Insurance Sector in INDIA

PRIVATISATION IN INSURANCE
SECTOR IN INDIA
INTRODUCTION :
Insurance may be described as a social device to reduce or eliminate risk of loss to

life and property. Under the plan of insurance, a large number of people associate
themselves by sharing risks attached to individuals. The risks which can be insured
against, include fire, the perils of sea, death and accidents and burglary. Any risk
contingent upon these, may be insured against at a premium commensurate with
the risk involved. Thus collective bearing of risk is insurance.
DEFINITION :
General definition:
In the words of John Magee, “Insurance is a plan by which large number of people
associate themselves and transfer to the shoulders of all, risks that attach to
individuals.”
Fundamental definition:
In the words of D.S. Hansell, “Insurance may be defined as a social device

providing financial compensation for the effects of misfortune, the payment being
made from the accumulated contributions of all parties participating in the
scheme.”
Contractual definition:
In the words of justice Tindall, “ Insurance is a contract in which a sum of money

is paid to the assured as consideration of insurer’s incurring the risk of paying a
large sum upon a given contingency.”
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SECTOR IN INDIA
INSURANCE SECTOR IN INDIA
Insurance sector in INDIA is booming up but not to level comparative with

the developed economies such as Japan, Singapore etc. Also with the opening of
the insurance sector to the private players have provided stiff competition
resulting into quality products. Also there is a need to restructure the Indian
Government owned “ Life insurance Corporation of India “ so as to maximize
revenue and in turn profits. IRDA regulations and norms for the allocation of funds
need to have a comprehensive look. In the phase of declining interest rates and
rising inflation the funds need to be applied in productive areas so as to generate
high returns. Also in terms of clients servicing areas such as premium payments,
after sales service, policy dispatch, redressal of grievances has to be amended. In
the current scenario, LIC has to provide flexible products suited to the customer’s
requirements. Also a proper and systematic risk management strategy needs to be
adopted. After the increase in terrorism and destructive events around the global
world such as September 11 attack on World Trade Centre, US – Taliban war, US
– Iraq war etc.. An alternative to reinsurance such as asset backed securities is
emerging out in the developed economies. Catastrophe bonds are one of the
alternatives for reinsurance. Finally some policies such as pure term and pension
schemes needs to be addressed massively at both the urban and the rural segment
so as to generate high premium income which will help in the development and
growth of the economy.
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HOW BIG IS THE INSURANCE MARKET ?
Insurance is an Rs.400 billion business in India, and together with banking services
adds about 7% to India’s GDP. Gross premium collection is about 2% of GDP and
has been growing by 15-20% per annum. India also has the highest number of life
insurance policies in force in the world, and total investible funds with the LIC are
almost 8% of GDP. Yet more than three-fourths of India’s insurable population has
no life insurance or pension cover. Health insurance of any kind is negligible and
other forms of non-life insurance are much below international standards. To tap
the vast insurance potential and to mobilize long-term savings we need reforms
which include revitalizing and restructuring of the public sector companies, and
opening up the sector to private players. A statutory body needs to be made to
regulate the market and promote a healthy market structure. Insurance Regulatory
Authority (IRA) is one such body, which checks on these tendencies.
BOTTLENECKS – GOVERNMENT / RBI REGULATIONS:
The IRDA bill proposes tough solvency margins for private insurance firms, a 26%
cap on foreign equity and a minimum capital of Rs.100 crores for life and general
insurers and Rs. 200 crores for reinsurance firms. Section 27A of the Insurance Act
stipulates that LIC is required to invest 75% of its accretions through a controlled
fund in mandated government securities. LIC may invest the remaining 25% in
private corporate sector, construction, and acquisition of immovable assets besides
sanctioning of loans to policyholders.
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These stipulations imposed on the insurance companies had resulted in lack of

flexibility in the optimisation of risk and profit portfolio. If this inflexibility
continues, the insurance companies will have very little leverage to earn more on
their investments and they might not be able to offer as flexible products as offered
abroad.The government might provide more autonomy to insurance companies by
allowing them to invest 50 % of their funds as per their own discretions. Recently
RBI has issued stiff guidelines, which had dealt a severe blow to the plans of banks
and financial institutions to enter the insurance sector. It says that non-performing
assets (NPA) levels of the prospective players will have to be 1% point lower than
the industry average (presently 7.5%). RBI has also stipulated that all prospective
entrants need to have a net worth of Rs. 500 crores. These guidelines have made it
virtually impossible for many banks to get into the insurance business. Also banks
and FI’s who are planning to enter the business cannot float subsidiaries for
insurance. RBI has taken too much caution to make sure that the new sector does
not experience the kind of ups and downs that the non-bank financial sector has
experienced in the recent past. They had to rethink about these guidelines if India’s
strong banks and financial institutions have to enter the new business. The
insurance employees’ union is offering stiff resistance to any private entry. Their
objections are(a)that there is no major untapped potential in insurance business in
India;(b)that there would be massive retrenchment and job losses due to
computerization and modernization; and(c)that private and foreign firms would
indulge in reckless profiteering and skim the ‘urban cream’ market, and ignore the
rural areas.But all these fears are unfounded. The real reason behind the protests is
that the dismantling of government monopoly would provide a benchmark to
evaluate the government’s insurance services.
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PRIVATISATION:-
MEANING:-
In a narrow sense Privatisation implies the induction of private ownership in

publicly owned enterprises. But in broader sense it implies besides private
ownership, the induction of private management and control in the public sector
enterprises.
OBJECTIVES:-
 Effective Utilization of Resources
 Economic Growth
 Encourages Capital Formation
 Reduce Size of Public Sector
 Dispose of Loss-Making Govt. Unit
ADVANTAGES:-
 Reduction In Monopoly of Public Sector units
 Effective Management
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 More Funds available With Govt.
 Increase in Profitability
 High Industrial growth rate
 Increase in efficiency of Public Sector
 Encouragement to Innovation
 Quick Decision making
DISADVANTAGES:-
 Class Struggle
 Unemployment & Corruption
 Inflation
 Non Acceptable by Trade Union
 Public monopolies have been turned into private monopolies
 Economic Imbalances
 Wastage & Misallocation of Resources
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PRIVATIZATION IN INSURANCE SECTOR
1) The Narasimha Rao government (1991-96) which unleashed liberal changes

in India's rigid economic structure could not handle this political hot potato.
Ironically, it is the coalition government in power today which has declared its
intention of opening up insurance to the private sector. Ironical because this
government is at the mercy of support from the left groups which have been the
most vociferous opponents of any such move.
2) All segments of the financial sector had been opened to private players with
better product, services & social objective
3) International players are eyeing the vast potential of the Indian market and
are already making plans to come in.
HOW IMPORTANT IS PRIVATISATION IN INDIA

The first order issue is that of competition policy. When the government hinders
competition by blocking entry or FDI, this is deeply damaging. Once competitive
conditions are ensured, there are, indeed, benefits from shifting labour and capital
to more efficient hands through privatisation, but this is a second order issue.
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The difficulties of governments that run businesses are well-known. PSUs face
little "market discipline". There is neither a fear of bankruptcy, nor are there
incentives for efficiency and growth. The government is unable to obtain
efficiency in utilising labour and capital; hence the GDP of the country is lowered
to the extent that PSUs control labour and capital.
When an industry has large PSUs, which are able to sell at low prices because
capital is free or because losses are reimbursed by periodic bailouts, investment in
that entire industry is contaminated. This was the experience of Japan where the
"zombie firms" - loss-making firms that were artificially rescued by the
government - contaminated investment in their industries by charging low prices
and forcing down the profit rate of the entire industry.
Further, in many areas, the government faces conflicts of interest between a

regulatory function and an ownership function. As an example, the Ministry of
Petroleum crafts policies which cater for the needs of government as owner, which
often diverge from what is best for India.
There is a fundamental loss of credibility when a government regulator faces PSUs

in its sector: there is mistrust in the minds of private investors, who demand very
high rates of return on equity in return for bearing regulatory risk.
These arguments have led many economists to advocate large-scale privatisation,

so as to clear the slate, and get on with the task of building a mature market
economy. The role model in this regard is Germany.
The privatisation of the insurance sector would open up exciting new career
options and new jobs would be created. A few insurers estimated a figure of 1lakh,
after comparing the work forces in India and the UK. At present, life products
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comprise a big chunk, or 98%, of LIC’s business. Pension comprises a mere 2%.
Now with increase in life expectancy rate, people have to start planning their
retirements. Hence pension business is expected to grow once the industry opens.
The demand for healthcare is growing due to population increase, greater urban
migration and alarming levels of pollution. Healthcare insurance is more important
for families with smaller savings because they would not be able to absorb the
financial impact of adverse events without insurance cover. Foreign insurance
companies like Aetna (world’s largest healthcare insurance provider) and Cigna
have been providing Managed Care services across the globe. Managed Care
integrates the financing and delivery of appropriate health care services to covered
individuals.
WHO’S GOING WITH WHOM?

