DISSERTATION PROJECT REPORT

ON
A COMPARATIVE ANALYSIS OF LIFE INSURANCE
CORPORATION AND PRIVATE INSURANCE COMPANIES

Report submitted in partial fulfillment of the requirements for

Post Graduate in Management

PROJECT GUIDE: SUBMITTED BY:

Prof. Usha Kiran Rai Shashank Tripathi
FMS BHU MBA IV Sem (Finance)
FMS BHU
 CONTENTS
Ø Acknowledgement

Ø Introduction

§ Concept of Insurance

§ Global Insurance Industry

§ Performance of Indian Industry

§ Insurance sector reforms in India

§ New avenues for growth of the Insurance industry

Ø Research Methodology

§ Research Objectives

§ Research Design

§ Research Process

§ Limitations of the Study

§ Significance of the study

Ø Analysis and Interpretation

Ø Findings & Conclusions

Ø References

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 ACKNOWLEDGEMENT

I must acknowledge my indebtedness to various personalities, but for whom, this project
could not have seen the light of the day.

I am profoundly grateful to Prof. Usha Kiran Rai, Faculty of Management Studies, BHU
who agreed to become my mentor and guide for the project and gave me the opportunity to
work on this project. I am also grateful, for her support and guidance throughout this
project with valuable information and giving me a better insight of the things, without
which the successful culmination of this project would not have been possible. Not only did
she inspired me throughout the progress of the project, but, also motivated me to get an
insight into the field of my work.

I would also like to extent my immense gratitude to Prof. A. K. Agrawal, and respected
Dean Prof. Deepak Barman, Faculty of Management Studies, BHU who allowed me to
choose the topic for my Dissertation.

Shashank Tripathi

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CHAPTER 1

INTRODUCTION

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1. CONCEPT OF INSURANCE :

Life has always been an uncertain thing. To be secure against unpleasant possibilities,
always requires the utmost resourcefulness and foresight on the part of man. To pray
or to pay for protection is the spirit of the humanity. Man has been accustomed to
pray God for protection and security from time immemorial. In modern days
Insurance Companies want him to pay for protection and security. The insurance man
says "God helps those who help themselves"; probably he is correct.

Too many people in this country are not in employment; and work for too many no
longer guarantees income security. Several millions are part-time, self employed and
low-earning workers living under pitiable circumstances where there is no security
cover against risk. Further the inherent changing employment risks, the prospect of
continual change in the work place with its attendant threats of unemployment and
low pay especially after the adoption of New Economic Policy and the imminent life
cycle risks - a new source of insecurity which includes the changing demands of
family life, separation, divorce and elderly dependents are tormenting the society.
Risk has become central to one's life. It is within this background life insurance policy
has been introduced by the insurance companies covering risks at various levels. Life
insurance coverage is against disablement or in the event of death of the insured,
economic support for the dependents. It is a measure of social security to livelihood
for the insured or dependents. This is to make the right to life meaningful, worth
living and right to livelihood a means for sustenance. Therefore, it goes without
saying that an appropriate life insurance policy within the paying capacity and means
of the insured to pay premium is one of the social security measures envisaged under
the Indian Constitution. Hence, right to social security, protection of the family,
economic empowerment to the poor and disadvantaged are integral part of the right to
life and dignity of the person guaranteed in the constitution.

Man finds his security in income (money) which enables him to buy food, clothing,
shelter and other necessities of life. A person has to earn income not only for himself
but also for his dependents, viz., wife and children. He has to provide legally for his
family needs, and so he has to keep aside something regularly for a rainy day and for
his old age. This fundamental need for security for self and dependents proved to be
the mother of invention of the institution of life insurance.

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What is Insurance :
The business of insurance is related to the protection of the economic values of assets. Every
asset has a value. The asset would have been created through the efforts of the owner. The
asset is valuable to the owner, because he expects to get some benefit from it. The benefit
may be an income or some thing else. It is a benefit because it meets some of his needs. In the
case of a factory or a cow, the product generated by is sold and income generated. In the case
of a motor car, it provides comfort and convenience in transportation. There is no direct
income.

Every asset is expected to last for a certain period of time during which it will perform. After
that, the benefit may not be available. There is a life-time for a machine in a factory or a cow
or a motor car. None of them will last for ever. The owner is aware of this and he can so
manage his affairs that by the end of that period or life-time, a substitute is made available.
Thus, he makes sure that the value or income is not lost. However, the asset may get lost
earlier. An accident or some other unfortunate event may destroy it or make it non-functional.
In that case, the owner and those deriving benefits from there, would be deprived of the
benefit and the planned substitute would not have been ready. There is an adverse or
unpleasant situation. Insurance is a mechanism that helps to reduce the effect of such adverse
situations.
Insurance, in law and economics, is a form of risk management primarily used to hedge
against the risk of a contingent loss. Insurance is defined as the equitable transfer of the risk
of a potential loss, from one entity to another, in exchange for a premium. Insurer, in
economics, is the company that sells the insurance. Insurance rate is a factor used to
determine the amount, called the premium, to be charged for a certain amount of insurance
coverage. Risk management, the practice of appraising and controlling risk, has evolved as a
discrete field of study and practice.

Origin of Insurance
PRACTICE OF INSURANCE IN INDIA: 1818-1956

It is claimed that insurance was practiced in India even in Vedic times in one form or the
other. The Sanskrit term "Yogakshema" in the Rigveda meant some kind of insurance, which
was practiced by the Aryans in India nearly 3000 years ago. During the Mughal period
insurance took firm roots. There are even references to the cover against war risks. Losses
due to the passage of royal troops through farms were compensated by the State as a gesture
of goodwill.

The year 1818 is an epoch -making year in the history of our country. The first Life Insurance
Company on India soil appears to have been started in this year. A group of Europeans
pioneered the establishment of the Oriental Life Insurance Society to afford relief to the
distressed relatives of European. The venture was not quite successful but the company was
reformed in 1829.The renewed Company also got into trouble in 1833 when Agency House
of Calcutta, partners of the same, fell.

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Prince Dwarkanath Tagore was the only solvent partner & the sole responsibility for carrying
on the institution developed on him. Meanwhile, early in Janury1834, the Government made
up its mind to establish a Public Insurance Company & a Committee was set up for this
purpose .A number of foreign Insurance Companies then operating in the country viewed this
move with alarm. They set up Committees of their own enquire into their individual affairs.
Dwarkanath Tagore, too, had a Committee appointed to look into the affairs of the Oriental.
As a result, another company was born out of the previous one in the name of "New Oriental
Company"

In the reorganization of the "Oriental" in the year 1834, two other gentlemen were associated.
One was Ramtanu Lahiri and the other Rustamjee Cowasjee. The latter was another
prominent figure of the business world. Rustamjee entered insurance business in 1828, he
was already known to the community and the Government as a wealthy Parsi merchant.
Rustamjee's connection with insurance also started with "Laudable Societies", but he was
later on associated with Companies like "Sun Life Office (1834) ", New Oriental
(1835),Universal Life (1835) , New Laudable (1840) , and Indian Laudable (1841) . He was
also on the Committee of the Union Insurance Company which was formed by a group of
five persons. This Company was issuing policies covering river-risks only. He was intimately
connected with the Committee of Insurance Offices in Calcutta. Rustamjee Cowasjee &
Dwarkanath Tagore was probably the first Indians to join in partnership business with the
Europeans & in the field of insurance they were pioneers on this side of the country.

Apart from Calcutta, several enterprising people in Bombay started in 1823 the "Bombay
Life" Assurance Company. The company went into liquidation soon and could not revive. In
1829, the "Madras Equitable "was formed. It finally ceased to function in 1921 due to
financial difficulties after the First World War.

The effort to set up a public insurance company at the government level also went in vain,
mainly from objection of private operators. Majority of the early attempts to form insurance
offices were in the province of Bengal. This was due to its political & economic importance
at that time.

The contribution of Raja Ram Mohan Roy, one of the greatest social reformers of India, to
the development of life insurance is very great. He was deeply concerned about the sad plight
of desperate widows and helpless orphans.

OVERSEAS INSURERS

Initially, when Life Offices were established in large numbers in Britain, some of them
ventured to issue sterling policies to the British residents in India. Premiums collected here
were credited to England largely for British beneficiaries. Business seems to have been brisk
and profitable and was usually under short term policies. Insurance mortality tables and
insufficient mortality data of Englishmen in India made the premiums heavy-heavier than at
home. Insurance was denied to the "natives" even if they wanted it- for their lives were
always considered risky and sometimes valueless. When Indian lives were accepted as a very
special case, the extras charged were still heavier.

Prominent amongst the companies which came to India around this period was the "Medical
Invalid and General" incorporated in London in 1841. As more areas were annexed and the

7
ruling power, with vested interests in developing trade, took charge , the "Medical" extended
its area of operation, established large connections, absorbed the" Agra Life" and in 1835,
took over the "New Oriental". P.M. Tate, the then manager of the "Medical", was a keen
businessman, widely liked, influential and shrewd. With W.F. Ferguson, who was the
manager of the "New Oriental" before amalgamation, he commenced very active operations
which were temporarily affected by the 1857 "Mutiny".

The Universal Life Insurance Company established in England in 1836 opened its Indian
Branch in 1840 and enjoyed a long period of successful operations until it was taken over by
the "North British" in May 1901. Insurance exceeding Rs. 10 crores were issued in India
during this period. Another English Company operating in India at that time was the Colonial
Life Assurance Company. It was established in 1846 under the auspices of the Standard Life
Assurance Company. The original prospectus of this company declared its purpose as
"extending to the Colonies of Great Britain and to Indian the full benefit of Life Assurance".
It appointed agents with local boards which were first established on Calcutta, Bombay,
Madras and Colombo. Later on this company was taken over by the "Standard Life" and
made valuable contribution to investigations into the mortality experience of assured lives in
India. Eventually it ceased its operations in India in 1938.

It is difficult to say which was the oldest Life Policy in India, but the oldest known appears to
be one sold by the Royal Insurance (which commenced business in India in 1845) on the life
was to Cursetjee Furdonjee on 6th January 1848, no reference to any earlier policy being
available. In the year 1853, the Liver pool and London and Globe Insurance Company
established in England in 1836, commenced business in India. Sir Charles Forbes was its first
agent, succeeded by M/s. Forbes, Forbes and Campbell. It accepted only European lives and
commenced insuring Indian lives only after 1929.This too, was mainly to oblige good agents
of the Company for classes other than life business. The North British and Mercantile was the
next company to appear on the Indian scene.

It started fire insurance business in the year 1861 and life business 1864. The London
Assurance started life business in 1864, limited principally to European lives and closed
down its life department when the Life Assurance Companies Act 1912 made submission of
returns compulsory.

On 3rd December, 1870, seven earnest men of Bombay with just seven rupees for initial
expenses gave shape to a plan of offering insurance to the public without the risk of ruin and
the "Bombay Mutual Life Assurance Society" came into existence. This was followed by the
Oriental Life Assurance Company in1874, the Bharat in 1896 and the Empire of India in
1897.

THE BIRTH OF INDIAN INSURERS

With the advent of the 20th century, the glorious renaissance of swadeshi days dawned. At
the same time, well- to do Indians realized the potentiality of Indian Insurance business. The
Swadeshi movement of 1905-1907 gave rise to more insurance companies. The United India
in Madras, National Indian and National Insurance in Calcutta and the Co-operative
Assurance at Lahore were established in 1906. In 1907, Hindustan Co-operative Insurance
Company took its birth in one of the rooms of the Jorasanko House of the great poet
Rabindranath Tagore, in Calcutta. The Indian Mercantile (1907) was started in Bombay,

8
General Assurance (1908) at Ajmer and the Swadeshi Life (Later Bombay Life) in Bombay
in 1908.

The end of the First World War (1914-18) witnessed an influx of insurance companies in
India. Famous Indian business houses started new insurance companies. Industrial and
Prudential Bombay, Western India, Satara, were floated before the war, but by 1919,
companies like Jupiter General, New India, Vulcan Insurance Company etc. came into being.
Pandit K.Santhanam with blessing of Lala Lajpat Rai and Pandit Motilal Nehru started Laxmi
Insurance Co. Similarly, Andhra Insurance was started in Masulipatnam, with the initiative of
stalwarts like Dr. Pattabhi Sitaramaiah. From political platforms also, national leaders
supported this cause. It is duty to every Indian to support only Indian Insurance. The keynote
of our Swaraj is in placing all our insurance with our Indian companies", said Mahatma
Gandhi in his message. "I hope Indians will realize the importance of patriotism only through
Indian insurance institution", stated Pandit Jawaharlal Nehru. Thus, the cause of Indian
insurance became a national issue. The pursuit to boost Indian insurance represented a
crusade to extricate the Indian economy from foreign domination.

