Académique Documents
Professionnel Documents
Culture Documents
CHAPTER 1
INTRODUCTION
Insurance sector reform has become one of the most contentious issues
in Indias economic reform process. Unlike in the banking sector, which has
seen both greater competition and a better regulatory framework since the
submission of the report by the first Narasimham Committee in 1992, the
insurance sector continues to defy and stall the course of financial reforms in
India. It continues to be dominated by the two hedgemons, Life Insurance
Corporation of India (LIC) and the General Insurance Corporation of India
(GIC), and is marked by the absence of a credible regulatory authority.
The first sign of government concern about the state of the insurance
industry was revealed in the early nineties, when an expert committee was set
up under the chairmanship of late R.N.Malhotra. The Malhotra Committee,
which submitted its report in January 1994, made some far reaching
recommendations which, if implemented, could change the structure of the
insurance industry. The Committee urged the insurance companies to abstain
from indiscriminate recruitment of agents, and stressed on the desirability of
better training facilities, and a closer link between the emolument of the agents
and the management and the quantity and quality of business growth. It also
emphasised the need for a more dynamic management of the portfolios of these
companies, and proposed that a greater fraction of the funds available with the
insurance companies be invested in non-government securities. But, most
importantly, the Committee recommended that the insurance industry be opened
up to private firms, subject to the conditions that a private insurer should have a
minimum paid up capital of Rs. 100 crore, and that the promoters stake in the
otherwise widely held company should not be less than 26 per cent and not
more than 40 per cent. Finally, the Committee proposed that the liberalised
insurance industry be regulated by an autonomous and financially independent
regulatory authority like the Securities and Exchange Board of India (SEBI).
Subsequent to the submission of its report by the Malhotra Committee,
there were several abortive attempts to introduce the Insurance Regulatory
Authority (IRA) Bill in the Parliament. While several political parties were
against the very idea of allowing private firms to enter the insurance industry,
others were unsure about the extent of the stake that foreign investors/firms
should be allowed to have in the post-liberalisation insurance companies.
However, it was evident that there was broad support in favour of liberalisation
of the industry, and that the bone of contention was essentially the stake that
foreign entities was to be allowed in the Indian insurance companies. In
November 1998, the central Cabinet approved the Bill which envisaged a
ceiling of 40 per cent for non-Indian stakeholders: 26 per cent for foreign
1
vulnerable to risks that are associated with risk management. Further, owing to
changes in the nature of their products, they are increasingly becoming
vulnerable to the risk that is usually associated with banks and non-bank
financial intermediaries, namely, mismatch of assets and liabilities. While not a
significant amount has been written about the experiences of the emerging
markets, the US experience suggests that even in a developed financial markets
with provisions for supervision, insurance companies can become insolvent
and/or face runs. Since the viability of insurance companies is a necessary
condition for the emergence of a robust insurance industry, it would be
imprudent to ignore the impact that market forces might have on the aforesaid
viability.
This paper will trace, in brief, the experience of the US insurance
industry over the decades. First, it will introduce the readers to the
organisational forms that dominate the structures of the life and non-life
insurance companies. Next, it will highlight the factors that most affect the
health of these companies, and the role that regulations might play in
determining the eventual outcome. Finally, in the light of the above discussion,
it will provide a backdrop for a more meaningful discussion about the
liberalisation of the insurance sector in India.
CONCEPT OF INSURANCE
In our daily lives, there is a risk involved when there is uncertainty.
Instinct of security against such risks is one of the basic driving force for
determining the attitude of human beings. You must as a sequel of this quest, the
concept of insurance has been born for security. Urge to provide insurance and
protection against loss of life and property, you must have been promoted to do
some sort of people willing to sacrifice the cooperation of the population, to
achieve security. In this sense, the story of insurance is probably as old as the
story
of
mankind.