Indian Company Foreign Partner
Kotak Mahindra Chubb , US
Tata Group AIG , US
Sundram Finance Winterthur ,SWITZERLAND
Sanmar Group GIO of Australia
M A Chidambaram MetLife
Bombay Dyeing General Accident, UK
DCM Shriram Royal Sum Alliance , UK
Dabur Group Liberty Mutual Fund , USA
Godrej J. Rothschild , UK
ITC Eagle star , UK
S K Modi Group Legal and General , Australia
CK Birla Group Zurich Insurance, Switzerland
Ranbaxy Cigna , USA
lpic Finance Allianz GERMANY
20th Century Finance Canada Life
Vyasa Bank ING
Cholmandalam Guardian Royal Exchange ,UK
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SBI Alliance Capital

HDFC Standard Life, UK
ICICI Prudential , UK
IDBI Principal
Max India New York Life
WHY PRIVATISE, WHAT MARKET STRUCTURE TO

HAVE FINALLY, WHAT ROLE FOR REGULATOR ?
The decision to allow private companies to sell insurance products in India rests
with the lawmakers in Parliament. These are the passage of the Insurance
Regulatory Authority (IRA) Bill, which will make IRA a statutory regulatory body,
and amending the LIC and GIC Acts, which will end their respective monopolies.
In 1994 the government appointed a committee on insurance sector reforms (which
is known as the Malhotra Committee) which recommended that insurance business
be opened up to private players and laid down several guidelines for orchestrating
the transition. In particular, we do not address many other related questions such as
whether foreign (and not just private) players should be allowed, what cap should
there be on foreign equity ownership, whether banks and other financial
institutions should be allowed to operate in the insurance business, whether firms
should be allowed to sell both life and -non-life insurance, and so on. The three
questions that we address are
(a) Why should insurance be opened up to private players?
(b) If opened up, what should be the appropriate market structure(many

unregulated players or a few regulated players); and finally,
(c) What is the role of the regulator in insurance business?
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Why allow entry to private players?
The choice between public and private might amount to choosing between the
lesser of two evils. An insurance contract is a "promise to pay" contingent on a
specified event. In the case of insurance and banking, smooth functioning of
business depends heavily on the continuation of the trust and confidence that
people place on the solvency of these financial institutions. Insurance products are
of little value to consumers if they cannot trust the company to keep its promise.
Furthermore, banking and insurance sectors are vulnerable to the "bank run"
syndrome, wherein even one insolvency can trigger panic among consumers
leading to a widespread and complete breakdown. This implies the need for a
public regulator, and not public provision of insurance. Indeed in India, insurance
was in the private sector for a long time prior to independence.
The Life Insurance Corporation of India (LIC) was formed in 1956, when the
Government of India brought together over two hundred odd private life insurers
and provident societies, under one nationalized monopoly corporation, in the wake
of several bankruptcies and malpractice’s'. Another important justification for
Nationalisation was to raise the much-needed funds for rapid industrialization and
self-reliance in heavy industries, especially since the country had chosen the path
of state planning for development. Insurance provided the means to mobilize
household savings on a large scale. LIC's stated mission was of mobilizing savings
for the development of the country.
The non-life insurance business was nationalized in 1972 with the formation of
General Insurance Corporation (GIC).Thus the fact that insurance is a state
monopoly in India is an artifact of recent history the rationale for which needs to
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be examined in the context of liberalization of the financial sector. If traditional

infrastructure and "semi-public goods" industries such as banking, airlines,
telecom, power, and even postal services (courier) have significant, private sector
presence, continuing a state monopoly in provision of insurance is indefensible.
This is not to deny that there are some valid grounds for being cautious about
private sector entry. Some of these concerns are:(a) That there would be a tendency
of private companies to "skim" the markets; thus private players would concentrate
on the lucrative mainly urban segment leaving the unprofitable segment to the
incumbent LIC.(b) That without adequate regulation, the funds generated may not
be deployed in sectors (which yield long-term social benefits), such as
infrastructure and public goods; similar without regulation, private firms may
renege on their social sector investment obligations. Meeting these concerns
requires a strong regulatory body. Another commonly expressed fear is that there
would be massive job losses in the industry as a whole due to computerization.
This however does not seem to be corroborated by the countries' experience'.
WHAT SHOULD BE THE MARKET STRUCTURE ?
Individuals buying an insurance contract pay a price (called the "premium") to the
insurance company and the insurance company in turn provides compensation if a
specified event occurs. By making such contractual arrangements with a large
number of individuals and organizations the insurance company can spread the
risk. This gives insurance its "social" character in the sense that it entails pooling
of individual risks. The price of insurance i.e., the premium is based on average
risk. This premium is too high for people who perceive themselves to be in a low
risk category. If the insurer cannot accurately determine the risk category of every
customer and prices insurance on the basis of average risk, he stands to lose all the
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low risk customers. This in turn increases the average risk, which means premia
have to be revised upwards, which in turn drives away even more customers and so
on. This is known as the problem of "adverse selection". Adverse selection
problem arises when a seller of insurance cannot distinguish between the buyer's
type i.e., whether the buyer is a low risk or a high type. In the extreme case, it may
lead to the complete breakdown of insurance market. Another phenomenon, the
problem of "moral hazard" in selling insurance, arises when the unobservable
action of buyer aggravates the risk for which insurance is bought. For example,
when an insured car driver exercises less caution in driving, compared to how he
would have driven in the absence of insurance, it exemplifies moral hazard.
THE ROLE OF IRA :
(a) The protection of consumers’ interest,
(b) To ensure financial soundness of the insurance industry and
(c) To ensure healthy growth of the insurance market.
These objectives must be achieved with minimum government involvement and

cost. IRA’s functioning can be financed by levying a small fee on the premium
income of the insurers thus putting zero cost on the government and giving itself
autonomy.
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SOME INSURANCE PRODUCTS NOT AVAILABLE IN

INDIA :
Associated Market Quest after a study of some of the international markets,

points out the following areas for new product development:
1. Industry all risk policies
2. Large projects risk cover
3. Risk beyond a floor level
4. Extended public and product liability cover
5. Broking and captivities.
6. Alternative risk financing
7. Disability insurance
8. Antique insurance
9. Mega show insurance
10. Celebrity visits to the country.
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SO WHAT CAN THE PRIVATE INSURERS DO ?
A variable risk transfer mechanism is the capital market. This is because capital
market is huge and can take on the risk that insurance companies run. The solution
is Asset-backed securities (ABS). A private insurer can bundle off policies with
similar maturity and quality and sell them as securities to retail investors. The
private insurer can float a Special-Purpose Vehicle(SPV) and sell the policies
concerned to this entity. The SPV can bundle the policies and sell them as
securities to retail investors at attractive yields. The premium on the policies
underlying the ABS can be invested by the SPV in low-risk, highly liquid
instruments. The benefits of the SPV are First; the SPV is a separate entity from
the insurer. This enables easy rating of the ABS, as the credit rating agency will be
able to identify the underlying assets. Second, by selling the policies to the SPV,
the insurer removes the assets from its balance sheet. This means that the private
insurer frees capital that can be used for further business and lastly, the SPV is not
affected by the financial health of the insurer.
So when the policyholders (underlying the ABS) lodge the claims with the private
insurer, the private insurer simply passes on the claims to the SPVs. The SPV, in
turn will liquidate its investments and meet the claims. The SPV will stop paying
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interest on the ABS. The retail investors, therefore, bear a sizable portion of claims
of the policyholders. There can of course be many variants to the ABS. The most
risky ABS, from the investors’ angle, will be those that stop interest payments and
delay principal repayments of claims are honored. Also buying ABS helps retail
investors truly diversify their portfolio. This is because probability of claims from,
say, a hurricane is largely unrelated to the economic factors or industry-specific
factors that drive equity and bond values. Besides, investors get attractive yields
for taking the risk. If mutual funds invest in ABS, retail investors need not estimate
the risk associated with the investment, the fund manager will do the needful. The
problem of adverse selection, on the other hand, can be reduced if the ABS are
credit-enhanced by a third party and rated by a credit rating agency.In India, debt
market is not deep and liquid enough to receive products such as asset-backed
securities. Moreover, regulatory restrictions, such as high stamp duty and a not-so-
efficient judicial system, may act as deterrents. Finally the alternative risk transfer
market will only develop once the need for such risk transfer assumes importance
some time in the future.
MARKET POTENTIAL FOR PRIVATE LIFE

INSURANCE COMPANIES IN INDIA
It has been found out that:
* 85 percent of the Indians prefer LIC than any other insurance companies.
* 'Prevention of Loss', 'Assured Returns' and 'Long term Investment' are the
important factors influencing Indians in opting for Life Insurance
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* Only few of the Indians are aware of private life insurance companies.
* Most of the Indians are of the opinion that private insurance companies
would be able to perform well in the long run.
* Most of the Indians are interested in 'Money back' policies than others
* Most of them are interested in insuring for an amount of Rs. 1- 2 lakhs
* There is significant relationship existing between monthly household

income and amount insured
* Based on the monthly household income, Indians prefer to their

