Cygnus Life Insurance

INDUSTRY INSIGHT
INDIAN LIFE INSURANCE
April 2004
Cygnus Economic & Business Research

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Industry Insight- Indian Life Insurance
Table of Contents
EXECUTIVE SUMMARY................................................................................................................4
HIGHLIGHTS ....................................................................................................................................5
INTRODUCTION .............................................................................................................................6
DEMAND DRIVERS........................................................................................................................6
Economic Factors......................................................................................................................6
Demographic factors.................................................................................................................6
GLOBAL INSURANCE INDUSTRY............................................................................................7
WORLD INSURANCE PREMIUMS.............................................................................................8
Current Scenario ........................................................................................................................8
GLOBAL LIFE INSURANCE INDUSTRY.................................................................................9
Emerging Markets....................................................................................................................11
GLOBAL TRENDS IN INSURANCE MARKET ....................................................................13
INDIAN INSURANCE INDUSTRY...........................................................................................16
Evolution ..................................................................................................................................16
Insurance Sector Reforms ......................................................................................................17
CURRENT SCENARIO..................................................................................................................18
Insurance Penetration .............................................................................................................19
Insurance Density ....................................................................................................................19
INDUSTRY STRUCTURE.............................................................................................................20
INDIAN LIFE INSURANCE INDUSTRY ................................................................................22
Overview ...................................................................................................................................22
Product Profile .........................................................................................................................22
Major Lines of Life Insurance Business ...............................................................................23
Market Share and Growth ......................................................................................................24
© Cygnus Economic & Business Research 2004 Page 2 of 44

TRENDS AND STRATEGIES .....................................................................................................28

Innovative Products ................................................................................................................28
Distribution Channels .............................................................................................................29
Innovative Marketing Efforts ................................................................................................31
ISSUES AND CHALLENGES......................................................................................................32
Lack of Adequate Data ...........................................................................................................32
Falling Interest Rates ...............................................................................................................32
Ambiguity of Role of Intermediaries ....................................................................................33
Unfavorable Tax Regime ........................................................................................................33
FDI Cap ....................................................................................................................................34
Restrictive Investment Guidelines.........................................................................................34
Health Insurance......................................................................................................................34
Pension Funds..........................................................................................................................35
CRITICAL SUCCESS FACTORS .................................................................................................35
FUTURE OUTLOOK .....................................................................................................................38
Huge Population ......................................................................................................................38
Increasing Standard of Living ................................................................................................38
Rural Population ......................................................................................................................38
Competition..............................................................................................................................38
Pension market.........................................................................................................................38
CONCLUSION.................................................................................................................................40
ANNEXURE .....................................................................................................................................41
BIBLIOGRAPHY .............................................................................................................................44

EXECUTIVE SUMMARY
India, with around 16% of the world population has 0.59% of the world life insurance
market. India has a savings rate of 22%, but only around 5% is spent on insurance.
Insurance penetration in India is very low at 3.26. Despite India’s vast population, low
incomes, rural poverty, low levels of education, absence of innovative products and lack of
awareness about insurance products have constrained the growth and penetration of
insurance products in the past.
The Indian life Insurance industry has been experiencing tremendous activity in the recent
past. The opening up of the insurance market in 1999 has paved way to the entry of many
foreign players. Presently there are 13 players operating in the life insurance market.
However, the industry is highly concentrated in the hands of the Life Insurance Corporation
of India which held 88% of the market share in the year 2002-2003.
Overall the market share of private insurers’ increased from 2 % in the year 2001-02 to
nearly 12.78% in the year 2003-04. The new entrants coped with the challenges of setting up
operations, building up the agent force and spreading to the rural and semi-urban areas.
Moreover, increasingly deregulated and liberalized environment, innovative distribution, and
better use of technology are helping the new breed of private life insurers take market share
away from the erstwhile public sector companies.
With a large population, fast and rapid growing economy and constant improvement of its
people’s living standard, the insurance industry in India has tremendous market potential.
However, it is still at its preliminary stage of development now with a relatively small size.
The strength and depth of the Indian insurance industry has a large gap compared to the
average world level. In the current scenario product innovation, consumer awareness,
distribution networks and customer service would be critical factors. The successful
insurance companies would be those that anticipate market demand and evolve suitable
products and services and offer good customer services.

HIGHLIGHTS
● Global insurance premium volume in 2002 amounted to $ 2,627 billion, of which $ 1,536
billion (58%) was attributable to life insurance and $ 1,091 billion (42%) to non-life
insurance.
● US continues to be the world leader where insurance premium has, for the first time,
crossed the 1 trillion mark to $1,000.3bn in 2002 accounting for 38% of world premium
up from 35.41% three years ago.
● The growth in premium income in 2002 has been 5.5% growth over the 2001. Growth
was 3.0% in life insurance and 9.2% in non-life insurance.
● India stands 19 (23 in ’00-01) in the premium income rankings world-wide with an
annual premium income of $15,472m ($9,933m in ’00-01) and a meagre of 0.59% of the
global market (0.41 in 00-01)
● In terms of insurance penetration in world rankings, India stands at No 43 up from 52 in
’00.
● Out of one billion people in India, only 40 million people are covered by insurance.
● Insurance penetration — the percentage of premium income to GDP — has moved up
from 2.32% in ’00-01 to 3.26% in ’02-03.
● The improvement has been largely on account of the growth in life insurance business
where premium income grew from 1.77% of GDP to 2.59%.
● The life insurance market in India is highly concentrated in the hands of the Life
Insurance Corporation (LIC) which held 92% of the market share in the year 2002-2003.
● The new players in the life insurance sector have been successful in eating up a
reasonable share of LIC with ICICI prudential emerging as a clean leader.
● Indian insurance market is set to touch US $25 billion by 2010, on the assumption that
the real annual growth in GDP would be 7%.

INTRODUCTION
Insurance is a contract, which provides financial risk coverage to the insured for any adverse
events. It plays a vital role in the lives of most people, as a means of dealing with risks which
they face and as a means of savings. Insurance, in any economy, is regarded as a pillar of
growth and works as a catalyst in the overall development of the economy. As the economy
grows the living standards of people also would increase. Consequently, demand for life
insurance increases.
DEMAND DRIVERS
Economic Factors
Economic Development – The demand for insurance tend to increases with increase in
the per capita income. The level of spending on insurance directly depends on the level of
disposable income in the hands of an individual.
Decline interest rates- The declining interest rates in the economy make it all the more
necessary to start saving early to ensure long term wealth creation. Today's consumers are
increasingly interested in products to help build wealth and provide for retirement income.
In terms of returns, insurance products today offer competitive returns ranging between 7%
and 9%. Besides returns, what really increases the appeal of insurance is the benefit of life
protection from insurance products along with health cover benefits.
Demographic Factors
Growing consumer awareness – Earlier insurance products were viewed as only savings
instruments. However, over the past few years insurance consumers are looking at Insurance
as a complete financial solution offering stable returns together with total protection.
Increasing Longevity- Where once the fear was one of dying too early, now, with
increasing longevity, the fear also is one of living too long and outliving one's assets. With
the breakdown of traditional forms of social security like the joint family system, consumers
are now more concerned to provide themselves with the need to provide for a comfortable

retirement. Increasing longevity generally increases the demand for savings based life
insurance products and annuity income streams.
Education- Increase in literacy levels also influences the demand for insurance products.
Educated people understand the need for insurance better and would help in the increase in
the demand.
GLOBAL INSURANCE INDUSTRY

Major part of the insurance business is concentrated in the developed and higher income
countries. Region wise North America and Europe followed by Asia with Japan in particular
constitute the major markets. Regarding the individual countries the United States stands
first in terms of premium followed by Japan, and the other major European countries UK,
Germany and France.
Market share as per the insurance premiums in 2002
Other, 19.40%
Netherlands,
1.50%
United States,
Canada, 1.90% 38%
Italy, 3.20%
France, 4.80%
Germany,
5.20%
Japan, 17%
United
Kingdom, 9%
Data Source: Sigma World Insurance 2002 No. 8/2003