Life insurance, against the risk of premature death of its members to earn
income, especially to provide protection to home. Life insurance is also modern,
provides protection against the risk of (health insurance) and disease and
disability (i.e. risk of outliving source of income) of such risks, such as livingrelated and other longevity. The product is to provide a longevity annuity and
pension (insurance against old age). Non-life insurance provides protection
against accident liability, property damage, and other theft. Compared to the life
insurance contract, non-life insurance contract, the duration, but typically
shorter. In the bundle, is peculiar of life insurance coverage risks and Ministry
together. To provide both life insurance and investment protection.
Insurance is good news on the business problem. Insurance, which provides
short and long-distance relief. Short-term relief, by distributing the loss among
large numbers of people through the medium of Risukubeara specialty, such as
the Insurance Company, and is intended to protect the insured from loss of life
and property. Therefore, to enable business people to face the unexpected loss
of, he need to worry about the possibility of loss is not available. The object for
which long-term growth of the country's economic and industrial investment of
funds by insurance companies with a huge organizational and commercial
industry to be able to use.
CHAPTER 2
EVOLUTION OF THE INSURANCE INDUSTRY
Pre-Liberalisation
The Indian Insurance Industry is as old as it is in any other part of the world.
There were a number of foreign and Indian insurers operating in the Indian
market. Regulations were passed to regulate the Indian insurers but not the
foreign companies providing insurance services in India. However these
legislations became insignificant with time and the Government nationalized
the sector in 1956 by combining about 250 Indian life insurance companies to
form a single firm- the Life Insurance Corporation (LIC) of India who was the
sole provider. Thus the industry was transformed from a competitive one to a
highly regulated monopoly. The reasons behind the nationalisation decision
included the Governments need to channel more resources towards national
development programmes, to increase insurance market penetration through
nationalisation and to protect the interests of the policy holders from failures
which were the result of mismanagement. It was also felt that the
nationalisation of this sector would lead to more effective mobilisation of funds
to enable capital to be allocated to development projects.
With the Government of India implementing the New Industrial Policy in
FY91, under which the Indian economy was opened up to foreign investment,
sectors such as banking and finance were reformed. The liberalisation of the
Indian economy also forced policymakers to review the policies governing the
Indian Life insurance industry. In Apr 93, the government of India appointed
the Malhotra Committee on Reforms in the Insurance Sector. The Committee,
which submitted its report in Jan 94, recommended that the insurance sector in
India be opened up to private players. It was felt that customer service,
insurance coverage and allocation of resources needed to be improved within
the industry. Also more innovative products were needed to suit varied
customer needs and to change the attitude of people towards insurance.
Opening up the insurance sector resulted in the passage of two legislatures.
These were the Insurance Regulatory and Development Authority (IRDA) Act
in FY99, which would make IRDA the statutory regulatory body and
amendment of the LIC and GIC Acts, which would end their respective
5
monopolies. With the passage of the IRDA Act the Indian Life insurance
industry was liberalized in FY00 with the aim of increasing competition in the
industry and to tap the vast potential it provided.
Post Liberalisation
Since opening up the sector, the Life insurance market in India witnessed
dynamic changes including the entry of a number of global life insurers that led
to increased competition in the Indian Life insurance market. As a result, first
year premium (single as well as regular) in the life insurance industry (LIC as
well as private players) registered significant growth in the last eight years
(FY02-FY09); from Rs 198.6 bn in FY02 to Rs 871.08 bn in FY09. Intense
competition has also forced the life insurance industry to improve its
underwriting and risk management abilities that has greatly benefitted the
policyholders. Moreover, customers today are more conscious of the need for
risk mitigation and greater security for the future such as retirement plans. Life
insurance companies have been quick to recognize the larger need for
structured retirement plans and have leveraged their abilities of long-term fund
management towards building this segment.
continuing to rise. By the end of Mar 08, there were eighteen life
insurance companies operating in India. Subsequently, Aegon Religare
Life Insurance Company Limited, Canara HSBC Oriental Bank of
Commerce Life Insurance Co. Ltd and DLF Pramerica Life Insurance
Company Limited were given Certificate of Registration by the
Authority. The number of offices of the Life insurers has also increased
dramatically during the year FY08 from 5,373 at the beginning of the
year to 8,913 by the end of the year, showing a growth of over 65%. A
major portion of this expansion was in the private sector whose offices
more than doubled from 3,072 to 6,391. LICs offices increased at a
more modest 10% from 2,301 offices to 2,522.