PROGRESS IN INSURANCE BUSINESS

The growth of Life Insurance in concrete terms could be said to being during the first two
decades of twentieth century when most of the major companies were founded. They grew in
terms of rise in the number of companies, in terms of number of policies and sum assured as
well as total life fund. Indian Insurance Year Book, published for the first time in 1914, gives
the figure of the total business-in -force as 22.44 crore which grew to Rs. 298 crore in 1938.
In 1914, there were only 44companies transacting insurance business in India, and during the
next 25 years their number rose to 176. The total progress on all the primary heads, viz. life
fund (Rs. 50.50 crore), premium income (Rs. 10.50 crore) and new business (Rs. 43.30 crore)
indicate that Indian Insurance Business had been making a definite headway during this
years. The inter-war -years thus saw rapid growth life insurance in India.

The promotion of new life insurance companies continued to be almost a craze and insurance
companies mushroomed. In this period, 176 insurance companies were formed and many of
them failed. Thus unhealthy growth was harmful to the interest of the policy holders and
insurance business in India. Feeling concerned about it, the All India Life Assurance Offices'
Association urged upon the Government in 1932 to undertake the insurance legislation to

• (a) Compulsorily register all Life Insurance companies.

• (b) Secure a deposit of Rs.2 lakh from all Life Insurance companies.
• (c) Compel foreign companies doing business in India to keep sufficient funds in
India securities to meet their liabilities under all policies issued in India.

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INSURANCE ACT, 1938

The Insurance Act, 1938, was the first comprehensive legislation governing not only life but
also non- life branches of insurance to provide strict state control over insurance business. In
sub- sections to dealt with provident companies, mutual offices and co-operative societies as
well.

The silent features of the Act were as follows:

• (A) Constitution of a Department of Insurance under a superintendent vested with

wide powers of supervision and control over all kinds of insurance companies.
• (B) Regulation for the compulsory registration of insurance companies and for filing
of returns of investment and financial conditions.
• (C) Provisions for deposit, to prevent insurers of inadequate financial resources of
speculative concerns for commencing business.
• (D) Provisions that 55% of the net life fund of an Indian or non- Indian insurer should
invested in Indian Government and approved securities with at least 25% in Indian
Government Rupee securities.. All other companies, i.e., foreign companies must
invest 100% of their Indian liabilities in Indian Government and approved securities,
with at least 33.3% Indian Government securities.
• (E) Prohibition of rebating, restriction of commission, licensing of agents etc.
Maximum rates of commission were fixed at 40% of the first premiums and 5% of the
renewal premium in respect of life assurance business. The agent must be licensed, to
improve the status of the profession.
• (F) Periodical valuation of Indian Insurance business of foreign companies and the
business of Indian companies.
• (G) Provision for policyholders' directors, making it possible for the representatives of
policyholders to be on the Board of directors.
• (H) Standardization of policy conditions required all companies to file standard forms
and tables of premium approved by an Actuary. Under this requirement, the initial
deposit for life insurance business was raised from Rs. 25000 in Government
securities to Rs. 50000 in cash approved securities, which was subsequently to be
raised by installments to Rs. 2 lakh within a specified time limit.

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GROWTH OF LIFE BUSINESS IN INDIA: 1914-1948
Sr
1914 1930 1940 1945 1948
no
1 No of insurers 44 68 195 215 209
179 200 189
(a) Indian 44 68
(91.79) (93.02) (90.43)
(b) Non-Indian - - 16 15 20
Total No. of
2 - 748997 1628381 2714000 3016000
policies In force
513925 1371963 2376000 2791000
(a) Indian -
(68.61) (84.25) (87.55) (90.15)
(b) Non-Indian - 220703 181247 261000 234000
Indian outside
(c) - 14369 75171 77000 202000
India
Total business in
3 22.44 258.42 304.03 573.07 712.76
force
84.89 225.51 459.43 566.38
(a) Indian (Rs. Crore) 22.44
(32.85) (74.17) (80.17) (79.46)
(b) Non-Indian - 69.76 60.12 91.85 101.08
Indian outside
(c) - 3.77 18.4 21.79 45.3
India
Total life funds
4 6.36 20.53 62.41 107.4 150.39
(Rs. Crore)

Note: Figures in brackets show percentage of the total.

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Nationalization
THE LIFE INSURANCE CORPORATION OF INDIA: 1956

This was the first step taken towards the nationalization of life insurance business in India.
On 20th January, 1956 all life insurance companies were taken over by 43 nominated
custodians. The custodians were experienced senior executives of private insurance
companies, reporting directly to the Finance Ministry. From the word go, the complex task of
running the industry on a permanent basis and continuing the services to policy holders
without interruption were their major concerns. The actual work of integration had to await
legislation. The custodians managed the insurance companies till 1-09-1956, when Life
Insurance Corporation was established under the general direction and control of the Ministry
of Finance.

The Ordinance provided for the transfer of the control of 154 Indian insurers, 16 non Indian
insurers and 75 provident societies. These arrangements were designed to ensure that no
inconvenience whatsoever was caused to the policy holders. With the Government take over
the management aimed towards the evolution of a common uniform premium rate, policy
conditions and service and working procedures and above all to help promote team spirit.

The corporation, a body corporate shall consist of not more than 15 members appointed by
the Central Government, one of them being appointed by the government as chairman.

The capital of the corporation was at Rs 5 crore provided by the central government.

INSURANCE SECTOR REFORMS

In 1993, Malhotra Committee, headed by former Finance Secretary and RBI Governor R.N.
Malhotra was formed to evaluate the Indian Insurance industry and recommended 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 over all 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:

(1) STRUCTURE

• Government stake in the Insurance Companies to be brought down to 50%.

• Government should take over the holdings of GIC and its subsidiaries so that these
subsidiaries can act as independent corporations.
• All the insurance companies should be given greater freedom to operate

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(2) COMPETETION

• Private Companies with minimum paid up capital of Rs.1 bn should be allowed to

enter the industry.
• No Company should deal in both Life and General Insurance through a single entry.
• Foreign Companies may be allowed to enter the industry in collaboration with the
domestic companies.
• Postal Life Insurance should be allowed to operate in the rural market.
• Only one State Level Life Insurance Company should be allowed to operate in each
state.

(3) REGULATORY BODY

• The Insurance Act should be changed

• An Insurance Regulatory Body should be set up.
• Controller of Insurance (Currently a part from the Finance Ministry)should be made
independent

(4) INVESMENTS

• Mandatory Investments of LIC Life Fund in government securities to be reduced from

75% to 50%.
• GIC and its subsidiaries are not to hold more than 5% in any company (There current
holdings to be brought down to this level over a period of time).

(5) CUSTOMER SERVICE

• LIC should pay interest on delays on payments beyond 30 days.

• Insurance Companies must be encouraged to set up unit linked pension plans
• Computerization of operations and updating of technology to be carried out in the
insurance industry.

The committee emphasized that in order to improve the customer service and increase the
coverage of insurance industry should opened up to competition. But at the same time, the
committee felt the need to exercise caution as any failure on the part of new players could
ruin the public confidence in the industry.

Hence, it was decided to allow competition in a limited way by stipulating the minimum
capital requirement of Rs. 100 crores. 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.

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Liberalization :

OPENING UP OF INSURANCE SECTOR – 1999 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. The IRDA since its incorporation as a statutory
body in April 2000 has fastidiously stuck to its schedule of framing regulations and
registering the private sector insurance companies.

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's online service for issue and renewal of licenses to agents.

The approval of institutions for imparting training to agents has also ensured that
the insurance companies would have a trained workforce of insurance agents in
place to sell their products, which are expected to be introduced by early next year.

Since being set up as an independent statutory body the IRDA has put in a
framework of globally compatible regulations. In the private sector 14 life
insurance companies have been registered.

ENTRY OF PRIVATE COMPANIES

Under the IRDA Act, private companies can now operate in India's insurance
industry. However, they must obtain a license from the IRDA before being
permitted to write business.

To have its license application considered, a domestic private company must be

registered in accordance with the Companies Act of 1956 and have approximately
US$ 20 million of investment capital. The specific licensing requirements that
Private Indian Companies must fulfill are set forth in the Registration on Indian
Insurance Companies Regulations, published by the IRDA 2000.

LIFTING OF BARRIERS TO FOREIGN INVESTMENT

The IRDA Act also lifts certain barriers to foreign direct investment in Indian
insurance industry.

Global insurers are now permitted to set up and register a domestic company in
order to write business in India. However, regulations stipulate that they have a
capital base of at least US $ 20 million, and their investment in such company is
capped at 26 percent. Thus, to participate in the market, they must form a joint
venture with an Indian partner that is able to invest the remaining funds.

The equity investments limit is the same for global reinsures seeking to write
business in India, but they are required to put up a capital of approximately US$ 45
million in order to establish a domestic company.

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Since the IRDA first enacted these rules, 13 new life insurance companies have
entered the market.

On the other hand, no global reinsurer has established a domestic company.

Instead, most of the top international reinsurance companies operate from their
overseas offices by sharing the reinsurance risks picked up by the GIC. A recent
proposal has been put forward to increase foreign direct investment to 49 percent.
In addition, global companies are pushing for the right to establish branch offices
in India. These changes are likely to substantially increase the presence of
international insurers, reinsurers, and brokers in India.

The IRDA Insurance Brokers Act in India 2002 permitted overseas insurance and
reinsurance brokers to enter the market, but with the same equity cap as that
governing the operations of foreign insurers and reinsurers. Thus, foreign brokers
must also form a joint venture with an Indian partner in order to establish an Indian
broking house.

The 2002 IRDA legislation established four broker categories, one of which
brokers must select when applying for a license:

1. Category 1A : Direct General Insurance Broker

2. Category 1B : Direct Life Insurance Broker
3. Category 2 : Reinsurance Broker
4. Category 3: Composite Broker
5. Category4: Others, for example Insurance Consultants and Risk
Management Consultants.

Each category has different solvency margins and capital adequacy ratios, and all
categories need to carry professional indemnity insurance at different minimum
levels.

In the years since market liberalization was initiated, the insurance sector has
witnessed some impressive changes. The needs of insurance and reinsurance
buyers have grown; the market is introducing new products to address these needs;
and the services of brokers are now seen as critical to making informed insurance
and reinsurance decisions.

OVERVIEW OF THE CURRENT INSURANCE MARKET

In the years since the IRDA Act initiated market reforms, the insurance sector has
experienced some remarkable changes.

The entry of a large number of Indian and Foreign private companies in life
insurance business has to lead greater choice in terms of products and services.
Increased consumer awareness of the benefits and importance of insurance and
reinsurance has generated many more buyers; and new distribution channels_
among them brokers, bank assurance, the Internet, and corporate agents_ have
provided additional ways of getting products and services to customers.

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 Private insurance companies have to date written a small percentage of business in
this sector during the last three years, but they have ushered in a competitive
environment that has accelerated market growth.

State owned insurers still write the bulk of insurance business, and they have the
net worth required to underwrite large corporate risks without depending almost
entirely on reinsurance support. However, their focus on restructuring is beginning
to put them at a disadvantage against private competitors.

Over the next few years, the share of the market held by the public insurers is
expected to drop substantially, with private companies assuming a growing
percentage of the business written.

At present there are 15 private insurers with two standalone private players and
remaining private-foreign joint venture.