WORLD INSURANCE PREMIUMS

Globally the life insurance segment is larger than the property/casualty segment. In 2002 the
world insurance premium amounted to $ 2,627 billion, of which $ 1,536 billion was
attributable to life insurance and $ 1,091 billion to non-life insurance. The overall growth has
been 5.5 % over the previous year. Life insurance income grew by 3% and non-life insurance
income grew by 9.2%. The world life and non life insurance premiums constitute 58.4 % and
41.6 % of the total premiums respectively. Over the 10-year period, 1992 to 2002, total
world insurance premiums grew 79.2%. While life insurance premiums grew 99% over the
same period the non life premiums grew 56%.
Growth of Insurance Premiums (1992-2002)
3000
Life
2500
Premiums in $Bn
2000
1500
1000 Nonlife *
500
0
92
93
94
95
96
97
98
99
00
01
02
19
19
19
19
19
19
19
19
20
20
20
Year
Current Scenario
The recession in the global economy since 2000 and the sharp increase in the claims in years
2001 have severely impacted the insurance industry. The profitability of all the insurance
companies suffered due to lower investment returns. While financial market turbulence
continued to plague the insurance markets in 2002, some signs of recovery were evident in
the most markets. While the life sector posted minor improvement, the non-life insurance
sector grew at a record-breaking rate.

GLOBAL LIFE INSURANCE INDUSTRY

The developed countries produced almost 90 % of the global life and non-life premiums in
the year 2002. North America was the most important region followed by Western Europe
(US$ 826 billion), Japan (US$ 446 billion) South and East Asia (US$ 167 billion) and
Oceania (US$ 37 billion).
In the developed countries the average life insurance penetration (insurance premiums as a
percentage of GDP) amounted to 5.4%. The UK reported the highest level of penetration at
10.2%, followed by Japan at 8.6% and Switzerland at 8.4%. The average per-capita spending
on life insurance was USD 1450. The Swiss spent the most on life insurance in 2002 (USD
3100), followed by the Japanese (USD 2784) and the British (USD 2679).
Growth in Premium volume in Major Insurance markets in 2002
% Growth
Country 2002 Life insurance premium volume grew by 1.9%
(YOY)
in the developed countries in 2002 down
United States 480.5 6.7
from the previous year’s 2.4%. While
Japan 354.6 -2.3
premium volume in the US, Italy and
United Kingdom 159.7 -1.9
Germany, increased it decreased in Japan, the
Germany 60.9 2.6
UK and France.
France 80.4 -0.9
Italy 52.4 17.4
The growth is mainly because of the increase in premiums in the US. In Japan, UK and
France, life insurance was hindered by the adverse capital market conditions and weak
economy. In the low interest rate environment, guaranteed returns in particular turned out to
be a heavy burden for European life insurers.

However, the life insurance sector is expected to stabilize in 2003. The profitability of many
life insurers are set to improve slowly as interest rates and stock markets will overcome the
worst. The driving force behind the recovery in the developed countries will be the private
pension provision, which is assuming a major role after the state pension systems in many
countries are proving increasingly inadequate.
North America
In North America life insurance and annuity grew by 6.3% in 2002 up from the negative of -
1.5% in 2001. Life insurance premiums in the US increased by 6.7% and declined in
Canada by 2.2%. The main reason for the strong growth in the US has been the increase in
sales of protection and savings products which are provided with fixed returns. The industry
benefited from the shift of consumers into forms of investments offering secure returns.
The fall in demand for occupational pension products affected the premium growth in
Canada. The capital base of North American life insurers deteriorated due to the losses
incurred on their equity and corporate bond investments. The reduction in the spreads
between the guaranteed rates on their products and investment yields prompted insurers to
reduce their guarantees. Investment returns are expected to strengthen again in 2003, due to
the improved conditions on capital markets and rising interest rates. Life insurance and
annuity premium growth are likely to continue in the region, although at a slow pace given
weak employment and income.
Western Europe
The life insurance premiums of Western European companies have increased by 1.2% in
2002 up from the -6.1 in 2001. Unit- and index-linked life insurance products with capital
guarantees were offered in many markets with the aim of making them more attractive in an
environment of falling stock markets. The gradual privatization of pension provision in
Germany and Spain and a change in taxation law in Italy provided considerable impetus for
growth. However the investment results and equity bases of most of Europe's life insurers
worsened because of the low interest rates and ever-declining stock markets. Life insurers
were forced to reduce their profit shares and raise new capital. Some insurers reported
solvency problems, which resulted in several of them being downgraded. The situation has

relaxed a little after the improvement in conditions in the capital markets. The UK life
insurance market - the biggest in Europe - is facing up to a difficult year, as the market for
single premium with-profit bonds has collapsed. Overall, growth in the western European
life insurance market is likely to remain slow for some more time.
Japan
The stagnating economy in Japan has pushed down the life insurance premiums by 2.3% in
2002 down from the previous year’s growth of 1.3%. Only individual annuity business
registered growth. Interest rates and stock prices were even lower at the end of 2002 than
they had been at the beginning. However, stocks rallied in the first half of 2003, which
should boost the insurance industry.
Oceania
In 2002, premium income in the Australian and New Zealand life insurance markets fell by
9.5% (2001: -4.6%) and 4.5% (2001: -1.3%), respectively. Although the Australian financial
markets did better than their international counterparts, falling global stock markets had a
negative influence on the life insurers in the region. With single-premium policies accounting
for the majority of business, investment market sentiment had a strong bearing on both life
insurers' premium volume and profitability. However, premiums for term-life insurance
increased by 12.9%. Due to their solid capital base and mandatory superannuation
requirements, Australian life insurers were relatively flexible despite the difficult operating
environment.
Emerging Markets
Life insurance business in the emerging markets grew by just under 13% in 2002. This strong
growth was supported by developments in many regions: China, Taiwan and India in
particular, along with Brazil and Mexico, contributed the most to this growth. Premium
income in Central and Eastern Europe as well as in the Middle East and Central Asia were
burdened by special factors. For instance, the changes in Russian and Israeli tax legislation
held premium development in these countries in check. This had a negative impact on

results across the region. Overall, premium income in most of emerging markets increased at
a markedly faster pace than gross domestic product.
Major Emerging markets and their premium

Total premium in
Country % Change over 2001
USD billion
Latin America and the 15.4 4.8
Caribbean
Central and Eastern Europe 8.1 -4.9
South and East Asia 117.0 18.3
Middle east and Central 6.1 3.3
Asia
Africa 17.8 7
Also the demand for life insurance rose at the expense of low rate bank deposits with China
and India reporting incredible growth of 62.2% and 14.1%, respectively. In both these
markets rising incomes, social security reforms and further opening up of the market
stimulated the growth of life insurance. But the world average has been pushed up due to
developed countries such as Japan (10.86%) and the US (9.58%), where higher disposable
income leads to higher purchase of insurance.
Asia promises to register the highest growth rates in the world. China and India, both of
which have recently opened their insurance sectors to competition will continue to attract
global and regional insurance companies. China and India constitute one third of the world’s
population. They are also among the fastest growing economies in the world and offer huge,
untapped potential. China is undergoing sweeping insurance liberalization with the support
of the World Trade Organisation. By end-2006, the insurance market in China will be fully
liberalized, with no geographic or product restrictions. In India, foreign investment
restrictions (26%) and the enforcement of tariffs are also under review, indicating a more
liberal and competitive regime going forward. Life insurance, particularly, is likely to remain
strong due to rising household income and greater risk awareness. The ageing population in
some parts of Asia is also spurring demand for investment-linked and pension products.

