THE INSURANCE INDUSTRY IN INDIA AN

OVERVIEW

With the largest number of life insurance policies in force in the world,

Insurance happens to be a mega opportunity in India. Its a business

growing at the rate of 15-20 per cent annually and presently is of the

order of Rs 1560.41 billion (for the financial year 2006 2007).

Together with banking services, it adds about 7% to the countrys Gross

Domestic Product (GDP). The gross premium collection is nearly 2% of

GDP and funds available with LIC for investments are 8% of the GDP.

Even so nearly 65% of the Indian population is without life insurance

cover while health insurance and non-life insurance continues to be

below international standards. A large part of our population is also

subject to weak social security and pension systems with hardly any old

age income security

A well-developed and evolved insurance sector is needed for economic

development as it provides long term funds for infrastructure

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development and strengthens the risk taking ability of individuals. It is

estimated that over the next ten years India would require investments of

the order of one trillion US dollars.

HISTORICAL PERSPECTIVE

The history of life insurance in India dates back to 1818 when it was

conceived as a means to provide for English Widows. Interestingly in

those days a higher premium was charged for Indian lives than the non -

Indian lives, as Indian lives were considered more risky to cover. The

Bombay Mutual Life Insurance Society started its business in 1870. It

was the first company to charge the same premium for both Indian and

non-Indian lives.

The Oriental Assurance Company was established in 1880. The General

insurance business in India, on the other hand, can trace its roots to

Triton Insurance Company Limited, the first general insurance company

established in the year 1850 in Calcutta by the British. Till the end of the

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nineteenth century insurance business was almost entirely in the hands

of overseas companies.

Insurance regulation formally began in India with the passing of the Life

Insurance Companies Act of 1912 and the Provident Fund Act of 1912.

Several frauds during the 1920's and 1930's sullied insurance business in

India. By 1938 there were 176 insurance companies.

The first comprehensive legislation was introduced with the Insurance

Act of 1938 that provided strict State Control over the insurance

business. The insurance business grew at a faster pace after

independence. Indian companies strengthened their hold on this business

but despite the growth that was witnessed, insurance remained an urban

phenomenon.

The Government of India in 1956, brought together over 240 private life

insurers and provident societies under one nationalized monopoly

corporation and Life Insurance Corporation (LIC) was born.

Nationalization was justified on the grounds that it would create the

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much needed funds for rapid industrialization. This was in conformity

with the Government's chosen path of State led planning and

development.

The non-life insurance business continued to thrive with the private

sector till 1972. Their operations were restricted to organized trade and

industry in large cities. The general insurance industry was nationalized

in 1972. With this, nearly 107 insurers were amalgamated and grouped

into four companies- National Insurance Company, New India

Assurance Company, Oriental Insurance Company and United India

Insurance Company. These were subsidiaries of the General Insurance

Company (GIC).

KEY MILESTONES

1912: The Indian Life Assurance Companies Act enacted as the

first statute to regulate the life insurance business.

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 1928: The Indian Insurance Companies Act enacted to enable the

government to collect statistical information about both life and

non-life insurance businesses.

1938: Earlier legislation consolidated and amended by the

Insurance Act with the objective of protecting the interests of the

insuring public.

1956: 245 Indian and foreign insurers along with provident

societies were taken over by the central government and

nationalized. LIC was formed by an Act of Parliament- LIC Act

1956- with a capital contribution of Rs. 5 crore from the

Government of India

INDUSTRY REFORMS

Reforms in the Insurance sector were initiated with the passage of the

IRDA Bill in Parliament in December 1999. The IRDA since its

incorporation as a statutory body in April 2000 has fastidiously stuck to

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its schedule of framing regulations and registering the private sector

insurance companies. Since being set up as an independent statutory

body the IRDA has put in a framework of globally compatible

regulations.

The other decision taken simultaneously to provide the supporting

systems to the insurance sector and in particular the life insurance

companies was the launch of the IRDA online service for issue and

renewal of licenses to agents. The approval of institutions for imparting

training to agents has also ensured that the insurance companies would

have a trained workforce of insurance agents in place to sell their

products.

PRESENT SCENARIO - LIFE INSURANCE

INDUSTRY IN INDIA

The life insurance industry in India grew by an impressive 47.38%, with

premium income at Rs. 1560.41 billion during the fiscal year 2006-2007.

Though the total volume of LIC's business increased in the last fiscal
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year (2006-2007) compared to the previous one, its market share came

down from 85.75% to 81.91%.

The 17 private insurers increased their market share from about 15% to

about 19% in a year's time. The figures for the first two months of the

fiscal year 2007-08 also speak of the growing share of the private

insurers. The share of LIC for this period has further come down to 75

percent, while the private players have grabbed over 24 percent.

With the opening up of the insurance industry in India many foreign

players have entered the market. The restriction on these companies is

that they are not allowed to have more than a 26% stake in a companys

ownership.