Purpose and Need of Insurance :

Assets are insured, because they are likely to be destroyed through accidental occurrences.
Such possible occurrences are called perils. Fire, floods, breakdowns, lightening,
earthquakes, etc, are perils. If such perils can cause damage to the asset, we say that the asset
is exposed to that risk. Perils are the events. Risks are the consequential losses or damages.
The risk to a owner of a building, because of the peril of an earthquake, may be a few lakhs
or a few crores of rupees, depending on the cost of the building and the contents in it.

The risk only means that there is a possibility of loss or damage. The damage may or may not
happen. Insurance is done against the contingency that it may happen. There has to be an
uncertainty about the risk. Insurance is relevant only if there are uncertainties. If there is no
uncertainty about the occurrence of an event, it cannot be insured against. In the case of
human being, death is certain, but the time of death is uncertain. In the case of person who is
terminally ill, the time of death is not uncertain, though not exactly known. He cannot be
insured.

Insured does not protect the asset. It does not prevent its loss due to peril. The peril cannot be
avoided through insurance. The peril can sometimes be avoided through better safety and
damage control management. Insurance only tries to reduce the impact of the risk on the
owner of the asset and those who depend on that asset. It only compensates the losses and
that too, not fully.

Only economic consequences can be insured. If the loss is not financial, insurance may not be
possible. Example of non-economic losses are love and affection of parents, leadership of
managers, sentimental attachments to family heirlooms, innovative and creative abilities, etc.

16
How Insurance Works?

The mechanism of insurance is very simple. People who are exposed to the same risks come
together and agree that, if any one of them suffers a loss, the others will share the loss and
make good to the person who lost. All people who send goods by ship are exposed to the
same risks, which are related to water damage, ship sinking, piracy, etc. Those owning
factories are not exposed to these risks, but they are exposed to different kinds of risks like,
fire, hailstorms, earthquake, lightning, burglary, etc. Like this, different kinds of risks can be
identified and separate groups made, including those exposed to such risks. By this method,
the heavy loss that any one of them may suffer (all of them may not suffer such losses at the
same time) is divided into bearable small losses by all. In other words, the risk is spread
among the community and the likely big impact on one is reduced to smaller manageable
impacts on all.

If a Jumbo Jet with more than 350 passengers crashes, the loss would run into several crores
of rupees. No airline would be able to bear such a loss. It is unlikely that many Jumbo Jets
will crash at same time. If 100 airline companies flying Jumbo Jets, come together into an
insurance pool, whenever one of the Jumbo Jets in the pool crashes, the loss to be borne by
each airline would come down to a few lakhs of rupees. Thus, insurance is a business of
sharing .

There are certain principles, which make it possible for insurance to remain a fair
arrangement. The first is that it is difficult for any one individual to bear the consequences of
the risks that he is exposed to. It will become bearable when the community shares the
burden. The second is that the perils should occur in an accidental manner. Nobody should be
in a position to make the risk happen. In other words, none in the group should set fire to his
assets and ask others to share the costs of damage. This would be taking unfair advantage of
an arrangement put into place to protect people from risks they are exposed to. The
occurrence has to be random, accidental, and not the deliberate creation of the insured person.

The manner in which the loss is to be shared can be determined before-hand. It may be
proportional to the risk that each person is exposed to. This would be indicative of the benefit
he would receive if the peril befell him. The share could be collected from the members after
the loss has occurred or the likely shares may be collected in advance, at the time of
admission to the group. Insurance companies collect in advance and create a fund from which
the losses are paid.

The collection to be made from each person in advance is determined on assumptions. While
it may not be possible to tell beforehand, which person will suffer, it may be possible to tell,
on the basis of past experiences, how many persons, on an average, may suffer losses. The
following two examples explain the above concept of insurance:

17
Example 1

In a village, there are 400 houses, each valued at Rs. 20000. Each year, on the average, 4
houses get burnt, resulting into a total loss of Rs. 80000. If all the 400 owners come together
and contribute Rs. 200 each, the common fund would be Rs. 80000. this is enough to pay Rs.
20000 to each of the 4 owners whose houses got burnt. Thus, the risk of 4 owners is spread
over 400 house-owners of the village.

Example 2

There are 1000 persons who are all aged 50 and are healthy. It is expected that of these, 10
persons may die during the year. If the economic value of the loss suffered by the family of
each dying person is taken to be Rs. 20000, the total loss would work out to Rs. 200000. If
each person in a group contributed Rs. 200 a year, the common fund would be Rs. 200000.
This would be enough to par Rs. 20000 to the family of each of the ten persons who die.
Thus, the risks in the case of 10 persons, are shared by 1000 persons.

Insurance of ‘Human Asset’

A human being is an income generating asset. One s manual labour, professional skills and
business acumen are the assets. This asset also can be lost through unexpectedly early death
or through sickness and disabilities caused by accidents. Accidents may or may not happen.
Death will happen, but the timing is uncertain. If it happens around the time of one s
retirement, when it could be expected that the income will normally cease, the person
concerned could have made some other arrangements to meet the continuing needs. But if it
happens much earlier when the alternate arrangements are not in place, there can be losses to
the person and dependents. Insurance is necessary to help those dependent on the income.

A person, who may have made arrangements for his needs after his retirement, also would
need insurance. This is because the arrangements would have been made on the basis of some
expectations like, likely to live for another 15 years, or that children will look after him. If
any of these expectations do not become true, the original arrangement would become
inadequate and there could be difficulties. Living too long can be as much a problem as dying
too young. Both are risks, which need to be safeguarded against. Insurance takes care.

18
Insurance of Intangibles :

The concept of insurance has been extended beyond the coverage of tangible assets.
Exporters run risk of losses if the importers in the other country default in payments or in
collecting the goods. They will also suffer heavily due to sudden changes in currency
exchange rates, economic policies or political disturbances in the other country. These risks
are insured. Doctors run the risk of being charged with negligence and subsequent liability
for damages. The amounts in question can be fairly large, beyond the capacity of individuals
to bear. These are insured. Thus, insurance is extended to intangibles. In some countries, the
voice of a singer or the legs of a dancer may be insured.

Types of Insurance :
Any risk that can be quantified can potentially be insured. Specific kinds of risk that may
give rise to claims are known as "perils". An insurance policy will set out in detail which
perils are covered by the policy and which are not.

Below is a (non-exhaustive) list of the many different types of insurance that exist. A single
policy may cover risks in one or more of the categories set forth below. For example, auto
insurance would typically cover both property risk (covering the risk of theft or damage to
the car) and liability risk (covering legal claims from causing an accident). A homeowner's
insurance policy in the U.S. typically includes property insurance covering damage to the
home and the owner's belongings, liability insurance covering certain legal claims against the
owner, and even a small amount of health insurance for medical expenses of guests who are
injured on the owner's property.

Automobile insurance known in the UK as motor insurance, is probably the most common
form of insurance and may cover both legal liability claims against the driver and loss of or
damage to the insured's vehicle itself. Throughout most of the United States an auto insurance
policy is required to legally operate a motor vehicle on public roads. In some jurisdictions,
bodily injury compensation for automobile accident victims has been changed to a no-fault
system, which reduces or eliminates the ability to sue for compensation but provides
automatic eligibility for benefits.

Aviation insurance insures against hull, spares, deductible, hull war and liability risks.
Boiler insurance (also known as boiler and machinery insurance or equipment breakdown
insurance) insures against accidental physical damage to equipment or machinery.
Builder's risk insurance insures against the risk of physical loss or damage to property
during construction. Builder's risk insurance is typically written on an "all risk" basis
covering damage due to any cause (including the negligence of the insured) not otherwise
expressly excluded.

19
 Business insurance can be any kind of insurance that protects businesses against risks. Some
principal subtypes of business insurance are (a) the various kinds of professional liability
insurance, also called professional indemnity insurance, which are discussed below under that
name; and (b) the business owners policy (BOP), which bundles into one policy many of the
kinds of coverage that a business owner needs, in a way analogous to how homeowners
insurance bundles the coverage that a homeowner needs.

Casualty insurance insures against accidents, not necessarily tied to any specific property.
Credit insurance repays some or all of a loan back when certain things happen to the
borrower such as unemployment, disability, or death. Mortgage insurance (which see below)
is a form of credit insurance, although the name credit insurance more often is used to refer to
policies that cover other kinds of debt.

Crime insurance insures the policyholder against losses arising from the criminal acts of
third parties. For example, a company can obtain crime insurance to cover losses arising from
theft or embezzlement.

Crop insurance "Farmers use crop insurance to reduce or manage various risks associated
with growing crops. Such risks include crop loss or damage caused by weather, hail, drought,
frost damage, insects, or disease, for instance."

Defense Base Act Workers' compensation or DBA Insurance provides coverage for civilian
workers hired by the government to perform contracts outside the US and Canada. DBA is
required for all US citizens, US residents, US Green Card holders, and all employees or
subcontractors hired on overseas government contracts. Depending on the country, Foreign
Nationals must also be covered under DBA. This coverage typically includes expenses
related to medical treatment and loss of wages, as well as disability and death benefits.
Directors and officers liability insurance protects an organization (usually a corporation)
from costs associated with litigation resulting from mistakes incurred by directors and
officers for which they are liable. In the industry, it is usually called "D&O" for short.
Disability insurance policies provide financial support in the event the policyholder is
unable to work because of disabling illness or injury. It provides monthly support to help pay
such obligations as mortgages and credit cards.

o Total permanent disability insurance provides benefits when a person is permanently

disabled and can no longer work in their profession, often taken as an adjunct to life
insurance.
Errors and omissions insurance: See "Professional liability insurance" under "Liability
insurance".
Expatriate insurance provides individuals and organizations operating outside of their home
country with protection for automobiles, property, health, liability and business pursuits.
Financial loss insurance protects individuals and companies against various financial risks.
For example, a business might purchase cover to protect it from loss of sales if a fire in a
factory prevented it from carrying out its business for a time. Insurance might also cover the
failure of a creditor to pay money it owes to the insured. This type of insurance is frequently

20
referred to as "business interruption insurance." Fidelity bonds and surety bonds are included
in this category, although these products provide a benefit to a third party (the "obligee") in
the event the insured party (usually referred to as the "obligor") fails to perform its
obligations under a contract with the oblige.

Health insurance policies will often cover the cost of private medical treatments if the
National Health Service in the UK (NHS) or other publicly-funded health programs do not
pay for them. It will often result in quicker health care where better facilities are available.
Home insurance or homeowners insurance: See "Property insurance".
Liability insurance is a very broad superset that covers legal claims against the insured.
Many types of insurance include an aspect of liability coverage. For example, a homeowner's
insurance policy will normally include liability coverage which protects the insured in the
event of a claim brought by someone who slips and falls on the property; automobile
insurance also includes an aspect of liability insurance that indemnifies against the harm that
a crashing car can cause to others' lives, health, or property. The protection offered by a
liability insurance policy is twofold: a legal defense in the event of a lawsuit commenced
against the policyholder and indemnification (payment on behalf of the insured) with respect
to a settlement or court verdict. Liability policies typically cover only the negligence of the
insured, and will not apply to results of willful or intentional acts by the insured.
o Environmental liability insurance protects the insured from bodily injury, property damage
and cleanup costs as a result of the dispersal, release or escape of pollutants.
o Professional liability insurance also called professional indemnity insurance, protects
professional practitioners such as architects, lawyers, doctors, and accountants against
potential negligence claims made by their patients/clients. Professional liability insurance
may take on different names depending on the profession. For example, professional liability
insurance in reference to the medical profession may be called malpractice insurance.
Notaries public may take out errors and omissions insurance (E&O). Other potential E&O
policyholders include, for example, real estate brokers, home inspectors, appraisers, and
website developers.