GLOBAL TRENDS IN INSURANCE MARKET

Over the last few years the insurance industry all over the world is being driven by common
factors discussed hereunder.
Increasing Consolidation
Size brings with itself market power and reduced costs. The desire for economies of scale in
the insurance sector continues to drive consolidation. Players are also trying to expand
distribution channels, increase cross selling opportunities, diversify product lines and
diversify into new product lines. A look at the ratios of some firms indicated that in the
North American life insurance segment, management expenses as a fraction of net
premiums written decreases from 16% for the smaller firms to 11% for the larger ones; in
Europe the ratio decreases from 9% to 4%. In terms of profitability, a consistent pattern
emerges: larger insurance firms are more profitable than smaller ones. In North America, the
return on equity increases from 3% to 13% for the life segment and in Europe, it increases
from 1% to 12%. Thus, the insurance industry seems to be benefited from a consolidation
process that would allow them to exploit scale economies and transfers of high-quality
managerial skills.
Globalization
Globalization results in the gradual removal of barriers between countries. The influence of
the Internet and developments in technology have led to business process outsourcing
(BPO) which is nothing but shifting of labour intensive tasks to low wage countries. The US
insurers are using Canada for outsourcing claim settlement, accounting policy administration
and underwriting operations. At the same time insurers from Europe are setting up their
own back office facilities in countries like India.
Deregulation
Deregulation is encouraging the emergence of global financial services firms to replace stand
alone banks or insurers. Deregulation has gained widespread acceptance in Asia. Countries
like China, Malaysia, Indonesia and Thailand, which opened their insurance markets to

foreign players, displayed significant increases in growth rates. The rank of South Korea,
which opened its insurance sector in 1971, in global premium mobilization improved from
30th in 1971 to 7th in 2001. However, deregulation is being opposed by increasing the
controls over the way the products are sold and delivered to consumers.
Segregation
The traditional view of an insurance business as a provider of all integrated services like
distribution, underwriting, administration, funds management is changing. As the various
companies are seeking to meet, customer needs they will need to place emphasis on multiple
channels and multiple relationships rather than providing all the services by themselves.
Ageing Population
People all over the world are living longer. The percentage of world population aged 60
years and above (60+) increased from 8.2% in 1950 to 10% in 2000. The present
demographic transition is expected to continue into the present century. Worldwide, the
proportion of 60+ is expected to increase to 15% by 2025, and 21.1% by 2050, and nearly
33% by 2150. The older population itself is ageing. As the following table illustrates, striking
differences exist between economic status and regions. During 2000, the population of 60+
comprised 7.7% of the total population in developing countries, as compared with 19.4% in
developed countries. In terms of regions, one out of five Europeans, but only one out of 20
Africans, is 60 years or older.
Population Trends –aged 60 years and above

Percent of Population
2000 2025 2050
World 10.0 15.0 21.1
More Developed 19.4 28.2 33.5
Less Developed 7.7 12.6 19.3
Africa 5.1 6.3 10.2
Asia 8.8 14.7 22.6
Europe 20.3 28.8 36.6
Latin America 8.0 14.0 22.5
North America 16.1 25.1 27.2
Oceania 13.4 19.7 23.3
Data Source: United Nations

The “ageing society” has significant implications for the insurance industry. Numbers of
dependent individuals are increasing in countries with significant ageing populations which
pose a big problem to them. Establishing how much social security cover should be
provided by governments and how much by private operators is a crucial issue. However, in
most countries, governments alone cannot provide social security by covering all the costs,
which has opened the way for private insurance. Government coverage is also beset by
financing problems, implying increased opportunity for private insurers.
Worldwide, there has been a general trend for governments to play a less pervasive role in
providing social security for the aged. This in part reflects political changes, and also the fact
that governments are unable to justify to voters the higher taxes (or more State borrowing)
necessary to support this government role. As a result, there has been a transfer of more of
the responsibility for pension provision onto the private insurance sector.
Social security provisions in Asia, which has a wide variety of social security systems, are
generally characterized by low coverage: for example 8% of the labor force in India, 10% in
Thailand, and 18% in China. Social security expenditure as a percentage of GDP remains
generally low. However, the higher- and middle-income countries (e.g. Malaysia, Republic of
Korea, Thailand and Singapore) have seen the share of GDP devoted to financing social
security grow in real terms, and coverage has been extended.
Banc assurance
Banc assurance is emerging as the most sought after distribution channel for the insurers,
and will make a very large impact on financial services industry. Traditional methods of
distributing financial services are being challenged, and innovative, customized products and
channels are emerging. Banks are trying to bring in customer database, leverage on their
brand recognition and reputation at both local and regional levels, make use of the personal
contact with their clients, which a new entrant cannot, as they are new to the industry.
However, the success of Banc assurance would mostly depend on how well insurers and

banks understand each other's businesses and seize the opportunities leveraging each other’s
strengths.
INDIAN INSURANCE INDUSTRY

The Insurance industry in India has undergone a drastic change over the years from being an
industry operating in an open competitive market, later being nationalized and again being
open to competition.
Evolution
1912 The Indian Life Assurance Companies Act – kicked off regulations in the Indian
insurance sector
1938 The Insurance Act - marked the real beginning of comprehensive regulations; several
amendments and additions were made in the Act until the nationalization of the industry
1956 Nationalization of life insurance business through enactment of the Life Insurance Act
1972 Nationalization of general (non-life) insurance business through enactment of the
General Business (Nationalization) Act
1993 Constitution of the Malhotra Committee to study the insurance industry and suggest
reforms
1994 Malhotra Committee recommendations released - key suggestions:
• Open industry to private participation - domestic and foreign
• Strengthen the capital base of companies ; reduce mandatory investments
• Restructure LIC/GIC operations; induct accountability to policy holders
• Set up a statutory autonomous regulatory body with independent financing
• Introduce intermediaries between insurers and customers
• Periodic review of product pricing and premia rate rationalization
1995 Constitution of the Mukherjee Committee to examine issues of transparency in

insurance accounting and suggest new standards for solvency margins

1996 Constitution of the Interim Insurance Regulatory Authority (IRA) to suggest legislative
reforms in the insurance industry until the establishment of an independent regulatory
authority
1997 Mukherjee Committee Report on solvency issues submitted to Government; findings
and recommendations not made public
1999 Passing of the Insurance Regulatory and Development Authority (IRDA) Act
Insurance Sector Reforms

Reforms in the Insurance sector in India were initiated with the passage of the IRDA Bill in
Parliament in December 1999. Some important provisions under the act are:
• The maximum limit of foreign equity capital is 26% in life, general and reinsurance
ventures
• A company is not allowed to venture into both life and non life insurance business.
Separate set if license is required if the same set of bidders desire licenses in both.
• The act made it mandatory for the Indian promoter to divest shareholding in excess of
26% after a period of 10 years from the commencement of business.
• The minimum paid up capital for both life and general insurance business is fixed at
Rs.1bn.
• The private insurers who foray into general insurance should maintain a solvency margin
out of the highest of Rs.500 mn or 20 percent of net premium income or 30 percent of
the net incurred claims
• Banks, NBFCs’ and other financial institutions are allowed to enter into the insurance
market only through joint ventures
• Policyholders funds to be invested within India
• Compulsory rural and social sector exposure norms specified
The IRDA since its incorporation as a statutory body in April 2000 has stuck to its schedule
of framing regulations and registering the private sector insurance companies. Every insurer
seeking to carry out the business of insurance in India is required to obtain a certificate of

