INDIAN INSURANCE

INDUSTRY
[INDUSTRY ANALYSIS]

26TH JULY 2010, MONDAY

 CONTENTS

SR. PARTICULARS PAGE

No. NO.
1 INTRODUCTION – INSURANCE 3
2. STRUCTURE OF INDIAN INSURANCE INDUSTRY 9
3. SIZE OF THE INDIAN INSURANCE INDUSTRY 10
4. STRATEGIC GROUPS – INSURANCE INDUSTRY 14
5. SEGMENTATION: 15
PRODUCTS
CUSTOMERS
6. INTERNATIONAL OVERVIEW 23
7. NEW ENTRANTS IN THE RECENT PAST 24
8. TOP FIVE PLAYERS IN THE INDUSTRY 26
9. MAJOR POLICY CHANGES IN THE RECENT PAST 47
10. EXTERNAL ANALYSIS: PEST ANALYSIS 51
11. PORTER’S FIVE FORCES MODEL 77
12. EXTERNAL ANALYSIS: SWOT ANALYSIS 84
13. PROJECTED FUTURE TRENDS 86
14. CONCLUSION 88
15. BIBLIOGRAPHY 89

2
 INTRODUCTION – INSURANCE

In India, insurance has a deep-rooted history. It finds mention in the writings of

Manu ( Manusmrithi ), Yagnavalkya ( Dharmasastra ) and Kautilya
(Arthasastra ). The writings talk in terms of pooling of resources that could be
re-distributed in times of calamities such as fire, floods, epidemics and famine.
This was probably a pre-cursor to modern day insurance. Ancient Indian history
has preserved the earliest traces of insurance in the form of marine trade loans
and carriers’ contracts. Insurance in India has evolved over time heavily
drawing from other countries, England in particular.
 
   1818 saw the advent of life insurance business in India with the
establishment of the Oriental Life Insurance Company in Calcutta. This
Company however failed in 1834. In 1829, the Madras Equitable had begun
transacting life insurance business in the Madras Presidency. 1870 saw the
enactment of the British Insurance Act and in the last three decades of the
nineteenth century, the Bombay Mutual (1871), Oriental (1874) and Empire of
India (1897) were started in the Bombay Residency. This era, however, was
dominated by foreign insurance offices which did good business in India,
namely Albert Life Assurance, Royal Insurance, Liverpool and London Globe
Insurance and the Indian offices were up for hard competition from the foreign
companies.
 
     In 1914, the Government of India started publishing returns of Insurance
Companies in India. The Indian Life Assurance Companies Act, 1912 was the
first statutory measure to regulate life business. In 1928, the Indian Insurance
Companies Act was enacted to enable the Government to collect statistical
information about both life and non-life business transacted in India by Indian
3
and foreign insurers including provident insurance societies. In 1938, with a
view to protecting the interest of the Insurance public, the earlier legislation was
consolidated and amended by the Insurance Act, 1938 with comprehensive
provisions for effective control over the activities of insurers.
 
   The Insurance Amendment Act of 1950 abolished Principal Agencies.
However, there were a large number of insurance companies and the level of
competition was high. There were also allegations of unfair trade practices. The
Government of India, therefore, decided to nationalize insurance business.
 
      An Ordinance was issued on 19th January, 1956 nationalising the Life
Insurance sector and Life Insurance Corporation came into existence in the
same year. The LIC absorbed 154 Indian, 16 non-Indian insurers as also 75
provident societies—245 Indian and foreign insurers in all. The LIC had
monopoly till the late 90s when the Insurance sector was reopened to the private
sector.
 
     The history of general insurance dates back to the Industrial Revolution in
the west and the consequent growth of sea-faring trade and commerce in the
17th century. It came to India as a legacy of British occupation. General
Insurance in India has its roots in the establishment of Triton Insurance
Company Ltd., in the year 1850 in Calcutta by the British. In 1907, the Indian
Mercantile Insurance Ltd, was set up. This was the first company to transact all
classes of general insurance business.
1957 saw the formation of the General Insurance Council, a wing of the
Insurance Associaton of India. The General Insurance Council framed a code of
conduct for ensuring fair conduct and sound business practices.
 

4
    In 1968, the Insurance Act was amended to regulate investments and set
minimum solvency margins. The Tariff Advisory Committee was also set up
then.
 
    In 1972 with the passing of the General Insurance Business (Nationalisation)
Act, general insurance business was nationalized with effect from 1stJanuary,
1973. 107 insurers were amalgamated and grouped into four companies, namely
National Insurance Company Ltd., the New India Assurance Company Ltd., the
Oriental Insurance Company Ltd and the United India Insurance Company Ltd.
The General Insurance Corporation of India was incorporated as a company in
1971 and it commence business on January 1sst 1973.
 
     This millennium has seen insurance come a full circle in a journey extending
to nearly 200 years. The process of re-opening of the sector had begun in the
early 1990s and the last decade and more has seen it been opened up
substantially. In 1993, the Government set up a committee under the
chairmanship of RN Malhotra, former Governor of RBI, to propose
recommendations for reforms in the insurance sector.The objective was to
complement the reforms initiated in the financial sector. The committee
submitted its report in 1994 wherein , among other things, it recommended that
the private sector be permitted to enter the insurance industry. They stated that
foreign companies be allowed to enter by floating Indian companies, preferably
a joint venture with Indian partners.
 
     Following the recommendations of the Malhotra Committee report, in 1999,
the Insurance Regulatory and Development Authority (IRDA) was constituted
as an autonomous body to regulate and develop the insurance industry. The
IRDA was incorporated as a statutory body in April, 2000. The key objectives
of the IRDA include promotion of competition so as to enhance customer

5
satisfaction through increased consumer choice and lower premiums, while
ensuring the financial security of the insurance market.
 
     The IRDA opened up the market in August 2000 with the invitation for
application for registrations. Foreign companies were allowed ownership of up
to 26%. The Authority has the power to frame regulations under Section 114A
of the Insurance Act, 1938 and has from 2000 onwards framed various
regulations ranging from registration of companies for carrying on insurance
business to protection of policyholders’ interests.
 
    In December, 2000, the subsidiaries of the General Insurance Corporation
of India were restructured as independent companies and at the same time GIC
was converted into a national re-insurer. Parliament passed a bill de-linking the
four subsidiaries from GIC in July, 2002.
 
     Today there are 14 general insurance companies including the ECGC and
Agriculture Insurance Corporation of India and 14 life insurance companies
operating in the country.
 
    

6
Overview
Insurance business is divided into four classes:
a) Life Insurance
b) Fire
c) Marine
d) Miscellaneous Insurance.

Life insurers undertake the Life Insurance business; general insurers handle the
rest. The business of insurance essentially means defraying risks attached to an
activity (including life) and sharing the risks between various entities, both
persons and organisations. Insurance companies are important players in
financial markets as they collect and invest large amounts of premium in
various investment instruments. Insurance offers the following benefits:
a) Protection to investors
b) Accumulation of savings
c) Channelling these savings into sectors needing huge long-term investments.

Insurance companies receive a steady cash stream of premium or contributions

to pension plans. Their cash flows are determined on the basis of various
actuary studies and models. Since their liabilities are long-term or contingent in
nature, their investments are also long-term and they are able to maintain a
healthy liquidity position. Since they offer more than the return on savings in
the shape of life cover to the investors, the rate of return guaranteed on their
insurance policies is relatively low. Consequently, the need to seek high rates of
return on their investments is also low. Since the risk factor in the insurance
business is quite high, insurance companies usually invest in relatively safer
bets such as bonds of GOI, PSUs, state governments, local bodies, corporate
houses and mortgages of long-term nature. Lately, insurance companies have
also ventured into pension schemes and mutual funds.

7
Life insurance constitutes the major share of insurance business. Life insurance
depends upon the laws of mortality. Life has to end sooner or later and the claim
in respect of life is certain.
On the other hand, in case of general insurance, there may never be any claim
and the amount cannot be ascertained in advance. Hence, life insurance, besides
providing a cover for life of individuals, alsoserves as a good source of savings
for the beneficiaries. The life insurance market in India presents several striking
features, which appear, for the most part, to be necessary concomitants of the
underdeveloped nature of the country’s economy.

Existences of a large number of life insurance sellers and the narrowness of the
life insurance market have been the characteristics peculiar to India.
The volume of life insurance business annually sold on the Indian life insurance
market came on an average to about Rs 160 crore. Most of these policies were
sold during the phase of private enterprise, by Indian organisations termed
“insurers” by the Indian Insurance Act (Act IV of 1938).
The term “insurers” included”:
a) Proprietary Joint Stock Companies
b) Mutual Joint Stock Companies
c) Partnership firms to which the Indian Partnership Act of 1932 applied
d) Co-operative Life Insurance Societies

8
STRUCTURE OF INDAIN INSURANCE
INDUSTRY

9
 SIZE OF THE INDIAN INSURANCE INDUSTRY

The Insurance sector is a colossal one and is growing at a speedy rate of 15-

20%. Together with banking services, Insurance services add about 7% to
the country’s GDP. Total value of the Indian insurance market(2004-05) is
estimated at Rs. 450 billion (US$10 billion). The funds available with the
state-owned Life Insurance Corporation (LIC) for investments are 8% of GDP.

There are presently 12 general insurance companies with four public sector
companies and eight private insurers. According to estimates, private insurance
companies collectively have a 10% share of the non-life insurance market.

