Unit 4

History of Insurance Industry

• In 1870 two British life insurance companies
entered in India and attempted to do life
insurance business on Indian lives.
• After that many Indian & foreign companies
started business in India and by the year 1955
there were 255 insurance companies operating
in India and transacting the business to the
extent of Rs 200 crores.
 Due to the following reasons the
Government decided to nationalize the
life insurance industry in 1956
• No full guarantee to the Policyholders (who are
insured).
• The concept of trusteeship (confidence) was
lacking.
• Many insurance companies went into liquidation
(bankrupt).
• There was malpractice in the business.
• Non-Spreading of life insurance.
• No insurance in rural areas.
• No social security
• To overcome the abovementioned problems
the life insurance business was nationalized
and formed Life Insurance Corporation with
following features:
• The Central Govt. guaranteed the Policyholders
through the LIC.
• Being a Corporation formed under Special Act Passed
by the Parliament therefore the public can trust.
• The LIC cannot be liquidated without the order of the
Central Govt.
• Under the LIC Act, all day-to-day functions of the
Corporation and the method of Investment in Govt.
Securities were defined. Therefore, the malpractices
were eliminated.
 Structure & Composition of the
Insurance Sector
• The Indian Insurance Sector is basically divided
into two categories –

Non-life /General
Life Insurance
Insurance
• The Insurance sector in India consists of total 57
insurance companies.
• 24 companies are the life insurance providers and
the remaining 33 are non-life insurers
 Structure & Composition of the
Insurance Sector
• Among the life insurers, Life Insurance
Corporation (LIC) is the sole public sector
company.
• Apart from that, among the non-life insurers
there are six public sector insurers.
• Post liberalisation, the insurance industry in India
has recorded significant growth. The Indian
insurance industry is expected to grow to US$
280 billion by FY2020 due to higher personal
disposable incomes in the country
 Structure & Composition of the
Insurance Sector-Revenues generated
• The total insurance market expanded from US$
23 billion in FY05 to US$ 84.72 billion in FY17
• The domestic life insurance industry registered
17.65 per cent y-o-y growth for new business
premium in 2017-18, generating a revenue of Rs
1.65 trillion (US$ 25.44 billion).
• The reach of health insurance is also limited, as
The number of lives covered under Health
Insurance policies during 2015-16 was 36 crore
which is approximately 30 per cent of India's total
population.
 Structure & Composition of the
Insurance Sector
• In August 2017, the Life Insurance industry
reported a 24 per cent growth in overall
annualised premium equivalent with the help
of both private players and Life Insurance
Corporation.
Insurance Industry Penetration in India
Insurance Industry Penetration in India
• Insurance penetration reached almost 3.4 per cent in
FY16 and around 4 per cent in FY17.
• The fact that the average size per policy sold by a private
insurer at Rs.11,320 is significantly higher than the
corresponding figure for LIC (Rs. 4,293). The inference is
obvious: LIC continues to remain strong in rural areas and
perhaps in the middle class and the lower middle class
segments
• While exact figures of new business done under the unit-
linked plans (ULIPs) may not be available, companies like
Birla Sunlife and ICICI Prudential have definitely procured
a big chunk of their new business premium from the
ULIPs.
Insurance Industry Penetration in India
• The new age insurance agent is trained to be an advisor to the
customer instead of being a mere seller of policies. He is a suave,
smart financial consultant
• The future growth of this sector will depend on how effectively
the insurers are able to come up with product designs suitable to
our context and how effectively they are able to change the
perceptions of the Indian consumers and make them aware of the
insurable risks.
• The future growth also depends on how service-oriented insurers
are going to be. On the demand side, the rise in incomes will
trigger the growth of physical and financial assets
• With the growth of infrastructure projects, the demand for
insurance to cover the project and the risks during operations will
increase
• The other growth trigger is the increase in international trade.
 Current Trends in Marketing for
Insurance Sector
• Digitalization: Some key benefits of using
updated IT infrastructure and technology have
been reduction in turnaround time as well as
multiple interaction points with the customer
through emails, facsimile, websites, and ATMs,
to name a few, which have resulted in
improved disclosure to policy holders.
 Current Trends in Marketing for
Insurance Sector
• Bancassurance: An arrangement in which the
bank and an insurance company form a
partnership so that the insurance company can
sell its products to the bank’s client. This
partnership arrangement can be profitable for
both the companies. Banks can earn additional
revenue by selling the insurance products, while
insurance companies are able to expand their
customer base without having to expand their
sales forces or pay commissions to insurance
agents or brokers.
 Current Trends in Marketing for