Life insurance provides a monetary benefit to a decedent's family or other designated

beneficiary, and may specifically provide for burial, funeral and other final expenses. Life
insurance policies often allow the option of having the proceeds paid to the beneficiary either
in a lump sum cash payment or an annuity.

o Annuities provide a stream of payments and are generally classified as insurance because
they are issued by insurance companies and regulated as insurance and require the same kinds
of actuarial and investment management expertise that life insurance requires. Annuities and
pensions that pay a benefit for life are sometimes regarded as insurance against the possibility
that a retiree will outlive his or her financial resources. In that sense, they are the complement
of life insurance and, from an underwriting perspective, are the mirror image of life
insurance.
Locked funds insurance is a little-known hybrid insurance policy jointly issued by
governments and banks. It is used to protect public funds from tamper by unauthorized
parties. In special cases, a government may authorize its use in protecting semi-private funds

21
which are liable to tamper. The terms of this type of insurance are usually very strict.
Therefore it is used only in extreme cases where maximum security of funds is required.
Marine insurance and marine cargo insurance cover the loss or damage of ships at sea or on
inland waterways, and of the cargo that may be on them. When the owner of the cargo and
the carrier are separate corporations, marine cargo insurance typically compensates the owner
of cargo for losses sustained from fire, shipwreck, etc., but excludes losses that can be
recovered from the carrier or the carrier's insurance. Many marine insurance underwriters will
include "time element" coverage in such policies, which extends the indemnity to cover loss
of profit and other business expenses attributable to the delay caused by a covered loss.
Mortgage insurance insures the lender against default by the borrower.
National Insurance is the UK's version of social insurance (which see below).
No-fault insurance is a type of insurance policy (typically automobile insurance) where
insurers are indemnified by their own insurer regardless of fault in the incident.
Nuclear incident insurance covers damages resulting from an incident involving radio active
materials and is generally arranged at the national level. (For the United States, see the Price-
Anderson Nuclear Industries Indemnity Act.)

Pet insurance insures pets against accidents and illnesses - some companies cover
routine/wellness care and burial, as well.

Political risk insurance can be taken out by businesses with operations in countries in which
there is a risk that revolution or other political conditions will result in a loss.
Pollution Insurance A first-party coverage for contamination of insured property either by
external or on-site sources. Coverage for liability to third parties arising from contamination
of air, water or land due to the sudden and accidental release of hazardous materials from the
insured site. The policy usually covers the costs of cleanup and may include coverage for
releases from underground storage tanks. Intentional acts are specifically excluded
Property insurance provides protection against risks to property, such as fire, theft or
weather damage. This includes specialized forms of insurance such as fire insurance, flood
insurance, earthquake insurance, home insurance, inland marine insurance or boiler
insurance.
Purchase insurance is aimed at providing protection on the products people purchase.
Purchase insurance can cover individual purchase protection, warranties, guarantees, care
plans and even mobile phone insurance. Such insurance is normally very limited in the scope
of problems that are covered by the policy.

Retrospectively Rated Insurance is a method of establishing a premium on large commercial

accounts. The final premium is based on the insured's actual loss experience during the policy
term, sometimes subject to a minimum and maximum premium, with the final premium
determined by a formula. Under this plan, the current year's premium is based partially (or
wholly) on the current year's losses, although the premium adjustments may take months or
years beyond the current year's expiration date. The rating formula is guaranteed in the
insurance contract. Formula: retrospective premium = converted loss + basic premium × tax
multiplier. Numerous variations of this formula have been developed and are in use.
Social insurance can be many things to many people in many countries. But a summary of

22
its essence is that it is a collection of insurance coverage (including components of life
insurance, disability income insurance, unemployment insurance, health insurance, and
others), plus retirement savings, that mandates participation by all citizens. By forcing
everyone in society to be a policyholder and pay premiums, it ensures that everyone can
become a claimant when or if he/she needs to. Along the way this inevitably becomes related
to other concepts such as the justice system and the welfare state. This is a large, complicated
topic that engenders tremendous debate, which can be further studied in the following articles
(and others):

o Social welfare provision

o Social security

o Social safety net

o National Insurance

o Social Security (United States)

o Social Security debate (United States)

Terrorism insurance provides protection against any loss or damage caused by terrorist
activities.
Title insurance provides a guarantee that title to real property is vested in the purchaser
and/or mortgagee, free and clear of liens or encumbrances. It is usually issued in conjunction
with a search of the public records performed at the time of a real estate transaction.
Travel insurance is an insurance cover taken by those who travel abroad, which covers
certain losses such as medical expenses, lost of personal belongings, travel delay, personal
liabilities, etc.

Workers' compensation insurance replaces all or part of a worker's wages lost and
accompanying medical expense incurred because of a job-related injury.

Advantages of Life Insurance :

Life insurance has no competition from any other business. Many people think that life
insurance is an investment or a means of saving. This is not a correct view. When a person
saves, the amount of funds available at any time is equal to the amount of money set aside in
the past, plus interest. This is so in a fixed deposit in the bank, in national savings certificates,
in mutual funds and all other savings instruments. If the money is invested in buying shares
and stocks, there is the risk of the money being lost in the fluctuations of the stock market.
Even if there is no loss, the available money at any time is the amount invested plus
appreciation. In life insurance, however, the fund available is not the total of the savings
already made (premiums paid), but the amount one wished to have at the end of the savings
period (which is the next 20 or 30 years). The final fund is secured from the very beginning.

23
One is paying for it later, out of the savings. One has to pay for it only as long as one lives or
for a lesser period if so chosen. There is no other scheme which provides this kind of benefit.
Therefore life insurance has no substitute.

Even so, a comparison with other forms of savings will show that life insurance has the
following advantages.

In the event of death, the settlement is easy. The heirs can collect the moneys quicker,
because of the facility of nomination and assignment. The facility of nomination is now
available for some bank accounts.

There is a certain amount of compulsion to go though the plan of savings. In other forms, if
one changes the original plan of savings, there is no loss. In insurance, there is a loss.

Certain cannot claim the life insurance moneys. They can be protected against attachments
by courts.

There are tax benefits, both in income tax and in capital gains.

Marketability and liquidity are better. A life insurance policy is property and can be
transferred or mortgaged. Loans can be raised against the policy.

The following tenets help agents to believe in the benefits of life insurance. Such faith will
enhance their determination to sell and their perseverance.

Life insurance is not only the best possible way for family protection. There is no other
way.
Insurance is the only way to safeguard against the unpredictable risks of the future. It is
unavoidable.
The terms of life are hard. The terms of insurance are easy.
The value of human life is far greater than the value of property. Only insurance can
preserve it.
Life insurance is not surpassed by many other savings or investment instrument, in terms of
security, marketability, stability of value or liquidity.

Insurance, including life insurance, is essential for the conservation of many businesses, just
as it is in the preservation of homes.

Life insurance enhances the existing standards of living.

Life insurance helps people live financially solvent lives.

Life insurance perpetuates life, liberty and the persuit of happiness.

Life insurance is a way of life.

24
The Business of Insurance :
Insurance companies are called insurers. The business of insurance is to (a) bring together
persons with common insurance interests (sharing the same risks), (b) collect the share or
contribution (called premium) from all of them, and (c) pay out compensation (called claims)
to those who suffer. The premium is determined on the same lines as indicated in the
examples above, but with some further refinements.

In India, insurance business is classified primarily as life and non-life or general. Life
insurance includes all risks related to the lives of human beings and General insurance covers
the rest. General insurance has three classifications viz., Fire (dealing with all fire related
risks), Marine (dealing with all transport related risks and ships) and Miscellaneous (dealing
with all others like liability, fidelity, motor crop, personal accident, etc.). Personal accident
and sickness insurance, which are related to human beings, is classified as non-life in India,
but is classified as life , in many other countries. What is Non-life in India is termed as
Property and Casualty in some other countries.

The premium is based on expectations of the losses. These expectations are based on studies
of occurrences in the past and the use of statistical principles. There is, in statistics, a law of
large numbers . When you toss a coin, the chance of a head or tail coming up is half. If the
coin is tossed 10 times, one cannot be sure that the head will come up 5 times. If the coin is
tossed 1 million times, the number of heads will be closer to half a million proportionately
than in the case of 10. The variation will be less as a percentage. So also, the larger the
numbers (of risks) included in the pool, the better the chances that the assumptions regarding
the probability of the risk occurring, which is the basis of premium calculation, will be
realized in practice. In order to be amenable to statistical predictions, insurers have to insure
large numbers of risks. Larger the spread of business better is the experience in relation to
expectations.

The business of insurance is nothing but one of sharing. It spreads losses of an individual
over the group of individuals who are exposed to similar risks. People who suffer loss get
relief because their loss is made good. People who do not suffer loss are relieved because
they were spared the loss.

The insurer is in the position of a trustee as it is managing the common fund, for and on
behalf of the community of policyholders. It has to ensure that nobody is allowed to take
undue advantage of the arrangement. That means that the management of the insurance
business requires care to prevent entry (into the group) of people whose risks are not of the
same kind as well as paying claims on losses that are not accidental. The decision to allow
entry is the process of underwriting of risk. Underwriting includes assessing the risk, which
means, making an evaluation of how much is the exposure to risk. The premium to be
charged depends on this assessment of the risk. Both underwriting and claim settlements have
to be done with great care.

25
Criticism of Insurance Companies :
Some people believe that modern insurance companies are money-making businesses which
have little interest in insurance. They argue that the purpose of insurance is to spread risk so
the reluctance of insurance companies to take on high-risk cases (e.g. houses in areas subject
to flooding, or young drivers) runs counter to the principle of insurance.
Other criticisms include:

Insurance policies contain too many exclusion clauses. For example, some house insurance
policies do not cover damage to garden walls.

Most insurance companies now use call centre and staff attempt to answer questions by
reading from a script. It is difficult to speak to anybody with expert knowledge.

Role of Insurance in Economic Development :

For economic development, investments are necessary. Investments are made out of savings.
A life insurance company is a major instrument for the mobilization of savings of people,
particularly from the middle and lower income groups. These savings are channeled into
investments for economic growth.

As on 31.3.2002, the total investments of the LIC exceeded Rs. 245000 crores, of which more
than Rs. 130000 crores were directly in Government (both State and Centre) related
securities, more than Rs. 12000 crores in the State Electricity Boards, nearly Rs. 20000 crores
in housing loans and Rs. 4000 crores in water supply and sewerage systems. Other
investments included road transport, setting up industrial estates and directly financing
industry. Investments in the corporate sector (shares, debentures and term loans) exceeded
Rs. 30000 crores. These directly affect the lives of the people and their economic well-being.

A life insurance company will have large funds. These amounts are collected by way of
premiums. Every premium represents a risk that is covered by that premium. In effect,
therefore, these vast amounts represent pooling of risks. The funds are collected and held in
trust for the benefit of the policyholders. The management of life insurance companies are
required to keep this aspects in mind and make all its decisions in ways that benefit the
community. This applies also to its investments. That is why successful insurance companies
would not be found investing in speculative ventures. Their investments, as in the case of the
LIC, benefit the society at large.

Apart from investments, business and trade benefit through insurance. Without insurance,
trade and commerce will find it difficult to face the impact to major perils like fire,
earthquake, floods, etc. Financiers, like banks, collapse if the factory, financed by it, is
reduces to ashes by terrible fire. Insurers cover also the loss to financiers, if their debtors
default.

26
 2. GLOBAL INSURANCE INDUSTRY :

The global insurance industry is one of the largest sectors of finance. It ranges from
consumer to corporate and industrial insurance, and even reinsurance, or insurance of
insurance.

The major insurance markets of the world are obviously the US, Europe, Japan, and South
Korea. Emerging markets are found throughout Asia, specifically in India and China, and are
also in Latin America.

With the internet and other forms of high-speed communication, companies and individuals
are now able to purchase insurance and related financial products from almost anywhere in
the world. Increasing affluence, especially in developing countries, and a rising
understanding of the need to protect wealth and human capital has led to significant growth in
the insurance industry.

Given the evolving and growing socio-economic conditions worldwide, insurance companies
are increasingly reaching out across borders and are offering more competitive and
customized products than ever before.

Over the past ten years, global insurance premiums have risen by more than 50%, with
annual growth rates ranging between 2 and 10%.In 2004, global insurance premiums
amounted to $3.3 trillion.

The majority of insurance comes from developed nations such as most of Europe, the US,
and Japan. In 2004, premiums in North American amounted to $1,217 billion, while the
European Union generated $1,198 billion, and Japan produced $492 billion. The UK
amounted to $295 billion.

The four biggest generators of insurance premiums comprised almost two-thirds of premiums
for 2004, the US and Japan amount to half, while they only make up 7% of the world s
population.

