CHAPTER 1

INTRODUCTIO OF INDIAN LIFE INSURANCE

INDUSTRY
1.1 INSURANCE- AN INTRODUCTION

1.1.1 Meaning:

Insurance may be described as a social device to ensure protection of economic

value of life and other assets. Under the plan of insurance, a large number of people
associate themselves by sharing risks attached to individuals. The risks, which can be
insured against, include fire, the perils of sea, death and accidents and burglary. Any risk
contingent upon these, may be insured against at a premium commensurate with the risk
involved. Thus, collective bearing of risk is insurance.

Insurance = Collective Bearing of Risks

Insurance is a contract whereby, in return for the payment of premium by the

insured, the insurers pay the financial losses suffered by the insured as a result of the
occurrence of unforeseen events. The term "risk" is used to describe the possibility of
adverse results flowing from any occurrence or the accidental happenings, which produce
a monetary loss.

Insurance is a pool in which a large number of people exposed to a similar risk make
contributions to a common fund out of which the losses suffered by the unfortunate few,
due to accidental events, are made good. The sharing of risk among large groups of
people is the basis of insurance. The losses of an individual are distributed over a group
of individuals.

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 Insurance is nothing but a system of spreading the risk of one onto the shoulders of
many. While it becomes somewhat impossible for a man to bear by himself 100% loss to
his own property or interest arising out of an unforeseen contingency, Insurance is a
method or process which distributes the burden of the loss on a number of persons within
the group formed for this particular purpose.

1.1.2 Definitions:

Fundamental Definition

In the words of D.S. Hansell, Insurance accumulates contributions of all parties

participating in the scheme.

Contractual Definition

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

paid to the assured as consideration of insurers incurring the risk of paying a large sum
upon a given contingency.

1.1.3 Working of Insurance

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1.2 LIFE INSURANCE A BRIEF OVERVIEW

1.2.2 Origin of Life Insurance in India:

1.3 INSURANCE SECTOR REFORMS

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 In 1993, Malhotra Committee, headed by former Finance Secretary and RBI
Governor R. N. Malhotra, was formed to evaluate the Indian insurance industry and
recommend its future direction.

The Malhotra committee was set up with the objective of complementing the
reforms initiated in the financial sector. The reforms were aimed at creating a more
efficient and competitive financial system suitable for the requirements of the economy
keeping in mind the structural changes currently underway and recognizing that
insurance is an important part of the overall financial system where it was necessary to
address the need for similar reforms. In 1994, the committee submitted the report and
some of the key recommendations included:

Structure of the Indian Insurance Industry.

Competition.
Regulatory Body.
Investments.
Customer Service.

The committee felt the need to provide greater autonomy to insurance companies in
order to improve their performance and enable them to act as independent companies
with economic motives. For this purpose, it had proposed setting up an independent
regulatory body i.e. The Insurance Regulatory and Development Authority.

Reforms in the Insurance sector were initiated with the passage of the IRDA Bill in
Parliament in December 1999. 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.

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1.4 INSURANCE REGULATORY AND DEVELOPMENT
AUTHORITY (IRDA)

The Insurance Act, 1938 had provided for setting up of the Controller of Insurance
to act as a strong and powerful supervisory and regulatory authority for insurance. Post
nationalization, the role of Controller of Insurance diminished considerably in
significance since the Government owned the insurance companies.

The Insurance Regulatory and Development Authority Act, 1999 is an act to provide
for the establishment of an Authority to protect the interests of holders of insurance
policies, to regulate, promote and ensure orderly growth of the insurance industry and for
matters connected therewith or incidental thereto amend the Insurance Act, 1938, the Life
Insurance Corporation Act, 1956 to end the monopoly of the Life Insurance Corporation
of India (for life insurance business).

Following are some of the powers, functions and duties of IRDA:

Issue to the applicant a certificate of registration, renew, modify, withdraw,

suspend or cancel such registration.
Specifying requisite qualifications, code of conduct and practical training for
intermediary or insurance intermediaries and agents.
Specifying the code of conduct for surveyors and loss assessors.
Promoting efficiency in the conduct of insurance business.
Promoting efficiency in the conduct of insurance business; promoting and
regulating professional organisations connected with the insurance and re-
insurance business.
Specifying the percentage of life insurance business and general insurance
business to be undertaken by the insurer in the rural or social sector.
Supervising the functioning of the Tariff Advisory Committee;
Exercising such other powers as may be prescribed.

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1.5 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
markets have witnessed dynamic changes because of Indian Insurers going global. Most
of the private insurance companies have formed Joint ventures partnering well
recognized foreign players across the globe.

There are now 22 Life insurance companies operating in the Indian market. 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. 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 Joint ventures partners to bring in funds for expansion.

State Insurers Continue To Dominate: There may be room for many more
players in a large underinsured market like India with a population of over one billion.
But the reality is that the intense competition in the last five years has made it difficult for
new entrants to keep pace with the leaders and thereby failing to make any impact in the
market. Also as the private sector controls over 26.18% of the life insurance market a
public sector companies still call the shots. The countrys largest life insurer, Life
Insurance Corporation of India (LIC), had a share of 64% in new business premium
income in November 2009. ICICI Prudential Life Insurance Company continues to lead
the private sector with a 9% market share in terms of fresh premium.

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1.6 LIST OF LIFE INSURANCE COMPANIES IN INDIA AND
THEIR MARKET SHARE

List of Life Insurance Companies in India

1. Aegon- Religare
2. Aviva
3. Bajaj Allianz
4. Birla SunLife
5. Bharti- Axa
6. Future Generali
7. HDFC Standard Life
8. India First Life
9. ICICI Prudential
10. IDBI Fortis
11. ING Vysya
12. Kotak Mahindra Life
13. LIC
14. Max Newyork Life
15. Met Life
16. Reliance Life
17. Sahara India
18. SBI Life
19. Shriram Life

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20. Tata AIG Life
21. DLF Pramerica
22. Canara HSBC OBC

(Sou

MARKET SHARE rce:

ww
1%
2% LIC w.ir
2% 6%
3%
ICICI PRUDENTIAL dain
3%
BAJAJ ALLIANZ dia.
3%
SBI LIFE
org)
7% RELIANCE
HDFC STANDARD LIFE

9% BIRLA SUNLIFE
64%
MAX NEWYORK LIFE
KOTAK MAHINDRA
OTHERS

(Source: www.irdaindia.org)

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 CHAPTER 2

CONTRIBUTION OF LIFE INSURANCE

INDUSTRY TO THE INDIAN ECONOMY

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2.1 FLOW OF INSURANCE INDUSTRY IN INDIA
The Insurance sector in India initially took off with the establishment of the public
sector insurance company known as, Life Insurance Corporation of India.