2) Unit-Linked Insurance Plans:
In the life insurance segment, various unit linked insurance plans
(ULIPs) have been introduced by private players, which helped them to
compete against LIC and also create a clientele comprising of
individuals who are willing to opt for these plans for purely investment
purposes. Since these unit link plans have been developed keeping in
mind the various investment needs of the consumers, these products have
become very popular. Since liberalisation, the growing popularity of
ULIPs has been a key factor behind the growth in private sector life
insurers. In fact, more than half of the premium income of private
companies in the life insurance segment is contributed by these unitlinked plans. Even today, unit linked insurance products continue to
dominate most private players portfolio and the proportion of business
coming from ULIPs remains large. From a growth rate of 82.3% (y-o-y)
in total private life insurance business in FY06, ULIPs registered a
growth rate of 90.3% (y-o-y) in FY08. Traditional policies like term
products and endowment based products form a relatively small
proportion and remains small.
5) Insurance Penetration:
Expansion of business by private life insurance players in uncovered
market has been the main reason behind Indias increased insurance
penetration. Through the development and effective use of new
distribution channels (eg. bancassurance), Life insurance players have
been able to target previously uncovered markets. This in turn has
contributed to an increase in the level of penetration. Total Life insurance
penetration (premiums as a percentage of GDP) in India was 1.5% in
1990 and was not much higher by the middle of the decade. However,
Life insurance penetration in India improved since liberalisation in 2000.
From 2.15% in 2001, Insurance penetration rose to 2.59% in 2002 before
declining to 2.26% in 2003. Life insurance penetration rose yet again to
9
2.53% in 2004 and remained at the same level in the subsequent year. A
milestone occurred in 2006 when Indias insurance penetration nearly
doubled to 4.10% before declining marginally to 4.00% in 2007.
However, when compared to other countries, the life insurance market in
India is significantly under- penetrated. India continues to remain way
behind (as on 2007) industrialized nations like UK (12.60%),
Switzerland (5.70%), France (7.30%), South Korea (8.20%) and Japan
(7.50%).
support factor for faster growth in per capita income in recent years,
which translated into stronger demand and spending for and on insurance
products. From spending a mere US$ 9.1 on insurance in 2001, spending
rose consistently over the next six years to touch a high of US$ 40.4.
This 2007 level of spending, while higher than its neighbours (Sri Lanka
US$ 10.2, Pakistan US$ 2.6 and Bangladesh US$ 1.9), continues to
remain far behind most industrial nations like the US (US$ 1,922.0), UK
(US$ 5,730.5), Japan (US$ 2,583.9) and South Korea (US$ 1,656.6) and
just behind China (US$ 44.2). One factor that has been slowing down the
improvement of insurance density is Indias relatively high population
growth rate, which has averaged 1.7% over the past ten years.
11
CHAPTER 3
NEED FOR LIBERALISATION IN INSURANCE
SECTOR
The point that India is a jumbo-sized opportunity for life
insurance need hardly be belaboured. Here is a nation of a billion people, of
whom merely 100 million people are insured. And, significantly, even those
who do have insurance are grossly underinsured. The emerging middle class
population, growing affluence and the absence of a social security system
combine to make India one of the worlds most attractive life insurance markets.
No matter how you look at it whether in terms of life insurance premiums as a
percentage of GDP or premium per capita the market is under penetrated and
people are under-insured.
In a country where there is high unemployment and where social security
systems are absent, life insurance offers the basic cover against lifes
uncertainties. India has traditionally been a savings-oriented country and
insurance plays a critical role in the development of the Indian economy. The
role of insurance in the economy is vital as it is able to mobilize premium
payments into long-term investible funds. As such, it is a key sector for
development.
