DISSERTATION PROJECT REPORT ON

A COMPARATIVE ANALYSIS OF LIFE INSURANCE CORPORATION AND PRIVATE INSURANCE COMPA

NIES
Report submitted in partial fulfillment of the requirements for Post Graduate in
Management
PROJECT GUIDE: Prof. Usha Kiran Rai FMS BHU
SUBMITTED BY: Shashank Tripathi MBA IV Sem (Finance) FMS BHU

CONTENTS
Acknowledgement Introduction Concept of Insurance Global Insurance Industry Perf
ormance of Indian Industry Insurance sector reforms in India New avenues for gro
wth of the Insurance industry Research Methodology Research Objectives Research
Design Research Process Limitations of the Study Significance of the study Analy
sis and Interpretation Findings & Conclusions 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 op
portunity to work on this project. I am also grateful, for her support and guida
nce throughout this project with valuable information and giving me a better ins
ight of the things, without which the successful culmination of this project wou
ld 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 wo
rk.
I would also like to extent my immense gratitude to Prof. A. K. Agrawal, and res
pected Dean Prof. Deepak Barman, Faculty of Management Studies, BHU who allowed
me to choose the topic for my Dissertation.
Shashank Tripathi
3

CHAPTER 1 INTRODUCTION
4

1. CONCEPT OF INSURANCE :
Life has always been an uncertain thing. To be secure against unpleasant possibi
lities, 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 bee
n accustomed to pray God for protection and security from time immemorial. In mo
dern days Insurance Companies want him to pay for protection and security. The i
nsurance 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 employe
d 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 un
employment 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 ch
anging demands of family life, separation, divorce and elderly dependents are to
rmenting the society. Risk has become central to one's life. It is within this b
ackground life insurance policy has been introduced by the insurance companies c
overing 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. Th
is 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 l
ife 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 Consti
tution. Hence, right to social security, protection of the family, economic empo
werment 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 neces
sities of life. A person has to earn income not only for himself but also for hi
s 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 h
is 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 i
ncome. 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 lifetime 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 th
e end of that period or life-time, a substitute is made available. Thus, he make
s sure that the value or income is not lost. However, the asset may get lost ear
lier. An accident or some other unfortunate event may destroy it or make it nonfunctional. In that case, the owner and those deriving benefits from there, woul
d be deprived of the benefit and the planned substitute would not have been read
y. There is an adverse or unpleasant situation. Insurance is a mechanism that he
lps to reduce the effect of such adverse situations. Insurance, in law and econo
mics, 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 fac
tor used to determine the amount, called the premium, to be charged for a certai
n 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 pract
iced in India even in Vedic times in one form or the other. The Sanskrit term "Y
ogakshema" in the Rigveda meant some kind of insurance, which was practiced by t
he Aryans in India nearly 3000 years ago. During the Mughal period insurance too
k firm roots. There are even references to the cover against war risks. Losses d
ue 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 bee
n 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 1
829.The renewed Company also got into trouble in 1833 when Agency House of Calcu
tta, partners of the same, fell.
6

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 Co
mmittee was set up for this purpose .A number of foreign Insurance Companies the
n operating in the country viewed this move with alarm. They set up Committees o
f 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, anot
her company was born out of the previous one in the name of "New Oriental Compan
y" 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 l
atter was another prominent figure of the business world. Rustamjee entered insu
rance 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 Laudab
le (1840) , and Indian Laudable (1841) . He was also on the Committee of the Uni
on Insurance Company which was formed by a group of five persons. This Company w
as 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 E
uropeans & in the field of insurance they were pioneers on this side of the coun
try. 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 i
n vain, mainly from objection of private operators. Majority of the early attemp
ts 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 Moha
n 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 desper
ate 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 res
idents in India. Premiums collected here were credited to England largely for Br
itish beneficiaries. Business seems to have been brisk and profitable and was us
ually under short term policies. Insurance mortality tables and insufficient mor
tality 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 w
ere always considered risky and sometimes valueless. When Indian lives were acce
pted as a very special case, the extras charged were still heavier. Prominent am
ongst the companies which came to India around this period was the "Medical Inva
lid 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 "Medi
cal" 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 mana
ger of the "Medical", was a keen businessman, widely liked, influential and shre
wd. With W.F. Ferguson, who was the manager of the "New Oriental" before amalgam
ation, he commenced very active operations which were temporarily affected by th
e 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 op
erations until it was taken over by the "North British" in May 1901. Insurance e
xceeding 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 Co
mpany. The original prospectus of this company declared its purpose as "extendin
g to the Colonies of Great Britain and to Indian the full benefit of Life Assura
nce". It appointed agents with local boards which were first established on Calc
utta, Bombay, Madras and Colombo. Later on this company was taken over by the "S
tandard Life" and made valuable contribution to investigations into the mortalit
y experience of assured lives in India. Eventually it ceased its operations in I
ndia 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 commen
ced business in India in 1845) on the life was to Cursetjee Furdonjee on 6th Jan
uary 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, succ
eeded by M/s. Forbes, Forbes and Campbell. It accepted only European lives and c
ommenced insuring Indian lives only after 1929.This too, was mainly to oblige go
od 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 f
ire insurance business in the year 1861 and life business 1864. The London Assur
ance started life business in 1864, limited principally to European lives and cl
osed down its life department when the Life Assurance Companies Act 1912 made su
bmission of returns compulsory. On 3rd December, 1870, seven earnest men of Bomb
ay 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 Ass
urance Society" came into existence. This was followed by the Oriental Life Assu
rance Company in1874, the Bharat in 1896 and the Empire of India in 1897. THE BI
RTH OF INDIAN INSURERS With the advent of the 20th century, the glorious renaiss
ance 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 g
ave rise to more insurance companies. The United India in Madras, National India
n and National Insurance in Calcutta and the Co-operative Assurance at Lahore we
re established in 1906. In 1907, Hindustan Co-operative Insurance Company took i
ts birth in one of the rooms of the Jorasanko House of the great poet Rabindrana
th 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 B
ombay in 1908. The end of the First World War (1914-18) witnessed an influx of i
nsurance companies in India. Famous Indian business houses started new insurance
companies. Industrial and Prudential Bombay, Western India, Satara, were floate
d 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 Lal
a Lajpat Rai and Pandit Motilal Nehru started Laxmi Insurance Co. Similarly, And
hra Insurance was started in Masulipatnam, with the initiative of stalwarts like
Dr. Pattabhi Sitaramaiah. From political platforms also, national leaders suppo
rted this cause. It is duty to every Indian to support only Indian Insurance. Th
e keynote of our Swaraj is in placing all our insurance with our Indian companie
s", said Mahatma Gandhi in his message. "I hope Indians will realize the importa
nce of patriotism only through Indian insurance institution", stated Pandit Jawa
harlal Nehru. Thus, the cause of Indian insurance became a national issue. The p
ursuit to boost Indian insurance represented a crusade to extricate the Indian e
conomy from foreign domination.
PROGRESS IN INSURANCE BUSINESS The growth of Life Insurance in concrete terms co
uld 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 o
f companies, in terms of number of policies and sum assured as well as total lif
e 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 busine
ss in India, and during the next 25 years their number rose to 176. The total pr
ogress on all the primary heads, viz. life fund (Rs. 50.50 crore), premium incom
e (Rs. 10.50 crore) and new business (Rs. 43.30 crore) indicate that Indian Insu
rance Business had been making a definite headway during this years. The inter-w
ar -years thus saw rapid growth life insurance in India. The promotion of new li
fe insurance companies continued to be almost a craze and insurance companies mu
shroomed. In this period, 176 insurance companies were formed and many of them f
ailed. Thus unhealthy growth was harmful to the interest of the policy holders a
nd insurance business in India. Feeling concerned about it, the All India Life A
ssurance 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 lia
bilities under all policies issued in India.
9

INSURANCE ACT, 1938 The Insurance Act, 1938, was the first comprehensive legisla
tion 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 pr
ovident 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 fil
ing of returns of investment and financial conditions. (C) Provisions for deposi
t, to prevent insurers of inadequate financial resources of speculative concerns
for commencing business. (D) Provisions that 55% of the net life fund of an Ind
ian or non- Indian insurer should invested in Indian Government and approved sec
urities with at least 25% in Indian Government Rupee securities.. All other comp
anies, i.e., foreign companies must invest 100% of their Indian liabilities in I
ndian 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 valuat
ion of Indian Insurance business of foreign companies and the business of Indian
companies. (G) Provision for policyholders' directors, making it possible for t
he representatives of policyholders to be on the Board of directors. (H) Standar
dization of policy conditions required all companies to file standard forms and
tables of premium approved by an Actuary. Under this requirement, the initial de
posit for life insurance business was raised from Rs. 25000 in Government securi
ties to Rs. 50000 in cash approved securities, which was subsequently to be rais
ed by installments to Rs. 2 lakh within a specified time limit.
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GROWTH OF LIFE BUSINESS IN INDIA: 1914-1948 Sr no 1 No of insurers 1914 44 44 22