registration from the IRDA prior to commencement of business. In the private sector 13 life
insurance and 9 general insurance companies have been registered.
Since the IRDA act has been enacted the Authority has taken a number of initiatives. A
number of regulatory orders dealing with various practices of insurers have been put in place
to raise and bring the standards in the Indian insurance market in line with the international
standards. Some of its initiatives are:
• Developing the rural and social sector insurances, personal insurances including health
insurance to increase the penetration of Indian market.
• Licensing the Brokers and corporate agents to stimulate demand for insurance covers
and also to professionalize the intermediary link.
• Grading Surveyors and loss assessors according to the expertise.
• Revising the motor tariff and a setting up a separate terrorism pool.
• Regulating the policyholder protection through imposition of punitive provisions on
insurers for their failure to follow its code.
• Raising the profile of the Indian market in the domestic and the international markets
through extensive participation in the insurance related events.
CURRENT SCENARIO
Despite the introduction of financial reforms in the insurance sector which paved way for
the liberalization of the insurance market the business is still a virtual monopoly. GIC, with
its four subsidiaries, enjoys the monopoly in the general insurance business. LIC, which has
a vast network of 2,048 branches, and 10, 02149 agents is a monopoly in the life insurance
business. FY2002 was the first full year of operations of the private sector insurance
companies in India.
In the fiscal year 2002 the total premiums stood at US $ 15.45 billion which is at 0.59% of
the total global premiums of US$ 2626.8 billion. In absolute terms, India stands 19 (up from
23 in 2001) in the premium income rankings world-wide. There are around 200 million
people who can afford to take life insurance policies in India but currently 40 -45 million

people are covered. India has a savings rate of 22%, but less than 5% is spent on insurance.
Hence the Indian insurance market has huge potential. With just eight per cent of the Indian
population having insurance policies and most of them underinsured, the life insurance
companies see a double-digit growth in business for the next five years.
Insurance Penetration
Insurance penetration (the percentage of premium income to GDP) in India has moved up
from 2.32% in ’00-01 to 3.26% in ’02-03. The improvement has been largely on account of
the growth in life insurance business where premium income grew from 1.77% of GDP to
2.59%. Although non-life premium has also grown from 0.55% to 0.67% of the economy, it
is much lower than the growth in life insurance. In terms of insurance penetration India
ranks 43 in the world in 2002 up from 52 in 2000.
While the improvement in insurance penetration is significant, it is still low compared to the
10.2% in UK, 8.6% in Japan and 8.4% in Switzerland and the world average of 8.14%. Low
insurance penetration is an indicator to the fact that the spread of insurance business has
been relatively poor in the country and large sections of the insurable population are still
isolated from insurance coverage. Given India’s large population, the number of potential
buyers of insurance is certainly attractive. In most developed countries insurance premiums
constitute 10 per cent of the GDP.
Insurance Density
The per capita premium in India in 2002 stood at US$ 14. 7 compared to the world average
of US $ 175.6. Most savings in India go to bank deposits, primarily because of the
guaranteed rate of return.
Investment takes place only when there are savings in the economy. Life insurance funds
constitute one of the major components of financial saving of an economy. Life insurance
funds, which comprised of 8% of the financial savings in 1993-94 increased to almost 14%
in 2001. The distribution of financial assets over the years is shown in the Annexure.

The following graph depicts the percentage of the life insurance funds in the year 2002 in
terms of the percentage of household financial saving spent on life insurance.
Breakup of Financial Savings
Provision plus
pension fund Currency
19% 10%
Life insurance
funds Net deposits
14% 38%
Shares and
Net claims on debentures
Government 2%
17%
Data Source: RBI Annual Report 2002-2003

The growing share of insurance in the savings of the household sector is a positive
development. However life insurance density in India measured as the life insurance
premium as a percentage of the gross domestic saving is low at 6.2% compared to the high
of 80% in South Africa, 55.4% in UK, 25.4% in USA and 27.1 % in Japan. This indicates
that there is a vast potential for growth in the life insurance funds in India. In the current
scenario where the disposable income is rising leading to better standard of living and
increasing life expectancy, concerns such as old age security will result in increasing share of
financial saving in the life insurance instruments. New insurance companies are now trying
to lure depositors to invest in insurance products by enticing them with guaranteed returns
INDUSTRY STRUCTURE
The Indian Insurance Industry has traditionally been divided into life insurance and non life
or general insurance. The industry is again classified into public sector where the life
Insurance Corporation of India (LIC) operates as a monopoly and private sector where 12
players have started operating since 1999.

Indian Insurance Industry
Life Non-Life
Public Private Public Private

Sector (1) Sector (13) Sector (4) Sector (9)
The list of the Life insurance companies operating in India is given in the Annexure.
Industry Analysis using Michael Porter’s Model

Competitive Forces Influence Reasons
Barriers to Entry High • Huge Economies of Scale
• First Mover Advantage for LIC and GIC
-Well established distribution network
for the PSUs
• Minimum paid up equity capital of Rs.
1bn for entry
• Heavy capital investment required in
distribution networks, hiring of agents
• Long gestation period of 7-10 years
Bargaining Power of Low • The buyers of insurance policies are

Buyers highly fragmented
Bargaining Power of Low • Premiums charged controlled by the
Suppliers TAC for some line of businesses (non
life)
Threat of Substitute Low • No substitute if insurance products are
Products viewed as risk management instruments.
However as an investment and savings
tool there are various other substitutes
like bonds, mutual funds etc.
Rivalry among High • High Strategic Stakes
Existing Firms • Exit Barriers are high.

INDIAN LIFE INSURANCE INDUSTRY
Overview
The Indian Life insurance Industry has seen a remarkable shift since the time of the
establishment of first Company, Oriental Life Insurance Company (a British firm) in 1823.
Compared with a total of 245 insurers (154 Indian insurers, 16 foreign insurers and 75
provident fund societies) who were carrying on the life insurance business in India at the
time of India’s Independence in 1947, the country today has 13 players in the life Insurance
segment(1 in public sector and 12 in the private sector). The change in this profile has been
mainly because of various Acts, reforms and legislations which have been passed over years
and the final boost coming up with opening up of the Insurance Sector for Private Players.
Product Profile
Life insurance products are mainly designed to provide funds to a survivor, family or
business in the event of the death of the insured. It is used to help replace income, pay off
mortgages, debts or estate taxes, and provide cash to buy out a partnership or acquire stock
owned by the deceased.
There are two basic types of life insurance policies: term insurance, which provides coverage
for a specified period of time (the term), and endowment insurance, which combines a death
benefit with a cash value component. The endowment insurance offers lifetime protection,
while term insurance may be most affordable option for buying life insurance mainly for the
financial protection it offers, and when the need for life insurance is temporary.
Based on the Demographic Profile various products have been created and continuous
product innovations are done to meet the growing needs of different segments of the
society. Some of the products categories catering to different segments are:

Age Groups Policy
0-20 years Children Plan

Educational Needs, Marriage Plans
20-49 years Money Back, Endowment Plan, Loan Cover, Term Plans,
Unit Linked Insurance Plans.
Investments, Tax planning
50 and above Pension plans
Security and Regular Flows
• Money Back Policies

• Endowment Plans
• Unit Linked Plans
• Health Plans
• Loan Cover
Series1
• Children Plan
• Education Plans
• Pension Plans
• Marriage Plans
• Money back Policies
Age Bracket 0-14 15-49 50-69 >70
Major Lines of Life Insurance Business

In India there are four major lines of business in the life insurance industry – individual life,
individual annuities, group life, and group annuities. The most important lines of business in
terms of both revenues and profits are individual life and individual and group annuities.
Individual insurance accounts for almost 90% of the premium income, group insurance
accounts for 6% of the premium income and superannuation policies account of the
remaining 4%. The private players commenced their business by writing individual policies
but now many of them have entered the group insurance market as well.

Market Share and Growth

The year 2002-03 had 13 companies competing with each other for capturing a share of the
huge life insurance market. Apart from LIC which is a public sector monolith operating for
over fourty years, 12 of these players are new private sector. However, recently Sahara has
also joined the team of private life insurance making the number of private players to 13.
Despite the opening up of the life insurance business to private participation, LIC with its
vast network of 2048 branches and 10,02,149 agents remained effectively a monopoly.
However, the new entrants coped with the challenges of setting up operations, building up
the agent force and spreading to the rural and semi-urban areas. In addition, the industry as a
whole also faced a regime of declining interest rates and shrinking avenues for investment in
the face of the overall slowdown in the economy.
The entry of the private sector Performance Of Life Insurers

100 14
insurance players into the 98
99 12.78
12
Market Share Of Pvt.