Since the opening up of the insurance sector in 1999, foreign

investments of Rs. 8.7 billion have poured into the Indian market and 19

private life insurance companies have been granted licenses.

Innovative products, smart marketing, and aggressive distribution have

enabled fledgling private insurance companies to sign up Indian

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customers faster than anyone expected. Indians, who had always seen

life insurance as a tax saving device, are now suddenly turning to the

private sector and snapping up the new innovative products on offer.

Some of these products include investment plans with insurance and

good returns (unit linked plans), multi purpose insurance plans,

pension plans, child plans and money back plans. (www.wikipedia.com)

INSURANCE INDUSTRY CLASSIFICATION

INSURANCE

LIFE INSURANCE GENERAL INSURANCE

Fire Insurance Marine Insurance Mediclaim Motor

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Life insurance

Life insurance is a contract between the policy owner and the insurer,

where the insurer agrees to pay a designated beneficiary a sum of money

upon the occurrence of the insured individual's or individuals' death or

other event, such as terminal illness or critical illness. In return, the

policy owner agrees to pay a stipulated amount (at regular intervals or in

lump sums). There may be designs in some countries where bills and

death expenses plus catering for after funeral expenses

Should be included in Policy Premium. In the United States, the

predominant form simply specifies a lump sum to be paid on the

insured's demise.

The value for the policyholder is derived, not from an actual claim

event, rather it is the value derived from the 'peace of mind' experienced

by the policyholder, due to the negating of adverse financial

consequences caused by the death of the Life Assured.

Life policies are legal contracts and the terms of the contract describe

the limitations of the insured events. Specific exclusions are often

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written into the contract to limit the liability of the insurer; for example

claims relating to suicide, fraud, war, riot and civil commotion.

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Fire Insurance

Fire Insurance is one of the oldest forms of insurance and goes as far

back as Marine insurance. Its origins are in the the age-old fear of fire

and human failing to control fire. In the early development of industrial

society fire was the main source of energy. No industrial activity or

commerce was possible without fire and the need to insure the risk of

uncontrolled fire became the integral part of society.

Fire insurance is designed to provide for financial loss to property due

to fire and few other related hazards. Fire insurance is governed by

Tariff under the Tariff Advisory Committee (TAC).

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Marine Insurance

Marine insurance has been defined as a contract between insurers and

insured whereby the insurer undertakes to indemnify the insured in a

manner and to the

Interest thereby agreed, against marine losses incident to marine

adventure. Section 2(13) A of Insurance Act 1938 defines it as follows:

Marine insurance business means the business of effecting contracts of

insurance upon vessels of any description, including cargoes freights

and other interests which may be legally insured in or in relation to

such vessels, cargoes, freights, goods, wares, merchandise and property

of whatever description insured for any transit by land or water or both,

and whether or not including warehouses risks or similar risks in

addition or as incidental to such transit and includes any other risks

customarily included among the risks insured in marine policies

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Health Insurance

Health Insurance mainly covers two types of benefits: one is related to

the reimbursement of medical expenses related to specific diseases and

the other is related to the hospitalization. Globally, the health covers

operate in two ways cashless and cash reimbursable ones.

The health insurance has changed the way medicine is dispensed and

sold in the most parts of the world. In India, its impact has yet to be felt.

However, the introduction of the now famous Mediclaim policy made

a huge difference to an ordinary citizens usage of insurance for medical

cover purpose.

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Motor Insurance

Motor Insurance is one of the largest non-life insurance business in the

world. This is because it is statutorily mandated in most parts of world.

All motor vehicles are required to be registered with road transport

authorities and insured for third party liability. The basic premise is that

motor vehicles could either cause injury or be a subject to damage and

injury and thus require insurance.

Insurance provides:

Protection to investor.

Accumulation of savings.

Channeling these savings into sectors needing huge long term

investment.

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Functions of insurance:

Provide protection: The primary function of insurance is to

provide protection against future risk, accidents and uncertainty.

Insurance cannot check the happening of the risk, but can certainly

provide for the losses of risk. Insurance is actually a protection

against economic loss, by sharing the risk with others.

Collective bearing of risk: Insurance is an instrument to share

the financial loss of few among many others. Insurance is a mean by

which few losses are shared among larger number of people. All the

insured contribute the premiums towards a fund and out of which the

persons exposed to a particular risk is paid.

Assessment of risk: Insurance determines the probable volume

of risk by evaluating various factors that give rise to risk. Risk is the

basis for determining the premium rate also.

Provide certainty: Insurance is a device, which helps to change

from uncertainty to certainty. Insurance is device whereby the

uncertain risks may be made more certain.

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 Small capital to cover larger risk: Insurance relieves the

businessmen from security investments, by paying small amount of

premium against larger risks and uncertainty.