.44 22.44 6.36 1930 68 68 748997 513925 (68.61) 220703 14369 258.42 84.89 (32.85
) 69.76 3.77 20.53 1940 195 179 (91.79) 16 1945 215 200 (93.02) 15 1948 209 189
(90.43) 20
(a) Indian (b) Non-Indian 2 Total No. of policies In force
1628381 2714000 3016000 1371963 2376000 2791000 (84.25) (87.55) (90.15) 181247 7
5171 304.03 225.51 (74.17) 60.12 18.4 62.41 261000 77000 573.07 459.43 (80.17) 9
1.85 21.79 107.4 234000 202000 712.76 566.38 (79.46) 101.08 45.3 150.39
(a) Indian (b) Non-Indian (c) 3 Indian outside India Total business in force
(a) Indian (Rs. Crore) (b) Non-Indian (c) 4 Indian outside India Total life fund
s (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 towa
rds the nationalization of life insurance business in India. On 20th January, 19
56 all life insurance companies were taken over by 43 nominated custodians. The
custodians were experienced senior executives of private insurance companies, re
porting 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 integ
ration had to await legislation. The custodians managed the insurance companies
till 1-09-1956, when Life Insurance Corporation was established under the genera
l direction and control of the Ministry of Finance. The Ordinance provided for t
he transfer of the control of 154 Indian insurers, 16 non Indian insurers and 75
provident societies. These arrangements were designed to ensure that no inconve
nience whatsoever was caused to the policy holders. With the Government take ove
r the management aimed towards the evolution of a common uniform premium rate, p
olicy conditions and service and working procedures and above all to help promot
e 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 t
he government as chairman. The capital of the corporation was at Rs 5 crore prov
ided by the central government. INSURANCE SECTOR REFORMS In 1993, Malhotra Commi
ttee, headed by former Finance Secretary and RBI Governor R.N. Malhotra was form
ed to evaluate the Indian Insurance industry and recommended its future directio
n. The Malhotra committee was set up with the objective of complementing the ref
orms initiated in the financial sector. The reforms were aimed at "creating a mo
re efficient and competitive financial system suitable for the requirements of t
he economy keeping in mind the structural changes currently underway and recogni
zing 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 commi
ttee submitted the report and some of the key recommendations included: (1) STRU
CTURE

Government stake in the Insurance Companies to be brought down to 50%. Governmen
t should take over the holdings of GIC and its subsidiaries so that these subsid
iaries can act as independent corporations. All the insurance companies should b
e given greater freedom to operate
12

(2) COMPETETION

Private Companies with minimum paid up capital of Rs.1 bn should be allowed to e
nter the industry. No Company should deal in both Life and General Insurance thr
ough a single entry. Foreign Companies may be allowed to enter the industry in c
ollaboration with the domestic companies. Postal Life Insurance should be allowe
d to operate in the rural market. Only one State Level Life Insurance Company sh
ould be allowed to operate in each state.
(3) REGULATORY BODY

The Insurance Act should be changed An Insurance Regulatory Body should be set u
p. 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 fr
om 75% to 50%. GIC and its subsidiaries are not to hold more than 5% in any comp
any (There current holdings to be brought down to this level over a period of ti
me).
(5) CUSTOMER SERVICE

LIC should pay interest on delays on payments beyond 30 days. Insurance Companie
s must be encouraged to set up unit linked pension plans Computerization of oper
ations and updating of technology to be carried out in the insurance industry.
The committee emphasized that in order to improve the customer service and incre
ase the coverage of insurance industry should opened up to competition. But at t
he 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 g
reater autonomy to insurance companies in order to improve their performance and
enable them to act as independent companies with economic motives. For this pur
pose, it had proposed setting up an independent regulatory body.
13

Liberalization :
OPENING UP OF INSURANCE SECTOR 1999 THE INSURANCE REGULATORY AND DEVELOPMENT AUT
HORITY Reforms in the Insurance sector were initiated with the passage of the IR
DA Bill in Parliament in December 1999. The IRDA since its incorporation as a st
atutory body in April 2000 has fastidiously stuck to its schedule of framing reg
ulations and registering the private sector insurance companies. The other decis
ion taken simultaneously to provide the supporting systems to the insurance sect
or and in particular the life insurance companies was the launch of the IRDA's o
nline service for issue and renewal of licenses to agents. The approval of insti
tutions for imparting training to agents has also ensured that the insurance com
panies 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 s
et up as an independent statutory body the IRDA has put in a framework of global
ly compatible regulations. In the private sector 14 life insurance companies hav
e been registered. ENTRY OF PRIVATE COMPANIES Under the IRDA Act, private compan
ies can now operate in India's insurance industry. However, they must obtain a l
icense from the IRDA before being permitted to write business. To have its licen
se application considered, a domestic private company must be registered in acco
rdance with the Companies Act of 1956 and have approximately US$ 20 million of i
nvestment capital. The specific licensing requirements that Private Indian Compa
nies must fulfill are set forth in the Registration on Indian Insurance Companie
s Regulations, published by the IRDA 2000. LIFTING OF BARRIERS TO FOREIGN INVEST
MENT The IRDA Act also lifts certain barriers to foreign direct investment in In
dian insurance industry. Global insurers are now permitted to set up and registe
r a domestic company in order to write business in India. However, regulations s
tipulate that they have a capital base of at least US $ 20 million, and their in
vestment in such company is capped at 26 percent. Thus, to participate in the ma
rket, they must form a joint venture with an Indian partner that is able to inve
st the remaining funds. The equity investments limit is the same for global rein
sures seeking to write business in India, but they are required to put up a capi
tal of approximately US$ 45 million in order to establish a domestic company.
14

Since the IRDA first enacted these rules, 13 new life insurance companies have e
ntered the market. On the other hand, no global reinsurer has established a dome
stic company. Instead, most of the top international reinsurance companies opera
te 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 investme
nt to 49 percent. In addition, global companies are pushing for the right to est
ablish branch offices in India. These changes are likely to substantially increa
se the presence of international insurers, reinsurers, and brokers in India. The
IRDA Insurance Brokers Act in India 2002 permitted overseas insurance and reins
urance brokers to enter the market, but with the same equity cap as that governi
ng 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 India
n broking house. The 2002 IRDA legislation established four broker categories, o
ne of which brokers must select when applying for a license: 1. 2. 3. 4. 5. Cate
gory 1A : Direct General Insurance Broker Category 1B : Direct Life Insurance Br
oker Category 2 : Reinsurance Broker Category 3: Composite Broker Category4: Oth
ers, for example Insurance Consultants and Risk Management Consultants.
Each category has different solvency margins and capital adequacy ratios, and al
l categories need to carry professional indemnity insurance at different minimum
levels. In the years since market liberalization was initiated, the insurance s
ector has witnessed some impressive changes. The needs of insurance and reinsura
nce buyers have grown; the market is introducing new products to address these n
eeds; and the services of brokers are now seen as critical to making informed in
surance and reinsurance decisions. OVERVIEW OF THE CURRENT INSURANCE MARKET In t
he years since the IRDA Act initiated market reforms, the insurance sector has e
xperienced some remarkable changes. The entry of a large number of Indian and Fo
reign private companies in life insurance business has to lead greater choice in
terms of products and services. Increased consumer awareness of the benefits an
d importance of insurance and reinsurance has generated many more buyers; and ne
w distribution channels_ among them brokers, bank assurance, the Internet, and c
orporate agents_ have provided additional ways of getting products and services
to customers.
15

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 competiti
ve environment that has accelerated market growth. State owned insurers still wr
ite the bulk of insurance business, and they have the net worth required to unde
rwrite large corporate risks without depending almost entirely on reinsurance su
pport. However, their focus on restructuring is beginning to put them at a disad
vantage against private competitors. Over the next few years, the share of the m
arket held by the public insurers is expected to drop substantially, with privat
e companies assuming a growing percentage of the business written. At present th
ere are 15 private insurers with two standalone private players and remaining pr
ivate-foreign joint venture.
Purpose and Need of Insurance :
Assets are insured, because they are likely to be destroyed through accidental o
ccurrences. Such possible occurrences are called perils. Fire, floods, breakdown
s, 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 buildin
g, 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 o
nly means that there is a possibility of loss or damage. The damage may or may n
ot happen. Insurance is done against the contingency that it may happen. There h
as 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 c
annot 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 tim
e of death is not uncertain, though not exactly known. He cannot be insured. Ins
ured 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 th
rough better safety and damage control management. Insurance only tries to reduc
e 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 con
sequences can be insured. If the loss is not financial, insurance may not be pos
sible. Example of non-economic losses are love and affection of parents, leaders
hip of managers, sentimental attachments to family heirlooms, innovative and cre
ative abilities, etc.
16

How Insurance Works?