investment needs like bank deposit, post office schemes, real estate,
insurance, gold, chit funds, shares etc.
* Agents are mostly responsible for selling insurance products in India
CAPITAL NORMS FOR NEW INSURANCE COMPANIES :
One of the contentious issues raised by foreign companies seeking an entry into the
insurance sector in India is the minimum paid up capital requirements. The
Malhotra committee (1994) recommended Rs 100 crores as the norm. The
multilateral insurance working group (an industry forum representing most of the
interested foreign and Indian companies seeking an entry into the insurance sector)
has recommended Rs. 50 crore. The IRA is also reported to considering agraded
pattern for capitalization of the companies keeping in mind the volume of business
likely to be handled by them.
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THE INSURANCE POTENTIAL :
The main reason why the leading insurance companies in the world and the leading
corporate group in India have shown a keen interest in the insurance sector, is the
vast potential for future business. Restricted, as the market has been, through the
operations of the two monopolies (LIC and GIC), it is generally felt that the sector
can grow exponentially if it is opened up. The decade 1987-97 has witnessed a
compounded growth rate of marginally more than 10% in life insurance business.
LIC predicts for itself that its business has potential to grow by 16.27% p.a. in a
decade 1997-2007 (LIC, 1997).If we take a look at insurance coverage index for
the age group of 20-59 years a considerable gap between India and other countries
in Asia can be observed. In this scenario, naturally insurance companies see a vast
potential.
RESTRUCTURING OF LIC AND GIC :
In the insurance sector as of today and in all probabilities for a long time to come,
LIC and GIC will form a very significant part. The reasons for these are many.
Firstly, they have been in business for a long time and therefore, are in position to
know business conditions better than any new entrant.
Secondly, the network of branches and agents is large, deep and penetrating, which
will take a long time for any other entrant to replicate.
Thirdly, (especially the LIC), has a kind of government backing which instills
faith in all would-be policy holders, much more than a private company can hope
to generate. The envisaged private sector participation in the insurance sector is
unlikely to take this advantage away from LIC and GIC. In the short run atleast.
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LIC and GIC will continue to command a very high market presence and in the
long run it will take a very good market player to dislodge LIC and GIC from their
prime positions. This also means that the reform in insurance sector will
necessarily mean the reform of LIC and GIC.
OPPORTUNITIES AND CHALLENGES
OPPORTUNITIES
As compared to the Western countries, where they have already reached a stage of
saturation, India can exploit some golden opportunities in the following fields.
1. Mass Marketing:
India is a highly populated country and would continue to be so in the near future.
New players may tend to favour the "creamy" layer of the urban population. But, in
doing so, they may well miss a large chunk of the insurable population. A strong
case in point is the current business composition of the dominant market leader -
the Life Insurance Corporation of India. The lion's share of its new business comes
from the rural and semi-rural markets. In a country of 1 billion people, mass
marketing is always a profitable and cost-effective option for gaining market share.
The rural sector is a perfect case for mass marketing.
Competition in rural areas tends to be "kinder and gentler" than that in urban
areas, which can easily be termed cutthroat. Identifying the right agents to harness
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the full potential of the vibrant and dynamic rural markets will be imperative.
Rural insurance should be looked upon as an opportunity and not an obligation. A
smaller bundle of innovative products in sync with rural needs and perceptions,
and an efficient delivery system are the two aspects that have to be developed in
order to penetrate the rural markets.
2. Job Opportunities:
Job opportunities are likely to increase manifold. The liberalization of the
insurance sector promises several new job opportunities for those who are
equipped with degrees in finance. Finance professionals who had witnessed a
slump in the job market would be much relieved.
There will be demand for marketing specialists, finance experts and human
resource professionals. Apart from this, there will be high demand for
professionals in streams like underwriting and claims management, and actuarial
sciences.
3. Inflow of Funds:
There could be a huge inflow of funds into the country. Given the industry's huge
requirement of start-up capital, the initial years after opening up are bound to see a
strong inflow of foreign capital. A rise in the equity share of foreign partners to 49
percent will act as a boost to them.
4. Reinsurance:
Huge capacity is likely to be created in the area of reinsurance. Apart from pure
reinsurance activities, which involves providing insurance protection, there will be
a revolution in service-related fields like training, seminars, workshops, know-how
transfer regarding risk assessment and rating, risk inspections, risk management
and devising new policy covers, etc.
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5. Marketing Strategies:
Also, with more players in the market, there will be significant increase in
advertising, brand building, and this will benefit whole lot of ancillary industries.
A substantial shift is likely to take place in the distribution of insurance in India.
Many of these changes will echo international trends. Worldwide, insurance
products move along a continuum from pure service products to pure commodity
products. Initially, insurance is seen as a complex product with a high advice and
service component. Buyers prefer a face-to-face interaction and place a high
premium on brand names and reliability.
As products become simpler and awareness increases, they become off-the-shelf,
commodity products. Sellers move to remote channels such as the telephone or
direct mail. Various intermediaries, not necessarily insurance companies, sell
insurance. In some countries like Netherlands and Japan, insurance is marketed
using the Post Office's distribution channels. At this point, buyers look for low
price. Brand loyalty could shift from the insurer to the seller.
6. Bancassurance:
In other markets, notably Europe, this has resulted in bank assurance: banks
entering the insurance business. The Netherlands led with financial services firms
providing an entire range of products including bank accounts, motor, home and
life insurance, and pensions. Other European markets have followed suit. In
France, over half of all life insurance sales are made through banks. In the UK,
almost 95% of banks and building societies are distributing insurance products
today.
In India too, banks hope to maximize expensive existing networks by selling a
range of products. Many bankers have shown an inclination to enter the insurance
market by leveraging their strengths in the areas of brand image, distribution
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network, face to face contact with the clients and telemarketing coupled with
advanced information technology systems. Insurers in India should also explore
distribution through non-financial organizations. For example, insurance for
consumer items such as refrigerators can be offered at the point of sale.
7. Information Technology
Worldwide interest in E-commerce and India's predominant position in
Information Technology and software development are also likely to be major
factors in the marketing of insurance products in the immediate future. The number
of Internet account is increasing and the trend has already been set by some of the
leading insurers and insurance brokers worldwide.
CHALLENGES
If one has opportunities, one has to face challenges; it is like two sides of the same
coin. No doubt India has a lot of opportunities coming her way, but there are a few
challenges and threats as well.
The four main challenges facing the industry are product innovation, distribution,
customer service, and investments. Unit-linked personal insurance products might
find greater acceptability with rising customer awareness about customized,
personalized and flexible products. Flexible products and new technology will play
a crucial role in reducing the cost and, therefore, the price of insurance products.
Finding niche markets, having the right product mix through add-on benefits and
riders, effective branding of products and services and product differentiation will
be some of the challenges faced by new companies.
1. Technology:
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In today's highly competitive financial services environment, effective

organizations will employ technology in a strategic way so to achieve a
competitive edge. Technology will play an increasing role in aiding design and
administering of products, as well in efforts to build life-long customer
relationships. At the same time, investment in technology will only help as long as
firms find the right people: people with the right attitude, values, and ethics,
commitment to excellence, and focus on customer service. The critical success
factor is a top-down emphasis on exceeding customer expectations with quality
people, excellent products, and legendary service. As has been seen in other
financial services, the entry of private players ensures that the customer will be the
beneficiary in the long run. It will also result in enlarging the market and extending
the reach of insurance across the country.
2. Competition:
Thus, apart from the normal issues facing any new company, many new Indian
private insurance players will need to cope with the challenges of working with a
joint venture partner. They will be competing with large and well-entrenched
government-owned players. They have to overcome regulatory hurdles, change the
attitude of new recruits and satisfy some very high customer expectations. Also,
the players will have to consider the Indian market as a long-term investment, and
maintain clear-cut objectives and constant monitoring at all levels.
Major Players In The Insurance Sector Today
S.No. Date of Reg. Name of the Company

1 23.10.2000 HDFC Standard Life Insurance Company Ltd.
2 23.10.2000 Royal Sundaram Alliance Insurance Company
Limited
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3 23.10.2000 Reliance General Insurance Company Limited.

4 15.11.2000 Max New York Life Insurance Co. Ltd.
5 24.11.2000 ICICI Prudential Life Insurance Company Ltd.
6 04.12.2000 IFFCO Tokio General Insurance Co. Ltd
7 10.01.2001 Kotak Mahindra Old Mutual Life Insurance
Limited
8 22.01.2001 TATA AIG General Insurance Company Ltd.
9 31.01.2001 Birla Sun Life Insurance Company Ltd.
10 12.02.2001 Tata AIG Life Insurance Company Ltd.
11 30.03.2001 SBI Life Insurance Company Limited .
12 02.05.2001 Bajaj Allianz General Insurance Company
Limited
13 02.08.2001 ING Vysya Life Insurance Company Private
Limited
14 03.08.2001 ICICI Lombard General Insurance Company
Limited.
15 03.08.2001 Bajaj Allianz Life Insurance Company Limited
16 06.08.2001 Metlife India Insurance Company Pvt. Ltd.
17 03.01.2002 AMP Sanmar Life Insurance Company Limited.
18 14.05.2002 Aviva Life Insurance Co. India Pvt. Ltd.
19 15.07.2002 Cholamandalam General Insurance Company
Ltd.
20 27.08.2002 Export Credit Guarantee Corporation Ltd.
21 27.08.2002 HDFC-Chubb General Insurance Co. Ltd.
22 06.02.2004 Sahara India Insurance Company Ltd.
23 17.11.2005 Shriram Life Insurance Company Ltd.
The Way Ahead

With the entry of competition, the rules of the game are set to change. The market
is already beginning to witness a wide array of products from players whose
number is set to grow. In such a scenario, the differentiators among the different
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SECTOR IN INDIA
players are products, pricing, and service. Consumers are increasingly more aware
and are actively managing their financial affairs. Today, while boundaries between
various financial products are blurring, people are increasingly looking not just at
products, but at integrated financial solutions that can offer stability of returns
along with total profits. To satisfy these myriad needs of customers, insurance
products will need to be customized. Insurance today has emerged as an attractive
and stable investment alternative that offers total protection - Life, Health and
Wealth Protection. Consumers today also seek products that offering flexible
options, preferring products with benefits unbundled and customizable to suit their
diverse needs.
The trend in developed economies where people live longer and retire earlier is
now emerging in India too. With the breakdown of traditional forms of social
security like the joint family system, consumers are now concerned with the need
to provide for a comfortable retirement. This trend has been further driven by the
long-term decline in interest rates, which makes it all the more necessary to start
saving early to ensure long term wealth creation. Today's consumers are
increasingly interested in products to help build wealth and provide for retirement
income.
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SECTOR IN INDIA
STRATEGIES ADOPTED BY THE PLAYERS IN THE