The insurance sector in India has grown in leaps and bounds to become the most
significant financial players in the Indian financial market. The popularity of the
insurance sector has mainly evolved on account of the large investments flow from this
sector that facilitates the growth of the overall economy of the country. The foreign
insurance companies have stated forming pacts and collaborations with the Indian
insurance companies to influence the Indian Insurance sector. The insurance companies
offer protection to their clients, collect the small savings of the clients to turn into a huge
capital to reinvest in priority sectors of the economy.

Insurance and Banking:

The insurance companies in India are constantly collaborating with the banking
institution, following the foreign countries to impart more efficiency in the entire
insurance sector. More and more insurance companies are signing Memorandum of
Understanding (MOUs) with the Indian banks in order to carry on their marketing
activities through the branches of the banks. The prominent Indian banks that have
already signed such MOUs include the Vysya Bank, the State Bank and the Jammu and
Kashmir Bank.

Products and Services offered by Insurance Companies in India:

The insurance companies in India dealing in life insurance are mainly engaged in
offering two categories of life insurance products- the Endowment Assurance Products
and the Money Back Products. The vehicle insurance products rank next to life insurance

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product in terms of demand. The up coming products comprise linked products. The
products offer various facilities to the investors as for example they are available with
free look facility so that the investor gets time to examine the policy within the free look
period.

2.1.3 Market Share Based on Premium:

Company Indian Foreign Partner Market Share

Promoter based on
Premium

Aviva Life Dabur Aviva, UK 1.12%

Bajaj Allianz Bajaj Auto Allianz, Germany 6.12%

Birla Sunlife Aditya Birla Sunlife, Canada 1.84%

HDFC Standard HDFC Standard Life, UK 2.96%

ICICI Prudential ICICI Bank Prudential, UK 7.11%

Max New York Max India New York Life, US 1.32%

MetLife Jammu and MetLife, US 0.40%

Kashmir Bank
Tata AIG Tata Group AIG, US 1.78%

(Source: Financial Times)

2.2 CONTRIBUTION TO INDIAN ECONOMY

2.2.1 Life Insurance garners Long term savings:

Insurers are increasingly introducing innovative products to meet the specific needs
of the prospective policyholders. An evolving insurance sector is of vital importance for
economic growth. While encouraging savings habit it also provides a safety net to both
enterprises and individuals.

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 Insurance Companies receive, without much default, a steady cash stream of
premium or contributions to pension plans. Various actuary studies and models enable
them to predict, relatively accurately, their expected cash outflows. Liabilities of
Insurance companies being long-term or contingent in nature, liquidity is excellent and
their investments are also long-term in nature. Since they offer more than the return on
savings in the shape of life-cover to the investors, the rate of return guaranteed in their
insurance policies is relatively low.

Consequently, the need to seek high rates of returns on their investments is also low.
The risk-return trade off is heavily tilted in favour of risk. As a combined result of all
this, investments of insurance companies have been largely in bonds floated by
Government of India, PSUs, State governments, local bodies, corporate bodies and
mortgages of long term nature.

Aggregation of Long Term Savings:

Total Assets of Life Insurance Companies

2006-2007 2007-2008 2008-2009

2,80,450Cr 3,52,608Cr 4,23,000 Cr

(Source: Financial Times)

Total Premiums generated

2006-2007 2007-2008 2008-2009

57,708 Cr 66,278 Cr 79,000 Cr

(Source: Financial Times)

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 The Life Insurance Industry is growing @ 19% per annum. So at this growth rate the
future premium incomes generated will be as follows:

2006-2007 2007-2008 2008-2009

94,000 Cr 1,12000 Cr 1,33,000 Cr

(Source: Financial Times)

Life Insurance funds accounts for 15% of Household savings. So the industry has
the potential to increase the share to 20% in the next 2 years.

2.2.2 Generation of Long term funds for Infrastructure:

For GDP to grow at 8 to 10%, qualitative improvement in infrastructure is essential.

Estimates of funds required for development of infrastructure vary widely. An investment
of 6, 19,600 crores is anticipated in the next 5 years. Tenure of funding required for
infrastructure normally ranges from 10 to 20 years. The insurance industry also provides

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crucial financial intermediary services, transferring funds from the insured to capital
investment, critical for continued economic expansion and growth, simultaneously
generating long-term funds for infrastructure development.

In fact infrastructure investments are ideal for asset-liability matching for life
insurance companies given their long term liability profile. According to preliminary
estimates published by the Reserve Bank of India, contribution of insurance funds to
financial savings was 14.2 per cent in 2005-06, viz., 2.4 per cent of the GDP at current
market prices. Development of the insurance sector is thus necessary to support
continued economic transformation. Social security and pension reforms too benefit from
a mature insurance industry.

The insurance sector in India, which was opened up to private participation in the
year 1999, has completed over seven years in a liberalized environment. With an average
annual growth of 37 per cent in the first year premium in the life segment and 15.72 per
cent growth in the nonlife segment, together with the largest number of life insurance
policies in force, the potential of the Indian insurance industry is still large.

Life insurance penetration in India was less than 1 per cent till 1990-91. During the
1990s, it was between 1 and 2 per cent and from 2001 it was over 2 per cent. The tenure
of funding required for infrastructure normally ranges from 10 to 20 years. In 2005 it had
increased to 2.53 per cent and now it is near to 3.21%. An investment of 6, 19,600 crores
is anticipated in the next 5 years. The major portions of these funds are routed through
debt/ private equity participation.