The mechanism of insurance is very simple. People who are exposed to the same ri
sks 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 go
ods by ship are exposed to the same risks, which are related to water damage, sh
ip sinking, piracy, etc. Those owning factories are not exposed to these risks,
but they are exposed to different kinds of risks like, fire, hailstorms, earthqu
ake, lightning, burglary, etc. Like this, different kinds of risks can be identi
fied and separate groups made, including those exposed to such risks. By this me
thod, 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 se
veral crores of rupees. No airline would be able to bear such a loss. It is unli
kely that many Jumbo Jets will crash at same time. If 100 airline companies flyi
ng Jumbo Jets, come together into an insurance pool, whenever one of the Jumbo J
ets 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 cer
tain principles, which make it possible for insurance to remain a fair arrangeme
nt. The first is that it is difficult for any one individual to bear the consequ
ences of the risks that he is exposed to. It will become bearable when the commu
nity shares the burden. The second is that the perils should occur in an acciden
tal manner. Nobody should be in a position to make the risk happen. In other wor
ds, 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 int
o 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. Th
e 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 indic
ative of the benefit he would receive if the peril befell him. The share could b
e collected from the members after the loss has occurred or the likely shares ma
y be collected in advance, at the time of admission to the group. Insurance comp
anies collect in advance and create a fund from which the losses are paid. The c
ollection to be made from each person in advance is determined on assumptions. W
hile 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 th
e 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 vi
llage.
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. 20
000 to the family of each of the ten persons who die. Thus, the risks in the cas
e 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 s
kills and business acumen are the assets. This asset also can be lost through un
expectedly 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 t
hat the income will normally cease, the person concerned could have made some ot
her arrangements to meet the continuing needs. But if it happens much earlier wh
en the alternate arrangements are not in place, there can be losses to the perso
n 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, als
o 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 th
at children will look after him. If any of these expectations do not become true
, the original arrangement would become inadequate and there could be difficulti
es. 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 asset
s. 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 sudde
n changes in currency exchange rates, economic policies or political disturbance
s in the other country. These risks are insured. Doctors run the risk of being c
harged with negligence and subsequent liability for damages. The amounts in ques
tion can be fairly large, beyond the capacity of individuals to bear. These are
insured. Thus, insurance is extended to intangibles. In some countries, the voic
e 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 ri
sk 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 e
xist. 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 (co
vering the risk of theft or damage to the car) and liability risk (covering lega
l claims from causing an accident). A homeowner s insurance policy in the U.S. t
ypically 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 mo
tor 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 i
s required to legally operate a motor vehicle on public roads. In some jurisdict
ions, bodily injury compensation for automobile accident victims has been change
d to a no-fault system, which reduces or eliminates the ability to sue for compe
nsation but provides automatic eligibility for benefits. Aviation insurance insu
res against hull, spares, deductible, hull war and liability risks. Boiler insur
ance (also known as boiler and machinery insurance or equipment breakdown insura
nce) insures against accidental physical damage to equipment or machinery. Build
er s risk insurance insures against the risk of physical loss or damage to prope
rty during construction. Builder s risk insurance is typically written on an "al
l 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 insuranc
e, 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 busin
ess owner needs, in a way analogous to how homeowners insurance bundles the cove
rage that a homeowner needs. Casualty insurance insures against accidents, not n
ecessarily 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, di
sability, or death. Mortgage insurance (which see below) is a form of credit ins
urance, although the name credit insurance more often is used to refer to polici
es that cover other kinds of debt. Crime insurance insures the policyholder agai
nst losses arising from the criminal acts of third parties. For example, a compa
ny can obtain crime insurance to cover losses arising from theft or embezzlement
. Crop insurance "Farmers use crop insurance to reduce or manage various risks a
ssociated with growing crops. Such risks include crop loss or damage caused by w
eather, 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 al
l 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 w
ell as disability and death benefits. Directors and officers liability insurance
protects an organization (usually a corporation) from costs associated with lit
igation resulting from mistakes incurred by directors and officers for which the
y 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 un
able 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 d
isability insurance provides benefits when a person is permanently disabled and
can no longer work in their profession, often taken as an adjunct to life insura
nce. Errors and omissions insurance: See "Professional liability insurance" unde
r "Liability insurance". Expatriate insurance provides individuals and organizat
ions operating outside of their home country with protection for automobiles, pr
operty, health, liability and business pursuits. Financial loss insurance protec
ts individuals and companies against various financial risks. For example, a bus
iness might purchase cover to protect it from loss of sales if a fire in a facto
ry 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 o
f insurance is frequently
20

referred to as "business interruption insurance." Fidelity bonds and surety bond

s 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 obl
ige. Health insurance policies will often cover the cost of private medical trea
tments if the National Health Service in the UK (NHS) or other publicly-funded h
ealth programs do not pay for them. It will often result in quicker health care
where better facilities are available. Home insurance or homeowners insurance: S
ee "Property insurance". Liability insurance is a very broad superset that cover
s legal claims against the insured. Many types of insurance include an aspect of
liability coverage. For example, a homeowner s insurance policy will normally i
nclude liability coverage which protects the insured in the event of a claim bro
ught by someone who slips and falls on the property; automobile insurance also i
ncludes an aspect of liability insurance that indemnifies against the harm that
a crashing car can cause to others lives, health, or property. The protection o
ffered 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 liabil
ity insurance protects the insured from bodily injury, property damage and clean
up costs as a result of the dispersal, release or escape of pollutants. o Profes
sional liability insurance also called professional indemnity insurance, protect
s professional practitioners such as architects, lawyers, doctors, and accountan
ts against potential negligence claims made by their patients/clients. Professio
nal liability insurance may take on different names depending on the profession.
For example, professional liability insurance in reference to the medical profe
ssion may be called malpractice insurance. Notaries public may take out errors a
nd omissions insurance (E&O). Other potential E&O policyholders include, for exa
mple, real estate brokers, home inspectors, appraisers, and website developers.
Life insurance provides a monetary benefit to a decedent s family or other desig
nated beneficiary, and may specifically provide for burial, funeral and other fi
nal expenses. Life insurance policies often allow the option of having the proce
eds paid to the beneficiary either in a lump sum cash payment or an annuity. o A
nnuities provide a stream of payments and are generally classified as insurance
because they are issued by insurance companies and regulated as insurance and re
quire the same kinds of actuarial and investment management expertise that life
insurance requires. Annuities and pensions that pay a benefit for life are somet
imes regarded as insurance against the possibility that a retiree will outlive h
is or her financial resources. In that sense, they are the complement of life in
surance and, from an underwriting perspective, are the mirror image of life insu
rance. 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 fu
nds is required. Marine insurance and marine cargo insurance cover the loss or d
amage of ships at sea or on inland waterways, and of the cargo that may be on th
em. When the owner of the cargo and the carrier are separate corporations, marin
e cargo insurance typically compensates the owner of cargo for losses sustained
from fire, shipwreck, etc., but excludes losses that can be recovered from the c
arrier or the carrier s insurance. Many marine insurance underwriters will inclu
de "time element" coverage in such policies, which extends the indemnity to cove
r 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 bo
rrower. National Insurance is the UK s version of social insurance (which see be
low). No-fault insurance is a type of insurance policy (typically automobile ins
urance) where insurers are indemnified by their own insurer regardless of fault
in the incident. Nuclear incident insurance covers damages resulting from an inc
ident involving radio active materials and is generally arranged at the national
level. (For the United States, see the PriceAnderson Nuclear Industries Indemni
ty Act.) Pet insurance insures pets against accidents and illnesses - some compa
nies cover routine/wellness care and burial, as well. Political risk insurance c
an be taken out by businesses with operations in countries in which there is a r
isk that revolution or other political conditions will result in a loss. Polluti
on 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 relea
se of hazardous materials from the insured site. The policy usually covers the c
osts of cleanup and may include coverage for releases from underground storage t
anks. Intentional acts are specifically excluded Property insurance provides pro
tection against risks to property, such as fire, theft or weather damage. This i
ncludes specialized forms of insurance such as fire insurance, flood insurance,
earthquake insurance, home insurance, inland marine insurance or boiler insuranc
e. Purchase insurance is aimed at providing protection on the products people pu
rchase. Purchase insurance can cover individual purchase protection, warranties,
guarantees, care plans and even mobile phone insurance. Such insurance is norma
lly very limited in the scope of problems that are covered by the policy. Retros
pectively Rated Insurance is a method of establishing a premium on large commerc
ial 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, wit
h 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 t
he premium adjustments may take months or years beyond the current year s expira
tion 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 componen