Contributes towards the development of industries:

Insurance provides development opportunity to those larger industries

having more risks in their setting up. Even the financial institutions

may be prepared to give credit to sick industrial units which have

insured their assets including plant and machinery.

Means of savings and investment: Insurance serves as

savings and investment, insurance is a compulsory way of savings

and it restricts the unnecessary expenses by the insured's For the

purpose of availing income-tax exemptions also, people invest in

insurance.

Source of earning foreign exchange: Insurance is an

international business. The country can earn foreign exchange by way

of issue of marine insurance policies and various other ways.

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 Risk free trade: Insurance promotes exports insurance, which

makes the foreign trade risk free with the help of different types of

policies under marine insurance cover.

CONSUMER AWARENESS

Consumer awareness is the mainspring of demand creation which runs

the wheels of industry any industry for that matter. To this demand

curve, suppliers and service providers respond, by making available to

consumers what they want, meeting their needs and expectations. This is

the way two usages customer needs and customer satisfaction

emerged. And these later travelled to domains of customer delight and

customer ecstasy. Consumer awareness, thus, becomes the genesis for

business entities. For life insurers to initiate, expand, grow and sustain

by responding to larger and larger volumes of demand emerging with

greater awareness, and setting in place supply chain management. For

life insurers to penetrate significantly and forge ahead in the emerging

market, enhancing

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consumer awareness becomes the prime focus of all activities. As also

strength and

competencies to compete for future

How they go about

Life insurers, both in public sector and private sector, should appreciate

this moment of truth so to say and galvanize their energies and

resources intelligently to bring about greater consumer awareness as a

basic facilitator and an important constituent of business strategy. This

will create synergy all across the organization. It should be appreciated

that Consumer awareness provides a new frame of reference for value

creation as also an opportunity for innovation. It is time to think out of

In box and adopt novel strategies and measures to foster awareness. To

mention a few:

launch awareness movement through various convenient people-

oriented programs through media, corporate publicity, rural camps

and popular communication channels including Radio, TV, Publicity

Vans;

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 awareness of products and services though visuals that trigger

curiosity and manifest in terms of desire and later sale-purchase

transactions;

beyond these stages, to take up awareness of other aspects such as

product, price, quality, service , convenience, status, pride, joy and

ease;

campaigns to educate rural and semi urban masses on the need for

security that protects their livelihood, security for produce and

belongings and create feel-good feelings;

Engage NGOs with proven credentials and rural intermediaries.

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INSURANCE AWARENESS

The Best Term Insurance Plans in India

INSURANCE COMPANY POLICY NAME

IDBI Fortis Termsurance

TATA AIG Raksha
Reliance Life Term Plan
HDFC Life Term Assurance
Bajaj Allianz New Risk Care II
LIC Anmol Jeevan - 1
India First Life Plan
Bharti AXA Secure Confident
Sahara Life Sahara Kavach

INSURANCE IS NOT AN INVESTMENT

SEBI Securities Exchange & Board of India (NISM)

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INSURANCE AND ECONOMY

Indian economy is growing in reference to global market. Business

of insurance with its unique features has a special place in Indian

economy.

It is a highly specialized technical business and customer is the most

concern people in this business, therefore this business is able to

spur the growth of infrastructure and act as a catalyst in the overall

development of Indian economy.

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 The high volumes in the insurance business help spread risk wider,

allowing a lowering of the rates of the premium to be charged and in

turn, raising profits. When there is a bigger base, the probabilities

become more predictable, and with system wide risks balanced out,

profits improve. This explains the current scenario of mergers,

acquisitions, and globalization of insurance.

Insurance is a type of savings. Insurance is not only important for

tax benefits, but also for savings and for providing security. It can be

serving as an essential service which a welfare state must make

available to its people.

Insurance play a crucial role in the commercial lives of nations and

act as the lubricants of economic activities. Insurance firms help to

spread the potentially financial consequences of risk among the

large number of entities, to mobilize and distribute savings for

productive use, facilitate investment, support and encourage external

trade, and protect economic entities against external risk.

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Insurance and economic growth mutually influences each other. As the

economy grows, the living standards of people increase. As a

consequence, the demand for life insurance increases. As the assets of

people and of business enterprises increase in the growth process, the

demand for general insurance also increases. In fact, as the economy

widens the demand for new types of insurance products emerges.

Insurance is no longer confined to product markets; they also cover

service industries. It is equally true that growth itself is facilitated by

insurance. A well-developed insurance sector promotes economic

growth by encouraging risk-taking. Risk is inherent in all economic

activities. Without some kind of cover against risk, some of these

activities will not be carried out at all. Also insurance and more

particularly life insurance is a mobilize of long term savings and life

insurance companies are thus able to support infrastructure projects

which require long term funds. There is thus a mutually beneficial

interaction between insurance and economic growth. The low income

levels of the vast majority of population have been one of the factors

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inhibiting a faster growth of insurance in India. To some extent this is

also compounded by certain attitudes to life. The economy has moved

on to a higher growth path. The average rate of growth of the economy

in the last three years was 8.1 per cent. This strong growth will bring

about significant changes in the insurance industry.