The US$ 41-billion Indian life insurance industry is considered the fifth largest
life insurance market, and growing at a rapid pace of 32-34 per cent annually,
according to the Life Insurance Council.

Life Insurance Corporation of India (LIC) registered an 83 per cent

increase in new business income in March 2010, while private players posted
a 47 per cent growth in new business premium.

Moreover, according to IRDA, insurers sold 10.55 million new policies in 2009-
10 with LIC selling 8.52 million and private companies 2.03 million policies. At
the end of March 2010, LIC held 65 per cent market share in terms of new
business income collection with the private sector contributing the remaining 35
per cent share in 2009-10.

According to IRDA, total premium collected in 2009-10 was US$ 24.64 billion,
an increase of 25.46 per cent over US$ 19.64 billion collected in 2008-09.

10
A growth of 18 per cent is expected in total premium income and is likely to
cross the US$ 64.93 billion mark, according to B Mathur, Secretary General,
Life Insurance Council.

General Insurance

Vehicle financing firm, Magma Fincorp has applied to IRDA for approval and
expects clearance in 2010. The firm is entering the general insurance business in
a joint venture with Germany-based company HDI-Gerling International
Holding AG.

According to data released by IRDA, the general insurance industry recorded

13.42 per cent growth in gross premium collected during 2009-10. The
industry collected gross premium of US$ 7.84 billion in 2009-10 compared with
US$ 6.91 billion in 2008-09.

The public sector players posted 13.85 per cent growth in gross premium in
2009-10. At the same time, private players recorded a 12.82 per cent increase in
gross premium till March 2010.

During April-May 2010, non-life insurers mopped up US$ 1.59 billion against
US$ 1.34 billion in the previous year, registering an increase of 19 per cent
according to IRDA data.

The four state-run insurers fared better than their private counterparts, with New
India Insurance collecting the maximum premium of US$ 294.5 million in April
and May 2010, compared to US$ 253.15 million in the previous year, growing
by 16.34 per cent.

According to the IRDA's Summary Reports of Motor Data of Public and Private
Sector Insurers - 2008-09, nearly 30 million vehicle policies were issued and a
total premium worth US$ 1.83 billion was collected.
11
Health Insurance

The Indian health insurance market has emerged as a new and lucrative growth
avenue for both the existing players as well as the new entrants. According to a
latest research report "Booming Health Insurance in India" by research firm
RNCOS released in April 2010,all emerging trends including the key factors
driving the market growth. Furthermore, the report also identifies what could be
the possible growth areas for expansion and gives a detailed overview of the
competitive landscape. The Indian health insurance market has continued to
post record growth in the last two fiscals (2008-09 and 2009-10). Moreover, as
per the RNCOS estimates, the health insurance premium is expected to grow at
a compound annual growth rate (CAGR) of over 25 per cent for the period
spanning from 2009-10 to 2013-14.

A well-developed and evolved insurance sector is a boon for economic

development as it provides long- term funds for infrastructure development at
the same time strengthening the risk taking ability of the country.

Current Position:

Insured

33%

yes
no

67%

12
Awareness of Different Schemes:

Awareness 22%

yes
no

78%

Reasons for taking Insurance:

13
 Bu

0%
20%
40%
60%
80%
100%
120%

sin
es
sm
an
Pr
of
es

14
sio
na
l

St
u de
nt
Ho
u se
w
ife
 STRATEGIC GROUPS – INSURANCE
INDUSTRY

Insurance Business

LIFE INSURANCE GENERAL INSURANCE

Life Insurance Corporation of India The Oriental Insurance Co. Ltd.

Bajaj Allianz Life Insurance Reliance General Insurance Co. Ltd.

Company Limited .
Bajaj Allianz General Insurance Co. Ltd.
Birla Sun Life Insurance Co. Ltd 
ICICI Lombard General Insurance Co.
Ltd.
ICICI Prudential Life Insurance Co.
Ltd  IFFCO Tokio General Insurance Co. Ltd.
etc.
Reliance Life Insurance Company
Limited. etc.

 FIRE INSURANCE
 MARINE
INSURANCE
 MISCELLANEOUS
INSURANCE
SIZE OF THE INDIAN
INSURANCE INDUSTRY

15
The Insurance industry in India has been progressing at a rapid pace since
opening up of the industry in 2000. Indian domestic insurance market would
touch around US$ 60.5 Billion in the year 2010 from existing size of about US$
10.2 billion about 500% hike. According to the Insurance Regulatory and
Development Authority (IRDA), new business premium income from April
2006 to February 2007 amounted to INR 579.38 billion (US$13.18 billion),
registering an impressive 120% growth over the same period last year.

 India’s life insurance premium as a percentage of GDP is currently estimated at

1.8% against 5.2% in US, 6.5% in UK and about 8% in South Korea. 

 Rural and semi-urban India will contribute US $35 billion to the Indian
insurance industry by 2010, including US $20 billion by way of life insurance
and the rest US $15 billion through non-life insurance schemes. 

The Insurance industry graph is definitely ascending. Distribution accounts for

the largest element in insurers cost and affects profitability. The size of the
country combined with problems of connectivity in the rural areas, makes
insurance selling in India a difficult proposition. The distribution capabilities
strongly influence product design in insurance. The distribution channels have a
direct impact on the insurer’s market image. Emergence of alternative channels
such as Bancassurance and Internet is reshaping the insurance
industry. India with a population of more than a billion people offers unlimited
growth potential.
 

16
SEGMENTATION OF CUSTOMERS(AGE WISE) AND
VARIOUS PRODUCTS OFFERED BY INSURANCE
COMPANIES

11% 13%
90% 28%
42%
80%

70% 44% 40%

60% Retirement
34% Insurance
12%
50% Life Insurance
3% 9% Education
40%
Medical Insurance
17% 32%
30%
42%
38%
20%
21%
10% 14%

0%
less tha... 2 3 more tha...

17
 DYNAMICS OF THE INSURANCE INDUSTRY
Changing Customer Expectations
in Insurance Sector ( PRE TO POST liberalization) :

Pre Liberalisation Post Liberalisation

Motivating Factor(s) for Considering Insurance

• Security 43% • Security 50%

• Savings 14% • Savings* 34%

• Tax Rebate 43% • Tax Rebate 16%

* children’s education,
daughter’s marriage, retirement
plan

Sources of Information on Insurance & Product Awareness

18
 • Friends, Colleagues, • Additionally from direct
Relatives and Agent mailers, consumer

• Low awareness of several meets, internet & media (mass

insurance products media & outdoor)

due to poor communication in • Rising level of awareness

spite of availability of new products of both
LIC and private
companies

Choice of First Policy

• Money Back 60% • Money Back 42%

• Endowment 40% • Endowment 48%

• Whole Life 0% • Whole Life 10%

This change in product-mix

reflects maturing of the
insurance customer

Pre Purchase Process : LIFE

Pre Liberalisation Post Liberalisation

Motivating Factor(s) for Considering Insurance

• Security 43% • Security 50%

• Savings 14% • Savings* 34%

• Tax Rebate 43% • Tax Rebate 16%

* children’s education, daughter’s

marriage, retirement plan

Sources of Information on Insurance & Product Awareness

19
 • Friends, Colleagues, Relatives • Additionally from direct
and Agent mailers, consumer

• Low awareness of several meets, internet & media (mass

insurance products media & outdoor)

due to poor communication in spite • Rising level of awareness of

of availability new products of both LIC and
private companies

Choice of First Policy

• Money Back 60% • Money Back 42%

• Endowment 40% • Endowment 48%

• Whole Life 0% • Whole Life 10%

This change in product-mix reflects

maturing of the insurance customer

Purchase Process : LIFE

Pre Liberalisation Post Liberalisation

Discount Offering Practices

• No. of customers getting • Customers getting discount :

discount : 50% 33% (highest in Delhi)

• Rate of discount : 25%-50% • Rate of discount : More or

of first year premium less same

Policy Delivery

• Mode • Mode

- Registered post for LIC, hand - Registered post for LIC

delivered by

20
 agent in 23% cases - Courier for private companies

• Time taken • In both cases, policy comes in

attractive,
Up to 1 week 0%
protective plastic jacket
One month 65%
• Time taken LIC
> 1 month 35% Private Co

Up to 1 week 5%
85%

Up to one month 77%

15%

> 1 month 18%

0%

Post Purchase Process : LIFE

Pre Liberalisation Post Liberalisation

Correspondence (other than premium notice) from
Company / Agent

• Generally no • Mailers from both

correspondence from private companies &
either LIC on

company or agent except products & services,

for late premium greeting cards on birthdays,

payment reminder from anniversary and new year

company
• Phone calls from

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 • Agent maintained private company call
informal contact with centres
close
• Agent in regular
customers contact for offering
new

products

Delay in Premium Payment

• Incidence of delay • Incidence of delay low

high 30% 15%

(due to irregular receipt of (more regular receipt of

premium notice from premium notice from

company / reminder from company / reminder from

agent) agent)

Changing Customer Expectations – LIFE

Role of IRDA

 Educate public on regulatory safeguards, investment guidelines and

plough back of profits (several people had expressed concern about
security of their money, credibility of private insurance company’s
investment of funds in foreign markets and repatriation of profits to
foreign countries)

Inform public on Social and Rural obligations of private players (several people
believed that only LIC was responsible for insuring the poor)

22
Changing Trends in Savings Pattern:

Pre Liberalisation Post Liberalisation

Saving Instruments % of Saving Instruments % of
Respondents Respondents

Insurance 23 Insurance 33

Bank Deposit 28 Bank Deposit 44

PPF 19 PPF 8

NSC 12 NSC 0

Shares 7 Shares 3

Post office 7 Post office 3

Bonds 0 Bonds 9

Gold 4_ Gold 0_

TOTAL 100 TOTAL 100

23
 International Overview
On the 19th July 2010, the Indian based company Larsen & Toubro (L&T) received final approval from
Indian insurance regulators to start commencing business through it’s subsidiary, L&T Insurance. The
newly formed general insurer is supported by L&T, valued at US$9.8 billion. The Indian conglomerate
– L&T – will have 100% equity in L&T Insurance.