Insurance Sector
• Mass customization versus Mass Selling: The
Insurance sector has undergone change in the
way it now approaches its potential customer
base with a plethora of products to suit one’s
need. They focus on mass customization than
mass selling for their products and orienting
themselves to relationship building for long
tem value creation of the customers.
 Current Trends in Marketing for
Insurance Sector
• In House Market Research/ Professional Researching
Agencies: to introduce tailor-made products targeted
at specific segments of the population so that
Insurance can become more meaningful and
affordable.
• ii) Risk assessment studies are being carried out for
measuring accumulation of risk of a particular place at
any one point of time.
• iii) Consumer awareness campaigns are being
encouraged to improve insurance literacy levels by
conducting workshops, distributing literature etc.
 Current Trends in Marketing for Insurance
Sector-Government Initiatives:
• Increased FDI: Government has approved the
ordinance to increase Foreign Direct Investment
(FDI) limit in Insurance sector from 26 per cent to
49 per cent which would further help attract
investments in the sector.
• Invesment through IPO : The Insurance
Regulatory and Development Authority (IRDA)
recently allowed life insurance companies that
have completed 10 years of operations to raise
capital through Initial Public Offerings (IPOs).
 Current Trends in Marketing for
Insurance Sector-Government
Initiatives:
• Service tax on particular premium annuity
policies has been decreased from 3.5% to
1.4% of the premium paid in some cases.
• Service tax on the business of life insurance,
offered by means of the annuity, based on
National Pension Scheme, which is managed
by Pension Fund and Regulatory
Development of India, managed being
exempted, with effect from April 2016.
 Current Trends in Marketing for
Insurance Sector-Government
Initiatives:
• The Indian Regulatory and Development
Authority of India (IRDAI) has created two
committees to explore and suggest ideas to
promote e-commerce in the insurance sector in
order to raise the insurance penetration and get
the financial inclusion.
• IRDA has formulated a regulation, which imposes
obligations on insurance providers towards
offering insurance coverage to the rural and
financially weaker sections of the societies in
India.
 Current Trends in Marketing for
Insurance Sector-Government
Initiatives:
• IRDAI recently announced that public sector
insurance companies can offer up to 10%
discount on the premium of general
insurance policies and 8% discount for
premiums of new life policies offered by LIC.
Please note that this discount is available only
if the insurance policy bought online through
customer portals.
 Current Trends in Marketing for
Insurance Sector-Government
Initiatives:
• Government of India launches Pradhan Mantri Vaya
Vandana Yojana, a pension scheme which will provide
guaranteed 8 per cent annual return to all the senior citizen
above 60 years of age for a policy tenure of 10 years.
• In order to achieve rural accessibility, the government of
India has also designed two insurance schemes in the year
2015-16.
• – Pradhan Mantri Suraksha Bima Yojana, which is a
Personal Accident Insurance plan the premium for which is
payable at the rate of Rs1 per month, being Rs.12 per
annum providing coverage of about Rs.2 lakhs and Rs.
1lakh.
• – Pradhan Mantri Jeevan Jyoti Bima Yojana, which is the
government’s Life Insurance plan the premium for which is
payable at the rate of Rs 330 per annum.
 Marketing strategy for Insurance
Sector for the Rural Areas
• As of now, Insurance in rural areas can be availed
both to non-agricultural and agricultural assets.
Rural policies comprise the insurance of:
• 1. Various livestock, e.g., cattle, sheep, goat, etc.
2. Sub-animals e.g., silkworm and honeybee.
• 3. Plantation and horticultural crops, e.g. rubber,
grapes, etc.
• 4. Property e.g., agricultural pump sets etc.
• 5. Persons e.g., accident.
 Marketing strategy for Insurance
Sector for the Rural Areas
• Pradhan Mantri Fasal Bima Yojana (PMFBY): The Fasal Bima
Yojana launched by our government is a major step in this
direction. In 2016-17, they were allocated Rs.5500 crores.
This scheme has received an additional impetus with the
government allocating Rs.9000 crores for the scheme. “The
coverage of this scheme will be increased from 30 % of
cropped area in 2016-17 to 40 % in 2017-18 and 50 % in
2018-19”. The sum insured under this Yojana has more than
doubled from Rs.69000 crore during kharif or summer
sowing season in 2015 to Rs.141625 crore in 2016. Farmers
have been paid Rs.13240 crore in arrears during 2016-17.
More than 1 million farmers have been given cover under
this scheme, making India the third largest agriculture
insurance market in the world after US and China
Marketing strategy for Insurance Sector
for the Rural Areas Pradhan Mantri
Fasal Bima Yojana (PMFBY):
• The sum insured under this Yojana has more than
doubled from Rs.69000 crore during kharif or
summer sowing season in 2015 to Rs.141625
crore in 2016. Farmers have been paid Rs.13240
crore in arrears during 2016-17. More than 1
million farmers have been given cover under this
scheme, making India the third largest agriculture
insurance market in the world after US and China