations.

The crisis in the financial markets in the US and Europe would also impact our

industry. It is not only the banks but the US insurance companies have also

suffered huge losses due to sub-prime lending crisis and swapping of credit

derivatives. The Business Standard April 22, 2008 reports that the biggest US

insurer AIG has announced losses of over 32 billion dollars in the last one quarter

itself compelling the company to announce raising of additional capital amounting

to 20 billion dollars. Therefore, the US and its insurance companies would exert

greater pressure for full liberalisation of Indian insurance sector. In the

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circumstances the struggle to defend the public sector insurance industry has

become much more challenging. The movement led by AIIEA succeeded in

preventing the privatisation of insurance sector for over one decade. This struggle

has also helped the public sector to consolidate and gain due to the campaign of the

employees among the public. The campaign to educate the public about the

dangers inherent in the government policies and the need of a strong public sector

to better the lives of the people must be further strengthened. We are confident that

LIC and the four general insurance companies would continue to perform well

overcoming all obstacles. But let us also understand that this is possible only when

we heighten our campaign and struggle. This is the urgent task before the

insurance employees. (Editorial, Insurance Worker, June 2008 issue)

IMPACT OF PRIVATISATION ON PUBLIC SECTOR

INSURANCE COMPANIES

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The insurance sector was liberalised and opened to private sector participation to

break the monopoly position of public sector companies and provide better

insurance coverage, products and services to the citizens and in the process

augment flow of long-term resources for financing infrastructure.

Be it the evolution of new channels of distribution or innovative product

development or the optimal use of the latest state-of-the-art technology, the central

theme is the customer’s choice and his/her convenience. Competitive pricing,

value for money for the customer, high service levels, upgrading the quality of

agents, back office and front office staff, consumer awareness and sensitive and

prompt response to the consumers’ grievances are the other features of this market

which can easily be discerned.

The market seems to be expanding and growing but only in depth and not the

width of coverage. Such growth rates, however, can be sustained only by reaching

out to newer markets. And no concerted effort on development of new markets has

been seen so far. LIC has responded well to competition, the decline in its sales

figures, post 2002 have been on account of removal of its high selling single

premium, guaranteed products. It has shown impressive growth in its traditional

product sales.

In non-life sector, the challenge seems to be more daunting. Not only the retail

market has not been impacted in any perceivable proportion, the levels of

awareness and also the standards of customer services, as perceived by the general

public, are pretty low. This needs to change.

Product Development:-

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There certainly has been a plethora of new and innovative products offered by

both, LIC and new players, in the life sector. LIC has the widest range of products

and customised solutions for the customers. Public sector non-life companies are

yet to get their act together.

Customer Service:-

This is an area where new companies are clearly ramping up by bringing in their

global best practices, operational efficiency through technology etc. Public sector

companies are fast gearing up. However, a lot still needs to be done in this area as

is evidenced by the FORTE survey. The real time response and turnaround times in

delivery of the services have to be up to the customer expectation levels in areas

like delivery of first premium receipt, policy document, premium notice, final

maturity payment, death claim etc.

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CURRENT SCENARIO OF INSURANCE SECTOR

Global integration of financial markets resulted from de-regulating measures,

technological information explosion and financial innovations. Liberalisation and

Globalisation have allowed the entry of foreign players in the Insurance sector.

With the entry of private and foreign players in the Insurance business, people

have got a lot of options to choose from. Radical changes are taking place in

customer profile due to the changing life style and social perception, resulting in

erosion of brand loyalty. To survive, the focus of the modern insurers shifted to a

customer-centric relationship. The paper focuses the current position of insurance

industry.

1.) Liberalisation and Privatisation :-

India's economic development made it a most lucrative Insurance market in the

world. Before the year 1999, there was monopoly state run LIC transacting life

business and the General Insurance Corporation of India with its four Subsidiaries

transacting the rest. In the wake of reform process and passing Insurance

Regulatory and Development Authority (IRDA) Act through Indian parliament in

1999, Indian Insurance was opened for private companies.

Liberalisation on the Insurance sectors has allowed the foreign players to enter the

market with their Indian partners. Most of the foreign Insurers have joined within

the local market. India offers immense possibilities to foreign Insurers since it is

the world's most populous country having over a billion people.

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Insurance industry had ten and six entrants in life and non-life sector respectively

in the year 2000-2001. The industry again saw two and three entrants in the life

and non-life business respectively in the year 2001-2002. One additional entrant

was made both in the life and in non-life business in 2004 and 2005 respectively.

At present there are fourteen companies each in Life and General Insurance. The

Funds earlier generated by the state owned insurers have been diversified with

other new insurers.

2.) Competition:-

Private and Foreign entrants in the Insurance Industry made others difficult to

retain their market. Higher customer aspirations lead to new expectations and

compel him to move towards the insurer who provides him the best service in time.

It becomes less viable for them even to maintain the functional networks or

competitive standards and services. To survive in the Industry they analyse, the

emerging requirements of the policyholders / insurers and they are in the forefront

in providing essential services and introducing novel products. Thereby they

become niche specialists, who provide the right service to the right person in right

time.