2.2.3 Spread of Financial Services in Rural areas:

IRDA Regulations provide certain minimum business to be done

- in rural areas.
- in the socially weaker sections.

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 Life Insurance offices are spread over nearly 1400 centres. Presence of representative
in every tehsil deeper penetration in rural areas. Insurance agents numbering over 6.24
lakhs in rural areas. Policies sold in rural areas (2008-09) - No. of policies - 55 lakhs,
Sum assured 46,000 crores. Social security - No. of lives covered in 2007-08 was 17.4
lakhs whereas in 2008-09, it increased to 42.1 lakhs.

2.2.4 Employment Generation:

Employment generation in the country increased considerably in the eight-year

period - 2001 to 2009, as compared to between 1990 and 2000, according to the
Economic Census released by the government recently. Employment grew at the rate of
4.78 per cent in 2001-2009, which is much higher than the 1.75 per cent recorded during
1990-2000, the 5th Economic Census report said. The report, compiled by the Central
Statistical Organisation, listed the top five states in India in terms of employment
generation which includes Jammu and Kashmir, Haryana, Kerala, Andhra Pradesh and
Maharashtra.

Life insurance industry provides increased employment opportunities. Employees in

insurance sector as on 31st March, 2009 is around 9.5 lakhs. Many agents depend on
insurance for their livelihood. No. of agents as on 31st March 2009 30.50 lakhs.
Brokers, corporate agents, training establishments provide extra employment
opportunities. Many of these openings are in rural sectors.

2.2.5 Development of Capital Markets / Economic Growth:

A capital market is a market for securities (debt or equity), where business

enterprises (companies) and governments can raise long-term funds. It is defined as a
market in which money is provided for periods longer than a year, as the raising of short-

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term funds takes place on other markets. The capital market includes the stock market
(equity securities) and the bond market (debt). Capital markets may be classified as
primary markets and secondary markets. In primary markets, new stock or bond issues
are sold to investors via a mechanism known as underwriting. In the secondary markets,
existing securities are sold and bought among investors or traders, usually on a securities
exchange, over-the-counter, or elsewhere. The primal role of the capital market is to
channelize investments from investors who have surplus funds to the ones who are
running a deficit. The capital market offers both long term and overnight funds. The
financial instruments that have short or medium term maturity periods are dealt in the
money market whereas the financial instruments that have long maturity periods are dealt
in the capital market.

Industry also contributes in economic development through investments in capital

market. Present level of investments is over Rs. 40,000 crores. (Mark to Market basis
around 80,000 Crores). Life Insurance makes an Annual Investment of around 9000
crores in capital markets. Contribution of Life Insurance to Five Year Plans is Rs.2,
30,900 Crores. It helps to inculcate a sense of security by protecting earning of people in
case of untimely death and also provides benefits to Policy Holders.

2006-2007 2007-2008 2008-2009

20,800 Cr 24,200 Cr 28,700 Cr

(Source: Financial Times)

2.3 SPECIAL FEATURES

Tax clubbing of various savings short term and long term into same bracket
have a bias towards short term savings.
Distinction between the short term savings and long term savings is critical
from investors point of view. More prone to inflationary pressures.

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 Clearly, long term savings more than 10 years deserve special consideration
under tax regime.
Life insurance companies are Capital Intensive Industry.

2007-2008 2008-2009
Total Income 3623 5440
Capital Employed 4329 6128

(Source: Financial Times)

2.3.1 Growth Potential:

At present Insurance penetration in India is quite low at 2.26% of Gross Domestic

Product. If we compare with other Asian countries, Korea Insurance penetration stands at
6.77% whereas in Singapore it stands at 6.38% of their GDP.

2.3.2 Phase of Transition:

Life Insurance industry is under the phase of infancy after 50 years of

monopoly. First LIC had the monopoly for Life Insurance policies in India and
with the entry of foreign players the whole scenario has changed and customers
are more attracted towards private insurers.
Competition from within and other sectors of financial markets like the Banks
selling Insurance products with strategic alliance between Banks and Insurance
Companies.
It also needs environmental support till it reaches a comfort zone.

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 CHAPTER 3

POTENTIAL 0F LIFE INSURANCE BUSINESS

IN INDIA

3.1 INTRODUCTION

Indias life insurance market has grown rapidly over the past six years, with new
business premiums growing at over 40% per year. The premium income of Indias life
insurance market is set to double by 2012 on better penetration and higher incomes.

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Insurance penetration in India is currently about 4% of its GDP, much lower than the
developed market level of 6-9%. In several segments of the population, the penetration is
lower than potential. For example, in urban areas, the penetration of life insurance in the
mass market is about 65%, and its considerably less in the low-income unbanked
segment. In rural areas, life insurance penetration in the banked segment is estimated to
be about 40%, while it is marginal at best in the unbanked segment. The total premium
could go up to $80-100 billion by 2012 from the present $40 billion as higher per capita
income increases per capita insurance intensity. The average household premium will rise
to Rs 3,000-4,100 from the current Rs 1,300 as will penetration by the existing and new
players. Indias ratio of life insurance premium to its GDP is around 4 per cent against 6-
9 percent in the developed world. It could rise to 5.1-6.2 by 2012 in tandem with the
countrys demographic profile. India has 21 life insurers and the state owned Life
Insurance Corp. of India dominates the industry with over 60 percent market share,
though private players have been growing aggressively.