Larsen & Toubro is one the largest private sector conglomerates in India, and the decision to enter
into the insurance industry comes at a time when L&T aim to strengthen their position in the Indian
financial service industry. Already established in the non-banking financial sector, with L&T Finance
Ltd, the move into the general insurance sector meets L&T’s aim to diversify the company’s financial
services offerings, and create a bigger corporate presence in the Indian financial market.

With health insurance as the key focus of its entry to the insurance business, the company plans to
emphasize the importance of their offerings in this area. As such, the long term aim for L&T
Insurance is the development of its own health insurance claim management team.

24
 NEW ENTRANTS IN THE RECENT PAST

Indian Insurance Industry in the year 2007-2008, has 5 new entrants:

LIFE INSURERS:

I. Future Generali India Life Insurance Company Limited

II. IDBI Fortis Life Insurance Company Ltd.

GENERAL INSURERS:

1. Apollo Munich Health Insurance Company Limited

2. Future Generali India Insurance Company Limited
3. Universal Sompo General Insurance Company Ltd.

Indian Insurance Industry in the year 2008-2009, so far has 5 new entrants in
life and 3 new entrant in general:

LIFE INSURERS:

I. Canara HSBC Oriental Bank of Commerce Life Insurance Company Ltd.

II. Aegon Religare Life Insurance Company Ltd.
III. DLF Pramerica Life Insurance Company Ltd.
IV. Star Union Dai-ichi Life Insurance Co. Ltd.,
25
V. IndiaFirst Life Insurance Company Ltd.

GENERAL INSURERS:

1. Shriram General Insurance Company Limited,

2. Bharti Axa General Insurance Company Ltd.
3. Raheja QBE General Insurance Co. Ltd
Indian Insurance Industry in the year 2009-20010:

Max Bupa Health Insurance, the India-based joint venture between Max India
Ltd. and Bupa, has launched its business and revealed its first product on April
29th, 2010.

Max Bupa Health Insurance’s first product, named Heartbeat, which is targeted
at Indian families, providing health insurance coverage for infants, senior
citizens and all the family members in between.

The company currently has an initial capital base of Rs 1.51 billion, or Rs 151
crore (US$ 33.89 million), with intentions to raise that number up to Rs 700-
750 crore (US$ 157-168 million) in five years time.

26
 TOP 5 PLAYERS IN THE INDIAN INSURANCE
INDUSTRY

Top five players in the Indian Insurance Industry are:

1. Life Insurance Corporation of India

2. ICICI Prudential Life Insurance Co Ltd
3. Bajaj Allianz Life Insurance Co Ltd
4. SBI Life Insurance Co Ltd
5. Reliance Life Insurance Co Ltd

27
 Market Share of Insurance Companies In India

12% Life Insurance Corporation of

5% India
3%
ICICI Prudential Life Insurance Co
Ltd
7% Bajaj Allianz Life Insurance Co Ltd
  SBI Life Insurance Co Ltd
Reliance Life Insurance Co Ltd
Others
9% 64%

I. Life Insurance Corporation of India

LIC still remains the largest life insurance company accounting for 64% market
share. Its share, however, has dropped from 74% a year before, mainly owing to
entry of private players with innovative products and better sales force. 

LIC experienced growth of only 5% during 2007-08 in new business premium.

It had an estimated 1.1 million licensed agents, with the private insurers adding
another 900,000.

28
LIC witnessed decline in sales by 24% for new business premium for the first
four months for the current financial year. 

Total sales stood at Rs 10,797.1 crore during April-July as against new sales of
Rs 14,186.04 crore in the corresponding period last financial year.

This is was mainly due to slowdown in economy and crash of stock market.
Also, private companies are eating the share of LIC by introducing innovative
products.

Products in different market segment:

1. Insurance Plans:
As individuals it is inherent to differ. Each individuals insurance needs and
requirements are different from that of the others. LICs Insurance Plans are
policies that talk to you individually and give you the most suitable options that
can fit your requirement.

Jeevan Anurag Komal Jeevan

CDA Endowment Vesting At
21  Marriage Endowment Or
CDA Endowment Vesting At Educational Annuity Plan
18 
Jeevan Kishore Jeevan Chhaya
Child Career Plan Child Future Plan
Child Fortune Plus    

29
Jeevan Aadhar
Jeevan Vishwas

The Endowment Assurance Policy

The Endowment Assurance Policy-Limited Payment
Jeevan Mitra(Double Cover Endowment Plan)
Jeevan Mitra(Triple Cover Endowment Plan)
Jeevan Anand
New Janaraksha Plan
Jeevan Amrit

Jeevan Shree-I
Jeevan Pramukh

The Money Back Policy-20 Years

The Money Back Policy-25 Years
Jeevan Surabhi-15 Years
Jeevan Surabhi-20 Years
Jeevan Surabhi-25 Years
Bima Bachat

30
 Jeevan Bharati - I

The Whole Life Policy

The Whole Life Policy- Limited Payment
The Whole Life Policy- Single Premium
Jeevan Anand
Jeevan Tarang

Two Year Temporary Assurance Policy

The Convertible Term Assurance Policy
Anmol Jeevan-I
Amulya Jeevan-I

Jeevan Saathi Plus

Jeevan Saathi

2. Pension Plans:
Pension Plans are Individual Plans that gaze into your future and foresee

31
 financial stability during your old age. These policies are most suited for
senior citizens and those planning a secure future, so that you never give up on
the best things in life.

Market Plus I

Jeevan Nidhi

Jeevan Akshay-VI

New Jeevan Dhara-I

New Jeevan Suraksha-I

3. Unit Plans:
Unit plans are investment plans for those who realise the worth of hard-earned
money. These plans help you see your savings yield rich benefits and help you
save tax even if you don't have consistent income.

Market Plus I

Profit Plus

Money Plus-I

Child Fortune Plus

Jeevan Saathi Plus

4. Pension Plan
LIC’s Special Plans are not plans but opportunities that knock on your door
once in a lifetime. These plans are a perfect blend of insurance, investment and
a lifetime of happiness!

32
 New Bima Gold Health Protection Plus

Bima Nivesh Jeevan

2005 Madhur

Jeevan Saral Jeevan

  Mangal

5. Group Scheme:
Group Insurance Scheme is life insurance protection to groups of people. This
scheme is ideal for employers, associations, societies etc. and allows you to
enjoy group benefits at really low costs.

Group LIC's Superannuation Plus

Group Term Insurance Schemes

Group Insurance Scheme in Lieu Of EDLI

Group Gratuity Scheme

Group Super Annuation Scheme

Group Savings Linked Insurance Scheme

Group Leave Encashment Scheme

Group Mortgage Redemption Assurance Scheme

Gratuity Plus

Group Critical Illness Rider

33
 JanaShree Bima Yojana (JBY)

Shiksha Sahayog Yojana

Aam Admi Bima Yojana

6. Withdrawn Plans:
Jeevan Nischay    

Wealth Plus    

Jeevan Aastha    

Jeevan Varsha    

Fortune Plus    

Health Plus

FINANCIAL ANALYSIS OF LIC:

Figures are as on March 2010

1.) P/E Ratio : 25.06

P/E ratio of LIC is favourable

34
2. ) Current Ratio: 18.49
The short term financial position of LIC is favourable.

3.) Debt Equity Ratio: 10.26

PSU bonds offer yields of close to 10 per cent, conforming to the insurer’s yield
expectations. However, the sources said, LIC’s covenants were stiff. Borrowers
are not permitted early exits.

This was because LIC preferred to have long-term assets on its books to match
its liabilities.

Besides, borrowers are expected to maintain a debt equity ratio (DER) of 2:1
(67:33) during the tenure of the loan. The ratios are far tighter than the Finance
Ministry prescribed guidelines of 80:20 DER.

4.) ROE: 8.70

LIC’s ROE is high which is very favorable.

5.) EPS: 69.75

6.) Debt Service Ratio: 1.38

35
The DSCR measures the amount of cash available for debt servicing – interest,
principal and lease/royalty payments – and is used by project financiers to
assess the debt carrying capacity of borrowers.

In addition, LIC has also begun insisting on physical asset cover by PSU
borrowers. NHPC, for instance, has mortgaged some of its project assets to LIC.

7.) Net Profit Margin: 16.05

The overall operational efficiency of LIC is favourable with 16.05

II. ICICI Prudential Life Insurance Co Ltd

36
ICICI Pru is the biggest private life insurance company in India. It experienced
growth of 58% in new business premium, accounting for increase in market
share to 8.93% in 2007-08 from 6.97% in 2006-07. 

Total premium collected increased to Rs 8,305.80 crore from Rs 5,254.64 in

2006-07. Total number of policies sold went up by 49%, from 1,960,034 to
2,913,606 in 2007-08, with a market share of 5.73%.

Renewal premium had gone up by 101% to Rs.5,526 crore from Rs 2,751

crore. 