At this point, it is important to note that not all activities can be insured.

If that were possible, it would completely negate entrepreneurship.

Professor Frank Knight in his celebrated book Risk Uncertainty and

Profit emphasized that profit is a consequence of uncertainty. He made

a distinction between quantifiable risk and non-quantifiable risk.

DISTRIBUTION OF INSURANCE PRODUCTS

Insurance has to be sold the world over. The Touch point with the

ultimate customer is the distributor or the producer and the role played

by them in insurance markets is critical. It is the distributor who makes

the difference in terms of the quality of advice for choice of product,

servicing of policy post sale and settlement of claims. In the Indian

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market, with their distinct cultural and social ethics, these conditions

will play a major role in shaping the distribution channels and their

effectiveness. In today's scenario, insurance companies must move from

selling insurance to marketing an essential financial product. The

distributors have to become trusted financial advisors for the clients and

trusted business associates for the insurance Companies.

Different distribution channels in India

A multi-channel strategy is better suited for the Indian market. Indian

insurance market is a combination of multiple markets. Each of the

markets requires a different approach. Apart from geographical spread

the socio-cultural and economic segmentation of the market is very

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wide, exhibiting different traits and needs. Different multi-distribution

channels in India are as follows

Internet: E-commerce sales through internet portals

Worksite: Marketing arrangements with entities to sell insurance to

their employees
Direct: Sales through call centres and/or direct mailing
Brokers: Representatives for buyers who deal with either agent or

companies in arranging for coverage

Corporate agents: Non-bank institutions involved in the sale of

insurance products
Banc assurance: Insurance products offered through banks
Tied agents: Insurance companies aligned agency force

In todays scenario, insurance companies must move from selling

insurance to marketing an essential financial product. The distributors

have to become trusted financial advisors for the clients and trusted

business associates for the insurance companies.

The most prominent channel of insurance distribution are:

Agents: Agents are the primary channel for distribution of

insurance. The public and private sector insurance companies have

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 their branches in almost all parts of the country and have attracted

local people to become their agents. Today's insurance agent has to

know which product will appeal to the customer, and also know his

competitor's products to be an effective salesman who can sell his

company, the product, and himself to the customer. To the average

customer, every new company is the same. Perceptions about the

public sector companies are also cemented in his mind. So an

insurance agent can play an important role to create a good image of

company.

Banks: Banks in India are all pervasive, especially the public sector

banks. Many insurance companies are selling their products through

banks. Companies which are bank owned, they are selling their

products through their parent bank. The public sector banks, with

their vast branch networks, are helpful to insurance companies. This

channel of selling insurance is known as

Banc assurance.

INSURANCE COMPANY ASSOCIATE BANKS

ICICI prudential ICICI bank, bank of India,
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 Citibank, Allahabad bank,

Federal bank, south Indian

bank, Punjab and

Maharashtra cooperative

bank
SBI life State bank of India
Birla sun life Deutsche bank, Citibank,

bank of Rajasthan, Andhra

bank
ING Vysya bank Vysya bank
Aviva life insurance ABN amro bank, canara bank
HDFC standard life Union bank, Indian bank
Met life Karnataka bank, j&k bank
Source: - Hindu Business Line, January 08, 2007

Brokers: Now a days different financial institution are selling

insurance. These financial institutions are known as brokers. They

are taking some underwriting charges from the insurance

companies to sell their insurance products.

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 Corporate agents: Corporate agency is a cross selling type of

channel. Insurance companies tie-up with business houses in

other industries to sell insurance either to their employees or their

customers. Insurance industry, during the past 2 years has

witnessed a number of such strategic tie-ups and alliances.

Corporate agents have become a major force to reckon with in

distributing insurance products. Such as- Bajaj Allianz tied up with

Maruti Udyog and Ford for auto insurance and Tata AIG life has

tied up with Tata tea, khaitans Williamson major and bridge

foundation for selling rural policies.

Internet: In this technological world internet is also a channel of

selling insurance. This can be as direct marketing.

Other Distribution Methods

Alternate distribution channels are needed for the following reasons:

To increase insurance penetration in the country

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 To differentiate on the basis of customer service; to retain and

attract new customers to expand business

To increase insurance awareness and knowledge among people
To satisfy the needs of more demanding customers
To improve cost efficiency in insurance distribution

Private players are exploring several alternatives to reduce the cost of

replicating the distribution network of public sector insurance

companies. While third-party distribution in fast-moving consumer

goods is a possibility, the complexity of insurance products, especially

given the low awareness levels, would necessitate direct selling.