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The following table shows the market share of life and non-life insurers

MARKET SHARE (%)

LIFE INSURERS NON – LIFE INSURERS

1. LIC 76.07 1. New India 21.41

2. ICICI Prudential 6.91 2. National 17.11

3. Bajaj Allianz 4.75 3. United India 17.11

4. HDFC Standard 2.98 4. Oriental 17.02

5. Birla Sun life 1.72 5. ICICI-

Lombard

8.04

6. Tata AIG 1.66 6. Bajaj Allianz 6.15

7. SBI Life 1.46 7. IFFCO-Tokio 4.00

8. Max New York 1.28 8. Tata-AIG 2.89

9. Aviva 1.08 9. ECGC 2.50

10. Kotak Mahindra Old Mutual 0.71 10. Royal

Sundaram

2.17

11. ING Vysya 0.54 11. Cholamandala

m

1.22

12. AMP Sanmar 0.46 12. HDFC-Chubb 0.89

13. Met Life 0.37 13. Reliance

General

0.75

14. Sahara Life 0.03 14. Agriculture

Insurance Co.

--

Private total 23.93 Private total 27.35

Public total 76.07 Public total 72.65

Grand total 100.00 Grand total 100.00

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Source : www.irdaindia.org

In the above table shows, the private players in the life insurance business have

increased their market share to 23.93 per cent. Among them ICICI prudential is

ranked first in capturing the market followed by Bajaj Allianz and HDFC Standard.

In the General Insurance sector the private players have captured 27.35 per cent.

Among them ICICI-Lombard is ranked first, followed by Bajaj Allianz and

IFFCO-Tokio.

The healthy competition in the sector enabled the State owned insurers of our

mother country to reduce its market share to 76.07 per cent and 72.65 percent in

life and non-life business respectively. Moreover, private insurers have planned to

increase their market share in the next five years. The public insurers have to

enrich its approach to withhold its share.

3.) Information Technology:-

Insurers are the earlier adopters of technology. Because of the Information

revolution, customers are free to choose from a wide range of new and innovative

products. The Insurance companies are utilizing the Information technology

applications for better customer service, cost reduction, new product design and

development and many more.

New technology gives the policyholders / insured better, wider and faster access to

products and services. The impact of Information Technology in Insurance

business is being felt at an accelerating pace. In the initial years IT was used more

to execute back office functions like maintenance of accounts, reconciling broker

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accounts, client processing etc. With the advent of "database concepts", these

functions are better integrated in an administrative efficiency.

The real evolution is however emerged out of Internet boom. The Internet has

provided brand new distribution channels to the Insurers. The technology has

enabled the Insurer to innovate new products, provide better customer service and

deeper and wider insurance coverage to them. At present, Insurance companies are

giving customers a distinct claim id to track claims on-line, entertaining on-line

enrollment, eligibility review, financial reporting, and billing and electronic fund

transfer to its benefit clan customers.

4.) Product Innovations:-

Insurers are continuously innovating new products based on forward-looking

models. They have developed new products addressing the new challenges in

society and products to address the hazards from new environmental issues.

Companies will need to constantly innovate in terms of product development to

meet ever-changing consumer needs. Understanding the customer better will

enable Insurance companies to design appropriate products, determine price

correctly and to increase profitability. Since a single policy cannot meet all the

Insurance objectives, one should have a portfolio of policies covering all the needs.

Product development is made possible by integrating actuarial, rating, claims and

illustration systems. At present, the Life Insurers are concentrating on the pension

schemes and the Non-Life Insurers on many innovative schemes of various realms

and thereby enriching their market share. Moreover, with increased

commoditization of insurance products, brand building is going to play a vital role.

5.) Distribution Network:-

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While companies have been successful in product innovation, most of them are

still grapping with right mix of Distribution Channels for capturing maximum

market share to build brand equity, building strong and effective customer

relationships and cost effective customer service. While the traditional channel of

tied up advisors or agents would be the chief distribution channel, insurer should

innovate and find new methods of delivering the products to customers. Corporate

agency, brokerage, Banc assurance, e-insurance, cooperative societies and

panchayats are some of the channels, which can be tapped by the insurers to reach

the appropriate market segments. Now days, the urban masses are tapped with the

new techniques provided by Information Technology through Internet. Rural

masses are attracted by the consultative approach adopted by the Insurers.

Moreover, they attract the customers through telephone and mobile also.

6.) Customer Education and Services:-

Insurance is a unique service industry. The key industry drivers are related to life

style issues in terms of perceiving insurance as a savings instrument rather than for

risk cover, need based selling, quality of service and customers awareness.

In the present competitive scenario, a key differentiator is the professional

customer service in terms of quality of advice on product choice along with policy

servicing. Servicing focus is on enhancing the customer's experience and

maximizing his convenience. This calls the effective CRM system, which

eventually creates sustainable competitive advantage and enables to build long

lasting relationship.

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BIBLIOGRAPHY

(1) Insurance : Ajit Ranade and Rajeev Ahuja; India Development Report 1999-

2000

(2) Insure for life: Navjit Gill : Business World, 28 February 2000.

(3) Complete Guide to Business Risk Management : KitSadgsrove

(4) Risk Management Excellence : Economist Int. Unit

(5) The Insurance Sector : ICFAI ( Institute of Charter Financial Analyst of

India.

(6) Impossible guidelines editorials : Business India, February 7-20, 2000

(7) Economic Times clippings.(8) www.licindia.com

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Insurance sector in INDIA