Considering the worlds largest population and an annual growth rate of nearly 7
per cent, India offers great opportunities for insurers. US based online insurance company
ebix.com plans to enter the Indian market following deregulation of its insurance sector.
Online insurer ebix.com expansion into India is a major step for the company to become
a global supplier of internet-based insurance tools for consumers and insurance
professionals. In a diverse country such as India it is imperative that a universal insurance
infrastructure be created to maximize efficiency in the insurance industry. Online insurer
ebix.com can offers the Indian market a business-to-consumer internet portal where
consumers have more choice while purchasing insurance and an internet-based agency.
Foreign holding in Indian insurance companies is limited to 26 per cent. The
government wants to increase the cap to 49 percent, but its communist allies oppose such
a move. The market is moving beyond single-premium policies and unit linked insurance
products which are easier to sell. The agency model is the dominant sales channel
accounting for more than 85 per cent of fresh premiums but overall inactivity and

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attrition is much higher at 50-55 per cent than the global average of 25 per cent.
Opportunities include health insurance and pensions, the report said; adding only 1.5-2
percent of total healthcare expenditure in India was currently covered by insurance.

A life insurance policy covers ones personal self. Unlike with general insurance, it
is not like insuring a vehicle. Having said that, if we consider that Indias population is
over one billion and growing, we get a picture of the true potential of the life insurance
sector in India. LIC has been in business for 50 years now and has not covered the entire
population base yet. About 250 to 300 million Indians are still insurable. LIC has issued
about 120 million policies till now, with new premium income of US$ 1 billion. Its assets
have been estimated at $37 billion and in the last quarter it reported a 60 per cent growth
in new business. LICs business is growing at the rate of 20 per cent every year. That is
the kind of potential one is talking about in life insurance in India. It would not be wrong
to say that a lot of the advantage of advertising by new private sector insurance
companies has by default gone to LIC. While they have created a lot of awareness
through private insurers advertisements, LIC have benefited because LIC has a much
wider branch network, and buyers are surer of LIC because it has been in existence for
long; they are more comfortable about its safety. Some LIC agents continue to follow the
unethical practice of offering discounts from their commissions to new policy buyers; this
makes a difference.

3.2 PENETRATION- LOWER THAN POTENTIAL

Management consultancy firm McKinsey has forecast that Indias life insurance
industry will be double in the next five years from $40 billion to $80-100 billion in 2012.

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This growth would improve the level of insurance penetration from 5.1% of gross
domestic product to 6.2% in 2010-2012.

The Indian life insurance industry could witness a rise in the insurance sector
premiums between 5.1% and 6.2% of GDP in 2012, from the current 4.1%. Total market
premiums are likely to more than double during this period, from about $40 billion to
$80-100 billion. This implies a higher annual growth in new business annual premium
equivalent (APE) of 19% to 23% from 2007 to 2012. The large part of the growth would
come from second- and third-tier cities and small towns. Based on MGI forecasts, 26 tier-
II cities with population greater than one million and 33 tier-III towns with the population
of more than 5 lakhs will account for 25% of the middle class and newly bankable class
in 2025. Over 5,000 tier-IV small towns will account for as much as 40% of these two
classes in 2025.

However, if an insurer decided to be a niche player and concentrated on metros and

their suburbs, they will have a big market, since 60% of the very rich (annual income
over Rs 10 lakhs) would be concentrated in the top eight cities. Although these
consumers will be highly accessible, players will have to reckon with intense competition
that is only going to increase and extend to other segments as well.

3.3 LIC- AHEAD OF ALL

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 LIC of India has mobilized Rs 12,361 crores of new business premiums in March
07 the highest recorded by the corporation in any single month. This has enabled the
corporation post new business premium of Rs 55,934 crores in 06-07, a 118% growth
over the previous year. LICs premium collection in March 07 was higher than the
premium collected in the whole of whole of 03-04. LICs has been the growth driver for
the entire life insurance industry which grew 110.7% to Rs 75,406 crores from Rs 35,897
crores during the current financial year. The rise in premium gives LIC a market share of
over 74% of the total new business premium mobilized in India, which is substantially
higher than the 72% as on March 106. The rise in premium is on the back of unit-linked
policies which account for nearly 70% of the total individual premium. The surge in sales
in March attributed to higher sales of unit linked insurance and group insurance business.
In March the corporation booked over Rs 4,826 crores in group insurance, which
accounted for nearly 30% of total collections. Collection from single premium plans
amount to Rs 24,927 crores, which is nearly 44% of the premium raised by the
corporation during the current fiscal. Single premium plans are a demand of the market.

There are a large section of people who do not want to commit premium payments
for every year. Meanwhile, the private life insurance industry has recorded a growth of
89% with total new business premium for the year standing at Rs 19,471 crores as against
Rs. 10,252 crores in the corresponding period last year. ICICI Prudential continues to be
the largest private life insurance player with a market share of 7% followed by Bajaj
Allianz Life Insurance which has a market share of 5.7%. The companies that have
recorded the fastest growth in the current year include Reliance Life Insurance, which
grew 381% recording new business premium of Rs 931 crores, followed by SBI Life
Insurance which grew 209% to Rs. 2,566 crores. The high growth has enabled SBI Life
to move into the number three positions after Bajaj Allianz Life Insurance.

3.4 NEW JOINT VENTURE SET UPS

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 Canara Bank, Oriental Bank of Commerce (OBC) and HSBC Insurance (Asia-
Pacific) Holdings Ltd. have signed an agreement to jointly establish a life insurance
company in the country. The company has been christened Canara HSBC Oriental Bank
of Commerce Life Insurance Company Limited. Canara Bank would take a 51 per cent
stake in the company, while HSBC and OBC will hold 26 per cent and 23 per cent stake
respectively. The new life insurance company will be capitalised at Rs 325 crores, of
which Canara Bank will contribute Rs 102 crores, HSBC Rs 177 crores and OBC Rs 46
crores. Under the terms of the agreement, HSBC would provide a range of management
services, which would include nominating executives for certain senior roles. While both
Canara Bank and OBC offer an extensive client base, complementary distribution
networks and broad local market knowledge, HSBC brings to the partnership its
considerable insurance experience, product range and proven bancassurance capabilities.