One potential channel is marketing through corporate employers, i.e.,

employers purchase products on behalf of the employees or at least

support the marketing effort. The concept of worksite marketing, i.e.,

the sale of voluntary insurance products to employees at the worksite

through payroll deduction has become common. Worksite marketing,

which was once the realm of a few small companies, selling just a few

products, has now stretched to large companies,

offering a variety of worksite products.

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Changing Face of Indian Insurance Industry

After the Insurance Regulatory and Development Authority Act have

been passed there has been establishment of many private insurance

companies in India. Previously there was a monopoly business for Life

Insurance Corporation of India (L.I.C.) who was the only life-insurance

company for the people till 2000. L.I.C. still holds 71.4% of the market

share in 2006. But after the introduction of private life insurance

companies there is a great competition in Indian market now. Everyone

is trying to capture the fresh market here and penetrate it with aggressive

marketing strategies. Today life-insurance is not only limited up to just

life risk cover and maturity period bonuses but changed to greater return

from the investments. With the introduction of the unit linked insurance

policies these companies are investing the money in different investment

instruments like shares, bonds, debentures, government and other

securities. People are demanding for higher returns with the life risk

cover and private companies are giving 30-40% average growth per

annum. These life-insurance companies have every kind of policies

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suiting every need right from financial needs of, marriage, giving birth

and rearing up a child, his education, meeting daily financial needs of

life, pension solutions after retirement. These companies have every

aspects and needs of our life covered along with the death-benefit.

In India only 25% of the population has life insurance. So Indian life-

insurance market is the target market of all the companies who either

want to extend or diversify their business. To tap the Indian market there

has been tie-ups between the major Indian companies with other

International insurance companies to start up their business. The

government of India has set up rules that no foreign insurance company

can set up their business individually here and they have to tie up with

an Indian company and this foreign insurance company can have an

investment of only 24% of the total start-up investment.

Indian insurance industry can be featured by:

Low market penetration.

Ever growing middle class component in population.

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 Growth of customers interest with an increasing demand for better
insurance products.

Application of information technology for business.

Rebate from government in the form of tax incentives to be

insured.

Today, the Indian life insurance industry has a dozen private players,

each of which are making strides in raising awareness levels, introducing

innovative products and increasing the penetration of life insurance in

the vastly underinsured country. Several of private insurers have

introduced attractive products to meet the needs of their target customers

and in line with their business objectives. The success of their effort is

that they have captured over 28% of premium income in five years.

The biggest beneficiary of the competition among life insurers has been

the customer. A wide range of products, customer focused service and

professional advice has become the mainstay of the industry, and the

Indian customers forms the pivot of each companys strategy.

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Penetration of life insurance is beginning to cut across socio-economic

classes and attract people who have never purchased insurance before.

Life insurance is also now being regarded as a versatile financial

planning tool. Apart from the traditional term and saving insurance

policies, industry has seen the entry and growth of unit linked products.

This provides market linked returns and is among the most flexible

policies available today for investment. Now products are priced,

flexible, and realistic and sustain so people in better position to

understand the risk and benefits of the product and they are accepting

these innovative products.

So it is clear that the face of life insurance in India is changing, but with

the changes come a host of challenges and it is only the credible players

with a long term vision and a robust business strategy that will survive.

Whatever the developments, the future and the opportunities in this

industry will surely be exciting.

There are 12 private players in Indian life insurance market.

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6 bank owned insurers: - HDFC standard life, ICICI prudential, ING

Vysya, MetLife, OM Kotak, SBI life.

6 independent insurers: - Aviva, ANP sanmar, Birla sun life, Bajaj

Allianz, Max New York life, Tata AIG.

Major international insurers are- Prudential and Standard life from UK,

Sun life of Canada, AIG, MetLife and New York life of the US.

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Increasing growth since liberalization:

YEAR LIC (in bn rs.) PRIVATE PLAYER

FY03 110 10
FY04 120 20
FY05 130 40
FY06 140 60
FY07 240 160

Possibilities for insurance companies in India:

Further deregulation of the market.

Greater concern for the customers.

Newer products and services.

Competition and quality consciousness.

Cost effective operations.

Restructuring of the public sector.

Consolidation of domestic insurance markets.

Technology driven shift in product design.

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 Actual operations and distribution.

Convergence of financial services.

Insurance Market- Present

The insurance sector was opened up for private participation four years

ago. For years now, the private players are active in the liberalized

environment. The insurance market have witnessed dynamic changes

which includes presence of a large number of insurers both life and non-

life segment. Most of the private insurance companies have formed joint

venture collaborating well-recognized foreign players across the globe.

There are now 29 insurance companies operating in the Indian market

14 private life insurers, nine private non-life insurers and six public

sector companies. With many more joint ventures in the offing, the

insurance industry in India today stands at a crossroads as competition

intensifies and companies prepare survival strategies in a detariffed

scenario.