ts of life insurance, disability income insurance, unemployment insurance, healt
h insurance, and others), plus retirement savings, that mandates participation b
y all citizens. By forcing everyone in society to be a policyholder and pay prem
iums, 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 jus
tice system and the welfare state. This is a large, complicated topic that engen
ders 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 (U
nited States)
Terrorism insurance provides protection against any loss or damage caused by ter
rorist activities. Title insurance provides a guarantee that title to real prope
rty is vested in the purchaser and/or mortgagee, free and clear of liens or encu
mbrances. It is usually issued in conjunction with a search of the public record
s performed at the time of a real estate transaction. Travel insurance is an ins
urance cover taken by those who travel abroad, which covers certain losses such
as medical expenses, lost of personal belongings, travel delay, personal liabili
ties, etc. Workers compensation insurance replaces all or part of a worker s wa
ges lost and accompanying medical expense incurred because of a job-related inju
ry.
Advantages of Life Insurance :
Life insurance has no competition from any other business. Many people think tha
t life insurance is an investment or a means of saving. This is not a correct vi
ew. When a person saves, the amount of funds available at any time is equal to t
he amount of money set aside in the past, plus interest. This is so in a fixed d
eposit in the bank, in national savings certificates, in mutual funds and all ot
her savings instruments. If the money is invested in buying shares and stocks, t
here 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 invest
ed 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 fi
nal 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 lo
ng as one lives or for a lesser period if so chosen. There is no other scheme wh
ich provides this kind of benefit. Therefore life insurance has no substitute. E
ven so, a comparison with other forms of savings will show that life insurance h
as 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 n
omination 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. Certa
in cannot claim the life insurance moneys. They can be protected against attachm
ents 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 fol
lowing tenets help agents to believe in the benefits of life insurance. Such fai
th will enhance their determination to sell and their perseverance. Life insuran
ce is not only the best possible way for family protection. There is no other wa
y. 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 a
re 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 saving
s or investment instrument, in terms of security, marketability, stability of va
lue or liquidity. Insurance, including life insurance, is essential for the cons
ervation of many businesses, just as it is in the preservation of homes. Life in
surance enhances the existing standards of living. Life insurance helps people l
ive 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) bri
ng together persons with common insurance interests (sharing the same risks), (b
) collect the share or contribution (called premium) from all of them, and (c) p
ay out compensation (called claims) to those who suffer. The premium is determin
ed on the same lines as indicated in the examples above, but with some further r
efinements. In India, insurance business is classified primarily as life and non
-life or general. Life insurance includes all risks related to the lives of huma
n beings and General insurance covers the rest. General insurance has three clas
sifications viz., Fire (dealing with all fire related risks), Marine (dealing wi
th all transport related risks and ships) and Miscellaneous (dealing with all ot
hers like liability, fidelity, motor crop, personal accident, etc.). Personal ac
cident 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 base
d on studies of occurrences in the past and the use of statistical principles. T
here is, in statistics, a law of large numbers . When you toss a coin, the chanc
e of a head or tail coming up is half. If the coin is tossed 10 times, one canno
t be sure that the head will come up 5 times. If the coin is tossed 1 million ti
mes, the number of heads will be closer to half a million proportionately than i
n the case of 10. The variation will be less as a percentage. So also, the large
r the numbers (of risks) included in the pool, the better the chances that the a
ssumptions regarding the probability of the risk occurring, which is the basis o
f 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 in
dividual 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 su
ffer 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 th
e community of policyholders. It has to ensure that nobody is allowed to take un
due advantage of the arrangement. That means that the management of the insuranc
e 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 accide
ntal. The decision to allow entry is the process of underwriting of risk. Underw
riting includes assessing the risk, which means, making an evaluation of how muc
h 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 insuranc
e is to spread risk so the reluctance of insurance companies to take on high-ris
k cases (e.g. houses in areas subject to flooding, or young drivers) runs counte
r to the principle of insurance. Other criticisms include: Insurance policies co
ntain too many exclusion clauses. For example, some house insurance policies do
not cover damage to garden walls. Most insurance companies now use call centre a
nd staff attempt to answer questions by reading from a script. It is difficult t
o 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 secur
ities, more than Rs. 12000 crores in the State Electricity Boards, nearly Rs. 20
000 crores in housing loans and Rs. 4000 crores in water supply and sewerage sys
tems. Other investments included road transport, setting up industrial estates a
nd directly financing industry. Investments in the corporate sector (shares, deb
entures and term loans) exceeded Rs. 30000 crores. These directly affect the liv
es of the people and their economic well-being. A life insurance company will ha
ve large funds. These amounts are collected by way of premiums. Every premium re
presents a risk that is covered by that premium. In effect, therefore, these vas
t 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 th
at benefit the community. This applies also to its investments. That is why succ
essful insurance companies would not be found investing in speculative ventures.
Their investments, as in the case of the LIC, benefit the society at large. Apa
rt from investments, business and trade benefit through insurance. Without insur
ance, trade and commerce will find it difficult to face the impact to major peri
ls like fire, earthquake, floods, etc. Financiers, like banks, collapse if the f
actory, financed by it, is reduces to ashes by terrible fire. Insurers cover als
o 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 range
s from consumer to corporate and industrial insurance, and even reinsurance, or
insurance of insurance. The major insurance markets of the world are obviously t
he US, Europe, Japan, and South Korea. Emerging markets are found throughout Asi
a, specifically in India and China, and are also in Latin America. With the inte
rnet and other forms of high-speed communication, companies and individuals are
now able to purchase insurance and related financial products from almost anywhe
re 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 so
cio-economic conditions worldwide, insurance companies are increasingly reaching
out across borders and are offering more competitive and customized products th
an 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, glob
al 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, prem
iums in North American amounted to $1,217 billion, while the European Union gene
rated $1,198 billion, and Japan produced $492 billion. The UK amounted to $295 b
illion. The four biggest generators of insurance premiums comprised almost two-t
hirds of premiums for 2004, the US and Japan amount to half, while they only mak
e up 7% of the world s population. In contrast, the emerging markets that make u
p 85% of the world s population produced only 10% of the premiums. The leading g
lobal 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
27

GLOBAL LIFE INSURANCE DENSITY :