The company has 950 urban and 1,000 non-urban branches across the country.
For the first four months of current financial year, it reported growth of 45.3%.

Products in different market segment:

1.) Life Insurance Plans:

 Education Solutions
 Wealth Creation plans
 Protection Plans

2.) Retirement Plans

3.) Health Insurance Products

 Health saver
 HealthAssure
 Hospital Care II
 Crisis Cover

FINANCIAL ANALYSIS OF ICICI Prudential Life Insurance Co Ltd

37
Financial comparisons with competitors

Current Ratio:

38
 0.68
0.66
0.64
0.62
0.6
0.58
0.56
0.54
2008 2007

Debt Equity Ratio:

0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
2008 2007

39
Profitability Ratio:

-1

III.) Bajaj Allianz Life Insurance Co Ltd

40
Total new business premium collected by Bajaj Insurance was Rs 6,491.70
crore in 2007-08. 

The company reported a growth of 52% and its market share went up to 6.98%
in 2007-08 form 5.66% in 2006-07. The company ranked second (after LIC) in
number of policies sold in 2007-08, with total market share of 7.36%.

For the period of April – July 2008, total amount of new insurance premium
sold was Rs 1,197.95 crore as against Rs 1,075.93 in the same period last year,
experiencing a growth of 11.35%. Number of policies sold dropped by around
3%. 

Bajaj Allianz Life has a strong distribution network across the country with over
1000 branches spread over 950 towns. 

It plans to raise its capital base by infusing Rs 500 crore in next few months to
support its expansion plans.

Products offered in different market segments:

41
      
           
  UNIT LINKED   PENSION   TRADITIONAL   TERM PLANS

 Regular    Annuity    Endowment New Risk

       
Premium Care
   Retirement     Life Time Care
New UnitGain     Term Care
    Retirement     Super Saver
II
    Advantage
   Money Back
    Assured Gain RP
    CashGain
    Single Premium Future
    Income
    Shield Plus
Generator
    Wealth Gain

     
        

     HEALTH   CHILDREN PLAN   JUST

LAUNCHED
  WOMEN Family     ChildGain
   
INSURANCE CareFirst Invest Plus
    YoungCare II    
Premier
    House Wives     Health Care
Group Secure
   
Life

Organization Design and Structure

42
a
d
r
o
B
rm
i
a
h
C f
o
t
c
eo
r
i
D s
r
n
a
IV.) SBI Life Insurance Co Ltd

43
State Bank of India has a 74% equity stake and the balance 26% is held by
French firm Cardif SA in SBI Life insurance. The company broke even in
March 2006. 

It’s the fourth year of operations. SBI Life leveraged the 14,000-odd bank
branches of its parent SBI to push insurance policies. 

The company grew 142.5% in the first four months of the current fiscal year.
Total market share of the company increased from 3.14% in 2006-07 to 5.15%
in 2007-08, making it the 4th largest company in India. 

However, in terms of new number of policies sold, the company ranked 6th in
2007-08. New premium collection for the company was Rs 4,792.66 crore in
2007-08, an increase of 87% over last year. 

The company this year got approval to open 100 more branches to sell life
insurance products.

Products offerent in different segments:

 Protection Plan

44
 Pension Plan
 Savings Plan
 Child Plan
 Unit linked Plan
 Health Plan
 Group Plan

V.) Reliance Life Insurance Co Ltd

45
Reliance Life has sold maximum number of new group non-single policies in
2007-08. It experienced a phenomenal growth of 196% in 2008. 

Total new business premium collected was Rs 2,792.76 crore and its market
share went up to 2.96% from 1.23% a year back. It now ranks 5th in new
business premium and 4th in number of new policies sold in 2007-08.

RLIC has been one of the fast gainers in market share in new business premium
amongst the private players. It has crossed 1.7 Million policies in just two years
of operations, after its takeover of AMP Sanmar business. 

The number of policies sold in the year 2007-08 stood at 10.74 lakh as against
4.51 lakh in the previous year. In a short span of time, the company
accomplished a large distribution set-up by opening 600 branches in 10 months,
taking the overall branch network to above

Products offered in different segments:

1.) For individuals:
Protection Plan
Savings and investment Plans
46
Retirement Plan
Child Plans

2.) For Groups:

Employers Liability Solutions
Employers Protection Solutions
Employee Voluntary Benefit

Major policy changes that has affected the industry

(both positively and negatively) in the recent
past.
47
Regulatory tightening for the Insurance Industry in 2009:

2009 was a year in which regulators ushered in quite a few changes and
proposed as many, for the insurance industry. The most notable changes were
the ones that had policyholder interests in mind — a cap on the expenses of the
popular unit-linked insurance plans and allowing life insurers to sell products
online.

Apart from regulations which have already passed into law, there are others in
the proposal stage — such as the Swarup Committee recommendations and the
Direct Taxes Code — which may have far reaching implications for players.
Here's a look at the changes suggested, implemented and their impact on the
industry.

1.) Cap on ULIP expenses

Unit-linked insurance plans (ULIPs) have been long criticised for their high
front-end charges, compared to alternative investments such as mutual funds;
which depressed the yield to the investor.

It was to address this issue that the Insurance Regulatory Development

Authority introduced an upper ceiling on ULIP charges. This cap is expressed in
terms of difference between the gross and net yield to customers.

For ULIPs up to 10 years, the yield difference is capped at 300 basis points, and
for those running over 10 years, it should not exceed 225 basis points.

Apart from this, the regulator has also imposed a cap on fund management
charges at 1.35 per cent annually, within the overall cap, for all products.

48
Insurance companies voiced their reservation on including the mortality and
morbidity charges in the overall cap and upon the representation, IRDA
removed these charges from the purview of the cap on expenses.

The new regulation came into effect from October 1 for new products and
existing ULIPs are required to meet these criteria by December 31. Responding
to this change, a few insurers have already withdrawn some existing products
and re-launched them in line with the new regulation.

2.) Online purchases

IRDA has permitted insurers to sell life insurance products online, which allow
customers to purchase a life insurance policy without an intermediary.

This is expected to drive down the cost of buying policies with one insurer
recently offering a discount of 40 per cent on premia for investors who opted for
its online term insurance plan.

3.) Promoters lock-in

IRDA is also ready with the final guidelines on corporate governance pertaining
to the insurance industry. According to the guidelines, the promoters of
insurance companies would have a lock-in period of five years before they are
allowed to transfer the shares of the company to a third party.

In India, AMP Sanmar was the only insurance company to exit the business
since the sector was opened up to private players.

However, this regulation is designed to ensure that policyholders enjoy

continuity as only players with a long-term view will enter the sector.

4.) Swarup Committee recommendations

49
The Swarup committee has submitted its proposals for doing away with the
agent commission that is embedded in the premium paid by the policyholder,
akin to mutual fund entry loads. It has also suggested rationalising the current
commission structures of the agent. While the agent force has predictably
objected to these recommendations, the insurance regulator, insurers and the life
insurance council have also opposed these proposals.

5.) Direct Taxes Code

The draft of the proposed Direct Taxes Code recommended that insurance
investments, for long driven by their tax benefits, should be brought under
Exempt-Exempt- Tax regime, which would make the final proceeds of
insurance policies taxable on withdrawal. Further, it has stated that to get tax
exemption, the premium payable during the term of the policy does not exceed
5 per cent of the capital sum assured. If the committee's proposals are accepted,
insurance companies may find it hard to sell traditional endowment products
that driven largely by tax benefits.

6.) Multiple products

IRDA is considering allowing banks to tie-up with multiple insurance

companies, for vending their products. That will give bank customers wider
menu of options to choose from, and they can buy insurance products based on
their needs.

7.) IPOs from insurers

Initial public offerings (IPOs) from insurance players have been on the anvil for
some time now. However, according to IRDA regulations, only those with a 10-
year track record are allowed to float public offers.

50
Reliance Life has approached IRDA to seek its permission to float a public
issue, despite a shorter history and the regulator has asked the company to
approach the Government. Currently, the Government is considering the
request.

Recent Investment policy changes in the Indian Insurance

Industry

 A policy known by the name of 'Health plus Life Combi Product',

offering life cover along with health insurance has been granted
permission by the IRDA act and insurance companies are allowed to
provide it now.
 The FDI limit in the insurance sector has been capped at 26% for the
foreign marketers but the government is thinking to increase it to 49% and
a bill of this offer is pending at the Rajya Sabha
 A low cost pension scheme is supposed to be formed by the Pension
Fund Regulatory and Developmental Authority (PFRDA) on 1st April,
2010 to provide social security to the the poorer class.
 The compulsory ceding by every General Insurance Corporation
(GIC), would go on to stay at 10% under current regulations as specified
by IRDA.

51
 EXTERNAL ANALYSIS OF INDIAN
INSURANCE INDUSTRY

PEST ANALYSIS

I.] POLITICAL FACTORS AFFECTING LIFE INSURANCE

INDUSTRY

Within India political ambitions and rise of communalism, fissiparous

tendencies are on the rise and may well continue for quite some time to time.
Therefore, it expected that the insurance companies might consider offering
political risk coverage also. The only area where Indian insurers consider giving
cover is with regard to customs duty change under certain conditions. Certain
type of political risk at the international level has serious implications for
exporters. The term ‘political risk’ has a wider connotation than commonly
understood or assumed. It covers events arising not just from politics, but risks
in the course of international transactions. In this connection, it may be noted
that export credit insurance has evolved out of uncertainties relating to
international trade, particularly due to problems arising out of foreign legal
jurisdiction, political changes and currency exchange difficulties faced by many
developing countries.