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There is pressure from both within the country and outside on the

Government to increase the Foreign Direct Investment (FDI) limit from

the current 26% to 49%, which would help JV partners to bring in funds

for expansion.

CHANGING PERCEPTION OF INDIAN CUSTOMERS

Indian Insurance consumers are like Indian Voters, they are soft but

when time is right and ripe, they demand and seek necessary changes.

De-tariff of many Insurance Products are the reflection of changing

aspirations and growing demand of Indian consumers.

For historical years, Indian consumers were at receiving end. Insurance

Product was underwritten and was practically forced onto consumers on

a Take-it-As-it-basis. All that got changed with passage of IRDA act in

1999. New insurance companies have come into existence leading to

open competition and hence better products for customers.

Indian customers have become very sensitive to Coverage / Premium as

well as the Products (read Risk Solution), that is given to them. There
38
are not ready to accept any product, no matter even if that is coming

from the market leader, should that product is not serving the purpose. A

case in point is ULIP Product / Group Life and Credit Life in Life

Insurance segment and Travel / Family Floater Health and Liability

Insurance in the Non-life segment are new age Avatar. The new products

are constantly being demanded by Indian consumers, which is putting

huge pressures on Insurance companies (Read Risk Under-writers) and

Brokers to respond.

Customers are looking at Insurance for covering Pure Risk now which I

have covered in my next section. Another good reason why we are

seeing quick changes in the buying behavior of Insurance from mere

Investment to risk mitigation is the cost of Replacement of Goods

(ROG) or Cost of Services (COS).

Now Indian customers are aware of insurance industry and insurance

products provided by companies. They have become more sensitive.

They would not accept any type of insurance product unless it fulfills

39
their requirements and needs. In historic days customers looking at

insurance products as a life cover which can provide security against any

unacceptable events, but now customers look at insurance products as an

investment as well as life cover. So todays customers wants good return

from the insurance companies. The Indian customers forms the pivot of

each companys strategy.

KEY SUCCESS FACTORS

In order to succeed in any of the business it is very necessary to make

and follow the strategies. Strategies are very important for any of the

business. Following are the general strategies, which are recommending

to the insurance sector. One approach is to focus upon product quality,

which will instill confidence in minds of the customers that they would

be offered best product from out of the several available products. The

other approach, is to focus on the customers need, would involve a

heavy investment in developing relationships with policyholders. Under

40
this approach, one can expect a range of products and services designed

to give the customer what he specially desires.

The third approach is of greater market segmentation under which the

population should be divided into several homogeneous groups and

product, and services would be targeted towards such selected markets.

The effort would be to tie clients to their company- by customized

combination of coverage, easy payment plan, risk management advice,

and convenient quick claim handling.

Porter Generic Strategies: One of the expert Michel porters has

identified three internally consistent generic strategies, which can be

used singly or in combination: overall cost leadership is clearly under

stable. In a differentiation strategy, a company seeks to be unique in its

industry along some dimensions that are widely valuable by the

customer. May be the lowest cycle time for settling a claim under say, a

med claim policy could be differentiating factor. In a cost focus, a

company seeks a cost advantage in its target segment, while in

differentiation focus; a company seeks a differentiation target.

41
Marginal Different Product:

Another strategy would be for the companies to design products that will

make comparison-shopping difficult. They could offer a wide variety of

covers with marginal differences and varying prices, whose terms and

conditions are difficult to compare for consumers who may not have

sufficient experience in purchasing insurance and who would find it

difficult to make a clear choice. If the consumer is offered a unique

policy, he will have no alternative coverage with which can be

compared. Given the combination policy, which can offer protection

against a number of losses, the consumer will find comparison even

more difficult.

Designing New Strategies:

The existing insurance companies cannot be satisfied with concentrating

on the consolidation of their existing markets, but have to achieve

further growth and penetration. They must, therefore, concentrating on

strengthening existing points of service, designing new channel of

42
distribution, direct contact with their ultimate customers, and front line

employee empowerment. They also need to refresh their

marketing set up. The new comers, on the other hand give priority to

tapping the

market, left unexploited by the public sector companies.

Move towards Rural Market:

It is one of the most important suggestions; data says that rural market is

still uncovered by this sector. We believe that the sector should move

towards tie rural market. Insurance penetration can be achieved by

tapping the neglected Rural Markets. There is vast potential for

insurance growth in the rural sector. A recent survey by foundation for

research, training and Education in insurance (FORTE) suggests that

insurance can be sold profitably to rural communities in India. The

survey reveals that:-

There is distinct hierarchy of needs in rural areas.

Rural people find security in groups the saving habit is very strong

in rural

43
 areas.

Average saving across the most important socio-economic strata

comes to 30-35% of annual income or Rs.13, 500 annually, which

is significant.