In contrast, the emerging markets that make up 85% of the world s population produced only
10% of the premiums.

The leading global insurance companies are:

• Zurich Financial Services,

• AXA
• Berkshire Hathaway/ Berkshire Hathaway Re
• Allianz
• Aviva
• ING Group
• Munich RE Group
• American International Group (AIG)
• Nippon Life Insurance
• Assicurazioni Generali

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GLOBAL LIFE INSURANCE DENSITY :
Continent/Country 2001** 2002** 2003** 2004** 2005** 2006**
North America 1508.6 1563.8 1565.7 1617.2 1686.3 1731.8
United States 1602 1662.6 1657.5 1692.5 1753.2 1789.5
Canada 675.9 657.3 722.9 926.1 1071.9 1204.1

Latin America 26.3 29.1 30 37.2 42.0 51.3

Brazil 10.8 27.2 35.8 45.9 56.8 72.5
Mexico 53.2 59.2 41.3 50.2 49.9 62.9
Uruguay 21.5 17.8 15.4 N/A 15.5 16.6
Argentina 68.8 19.7 24.2 34.5 35.4 43.8
Panama 39.3 44.6 42.4 50.6 47.2 51.2
Chile 122.1 103.5 138.3 164.5 174.9 176
Colombia 11.5 12.5 12.4 14.3 16.8 20.5

Europe 573.2 620.4 726.9 848.1 911.8 1119.6

United kingdom 2567.9 2679.4 2617.1 3190.4 3287.1 5139.6
Switzerland 2715.7 3099.7 3431.8 3275.1 3078.1 3111.8
Netherlands 1345 1296.1 1561.7 1936.5 1954.2 2071.6
France 1268.2 1349.5 1767.9 2150.2 2474.6 2922.5
Belgium 1155 1323.6 2004.8 2291.2 2988.7 2427.7
Sweden 1356 1232.2 1602.3 1764.3 2105.2 2214.6
Denmark 1364.4 1574.9 2037.5 2310.5 2489.9 2840.8
Germany 674.3 736.7 930.4 1021.3 1042.1 1136.1
Italy 720.8 904.9 1238.3 1417.2 1449.8 1492.8
Austria 632 648.7 811 955.3 1095.1 1104.6
Portugal 302.9 418.6 611.4 768.1 1113.7 1131.5
Spain 491 588 488.6 571.9 615.8 651.0
Poland 48.7 50.7 59.9 73.3 101.9 150.5
Russia 33.2 23.1 33.9 24.8 6.3 4.0
Croatia 25.3 33.2 46.3 58.7 70.9 81.8
Hungary 59.3 76.7 99.1 117.3 148.2 192.3
Greece 108.9 116 152.1 177.9 213.1 256.7
Bulgaria 5 9.9 5.5 8.2 11.1 13.2
Ukraine 0.1 0.1 0.3 0.6 1.3 1.9
Turkey 5.5 6.5 8.4 12 12.7 13.1

Asia 125 128.1 140.1 147.2 149.6 154.6

South Korea 763.4 821.9 873.6 1006.8 1210.6 1480.0
Japan 2806.4 2783.9 3002.9 3044 2956.3 2829.3
Tiwan 760.9 925.1 1050.1 1494.6 1699.1 1800.0
Hongkong 1249.7 1237.9 1483.9 1884.3 2213.2 2456
Israel 525.2 459.3 460.8 467.4 510.2 532.6
Malaysia 129.5 118.7 139.8 167.3 188 189.2
Singapore 713.2 730.1 1300.2 1483.9 1591.4 1616.5
Thailand 34.1 42.1 52 50.8 54.6 60
India 9.1 11.7 12.9 15.7 18.3 33.2
China 12.2 19.5 25.1 27.3 30.5 34.1
Phillipines 6.6 8.7 8.6 9.4 10.6 13.1
UAE 56.3 74 72.5 59.7 74.7 89.8
Srilanka 4.3 4.5 5.3 6.2 6.9 8.5
Indonesia 3.6 5.2 6.4 7.5 10.5 12.5
Oman 13.6 14.8 13.8 14.2 17.3 14.3
Vietnam 2.1 3.8 4.1 7.3 6.1 6.1
Iran 1.1 1.5 1.7 2.3 2.2 2.6
Kuwait 30.3 36.8 36.9 39.1 35.7 40.9
Pakistan 1.2 1 1.1 1.5 1.9 2.3
Saudia Arabia 0.6 1.7 1.7 2.1 0.7 0.8

Africa 22.4 21.5 26.1 30.3 30.7 38.3

South Africa 377.2 360.5 476.5 545.5 558.3 695.6
Mauritius 95.3 103.7 119.1 133.1 136.1 N/A
Zimbabwe 12.4 7.8 21.4 N/A N/A N/A
Morocco 9.4 12.2 12 10.6 11.7 14.7
Kenya 2.9 3 3.4 3.7 4.5 5.3
Nigeria 0.5 0.5 0.6 0.7 0.5 0.8
Egypt 2.7 2.4 2.7 3.1 4 4.7
Algeria 0.4 0.5 0.5 0.8 0.9 1.2

Oceania 697.5 668.7 750.7 851 885 896.3

Australia 1040.3 1010.4 1129.3 1285.1 1366.7 1389
New Zealand 198.4 211.1 272 318 219.7 215

World 235 247.3 267.1 291.5 299.5 330.6

Source: Swiss Re, Sigma volumes

* Insurance density is measured as ratio of premium to total population
** Data relates to calender
years Figure in US$
www.indiainsuranceresearc
h.com

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3. PERFORMANCE OF INDIAN INSURANCE INDUSTRY :
Performance up to October 2006

The performance growth rate that was 22.8 percent as at September 2006 has moved
up to 23.3 percent at the end of October 2006, an improvement of significance. The
total premium at the end of October is Rs.14,628 crore as against Rs.11,855 crore.
The established players have added Rs.807 crore at a growth rate of 8.3 percent with
the new players adding Rs.1966 crore at a growth rate of 62 percent. Here again,
ICICI Lombard has achieved an accretion of Rs.887 crore; whereas the total accretion
of all the established players is Rs 807 crores, a truly impressive record. New India
with Rs.286 crore, closely followed by Oriental with Rs.277 crore are the major
contributors for the established players. Reliance, a late starter in the race for
premium acquisition has recorded an accretion of Rs.357 crore as against a meager
last year renewal of Rs.89 crore. The growth path is now led by several players: with
eight out of the twelve players having achieved accretions in excess of Rs.100 crore
and more at the end of October 2006. With the imminent detariffing around the corner
in January 2007, the next two months should witness even more fierce battles for
supremacy of the market turf. A few of the new players are inching towards breaking
into the big league premium players of yesteryears and this may happen sooner than
one thought. Interesting and challenging times are certainly ahead for all the players.

Premiums Rise 163.68% over October, 2006

Individual premium:

The life insurance industry underwrote Individual Single Premium of Rs.1336610.10

lakh for the period ended October, 2006 of which the private insurers garnered
Rs.118242.78 lakh and LIC garnered Rs.1218367.32 lakh. The corresponding
numbers for the previous year were Rs.443296.40 lakh for the industry, with private
insurers underwriting Rs.64530.68 lakh and LIC Rs.378765.72 lakh. The Individual
Non-Single Premium underwritten during April-October, 2006 was Rs.1771903.71
lakh of which the private insurers underwrote Rs.536863.16 lakh and LIC
Rs.1235040.55 lakh. The corresponding numbers for the previous year were
Rs.743586.24 lakh, Rs.260432.63 lakh and Rs.483153.61 lakh respectively.

Group premium:

The industry underwrote Group Single Premium of Rs.467348.58 lakh of which the
private insurers underwrote Rs.30147.74 lakh and LIC Rs.437200.84 lakh. The lives
covered being 7678192, 456696 and 7221496 respectively. The corresponding
numbers for the previous year were Rs.171382.70 lakh with private insurers
underwriting Rs.17261.98 lakh and LIC Rs.154120.72 lakh and the lives covered
being 8547743, 397721 and 8150022 respectively. The Group Non-Single Premium
underwritten during April-October, 2006 was Rs.53221.05 lakh which was
underwritten entirely by the private insurers, covering 2366084 lives. The
corresponding numbers for the previous year were Rs. 18031.15 lakh and covering
1277400 lives.

29
Segment-wise segregation:

A further segregation of the premium underwritten during the period indicates that
Life, Annuity, Pension and Health contributed Rs.2329869.52 lakh (64.24%),
Rs.74006.48 lakh (2.04%), Rs.1221904.91 lakh (33.69%) and Rs.897.90 lakh (0.02%)
respectively. In respect of LIC, the break up of life, annuity and pension categories
was Rs.1677831.45 lakh (58.04%), Rs.69437.82 lakh (2.40%) and Rs.1143339.44
lakh (39.55%) respectively. In case of the private insurers, Rs.652038.07 lakh
(88.58%), Rs.4568.66 lakh (0.62%), Rs.78565.47 lakh (10.67%) and Rs.897.90 lakh
(0.12%) respectively was underwritten in the four segments.

Unit linked and conventional premium:

Analysis of the statistics in terms of linked and non-linked premium indicates that
49.46% of the business was underwritten in the non-linked category, and 50.54% in
the linked category, i.e., Rs.1793702.35 lakh and Rs.1832976.45 lakh respectively. In
case of LIC, the linked and non-linked premium was 41.38% and 58.62%
respectively, as against which for the private insurers taken together this stood at
86.53% and 13.47% respectively. During the corresponding period of the previous
year, linked and non-linked premium indicates that 54.74% of the business was
underwritten in the non-linked category, and 45.26% in the linked category, i.e.,
Rs.752509.54 lakh and Rs.622185.30 lakh respectively. In case of LIC, the linked and
non-linked premium was 33.96% and 66.04% respectively, as against which for the
private insurers taken together this stood at 77.02% and 22.98% respectively.
Growth momentum continues in October 2006 with 25.3 percent

All-round growth :
The month of October 2006 has been the month of extraordinary growth for the non-
life insurers with the growth rate high at 25.3 percent. This achieved rate is only
slightly below that of September of 25.8 percent. As against the monthly renewals of
Rs.1772 crore in October last year, the premium income scaled in 2006 is Rs.2220
crore. The established players have recorded an accretion of Rs.151 crore at a growth
rate of 11.3 percent. The new players have had an accretion of Rs.297 crore at a
growth rate of 63 percent. Among the former, New India leads with an accretion of
Rs.60 crore followed by Oriental with Rs.56 crore. But the stellar performances in
the month have come from ICICI Lombard that has produced a massive accretion of
Rs.167 crore with Reliance adding Rs.56 crore to its meager renewal premium of
Rs.12 crore.
The new players have continued to maintain a strong grip on their market share that
stands at 35 percent. Two points of interest to the market have emerged. One is that
the monthly accretion of ICICI Lombard at Rs.167 crore is higher than the combined
accretion achieved by all the established players of Rs.151 crore. This performance
should stand out as of interest to the market. The second point of market interest is
that for the first time, the October monthly premium of ICICI Lombard at Rs.310
crore has exceeded the monthly premium performances of National Insurance and
UIIC that have accomplished premiums of Rs.305 crores and Rs.257 crore
respectively. The established players do seem to be coming under increasing pressure
by the new players with their relentless high growth rates and premium productions.

30
41 per cent growth in life insurance industry in 2006 :
New Delhi: Life insurance sector grew by 41 per cent in 2005-06 due to better
performance of country's largest life insurer, LIC, and private players like Bajaj Allianz
and ICICI Prudential.
The 15 life insurance companies together collected Rs 35,898 crore in the fiscal ended
March this year, compared to Rs 25,343 crore in the previous fiscal, according to data
compiled by regulator IRDA.
Life Insurance Corporation's premium income rose more than 28 per cent to Rs 25,645
crore after it sold 3.16 crore policies as against Rs 19,972 crore collected a year ago.
However, LIC's market share dipped by 6.63 per cent to 71.44 per cent from 78.07 per
cent in the year ago period due to stiff competition and aggressive marketing of private
life insurers.
The 14 private players were able to steadily increase their market share from 21.93 per
cent to 28.56 per cent in a year's time by collecting Rs 10,252 crore during the period
under review.