96
market has made a reasonable
Market Share of LIC
94 92.16 10
Insurers
impact on the public sector 92 8
90
7.84 6
insurance giant Life Insurance 88 87.22
86 4
Corporation. In the first 11 84
2
82 1
months ending February 2004, 80 0
2001-02 2002-03 Feb. 04
LIC has received first premium
LIC Pvt. Insurers
income of only Rs 113.71 bn. All of its business earned in 11 months of 2003-04 financial
years has come from 19.34 mn policies which account for 93.75% of policies issued for the
same period in Indian Life Insurance Industry.
An analysis of the new business of the private insurers reveals that overall business captured
by the twelve companies grew to Rs 16.66 bn in 2003-04 (till February) exhibiting an
increase of more than 300% since last year. Overall the total market share of private insurers
had 12.78 % upto February 2003-04. ICICI Prudential captured nearly 4.43 % of the new

business underwritten, followed by Birla Sunlife and HDFC Standard at 1.90% and 1.15% of
the premium underwritten respectively.
In terms of number of policies, while ICICI Prudential had issued approximately 0.34mn
policies, HDFC Standard and Allianz Bajaj followed with 0.16mn and 0.11mn policies
respectively (Allianz’s market share in terms of premium was 0.83 %) during first eleven
months of FY04.
New Life Business Premium for the year 2003-2004 (up to February)
(In Rs Lakh)
MARKET
SL. TOTAL PREMIUM TOTAL NO. OF
INSURER SHARE BASED
NO. U/W POLICIES ISSUED
ON
Apr.- Premiu
February Apr.-Feb. February Policy
Feb. m
1 Tata Aig 2754.11 14287.10 16368 136990 1.10 0.66
2 Om Kotak 973.53 6960.61 4789 38925 0.53 0.19
3 Birla Sunlife 5247.67 24752.43 19792 112254 1.90 0.54
4 Max New York 1420.12 10518.15 18137 117351 0.81 0.57
5 ING Vysya 681.79 4517.13 8415 59225 0.35 0.29

HDFC
6 Standard 2218.18 15001.83 19058 167769 1.15 0.81
7 Met Life 268.62 1828.21 2912 19497 0.14 0.09
8 Allianz Bajaj 2007.56 11396.91 17168 142536 0.87 0.69

ICICI
9 Prudential 11900.37 57714.15 79752 340511 4.43 1.65
10 SBI Life 2036.63 11617.38 10025 60121 0.89 0.29
11 AVIVA 944.16 5935.31 7558 56478 0.46 0.27
12 AMP Sanmar 264.13 2100.10 3105 36843 0.16 0.18

128850
Total Private 30716.85 166629.31 207079 0 12.78 6.25
193417
13 LIC 159078.35 1137126.91 2570814 07 87.22 93.75
206302
Grand Total 189795.20 1303756.22 2777893 07 100.00 100.00
Data Source: IRDA journal, April 2004

Analysis of Premiums by Line of Business
Prem ium U/N By Private Players Upto Feb. 2004 Premium Per Policy For Private Players
AMP SANMAR
A M P SA N M A R
AVIVA
A V IV A
SB I SBI
ICICI PRUDENTIAL
IC IC I P R UD E N T IA L
A LLIA N Z B A JA J ALLIANZ BAJAJ
M E T LIF E MET LIFE
H D F C ST A N D A R D HDFC STANDARD
IN G VYSYA ING VYSYA

M A X N EW YOR K MAX NEW YORK
B IR LA S UN LIF E BIRLA SUNLIFE
OM KO T A K OM KOTAK
T A T A A IG TATA AIG
0 20000 40000 60000 80000 0 5000 10000 15000 20000 25000
Data Source: IRDA journal, April 2004
Individual Business
Analysis of individual business statistics reveals that LIC accounted for 87.22 % of the
business in terms of premium and 93.75 % in terms of policies. As against this, the private
insurers captured 12.78 % of the premium and 6.25 % of the policies. The only public sector
life insurer LIC, with more than 87% market share, is leading the life insurance market
followed by ICICI Prudential and Birla Sun life in terms of premium underwritten till
February 2004, as the above graph shows. LIC taking advantage of its large and well
established distribution network is being able to lead the pack.
However, the scenario changes dramatically when the premium underwritten per policy is
taken into consideration. As the above graph for Premium Underwritten Per policy
indicates, its Birla Sun life who is underwriting maximum premium per policy and not LIC,
which is way behind at the second last position, or ICICI Prudential, which is at the second
position.
Birla Sun life has underwritten, on an average, Rs 22050 per policy in first eleven months of
FY 2003-04 followed by SBI Life, OM Kotak and ICICI Prudential with underwritten
premium of about Rs 19,323, Rs 17,882 and Rs 16,949 per policy respectively. These figures

suggest that although LIC is way ahead of any other life insurer in India in terms of number
of policies sold and the amount of premium underwritten but it is behind the private life
insurers in terms of premium collected per policy, which stands only at Rs 5879 for first
eleven months of FY 2003-04. It means though the private players like Birla Sun life, ICICI
Pru and SBI Life, who have started their business only 3 years ago, they are underwriting
more premium per policy sold than LIC suggesting higher profitability in long run. This fact
clearly indicates that although LIC, who has operated as a monopolist in Indian life
insurance market for 50 years, is currently having major market share in terms of premium
underwritten will struggle to protect its leadership in long run if the above trend continues.
Group Business
Premiums U/W Under Group Scheme Premium Per Life Under Group Scheme
Met Life LIC
MaxNew Met Life
OmKotak MaxNew
Aviva OmKotak
Birla
Aviva
ICICI
HDFC Birla
Tata ICICI
SBI Life HDFC
AMP Tata
ING SBI Life
Allianz AMP
ING
0.00 100.00 200.00 300.00 400.00 500.00 Allianz
Data Source: IRDA journal, February 2004
In terms of group business, LIC captured 93.41% of the premium and 93.84 % of the
policies. The twelve private insurers captured 6.59% of the premium business and 6.26 % of
the policies underwritten for group. Among private players, Birla Sun life has underwritten
maximum premium of around Rs 435 million and has covered maximum lives, around 0.02
million lives, followed by SBI life, who has underwritten around Rs 433 million as premium
and has covered around 0.04 million lives under group scheme. These figures mean that if
the premium underwritten per life is taken as criteria to measure the performance then the
above graph indicates that LIC is underwriting maximum premium per life of around Rs
7488 followed by Birla Sun life and Tata Aig with around Rs 2890 and Rs 1612 premium
respectively. It clearly suggests that the private players with Birla Sun life in particular is
taking the lead in terms of premium generated from group insurance business. Higher

premium per life in group business means that the operating costs are less because costs
incurred when underwriting group policies in less than that of the underwriting individual
policies. Higher premium per life in group business also means that the private players are
ready to underwrite greater risks by charging higher premiums.
TRENDS AND STRATEGIES

Reaching anywhere near LIC's vast network, which was built over decades, was extremely
tough for the new players. Hence, private insurers are adopting aggressive advertising and
promotional measures and use hitherto untried distribution channels. New products,
innovative distribution, and better use of technology are helping the new breed of private life
insurers take market share away from LIC.
Innovative Products
The new players have also introduced a wider range of products, along with more need-
based selling techniques. Most companies are offering a choice of riders, covering benefits
such as accidental death, critical illness, term, waiver of premium, total and permanent
disability, paid-up additions, guaranteed insurability and spouse's insurance.
Several of the new players have already launched unit-linked products, for example:
• Birla Sun Life - unit-linked incorporating certain guarantees
• ICICI Prudential - unit-linked
• Old Mutual Kotak - unitized with profits
Today along with the traditional whole life insurance, the consumer also has a choice of
term, group, child endowment, pension products from the basket available with the private
players and LIC along with riders. Insurance is now treated as a protection-cum-savings
product rather than a tool for tax savings only. The focus of the new players has been on
need-based selling of life insurance, which allows integration of assets, liabilities, fund
inflows and outflows and reconcile them with important life events such as children's
education, marriages, death, disability, critical illness and retirement.