Continent/Country North America United States Canada Latin America Brazil Mexico
Uruguay Argentina Panama Chile Colombia Europe United kingdom Switzerland Nethe
rlands France Belgium Sweden Denmark Germany Italy Austria Portugal Spain Poland
Russia Croatia Hungary Greece Bulgaria Ukraine Turkey Asia South Korea Japan Ti
wan Hongkong Israel Malaysia Singapore Thailand India China Phillipines UAE Sril
anka Indonesia Oman Vietnam Iran Kuwait Pakistan Saudia Arabia Africa South Afri
ca Mauritius Zimbabwe Morocco Kenya Nigeria Egypt Algeria Oceania Australia New
Zealand World 2001** 1508.6 1602 675.9 26.3 10.8 53.2 21.5 68.8 39.3 122.1 11.5
573.2 2567.9 2715.7 1345 1268.2 1155 1356 1364.4 674.3 720.8 632 302.9 491 48.7
33.2 25.3 59.3 108.9 5 0.1 5.5 125 763.4 2806.4 760.9 1249.7 525.2 129.5 713.2 3
4.1 9.1 12.2 6.6 56.3 4.3 3.6 13.6 2.1 1.1 30.3 1.2 0.6 22.4 377.2 95.3 12.4 9.4
2.9 0.5 2.7 0.4 697.5 1040.3 198.4 235 103.7 7.8 12.2 3 0.5 2.4 0.5 668.7 1010.
4 211.1 247.3 2002** 1563.8 1662.6 657.3 29.1 27.2 59.2 17.8 19.7 44.6 103.5 12.
5 620.4 2679.4 3099.7 1296.1 1349.5 1323.6 1232.2 1574.9 736.7 904.9 648.7 418.6
588 50.7 23.1 33.2 76.7 116 9.9 0.1 6.5 128.1 821.9 2783.9 925.1 1237.9 459.3 1
18.7 730.1 42.1 11.7 19.5 8.7 74 4.5 5.2 14.8 3.8 1.5 36.8 1 1.7 21.5 360.5 119.
1 21.4 12 3.4 0.6 2.7 0.5 750.7 1129.3 272 267.1 2003** 1565.7 1657.5 722.9 30 3
5.8 41.3 15.4 24.2 42.4 138.3 12.4 726.9 2617.1 3431.8 1561.7 1767.9 2004.8 1602
.3 2037.5 930.4 1238.3 811 611.4 488.6 59.9 33.9 46.3 99.1 152.1 5.5 0.3 8.4 140
.1 873.6 3002.9 1050.1 1483.9 460.8 139.8 1300.2 52 12.9 25.1 8.6 72.5 5.3 6.4 1
3.8 4.1 1.7 36.9 1.1 1.7 26.1 476.5 2004** 1617.2 1692.5 926.1 37.2 45.9 50.2 N/
A 34.5 50.6 164.5 14.3 848.1 3190.4 3275.1 1936.5 2150.2 2291.2 1764.3 2310.5 10
21.3 1417.2 955.3 768.1 571.9 73.3 24.8 58.7 117.3 177.9 8.2 0.6 12 147.2 1006.8
3044 1494.6 1884.3 467.4 167.3 1483.9 50.8 15.7 27.3 9.4 59.7 6.2 7.5 14.2 7.3
2.3 39.1 1.5 2.1 30.3 545.5 133.1 N/A 10.6 3.7 0.7 3.1 0.8 851 1285.1 318 291.5
2005** 1686.3 1753.2 1071.9 42.0 56.8 49.9 15.5 35.4 47.2 174.9 16.8 911.8 3287.
1 3078.1 1954.2 2474.6 2988.7 2105.2 2489.9 1042.1 1449.8 1095.1 1113.7 615.8 10
1.9 6.3 70.9 148.2 213.1 11.1 1.3 12.7 149.6 1210.6 2956.3 1699.1 2213.2 510.2 1
88 1591.4 54.6 18.3 30.5 10.6 74.7 6.9 10.5 17.3 6.1 2.2 35.7 1.9 0.7 30.7 558.3
136.1 N/A 11.7 4.5 0.5 4 0.9 885 1366.7 219.7 299.5 2006** 1731.8 1789.5 1204.1
51.3 72.5 62.9 16.6 43.8 51.2 176 20.5 1119.6 5139.6 3111.8 2071.6 2922.5 2427.
7 2214.6 2840.8 1136.1 1492.8 1104.6 1131.5 651.0 150.5 4.0 81.8 192.3 256.7 13.
2 1.9 13.1 154.6 1480.0 2829.3 1800.0 2456 532.6 189.2 1616.5 60 33.2 34.1 13.1
89.8 8.5 12.5 14.3 6.1 2.6 40.9 2.3 0.8 38.3 695.6 N/A N/A 14.7 5.3 0.8 4.7 1.2
896.3 1389 215 330.6
Source: Swiss Re, Sigma volumes * Insurance density is measured as ratio of prem
ium to total population ** Data relates to calender years Figure in US$ www.indi
ainsuranceresearc h.com
28

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 p
ercent 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 th
e total accretion of all the established players is Rs 807 crores, a truly impre
ssive 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 la
te starter in the race for premium acquisition has recorded an accretion of Rs.3
57 crore as against a meager last year renewal of Rs.89 crore. The growth path i
s now led by several players: with eight out of the twelve players having achiev
ed accretions in excess of Rs.100 crore and more at the end of October 2006. Wit
h the imminent detariffing around the corner in January 2007, the next two month
s should witness even more fierce battles for supremacy of the market turf. A fe
w of the new players are inching towards breaking into the big league premium pl
ayers of yesteryears and this may happen sooner than one thought. Interesting an
d 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 Pre
mium of Rs.1336610.10 lakh for the period ended October, 2006 of which the priva
te 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 indus
try, with private insurers underwriting Rs.64530.68 lakh and LIC Rs.378765.72 la
kh. The Individual Non-Single Premium underwritten during April-October, 2006 wa
s 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 wh
ich the private insurers underwrote Rs.30147.74 lakh and LIC Rs.437200.84 lakh.
The lives covered being 7678192, 456696 and 7221496 respectively. The correspond
ing numbers for the previous year were Rs.171382.70 lakh with private insurers u
nderwriting Rs.17261.98 lakh and LIC Rs.154120.72 lakh and the lives covered bei
ng 8547743, 397721 and 8150022 respectively. The Group Non-Single Premium underw
ritten during April-October, 2006 was Rs.53221.05 lakh which was underwritten en
tirely by the private insurers, covering 2366084 lives. The corresponding number
s for the previous year were Rs. 18031.15 lakh and covering 1277400 lives.
29