A brief history
For 43 long years the government-owned Life Insurance Corporation of
India (LIC) held a monopoly. It is only at the dawn of the twenty-first century
that the sector was finally deregulated. Reforms were initiated with the passage
of the Insurance Regulatory and Development Authority Bill in Parliament in
December 1999. The IRDA since its incorporation as a statutory body in April
12
2000 has regulated the opening up of the insurance sector, which has seen 13
life and an equal number of non-life private companies launch their operations
in India.
In India, the decision to liberalize was not easily implemented since there
was resistance to privatization. After all, this would mean:
Ending the government monopoly on mobilizing large-scale funds
LIC, a successful life insurance company, would face the heat;
The foreign insurance companies would come marching in.
That was not all. There were other concerns too. Would new market entrants
hire away all the best employees of LIC? Would the world-renowned foreign
insurers that would enter the market lure current and future Indian
policyholders? How would the citizens of India benefit from liberalization?
What would be the impact on Indias capital markets?
13
CHAPTER 4
BENEFITS OF LIBERALISATION IN INSURANCE
SECTOR
14
The basket of products available to the customer has grown in the deregulated
environment that permits the introduction of the product.
3) Comprehensive risk coverage:
Deregulation has enabled people in India to cover a larger variety of risks.
Earlier people had no option but to buy pre-packaged life insurance products,
which lacked flexibility. Customization, however, has been one of the key
advantages of privatization. Riders have added value to the customers life
insurance needs. Max New York Life was the first company to offer base
products and riders.
4) Customization:
In earlier days, customers could only buy limited pre-packaged products pushed
by agents chasing quick sales. Today customers have access to more and better
products that suit their specific needs and a new breed of insurance advisors has
taken birth. These agent advisors build enduring relationships with their clients
and help them better understand the value of life
insurance and sell customized solutions in a needs-based manner. This higher
quality of sales interaction has been among the key benefits of privatization.
5) Market awareness:
The money that private life insurance companies have spent on establishing
their brands has helped create
awareness about life insurance. Today life insurance brands compete with other
financial services and manufacturing brands for
marketing space.
6) Rapid progress :
In most other markets that opened their economies, new entrants in life
insurance have taken 10 to 12 years to secure a market
share of 10 per cent. In India, however, the progress of private life insurers has
been considerably more dynamic. In less than five years since deregulation,
private life insurance companies have secured 25 per cent of the market share
from LIC. Further the private sector insurers have achieved year-on-year growth
of more than 60 per cent. In the number of new policies too the market
shares achieved by the new players is quite impressive.
In the short period following liberalization, the new private sector insurers
have together introduced more that 200 state-of-the-art products giving the
15
customers a very wide choice indeed. It is this new dynamism that has caused
insurance penetration togrow to 2.2 per cent during the years following
liberalization.
Indeed, life insurance is a very large financial service, a valuable medium
of long-term savings and growing at 24 per cent CAGR.
In addition to the benefits to customers of finding products to meet their
needs, the insurance sector has also created
sizeable job opportunities. Professionalization of insurance selling and new
marketing concepts introduced by foreign players has meant that many more
people are taking to insurance. There are today in India a million insurance
agents and another 200,000 employees.
The introduction of competition from foreign insurers has also served to
wake up the large State-owned company, the Life Insurance Company of India
or LIC. LIC has shaken off slumber, upgraded its systems, embraced actuarial
prudence, and introduced more modern products and withdrawn products that
had inherent guarantees in them.
Foreign participation has created benefits not only for the new entrants, but
also for the players already in the market. While the initial concerns were
focused on how domestic insurers would lose their 100 per cent of the pie, the
market has actually become more like a seven-layer cake. Even with a reduced
market share, the actual number of policyholders has greatly increased.