There is high level of awareness about life insurance and fairly

high-level

about 36% already own life insurance.

51% of these who own life insurance would like to buy more.

Amongst the savers, a significant percentage does not save through

formal financial modes or institutions.

Rural buyers of insurance prefer a half yearly mode of premium

payment to coincide with the time of the harvest. Thus there are

very much chances for any of the companies to work over this

scenario. So we believe and suggest all the players to move

towards the rural areas.

Motivation of sales force:

44
A life insurance company should constantly be involved in the process

of motivating the sales force in the turbulent times. The following

strategies are recommending;

Building relationship is real perk. One should be sure to build in

networking times for agents during the program-in addition to

entertainment and education.

Web should be frequently used for creating gift ideas.

Hold sales contests in the forth quarter. It is the best times to

motivates agents who wants to qualify for a trip.

Consider a contrast within the contest for- top-tier producers;

additional rewards for additional milestones that are met, such as

air and guest room upgrades.

Use of Internet:

The present scenario is such that the products sold with the help of

Internet. The technological advancement is such that force the

companies to take such steps. Still the full-fledged use of Internet is not

done in our country. As suggestion earlier the Internet based life

45
insurance will help the companies to reduce the transaction cost and

time. At the time it can improve the quality of service to its customers,

which is the mission of the company.

Marketing Tips Of Advertise Of Insurance Agency

Which Most Companies Follow And By Which

Customer Are Aware About Their Agency

Block line advertising in industry publications or trade

journals: Many companies like to advertise in the same areas.

Business opportunity advertising: Think of local

newspapers such as the Daily News Analysis (DNA), Times of

India, and The HINDU etc. This is a very effective way to

advertise and market agency, since the company needs to build

brand name recognition.

Television Ads: The most obvious and expensive forms of

advertising is the television.

46
 Local Movie Theatres: A local audience and a family type

atmosphere is a great way for marketing insurance business. Many

types of insurance come into play here when an individual or the

family are out watching the movie. All these things come into play

when parents are out with their kids.

Direct Mail Advertising: There are companies out there that

will do direct mail by which people are aware.

Advertising outdoors: Transit systems, bus benches, neon and

electronic signs are becoming a great way for the agent to

advertise. This is affordable, unlike television ads. And this targets

the exact audience as most insurers provide insurance services to

their local area.

Stationary advertising: A very great way of advertising is

right through business stationary and supplies. A nice way of

showing good faith is giving customers a pen of insurance office

name and contact information

47
 Website Advertising: A website tells customer about insurance

agency and it a quick and easy reference for customers looking for

quotes of any type of insurance such as, homeowners insurance,

auto insurance, life insurance and many others

Online advertising: Many insurance companies do online

advertisement. As today in 21st centaury it is very important.

Indias insurance sector poised for 200% growth

by 2010

Indian insurance sector is likely to register unprecedented growth of

200% and attain a size of Rs. 2000 billion ($51.2 billion) by 2009-10, in

which a private sector insurance business will achieve a growth rate of

140% as a result of aggressive marketing technique being adopted by

them against 35-40% growth rate of state owned insurance companies.

The aforesaid findings are made by The Associated Chambers of

Commerce and Industry of India (ASSOCHAM) on `Insurance in Next 2

48
Years, saying that in the last couple of years, the insurance sector has

grown by CAGR of around 175% and the trend will emerge still better

because of potential factor. Currently, the insurance sector size is

estimated at Rs.500 billion ($12.8 billion).

Releasing the ASSOCHAM findings, its President, Mr. Venugopal N.

Dhoot said that on account of intense marketing strategies adopted by

private insurance players, the market share of state owned insurance

companies like GIC, LIC and others have come down to 70% in last 4-5

years from over 97%.

The private insurance players despite the sector is still regulated has

been offering rate of return (RoR) to its policy holders which is

estimated at about 35% as against 20% of domestic insurance

companies. This factor is mainly responsible for hike in private

insurance market share which will grow further which is why the

ASSOCHAM estimates that its growth rate could even exceed 140%.

Secondly, the state owned insurance companies such as LIC and GIC

have limited number of policies to offer to their subscribers while in case

49
of private insurance companies, their policy numbers are many more and

the premium amount as well as the maturity period is much competitive

as against those of government insurance companies. Interestingly, said

Mr. Dhoot that the private sector insurance players have started

exploring the rural markets in which until recently, the state owned

companies had the monopoly.

The Chamber has projected that in rural markets, the share of private

insurance players would increase substantially as these have been able to

generate a faith among their rural consumers.

Estimating the potential of the Indian insurance market from the

perspective of macro-economic variables such as the ratio of premium to

GDP, ASSOCHAM reveals that Indias 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 further 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

50
companies receive good services. In both volumes and profitability

therefore, the scope for expansion is modest. The Chamber has

suggested that insurers 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 Indias GDP. This offers immense opportunities for

expansion opportunities.