Segment-wise segregation: A further segregation of the premium underwritten duri

ng the period indicates that Life, Annuity, Pension and Health contributed Rs.23
29869.52 lakh (64.24%), Rs.74006.48 lakh (2.04%), Rs.1221904.91 lakh (33.69%) an
d 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 in
surers, Rs.652038.07 lakh (88.58%), Rs.4568.66 lakh (0.62%), Rs.78565.47 lakh (1
0.67%) and Rs.897.90 lakh (0.12%) respectively was underwritten in the four segm
ents. 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 under
written 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 pr
emium indicates that 54.74% of the business was underwritten in the non-linked c
ategory, and 45.26% in the linked category, i.e., Rs.752509.54 lakh and Rs.62218
5.30 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 to
gether this stood at 77.02% and 22.98% respectively. Growth momentum continues i
n 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 o
nly slightly below that of September of 25.8 percent. As against the monthly ren
ewals of Rs.1772 crore in October last year, the premium income scaled in 2006 i
s Rs.2220 crore. The established players have recorded an accretion of Rs.151 cr
ore at a growth rate of 11.3 percent. The new players have had an accretion of R
s.297 crore at a growth rate of 63 percent. Among the former, New India leads wi
th an accretion of Rs.60 crore followed by Oriental with Rs.56 crore. But the st
ellar 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 meage
r renewal premium of Rs.12 crore. The new players have continued to maintain a s
trong grip on their market share that stands at 35 percent. Two points of intere
st to the market have emerged. One is that the monthly accretion of ICICI Lombar
d at Rs.167 crore is higher than the combined accretion achieved by all the esta
blished players of Rs.151 crore. This performance should stand out as of interes
t 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 m
onthly premium performances of National Insurance and UIIC that have accomplishe
d premiums of Rs.305 crores and Rs.257 crore respectively. The established playe
rs 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 pe
rformance of country s largest life insurer, LIC, and private players like Bajaj
Allianz and ICICI Prudential. The 15 life insurance companies together collecte
d Rs 35,898 crore in the fiscal ended March this year, compared to Rs 25,343 cro
re in the previous fiscal, according to data compiled by regulator IRDA. Life In
surance Corporation s premium income rose more than 28 per cent to Rs 25,645 cro
re 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 m
arketing 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 ti
me 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 indu
stry 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 insuran
ce industry in 200607. 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 premi
um 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 yea
r premium has grown by 110% to Rs 75, 406 crore during 2006-07. The 2006-07 perf
ormance 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 hu
ge growth of over 381% and 210% respectively during the year. Reliance Life whic
h has become one of the top five companies ended the year with a premium of Rs 9
30 crore during the year. Though ICICI Prudential Life Insurance remained as the
No 1 private sector life insurance company during the year Bajaj Allianz overto
ok ICICI Prudential in terms of monthly market share in March, for the first tim
e ever. Bajaj s market share among private players in non-single premium for Mar
ch stood at 29.1% vs. ICICI Prudential s 23.8%. Bajaj gained 4.6 percentage poin
t market share among private sector players for FY07. Among other private player
s, 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 prem
iums. Another notable development of the 2006-07 performance has been the expans
ion of retail markets by the life insurance comapnies. Bajaj Allianz Life insura
nce 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 mar
ket 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 t
he door for participation of private insurance companies and a limited participa
tion 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 n
ecessarily part of the formal economy. The results of the liberalization are the
re for everyone to see. The insurance markets -both life and non-life -- have gr
own impressively. IRDA is working on a regulatory framework that helps level the
playing field for all types of insurance companies, irrespective of their owner
ship. Since 1999, IRDA has licensed 22 new private Indian insurance companies, a
n 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 tim
es as much as in 1999 ($8 billion). In other countries, this kind of capital mob
ilization provides crucial resources for investment in infrastructure, corporate
businesses, long-term bonds, and municipal projects. Once India does more to fr
ee insurance companies to invest in such important sectors, it too can gain bene
fit from this long-term financial resource. Other improvements are occurring as
well. New insurance products such as product liability insurance, professional l
iability insurance, small/medium size enterprise insurance, weather insurance, a
nd group health insurance for the poor have been launched. Private insurance com
panies are also using banks, microfinance institutions and cooperatives to incre
ase their market share and compete with well-entrenched stateowned insurance com
panies. 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 ownersh
ip, and other restraints. We have seen what happens in India when a market is tr
uly 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 in
surance market remains very small compared with some of the major emerging marke
ts. South Africa and South Korea, with a fraction (onetwentieth) of India s popu
lation, 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 insuranc
e market can support the economy by providing long-term capital -- equity and de
bt -- to the private sector. For example, in the U.S. over two-thirds of financi
al assets of insurance companies are in corporate bonds and equities, municipal
securities and commercial mortgages. Insurance also shields households and busin
esses 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 p
ercent of the population has access to health insurance. Therefore, many individ
ual households have to pay the full out-of-pocket costs for health treatment. Wh
at will expand the insurance industry and help it contribute to the economy? Maj
or 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 b
e from foreign investors, who are now limited to 26 percent ownership. India nee
ds to raise the cap on Foreign Direct Investment (FDI) to attract capital for th
e 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 b
y investors as a breach of faith. This promise needs to be delivered, not 5 year
s from now, but soon, if India wishes to regain its credibility in the eyes of f
oreign 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 inve
stment destination. The cap should be raised above 50 percent within a short per
iod so that foreign investors would have management control commensurate with th
eir 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 gen
erations of successful experience in managing and growing the industry. The bene
fit 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 insuran
ce industry s financial assets are locked in government securities. Investment g
uidelines for insurance companies prescribed by the regulator must be changed to
allow and promote access to insurance funds by the corporate sector and infrast
ructure projects. There is also a strong case for raising the FDI cap for reinsu
rance 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 dist
orts the market and makes it inefficient. It has prevented the emergence of a cu
lture of underwriting in insurance companies. The IRDA needs to dismantle this r
egime to make these segments of the market truly competitive. The IRDA should al
so seek to create a regulatory regime that promotes the most efficient use of ca
pital, eliminates avoidable micro-management of business practices, allows compa
nies to price their products prudentially, and levels the playing field between
private and state-owned insurance companies. When markets are competitive and re
sponsive 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 tha
t 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 po
licies and a health care system that is primarily private, the cost to individua
ls becomes a major economic burden. For this reason, many microfinance instituti
ons 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 settin
g 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 provider
s and from existing claims makes risk-based pricing of health insurance products
difficult. The absence of an appropriate regulatory framework that enforces a m
inimum level of service and hygiene standards is
33

an important reason the health insurance market in India is so underdeveloped. I

t is not surprising that not a single health insurance company is among the 22 n
ew private insurance companies licensed since 1999. Clearly, the IRDA and the Mi
nistry of Health need to work in tandem to solve these problems. Another area wh
ere the insurance industry is not doing its job is helping mitigate the risks fo
r personal and business loss from natural catastrophes. In the past decade, Indi
a and China accounted for one-fourth of the global economic losses from natural
disasters. Insurance availability in India for natural catastrophes is almost ne
gligible. As we have seen with the Indian Ocean tsunami, the absence of a "safet
y 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 domina
ting 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 fo
reign 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, th
e 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 num
ber 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 collectio
n. It recorded a premium of Rs. 364.9 crore and a market share of 25 per cent, f
ollowed by Birla Sun Life with a premium under- written Rs.170 crore and a marke
t 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 the
ir counterpart in the life insurance business, private non-life insurance compan
ies have not yet started addressing the retail market. All is set to change in t
he coming years. Like in the banking sector, nonlife insurance companies will so
on have no choice but to focus on individual buyers. The latest series of bomb a
ttacks, attack on parliament, attack on Ayodhya, attacks of the Maoists, nature
calamities like tsunami, floods and drought, ragging are prevailed in the countr
y 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 natur
al resources have not been insured in globalization era. It is, therefore, an ur
gent need to explore the challenges and opportunities faced by the insurance sec
tor in India.
Indias Insurance Industry Likely To Jump By 500% In 2010: ASSOCHAM :
The Associated Chambers of Commerce and Industry of India (ASSOCHAM) has project
ed 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 gr
owing competitive age is developing a larger appetite among people for wider ins
urance coverage. The projections of the Chamber are based on feedback that it re
ceived from its various constituents, engaged in the insurance business, highlig
hting that India s life insurance premium as a percentage of GDP is currently es
timated at 1.8% against 5.2% in US, 6.5% in UK and about 8% in South Korea. Rele
asing the analysis, ASSOCHAM President, Mr. Venugopal N. Dhoot said that rural a
nd semi-urban India will contribute US $35 billion to the Indian insurance indus
try 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 st
ill untapped due to poor distribution, large distances and high costs relative t
o 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 becau
se penetration is already good and companies receive good services. In both volu
mes and profitability therefore, the scope for expansion is modest. ASSOCHAM has
suggested that insurer s strategy should be to stimulate demand in areas that a
re currently not served at all. Insurance companies mostly focus on manufacturin
g sector; however, the services sector is taking a large and growing share of In
dia s GDP. This offers immense opportunities for expansion opportunities. To und
erstand the prospects for insurance companies in rural India, it is very importa
nt 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 o
n. More often than not, they are into more than one profession. The rural market
offers tremendous growth opportunities for insurance companies and insurers sho
uld develop viable and cost-effective distribution channels; build consumer awar
eness and confidence. The Paper found that there are a total 124 million rural h
ouseholds. Nearly 20% of all farmers in rural India own a Kissan Credit cards. T
he 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 p
urchase and rendering insurance services. There should be nothing to stop insura
nce companies from trying to pursue their own unique policies and target whateve
r needs that they want to target in rural India. ASSOCHAM suggests that insuranc
e needs to be packaged in such a form that it appears as an acceptable investmen
t to the rural people. In the near future, when we ll see more innovations in ag
riculture in the form of corporatization or a more professional approach from th
e 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 u
nderstandings with government agencies to ensure the success of the insurance sc
hemes. The need of the hour is to have innovative policies that have explicit be
nefits 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 a
nd 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 structur
al changes took place with the ending of government monopoly and the passage of
the Insurance Regulatory and Development Authority (IRDA) Bill, lifting all entr
y restrictions for private players and allowing foreign players to enter the mar
ket 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 o
f the insurance sector in 1999, foreign investments of Rs. 8.7 billion have pour
ed into the Indian market and 21 private companies have been granted licenses. I
nnovative products, smart marketing, and aggressive distribution have enabled fl
edgling private insurance companies to sign up Indian customers faster than anyo
ne 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 innovati
ve 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 fis
cal 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.1
97.86 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, a
s private players grew by 129% to mop up Rs. 55.57 billion in 2004-05 from Rs. 2
4.29 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 s
hare 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 privat
e 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 r
esearch report is on the potential growth on the Indian Insurance Sector, it als
o 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 ca
tegory (size. growth, productivity and efficiency) 3. To compare grievance manag
ement of LIC and private insurance companies.
RESEARCH DESIGN :
a. Type of research design b. Data collection : : : Analytical Research Secondar
y Sources Ratio Analysis Bar Graph
c. Statistical Tools
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 categori
es under which I have compared the LIC and Private insurance companies. These ar
e: 1. Size 2. Growth 3. Productivity 4. Grievance Handling Under these Broad Cat
egories 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 da
ta 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 co
mpanies. 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 Comp
anies 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 cons
olidated point table has been prepared to know that which sector is performing b
etter than other.
The Weightage for different categories are:
Factors Size A. Total Premium B. Total Income C. Balance Sheet Size D. Total No.
of Policies E. Total No. of Branches Growth A. First Premium B. Growth in Incom
e C. Increase in No. of Policies D. Growth in Market Share Productivity A. Busin
ess per Branch B. Income Per Branch C. First Premium per Branch Grievance Handli
ng
Weightage 25% 5% 5% 5% 5% 5% 40% 10% 10% 10% 10% 15% 5% 5% 5% 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 i
dentify 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 sh
are of LIC and Private Insurance in India. It is useful for the people associate
d with the Insurance Industry and the research associates related to the Insuran
ce 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 :
FY 03-04 63533 FY 04-05 75127 7727 FY 05-06 90792 15083 (Rs. In crores) FY 06-07
FY 07-08 127822 28253 149789 51561
LIC
3120
Private Insurers TOTAL 66653 82854 105875 156075 201350
160000 140000 120000 100000 80000 60000 40000 20000 0
PREMIUM OF LIC
127822 90792
149789
63533
75127
FY 03-04
FY 04-05
FY 05-06
FY 06-07
FY 07-08
PREMIUM OF PVT INSURERS
60000 50000 40000 30000 20000 10000 0 FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 0708 3120 7727 15083 28253 51561
43