Private sector life insurance business jumps 90% :

In a tough battle to expand market shares the private sector life insurance industry
consisting 14 life insurance companies at 26% have lost 3% of market share to the state
owned Life Insurance Corporation (LIC) in the domestic life insurance industry in 2006-
07.
According to the figures released by Insurance Regulatory & Development Authority the
total premium these 14 companies have shot up by 90% to Rs 19,471.83 crore in 2006-07
from Rs 10, 252 crore.
LIC with a total premium mobilization of Rs 55,934 crore has been able retain a market
share of 74.26 % during the reporting period. In total the life insurance industry in first
year premium has grown by 110% to Rs 75, 406 crore during 2006-07. The 2006-07
performance has thrown a few surprises in the ranking among the private sector life
insurance companies. New entrants like Reliance Life and SBI Life had shown a huge
growth of over 381% and 210% respectively during the year. Reliance Life which has
become one of the top five companies ended the year with a premium of Rs 930 crore
during the year.
Though ICICI Prudential Life Insurance remained as the No 1 private sector life
insurance company during the year Bajaj Allianz overtook ICICI Prudential in terms of
monthly market share in March, for the first time ever. Bajaj's market share among
private players in non-single premium for March stood at 29.1% vs. ICICI Prudential's
23.8%. Bajaj gained 4.6 percentage point market share among private sector players for
FY07.
Among other private players, SBI Life and Reliance Life continued to do well, each
gaining 4% market share in FY07. SBI Life's growth was driven by increasing
contribution from ULIP premiums. Another notable development of the 2006-07
performance has been the expansion of retail markets by the life insurance comapnies.
Bajaj Allianz Life insurance has added 20 lakh policies while ICICI Prudential has
expanded over 19 lakh policies during the year.

31
Building a Vibrant Insurance Market in India :
India's insurance industry is an example of the positive effects of competition and new
investors in the marketplace. As we know, India opened its insurance market to the
private sector in 1999 when parliament passed a new law establishing an independent
regulatory body to oversee the insurance market. The law opened the door for
participation of private insurance companies and a limited participation of foreign
insurance companies through joint ventures with Indian companies. The law also charged
insurance companies to make available insurance products and services to the huge
segment of the population that are vulnerable and not necessarily part of the formal
economy.
The results of the liberalization are there for everyone to see. The insurance markets --
both life and non-life -- have grown impressively. IRDA is working on a regulatory
framework that helps level the playing field for all types of insurance companies,
irrespective of their ownership. Since 1999, IRDA has licensed 22 new private Indian
insurance companies, an overwhelming number of which have global insurance
companies as their partners. To date, the industry has attracted foreign direct investment
of $235 million.
In 2006, Indian insurance companies mobilized over $29 billion, nearly four times as
much as in 1999 ($8 billion). In other countries, this kind of capital mobilization provides
crucial resources for investment in infrastructure, corporate businesses, long-term bonds,
and municipal projects. Once India does more to free insurance companies to invest in
such important sectors, it too can gain benefit from this long-term financial resource.
Other improvements are occurring as well. New insurance products such as product
liability insurance, professional liability insurance, small/medium size enterprise
insurance, weather insurance, and group health insurance for the poor have been
launched. Private insurance companies are also using banks, microfinance institutions and
cooperatives to increase their market share and compete with well-entrenched state-
owned insurance companies.
The marketplace is getting competitive, but the market share of private insurance
companies remains very low in the 10-15 percent range. The heavy hand of government
still dominates the market, with price controls, limits on ownership, and other restraints.
We have seen what happens in India when a market is truly opened up. We saw it in the
IT sector, we saw it in the telecom sector, and we are seeing it in the aviation sector. Why
can't insurance be next? India's insurance market remains very small compared with some
of the major emerging markets. South Africa and South Korea, with a fraction (one-
twentieth) of India's population, do at least twice as much insurance business as Indian
companies did in 2004. This is a major missed opportunity for India's economy. A vibrant
insurance market can support the economy by providing long-term capital -- equity and
debt -- to the private sector. For example, in the U.S. over two-thirds of financial assets of
insurance companies are in corporate bonds and equities, municipal securities and
commercial mortgages.

Insurance also shields households and businesses from irrecoverable loss, such as from
major natural disasters, illness and death. In India, 80 percent of health care is privately
provided, yet only 10 percent of the population has access to health insurance. Therefore,
many individual households have to pay the full out-of-pocket costs for health treatment.
What will expand the insurance industry and help it contribute to the economy? Major
policy and institutional issues have to be addressed and changed.

32
Insurance is a capital-intensive industry. It is also a long-gestation business. India's
insurance industry needs capital, and a major source of capital would be from foreign
investors, who are now limited to 26 percent ownership. India needs to raise the cap on
Foreign Direct Investment (FDI) to attract capital for the industry. For some time there
has been an understanding that the FDI cap will be raised to 49 percent, and many
companies entered the Indian market with this expectation. Failure to follow through in
raising the cap is increasingly seen by investors as a breach of faith.
This promise needs to be delivered, not 5 years from now, but soon, if India wishes to
regain its credibility in the eyes of foreign investors. Increasing the cap on FDI will both
enhance the growth of the insurance industry and improve global confidence in India as a
business and investment destination.
The cap should be raised above 50 percent within a short period so that foreign investors
would have management control commensurate with their investment and the flow of FDI
to the sector will increase. Leading foreign companies bring more than capital to the
insurance industry. They also bring generations of successful experience in managing and
growing the industry.
The benefit of the long-term capital that the insurance industry mobilizes is also being
lost as a source of long-term capital. In India, over 60 percent of the insurance industry's
financial assets are locked in government securities. Investment guidelines for insurance
companies prescribed by the regulator must be changed to allow and promote access to
insurance funds by the corporate sector and infrastructure projects.

There is also a strong case for raising the FDI cap for reinsurance and auxiliary insurance
services, such as brokerage and actuarial services.
Major lines of non-life insurance business such as fire and car continue to be governed by
a pricing regime that is administered and not risk-based. This distorts the market and
makes it inefficient. It has prevented the emergence of a culture of underwriting in
insurance companies. The IRDA needs to dismantle this regime to make these segments
of the market truly competitive.
The IRDA should also seek to create a regulatory regime that promotes the most efficient
use of capital, eliminates avoidable micro-management of business practices, allows
companies to price their products prudentially, and levels the playing field between
private and state-owned insurance companies. When markets are competitive and
responsive to consumer demand and preference, it is the consumer that benefits in terms
of lower cost and increased ability to manage risks.
Health is an area that is underserved by the insurance industry. India as an economy has
high health spending but poor health outcomes. With no pooled risk sharing from
insurance policies and a health care system that is primarily private, the cost to
individuals becomes a major economic burden. For this reason, many microfinance
institutions are finding that a primary use of micro loans to the poor is to pay medical
bills.
The current minimum capital requirement of $22 million capital for setting up a health
insurance company is a significant barrier to entry, particularly when FDI is restricted to
26 percent. The lack of data from both health providers and from existing claims makes
risk-based pricing of health insurance products difficult. The absence of an appropriate
regulatory framework that enforces a minimum level of service and hygiene standards is

33
an important reason the health insurance market in India is so underdeveloped. It is not
surprising that not a single health insurance company is among the 22 new private
insurance companies licensed since 1999. Clearly, the IRDA and the Ministry of Health
need to work in tandem to solve these problems.

Another area where the insurance industry is not doing its job is helping mitigate the risks
for personal and business loss from natural catastrophes. In the past decade, India and
China accounted for one-fourth of the global economic losses from natural disasters.
Insurance availability in India for natural catastrophes is almost negligible. As we have
seen with the Indian Ocean tsunami, the absence of a "safety net" for property lost in a
disaster has led to substantial personal loss and slowed economic recovery.

Insurance Sector Reforms in India: Challenges and Opportunities :

Insurance in India started without any regulations in the nineteenth century. It was a
typical story of a colonial era: a few British insurance companies dominating the market
serving mostly large urban centers. After the independence, the Life Insurance Company
was nationalized in 1956, and then the general insurance business was nationalized in
1972. Only in 1999 private insurance companies were allowed back into the business of
insurance with a maximum of 26 per cent of foreign holding (World Bank Economic
Review 2000). The entry of the State Bank of India with its proposal of bank assurance
brings a new dynamics in the game. On July 14, 2000 Insurance Regulatory and
Development Authority bill was passed to protect the interest of the policyholders from
private and foreign players. The following companies are entitled to do insurance
business in India.
The private insurance joint ventures have collected the premium of Rs.1019.09 crore with
the investment of just Rs.3,000 crore in three years of liberalization. The private
insurance players have significantly improving their market share when compared to 50
years Old Corporation (i.e. LIC). As per the figures compiled by IRDA, the Life
Insurance Industry recorded a total premium underwritten of Rs. 10,707.96 crore for the
period under review. Of this, private players contributed to Rs.1, 019.09 crore, accounting
for 10 percent. Life Insurance Corporation of India (LIC), the public sector giant,
continued to lead with a premium collection of Rs.9,688.87 crore, translating into a
market share of 90 per cent. In terms of number of policies and schemes sold, private
sector accounted for only 3.77per cent as compared to 96.23 per cent share of LIC (The
Economic Times, 21March 04).
he ICICI Prudential topped among the private players in terms of premium collection. It
recorded a premium of Rs. 364.9 crore and a market share of 25 per cent, followed by
Birla Sun Life with a premium under- written Rs.170 crore and a market share of 15
percent, HDFC Standard with 132.7 crore and Max New York Life with Rs.76.8 crore
with a market share of approximately 15 per cent each. Unlike their counterpart in the life
insurance business, private non-life insurance companies have not yet started addressing
the retail market. All is set to change in the coming years. Like in the banking sector, non-
life insurance companies will soon have no choice but to focus on individual buyers.

The latest series of bomb attacks, attack on parliament, attack on Ayodhya, attacks of the
Maoists, nature calamities like tsunami, floods and drought, ragging are prevailed in the
country and need not to say about the farmer who has been insecure about rains, seeds,
crops and suitable price for his crop. In developed countries, the owners have insured

34
even pet dogs. Whereas in India about 80 percent of human beings and major natural
resources have not been insured in globalization era.

It is, therefore, an urgent need to explore the challenges and opportunities faced by the
insurance sector in India.

India’s Insurance Industry Likely To Jump By 500% In 2010:

ASSOCHAM :
The Associated Chambers of Commerce and Industry of India (ASSOCHAM) has
projected about 500% hike in the size of domestic insurance business which will grow to
US$ 60 billion by 2010 from the current size of around US$ 10 billion as the growing
competitive age is developing a larger appetite among people for wider insurance
coverage.
The projections of the Chamber are based on feedback that it received from its various
constituents, engaged in the insurance business, highlighting that India s life insurance
premium as a percentage of GDP is currently estimated at 1.8% against 5.2% in US, 6.5%
in UK and about 8% in South Korea.
Releasing the analysis, ASSOCHAM President, Mr. Venugopal N. Dhoot said that rural
and semi-urban India will contribute US $35 billion to the Indian insurance industry by
2010, including US $20 billion by way of life insurance and the rest US $15 billion
through non-life insurance schemes.

A large part of rural India is still untapped due to poor distribution, large distances and
high costs relative to returns. Urban sector insurance is estimated to reach US $25 billion
by 2010, life insurance US $15 billion and non-life insurance US $10 billion , added Mr.
Dhoot.