IRDA gave clearance to a joint venture between Kishore Biyanis Pantaloon Retail
India and Italian insurance firm The Generali Group to start insurance businesses. The
joint venture, Future Generali India Life Insurance Company Ltd, would transact life
insurance business. Besides, it also granted approval to Future Generali India Insurance
Company to transact general insurance business. Generali is one of the largest insurance
groups in the world, operating in 40 countries through 107 companies. It ranks 22 in the
list of Fortune 500 companies and is the largest corporation in Italy with an asset base of
over 300 billion euro.

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3.6 RIDING ON WOMAN POWER

A woman has unique needs and concerns when it comes to preparing for the future.
While the basic life insurance policy protects the bread-earner and his loved ones, he also
needs some protection against health risks specific to women. In todays society, there is
no difference in professional men and women and they both have the same earning power
and both contribute to the family kitty. Both incomes are important for family lifestyle
and standard. When the whole world seems to be riding on woman power, can
insurance companies remain far behind? Today even banks and financial institutions are
regularly churning out innovative schemes to woo the dames.

Insurance traditionally has been targeted at the earning member of the family as
insurance means helping the family to maintain the standard of living for a few years in
case something unfortunate happens to the main breadwinner. Moreover, insurance
products not only provide security for family, but also help in savings, investment
towards creating a fortune for needs in future or pension for the golden years. There is a
strong-felt need for women to also insure and invest and, therefore, insurance companies
are targeting women with specially-designed products. What is more, some insurance
companies also offer some discounts to women, although they dont have any specific
product for them.

For instance, ING Vysya Life Insurance Company doesnt have any product targeted
specifically at women; however, women enjoy lower rates of premium than men owing to
their longevity. Whatever be the case, insurance companies penchant for woman
customers is growing by the day and not without reasons. Women investors have shown
longer investment tenure and regular saving habits. So, the future products are aimed to
target these two specific characteristics and would span over both health and investment
domain. Insurers also feel that the women-specific insurance market is expected to grow

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much faster than the overall insurance sector. No wonder, this is one domain which will
become a strong focus point for them in the near future.
3.7 AGENTS

A remarkable achievement is that Indias third largest private sector insurance

company SBI life Insurance has been ranked fifth across the world in terms of number of
Million Dollar Round Table (MDRT). Life insurance agents from India are moving fast
into the realm of global insurance. The total number of Indian agents registering with the
Million Dollar Round Table, a prestigious international trade association of insurance
agents, has more than tripled to 1,931 agents for 2007 compared with 532 in 2006. The
MDRT has a total of 35,781 qualifiers, which is 1% of the total insurance agents or
advisors in the world. Within the MDRT, there are three levels such as the basic MDRT,
the Court of Table (CoT) and Top of Table (ToT). To qualify for that MDRT, an Indian
insurance agent has to get a premium of Rs. 23.92 lakhs to his insurance company or earn
a commission of Rs. 5.98 lakhs. For the agent to qualify for the COT he has to do thrice
the MDRT business, while to qualify for the TOT; insurance agent has to do six times the
business required for the MDRT.

On the other hand IRDA has taken the first step to crack the whip on agents
misleading customers on unit-linked insurance plans. To start with, it has tightened the
norms for sale of actuarial-funded unit-linked products which are on their way out. The
Regulator intends asking customers and agents to sign illustrations on the entire gamut of
ULIP products offered by insurers. While the features of ULIPs vary from product to
product, the onus will be on agents to indicate the explanation that customers have been
given on the nature of investment. Agents will also have to give a break-up of the money
spent on various expenses. The objective is to enlarge the scope of disclosures made by
agents and such transparency will be in the interest of the entire insurance sector.

3.8 UNIT LINKED INSURANCE PRODUCTS

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 The regulator had given an indication that checks would be in place to prevent mis-
selling of ULIPs, which have become popular investment instruments. IRDA is
understood to have extended the deadline for Bajaj Allianz to phase out its actuarial-
funded product or capital unit. This is set to be replicated in other ULIPs as well in due
course. The regulator has asked private insurer Bajaj Allianz Life Insurance to ensure that
policyholders investing in the actuarial-funded products sign on sales illustration given
out by agents. This will form part of the policy document, and IRDA will have the
authority to inspect it at a later stage, if need be. The entire exercise is aimed at ensuring
that the customer is fully aware of the features of the product. Aviva Life Insurance is the
other company that has been asked to withdraw actuarial-funded products. IRDA justified
the withdrawal of these products, saying that its objective was to enable the policyholders
of ULIP products to compare features and charges across products and companies.
However this order of IRDA is stayed by the High Court of Chennai. The regulator has
also introduced safeguards to see that actuarial-funded products are not sold aggressively
while they are being phased out. In the case of Bajaj Allianz, for instance, the regulator
has stipulated that the total premium collected under this product between August 2008
and September 15, 2009 should not exceed the average growth in sales posted in the
previous quarter of July 31, 2008.Although ULIPs may have become popular for more
wrong reason that right ones, the segment does have its fair share of positives.
The right reasons includes multiple benefits to the customers like Life protection,
Investment and Savings, Flexibility, Adjustable Life Cover, Investment Options,
Transparency, Options to take additional cover against, Death due to accidents,
Disability, Critical Illness, Surgeries, Liquidity and Tax Planning.

The Regulator is in the process of modifying the guidelines for ULIPs so that
products with high concentration of investments will be treated as mutual funds and term
products if the proportion is tilted towards a greater risk. The reviewed is aimed at
bringing in better information, transparency standards and understanding of such
products among customers. Customers should have an idea as to what the risk and the

26 | P a g e
return in the policy are when they subscribe to them. IRDA has also proposed to make it
mandatory for insurance companies to issue sales of document with illustration as a part
of the over all policy document. This would give an idea to policyholders about the
instruments they are investing in and risks are taking. The company, in this document,
will have to explain what component actually goes towards life cover and what towards
investment. The Regulator has clarified that the policyholders in the unit-linked scheme
could remain invested in the policy for another five years after the maturity, but could not
withdraw any amount. The decision to continue with the scheme after maturity will be
purely at the option of policyholders. The objective was to ensure that the insurance
companies cannot act as a fund manager while it can only provide the option to the
policyholder for waiting for a better NAV. The Regulator has observed that the
proportion of unit linked insurance plans in the total product portfolio has gone up by 65-
70 per cent, which ties the fortunes of the insurance company and its investors to the
vagaries of the stock market. Meanwhile, all companies are well above the solvency
margin of 150%.