Distribution Channels
In the present day scenario, traditional distribution channels for product lines are being
continuously replaced by unconventional methods of distribution. The emergence of
alternative distribution channels has significantly changed the way insurance products are
now distributed. The latest trend is not to restrict to a single mode of distribution like agents
but to utilize a combination of distribution channels. These include the internet led channels,
company-led channels, bank-led channels and agent-led channels.
To minimize cost, the companies are tying up with established financial services companies
and using their distribution network instead of setting up their own network.
The various distribution channels are:
Agents: Traditionally, tied agents were the single channel through which insurance policies
were sold. Insurance agents would visit prospective and existing customer’s homes and
places of business to market new products and provide service claims. But this has its
limitations – like the number of people that a single agent could reach was limited.
Today tied agents still contribute the maximum business, but the manner in which they
approach customers has changed significantly. Now, the agents are more educated and more
professional and are able to guide customers much better about the product that would best
suit their needs.
Bancassurance: With over a billion people in India, mass marketing may be profitable and
cost-effective for gaining market share. Bancassurance is an instant channel to reach out to a
large customer base through the wide spread network of branches. Bancassurance is
emerging to be a viable solution to mass selling of insurance products. This channel brings
insurance products right at the branch counters for the benefit of millions of bank
customers and convenience and transparency are the driving factors along with lower
premium rates.

Category Type of broker Min. Capital required (in lakhs)

I Direct General Insurance 50
II Direct Life Insurance 50
III Reinsurance broker 200
IV Composite broker 250
Brokers: Insurance brokers are organizations who assess the complete insurance needs of
the clients and advice the best option. According to IRDA’s regulation, there are four
categories of brokers with varying minimum capital requirement.
The minimum capital requirement for each of the categories has been set at these levels to
ensure the quality of brokers coming into the markets and therefore ensures the quality of
service provided. Moreover, brokers are not tied to any particular insurance company;
therefore the broker will be able to provide advice about the best product in the market,
which suits the client’s needs the best.
E-insurance: The emerging technology also has given way for new channels of distribution,
one of them being the internet. Selling on the internet reduces the distribution costs of the
insurer to a large extent and is also a convenient channel of distribution to the customers.
Insurance products by their very nature are based on the need and capital availability of the
customer and hence are bought on advice and requires after sales service. Life insurance
buyers prefer to have personal interaction, and opt for reliability. But as the insurance
awareness is rising, insurance is slowly becoming a commodity, which is making it easier for
the companies to transact their business through the net. Moover standard policies like the
term insurance, mediclaim policies, vehicle insurance etc can be sold through the internet.
Therefore, today the companies are actively pursuing new IT initiatives.
Direct Marketing: Direct marketing is another channel through which a company can
reach a large population. Typically, direct mail or telemarketing is used. It is important to
target the right customer with the right affinity and message. For example, a high-income

person may be interested in a whole of life product while a rural farmer may be interested in
protecting the family’s assets. The ability to data mine is very important.
Innovative Marketing Efforts

Insurance companies are trying hard to increase the market share. They are spending a lot on
the advertisements to capture the major pie of the share. They are using all kinds of channels
of marketing from newspapers to television to insurance agents and direct mailers. A severe
battle has started among the Indian insurance companies to make one's own brand win over
the other.
The private companies are focusing their campaigns primarily on building an image of
trustworthiness and reliability for themselves. Secondly, their advertisements are focused on
insurance as an investment option and not a mere tax saving tool. Most of these
advertisements carried messages like the family's happiness, human bonding, etc, with
underlying importance on the security that insurance could provide.
In addition to TV commercials, the private insurance companies are trying to make their
presence felt by organizing blood donation camps, contests and sponsoring various events.
Sponsoring plays and events like these gives them high-quality attentiveness of the
customers. These may not directly show the way to the sales, but certainly gives a better
visibility. It is all about building relationships with corporate agents and customers.
Companies’ are planning all kinds of action that would produce awareness about the
company and its policies and `leads' (interest by a prospective customer) and converting the
same into its customers. For e.g. they are offering wide range of health-related products,
health and fitness equipment and membership in gyms, health resorts and clinics,
development of the punch lines used by private insurance players which are consistently
trying to associate positive emotions with insurance products.

ISSUES AND CHALLENGES
Lack of Adequate Data

Lack of adequate data has become a serious roadblock in the way of the companies’ life and
health insurance schemes. The problem being faced by the insurance industry is the
increasing expectation of life. There has always been an improvement in the longevity in the
developed and developing countries. As of now, there is no study based on any experience in
India that indicates the level of improvement in mortality at the higher ages. That is one of
the risks that the industry is facing. The life insurance players are not in a position to
ascertain as to how to make provision for the improvements in the mortality. These
uncertainties are preventing them from designing innovative products and aggressively
tapping the market.
At present insurers are left with the option of depending on the data currently available from
abroad. But the problem is that the experience abroad may not match that of India. While
the public sector insurance players, who had a monopoly over the Indian insurance industry
all these days, were enjoying availability of such data, the private players feel they were
deprived of access to such data.
Falling Interest Rates

With decreasing interest rate scenario no insurance company is in a position to give any kind
of guarantee for pensions. When the insurance companies announce the pension rates, there
would an implicit guarantee involved. The problem today is that owing to falling interest
rates, no player is able to guess rightly as to what could be the interest scenario in the time to
come.

Ambiguity of Role of Intermediaries

It has been recognized that the intermediaries play a very important role in insurance
business. But lack of clarity on the role of intermediaries, such as brokers, is identified to be
one of the hindering factors for their development. There are other factors such as
restriction on foreign equity for broker’s ventures, notification of IRDA withdrawing five
per cent discount on the premium for brokers for certain segment of policyholders, non-
payment of brokerage on business originating from public sector units (PSU) etc., which are
hindering the development of this important channel of distribution. There is a need for
measures to be initiated by the regulators to develop a strong system of intermediaries
including corporate agents, third-party administrators, surveyors, loss assessors and brokers.
Though India has a good quality of talent the Insurance industry is unable to turn people
into full time professionals especially because of low commission payment. The limit on
commissions and cost must be raised to enable agents to earn a decent income through their
profession.
Unfavorable Tax Regime

Life insurance is not a felt necessity in India. Its purchase is driven by tax rebate and loan
facilities. The maturity proceeds from life insurance policies were tax exempt till the financial
year 2002-2003. However, in the budget it is proposed to restrict this exemption to policies
where the premium paid in any one year is less than the 20% of the sum assured. This
effectively implies that the maturity proceeds under the single premium savings policies may
be taxed. This is making the single premium savings policies unattractive to consumers,
thereby adversely affecting the margins of the insurers. The premium from single premium
policies of LIC fell from Rs 50.00 bn in fiscal 2002 to Rs 30.00 bn in 2002-03.
The increase of service tax to 8 per cent in the Union Budget 2003-04 has an adverse impact
on the insurance industry. The increase in service tax will make canvassing insurance a less
attractive career — again a blow to the fledgling industry. The service tax on the agents will

lead to them demanding greater commissions, thereby increasing the cost to the insurers.
The service tax on not just the insurers but also the intermediaries in the value chain will lead
to not just double but multiple taxation.
FDI Cap
With the volume of business growing for insurance companies the foreign equity cap of 26
per cent in insurance joint ventures continues to be an issue of concern. The 26 per cent cap
on the foreign investment restrains the development of the insurance sector, as the initial
expenses of setting up the business and processes will require a greater amount of capital,
which the foreign equity provider will be more than capable to provide. Raising the FDI cap
to 49 per cent will help mitigate this strain which the private insurers are facing. It will also
help bring in more foreign funds into the economy. Inadequate capital to underwrite high
value customers is forcing private players not to focus on sectors where the claims ratio is
low.
Restrictive Investment Guidelines