Prohibition for Investment: -

The funds of policyholders are prohibited from being directly / indirectly
invested outside India as per section 27 – C.

52
Manner and conditions of investment: -
Subject to the above provisions contained in Section 27 -/ 27- A / 27 B, the
IRDA may,
• In the interest of the policyholders, specify the time, manner and other
conditions of investment by insurer.
• Give specific directions applicable to all insurers for the time, manner and
other conditions subject to which the policyholder’s funds should be invested in
the infrastructure and social sectors.

After taking into account the nature of business and to protect the interest of the
policyholders, issue directions to insurers relating to time, manner and other
conditions of the investments provided the latter are given a reasonable
opportunity of being heard.

Insurance business in rural / social sector: -

All insurers are required to undertake such percentage of their insurance
business, including insurance for crops, in the rural social sector as specified by
the IRDA. They should discharge their obligations to providing life insurance
policies to persons residing in the rural sector, workers in the unorganized
sector or to economically vulnerable classes of society and other categories of
persons as specified by the IRDA.

Capital requirement: -
The paid up equity of an insurance company applying for registration to carry
on life insurance business should be Rs 100 Crores.

Renewal of registration: -

53
An insurer, who has been granted a certificate of registration, should have the
registration renewed annually with each year ending on March 31 after the
commencement of the IRDA Act. The application for renewal should be
accompanied by a fee as determined by IRDA regulations, not exceeding one
forth of one percent of the total gross premium income in India in the preceding
year or Rs 5 Crores or whichever is less, but not less than Rs 50000 for each
class of business as per Section 3-A.

Requirements as to Capital: -
The minimum paid up equity capital, excluding required deposits with the RBI
and any preliminary expenses in the formation of the country, requirement of an
insurer would be Rs 100 crore to carry on life insurance business and Rs 200
crore to exclusively do reinsurance business as per Section 6.

Investment of funds outside India: -

Insurers outside India as per Section 27-C cannot invest the funds of
policyholders.

Insurance business in Rural Sector: -

After the commencement of the IRDA Act, 1999, every insurer would have to
undertake such percentage of life insurance business in the rural sector as may
be specified by the IRDA in this behalf. It is mandatory for the new companies
to meet the obligations relating to the rural and unorganized sector as per
section 32-B.

Power to investigation or inspection: -

The IRDA may, at any time, order in writing a person as investigating authority
to investigate the affairs of any insurer and report to it. Government has power
to change the tax policy against life insurance industry.

54
• Health insurance rebate,
• Pension saving rebate,
• Mede claim premium rebate,
• P.P.F., E.P.F., NSC all are tax exempted saving,
• All life insurance policy are tax exempted saving ,
• Agricultural income is tax exempted,
• House rent allowances,
• Post office saving,
• Expenses on dreaded diseases are tax exempted.
• Recently there is issue to increase FDI level from 26% to 49%.

Role of the government: -

As insurance is an important service sector, hence it is highly regulated by
government. Since 1956 insurance sector was highly regulated by government
of India. On March 16, 1999, the Indian cabinet approved on Insurance
Regulatory Authority Bills that was designed to liberalize the insurance sector.
Two governments in India have fallen over the issue of liberalization of the
insurance sector (which was nationalized in 1971). But the government of
A.B.Vajpayee as gone ahead to announce the liberalization of this sector
announcement was made in November 1998.

Government’s objectives for liberalization of insurance: -

The main objective of opening of insurance sector to the private insurers is as
under:
1. To provide better coverage to the Indian citizens.
2. To augment the flow of long-term financial resources to finance the growth
of infrastructure.

55
Important government guidelines for private players for entering into Indian life
insurance market:
1. Private companies with a minimum paid-up capital of Rs. 1bn should be
allowed to enter the industry.
2. No company should deal in both life and general insurance through a single
entity.
3. Foreign companies may be allowed to enter the industry in collaboration with
the domestic companies.
4. Postal life insurance should be allowed to operate in the rural market.
5. Only one state level life insurance company should be allowed to operate in
each state.
6. Foreign investors can invest up to 26% of the equity of their joint venture
with Indian firms.

Government will prevail on grounds that the Rs. 4.5 billion India needs for
infrastructure development in the five years from 1997-98, cannot materialize if
the insurance sector is not opened up.

BODIES THAT REGULATE THE SECTOR:

For better regulation purpose of the insurance sector the government has
established following bodies;
1. IRA: Insurance Regulatory Authority.
2. IRDA: Insurance Regulatory and Development Authority.
3. TAC: Tariff Advisory Committee.

1. IRA: Insurance Regulatory Authority:

56
The IRA, under the chairmanship of Rangachary, was set-up in January 1996.
IRA Bill has to be passed by parliament to make the IRA a statutory body.
Comprehensive legislation aimed at reviewing the insurance Act of 1938 and
repealing the life insurance corporation Act of 1956 have to be passed.
The IRA is also preparing an internal rating system to screen all applications, as
entry will be in phases. The joint venture status of life insurance companies
(with majority holding of the domestic partner) is likely to be approved by the
parliament. Consensus also seems to be emerging on the minimum of Rs. 1 bn
capital stipulations for new insurance companies.

The IRA has stipulated a minimum rural presence for all companies. The
exhaustive guidelines have been issued for the appointment of intermediaries
(brokers, agents, surveyors and actuaries).

2. IRDA: Insurance Regulatory and Development Authority:-

The Insurance Regulatory and Development Authority, constituted under the
IRDA Act, 1999, provide for the establishment of an authority to protect the
interest policyholders, to regulate, promote and ensure orderly growth of the life
insurance industry.

a. Business Requirement:-
A company will not be issued a license unless the IRDA is satisfied with the
sound financial condition, the general character of management, the volume of
business, the capital structure, earning prospects for the insurers and that the
interests of the general public will be served if registration is granted to the
insurer.

Foreign insurance companies have been allowed to have a maximum 26% share
holding. No life insurance company can be registered under the Act unless they

57
have a paid up capital of Rs. 100 crores. Every life insurer shall deposit with the
reserve bank of India one percent of the total gross premium written in India in
any financial year, not exceeding Rs. 10 crores.
This amount would not be susceptible to any assignment or charge nor would it
be available for the discharge of any liabilities other than liabilities arising out
of policies issued, so long as any such liabilities remain undercharged.

b. Investment of Assets:-
Every insurer is required to invest, and keep invested, assets equivalent to not
less than the net liabilities as follows:
(a) 25 % in government securities,
(b) a least 25% of the said sum in government securities or other approved
securities and
(c) the balance in any approved investment rated as “very strong” or more by
reputed rating agencies, which include various debt instruments on which
dividend on its ordinary shared for the five years immediately preceding or for
at least five out of the six or seven years immediately preceding have been paid
and which have priority in payment over ordinary shares of the company in
winding up.

The IRDA may in the interest of the policyholder’s directions relation the time,
manner and other conditions and investments of assets to be held by an insurer.
The IRDA may also direct the insurer to realize the investment, if it sees the
investments to be unsuitable or undesirable. The Act prohibits an insurer from
directly or indirectly investing policyholder funds outside India.
Further, every insurer has to always maintain an excess of the value of his assets
over the amount of his liabilities of not less than Rs. 50 crores in the case of an
insurer carrying of life insurance business. If at any time an insurer does not
maintain the required solvency margin, he is required to submit a financial plan,

58
as per directions issued by the IRDA, indicating a plan of action to correct the
deficiency within three months.

In order to ensure that the company does not risk the money of the
policyholder’s, the Act provides that an insurer who does not comply with the
aforesaid provisions may be deemed to be insolvent and may be would up by
the court.

Insurers are required to get an actuary to investigate the financial conditions of

the life insurance business including a valuation of liabilities every year in order
to ensure continual compliance.
In order to maintain transparency in its dealings, insurers would have to keep
separate account relating to funds of shareholders and policyholders.

c. Consequences of non-compliance: -
A company failing to comply with the act shall be liable for panel action.
Further, IRDA is empowered to investigate into the affairs of the company.
Failure to comply with the directions may lead to cancellation of the license for
the company.
Also, if the IRDA has reason to believe that a company is doing business in a
manner likely to be prejudicial to the interest of policyholders, it is required to
report to the central government.
The central government may base on the report, appoint an administrator to
manage the affairs of the company. This would act as a further assurance to the
consumers, as their interests would at all times be a priority and that in the event
that the company acts in the manner prejudicial to their interests, than an
administrator would be appointed to serve their needs.

59
The court may also wind up the company if it fails to deposit or keep deposits as
per the requirements of the act or if the continuance of the company is
prejudicial to the interest of the policyholders or public interest. But an
insurance company cannot be wound up voluntarily or on the grounds that by
reasons o its liabilities it cannot continue its business, except for the purpose of
affecting an amalgamation or a reconstruction of the company. Therefore, a
company after issuing a policy cannot escape liability by seeking voluntary
winding up.

The four amendments, made in the life insurance Bill by the Lok Sabha, are as
under:
1. The Insurance Regulatory and Development Authority should give priority to
health insurance.
2. Policyholder’s fund will be invested in the social sector and infrastructure.
The percent may be specified by the IRDA and such regulations will apply to all
insurers operating in the country.
3. Insurers will be expected to undertake a certain percent of business in rural
areas, and cover workers in the unorganized and informal sectors and
economically backward classes.
4. In the event of insurers failing to fulfill the social sector obligations, a fine of
Rs. 25 lakh would be imposed the first time. Subsequent failures would result in
cancellation of licenses.