Avg. Premium ( In Crores)

Rank 1 2
points 1 0.5
points after multiplying by weightage (7.5%) 7.5 3.75
LIC Private Insurance Co.
101412.20 21148.80
Average premium of LIC is much more than that of all insurance companies altoget
her. LIC s average premium of the last five years is nearly five times the avera
ge 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 :
FY 03-04 93089
FY 04-05 112393 9049
FY 05-06 132147 18863
FY 06-07 174425 24242
(Rs. In crores) FY 07-08 206363 52648
LIC
4323
Private Insurers TOTAL 97412 121442 151010 198667 259011
250000 200000 150000 100000 50000 0 FY 03-04 93089
INCOME OF LIC
206363 174425 112393 132147
FY 04-05
FY 05-06
FY 06-07
FY 07-08
44

INCOME OF PVT INSURERS

60000 50000 40000 30000 20000 10000 0 FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 0708 4323 9049 18863 24242 51561
Avg. Income ( In Crores)
Rank 1 2
points 1 0.5
points after multiplying by weightage (7.5%) 7.5 3.75
LIC Private Insurance Co.
143683.40 21825.00
All over income of LIC is much more than than of private players. It is due to t
he 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 346022 416910 13653 FY 05-06 531390 28910 FY 0
6-07 625956 53048 FY 07-08 776904 100774
LIC
6585
Private Insurers TOTAL 352607 430563 560300 679004 877678
1000000 800000 600000 400000 200000 0
BALANCE SHEET SIZE OF LIC
776904 531390 346022 416910 625956
FY 03-04
FY 04-05
FY 05-06
FY 06-07
FY 07-08
BALANCE SHEET SIZE OF PVT INSURERS
120000 100000 80000 60000 40000 20000 0 FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 0
7-08 6585 13653 28910 53048 100774
46

Avg. Balance Sheet Size ( In Crores)

Rank 1 2
points 1 0.5
points after multiplying by weightage (7.5%) 7.5 3.75
LIC Private Insurance co.
539436.40 40594.00
Total average size of balance sheet of LIC in the last five years is certainly h
igher than that of private insurance companies. There is a huge gap in this valu
e. It is obvious that LIC has bigger balance sheet as being working in the insur
ance 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 goe
s to much high as that of 5,39,436.4 crores.
(D) TOTAL NUMBER OF POLICIES :
FY 03-04 26968069
FY 04-05 23978123 2233075
FY 05-06 31590515 3871410
FY 06-07 38229292 7922294
FY 07-08 37612599 13261558
LIC
1658847
Private Insurers TOTAL
28626916 26211198 35462117 46151586 50874157
47

TOTAL NUMBER OF POLICIES

60000000 50874157 50000000 46151586
40000000 28626916
35462117 26211198 LIC PVT.INSURERS INDUSTRY
30000000
20000000
10000000
0 FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08
Avg. number of policies
Rank 1 2
points 1 0.5
points after multiplying by weightage (7.5%) 7.5 3.75
LIC Private Insurance Co.
31675670 5789437
LIC is an undoubted leader in the field of average number of policies per year i
n the last five years. It is seen that private insurance companies are gaining m
omentum and are trying to defeat LIC in case of new insurances. Main reason behi
nd 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 pre
pared to give their savings in the hands of private players.
48

(E) NUMBER OF BRANCHES :

FY 03-04 2196 FY 04-05 2197 804 FY 05-06 2220 1645 FY 06-07 2301 3072 FY 07-08 2
522 6391
LIC
416
Private Insurers TOTAL
10000 9000 8000 7000 6000 5000 4000 3000 2000 1000 0 FY 03-04 FY 04-05 FY 05-06
FY 06-07 FY 07-08 416 804 2196 2612 2197 3001 2220 1645 3865 3072 2301 2522 5373
6391 LIC PVT INSURERS INDUSTRY
2612
3001
3865
5373
8913
8913
%growth in number of branches
Rank
points 2 1 0.5 1
points after multiplying by weightage (7.5%) 3.75 7.5
LIC Private Insurance Co.
14.8 1436
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 priva
te insurance companies is increasing, with continuous expansion in their busines
s, now the number of branches of all private players has crossed the number of b
ranches of LIC.
49

o
2. GROWTH :

(A) FIRST PREMIUM : (Rs. In crores)

FY 03-04 FY 04-05 17347 20653 5564 FY 05-06 28515 10270 FY 06-07 55934 19425 FY
07-08 59996 33715
LIC
2440
Private Insurers TOTAL 19787 26217 38785 75359 93711
FIRST PREMIUM OF LIC
70000 60000 50000 40000 30000 20000 10000 0 FY 03-04 FY 04-05 FY 05-06 FY 06-07
FY 07-08 17347 20653 28515 55934 59996
FIRST PREMIUM OF PVT INSURERS
40000 35000 30000 25000 20000 15000 10000 5000 0 33715
19425 10270 2440 FY 03-04 5564
FY 04-05
FY 05-06
FY 06-07
FY 07-08
50

Growth in First Premium

(in Percentage Terms)
Growth in First Premium
(in Absoute Terms) (in crores)
points after multiplying by weightage Rank points (10%) 2 1 0.5 1 5 10
LIC Private Insurance Co.
245.85 1281.76
42649 31275
Though LIC has attained
rivate players being so
true growth of 1281.76
WTH IN INCOME : (Rs. In
FY 03-04 12101 FY 04-05
-08 31988 28406

more growth in absolute terms i.e. Rs.42649 crores but p

less in number five years back has achieved a dream come
% which is certainly a matter of pride for them. (B) GRO
crores)
19303 4725 FY 05-06 19754 9814 FY 06-07 42277 5379 FY 07

LIC
2692
Private Insurers TOTAL 14793 24028 29568 47656 60394
% GROWTH IN INCOME :
FY 03-04 14.9 FY 04-05 20.7 109.3 FY 05-06 17.5 108.4 FY 06-07 32 28.5 FY 07-08
18.3 117
LIC
165
Private Insurers TOTAL 17.8 24.6 24.3 31.5 30.3
51

180 160 140 120 100 80 60 40 20 0

165
109.3
108.4
117 LIC PVT INSURERS INDUSTRY 32 31.5 28.5 30.3
14.9 17.8
20.7 24.6
17.5
24.3
18.3
FY 03-04
FY 04-05
FY 05-06
FY 06-07
FY 07-08
Growth in Income
(in Percentage Terms)
Growth in Income
(in Absoute Terms) (in crores)
points after multiplying by weightage Rank points (10%) 2 1 0.5 1 5 10
LIC Private Insurance Co.
164.34 955.20
19887 25714
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 574228
7632584 1638335
6638585 4050884

-616693 5339264
LIC
804696
Private Insurers TOTAL 2280688 9270919 2415718
52
10689469 4722571

% INCREASE IN NUMBER OF POLICIES :