7) Leveraging globalization:
The restrictive era in foreign investment policy was consistent with a high
level of trade protection and wave of economic nationalism that perceived
foreign investment to mean a loss of sovereignty and foreign acquisitions. India
has put that era firmly
MULTIPLE BENEFITS:
India has traditionally been a savings-oriented country and insurance plays
a critical role in the development of the Indian economy. As one of the three
16
17
CHAPTER 5
ORGANISATIONAL STRUCTURES & THEIR
IMPLICATIONS
19
20
The regulations of New York and other states have also had impact
on the quality of bonds held by the life insurance companies. New Yorks
insurance regulatory laws require that life insurance companies ensure that, for
all bonds purchased by them, the companies issuing the bonds have had enough
earnings to meet debt obligations for the previous five years. The bond-issuing
companies are also required to have net earnings 25 per cent in excess of the
annual fixed charges, and they should not be in default with respect to either
principal or interest payments. Further, regulation of various states impose
quantitative restrictions on the amount of risky bonds that can be purchased
by the insurance companies. For example, in June 1987, New York imposed a
20 per cent limit on the high-risk bonds issued by companies for financing
leveraged buyouts. In June 1991, this regulation was extended to all private
placements and medium grade bonds and, effective 1992, inside limits of 10
per cent, 3 per cent and 1 per cent were imposed on three categories of lowgrade bonds.
Finally, regulations of all states subject the life insurance asset
portfolios to the Mandatory Security Valuation Reserve (MSVR) requirement.
According to this requirement, which came into effect in June 1990, life
insurance companies are required to make mandatory provisions for all
corporate securities. The minimum provisioning, for A-rated and higher quality
bonds, is 0.1 per cent of par value, and the maximum provisioning of 5 per cent
is required for Caa-rated (or equivalent) and lower quality bonds. If the issuer of
a bond goes into default, the relevant loss is adjusted against the MSVR account
rather than against the companys surplus.
The consequence of these regulations has been a significant
increase in the life insurance companies appetite for government securities,
securities issued by government agencies, and mortgage-backed securities.
Indeed, the proportion of assets held in the form of government securities
increased significantly from less than 3 per cent in 1977 to about 12.8 per cent
in 1990, and these treasury securities accounted for 24 per cent of the industrys
bond portfolio. At the same time, at the end of 1990, the insurance companies
held only 6 per cent of their general accounts in the form of junk bonds (rated
B or lower). The total junk bond exposure of the life insurance industry stood at
about USD 60-70 billion, about 5 per cent of the industrys total asset base.
The life insurance industry has clearly benefited from the regulatory
restrictions imposed upon it by the state governments. The regulations have
protected their asset quality and, at the same time, they have been accorded
some flexibility and opportunities for yield enhancement in the form of
separate accounts The experience of the property-liability insurance industry,
on the other hand, is mixed at best. Political correctness on the part of the states
lawmakers have led to regulation of premia on workers compensation and auto
insurance policies in a large number of states. Their actions find support from a
section of the literature on insurance markets which argues that insurance
21
23
constitutes acceptable portfolio quality, and the extent of price regulation hold
the key to insurance regulation in a post-liberalisation insurance market. As the
US experience suggests, insurance companies are usually subjected to stringent
asset quality norms. Indeed, while a part of their portfolio might comprise of
equity, mortgages and other relatively risky securities, much of their portfolio is
made up of bonds and liquid (and highly rated) mortgage backed securities. An
Indian insurance company, on the other hand, is constrained by the fact that the
market for fixed income securities is very illiquid such that only gilts and AAA
and AA+ rated corporate bonds have liquid markets. At the same time, absence
of a market for liquid mortgage backed securities denies these companies the
opportunity to enhance the yield on their investment without significantly
adding to portfolio risk. This might not pose a problem in the absence of
competition, especially if the government helps to increase the returns to the
policyholders by way of tax breaks, but might pose a serious problem if
liberalisation leads to price competition among a large number of insurance
companies.
It might be argued that if the insurance and pension fund industries
are liberalised, and if the fund managers of all these companies indulge in active
portfolio management, the liquidity of the bond market will increase
significantly. Such increase in liquidity across the board would enable the fund
managers to invest in investment grade bonds of lower rating and thereby add to
the average yield of their investment without adding significantly to their
portfolio risk. The problem, however, is that till the imperfect character of the
bond market is removed to a significant extent, the insurance companies might
either have to operate with thinner margins or remain exposed to unacceptably
high levels of liquidity risk. It might, therefore, be prudent for the policymakers
to impose stringent capital and reserve norms on the insurance companies, in
order to ensure their viability in the short to medium run.