The life insurance industry is growing at 30 per cent each year; its one of the fastest
growing industries in the country. Private players have captured a sizeable chunk of the
market in these six years, with the Life Insurance Corporation of Indias (LIC) share in
the new business falling to 64 per cent. The upside includes improved service, riders with
policies; unit linked insurance policies health care for as little as Rs100 per month, need-
focused products with flexibility, and sales channels to suit the customers convenience.
Theres a wide range of products and services competing to deliver the best value to
customers, which has increased the market. Expansion coupled with a rapidly growing
business is the big reason for the fresh capital infusion at regular intervals. Most private
insurers have stabilized their operations in the last five years and fine-tuned their business
models. Now is the time for expansion and launching their services beyond metros and
big cities, to get the real benefits of mass business and exponential growth.

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 Pension and health are two areas that have tremendous growth potential in the
future. Almost 90 per cent of the people in the country have no old age benefits or health
cover. New products are launched targeting niche markets. Pension products are
developing in a big way, and will benefit a large section of people in the organized and
unorganized sector. The annuity market has also started growing, and new players are
offering a plethora of new and innovative products. Alternate channels of distribution like
corporate brokers, online selling and bancassurance are increasing their share in the
business of all the companies. Increasing the insurance sector FDI limit to 49 per cent is
the foremost issue, to provide financial flexibility to the existing players and make the
Indian market attractive for foreign investment. Also, the Fringe benefit tax (FBT) needs
to be eased, especially for group products like superannuation schemes. FBT has caused
this market to stagnate, and most companies have withdrawn this product, as companies
find it increases their costs by more than 30 per cent. Now FBT restricted to more than
Rs. 1 lakh contribution per member per year.

The prospects for Indias insurance sector are good on the back of expected buoyant
economic growth and rising levels of wealth in society. The new insurance companies
aims to fulfill the needs of high net worth individuals, professionals, small and medium
enterprises, farmers and also rural and semi-urban masses. Private insurance ventures,
allowed to compete with state owned Life Insurance Corporation and non-life companies
beginning 2000, are trying to tap expanding demand for insurance in an economy
growing nine percent a year. The demand, which has seen annual premiums double to
more than 20 billion dollars since 2000, is being driven by the absence of a social
security system and low penetration dating back to the decades when government-owned
insurers enjoyed a monopoly.

The life insurance industry is close to eclipsing the mutual fund sector in terms of its
total investment in equities through the success of unit-linked products. The Mutual Fund
industry registered a total AUM of Rs 4.86 lakhs crores till July 2009, while the

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investment in equities stood at Rs 1.59 lakhs crores. As per figures compiled by the Life
Insurance Council. Life insurers total investment in equities was close to Rs 1.5 lakhs
crores as of March 2009, while total Assets under Management (AUM) stood at about Rs
6.1 lakhs crores. As much as 75% of investments made in ULIPs get routed to the stock
markets at SBI Life. At least 60% of the funds from unit-linked products are invested in
the equity market. ULIPs are sold like hot cakes but still they are under constant scrutiny.

ULIPs have given Life Insurance market a big boost to grow and expend. The
reason behind foreign companies making a beeline to enter the insurance business in the
country is pretty obvious: Insurance in India is only 3.14 per cent of its GDP compared
with the global average of 7.52 per cent. And this is expected to rise to only 4 per cent. At
present, there are 22 companies providing life insurance in the country. In India,
insurance is seen with an improper perspective. Insurance products are sold rather than
bought, as most people do not realize that insurance is for the security and benefits of
their dependants. While the objective of life insurance is to provide a lump sum amount
in the eventuality of untimely death of the insured, most Indians buy insurance to save
taxes. This is evident from that around 40 per cent of the insurance business of any
insurer takes place in March, which marks the deadline for submission of investment
details for computation of income-tax liabilities.

CHAPTER 4

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 A COMPARATIVE ANALYSIS OF POTENTIAL
OF
LIFE INSURANCECORPORATION (LIC)

AND

ICICI PRUDENTIAL

4.1 LIFE INSURANCE CORPORATION (LIC)

4.1.1 Company Profile:

Life Insurance Corporation of India was created on 1st September, 1956, with the
objective of spreading life insurance much more widely and in particular to the rural
areas with a view to reach all insurable persons in the country, providing them adequate
financial cover at a reasonable cost.

Today LIC functions with 2048 fully computerized branch offices, 100 divisional
offices, 7 zonal offices and the corporate office. LICs Wide Area Network covers 100

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divisional offices and connects all the branches through a Metro Area Network. LIC has
tied up with some Banks and Service providers to offer on-line premium collection
facility in selected cities. LICs ECS and ATM premium payment facility is an addition
to customer convenience. Apart from on-line Kiosks and IVRS, Info Centres have been
commissioned at Mumbai, Ahmedabad, Bangalore, Chennai, Hyderabad, Kolkata, New
Delhi, Pune and many other cities. With a vision of providing easy access to its
policyholders, LIC has launched its SATELLITE SAMPARK offices. The satellite
offices are smaller, leaner and closer to the customer. The digitalized records of the
satellite offices will facilitate anywhere servicing and many other conveniences in the
future

LIC continues to be the dominant life insurer even in the liberalized scenario of
Indian insurance and is moving fast on a new growth trajectory surpassing its own past
records. LIC has issued over one crore policies during the current year.

From then to now, LIC has crossed many milestones and has set unprecedented
performance records in various aspects of life insurance business. Over 54 years, LIC has
become a household name for providing security for a lifetime and is synonymous to life
insurance in India. LIC ranks No.1 in the list of top 500 companies on the basis of Net
Worth as well as Net Profit - Dun & Bradstreet (India 500).