MARKET
Gone were the days when the customers were forced to take up the kind of
products whatever coming from LIC's and GIC's stables. But now, the customer
has been portrayed as the king and to his delight, the products are redesigned and
customized suiting his need taking into account his paying capacity and multiple
benefits. To much of his chagrin, he has also got an option of withdrawing his offer
within a period of 15 days (free-look period) if he is not satisfied with the policy
features. Let us look at the strategies adopted by the players in the market.
I. Shift in the product portfolio:
Earlier the entire industry was revolving around investment and savings oriented
plans. As the interest rates are moving southwards, all the players are deliberately
focusing on selling pure risk covers in an effort to capture the new customers. The
premium on such products is low as it covers only the risk aspect and does not
factor in investments or savings. Even the market leader LIC has withdrawn some
of the products, which are positioned, on the assured returns platform. Though the
share of the term plans in the product portfolio is quite negligible, the shift
towards the term products is already visible. Typically a term plan does not
provide anything by way of maturity, unlike moneyback or endowment policies.
Globally, close to a third of the policies fall into this category must be an
encouraging news to the players.
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SECTOR IN INDIA
Unit linked products are also gaining momentum in this country. Om Kotak and
Birla Sun Life have launched unit linked schemes focusing on equity, debt and gilt
edged stocks. These schemes are expected to yield better returns when compared to
normal insurance schemes. As the awareness level about these unique products is
much lower, the companies resort to educate the customers about the salient
features of the products.
II. Value For Money (VFM):
The sea change since the sector opened up has been on the way the basic products
have been packaged innovatively, often tailor made to provide a bundle of benefits
to the customers. This is possible through the introduction of riders, which have
added value to the risk cover at minimal cost. Riders are nothing but add-ons
coming along with the base policies for a slightly additional premium. Riders have
become the major instruments for the organizations to lure the customers away
from the competitors. The removal of 30% cap on the premium of the base policy
for the health riders alone has come as a shot in the arm for many players since this
is used as an Unique Selling Proposition by many private players vis a vis the LIC.
Later, LIC has also started announcing riders along with the main policies dancing
to the tune of the market forces. This could see many non-life players going out of
the business as life insurers offer a plethora of personal line products as add-ons.
Riders can also be availed by the existing policyholders.
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SECTOR IN INDIA
III. Tapping the Niche Markets:
Private insurers are concentrating much on designing attractive products by

investing heavily on research, studying life expectancy and health statistics across
age groups, income levels, professionals and regions on their own instead of
relying on data with state insurers. The products are designed with a technical team
of actuaries and a product development team working closely together to target the
niche market. The innovations for the niche markets are abound and to name a
few…..
* METLIFE INDIA INSURANCE COMPANY has recently launched a

Charitable Trust Policy in Kolkata, which has evoked a lot of interest especially
among the Marwaris business community who want to set up a temple in their
name after their death. Similarly a Buy & Sell Agreement cover from the same
company permits a business enterprise to take out a life plan on each of its
partners, to ensure that the company continues.
* The other segments, which have attracted almost all the players, are the women
and the children segments. Though the State insurer has had a chunk of products
sufficiently for a longer time, it faces stiff competition from the private players in
these segments.
* TATA AIG has offered a specialized life insurance package where the insured
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SECTOR IN INDIA
and the employers of the insured have a say in it. Termed as Worksite Marketing,
AIG, which has adopted this practice in different places across the world, is
spreading the concept in India too. Worksite Marketing is a distribution method
used to offer voluntary insurance products (employee benefits) to employees at
their place of work with the sponsorship or backing of their employer, traditionally
done on a deduction from the payroll. The policyholder carries the policy with
himself throughout his life, even if it happens to change the organizations.
* TATA AIG GENERAL INSURANCE, for the first time in the country, has
launched a specialized product for Accountants (after tasting the success with
specialized products such as Directors and Officers policy in India) in its bid to
segment the market for professional indemnity policies. The policy has been
designed with the assistance from Bombay Chartered Accountants Society. This
policy covers claims pertaining to professional negligence, wrongful acts
committed in the performance duties. It also provides for coverage of all legal
expenses incurred in defending such claims.
* Any other way to promote non-smoking? Or to reward those who give up

smoking? OM KOTAK MAHINDRA has taken an initiative by offering a term
insurance plan - a pure protection product - to non-smokers at much cheaper price.
As against an annual premium of Rs.2400 on a Rs.10 lacs policy for a 10 year term
for a 30 year old under the preferred term plan, the regular term premium works
out to Rs.3400 for a similar cover. Though there are apprehensions in the industry
circle about the success of the policy, the intention of the company is quite
appreciated.
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SECTOR IN INDIA
* Even the unborn child's future can be safeguarded now. The offspring can be
insured against unfortunate congenital defects. State owned General Insurers have
started aggressively marketing these kinds of products.
IV. Thrust to the rural markets:-
Thanks to the norms stipulated by the regulator IRDA, all the players have turned
their eyes towards the rural market. Towards ensuring equitable distribution of
insurance policies in every nook and cranny of the country, IRDA stipulates the
rural obligations to be met by the players over the years.
The rural obligation on part of the new private insurance companies is incremental
in nature. It goes from 5% to 15% over the period of 5 years for life insurance and
from 2% to 5% in case of general insurance. IRDA has also defined what it meant
by rural.
1. The place should have a population of less than 5000

2. Secondly, the density of the population should be less than 400 persons per
square kilometer.
3. 75% of the male population should be engaged in agricultural pursuit.
Of the 11 private sector life insurers, 10 companies substantially performed in the

rural sector with the percentage of policies issued in the rural sector standing
higher than 5% level mentioned. Most of the non-life insurers achieved the base
level of 2% gross premium from rural sector. Since the penalty for not adhering to
the obligation includes Rs.5 lacs penal fee and upto 3 years of imprisonment of the
Chief of the organization, all the companies are swarming the rural market. The
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SECTOR IN INDIA
challenge lies in reaching the critical mass with the redesigned products. And the
organizations have been fairly successful in their efforts. For instance, Om Kotak
Life Insurance is successful in selling the single premium policy in rural market.
Reaching the doorsteps of the villagers through non-conventional channels like
Regional Rural Banks (RRBs), Co-operative banks, Self-Help Groups (SHGs),
ITCs e-choupal is also being tried by the players.
V. Tapping unconventional distribution channel:
Nevertheless all the players depend heavily on their agents force to reach out (LIC
has reached a figure of 8,50,000 agents and planned to increase it to 1 million by
this year), they are trying out other distribution channels also like banks and
corporate agencies in addition to the channels mentioned above. The following
table shows the strategic alliances the insurers have entered into to distribute their
products.
Sl.No Insurer Banks / Corporate Agencies

Bajaj Alliance (GeneralJammu & Kashmir Bank, Karur Vysya Bank,
01
Insurance) Punjab & Sind Bank
United India InsuranceAndhra Bank, Indian Bank, South India Bank,
02
Company Ltd. Federal Bank
New India Assurance CompanyPunjab National Bank (General Insurance) Vijaya
03
Ltd. Bank (Life Insurance)
04 SBI Life SBI branches and branches of its subsidiaries
Allahabad Bank, Bank of India, Citibank, Federal
05 ICICI Prudential Bank, Lord Krishna Bank, Punjab and Maharashtra
Co-operative Banks
06 LIC of India Corporation Bank, Oriental Bank of Commerce
Karnataka Bank, Dhanalakshmi Bank, Jammu &
07 Metlife
Kashmir Bank
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SECTOR IN INDIA
Kerala based Co-operative Banks – Peruntalmanna

08 AMP Sanmar
Bank and Manjeri Bank
Citibank, Deutsche bank, IDBI Bank, Catholic
09 Birla SunLife
Syrian Bank, Bank of Rajasthan, Bank of Muscat
10 HDFC Standard Life Insurance Indian Bank, Union Bank
Lakshmi Vilas Bank, Canara Bank, Amex, ABN
11 Dabur CGU Life
Amro Bank
LIC is also exploring ways to rope in Regional Rural Banks (RRBs) across the
country. Cross-selling could be another key strategy in selling insurance provided
the restrictions on the functioning of corporate agencies are lifted. Once the curbs
are removed, the market may see a wave of cross-selling. Royal Sundaram
Alliance may offer household insurance with Sundaram Housing Finance and sell
customers of Sundaram Finance Mutual Fund a whole range of insurance products.
ICICI-Prudential and HDFC Standard will tie up with their parent companies to
use their network. .
Once the much-awaited Insurance Brokers Regulations comes into force, the
industry is poised to change the way the insurance products are sold with the entry
of brokers. While an insurance agent represents an insurance company and offers
only the products of that company, an insurance broker is independent and
represents a number of insurers. He can also compare the benefits of different
policies and premiums to find the best coverage for the customer.
VI Cause Related Marketing (CRM):-
Cause Related Marketing has become the order of the day in Insurance industry.
By creating a goodwill about the organizations, the insurers are making an attempt
to change the negative attitude of the people towards insurance products. For
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SECTOR IN INDIA
instance,
* Towards serving the society in a better way, LIC has adopted a novel way
through its Bima Grams policy. Accordingly, LIC pays 25% of the premium
collected from the villagers or Rs.25000 whichever is lesser for undertaking
developmental work in the villages provided,
- The population of the village is between 1000 and 5000