ASSOCHAM findings reveals that in the coming years the corporate segment, as a whole
will not be a big growth area for insurance companies. This is because penetration is
already good and companies receive good services. In both volumes and profitability
therefore, the scope for expansion is modest.
ASSOCHAM has suggested that insurer s strategy should be to stimulate demand in areas
that are currently not served at all. Insurance companies mostly focus on manufacturing
sector; however, the services sector is taking a large and growing share of India s GDP.
This offers immense opportunities for expansion opportunities.
To understand the prospects for insurance companies in rural India, it is very important to
understand the requirements of India's villagers, their daily lives, their peculiar needs and
their occupational structures. There are farmers, craftsmen, milkmen, weavers, casual
labours, construction workers and shopkeepers and so on. More often than not, they are
into more than one profession.
The rural market offers tremendous growth opportunities for insurance companies and
insurers should develop viable and cost-effective distribution channels; build consumer
awareness and confidence. The Paper found that there are a total 124 million rural
households. Nearly 20% of all farmers in rural India own a Kissan Credit cards. The 25
million credit cards used till date offer a huge data base and opportunity for insurance
companies. An extensive rural agent network for sale of insurance products could be

35
established. The agent can play a major role in creating awareness, motivating purchase
and rendering insurance services.

There should be nothing to stop insurance companies from trying to pursue their own
unique policies and target whatever needs that they want to target in rural India.
ASSOCHAM suggests that insurance needs to be packaged in such a form that it appears
as an acceptable investment to the rural people. In the near future, when we ll see more
innovations in agriculture in the form of corporatization or a more professional approach
from the farmers side, insurance will definitely be one option that the rural Indian is
going to accept.
ASSOCHAM believes that insurers should enter into tie-ups or understandings with
government agencies to ensure the success of the insurance schemes. The need of the
hour is to have innovative policies that have explicit benefits for the people to observe,
understand and measure.

Indian Insurance Industry: New Avenues for Growth 2012 :

Description: With an annual growth rate of 15-20% and the largest number of life
insurance policies in force, the potential of the Indian insurance industry is huge. Total
value of the Indian insurance market (2004-05) was estimated at Rs. 450 billion (US$10
billion). According to government sources, the insurance and banking services
contribution to the country's gross domestic product (GDP) is 7% out of which the gross
premium collection forms a significant part. The funds available with the state-owned
Life Insurance Corporation (LIC) for investments are 8% of GDP. Till date, only 20% of
the total insurable population of India is covered under various life insurance schemes,
the penetration rates of health and other non-life insurances in India is also well below the
international level. These facts indicate the of immense growth potential of the insurance
sector.

The year 1999 saw a revolution in the Indian insurance sector, as major structural changes
took place with the ending of government monopoly and the passage of the Insurance
Regulatory and Development Authority (IRDA) Bill, lifting all entry restrictions for
private players and allowing foreign players to enter the market with some limits on direct
foreign ownership. Though, the existing rule says that a foreign partner can hold 26%
equity in an insurance company, a proposal to increase this limit to 49% is pending with
the government. Since opening up of the insurance sector in 1999, foreign investments of
Rs. 8.7 billion have poured into the Indian market and 21 private companies have been
granted licenses.

Innovative products, smart marketing, and aggressive distribution have enabled fledgling
private insurance companies to sign up Indian customers faster than anyone expected.
Indians, who had always seen life insurance as a tax saving device, are now suddenly
turning to the private sector and snapping up the new innovative products on offer.

The life insurance industry in India grew by an impressive 36%, with premium income
from new business at Rs. 253.43 billion during the fiscal year 2004-2005, braving stiff
competition from private insurers. This report, Indian Insurance Industry: New Avenues
for Growth 2012 , finds that the market share of the state behemoth, LIC, has clocked
21.87% growth in business at Rs.197.86 billion by selling 2.4 billion new policies in

36
2004-05. But this was still not enough to arrest the fall in its market share, as private
players grew by 129% to mop up Rs. 55.57 billion in 2004-05 from Rs. 24.29 billion in
2003-04. Though the total volume of LIC's business increased in the last fiscal year
(2004-2005) compared to the previous one, its market share came down from 87.04 to
78.07%. The 14 private insurers increased their market share from about 13% to about
22% in a year's time. The figures for the first two months of the fiscal year 2005-06 also
speak of the growing share of the private insurers. The share of LIC for this period has
further come down to 75 percent, while the private players have grabbed over 24 percent.
There are presently 12 general insurance companies with four public sector companies
and eight private insurers. According to estimates, private insurance companies
collectively have a 10% share of the non-life insurance market. Though the focus of this
market research report is on the potential growth on the Indian Insurance Sector, it also
talks about the market size, market segmentation, and key developments in the market
after 1999.

37
CHAPTER 2
RESEARCH METHODOLOGY

38
RESEARCH OBJECTIVES:
1. To compare the performance of LIC and private insurance companies in India.

2. To find out the performances of LIC and private insurance companies in each
category (size. growth, productivity and efficiency)

3. To compare grievance management of LIC and private insurance companies.

RESEARCH DESIGN :

a. Type of research design : Analytical Research

b. Data collection : Secondary Sources

c. Statistical Tools : Ratio Analysis

Bar Graph

RESEARCH PROCESS

In this research my research objective was to compare the performance of LIC and Private
insurance companies. For this purpose I decided the four broad categories under which I have
compared the LIC and Private insurance companies. These are:
1. Size
2. Growth
3. Productivity
4. Grievance Handling

Under these Broad Categories I have analyzed 13 factors which are:

1. Size
• Total Premium
• Total Income
• Size of Balance Sheet
• Total number of Policies
• Total number of Branches

2. Growth
• Growth in Premium
• Growth in Income

39
 • Growth in number of Policies
• Growth in Market share

3. Productivity
• Business per Branch
• Income per Branch
• New Premium per Branch

4. Grievance Handling

I have used the Secondary data of last five financial years. I have collected data from the
various balance sheet of LIC and other private insurance companies, web sites and in some
cases I personally met some employees of some insurance companies. I tried to find out most
of the information required to compare the LIC and private insurance companies.

In Analysis I have found all the required data and on the basis of performance gave the rank
to LIC and Private Insurance Companies on each factor and then points. Now these Points
have been multiplied with the weightage of that factor. And then after the analysis of each
factor a consolidated point table has been prepared to know that which sector is performing
better than other.
The Weightage for different categories are:

Factors Weightage
Size 25%
A. Total Premium 5%
B. Total Income 5%
C. Balance Sheet Size 5%
D. Total No. of Policies 5%
E. Total No. of Branches 5%

Growth 40%
A. First Premium 10%
B. Growth in Income 10%
C. Increase in No. of Policies 10%
D. Growth in Market Share 10%

Productivity 15%
A. Business per Branch 5%
B. Income Per Branch 5%
C. First Premium per Branch 5%

Grievance Handling 20%

40
LIMITATIONS:

1. Could reach to a limited number of documents of different insurance companies in

regard to the management and other policies and resultant figures so as to identify
the exact cause of their lag in performance.

2. Due to the limited time could not study all the insurance companies original
documents individually.

3. Non-Proficiency in technical aspects of insurance companies might have hindered the

best analysis of the findings.

SIGNIFICANCE OF THE STUDY:

The Detailed Study has been done with the purpose of finding out the relative share of LIC and
Private Insurance in India. It is useful for the people associated with the Insurance Industry and
the research associates related to the Insurance Sector in India. This study will acquaint them
with the data of all the banks complied at one place along with the findings, conclusion and
recommendations.

41
CHAPTER 3
ANALYSIS AND
INTERPRETATION

42
 1. SIZE :

(A) TOTAL PREMIUM :

(Rs. In crores)
FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08

63533 75127 90792 127822 149789

LIC
3120 7727 15083 28253 51561
Private
Insurers
66653 82854 105875 156075 201350
TOTAL

160000
PREMIUM OF LIC 149789
140000 127822
120000
100000 90792
75127
80000 63533
60000
40000
20000
0
FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08

PREMIUM OF PVT INSURERS

60000
51561
50000

40000
28253
30000

20000 15083

10000 7727
3120
0
FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08

43
 points after
multiplying by
Avg. Premium weightage
( In Crores) Rank points (7.5%)
LIC 101412.20 1 1 7.5
Private Insurance Co. 21148.80 2 0.5 3.75

Average premium of LIC is much more than that of all insurance companies
altogether. LIC s average premium of the last five years is nearly five times
the average premium of the all other private insurance companies.

It can be said that up to that time their were less number of private players in
the field of insurance but then also undoubtedly LIC is the king.

(B) TOTAL INCOME :

(Rs. In crores)
FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08

93089 112393 132147 174425 206363

LIC
4323 9049 18863 24242 52648
Private
Insurers

TOTAL 97412 121442 151010 198667 259011

250000
INCOME OF LIC
206363
200000 174425

150000 132147
112393
93089
100000

50000

0
FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08

44
 INCOME OF PVT INSURERS
60000
51561
50000

40000

30000 24242
18863
20000
9049
10000 4323
0
FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08

points after
multiplying by
Avg. Income weightage
( In Crores) Rank points (7.5%)
LIC 143683.40 1 1 7.5
Private Insurance Co. 21825.00 2 0.5 3.75

All over income of LIC is much more than than of private players.
It is 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
corporates.

45
 (C) SIZE OF BALANCE SHEET :
(Rs. In crores)

FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08

346022 416910 531390 625956 776904

LIC
6585 13653 28910 53048 100774
Private
Insurers

TOTAL 352607 430563 560300 679004 877678

1000000
BALANCE SHEET SIZE OF LIC
776904
800000
625956
600000 531390
416910
400000 346022

200000

0
FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08

BALANCE SHEET SIZE OF PVT

INSURERS
120000
100774
100000
80000
60000 53048

40000 28910
20000 13653
6585
0
FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08

46
 Avg. Balance Sheet points after
Size multiplying by
( In Crores) Rank points weightage (7.5%)

LIC 539436.40 1 1 7.5

Private Insurance co. 40594.00 2 0.5 3.75

Total average size of balance sheet of LIC in the last five years is certainly
higher than that of private insurance companies. There is a huge gap in this
value. It is obvious that LIC has bigger balance sheet as being working in the
insurance field for quite large time. As compared to average balance sheet size
of 40,594 crores of private insurance companies, LIC s average balance sheet
size goes to much high as that of 5,39,436.4 crores.

(D) TOTAL NUMBER OF POLICIES :

FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08

26968069 23978123 31590515 38229292 37612599

LIC
1658847 2233075 3871410 7922294 13261558
Private
Insurers

TOTAL 28626916 26211198 35462117 46151586 50874157

47
 TOTAL NUMBER OF POLICIES
60000000

50874157
50000000
46151586

40000000
35462117

28626916 LIC
30000000 26211198
PVT.INSURERS
INDUSTRY
20000000

10000000

0
FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08

points after
multiplying by
Avg. number of weightage
policies Rank points (7.5%)
LIC 31675670 1 1 7.5

Private Insurance Co. 5789437 2 0.5 3.75

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.

48
 (E) NUMBER OF BRANCHES :

FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08

2196 2197 2220 2301 2522

LIC
416 804 1645 3072 6391
Private
Insurers

TOTAL 2612 3001 3865 5373 8913

10000
8913
9000
8000
7000 6391
6000 5373
LIC
5000
3865 PVT INSURERS
4000
3001 3072 INDUSTRY
3000 2612 2522
2196 2197 2220 2301
2000 1645
804
1000 416
0
FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08

points after
%growth in multiplying by
number of weightage
branches Rank points (7.5%)
LIC 14.8 2 0.5 3.75

Private Insurance Co. 1436 1 1 7.5

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 countryby any single insurance company. Since
the number of private insurance companies is increasing, with continuous
expansion in their business, now the number of branches of all private players
has crossed the number of branches of LIC.

49
 o 2. GROWTH :
§ (A) FIRST PREMIUM :
(Rs. In crores)
FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08

17347 20653 28515 55934 59996

LIC
2440 5564 10270 19425 33715
Private
Insurers

TOTAL 19787 26217 38785 75359 93711

FIRST PREMIUM OF LIC

70000
59996
60000 55934

50000
40000
28515
30000
20653
17347
20000
10000
0
FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08

FIRST PREMIUM OF PVT

INSURERS
40000
33715
35000
30000
25000
19425
20000
15000 10270
10000 5564
5000 2440
0
FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08

50
 Growth in First points after
Growth in Premium multiplying
First Premium (in Absoute by
(in Percentage Terms) (in weightage
Terms) crores) Rank points (10%)
LIC 245.85 42649 2 0.5 5
Private Insurance Co. 1281.76 31275 1 1 10

Though LIC has attained more growth in absolute terms i.e. Rs.42649
crores but private players being so less in number five years back has achieved a
dream come true growth of 1281.76 % which is certainly a matter of pride for
them.