4.1.2 Mission Statement:

"Explore and enhance the quality of life of people through financial security by
providing products and services of aspired attributes with competitive returns, and by
rendering resources for economic development."

4.1.3 Vision Statement:

"A trans-nationally competitive financial conglomerate of significance to societies
and Pride of India."

4.1.4 Products of LIC:

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 Insurance
plans

Withdrawn Pension
plans plans
Products
of LIC

Special
Unit plans
plans

LIC provides all types of products ranging from normal insurance plans to that of
ULIPs and Withdrawn plans. They offer various ranges of products to Childrens, Senior
citizens, Corporate, High worth individuals, Special policies for women and even for
married couples. They have different pension plans, Group schemes and even
Endownment Insurance plans.

4.1.5 Challenges before LIC:

New age companies have started their business. Some of these companies have been
able to float 3 or 4 products only and some have targeted to achieve the level of 8 or 10
products. At present, these companies are not in a position to pose any challenge to LIC
and all other four companies operating in general insurance sector, but if we see the
quality and standards of the products which they issue, they can certainly be a challenge
in future. Because the challenge in the entire environment caused by globalisation and
liberalization the industry is facing the following challenges:

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 The existing insurer, LIC, have created a large group of dissatisfied customers due
to the poor quality of service. Hence there will be shift of large number of customers
from LIC to the private insurers.

LIC may face the problem of surrender of a large number of policies, as new
insurers will woo them by offer of innovative products at lower prices.

The corporate clients under group schemes and salary savings schemes may shift
their loyalty from LIC to the private insurers.

Reaching the consumer expectations on par with foreign companies such as better
yield and much improved quality of service particularly in the area of settlement of
claims, issue of new policies, transfer of the policies and revival of policies in the
liberalized market is very difficult for LIC.

Intense competition from new insurers in winning the consumers by multi-

distribution channels, which will include agents, brokers, bank branches, and direct
marketing through telesales and interest, is also a challenge for LIC.

Major challenges in canalizing the growth of insurance sector are product

innovation, distribution network, investment management and customer services.

4.1.6 Potential of LIC in the Indian Insurance Industry:

LIC, in the near future has a great potential in India. It will still rule Life Insurance
market in India. The market share of LIC as now is 64% which is decreasing at a huge
rate. With the emergence of competition, LIC will implement strategic moves for
business growth, as well as ensured quality improvement in service standards. As on
today, they have been providing service to around 18 crore policy holders and their track
has been well acknowledged as reflected through continual upgradation of service

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standards cumulating into a world class performance in the area of claim settlement
operations.

It is well acknowledged that LIC will be able to provide appropriate IT support in

furtherance of prompt service to their valued policy holders. The complex task of
conversion of computerization of all the branches with their conversion as Front Line
offices has been completed in a phase manner. In addition to this, the launching of the
IVRS facility and Wide Area Network operations has helped the co-operation improve its
servicing.

LICs Strength lies in:

Wide network of branches covering rural areas.

A large and well- spread agency organization.
An acknowledged record of performance.
Adequate yield with high risk cover being offered keeping the policy holders
satisfied in the existing in the economic scenario.
Well accepted brand equity throughout the country.

In addition to this, LIC will establish a well administered Grievance Redressal

Mechanism and Ombudsman intervention, where the customers will appear to be well
attended. However, this mechanism has to be restructured keeping in view the additional
legal provisions laid down by the regulator as expounded in the IRDA act.

Till today, LIC enjoyed a monopoly. It is now that reality exists in the area of
marketing (i.e. sales and after sales service operations). It will now have to follow a
multi-faceted strategy towards customer retention and also expanding to a new client data
base. With the new face of the market, relationship management seems to be the new
mantra. At the nucleus of this approach is the concept of Customer Relationship
management. The need is to have a comprehensive review of the business keeping in
view customer expectations.

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 LIC, to be in the reckoning, has to have an efficient feed-back system, so as to
understand what the customer desires in terms of product design, service procedures,
relationship convenience, accessibility, responses in terms of personalized service,
attendance, core and complimentary on an individual basis. The new players in the
market like India First Insurance, Aegon Religare etc. will definitely be very aggressive
in the open market. LIC has to go ahead with their former customers, existing customer,
in a very gentle and courteous manner, reassuring them of their better services with
personal attention.

4.2 ICICI PRUDENTIAL

4.2.1 Company Profile:

ICICI Prudential Life Insurance Company is a joint venture between ICICI Bank -
one of India's foremost financial services companies-and Prudential plc - a leading
international financial services group headquartered in the United Kingdom. Total capital

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infusion stands at Rs. 47.80 billion, with ICICI Bank holding a stake of 74% and
Prudential plc holding 26%.

ICICI Prudential was amongst the first private sector insurance companies to begin
operations in December 2000 after receiving approval from Insurance Regulatory
Development Authority (IRDA). At present it is growing at a tremendous pace.

The company has a network of about 56,000 advisors as well as 7-bancassurance

and 150 corporate agent tie-ups. For the past five years, ICICI Prudential has retained its
position as No. 1 private life insurance in the country, with a wide range of flexible
products that meet the needs of Indian customer at every step in life.

For three years in a row, ICICI Prudential has been voted as India's Most
Trusted Private Life Insurer, by The Economic Times - AC Nielsen ORG Marg survey of
'Most Trusted Brands'. As they grow their distribution, product range and customer base,
continue to tirelessly uphold their commitment to deliver world-class financial solutions
to customers all over India.

ICICI Prudential has recruited and trained about 56,000 insurance advisors to
interface with and advise customers. Further, it leverages its state-of-the-art IT
infrastructure to provide superior quality of service to customers. Today the total market
share of ICICI Prudential is 9% of the total life insurance industry and the largest private
sector Life insurance company in India. In June, 2009 ICICI Prudential Life Insurance
has decided to snap its tie up with TTK Healthcare to settle insurance claims of its users.

4.2.2 Vision Statement:

To be the dominant Life, Health and Pensions player built on trust by world-class
people and service.