- Life insurance coverage for atleast one person in 75% of the households
- Acquisition of 100 new policies in a single year
* Iffco-Tokio General Insurance Company is planning to launch a novel insurance

policy Sankat Karan for farmers in which for the every purchase of 50kg bag of
fertilizers, insurance worth Rs.4000 would be provided to the farmers. The policy
will remain in force for a period of 12 months from the date of purchase.
* Birla Sun Life Insurance has adopted 332 villages around Renukoot and actively
involved in improving the lives of the residents.
VII De-tariffing in General Insurance:
Though the issue of de-tariffing in general insurance has been debated upon at
length, the response from the industry is quite mixed. By fixing a tariff for a
product, Tariff Advisory Committee (TAC) maintains discipline in the market and
makes sure that the insurance companies do not resort to under pricing to gain
market share. IRDA is now working on detariffing the general insurance sector
Page 33
SECTOR IN INDIA
beginning with commercial vehicle business since it constitutes more than two fifth
of the non-life business volume. Both IRDA and TAC are working out the modus
operandi of the deregulations of motor premium. Sensing the indifferent attitude of
the private general insurers towards motor insurance, the Government is
contemplating on coming out with obligations to be met by the private insurers in
this segment (like rural business). Once the motor insurance premium is detariffed,
the end user is likely to see another cola war like.
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SECTOR IN INDIA
PRIVATE PLAYERS IN INDIAN LIFE INSURANCE
* Allianz Bajaj Life Insurance Company Ltd.,
* Aviva Life Insurance Co. India Pvt. Ltd.,
* AMP SANMAR Assurance Company Ltd.,
* Birla Sun Life Insurance Company Ltd.,
* HDFC Standard Life Insurance Company Ltd.,
* ICICI Prudential Life Insurance Company Ltd.,
* ING Vysya Life Insurance Company Private Ltd.,
* Max New York Life Insurance Co. Ltd.,
* MetLife India Insurance Company Pvt. Ltd.,
* Om Kotak Mahindra Life Insurance Co. Ltd.,
* SBI Life Insurance Company Ltd.,
* Sahara India Insurance Company Ltd.,
* Tata AIG Life Insurance Company Ltd.,
Page 35
SECTOR IN INDIA
ICICI PRUDENTIAL LIFE INSURANCE

COMPANY LTD.
ICICI Prudential Life Insurance Company is

a joint venture between ICICI Bank, which is
one of India's foremost financial services
companies, and Prudential plc, which is a
leading international financial services group
headquartered in the United Kingdom. ICICI
Prudential began the operations in December 2000. Today, this company has over
2100 branches, which include 1,116 micro-offices, over 290,000 advisors and 18
banc assurance partners.
ICICI Prudential Life Insurance Company is the first life insurer in India that
received a National Insurer Financial Strength rating of AAA (Ind) from Fitch
ratings. ICICI Prudential has been voted as India's Most Trusted Private Life
Insurer for three consecutive years. ICICI Prudential Life Insurance Company has
various insurance plans that have been designed for different individuals, as every
individual has different insurance needs.
Contact Address
ICICI Pru Life Towers
1089 Appasaheb Marathe Marg
Prabhadevi, Mumbai - 400025
Website: www.iciciprulife.com
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SECTOR IN INDIA
Given below is a list of plans provided by ICICI Prudential Life Insurance

Company:
Life Insurance Plans Premium Guarantee Retirement Solutions • Diabetes Care
Plans Active
Education Insurance
• Life Stage • Diabetes Assure
Plans
• InvestShield Pension
Life New • LifeTime Super ICICI Pru Group
• Smart Kid New
• InvestShield Pension Solutions Advantage
Unit-linked
CashBank • LifeLink Super
• Regular
Pension • Group Super
Premium
Protection Plans • ForeverLife Annuation
• Smart Kid New
Plan • Group Gratuity
Unit-linked • Pure Protect
• Immediate Plan
• Single Premium • Life Guard
Annuity • Annuity
• Smart Kid • Save 'n' Protect Solutions
Regular • CashBak Health Coverage Plans • Group Term
Premium • Home Assure Insurance Plan
• Health Saver • Group Term
Wealth Creation Micro Insurance • Medi Assure
Plans Insurance in lieu
Plans • Hospital Care of EDLI
• Crisis Cover
• Wealth
• ICICI Pru Rural Plans
Advantage
Sarv Jana • Cancer Care
• LifeStage
• ICICI Pru
Assure Plan
Suraksha
• LifeTime Gold
• ICICI Pru
• LifeLink Super
Suraksha
Kavach
• LifeStage RP
Page 37
SECTOR IN INDIA
ALLIANZ BAJAJ LIFE INSURANCE

COMPANY LTD
Bajaj Allianz Life Insurance Co. Ltd. is a joint venture
between Allianz SE, one of the world's largest insurance
companies, and Bajaj Finserv. Allianz SE is a leading
insurance corporation globally and one of the largest
asset managers in the world, that manage assets worth
over a Trillion. With over 115 years of financial
experience, Allianz SE is present in over 70 countries
around the world. Bajaj Allianz is into both life insurance
and general insurance. Today, Bajaj Allianz is one of India's leading and fastest
growing insurance companies. Currently, it has presence in more than 550
locations with over 60,000 Insurance Consultants.
In June 2008, Bajaj Allianz entered into partnership with Thomas Cook India to
provide travel finance. Bajaj Allianz Life Insurance ensures excellent insurance
and investment solutions by offering customized products, supported by the best
technology.
Contact Address
Bajaj Allianz Life Insurance Co. Ltd.
GE Plaza, Airport Road
Yerawada, Pune - 411006
Website: www.bajajallianzlife.co.in
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SECTOR IN INDIA
A comprehensive list of policies and products offered by Bajaj Allianz Life Insurance Co.
Ltd. is as follows:
Unit Linked Plans 3. New UnitGain Health Plans 3. New Group
Easy Pension Superannuation
• Regular Plus RP • Care First Care
Premium 4. New UnitGain • Health Care 4. Group Save Plus
Easy Pension • Family CareFirst 5. Group Term Life
1. New UnitGain
Plus SP in lieu of EDLI
Super Children Plans
5. Future Secure 6. Group Leave
2. UnitGain Plus
Encashment
Gold Traditional Plans • ChildGain Scheme
3. New UnitGain
7. Group Annuity
Plus • Endowment Group Plans
8. Group
4. New UnitGain
Superannuation
5. YoungCare 1. InvestGain • Non Employer
Gold
6. YoungCare Plus 2. SaveCare Employee
9. Group Gratuity
7. New FamilyGain- Economy SP
1. Credit Shield Gold
R 3. Life Time Care
4. Super Saver 2. Group Term
Micro Insurance
Life(Non
• Single Premium
• Money Back Employer
• Alp Nivesh
1. New UnitGain Employee)
Yojana
Premier SP 1. CashGain 3. Group Suraksha
• Jana Vikas
2. New UnitGain 4. Swayam Shakti
Yojana
Term Plans Suraksha
Plus SP
• Saral Suraksha
5. Group Loan
• Protector Yojana
Pension Plans Protector
• Term Care 6. Group Income
Other Plans
• Annuity • New Risk Care Protection
• Family Assure
1. Pension Women Insurance Plans • Employer
• Fortune Plus
Guarantee Employee
• House Wives • Capital Shield
• Retirement 1. Group Term • CenturyPlus II
• Working Women Life(Employer
1. Future Income
Employee)
Generator
Page 39
SECTOR IN INDIA
2. Swarna Vishranti 2. New Group

Gratuity Care
HDFC STANDARD
LIFE INSURANCE
Established on 14th August 2000, HDFC
Standard Life Insurance Co. Ltd. is a joint
venture between Housing Development
Finance Corporation Limited (HDFC
Limited) - India's leading housing finance institution, and a Group Company of the
Standard Life Plc, UK. The Company is one of leading private insurance
companies, offering a range of individual and group insurance solutions, in India.
Being a joint venture of top financial services groups, HDFC Standard Life has
adequate financial expertise to manage long-term investments safely and
resourcefully.
HDFC Standard Life Insurance offers a range of individual and group solutions,
which can be easily personalized to specific needs. Its group solutions have been
planned to offer complete flexibility, together with a low charging structure. As of
31 December, 2008, the Company's new business premium income stood at Rs.
1,839.70 Crores; it has covered over 812,811 lives so far.
Contact Address
HDFC Standard Life Insurance Co. Ltd.
'Trade Star', 2nd floor, 'A' Wing
Junction of Kondivita and M.V. Road
Page 40
SECTOR IN INDIA
Andheri-Kurla Road
Andheri (East), Mumbai - 400059
Website: www.hdfcinsurance.com
Given below is a comprehensive list of policies and products on offer by HDFC Standard Life
Insurance:
Protection Plans Retirement Plans • HDFC Unit • HDFC Critical
Linked Care Plan
• HDFC Term • HDFC Personal Enhanced Life • HDFC
Assurance Plan Pension Plan Protection II SurgiCare Plan
• HDFC Loan • HDFC Unit • HDFC Unit
Cover Term Linked Pension Linked Wealth Group Plans
Assurance Plan II Maximiser Plus
• HDFC Home • HDFC Unit • Group Term
• HDFC Unit
Loan Protection Linked Pension Insurance Plan
Linked
Plan Maximiser II • Group Variable
Endowment
• HDFC Term Insurance
Winner
Children's Plans Immediate Plan
• HDFC
Annuity • Group Unit
• HDFC Endowment
Linked Plan -
Children's Plan Assurance Plan
Savings & Investment Gratuity
• HDFC Unit • HDFC Money
Plans • Group Unit
Linked Young Back Plan
Linked Plan -
Star II • HDFC Unit • HDFC Single
Superannuation
• HDFC Unit Linked Premium Whole
• Group Unit
Linked Young Endowment of Life
Linked Plan -
Star Plus II Plus II Insurance Plan
Leave
• HDFC • HDFC
Encashment
• HDFC Unit SimpliLife Assurance Plan
Linked • HDFC Savings
YoungStar • HDFC Unit Assurance Plan
Champion Linked
Endowment II Health Plans
Page 41
SECTOR IN INDIA
BIRLA SUN LIFE