3. TARIFF ADVISORY COMMITTEE:

The tariff advisory committee established under the Act is empowered to
control and regulate the rates, terms, and etc. that may be offered by insurers in
respect of any risk or of any category of risks. It is provided that in fixing,
amending or modifying such rates etc. the committee shall try to ensure as far as
possible that there is no unfair discrimination between risk of essentially the

60
same hazard and also that consideration is given to past and prospective loss
experience. Every insurer is required to make payment to the TAC of the
prescribed annual fees.

i. TAX POLICY AND INSURANCE SECTOR:

Another factor, which affects the insurance sector, is the tax policy. The tax
reforms in India are such that it encourages the citizens to invest in the
insurance sector.
The tax policy of the government is particular relevant for life insurance which
is a long-term contract and inculcates among the policyholders the habit of
saving.

Taxation of returns on investment influences, investment decisions and high

rates of taxation will discourage the desire to save. Already in India there are
complaints that the rates of return on life policies are not what they could be.
Therefore tax incentives play a vital role in determining the attractiveness of
such policies. Such tax breaks are available in many countries and have helped
in the development of their life sector.

In western countries the gain from the proceeds of a life insurance policy is paid
free of tax. Provided the policy satisfies certain qualifying conditions. Non-
qualifying policies get basic rate tax relief, though higher rate taxpayers may
still have to pay tax on the gain, although at a reduced rate. The insurance
companies can use such tax concessions rate. The insurance companies can use
such tax concessions to design products for different categories of taxpayers.

The other factors, which affect the insurance sector, are the employment law,
and government stability. These are the factors, which affect the insurance
industry.

61
ii. INVESTMENT DECISIONS MANDATED BY GOVERNMENT:
Insurers are required to fulfill certain social commitments as well. As many of
the social welfare measures companies are not just regulated, but have been
mandated to hand over a portion of their funds to the state for investment in
infrastructure and for social development through government bonds and
securities. In India, the pattern was, accordingly, prescribed in great detail by
the government. This was not in the form of guidelines, but as a legal obligation
under the insurance Act, 1938.

Pattern of investment specified for life insurance:

62
II.] ECONOMICAL FACTORS AFFECTING LIFE
INSURANCE INDUSTRY

Interest rate at bank and interest rate of P.F variation very much affect to life
insurance industry, because people always attract by higher return. Therefore,
they do not prefer lower return policy. Unemployment also affects insurance
industry, because the unemployment people will not have earning, so saving
also affect to life insurance sector Life insurance industry will directly affected
by Earthquake, Monsoon, and Natural calamity. Because of these events turns
into lots of death, so the life insurance companies have to pay claim against
policy. Infant mortality rate and maternity mortality rate are also affecting to
life insurance. Typical Indian want luxurious product against low income, so
that they prefer installment or annuity (EMI), so that they may not have extra
saving to invest in life insurance.

1. Adequacy of capital:
Capital adequacy is a matter of attention in view of the nature of the life
insurance business, where in the case a contingency arises, the insurers should
be in a position to meet its long-term contractual obligations and pay up the
dues or claims. In that sense, life insurance is a capital-intensive business and
must be backed by an adequate capital base on the part of the owners and the
companies should not be running their business purely on other people’s money.
So minimum start up amounts and long running capital adequacy norms are
absolutely essential, in consideration of this, the Malhotra committee suggested
and subsequently the IRDA stipulated a minimum capital base of Rs 1 bn for
any entity wanting to enter the life insurance business.

63
2. Increased Economical Activity:
Although economic activity has slowed down since 1996, sooner or later there
will be an upswing. The increase in the growth rate in various sectors
accompanied by the growth in trade in the context of fulfilling of commitments
to the WTO will signal a growth in the demand for insurance covers of new
types.
For example, aviation insurance cover will be on an increasing scale in view of
the need for more frequent air travel for men and for transporting materials.
This would necessitate substantial property, liability and personal insurance. As
far as cover against business interruption is concerned, the pace of business and
of change today is so fast that even the most careful assessment of exposure
time, and the most liberal coverage cannot protect the insured adequate in the
event of a loss be on the increase and insurance companies cannot afford to
ignore the vast potential in this business.

3. Interest Rates: -
During the last years the government has rationalized interest rate creates better
business opportunities for the life insurance sector because the substitute
products are graded lower by the customers. On the other hand the value of the
holdings of the insurance companies will increase.
Rationalized of the interest rates is still expected, and it is an opportunity for the
company.

Low interested rates mean low investment return for reinsures causing negative
impact on their overall net profitability as pricing is to a certain extent sensitive
to interest rate fluctuations. The negative impact therefore, lead to higher
pricing level for reinsures in order to sustain their profitability. But, in
reinsurance market, which is characterized by over capitalization a resulting
intense competition.

64
The opportunity for such rate increases practically remains very slim and even
non-existent. As a result, reinsures are under tremendous pressure to cut their
operational cost to safeguard profitability. Furthermore, low interest rates
discourage and even prevent any outflow of capital from reinsurance business to
capital markets, causing current over capitalization in reinsurance market to
continue.

A positive outcome is that low inflation rates, if sustained for a considerable

period, usually bring some relief to reinsures from the resulting lower than
forecast claims payment. Also, this can lead stability to reinsures administrative
cost.

As interest rates fall, bond value rise, and insurers feel richer. On the liability
side, reserves are not explicitly discounted so lower interest rates do not
increase reserves, lower inflation means lower expected future claims payments
which lowers required reserves. This in turn increase surplus, again allowing
insurers to feel richer.
Therefore, low interest rates and low inflation result in higher assets, lower
liabilities hence greater surplus and greater risk capacity resulting in less
demand for, and greater surplus of reinsurance.

Low interest rates and low inflation reduce the ability of reinsures to off set
technical losses by using financial products and should, as a consequences,
force market competition downloads. However, this will also serve to weaken
the balance sheets of insurers and create an increase in the demand for balance
sheet protections.

65
Lastly, these conditions move risk from the liability side of the balance sheet to
the asset side while actually generating new needs for cover.

4. Inflation rate: -
Inflation can also be one of the causes to change the scenario of the insurance
sector. High inflation for instance, would tend to reduce the insurance business,
particularly life, because the real value of the money paid back to the
policyholder on maturity of the policy would go down and would, therefore,
lose its attraction for the investor. At the most, the insuring public may prefer
pure risk plans (terms insurance), which have a low premium outlay.

The response to an inflationary situation will depend on what benefit the insured
is looking for. In a situation of high inflation, clients would prefer policies
where the savings portion is periodically returned while the risk portion is
maintain for the duration of the contract. Those who prefer risk protection are
likely to opt for long term policies, which may also be preferred because they
are likely to be low premium policies.

A flexible system, under which the sum insured, is increased from time to time
so that the real value of the cover is maintained, and could give a boost to the
market under conditions of high inflation. Fortunately, the rate of inflation in
India has been contained to less than 5 percent for a fairly long time and unless
it goes out of hand, it is not likely to dampen the market.

5. Market related factors:

These are the factors, which governs the entire life insurance sector. This
includes internal as well as the external factors. We have seen the various
factors like technological, economical and will see the political and government

66
factors, environmental factors and competitive analysis of insurance sector in
the next session.

These all factors have changed the trend of life insurance sector, which is shown
in the following figure.

From the above figure we can see that strength of the insurance product’s brand
is very important aspect for the success in this sector. Of course you should
have strong distribution channel without which growth is not possible.

6. Customer satisfaction: -
Since the customer is the focus of any service industry, every such industry
continuously strives for greater variety and better quality of products,
improvement in its delivery system, cost effectiveness, easy access, and quick
response to perceived needs – in short qualitatively superior service. Indian life
insurance companies already have a sizable line up of the products. The

67
difference between them and the foreign operators perhaps lies in the service
provided, because there is still not enough concern on the part of the Indian
companies, with customer satisfaction, on time renewals, claims settlements,
etc. if high standards have been achieved else where, it is not impossible to
attain the same in India too.

The concept of “sales” is now redefined as a long – standing relationship. The

relationship does not end with the conclusion of the transaction, but has to be
durable and of a long term nature. Hence, improved in performance of the
company will not be synonymous with only basic cost reduction or larger
business, but the new measure of performance will be set in terms of service to
the customer. One can anticipate greater insistence from pressure groups like
customer forums to keep customer satisfaction at the top of the list of priorities
of the insurers.

III.] SOCIO-CULTURAL FACTORS AFFECTING LIFE

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INSURANCE INDUSTRY:

The basic social factors that affect the life insurance sector are as under: -
 Population
 Life style
 Educational level
 Level of earning
 Societal benefits

These are the major social factors, which affect the life insurance sector. We
will discuss all of them in brief:

i.) Population:
Growth in the population is a major factor pushing up the demand. It is also
going to exert a special influence on the life insurance market in other ways.
Apart from exerting pressure on demand for goods and services, and through
that, ill effects of uncontrolled growth of population also could spur the growth
of demand. For example, overcrowding in public places of entertainment, public
support, or too many vehicles on the road can result in hazards like stampedes
and pollution, which require covers and still are not sold on a large scale today.
Thus the positive as well as the negative aspects of population growth are going
to spur demand.

ii.) Life style:

The peculiar lifestyle of a country or an age also influences the insurance
business. Change therein produces different demands for life insurance. For e.g.
All over the world, family size is shrinking and the fact that in decades to come,
both presents are more frequently likely to work outside the home will mean
that there could be a greater possibility of property loss. Similarly, a larger

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number of vehicles on the roads for people commuting to their jobs or business
would mean larger incidence of accidents. This will increase the demand for life
insurance products.