Subsequent to liberalisation, the Indian insurance industry might
also be at the receiving end of regulations governing insurance prices/premia.
Specifically, there might be highly politicised interventions in the markets for
workers compensation and medical insurance. The government might also be
under pressure to regulate the prices of infrastructure related lines like freight
and marine insurance. In principle, the risks associated with such liability
insurance policies may be hedged by way of reinsurance. But if the reinsurers
price the risks accurately and the Indian insurance companies are forced to
underprice the risks, the margins of the insurance companies will be affected
adversely, thereby reducing their long term viability. In view of these political
and financial realities, it might be better to subsidise the policyholders of
politically sensitive lines directly or indirectly through tax benefits, if at all,
rather than distort the pricing of the risks themselves.
At the end of the day, it has to be realised that while competition
24
25
CHAPTER 6
NEW DIMENSIONS OF LIBERLISATION OF
INSURANCE INDUSTRY
The world has become a global village. The Liberalisation, Privatization
and Globalisation (LPG) wave has sweeped across the global economies. The
two pillars of India's economic policy before 1991 have been protection and
public sector.
Thus the New Economic Policy 1991 was a departure from the regulated
planned economic tradition to that of LPG movement. After nearly a decade of
intense debate a consensus developed in India for ending the public sector
monopoly in insurance and opens the industry to private sector participants
subject to suitable prudential regulation.
Today, to the credit of combined efforts of both the regulator and industry
players, benefits of insurance are widely acknowledged, public confidence in
the industry has been very much restored and the industry has become more
dynamic. Following the recent reform in the insurance sector, Indian insurance
industry is moving ahead.
The main element in the reform process was the opening up of the
insurance industry in 2000 with foreign direct investment permitted up to 26 per
cent of equity. With this change global insurers have rushed into the country to
capture the market. The reforms have two objectives.
One to capture a vast untapped population under suitable insurance cover.
The second, to create a more efficient and competitive insurance industry and
elevate the performance of insurance companies.
26
1. Higher FDI in insurance sector can give much needed capital for growth
of insurance sector which in turn will help in the long term economic
development.
27
3) Schemes of Micro-Insurance:
1. The Personal Accident Insurance Scheme (PAIS) which is being provided
along with the Kisan Credit Card (KCC) and Rashtriya Krishi Bima
Yojana (RKBY) for insuring crops are the only risk mitigation
mechanism available to rural households.
2. Many State Governments are offering Health Insurance facilities to the
rural poor which have also generated considerable acceptance and
awareness about insurance products in the rural areas.
3. In October 2004 the RBI permitted Regional Rural Banks (RRBs) to take
on insurance business as a "Corporate agent". RRBs have several
branches is rural areas & they can play an important role.
4. In IRDA regulations have certain most innovative features in legally
recognizing NGOS, MFIs (Micro Finance Institutions) and SHGs as
"micro insurance agents". This has the potential of significantly
increasing rural insurance dispersion.
5. A lot of commercial banks have united foreign insurance policies. Thus
banking outlets and Co-operative societies could provide the needed
29
4) Reinsurance:
The term 'reinsurance' stands for the practice whereby a reinsurer, in return of
premium paid to it, indemnifies another insurer for a portion or all of the
liability taken up by the latter due to a policy of insurance that it has issued.
This latter party is called the 'reinsured'. Reinsurance is a type of risk
management involving transfer of risk from insurer to reinsurer.
It works like this- the insurer gives the reinsurer a portion of premium it collects
from the insured and in return is covered for losses above a particular limit. A
reinsurer enters into a reinsurance agreement for a very specific reason- either
the nature of risk insured or the business strategies of the insurer or other
reasons.
It is an independent contract between the reinsurer and the insurer and the
original insurer is not a part of the contract. If the claimant is an individual or
even a group of individuals an insurance company will find it, relatively easy to
cover the claims. But if there are a huge number of claims at the same time and
loss is massive and wide spread this may not be possible. It is in this context
that reinsurance plays an important part in determining the success of the
insurance business.