INSURANCE COMPANY LTD.
Birla Sun Life Insurance Co. Ltd. is a joint venture between Aditya Birla Group, an
Indian multinational corporation, and Sun Life Financial Inc, a leading global
insurance company. Birla Sun Life Insurance is distinguished as the first company
in the sector of financial solutions to begin Business Continuity Plan. This
insurance company has pioneered the unique Unit Linked Life Insurance Solutions
in India. Within 4 years of its launch, BSLI became one of the leading players in
the industry of Private Life Insurance Scheme.
Birla Sun Life Insurance believes in passion, integrity, speed, commitment and
seamlessness. The mission of the company is to help people with risk management.
It also helps in managing the financial situation of firms as well as individuals.
Contact Address
Birla Sun Life Insurance Company Limited
Vaman Centre, 6th Floor
Makhwana Road
Off Andheri-Kurla Road
Page 42
SECTOR IN INDIA
Andheri (East), Mumbai - 400059

Website: www.birlasunlife.com
Here is given a comprehensive list of policies and products offered by Birla Sun Life Insurance Co. Ltd.
Protection Plans • Birla Sun Life Children Plans • Birla Sun Life
Insurance Insurance Single
• Birla Sun Life PrimeLife Premier • Birla Sun Life Premium Group
Insurance Term • Birla Sun Life Insurance Term Plan
Plan Insurance Children's Dream
• Birla Sun Life PrimeLife Plan NRI Plans
Insurance • Birla Sun Life
Premium Back Rural Plans • Birla Sun Life
Insurance Flexi
Term Plan Insurance
Cash Flow
• Birla Sun Life PrimeLife Premier
• Birla Sun Life
Saving Plans Insurance Bima • Birla Sun Life
Insurance Flexi
Suraksha Super Insurance
Save Plus
• Birla Sun Life • Birla Sun Life PrimeLife
• Birla Sun Life
Insurance Insurance Bima • Birla Sun Life
Insurance Flexi
Guaranteed Bachat Dhan Sanchay Insurance Flexi
Life Line
Plan • Birla Sun Life Life Line Plan
• Birla Sun Life
• Birla Sun Life Insurance Bima • Birla Sun Life
Insurance Single
Insurance Money Kavach Yojana Insurance Flexi
Premium Bond
Back Plus Plan Save Plus
• Birla Sun Life Group Plans
Health Solution Plans • Birla Sun Life
Insurance Gold- Insurance Flexi
Plus II
• Birla Sun Life
• BSLI Health Plan Cash Flow
Insurance Group
• Birla Sun Life • Birla Sun Life
• BSLI Universal Unit Linked Plan
Insurance Saral Insurance
Health Plan
Jeevan Plan
• Birla Sun Life
ClassicLife
Insurance Group
• Birla Sun Life Retirement Plans Premier
Protection
Insurance • Birla Sun Life
Solutions
Supreme-Life • Birla Sun Life Insurance Single
• Birla Sun Life
• Birla Sun Life Insurance Premium Bond
Insurance Group
Insurance Dream Freedom 58 • Birla Sun Life
Superannuation
Plan Insurance
Page 43
SECTOR IN INDIA
• Birla Sun Life Plan SimplyLife

Insurance • Birla Sun Life • Birla Sun Life
ClassicLife Insurance Flexi Insurance Group
Premier SecureLife Gratuity Plan
Retirement Plan II
• B. S. L.Insurance • Birla Sun Life
SimplyLife Insurance Credit
Guard Plan
INSURANCE SECTOR GREW 83% AFTER PRIVATISATION

The insurance industry has grown by 83 per cent since the opening up of the
sector. Remarking on the performance of the insurance industry, C S Rao,
chairman, Insurance Regulatory & Development Authority, said public sector
players have not suffered with the opening up of the sector.
Insurance premium income has risen to Rs 82,415 crore (Rs 824.15 billion) in
2003-04, against Rs 45,000 crore (Rs 450 billion) in 2000-01. Rao expects
premium income in the life insurance sector to rise further by 15-16 per cent and
non-life insurance premium by 14 per cent in 2005-06. The growth comes on the
back of healthy demand from the manufacturing sector.
"There has been no reduction in growth rates as seen in the case of the Life
Insurance Corporation of India It is able to hold on to its existing share in terms of
business growth. Market share is bound to stand reduced as some business goes to
the private players,"
The health and personal line segments are expected to see maximum growth during
the current financial year.
"The health insurance sector is expected to grow by 10-15 per cent," Rao said at a
one-day seminar on 'Growth of Insurance Industry in India' organised by the Indian
Merchants' Chamber in Mumbai on Friday.
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SECTOR IN INDIA
If the cap on foreign direct investment is increased to 49 per cent from the current
26 per cent, the industry can expect greater entry of players. But this, said Rao,
should not be seen as a threat to public sector players.S
INSURANCE, THE FUTURE BOOM SECTOR OF INDIA
The reforms in the insurance sector leading finally to the opening of the insurance
sector for private participation have brought in its wake major changes not only in
the design of the products available in the market but also the manner in which
they are marketed. We have today a host of products coupled with a large number
of intermediaries who market them.
The post-liberalized insurance industry panorama in India is witnessing dramatic
changes in terms of a slew of latest products and services, new channels of
distribution, greater use of I.T. as a service facilitator etc. There is also the
phenomenon of noticeable shifts in consumer preferences impacting the product
mix being offered by insurers. The market structure dominated by a few stabilized
public sector players and the 'new' players in the market (some of whom claim
their lineage from established international insurance behemoths) is in a state of
flux- in terms of figure out market shares but is full of potential.
Added to these are the rising trends of convergence of financial services, especially
in the areas like wealth management and evolution of newer risk management
tools, particularly in the context of reinsurance management. Greater attention is
also being bestowed on the areas like Agricultural Insurance and risk coverage of
export-import trade. Then there is impact of visible socio-economic changes like
greater urbanization, greater job mobility, growth of the services industry,
Page 45
SECTOR IN INDIA
weakening of traditional family structure, impact of globalization etc. All in all,

interesting things are happening in the Indian insurance scene.
Insurance undergone rapid and massive changes in all aspects of their
business: product and services, sectoral structure, market segmentation,
competitive environment.It is believed that the information sharing has not taken
its expected shape in the insurance industry for the purposes of practices, research
and education. However, data is one of the most needed ingredients in the
insurance business development as well as for research and consultancy. There
have been regular efforts by IRDA for collection and sharing of the data and other
information of public interest. The industry is facing problems in terms of data
review as parliament need to register this beforehand. We believe that progress of
the industry should not be constrained by any extraneous conditions in the interest
of research and development in the area.
Manpower India today released the Manpower Employment Outlook Survey for
the first quarter of 2006 revealing sustained positive hiring intentions of employers
in India. India continues to lead all 23 countries surveyed this quarter, with a
positive overall Net Employment Outlook of +27%. Even though this figure
represents a decrease of 13 percentage points from the fourth quarter of 2005, the
employment outlook remains extremely healthy. For the first time since the Survey
was launched in India, the Finance, Insurance and Retail industry sector emerged
as the most optimistic sector for a quarter with a Net Employment Outlook of
+32%, surpassing the Services sector.
Privatization of insurance sector has allowed insurance companies to work in the
market by depositing 100 crore rupees in the reserve of government. This has
encouraged many overseas insurance companies, having a required amount in their
reserve, to open their branch in our country. Introduction of the sector has changed
Page 46
SECTOR IN INDIA
the employment pattern, but people must know how to make profit from it. To be
in the global market and have advantage of it, capital and skill as per the demand
and knowledge of market is the requirement. It is necessary that institutions, which
form a part of this financial system, have internal management, governance and
accountability structures, which measure up to the highest standards.
PUBLIC SECTOR DOMINATION CONTINUES IN