Of course, there is also the other possibility that wherever it is possible, some
people will try to spend a part of their time working at home either because they
would like to be with their families or because they find it more convenient.
Activities like life insurance and financial services are particularly well suited
for such arrangements.

With time becoming scarcer for most people who pack in a full day, there is a
higher demand for convenience and service. Companies will respond by trying
to shorten the transaction time for the delivery of products and services and
creating distribution systems that can reach clients wherever they are and
whenever they want to use them, so as to ensure convenient access to service
providers.

In recent times, there has been a surge in the high end business of the LIC. For
instance, as against 90 policies each worth more than Rs 10 million in 1999-
2000, the number was as high as 900 policies in the next year. Or again, the
number of jeevan shri policies jumped from 88,000 to a total of 2,33,000
policies in the same period.
However, consumer’s behaviour cannot be adequately and accurately predicted.
The younger generation is overwhelmingly influenced by consumerism. If this
trend continues or increases with increasing income, there will be fewer
propensities to save or insure, as a result of which the increasing purchasing
poser may not be reflected in the life insurance market.

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Crumbling social values, the deteriorating law and order situation, the growing
incidence of crime, extortion, abduction, etc., are posing a new category of risks
which need to be covered through suitably designed policies.

iii.) Level of education:

India is one of the developing countries: the level of education is very low here.
The literacy rate is very poor. More than 50% of the population is still
uneducated or more or less not educated. Thus the people are not able to
understand the concept of the life insurance. Among the educated people the
quality of the education is still a big question mark. Thus the awareness is not
created and it has become a big challenge for the industry. Thus one of the
factors, which affect the life insurance sector, is low level of education.

iv.) Level of earning:

Another factor, which affects the life insurance sector, is the level of earning. In
India the rule of 80-20 is working. The 80% of the total population is having the
20% of the wealth and the 20% of the total population is having 80% of total
wealth. Thus the richer are richer and poorer are poorer. Due to this the life
insurance sector is affected very much.

v.) Societal benefits:

In view of the fact that large sections of India have inadequate life insurance
cover, an important social responsibility of the government relates to spreading
it far and wide. In addition, the government attempts to extent life insurance
with certain social obligations in view in both urban and the rural areas through
such means special schemes for the weaker sections, and by tilting of the life
insurance companies’ investments in favour of social developments.

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The social changes emerging in the country provide opportunities for insurers to
sell financial services products such as family health care programmed,
retirement plans disability insurance, long-term care for senior citizens and
different employee benefit plans.

It is not the total population but the insurable population which is material for
the conclusion of potential. Apart from the usual demographic and other well
known factors such as age group, income level, sex wise distribution, and
literacy level, a realistic assessment of this potential has to be based on several
other relevant factors.

Many invisible factors like religious faiths and social values too need to be
considered. As such, there is considerable difficulty in accurately estimating the
potential and crude estimates can be misleading. The estimate will also vary
according to the criteria used to measure if. In principal, every individual is a
potential candidate for life insurance. In reality, financial status limits this
potential, not only because of the practical consideration of the insurable worth
of a person to the insurer in financial terms, but more so due to the prospect’s
capacity to pay life insurance premium after meeting other pressing needs.

Again, there are many practical factor affecting ‘ insurability’ such as old age,
past and present illness, and physical and mental impairments. In addition, the
cost of reaching out to a very large number of customers, if they are dispersed,
becomes important. In that sense, the cost and profitability of exploiting the
potential, which is otherwise attractive, limit the opportunity.

The sheer size of the numbers, therefore is not crucial itself. For assessing the
practical business potential of life insurance, the eligible population needs to be
“Qualified” in relation to other factors including those mentioned above. Thus,

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in the opinion of some experts, out of the population in the insurable age group,
Only the main workers (i.e., excluding marginal workers) with adequate income
may be considered as the actual insurable population.

The population in the age group 15-55 is usually regarded as the insurable
population, since this can be considered as the main “active” age group (in the
sense of working, earning. And supporting others), and beyond this range life
risk may be considered to be not worth insuring. There is one opinion, which
suggests that in our country the age group 15-55 as the base is not totally
suitable. Due to various factors including the unemployment problem, real
earning starts from around the age of 25 for salaried persons.

For others, particularly small entrepreneurs, traders and businessman, the

starting age is a little higher. Only in the affluent sector of society life insurance
can be taken before personal earning starts. Thus, number wise life insurance
below the age of 25 is not so significant (although amount wise it need not be
so). On the other hand, people over the age of 50 rarely apply for fresh life
insurance, mainly because in India the normal retirement age is around 60 years.

Also, a high percentage of the population in the lower income group does not
remain “insurable” after the age of 50. thus, in our country the practical age
range for insurable population actually narrows down to 25 to 50.

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IV.] TECNOLOGICAL FACTORS AFFECTING LIFE
INSURANCE INDUSTRY:

Internet as an intermediary in the current Indian market customer is not aware

about the intrinsic value of insurance. Customers think of insurance only as a
tax saving measure. The security provide by an insurance cover is rarely
thought about. In such a scenario Internet can be an effective medium for
educating the consumers about insurance. It serves as a single window for
disseminating product, process and procedural information to the consumers.

Product development and target marketing through the Internet: with increase in
the number of insurance companies there will be a need for market
segmentation and subsequently product designed for each of them. In such a
scenario Internet can be a effective channel for pushing product specific
information to a particular market segment. Consumer feedback about a
particular product as well as suggestions for different types or covers can also
be generated through the Internet.

Retail marketing is a commonly accepted concept and the providers of the retail
products and service will try out for larger market and market share. There
would be cut through competition and the real benefit would be to the
customers in terms of better products, distribution, pricing, post transaction
service and technology.

Technology will perhaps be the single largest driver of the retail thrust. The
entire strategy will evolve around the absolute ability of the organization. The
customer will demand for greater convenience of excess to the product/ service
and all at low cost of delivery. Therefore the use of technology and specifically
the Internet with realigned strategies would be one of the key factors to success.

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Constraints of locations, timing and accessibility would not be a hurdle for
either customers or businesses.

a.) Maintaining the database

The most important factor that is effecting the insurance industry is the
marinating the database of the customers. The insurance industry having a huge
list of the customers. In order to maintain it in manual format it is really the
work of stupidity. With the change in time the computers has taken the work of
this things. Thus with the development of the technology it has becoming
possible to maintain such huge database very easily. A person can switch over
to the computer and get the details of the customer very easily. Thus
maintaining the database has really become easy due to the development in
technology.

b.) E-business insurance in India: -

The Internet has played a vital role in transforming the business of the 21st
century. Computers are now being used extensively for creating a storing data,
information with the help of complex and sophisticated technological tools in
every kind of business. This change having been widely accepted, the
advantages are numerous such as fast processing improved. Efficiency, cost
reduction among several other benefits.

However, with every positive change, there is an evil attached and technology is
no exception. In technical is an evil attached and technology is no exception. In
technical terms, increased sophistications of technology brings with it, an
increased factor of risk involved. The risk can be of various attributes, for
example, the risk of data being lost due to a virus attack, the theft of important

75
and confidential information and so on, which ultimately results in losses for the
business entity.

With this change in the business process, insurers have to devise new methods
for assessing, underwriting and servicing claims for the so-called e-business
insurance.
Insurers face challenges to ascertain risks, in order to quantify them because
such risks don’t have any past data, which makes it all the more difficult for
actuaries.
Moreover, what financial impact a particular risk can have is very difficult to be
determined. For example, if some hackers obtain credit card information of few
customers, it’s a loss for banks, their credibility, customers and also their brand.
Will an insurance policy cover all of this is million dollar question hence; the
difficulty is to design a cover first of all, which really answers the needs of
customers. But even after designing and pricing such products with difficulty,
the challenge to underwrite and handle claims for such policies remains
existent.

c.) Impact on distribution channels: -

Distribution channels are the most important part of the insurance industry. The
scenario is continuously changing in this industry. In future the customers are
expected to be more technology – oriented, better informed, more
knowledgeable and more demanding. The insurers will have to offer all types of
channel to customer and it is the customer who will have the right to choose the
channel suiting him/ her.

Dual income families with young children, singles with long working days and
flexi-timers all demand high level of sophistication and ease when it comes to
service. Hence the companies have to be very careful and cautious in catering to

76
the needs of these customers who provides a good amount of business to the
insurers.
Thanks to the technological advancement and increased de regulation and
sophistication, the carriers and producers can now reach the customers in
different ways as has been proved in the US market and other developed nations
the web is extensively used for the access of information but when it comes to
the purchase of policy, the offline mode is preferred. The private players in
India seems to have identified this and have put substantial information on there
websites regarding policies, quotes and contact information among other routine
stuff.

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 MICHAEL PORTER’S FIVE FORCES MODEL

1. Threat new entrants: -

The future of life insurance market scenario will be marked by the active
presence of many international players, beside several Indian players. As far as
life insurance industry there would be fewer entries due to more specialized
firm with lower expenses ratios and better capitalization.

􀂾 Threat of entry is determine by the entry barriers which act to prevents firms
from entering the industry. In life insurance industry entry barriers is moderate
so that it becomes profitable, it attracts new entrants, thereby increasing the
number of competitors.