As per the investment rules established by IRDA upto 65 per cent of insurance funds have
to be invested in primarily in government and government-backed securities, which are low-
yield in nature. This restrictions makes the insurance companies lose an opportunity to
invest in a more productive and high-return industrial sector.
Health Insurance
Health of any person is always related to his / her life history and age. But the dilemma in
India is that health insurance comes under non-life insurance industry and only non-life
insurers can offer health insurance products separately while life insurers can only offer
health insurance products as riders with their other policies. Though almost all the pre-
requisites for getting health insurance is same as of life insurance and already life insurers has
a extensive data-base about their customers still they are not allowed to launch a separate
health insurance product. Life insurers can understand the needs of the customers and can
assess the risk better and therefore they are in a better position to come up with more
innovative and customized health insurance products in future. Hence IRDA should allow

the life insurers too to operate in health insurance market just like non-life players are,
without any discrimination.
Pension Funds
To protect the social security system India needs to evolve a more mature and developed
pension system. Presently, the pension fund market comprises over 240 million investors
and funds worth $40 billion when compared to the entire life industry. For pension to be a
success in India there is a need to spread its reach to metros, cities, towns, district
headquarters and villages. This can only happen with the help of life insurers with their one
million agents and their Bancassurance partners. The government has also to give some
flexibility to allow the life insurance companies to participate in the accumulation phase and
also remove the restriction on number of players in the market. In many parts of the world,
life insurance companies are the main mode for saving for a pension. Thus there is a need
for the Government to allow life insurance players in the market to operate freely and
competitively in the pension market.
CRITICAL SUCCESS FACTORS

Product Innovation- With growing awareness customers are now looking at Insurance as a
complete financial solution offering stable returns together with total protection. Insurers
will need to constantly innovate in terms of product development to meet ever changing
consumer needs. Understanding the customer better will enable Insurance companies to
design appropriate products, determine the correct price and increase profitability. Pricing of
the life insurance products in India are based on the actuarial tables (which are over 50 years
old). There is a need for more research in this area so that the products are better priced.
Channels of Distribution- Insurers should innovate and find new methods of delivering
the products to customers. Corporate agency, brokerage, Banc assurance, e-insurance, etc are
some of the channels which can be tapped by the insurers to reach the appropriate market
segments. Innovative and right methods of distribution would help in capturing maximum
market share to build brand equity, building strong and effective customer relationships and

also to impart cost effective customer service. For example modes of distribution such as
internet, telemarketing and direct mailers, also selling insurance through bank branches will
be one of the fastest emerging distribution modes to the upmarket segment i.e. the
population which consists of new household configurations, new consumer expectations.
Direct selling through company sales force will remain the primary distribution mode for
retiring and aging population. Rural population can be tapped through rural based bank
branches, the village panchayats or the ‘gram sevaks’ and different village based NGO’s that
have deep network and trust among village population.
Customer Education- A very large number of people are not well informed about the
intangible benefits of life insurance. Moreover life insurance products in Asia are purchased
as a tax saving or investment instruments rather than as a risk planning instrument.
Educating the people of insurance as a risk planning tool is a critical factor for the success of
the Industry.
Customer service- In the present competitive scenario, a key differentiator would be

professional customer service in terms of quality of advice on the product choice along with
servicing of the policy. Servicing should focus on enhancing the customer experience and
maximizing customer convenience. Effective CRM system would create sustainable
competitive advantage and build long lasting relationship.
Investment Management- The biggest challenge for an Insurer would be to provide

returns comparable to other financial instruments. With recession in the global economy and
falling interest rates the problem is further aggravated. Insurers have to follow prudent
underwriting practices and efficiently cut down management and administrative expenses.
Insurers must also follow best investment practices and have a strong Asset management
Company to maximize returns.
Untapped market Segments- Semi urban and rural areas offer huge potential particularly
for the life insurance business and it is very important to tap this customer base. However,

much of the demand may not be reachable because of large distances or high costs relative
to returns.
Training and Development of agents/brokers- Agents/ brokers act as an intermediary

between the insurance company and the customers. Today’s agents/ brokers have a
professional outlook, are more tech savvy, and are in position to educate customers on the
need for insurance in life. Ask for any information and it will be supported with necessary
calculations and analysis and presented in a manner understood by common man.
Technology- The impressive technological progress in the country, especially in the

telecommunication field, is paving way for financial services to be available at the customer's
doorsteps and at several convenient points of sale. It is now possible to pay insurance
premium from any small town in the country through electronic transfer at a low cost. Soon
all customers will be able to transfer insurance payment through any ATM terminal
anywhere in the country.
Regulatory Environment- The development of the any industry will depend on the nature
and the quality of regulation. A regulator while protecting the interests of the consumer
ensures efficiency of operations, transparency and fair play. A regulator also has to ensure
stability and solvency of the industry. In insurance a favourable regulatory policy with regard
to the tariffs, restrictions of foreign participation, etc would help in the growth of the
industry.

FUTURE OUTLOOK
The Indian life insurance market size is dynamic and ever expanding. The growth is dictated
by several factors:
Huge Population
India has a huge population. Moreover there is an increase of an estimated 20 million of new
population each year. However only eight per cent of the Indian population have insurance
policies and most of them are underinsured. Hence the life insurance companies see a
double-digit growth in business for the next five years.
Increasing Standard of Living

There has been considerable amount of improvements in economic conditions in India.
More and more people are moving continuously into the zone of people with ability to pay
premium for a life insurance policy.
Rural Population
Millions of people living in the rural areas do not earn regular income and for families that
depend on the irregular wages or income of a sole breadwinner, life insurance is an effective
way to provide economic protection and family welfare. Due to improvements in economic
conditions more and more people are moving continuously into the zone of people with
ability to pay premium for a life insurance policy. The huge untapped market in the rural
areas offers huge potential for the Indian life insurers.
Competition
Competition will result in the market to grow beyond current rates and offer additional
consumer choice through the introduction of new products, services and price options.
Pension Market
The introduction of a full fledged regulator for the pension fund market in India is set to
change the insurance market in the near future. With the setting up of the pension regulatory

the life insurance companies—offering pension funds—will have to report their accounts of
pension funds to both IRDA and the new regulator so that the pension funds do not
disappear like the US-64 Bonds. At present in India private sector insurance players account
for 32% of the entire pension market. All life insurance companies have plans to come out
with pension schemes.
With increasing life expectancies and decreasing social security the pension fund market has
got tremendous growth potential. There has also been an increase in awareness among the
general public of the importance of retirement planning and hence there will be a huge
demand. In USA the pension market accounts for 49% of the insurance policies sold each
year while in India less than 1% of the insurance market is being covered by pension plans
leaving the market virtually untapped. Pension funds in India are twice the size of mutual
funds and if allowed the freedom to productively invest they can even make a significant
contribution to the development of Indian capital markets. There is also going to be great
demand for single premium retirement schemes from the large number of VRS volunteers in
the country.
Overall the insurance sector is growing. Due to all the above factors together with an
addition of 20 million people every year the life insurance market growth is expected to grow
at 20%.