INSURANCE SECTOR
THE public sector insurance industry recorded another praiseworthy performance

for the financial year 2007-08. The remarkable performance of public sector
insurance year after year since the opening up of the industry has surprised its
critics. These critics had expected the public sector to wilt under the pressure of
competition. Today they are silent as the good performance of public sector is not
just related to the new premiums under-written but also in terms of innovation
skills and setting very high standards of servicing. Therefore, it has truly been an
excellent all-round performance.
The LIC achieved a moderate growth over the unprecedented growth it had
registered in the previous financial year. It secured first premium income of Rs
43,813 crore through the sale of 3.76 crore policies under individual assurances.
The LIC has also procured new premium of Rs 9260 crore through its group
portfolio. It is expected that the total premium income would touch Rs 1,50,000
crore. With the total assests in excess of Rs 7,00,000 crore, LIC has retained the
status of being the biggest financial institution in the country. It is this splendid
performance of LIC that has raised the levels of life insurance premium penetration
Page 47
SECTOR IN INDIA
to 4.1 per cent of the GDP. This level of penetration is higher than those achieved
in many developed countries including the United States.
The IRDA has released the unaudited new business statistics for the year 2007-08.
As per the IRDA, the LIC has underwritten new premium of Rs 59182.20 crore (on
the basis of annualised premium), which translates to a market share of 63.64 per
cent. The seventeen private companies together have a market share of 36.36 per
cent. The ICICI prudential with a market share of 8.93 per cent is a distant second
to LIC. Eleven companies have a market share of less than 2 per cent. In the total
premium mobilised in the country, the share of LIC is in excess of 80 per cent.
This clearly demonstrated the total domination of LIC in the life insurance industry
in India.
Today, the opponents of public sector are greatly surprised over the resilience and
ability of LIC to innovate and raise its servicing standards. The LIC has been able
to offer innovative products, better returns to its policyholders and has created
unsurpassable records in claim settlements. The LIC has been settling over one
crore claims each of these years. It has maintained a consistent record of settling
over 99.86 per cent of the reported claims. It tops in conservation of business with
the lowest lapsing ratio in the industry. In contrast, the private companies have
settled only around 72 per cent of the reported claims and large number of these
companies have more than 25 per cent lapsing ratio as against 4 percent of LIC
according to the annual report 2006-07 of the IRDA. The operating expenses of
LIC are also the lowest in the industry at 5.54 per cent. It is this sound track record
that has earned LIC the trust of the insuring public. Naturally over 230 million
policyholders have placed their unflinching faith and trust in this great institution.
The performance of the four general insurance companies has been equally good.
These companies secured a gross direct premium income of Rs 16899.49 crore in a
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SECTOR IN INDIA
de-tariffed regime. The profitability of all the four companies increased and their
underwriting losses have substantially been reduced. For the year ending March
31, 2008, United India has earned a net profit of Rs 631.32 crores, an increase of
19.5 per cent over the previous year. The details of other companies are yet to be
released but the story could be no different. We are convinced that the public
sector could have performed much better had the government been prudent to
accept merger of the four companies. The private companies on the other hand
have shown increased underwriting losses. The record of private companies in
relation to claim settlement is unsatisfactory and some state governments like
Maharashtra who had entrusted their social security mediclaim scheme to the
private companies have dragged them to courts on the issues of non-settlement of
claims.
Despite such good performance, there is wild campaign that the public sector has
faltered and its performance is not that satisfactory for the year 2007-08. This
motivated campaign is aimed to malign and discredit the public sector. It is true
that the public sector could not achieve the rate of growth recorded in the previous
year. But it is equally true of the private sector too which witnessed decline in the
growth rates. The decline in the growth rate of the private companies is
deliberately not discussed showing a clear bias against the public sector. What are
the reasons for the slow down in the growth rates in the insurance industry? We
have always held that it is the growth of the economy and levels of disposable
incomes that enables the growth of the insurance industry. It is now acknowledged
that the Indian economy had slowed down in 2007-08. The government itself had
lowered the growth projections. The agriculture sector on which 60 per cent of
India's population is dependent continued to remain crisis ridden. The
manufacturing sector recorded the lowest growth rate for the last three years. The
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SECTOR IN INDIA
services sector that contributes 55 per cent to the GDP did not remain unaffected
by the slow down. The RBI confirmed that the household savings declined while
corporate savings increased. This shows the shift in the incomes from the
household to spend a greater proportion of the incomes on food. The RBI also
confirmed decline in the rate of financial savings. Despite all these handicaps and
the constant attempts to encourage the private sector through governmental
policies and the IRDA interventions, the public sector insurance has performed
well and this is really creditable.
But many more challenges confront the public sector insurance industry today. The
slow down in the economy would impact the entire insurance industry. The threat
of further liberalisation of the sector continues unabated. There is aggressive
demand to increase the limits of foreign equity beyond 50 per cent. The Economic
Survey 2008 has suggested foreign equity beyond 51 per cent in health insurance.
The Raghuram Rajan committee on financial sector reforms and the Anwarul Hoda
committee on services sector have recommended complete liberalisation of
financial sector. These committees have recommended detariffing of all insurance
products and reducing of the solvency margin to 100 per cent as the higher
solvency margin rates have started affecting the private companies. These
committees have also suggested that foreign investors be permitted to a larger
share in the insurance companies and review of investment regulations to allow
investment in emerging instruments and derivatives. The Anwarul Hoda committee
has suggested total removal of FDI restrictions in reinsurance and an enactment of
a comprehensive law on insurance. Similarly in the banking industry, the
recommendations are for gradual reduction in statutory liquidity ratio and to make
priority lending targets to be on market based approach. The committees further
recommend the doing away of the branch licensing and reduction of government
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SECTOR IN INDIA
holding in public sector banks to 33 per cent. These recommendations are aimed to
integrate the Indian financial sector into the architecture of the global finance
capital. These recommendations would be disastrous not just to the financial sector
but to the entire national economy. But the government which is committed to
liberalise the financial sector would surely make attempts to implement these
recommendations.
The crisis in the financial markets in the US and Europe would also impact our
industry. It is not only the banks but the US insurance companies have also
suffered huge losses due to sub-prime lending crisis and swapping of credit
derivatives. The Business Standard April 22, 2008 reports that the biggest US
insurer AIG has announced losses of over 32 billion dollars in the last one quarter
itself compelling the company to announce raising of additional capital amounting
to 20 billion dollars. Therefore, the US and its insurance companies would exert
greater pressure for full liberalisation of Indian insurance sector. In the
circumstances the struggle to defend the public sector insurance industry has
become much more challenging. The movement led by AIIEA succeeded in
preventing the privatisation of insurance sector for over one decade. This struggle
has also helped the public sector to consolidate and gain due to the campaign of the
employees among the public. The campaign to educate the public about the
dangers inherent in the government policies and the need of a strong public sector
to better the lives of the people must be further strengthened. We are confident that
LIC and the four general insurance companies would continue to perform well
overcoming all obstacles. But let us also understand that this is possible only when
we heighten our campaign and struggle. This is the urgent task before the
insurance employees. (Editorial, Insurance Worker, June 2008 issue)
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SECTOR IN INDIA
IMPACT OF PRIVATISATION ON PUBLIC SECTOR

INSURANCE COMPANIES
The insurance sector was liberalised and opened to private sector participation to
break the monopoly position of public sector companies and provide better
insurance coverage, products and services to the citizens and in the process
augment flow of long-term resources for financing infrastructure.
Be it the evolution of new channels of distribution or innovative product

development or the optimal use of the latest state-of-the-art technology, the central
theme is the customer’s choice and his/her convenience. Competitive pricing,
value for money for the customer, high service levels, upgrading the quality of
agents, back office and front office staff, consumer awareness and sensitive and
prompt response to the consumers’ grievances are the other features of this market
which can easily be discerned.
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SECTOR IN INDIA
The market seems to be expanding and growing but only in depth and not the
width of coverage. Such growth rates, however, can be sustained only by reaching
out to newer markets. And no concerted effort on development of new markets has
been seen so far. LIC has responded well to competition, the decline in its sales
figures, post 2002 have been on account of removal of its high selling single
premium, guaranteed products. It has shown impressive growth in its traditional
product sales.
In non-life sector, the challenge seems to be more daunting. Not only the retail
market has not been impacted in any perceivable proportion, the levels of
awareness and also the standards of customer services, as perceived by the general
public, are pretty low. This needs to change.
Product Development:-
There certainly has been a plethora of new and innovative products offered by
both, LIC and new players, in the life sector. LIC has the widest range of products
and customised solutions for the customers. Public sector non-life companies are
yet to get their act together.
Customer Service:-
This is an area where new companies are clearly ramping up by bringing in their
global best practices, operational efficiency through technology etc. Public sector
companies are fast gearing up. However, a lot still needs to be done in this area as
is evidenced by the FORTE survey. The real time response and turnaround times in
delivery of the services have to be up to the customer expectation levels in areas
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SECTOR IN INDIA
like delivery of first premium receipt, policy document, premium notice, final
maturity payment, death claim etc.
CURRENT SCENARIO OF INSURANCE SECTOR
Global integration of financial markets resulted from de-regulating measures,

technological information explosion and financial innovations. Liberalisation and
Globalisation have allowed the entry of foreign players in the Insurance sector.
With the entry of private and foreign players in the Insurance business, people
have got a lot of options to choose from. Radical changes are taking place in
customer profile due to the changing life style and social perception, resulting in
erosion of brand loyalty. To survive, the focus of the modern insurers shifted to a
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SECTOR IN INDIA
customer-centric relationship. The paper focuses the current position of insurance

industry.
1.) Liberalisation and Privatisation :-
India's economic development made it a most lucrative Insurance market in the

world. Before the year 1999, there was monopoly state run LIC transacting life
business and the General Insurance Corporation of India with its four Subsidiaries
transacting the rest. In the wake of reform process and passing Insurance
Regulatory and Development Authority (IRDA) Act through Indian parliament in
1999, Indian Insurance was opened for private companies.
Liberalisation on the Insurance sectors has allowed the foreign players to enter the
market with their Indian partners. Most of the foreign Insurers have joined within
the local market. India offers immense possibilities to foreign Insurers since it is
the world's most populous country having over a billion people.
Insurance industry had ten and six entrants in life and non-life sector respectively
in the year 2000-2001. The industry again saw two and three entrants in the life
and non-life business respectively in the year 2001-2002. One additional entrant
was made both in the life and in non-life business in 2004 and 2005 respectively.
At present there are fourteen companies each in Life and General Insurance. The
Funds earlier generated by the state owned insurers have been diversified with
other new insurers.
2.) Competition:-
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SECTOR IN INDIA
Private and Foreign entrants in the Insurance Industry made others difficult to
retain their market. Higher customer aspirations lead to new expectations and
compel him to move towards the insurer who provides him the best service in time.
It becomes less viable for them even to maintain the functional networks or
competitive standards and services. To survive in the Industry they analyse, the
emerging requirements of the policyholders / insurers and they are in the forefront
in providing essential services and introducing novel products. Thereby they
become niche specialists, who provide the right service to the right person in right
time.
The following table shows the market share of life and non-life insurers
MARKET SHARE (%)