􀂾 The Indian market is highly brand oriented, it is difficult to introduce new

brand.
The acceptability of new brand is also very low.

􀂾 The capital requirement in life insurance is Rs. 100 crores, which attract more
companies to invest in. promoters, can hold paid up equity capital up to 26% in
an Indian insurance company. In case promoters hold more than 26% of the
paid up equity capital, they shall divest the excess shares in the phased manner
within a period of ten year.

􀂾 Tax exemption structure makes the industry attractive.

􀂾 High level of competition in life insurance industry become giant player

came into the market.

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􀂾 High profit in life insurance industry act as a magnet to firms outside the
industry motivating potential entrants to commit the resources needed to hurdle
entry barriers.

􀂾 But again due to potential market, private giants and international player try
to enter in to the market in the large scale with their proper homework with
customized and products too. An Indian private are well – developed and has
capacity to face challenges, foreign companies foresee good prospects for new
business by alliances and partnership with domestic outfits .

􀂾 Registration: Every insurer is required to obtain a certificate of registration

from the controller of insurance. The registration is required to be renewed after
a period of three years.

􀂾 Economies of scale: Economies of scale is difficult to find in the initial stage

of entry into the market because of experience as evidence by the theory of
experience curve.

􀂾 Legislation or government action: special permission is required from the

government to enter in the insurance sector. With the tariff advisory committee
to control the rates, rules and regulation, and with the control of IRDA and the
government’s attitude to serve to the needs of the people with social objectives,
the multinationals may face breathing and developmental problems.

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2. Bargaining power of buyer: -

􀂾 Now a day competition is increasing in the each and every sector, and as a
competition in the market increase the bargaining power of the buyer will get
increase. So buyers bargaining power is high.

􀂾 Market is highly segmented.

􀂾 Buyers in this industry are very return oriented and it switches easily.

􀂾 The switching cost of buyer over brand or close substitute products: The life
insurance industry has the uniqueness of providing risk protection, which does
have any substitute. Thus the switching cost has no place. As far as the
substitute products are concerned they are providing the service of saving and
tax benefits but still they lag in the risk coverage factor.

􀂾 If buyers buy insurance then switching cost become high. High switching
cost creates buyers lock in and makes a buyer’s bargaining power.

􀂾 Buyers have a strong competitive force when they are able to exercise
bargaining leverage over premium, service or other terms of sale.

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3. Bargaining power of Suppliers: -

􀂾 Policy designer tend to have less leverage to bargain over premium and other
terms of sale when the company they are supplying a major customer.

􀂾 Suppliers bargaining power increase if reduced administrative cost and also

reduced claim procedure time.

􀂾 Insurance is tax exempted so that suppliers bargaining power increases.

􀂾 Suppliers then have a big incentive to protect and enhance their customer’s
competitiveness via reasonable premium, better service and on going advances
in the technology of the item supplied.

􀂾 Supplier’s ability to integrate forward: the private players can integrate

forward to increase the volumes of business by providing customized and tailor-
made policies whereas existing players whereas lack on this point.

􀂾 Brand identity: there is certainty among the minds of people in relation to

existence and payment of claims from the existing players whereas the solvency
of private players is not certain.

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4. Threat from Substitutes:-
Life insurance sector can be featured in three factors. They are saving, risk and
tax benefit.

SAVING:
As far as saving are concerned, Existences of a large number are saving through
PPF, EPF. Most of customer saving their money in bank, post deposit. Many
customers invest their money in share market, purchase Gold & Silver also.

The substitute products for the industry are as follow:

Term deposits in bank (5.25-8 %)

Investment in government securities. (4-5%)

Money market investment (for corporate)

Capital market (around 13% p.a. for developing country like India)

There is threat of increasing market potential of NSC, Government debenture

etc.

If investments in insurance policies are made with the objective of tax benefits
then there are other investment avenues, which offer similar benefits.

RISK COVERAGE:

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For risk coverage, there is no close substitute of the products. The risk
protection is provided by this sector only. No other instrument provides
assurance against risk.

TAX BENEFIT:

There are various substitute of this feature of life insurance. Some of the
substitute which provides tax benefit is:
• PPF
• NSE
• POST OFFICE SECURITIES.
• INVESTMENT IN THE MUTIAL FUND.
• OTHER TAX SAVING INSTRUMENT.

Thus these are the substitute of the life insurance industry. But the core
competency of this sector is the risk protection providing capacity, which no
other sector can provide.

5. Rivalry among the exiting player:

As a result of privatization competitive conditions will prevail in which entry of

companies buyers will exercise control.

There is cut- thought competitions among rivals in life insurance industry.

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There are mainly 13 private organizations and one public organization in life
insurance competition.

The insurance sector is showing high market growth rate, which enables the
insurance companies to achieve its own market growth through the growth in
market place. As per the study conducted by the monitor group, the size of the
Indian general insurance market was of the order rs.10000 crores in 2001. The
annual growth rate is expected to be 15%.

All the insurance companies deal in identical policies, as service levels offered
are similar. Hence, there is no product differentiation.

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 SWOT ANALYSIS

Strength

Risk protection is provided by this sector only.

Insurance having currently good market.

Tax exemption.

The variety of products is increasing.

Insurance to build close relationship with customers.

Weakness

Unable to convince people about the products.

Insurance companies instability

Limited working capital

Products or services similar to competitors.

Opportunities

Technology is improving paperless transaction are available.

Busy life, customer need flexible and customizable policies.

Like mobile banking mobile insurance could be a hit.

New innovations in technology-measuring weather variables.

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Threats

Weather cycles.

New substitute product emerging.

Increasing expenses and lower profit margins with hard on the smaller agencies and
insurance companies.

Government regulations on issues like health care terrorism can quickly change the
direction on insurance.

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 Projected Future Prospects: Market Share

Estimating the potential of the Indian insurance market from the perspective of
macro-economic variables such as the ratio of premium to GDP, Assocham
Papers reveals that India’s life insurance premium, as a percentage of GDP is
1.8% against 5.2% in the US, 6.5% in the UK or 8% in South Korea. 

Assocham findings reveal that in the coming years the corporate segment, as a
whole will not be a big growth area for insurance companies. This is because
penetration is already good and companies receive good services. In both
volumes and profitability therefore, the scope for expansion is modest. Survey
suggested that insurer’s strategy should be to stimulate demand in areas that are
currently not served at all. Insurance companies mostly focus on manufacturing
sector, however, the services sector is taking a large and growing share of
India’s GDP. This offers immense opportunities for expansion opportunities. 

Being an agrarian economy again there are immense opportunities for the
insurance companies to provide the liability and risks associated in this sector.
The Paper found that the rural markets are still virgin territories to a great extent
and offer exciting opportunities for insurance companies. To understand the
prospects for insurance companies in rural India, it is very important to
understand the requirements of India's villagers, their daily lives, their peculiar
needs and their occupational structures. There are farmers, craftsmen, milkmen,
weavers, casual labourers, construction workers and shopkeepers and so on.
More often than not, they are into more than one profession. 

The rural market offers tremendous growth opportunities for insurance

companies and insurers should develop viable and cost-effective distribution
channels; build consumer awareness and confidence. The Paper found that there
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are a total 124 million rural households. Nearly 20% of all farmers in rural India
own a Kissan Credit cards. The 25 million credit cards used till date offer a
huge data base and opportunity for insurance companies. An extensive rural
agent network for sale of insurance products could be established. The agent
can play a major role in creating awareness, motivating purchase and rendering
insurance services. 

There should be nothing to stop insurance companies from trying to pursue their
own unique policies and target whatever needs that they want to target in rural
India. Assocham suggests that insurance needs to be packaged in such a form
that it appears as an acceptable investment to the rural people. In the near future,
when we’ll see more innovations in agriculture in the form of corporatization or
a more professional approach from the farmers’ side, insurance will definitely
be one option that the rural Indian is going to accept. 

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 Conclusions

India is among the important emerging insurance markets in the world. Life
insurance will grow very rapidly over the next decades in India. The major
drivers include sound economic fundamentals, a rising middle-income class, an
improving regulatory framework and rising risk awareness. The fundamental
regulatory changes in the insurance sector in 1999 will be critical for future
growth.

Despite the restriction of 26% on foreign ownership, large foreign insurers have
entered the Indian market. State-owned insurance companies still have
dominant market positions. But, this would probably change over the next
decade. In the life sector, new private insurers are bringing in new products to
the market. They also have used innovative distribution channels to reach a
broader range of the population.

There is huge in the largely undeveloped private pension market. The same is
true for the health insurance business. The Indian general insurance segment is
still heavily regulated. Three quarters of premiums are generated under the tariff
system. Reinsurance in India is mainly provided by the General Insurance
Corporation of India, which receives 20% compulsory cessions from other
general insurers. Finally, the rural sector has potential for both life and general
insurance. To realize this potential, designing suitable products is important.
Insurers will need to pay special attention to the characteristics of the rural labor
force, like the prevalence of irregular income streams and preference for simple
products.

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 BIBLIOGRAPHY

 www.irda.com
 http://www.bajajallianzlife.co.in/
 http://www.reliancelife.com/rlic/index.aspx
 www.sbilife.co.in
 www.moneycontrol.com

 http://www.iciciprulife.com/public/Life-plans
 http://www.globalsurance.com
 www.economywatch.com

 http://economictimes.indiatimes.com/Personal-Finance/Insurance
 www.financialtimes.com
 www.thehindubusinessline.com

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