(B) GROWTH IN INCOME :

(Rs. In crores)
FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08

12101 19303 19754 42277 31988

LIC
2692 4725 9814 5379 28406
Private
Insurers

TOTAL 14793 24028 29568 47656 60394

% GROWTH IN INCOME :
FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08

14.9 20.7 17.5 32 18.3

LIC
165 109.3 108.4 28.5 117
Private
Insurers

TOTAL 17.8 24.6 24.3 31.5 30.3

51
 180 165
160
140
117
120 109.3 108.4
100 LIC
80 PVT INSURERS
60 INDUSTRY
40 3228.5
31.5 30.3
20.7 24.6 24.3
18.3
14.9 17.8 17.5
20
0
FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08

Growth in points after

Growth in Income multiplying
Income (in Absoute by
(in Percentage Terms) (in weightage
Terms) crores) Rank points (10%)
LIC 164.34 19887 2 0.5 5
Private Insurance Co. 955.20 25714 1 1 10

Here LIC has neither attained more growth in absolute terms i.e.
Rs.19887 crores as compared to 25714 crores of private players nor has got
more growth in terms of percentage.this shows that private players are doing
great job in enhancing their business.

(C) INCREASE IN NUMBER OF POLICIES :

FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08

1475992 -2989946 7632584 6638585 -616693

LIC
804696 574228 1638335 4050884 5339264
Private
Insurers

TOTAL 2280688 - 9270919 10689469 4722571

2415718

52
 % INCREASE IN NUMBER OF POLICIES :
FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08

5.79 -11.09 31.75 21.01 -1.6

LIC
94.21 34.62 73.37 104.64 67.4
Private
Insurers

TOTAL 8.6 -8.4 35.3 30.1 10.2

% GROWTH IN NO. OF POLICIES

120
104.64
100 94.21

80 73.37
67.4

60 LIC
PVT INSURERS
40 34.62 35.3 INDUSTRY
31.75 30.1
21.01
20
10.2
5.79 8.6
0
FY 03-04 FY 04-05 FY 05-06 FY 06-07 -1.6
FY 07-08
-20 -11.09 -8.4

Growth in Growth in points after

number of number of multiplying
policies policies by
(in Percentage (in Absoute weightage
Terms) Terms) Rank points (10%)
LIC 39.47 10644530 2 0.5 5
Private Insurance Co. 699.44 11602711 1 1 10

Private players are doing extremely well as they are increasing their
customer base rapidly.

53
 (D) MARKET SHARE :

26.1
FY 07-08 73.9

25.8
FY 06-07 74.2

26.5
FY 05-06 PVT. INSURERS
73.5
LIC

21.2
FY 04-05 78.8

12.3
FY 03-04 87.7

0 20 40 60 80 100

LIC is still the market leader in insurance industry with 73.9 % share. But we
cannot forget that in last five years market share of LIC has decreased. It was
87.7 % in year 2003-04 which came down to 73.9 % in 2007-08.

54
 3. PRODUCTIVITY :
(A) BUSINESS PER BRANCH :
(Rs. In crores)
FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08

28.93 34.20 40.9 55.55 59.20

LIC
7.5 9.61 9.17 9.2 8.07
Private
Insurers

BUSINESS PER BRANCH

70

59.2
60 55.55

50
40.9
40
34.2
LIC
28.93
30
PVT INSURERS

20
9.61 9.17 9.2 8.07
10 7.5

0
FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08

points after
Avg. Business multiplying by
Per Branch (In weightage
crores) Rank points (5%)
LIC 43.756 1 1 5
Private Insurance
Co. 8.71 2 0.5 2.5

Avg business per branch of LIC is much higher than that of whole private
insurance companies.
55
 (B) INCOME PER BRANCH :
(Rs. In crores)

FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08

42.39 51.16 59.52 75.80 81.80

LIC
10.41 11.25 11.47 7.89 8.23
Private
Insurers

INCOME PER BRANCH

90
81.8
80 75.8

70
59.52
60
51.16
50
42.39
LIC
40
PVT INSURERS
30

20
10.41 11.25 11.47
7.89 8.23
10

0
FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08

Avg. Income Per points after

Branch (In multiplying by
crores) Rank points weightage (5%)
LIC 62.134 1 1 5
Private Insurance Co. 9.864 2 0.5 2.5

Average income per branch of LIC is much more than that of private
insurance companies. Its almost six times the total value of all the private
companies.

56
 (C) NEW PREMIUM PER BRANCH :

(Rs.in crores)
FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08

7.90 9.40 12.84 24.30 23.78

LIC
5.86 6.92 6.24 6.32 5.28
Private
Insurers

NEW PREMIUM PER BRANCH

30

24.3 23.78
25

20

15 12.84 LIC
PVT INSURERS
9.4
10 7.9
6.92 6.24 6.32
5.86 5.28
5

0
FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08

Avg. New
Premium Per points after
Branch (In multiplying by
crores) Rank points weightage (5%)
LIC 15.644 1 1 5
Private Insurance Co. 6.124 2 0.5 2.5

This value tells us about increase in the business of an insurance company

in a period. Here we see that LIC is ahead of private insurance companies
in case of increasing their business.

57
 4. GRIEVANCE HANDLING :

TOTAL NUMBER OF GRIEVANCES :

FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08

474 704 851 354 651

LIC
45 195 540 507 1406
Private
Insurers

NUMBER OF GRIEVANCES RESOLVED :

FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08

39 123 215 313 80

LIC
26 83 216 450 1103
Private
Insurers

% OF GRIEVANCES RESOLVED :

FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08

8.2 17.5 25.3 88.4 12.2

LIC
57.7 42.6 40.0 88.7 78.4
Private
Insurers

58
 GRIEVANCES IN LIC
800 704
700 651
600 540 507
474 450
500
400 TOTAL
300 216
RESOLVED
200 123
80
100 39
0
FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08

GRIEVANCES IN PVT. COMPANIES

1600
1406
1400
1200 1103
1000
800 TOTAL
540 507450
600 RESOLVED
400 216
195
200 45 26 83
0
FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08

% OF GRIEVANCES RESOLVED
100
88.7
88.4
90
78.4
80
70
57.7
60
50 42.6 LIC
40
40 PVT INSURERS
30 25.3
17.5
20 12.2
8.2
10
0
FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08

59
 points after
multiplying by
% Grievances weightage
resolved Rank points (7.5%)
LIC 25.37 2 0.5 3.75
Private Insurance Co. 69.70 1 1 7.5

Grievance Handling is one of the major issues in any organization. It plays an

important role in Insurance sector. People do attract towards companies who
handles their grievances.

Here we see that private players are much ahead of LIC when the matter comes
to grievance management. In the last five years LIC has resolved only 25.37 %
of cases brought in front of them while the percentage of cases resolved in case
of private players is 69.7 %.

This shows that private players are very serious about their image and are
working hard to provide the solution of the problems of the people as early as
possible.

60
TOTAL POINTS TABLE:

Private
Insurance
Factors LIC Companies
Size
A. Total Premium 7.5 3.75
B. Total Income 7.5 3.75
C. Balance Sheet Size 7.5 3.75
D. Total No. of Policies 7.5 3.75
E. Total No. of Branches 3.75 7.5

Growth
A. First Premium 5 10
B. Growth in Income 5 10
C. Increase in No. of Policies 5 10
D. Market Share 10 5

Productivity
A. Business per Branch 5 2.5
B. Income Per Branch 5 2.5
C. First Premium per Branch 5 2.5

Grievance Handling 3.75 7.5

Total Score 77.75 72.75

61
CHAPTER 4
FINDINGS &
CONCLUSIONS

62
FINDINGS & CONCLUSIONS:
• LIC is the giant of the insurance sector. The overall size of LIC is much more than
that of all private insurance companies. Private insurers are in expansion mode and
are increasing their size but are still much behind LIC. Total premium deposits in
LIC is much higher than the private insurance companies. Total premium of LIC in
FY 07-08 was 149789 crores which three times more than that of private insurance
companies.

• Income of LIC is much greater than private insurance companies. Last year total
income from investments of LIC was 48244.14 crores which was nearly equal to the
total income of the all private insurance companies. By this we can imagine how big
the LIC is.

• Size of balance sheet of private insurance companies are lagging much behind LIC.
Balance sheet of LIC is seven times bigger than that of private insurance companies.

• If we see the total number of policies issued by LIC and private insurance companies,
we find that there is a huge gap between them. No doubt that LIC is a well established
player in the field of insurance and many private companies have just started their
business. Hence it is obvious that LIC is having large number of policyholders.

• Number of branches of private insurance companies is increasing as the new players

are entering in this market. Also the established players are in expansion phase and
hence are expanding there business. There are many private insurance companies and
hence there total number of branches has gone past LIC in the last financial year. But
offices of private insurance companies are mostly in urban areas and still it is LIC
which covers most of the area.

Hence we see that LIC is leading when it comes to size. It is giant in insurance
sector having huge network and customer base.

• We see that due to excellent service quality and attractive offers private insurance
companies have started getting a number of customers. They are growing rapidly.
Though LIC is also increasing its customer base but private insurance companies are
moving at a fast pace.

• Though the income of private insurance companies is negligible when compared with
LIC but then also the pace with which they are increasing their income is tremendous.
Private insurance companies are expanding their business and will certainly going to
give a tough competition to LIC in the coming days.

• LIC is certainly having a large customer base. Private insurance companies are not
having that much number of customer base but they are increasing it rapidly. They
have registered a decent growth of 104.64 % in number of new policies in the year
2006-07. Last year also their growth rate was 67.4 %.

63
 • LIC, being the oldest player in the existing insurance market, has the biggest market
share of 73.9 % which was 87.3% five years earlier. We see that private insurance
companies are penetrating in the customer base of LIC.

Overall we can see that private insurance companies are giving a tough
competition to the LIC and will certainly create a good business for themselves
in the coming days.

• There are many new entrants in this sector. There are many private insurance
companies who have reported loss in this and previous years. This is the main reason
why private insurance companies lag behind LIC in case of business per branch.
There is a big difference between them.

• Same is the case when it comes to income per branch. LIC is much ahead of private
insurance companies in this field. They are undoubted champions in insurance when it
comes to profit earning.

• New business is increasingly going towards private insurance companies but still the
customer base of LIC is very strong. In issuing new policies per branch also, they are
ahead of private insurance companies though not by very large margin.

Customer base of LIC is very strong and still business per branch, profit per
branch or premium per branch, they are leading much ahead of private
insurance companies.

• LIC has not shown their good concern when the matter of grievance handling comes.
Private insurance companies are far ahead in this matter. LIC has just resolved 25%
cases in the last five years while private insurance companies have resolved nearly
70% cases. This is a matter from where customer shift starts. We have seen the rapid
increase in customer base of private insurance companies which can be very much
affected by this factor.

Overall we have seen that still LIC is very famous but private insurance companies are
growing at exceptionally fast pace. Private companies show due concern in grievance
management and brings innovative schemes to attract the customers. Right now they
are giving good competition to LIC and very soon they will give very tough competition
to Life Corporation of India.

64
REFRENCES :
Ø Data on Indian Insurance from http://www.irdaindia.org

Ø Different statistics from http://www.rbi.org.in

Ø Journals published by Insurance Regulatory & Development Authority.

Ø Management of financial institutions by R.M. Srivastava

Ø http://www.businesstoday.com

Ø http://www.businessworld.com

Ø http://www.economictimes.com

Ø Different Survey on Insurance sector conducted by IIRC.

Ø Profile of Indian Insurance Companies by IRDA.

Ø www.licindia.co.in

Ø www.sbilife.co.in/

Ø www.tata-aig-life.com

Ø www.bharti-axalife.com/

Ø www.hdfcinsurance.com/

Ø www.reliancelife.co.in/

Ø www.bajajallianz.com/

Ø www.metlife.co.in/

Ø www.birlasunlife.com/

Ø http://www.finance.indiamart.com

65