To understand the prospects for insurance companies in rural India, it is

very important to understand the requirements of Indias villagers, their

daily lives, their peculiar needs and their occupational structures. There

are farmers, craftsmen, milkmen, weavers, casual laborers, 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

ASSOCHAM found that there are a total 124 million rural households.

51
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

Register Online

Summit Details

The Insurance industry in India has been progressing at a rapid pace

since opening up of the industry in 2000. Indian domestic insurance

52
market would touch around US$ 60.5 Billion by the year 2010 from

existing size of about US$ 10.2 billion. 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.

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 insurers 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.

With a view to spreading the awareness of Insurance cover and

discussing various regulatory issues, ASSOCHAM is organizing a

53
National Summit on Indian Insurance The Way Forward at

10.00 a.m. on 29th January, 2009 at Hotel Le-Meridien, New Delhi.

Shri P K Bansal, Hon'ble Minister of State for Finance &

Parliamentary Affairs has very kindly agreed to inaugurate the

Summit. We have also invited Shri J Hari Narayan, Chairman,

IRDA and Shri Taun Bajaj, Joint Secretary (B&I) Ministry of

Finance, Govt of India to address the participants in the Inaugural

Session.

The Summit would provide an ideal forum for expert discussion,

information sharing and an excellent platform for business

development. We expect a large participation by all stakeholders -

institutional investors, fund managers, consultants, brokers, regulators,

custodians, lawyers, banks, financial planners and retail investors.

Insurance

54
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 companies have witnessed a 70 per cent jump in new

premium collection during the first five months of the financial year.

According to data released by the Insurance Regulatory and

Development Authority (IRDA), insurance companies garnered US$

11.73 billion in new business premium during April-August 2010,

against US$ 6.90 billion in the corresponding period last year.

State-owned LIC gained the most, with an increase of 88 per cent in new

business premium income. At the same time, private sector insurance

recorded a 34 per cent increase in income from sales of new policies.

New business income collected by ICICI Prudential stood at US$ 576.60

million during April-August. SBI Life remained in the third position

after registering a 40 per cent increase in new sales to US$ 531.87

million from US$ 379.20 million in April-August 2009. HDFC Standard

Life saw a robust 54 per cent increase in new business.

55
General Insurance

According to data released by IRDA, the general insurance industry

recorded 22.76 per cent year-on-year (y-o-y) growth in gross premium

underwritten during AprilOctober 2010.

The industry collected gross premium of US$ 5.29 billion during April

October 2010 compared with US$ 4.31 billion in the same period last

year.

The

public

sector

players posted 21.09 per cent y-o-y growth in gross premium during

AprilOctober 2010 over the corresponding period last year. At the same

time, private players recorded a 25.19 per cent y-o-y increase in gross

premium.
56
The state-run insurers fared better than their private counterparts, with

New India Insurance collecting the maximum premium of US$ 916.77

million during April-October 2010, compared to US$ 770.25 million in

the same period last year, growing by 19.04 per cent.

According to the IRDA's Summary Reports of Motor Data of Public and

Private Sector Insurers - 2009-10, nearly 28.4 million policies were

issued and a total premium of US$ 2.31 billion was collected.

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.

57
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.

58
According to a report published by Yes Bank and an industry body in

November 2009, the medical insurance sector would account for US$ 3

billion in the next three years.

Health insurance premium collections were US$ 1.75 billion in 2009-10

compared with US$ 893.76 million in the previous year, IRDA said in its

annual report for 2009-10. It should, however, be noted that figures for

2009-10 include policies served by third party administrators (TPAs) as

well as those directly served by insurers whereas figures for 2008-09

include policies served by TPAs only.

59
CONCLUSION

Insurance sector in India is one of the booming sectors of the economy

and is growing at the rate of 15-20 per cent annum. One of the key

service industries in India would be health and education. Insurance

sector in India grew at a faster pace after independence. In 1956,

Government of India brought together 245 Indian and foreign insurers

and provident societies under one nationalized monopoly corporation

and formed Life Insurance Corporation (LIC) by an Act of Parliament,

viz. LIC Act, 1956, with a capital contribution of Rs.5 crore. The (non-

life) insurance business/general insurance remained with the private

sector till 1972. There were 107 private companies involved in the

business of general operations and their operations were restricted to

organized trade and industry in large cities. The insurance sector in India

has come to a position of very high potential and competitiveness in the

market. Indians, have always seen life insurance as a tax saving device.

60
BIBILOGRAPHY

WEBSITES REFFERED

www.irdaindia.org

www.licindia.in

www.wikipedia.org

www.answers.com

www.insuranceguru.com

REPORTS/ARTICLES REFFERED

Asia Economy Watch

India Infoline News Service

Birla SunLife Insurance Companys Article

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