FY 03-04 5.79 FY 04-05 -11.09 34.62 FY 05-06 31.75 73.37 FY 06-07 21.01 104.64 F
Y 07-08 -1.6 67.4
LIC
94.21
Private Insurers TOTAL 8.6 -8.4 35.3 30.1 10.2
% GROWTH IN NO. OF POLICIES
120 104.64 100 80 60 40 20 0 FY 03-04 -20 FY 04-05 -11.09 -8.4 FY 05-06 FY 06-07
-1.6 FY 07-08 34.62 31.75 35.3 21.01 5.79 8.6 10.2 94.21 73.37
67.4 LIC PVT INSURERS 30.1 INDUSTRY
Growth in number of policies
(in Percentage Terms)
Growth in number of policies
(in Absoute Terms)
points after multiplying by weightage Rank points (10%) 2 1 0.5 1 5 10
LIC Private Insurance Co.
39.47 699.44
10644530 11602711
Private players are doing extremely well as they are increasing their customer b
ase rapidly.
53

(D) MARKET SHARE :

FY 07-08
26.1 73.9
FY 06-07
25.8 74.2
FY 05-06
26.5 73.5
PVT. INSURERS LIC
FY 04-05
21.2 78.8
FY 03-04
12.3 87.7
0
20
40
60
80
100
LIC is still the market leader in insurance industry with 73.9 % share. But we c
annot forget that in last five years market share of LIC has decreased. It was 8
7.7 % in year 2003-04 which came down to 73.9 % in 2007-08.
54

3. PRODUCTIVITY :
(A) BUSINESS PER BRANCH :
FY 03-04 28.93 FY 04-05 34.20 9.61 FY 05-06 40.9 9.17 (Rs. In crores) FY 06-07 F
Y 07-08 55.55 9.2 59.20 8.07
LIC
7.5
Private Insurers
BUSINESS PER BRANCH
70 60 50 40.9 40 30 20 10 0 FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08 7.5 9.6
1 9.17 9.2 8.07 28.93 34.2 LIC PVT INSURERS 55.55 59.2
Avg. Business Per Branch (In crores)
points after multiplying by weightage Rank points (5%) 1 2 1 0.5 5 2.5
LIC Private Insurance Co.
43.756 8.71
Avg business per branch of LIC is much higher than that of whole private insuran
ce companies.
55

(B) INCOME PER BRANCH :

(Rs. In crores) FY 03-04 42.39 FY 04-05 51.16 11.25 FY 05-06 59.52 11.47 FY 06-0
7 75.80 7.89 FY 07-08 81.80 8.23
LIC
10.41
Private Insurers
INCOME PER BRANCH
90 80 70 60 50 40 30 20 10 0 FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08 10.41
11.25 11.47 42.39 59.52 51.16 LIC PVT INSURERS 75.8 81.8
7.89
8.23
Avg. Income Per Branch (In crores)
Rank 1 2
points 1 0.5
points after multiplying by weightage (5%) 5 2.5
LIC Private Insurance Co.
62.134 9.864
Average income per branch of LIC is much more than that of private insurance com
panies. Its almost six times the total value of all the private companies.
56

(C) NEW PREMIUM PER BRANCH :

(Rs.in crores) FY 06-07 FY 07-08 24.30 6.32 23.78 5.28
FY 03-04 7.90
FY 04-05 9.40 6.92
FY 05-06 12.84 6.24
LIC
5.86
Private Insurers
NEW PREMIUM PER BRANCH
30 25 20 15 10 5 0 FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08 9.4 6.92 6.24 6.
32 5.28 LIC PVT INSURERS 24.3 23.78
12.84 7.9 5.86
Avg. New Premium Per Branch (In crores)
Rank 1 2
points 1 0.5
points after multiplying by weightage (5%) 5 2.5
LIC Private Insurance Co.
15.644 6.124
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 03-04 474 FY 04-05 704 195 FY 05-06 851 540 FY 0
6-07 354 507 FY 07-08 651 1406
LIC
45
Private Insurers
NUMBER OF GRIEVANCES RESOLVED : FY 03-04 39 FY 04-05 123 83 FY 05-06 215 216 FY
06-07 313 450 FY 07-08 80 1103
LIC
26
Private Insurers
% OF GRIEVANCES RESOLVED : FY 03-04 8.2 FY 04-05 17.5 42.6 FY 05-06 25.3 40.0 FY
06-07 88.4 88.7 FY 07-08 12.2 78.4
LIC
57.7
Private Insurers
58

GRIEVANCES IN LIC
800 700 600 500 400 300 200 100 0 704 474 540 507 450 TOTAL 80 RESOLVED 651
39
123
216
FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08
GRIEVANCES IN PVT. COMPANIES
1600 1400 1200 1000 800 600 400 200 0 45 26 195 83 540 216 507 450 TOTAL RESOLVE
D 1406 1103
FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08
% OF GRIEVANCES RESOLVED
100 90 80 70 60 50 40 30 20 10 0 FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08 8.
2 17.5 57.7 42.6 40 25.3 12.2 LIC PVT INSURERS 88.7 88.4 78.4
59

% Grievances resolved
Rank 2 1
points 0.5 1
points after multiplying by weightage (7.5%) 3.75 7.5
LIC Private Insurance Co.
25.37 69.70
Grievance Handling is one of the major issues in any organization. It plays an i
mportant role in Insurance sector. People do attract towards companies who handl
es 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 resolv
ed 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 a
re very serious about their image and are working hard to provide the solution o
f the problems of the people as early as possible.
60

TOTAL POINTS TABLE:

Factors Size A. Total Premium B. Total Income C. Balance Sheet Size D. Total No.
of Policies E. Total No. of Branches Growth A. First Premium B. Growth in Incom
e C. Increase in No. of Policies D. Market Share Productivity A. Business per Br
anch B. Income Per Branch C. First Premium per Branch Grievance Handling
LIC 7.5 7.5 7.5 7.5 3.75
Private Insurance Companies 3.75 3.75 3.75 3.75 7.5
5 5 5 10
10 10 10 5
5 5 5 3.75 77.75
2.5 2.5 2.5 7.5 72.75
Total Score
61

CHAPTER 4 FINDINGS & CONCLUSIONS

62

FINDINGS & CONCLUSIONS:

LIC is the giant of the insurance sector. The overall size of LIC is much more t
han that of all private insurance companies. Private insurers are in expansion m
ode and are increasing their size but are still much behind LIC. Total premium d
eposits in LIC is much higher than the private insurance companies. Total premiu
m of LIC in FY 07-08 was 149789 crores which three times more than that of priva
te insurance companies. Income of LIC is much greater than private insurance com
panies. 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 insura
nce companies are lagging much behind LIC. Balance sheet of LIC is seven times b
igger than that of private insurance companies. If we see the total number of po
licies issued by LIC and private insurance companies, we find that there is a hu
ge 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 branc
hes 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 a
re expanding there business. There are many private insurance companies and henc
e there total number of branches has gone past LIC in the last financial year. B
ut 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 growin
g 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 com
panies is negligible when compared with LIC but then also the pace with which th
ey are increasing their income is tremendous. Private insurance companies are ex
panding their business and will certainly going to give a tough competition to L
IC in the coming days. LIC is certainly having a large customer base. Private in
surance 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 numbe
r 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 m
arket share of 73.9 % which was 87.3% five years earlier. We see that private in
surance companies are penetrating in the customer base of LIC. Overall we can se
e 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 com
panies who have reported loss in this and previous years. This is the main reaso
n 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 incom
e per branch. LIC is much ahead of private insurance companies in this field. Th
ey are undoubted champions in insurance when it comes to profit earning. New bus
iness is increasingly going towards private insurance companies but still the cu
stomer 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. Custo
mer 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 companie
s.

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 resolve
d 25% cases in the last five years while private insurance companies have resolv
ed 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 ca
n be very much affected by this factor.
Overall we have seen that still LIC is very famous but private insurance compani
es are growing at exceptionally fast pace. Private companies show due concern in
grievance management and brings innovative schemes to attract the customers. Ri
ght now they are giving good competition to LIC and very soon they will give ver
y tough competition to Life Corporation of India.
64

REFRENCES :
Data on Indian Insurance from http://www.irdaindia.org Different statistics from
http://www.rbi.org.in Journals published by Insurance Regulatory & Development
Authority. Management of financial institutions by R.M. Srivastava http://www.bu
sinesstoday.com http://www.businessworld.com http://www.economictimes.com Differ
ent Survey on Insurance sector conducted by IIRC. Profile of Indian Insurance Co
mpanies by IRDA. www.licindia.co.in www.sbilife.co.in/ www.tata-aig-life.com www
.bharti-axalife.com/ www.hdfcinsurance.com/ www.reliancelife.co.in/ www.bajajall
ianz.com/ www.metlife.co.in/ www.birlasunlife.com/

http://www.finance.indiamart.com
65