Vision statement is hoped to achieve by:

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 Understanding the needs of customers and offering them superior products and
service.
Leveraging technology to service customers quickly, efficiently and
conveniently.
Developing and implementing superior risk management and investment
strategies to offer sustainable and stable returns to our policyholders.
Providing an enabling environment to foster growth and learning for their
employees.
And above all, building transparency in all their dealings.

4.2.3 Values:
Every member of the ICICI Prudential team is committed to 5 core values: Integrity,
Customer First, Boundaryless, Ownership, and Passion. These values shine forth in all
they do, and have become the keystones of their success.

4.2.4 ICICI Group:

4.2.5 Products offered by ICICI Prudential:

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 Life
Insurance
plans

Pension
Products
Group and
of ICICI
plans Retirement
Prudential
solutions

Health
Product
suite

4.2.6 Challenges before ICICI Prudential:

The biggest challenge for the company today is to understand the customer better
which will enable company to design appropriate products, determine price
correctly and increase profitability.
ICICI Prudential has overstaffing and with the introduction of full
computerization, a large number of the employees will be surplus. However they
cannot be retrenched. This will be a disadvantage in the competitive market, as the
new insurers will operate with lean office and high technology to reduce the
operating costs.
Management of claims will put strain on the financial resources of the company
since it is not up the mark.
The company will have to face an acute problem of the redressal of the consumers,
grievances for deficiency in products and services.
Major challenges in canalizing the growth of ICICI Prudential are product
innovation, distribution network, investment management and customer services.
4.2.7 Potential of ICICI Prudential in the Indian Insurance Industry:

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 ICICI Prudential with a market share of 9% has a great potential in India. In a
significant move, ICICI Prudential Life Insurance - a joint venture between the ICICI
group and Prudential Plc. of the UK - has expanded its marketing platform for promoting
life insurance products to 1,500 banks branches from 642 branches through its existing
bancassurance tie-up with seven banks.

If we look at the financial performance the company has sold over 10 million
policies and crossed Rs. 28,000 crore in assets held during last nine years of its operation.
The company continued its strong performance with retail new business weighted
premium of Rs. 6,684 crores, registering 68 per cent growth over last year. The company
has tripled its branch network to 1960 branches in 1665 cities across the country
including over 1000 branches in rural segments in 2009-10. The total premium income of
the company jumped by 71 per cent to Rs. 13,561 crore from Rs. 7,913 crore in 2008-09.
The last financial year we saw increase in their distribution network and strength their
service infrastructure and continued to introduce innovative products in health, retirement
and wealth creation space, has created a great potential for the company to grow in the
Indian market.

Further, the company having released advertising campaign through print, outdoor
and radio, the company has also recently released a new advertising campaign through
the electronic media for promoting their various policies. The Company recently tied up
with the Forbes Six Sigma rated Dabbawalla organization in Mumbai for a direct
marketing exercise. In a Unique effort to create awareness about a tax saving product, the
company attached a creative of a bitten apple to Mumbais ubiquitous lunchboxes. It
worked wonderfully with Mumbais office-goers and one that translated into substantial
business for the company. Being a number one private life insurer with a market share of
9%, ICICI Prudential is fast emerging to serve its customers and provide excellent
customer service to increase their profits and maintain their stability in the Indian market.

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4.3A COMPARATIVE ANALYSIS OF POTENTIAL OF LIC AND
ICICI PRUDENTIAL

The potential of LIC and ICICI Prudential can be compared based on the following
considerations:

(A) Total Premium:

(Rs. in Crores)
2008-09 2009-10

LIC 127,822 149,789

ICICI Prudential 7913 13,561

(Source: www.licindia.in, www.iciciprulife.com)

The total premiums collected by LIC for the year ended 2009-10 were Rs. 149,789
crores as compared to that of ICICI Prudential was Rs 13,561 crores, is quite high. ICICI
Prudential has collected more premiums if we compare with other private life insurers.

(B) Total Income:

(Rs. in Crores)

2008-09 2009-10

LIC 174,425 206,363

ICICI Prudential 16,860.48 16,212.02

(Source: www.licindia.in, www.iciciprulife.com)

The total income of LIC for the year ended 2009-10 was RS. 206,363 crores as
compared to that of ICICI Prudential which was Rs. 16,212 crores. All over Income is
much more than of ICICI Prudential due to the fact that LIC being a government agency
is being trusted by lot of companies and has large number of shares in big corporate.

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 (C) Number of Branches:

2008-09 2009-10

LIC 2301 2522

ICICI Prudential 1645 1960

(Source: www.licindia.in, www.iciciprulife.com)

When the matter of total number of branches comes its very much obvious that
LIC, being the oldest existing insurance company in India, has the large number of
offices in the country by any single insurance company. ICICI Prudential is giving tough
competition to LIC in case of number of branches with continuous expansion in their
business.

(D) Market Share:

2% 1%
2% 6%
3%
3%
LIC
3%
ICICI PRUDENTIAL

7%

9% 64%

(Source: www.irdaindia.org)

LIC is still the market leader in insurance industry with 64 % share. But we cannot
forget that in last five years market share of LIC has decreased. It was 73.9 % in year
2003-04 which came down to 64 % in 2009-10.

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 (E) Total Number of Policies:

2008-09 2009-10

LIC 30.76 million 51.23 million

ICICI Prudential 8.12 million 10.23 million
(
S
(Source: www.licindia.in, www.iciciprulife.com)

LIC is an undoubted leader in the field of average number of policies per year in the
last five years. It is seen that private insurance companies are gaining momentum and are
trying to defeat LIC in case of new insurances. Main reason behind LIC having such a
large number of policies is the trust of a common man. LIC being a government agency
has got a faith of Indian mass. People are not yet prepared to give their savings in the
hands of private players.

Thus from the above facts and figures it is seen that LIC is the clear market leader in
the life insurance business while ICICI Prudential is trying to compete LIC in some
aspects of the business. Thus the potential of LIC in Indian Life Insurance Industry is
comparatively more than six times higher than that of ICICI Prudential.

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