Reinsurance primary deals with risks that are not predictable and cause the
greatest exposure for the insurance company. A single insurer will not be able to
bear the damaging financial impact of such losses. Therefore an unbearable loss
is broken down into bearable units by risk transfers.
30
5) Merits of Reinsurance:
1. Reinsurance safeguards capital and reinforces stability. In a highly
volatile market it may sometimes be hard to correctly price new products
because of inadequate information. Incorrect pricing could lead to
unanticipated claims that the insurance company cannot meet. If there
were not reinsurance the insurance company would have to settle these
claims out of its own capital therefore reinsurance helps to protect the
solvency of the insurance company.
2. Reinsurance enables the insurer to take up large claims and expand
capacity. In India regulations restricts the insurer from risking more than
10 percent of its surplus on any one risk. Reinsurance provides the
insurance with ability to cover large individual risks and guarantees
timely settlement of the claim.
3. Reinsurance helps insurance company to upgrade itself and insurance
company can benefit immensely by tying up with a successful reinsurer.
The reinsurer can provide important underwriting training and skill
development and share expertise gained from other countries. Since the
success of reinsurer is linked to the profits of the insurance company it
is in the best interest of the reinsurer to measure that the company is
sound. The reinsurer can also contribute to designing the product, pricing
and marketing new products. It can also offer back office support such as
faster claims processing and automation of operations.
4. The insurance buyers are now much more aware of the way the market
works. Increasingly they are demanding high quality insurance products
31
7) Bancassurance:
One of the more recent examples of financial diversification is 'bancassurance'
the term given to the distribution of insurance products through branches or
other distribution channels of banks.
In India the concept of bancassurance appears to be gaining ground quite
rapidly both through commission based arrangements and joint ventures
between banks and insurance companies. There are costs associated with setting
up a successful bancassurance network. The proper training of bank personnel
to understand the market insurance schemes is vital to the success of these
ventures.
32
There is also a need to invest extensively in IT and other support systems that
would provide an integrated backup for banking and insurance services.
Regulatory issues need to be addressed comprehensively and sorted out
particularly with respect to competition and market structure problems. Given
these changes bancassurance and collaboration between banks and insurers has
a long way to go in India.
CHAPTER 7
LIBERLISATION OF INDIAN INSURANCE INDUSTRY
IN INDIA MALHOTRA COMMITTEE
1) Structure :
Government stake in the insurance Companies to be brought down to
50%.
Government should take over the holdings of GIC and its subsidiaries so
that these subsidiaries can act as independent corporations.
All the insurance companies should be given greater freedom to operate.
2) Competition :
Private Companies with a minimum paid up capital of Rs. 1bn should be
allowed to enter the industry.
No company should deal in both Life and General Insurance through a
single entity.
Foreign companies may be allowed to enter the industry in collaboration
with the domestic companies.
Postal Life Insurance should be allowed to operate in the rural market.
Only one State Level Life Insurance Company should be allowed to
operate i each state.
3) Regulatory Body:
The Insurance Act should be changed.
An Insurance Regulatory body should be set up.
Controller of Insurance (Currently a part from the Finance Ministry)
should be made independent.
4) Investments :
35
36
CHAPTER 8
INSURANCE REGULATORY AND DEVELOPMENT
AUTHORITY (IRDA) ACT 1999
37
38
INSURANCE COMPANIES :
IRDA has so far granted registration to 12 private life insurance
companies and 9 general insurance companies. If the existing public sector
insurance companies are included, there are currently 13 insurance companies
in the left side and 13 companies operating in general insurance business.
General Insurance Corporation has been approved as the Indian reinsurer for
underwriting only reinsurance business. Particulars of the life insurance
companies and general insurance companies including their web address are
given below:
LIFE INSURERS
Websites
Public Sector
Life Insurance Corporation of India
www.licindia.com
Private Sector
Allianz
Bajaj
Life
Insurance
Company Limited
Birla Sun-Life Insurance Company
Limited
HDFC Standard Life Insurance Co.