LIFE INSURERS NON – LIFE INSURERS
1. LIC 76.07 1. New India 21.41
2. ICICI Prudential 6.91 2. National 17.11
3. Bajaj Allianz 4.75 3. United India 17.11
4. HDFC Standard 2.98 4. Oriental 17.02
5. Birla Sun life 1.72 5. ICICI- 8.04
Lombard
6. Tata AIG 1.66 6. Bajaj Allianz 6.15
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SECTOR IN INDIA
7. SBI Life 1.46 7. IFFCO-Tokio 4.00

8. Max New York 1.28 8. Tata-AIG 2.89
9. Aviva 1.08 9. ECGC 2.50
10. Kotak Mahindra Old Mutual 0.71 10. Royal 2.17
Sundaram
11. ING Vysya 0.54 11. Cholamandala 1.22
m
12. AMP Sanmar 0.46 12. HDFC-Chubb 0.89
13. Met Life 0.37 13. Reliance 0.75
General
14. Sahara Life 0.03 14. Agriculture --
Insurance Co.
Private total 23.93 Private total 27.35
Public total 76.07 Public total 72.65
Grand total 100.00 Grand total 100.00
Source : www.irdaindia.org
In the above table shows, the private players in the life insurance business have
increased their market share to 23.93 per cent. Among them ICICI prudential is
ranked first in capturing the market followed by Bajaj Allianz and HDFC Standard.
In the General Insurance sector the private players have captured 27.35 per cent.
Among them ICICI-Lombard is ranked first, followed by Bajaj Allianz and
IFFCO-Tokio.
The healthy competition in the sector enabled the State owned insurers of our
mother country to reduce its market share to 76.07 per cent and 72.65 percent in
life and non-life business respectively. Moreover, private insurers have planned to
increase their market share in the next five years. The public insurers have to
enrich its approach to withhold its share.
3.) Information Technology:-

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SECTOR IN INDIA
Insurers are the earlier adopters of technology. Because of the Information

revolution, customers are free to choose from a wide range of new and innovative
products. The Insurance companies are utilizing the Information technology
applications for better customer service, cost reduction, new product design and
development and many more.
New technology gives the policyholders / insured better, wider and faster access to
products and services. The impact of Information Technology in Insurance
business is being felt at an accelerating pace. In the initial years IT was used more
to execute back office functions like maintenance of accounts, reconciling broker
accounts, client processing etc. With the advent of "database concepts", these
functions are better integrated in an administrative efficiency.
The real evolution is however emerged out of Internet boom. The Internet has
provided brand new distribution channels to the Insurers. The technology has
enabled the Insurer to innovate new products, provide better customer service and
deeper and wider insurance coverage to them. At present, Insurance companies are
giving customers a distinct claim id to track claims on-line, entertaining on-line
enrollment, eligibility review, financial reporting, and billing and electronic fund
transfer to its benefit clan customers.
4.) Product Innovations:-
Insurers are continuously innovating new products based on forward-looking

models. They have developed new products addressing the new challenges in
society and products to address the hazards from new environmental issues.
Companies will need to constantly innovate in terms of product development to
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SECTOR IN INDIA
meet ever-changing consumer needs. Understanding the customer better will

enable Insurance companies to design appropriate products, determine price
correctly and to increase profitability. Since a single policy cannot meet all the
Insurance objectives, one should have a portfolio of policies covering all the needs.
Product development is made possible by integrating actuarial, rating, claims and
illustration systems. At present, the Life Insurers are concentrating on the pension
schemes and the Non-Life Insurers on many innovative schemes of various realms
and thereby enriching their market share. Moreover, with increased
commoditization of insurance products, brand building is going to play a vital role.
5.) Distribution Network:-
While companies have been successful in product innovation, most of them are
still grapping with right mix of Distribution Channels for capturing maximum
market share to build brand equity, building strong and effective customer
relationships and cost effective customer service. While the traditional channel of
tied up advisors or agents would be the chief distribution channel, insurer should
innovate and find new methods of delivering the products to customers. Corporate
agency, brokerage, Banc assurance, e-insurance, cooperative societies and
panchayats are some of the channels, which can be tapped by the insurers to reach
the appropriate market segments. Now days, the urban masses are tapped with the
new techniques provided by Information Technology through Internet. Rural
masses are attracted by the consultative approach adopted by the Insurers.
Moreover, they attract the customers through telephone and mobile also.
6.) Customer Education and Services:-
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SECTOR IN INDIA
Insurance is a unique service industry. The key industry drivers are related to life
style issues in terms of perceiving insurance as a savings instrument rather than for
risk cover, need based selling, quality of service and customers awareness.
In the present competitive scenario, a key differentiator is the professional
customer service in terms of quality of advice on product choice along with policy
servicing. Servicing focus is on enhancing the customer's experience and
maximizing his convenience. This calls the effective CRM system, which
eventually creates sustainable competitive advantage and enables to build long
lasting relationship.
BIBLIOGRAPHY
(1) Insurance : Ajit Ranade and Rajeev Ahuja; India Development Report 1999-
2000
(2) Insure for life: Navjit Gill : Business World, 28 February 2000.
(3) Complete Guide to Business Risk Management : KitSadgsrove
(4) Risk Management Excellence : Economist Int. Unit
(5) The Insurance Sector : ICFAI ( Institute of Charter Financial Analyst of

India.
(6) Impossible guidelines editorials : Business India, February 7-20, 2000
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SECTOR IN INDIA
(7) Economic Times clippings.(8) www.licindia.com
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PRIVATISATION IN INSURANCE

Insurance may be described as a social device to reduce or eliminate risk of loss to

In the words of D.S. Hansell, “Insurance may be defined as a social device

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

INSURANCE SECTOR IN INDIA

Insurance sector in INDIA is booming up but not to level comparative with

HOW BIG IS THE INSURANCE MARKET ?

BOTTLENECKS – GOVERNMENT / RBI REGULATIONS:

These stipulations imposed on the insurance companies had resulted in lack of

In a narrow sense Privatisation implies the induction of private ownership in

 Effective Utilization of Resources

 Encourages Capital Formation

 Reduce Size of Public Sector

 Dispose of Loss-Making Govt. Unit

 Reduction In Monopoly of Public Sector units

 More Funds available With Govt.

 High Industrial growth rate

 Increase in efficiency of Public Sector

 Quick Decision making

 Unemployment & Corruption

 Non Acceptable by Trade Union

 Public monopolies have been turned into private monopolies

 Wastage & Misallocation of Resources

PRIVATIZATION IN INSURANCE SECTOR

1) The Narasimha Rao government (1991-96) which unleashed liberal changes

HOW IMPORTANT IS PRIVATISATION IN INDIA

Further, in many areas, the government faces conflicts of interest between a

There is a fundamental loss of credibility when a government regulator faces PSUs

These arguments have led many economists to advocate large-scale privatisation,

WHO’S GOING WITH WHOM?

SBI Alliance Capital

WHY PRIVATISE, WHAT MARKET STRUCTURE TO

(a) Why should insurance be opened up to private players?

(b) If opened up, what should be the appropriate market structure(many

(c) What is the role of the regulator in insurance business?

Why allow entry to private players?

be examined in the context of liberalization of the financial sector. If traditional

WHAT SHOULD BE THE MARKET STRUCTURE ?

THE ROLE OF IRA :

(a) The protection of consumers’ interest,

(b) To ensure financial soundness of the insurance industry and

(c) To ensure healthy growth of the insurance market.

These objectives must be achieved with minimum government involvement and

SOME INSURANCE PRODUCTS NOT AVAILABLE IN

Associated Market Quest after a study of some of the international markets,

1. Industry all risk policies

2. Large projects risk cover

3. Risk beyond a floor level

4. Extended public and product liability cover

5. Broking and captivities.

6. Alternative risk financing

9. Mega show insurance

10. Celebrity visits to the country.

SO WHAT CAN THE PRIVATE INSURERS DO ?

MARKET POTENTIAL FOR PRIVATE LIFE

It has been found out that:

* Most of them are interested in insuring for an amount of Rs. 1- 2 lakhs

* There is significant relationship existing between monthly household

* Based on the monthly household income, Indians prefer to their

* Agents are mostly responsible for selling insurance products in India

CAPITAL NORMS FOR NEW INSURANCE COMPANIES :

THE INSURANCE POTENTIAL :