CONCLUSION
As insurers operate in an increasingly deregulated and liberalized environment, India is
poised to experience major changes in its insurance markets. However, despite the
liberalization in the insurance sector, nationalised insurance companies are expected to
maintain their dominant positions, at least in the foreseeable future. Indian market still has
enormous potential and it is expected that there will be enough business for new entrants.
For consumers, opening up of the insurance sector will mean new products, better
packaging, and improved customer service. Product innovation and channel diversification
would gain momentum, in line with the global trend of financial services convergence. For
government, insurance, especially life insurance, can substitute for State security
programmes. It can thus relieve pressure on social welfare systems and allow individuals to
tailor their security programmes to their own preferences. This substitution role is especially
valuable, given the growing demand for social security and the increased financial challenges
faced by the Indian social insurance system.
The future growth areas could be in term assurance, pension and health insurance. In terms
of the distribution channels, there is tremendous opportunity with banks and finance
companies and by making the channel IT driven. With increased commoditization of
insurance products, brand building is going to play a vital role.

ANNEXURE
1. Life Insurers in India
Public Sector Private Sector

Life Insurance Corporation of India Allianz Bajaj Life Insurance Co. Ltd.
AMP Sanmar Assurance Company Limited
Birla Sun Life Insurance Co. Ltd.
Dabur CGU Life Insurance Company Pvt. Ltd
HDFC Standard Life Insurance Co. Ltd.
ICICI Prudential Life Insurance Co Ltd.
ING Vysya Life Insurance Co. Pvt. Ltd
Max NewYork Life Insurance Co. Ltd.
MetLife India Insurance Company
OM Kotak Mahindra Life Insurance Co. Ltd.
SBI Life Insurance Company Ltd.
Tata AIG Life Insurance Co. Ltd
Compiled by Cygnus
2. Distribution of financial assets of household sector
Category 93-94 97-98 99-00 00-‘01* 01-02*
Cash 12.2. 7.4 8.7 7.1 9.5

Net deposits 42.6 46.6 37.5 42. 0 37.9
Shares and debentures 13.5 2.9 7.1 2.5 2.3

Net claims on Government 6.3 12.9 12.1 15.6 16.8
Insurance funds 8.7 11.3 12.0 13.5 14.4
- Life Insurance funds 8.0 10.6 11.3 12.9 13.9
- Postal Insurance 0.2 0.3 0.3 0.3 0.2
- State Insurance 0.5 0.4 0.5 0.4 0.4
Provident plus pension funds 16.7 18.8 18.8 19.3 19.0
* Provisional
Data Source: RBI Annual Report 2002-03

3. Banc assurance tie-ups in India
Insurance Company Bank

Birla Sun Life Insurance Co. Bank of Rajasthan, Andhra Bank, Citi Bank, Bank of
Ltd. Muscat, Development Credit Bank, Deutsche Bank,
Catholic Syrian Bank
Dabur CGU Life Insurance Canara Bank, Lakshmi Vilas Bank, American Express
Company Pvt. Ltd Bank and ABN AMRO Bank
HDFC Standard Life Union Bank of India, HDFC Bank
Insurance Co. Ltd.
ICICI Prudential Life Lord Krishna Bank, ICICI Bank, Bank of India, Citibank,
Insurance Co Ltd. Allahabad Bank, Federal Bank, South Indian Bank, and
Punjab and Maharashtra Co-operative Bank.
Life Insurance Corporation Corporation Bank, Indian Overseas Bank, Centurion
of India Bank, Satara District Central Co-operative Bank, Janata
Urban Co-operative Bank, Yeotmal Mahila Sahkari Bank,
Vijaya Bank, Oriental Bank of Commerce.
Met Life India Insurance Co. Karnataka Bank, Dhanalakshmi Bank and J&K Bank
Ltd.
SBI Life Insurance Company State Bank of India
Ltd.
Allianz Bajaj Life Insurance Syndicate Bank.
Co.
AVIVA Life Insurance Canara Bank, ABN Amro Bank and Laxmi Vilas Bank.
Company Pvt. Ltd
OM Kotak Mahindra Life Kotak Bank and Dena Bank.
Insurance Company Ltd
Data Source: www.bimaonline.com
4. Total World Insurance Premiums

Year Nonlife * Life Total
1992 697.5 768.4 1,465.9
1993 792.1 1,010.4 1,802.7
1994 846.6 1,121.1 1,967.7
1995 906.7 1,236.6 2,143.4
1996 909.1 1,196.7 2,105.8
1997 896.8 1,231.7 2,128.6
1998 891.3 1,275.0 2,166.4
1999 912.7 1,424.2 2,336.9
2000 922.4 1,521.2 2,443.6
2001 969.01 1439.18 2408.25
2002 1090.8 1536.1 2626.9
*Non life includes accident and health insurance

5. Top 10 global life/health insurance companies in 2001
Revenues (US
Rank Company Country
$ Million)
1 ING Group $82,999.10 Netherlands
2 AXA 65,579.90 France

3 Nippon Life Insurance 63,827.20 Japan
4 Aviva 52,317.60 United Kingdom

5 Assicurazioni Generali 51,394.30 Italy
6 Dai-ichi Mutual Life 43,145.20 Japan

Insurance
7 Prudential 35,821.20 United Kingdom
8 Asahi Mutual Life 33,142.80 Japan
Insurance
9 Sumitomo Life Insurance 32,548.50 Japan
10 MetLife 31,928.00 United States

Data Source: www.financialservicesfacts.org

BIBLIOGRAPHY
Sites
www.irdaindia.org
www.bimaonline.com
www.irmi.com
www.iii.org/media/ (Insurance Information Institute)
www.financialservicesfacts.org
www3.ambest.com
www.insuremagic.com
www.asaininsurancereview.com
www.worldinsurancenews.com
www.insurance.about.com
Magazines
Asia Insurance Post

Insurance Plus

Cygnus Life Insurance

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INDUSTRY INSIGHT

INDIAN LIFE INSURANCE

Cygnus Economic & Business Research

© Cygnus Economic & Business Research 2004 Page 2 of 44

TRENDS AND STRATEGIES .....................................................................................................28

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GLOBAL INSURANCE INDUSTRY

Market share as per the insurance premiums in 2002

Data Source: Sigma World Insurance 2002 No. 8/2003

© Cygnus Economic & Business Research 2004 Page 7 of 44

WORLD INSURANCE PREMIUMS

Growth of Insurance Premiums (1992-2002)

Data Source: Sigma World Insurance 2002 No. 8/2003

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GLOBAL LIFE INSURANCE INDUSTRY

Growth in Premium volume in Major Insurance markets in 2002

Data Source: Sigma World Insurance 2002 No. 8/2003

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Major Emerging markets and their premium

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GLOBAL TRENDS IN INSURANCE MARKET

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Population Trends –aged 60 years and above

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INDIAN INSURANCE INDUSTRY

1995 Constitution of the Mukherjee Committee to examine issues of transparency in

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Insurance Sector Reforms

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Breakup of Financial Savings

Data Source: RBI Annual Report 2002-2003

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Indian Insurance Industry

Public Private Public Private

Industry Analysis using Michael Porter’s Model

Bargaining Power of Low • The buyers of insurance policies are

© Cygnus Economic & Business Research 2004 Page 21 of 44

INDIAN LIFE INSURANCE INDUSTRY

© Cygnus Economic & Business Research 2004 Page 22 of 44

Age Groups Policy

0-20 years Children Plan

• Money Back Policies

Age Bracket 0-14 15-49 50-69 >70

Major Lines of Life Insurance Business

© Cygnus Economic & Business Research 2004 Page 23 of 44

Market Share and Growth

The entry of the private sector Performance Of Life Insurers

Market Share Of Pvt.

© Cygnus Economic & Business Research 2004 Page 24 of 44

1 Tata Aig 2754.11 14287.10 16368 136990 1.10 0.66

2 Om Kotak 973.53 6960.61 4789 38925 0.53 0.19

3 Birla Sunlife 5247.67 24752.43 19792 112254 1.90 0.54

4 Max New York 1420.12 10518.15 18137 117351 0.81 0.57

5 ING Vysya 681.79 4517.13 8415 59225 0.35 0.29

7 Met Life 268.62 1828.21 2912 19497 0.14 0.09