Limited
ICICI Prudential Life Insurance Co.
Limited
ING Vysya Life Insurance Company
www.allianzbajaj.com
www.birlasunlife.com
www.hdfcinsurance.com
www.iciciprulife.com
www.ingvysyalife.com
39
Limited
Max New York Life Insurance Co. www.maxnewyorklife.com
Limited
MetLife Insurance Company Limited www.metlife.com
Om Kotak Mahindra Life Insurance www.omkotakmahindra.com
Co. Ltd.
SBI Life Insurance Company Limited www.sbilife.co.in
TATA AIG Life Insurance Company www.tata-aig.com
Limited
AMP Sanmar Assurance Company www.ampsanmar.com
Limited
Dabur CGU Life Insurance Co. Pvt. www.avivaindia.com
Ltd.
GENERAL INSURERS
WEBSITES
Public Sector
National Insurance Company Limited www.nationalinsuranceindia.com
New India Assurance Company www.niacl.com
Limited
Oriental Insurance Company Limited www.orientalinsurance.nic.in
United India Insurance Company www.uiic.co.in
Limited
Private Sector
Bajaj Allianz General Insurance Co. www.bajajallianz.co.in
Limited
ICICI Lombard General Co. Ltd.
www.icicilombard.com
IFFCO-Tokio General Insurance Co.
Ltd.
Reliance General Insurance Co.
Limited
Royal Sundaram Alliance Insurance
Co. Ltd.
TATA AIG General Insurance Co.
www.itgi.co.in
www.ril.com
www.royalsun.com
www.tata-aig.com
40
Limited
Cholamandalam General Insurance www.cholainsurance.com
Co. Ltd.
Export Credit Guarantee Corporation www.ecgcindia.com
HDFC Chubb General Insurance Co. Ltd.
REINSURER
General Insurance Corporation of www.gicindia.com
India
The Authority takes up with the insurers any complaint received from the
policyholders in connection with services provided by them under the
insurance contract.
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.
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. A well-developed and evolved insurance sector is a boon for
economic developments as it provides long-term funds for infrastructure
developments at the same time strengthening the risk taking ability of the
country.
CHAPTER 9
CURRENT SCENARIO OF INSURANCE INDUSTRY
Like HDFC, ICICI, Kotak, Mahindra and Birla Sunlife. Insurance sector has
been characterized as the booming sector of the Indian arena, which has shown
the growth rate of more than 15 per cent to 20 per cent. Insurance in India is put
under the federal subject and is governed by the Insurance Act, 1938, the Life
Insurance Corporation Act, 1956 and General Insurance Business
(Nationalization) Act, 1972, Insurance Regulatory and Development Authority
(IRDA) Act, 1999 and by various other acts.
CHAPTER 10
POSITIVE IMPACTS OF LIBERLISATION ON THE
INSURANCE INDUSTRY
44
CHAPTER 11
CONCLUSION
From the above discussion, in our country, insurance and legitimate need in
order to achieve greater density and insurance for in-motion of large long-term
savings for long gestation infrastructure, increase the efficiency of the business
governor and you can conclude that the entry of private sector business. New
players, but should not be treated as opposition to the enterprise of government,
they can be supplemented in order to achieve the growth target of the insurance
business in India.
While the insurance industry still struggles to move out of the shadows cast by
the challenges mentioned above; in the long run the insurance industry is poised
for a sturdy growth due to the significant untapped potential in various segments
of the market. A concerted set of action is required by the players and the
policyholders alike to battle these challenges and for the Indian insurance
45
industry to make its next quantum leap. How these challenges are handled and
weeded out will play a critical role in shaping the markets evolution over the
next decade.
CHAPTER 12
REFERENCES
BIBLIOGRAPHY:
Principles & Practices Of Banking & Insurance- Vipul Publications
Environment & Management Of Financial Services-Vipul Publications
WEBLIOGRAPHY:
www.irda.gov.in
www.wikipedia.com
www.scribd.net
www.slideshare.net
46