Prasanta Saha PKHN Mahavidyalya,Howrah

Introduction
The economic policy 1991 considered two distinct stands(1) Macroeconomic Stabilization which deals with fiscal adjustment, balance of payment adjustment and control over inflation. (2) Structural Reforms by reforming trade and capital flows, deregulating industries, disinvesting and reforming public enterprises and finally reforming financial sector. Under this situation, it was quite necessary to reform Insurance Sector along with reforms in other financial sector such as Banking Sector, Capital Market and Money Market. The intension of reforming Insurance Sector was not only to encourage the inflows of foreign capital through opening up the sector for private enterprises but also to grow with healthy competition to promote efficiency in the sector so that the customer can get better service and return. To review the scope of reform the Govt. of India appointed a committee under the chairmanship of former insurance secretary and governor of RBI R.N. Malhotra in 1993 to bring with adequate changes in the Insurance Sector.

A Brief History till 2000

In ancient India the concept of insurance, is found in Manusmrithi, Dharmasastra and Arthasastra, is

that pooling of resources that could be redistributed at the time of calamities such as fire, floods, epidemics and famine. Though the concept of insurance was translated into the popular business form during the time of Industrial Revolution in Europe. In 1818 the first life insurance company in India named Oriental Insurance Company was establish in Calcutta. The first general insurance company in India was also established in Calcutta in the year 1850 named Tritan Insurance Company.

 The other famous insurance companies were Madras Equitable,

A Brief History till 2000 contd

Bombay Mutual, Empire of India, Albert Life Insurance Company, Royal Insurance, Liverpool and Globe Insurance etc. The insurance market was dominated by the foreign private companies in 19th Century. In 1870 the British Insurance Act was enacted in India to control these insurance companies. The first statutory measures on life insurance business was Indian Life Assurance Act, 1912. The first comprehensive legislation to look over the investment, expenditure and management of insurance companies by the state in both life and non-life insurance business was Insurance Act,1938. The Life Insurance Corporation of India was set up in 1956 to take over 154 Indian insurers, 16 Foreign insurers and 75 Provident Societies carrying on Life Insurance Business in India.

Post-reform Development

As per the recommendation of the Malhotra Committee Insurance Regulatory and Development Authority Act, 1999 was passed with an objective to setup an autonomous authority to control, regulate and develop the insurance sector in India. IRDA was set up on 19th April, 2000 and on 15th August, 2000 the sector was finally re-opened for private players with a maximum of 26% foreign capital. Insurance Act has amended in 2002 to accommodate cooperative societies with a view to enhancing coverage in rural areas and to form the future legal base for making the regulation on the intermediaries. In 2004, Life Insurance Council has been set up to put forward the common issues of life insurance to the IRDA and Government. A number of regulations so far have been issued by the IRDA to control, regulate and develop the insurance sector in India.

Structure of Insurance Industry

Foreign
Reinsurer

Domestic(GIC)
Cession/transfers Part of assumed risk
Insurer

Life (1 Public & 22 Private insurers) Non-life (6 Public & 18 Private insurer)
Insurance Intermediaries (Agents, Surveyors & Loss Assessors, Brokers, Third Party Administrator and bancasurance)

Premium Risk coverage

Insured (Policy holder)

Regulated by IRDA & Governed by Insurance Act, 1938 Life Insurance Corporation Act,1956 General Insurance Business Nationalization Act, 1972 and IRDA Act, 1999

Name of life insurers

Public Sector:- Life Insurance Corporation of India Private Sector:1. Bajaj Allianz Life Insurance Company Ltd. 2. Birla Sun- Life Insurance Company Ltd. 3. HDFC Standard Life Insurance Company Ltd. 4. ICICI Prudential Life Insurance Company Ltd. 5. ING Vysya Life Insurance Company Ltd. 6. Max New York Life Insurance Company Ltd. 7. Metlife India Insurance Company Pvt. Ltd. 8. Kotak Mahindra Old Mutual Life Insurance Company Ltd. 9. SBI Life Insurance Company Ltd. 10. TATA AIG Life Insurance Company Ltd. 11. Reliance Life Insurance Company Ltd. 12. Aviva Life Insurance Company Ltd. 13. Sahara India Life Insurance Company Ltd. 14. Shriram Life Insurance Company Ltd. 15. Bharti AXA Life Insurance Company Ltd. 16. Future Generate India Life Insurance Company Ltd. 17. IDCBI Fortis Life Insurance Company Ltd. 18. Canara HSBC Oriental Bank of Commerce Life Insurance Company Ltd. 19. Aegon Religare Life Insurance Company Ltd. 20. DLF Pramerica Life Insurance Company Ltd. 21. Star Union Dai-ichi Life 22. India First Life Insurance Company Ltd.

Different Phases of Life Insurance

The 200 years history of Life Insurance Industry can be

divided into three stages.

Stage -1 (1818-1956) Existence of 245 private life insurance companies with a perfect competitive market Stage 2 (1956-2000) Monopoly of public sector LIC Stage-3 (2000 onwards) 1 Public Sector (LIC) and 22 private sector life insurers with a domination of LIC

Life Insurance Products :

The Life Insurance Policies can be categorized into four broad heads. Endowment Plan: Under this plan, insurance cover is available for a specific period and the sum together with bonus is payable on the date of maturity or in event of death of the insured which is earlier. Money Back Plan: Under this policy, the insured receives a fixed sum at fixed intervals during the term of the policy. Whole-life Policy : Here, the policy holder pays premium throughout his life and on his death, the assured money is handed over to his family. Term Insurance Policy :In this case, the sum assured is paid if the policy holder dies within the policy term. Other Type Policies are: Unit linked Insurance Policies : Here, a part of premium is charged for risk cover and the rest is invested in select mutual fund as per the choice of the investor. The investors are given a choice of three funds- equity fund, debt fund and balanced fund for investment. Insurance companies are required to declare the NAV of various ULIPs on a daily basis. Group Insurance Policies : Under this plan, a group of employees of a firm purchase the policy and pay premium on regular basis. The assured money in paid on event of death of an employee or the surrender values of the policy is paid at the time of retirement, which ever is earlier.

Performance in terms of Premium underwritten

The insurance sector in India primarily deals with life insurance. The volume of general insurance business is very small in comparison to life insurance business. In 2009-10, the total premium underwritten by the non life insurers were just Rs 34,620 crores which is equal to 11.5 per cent of total premium of the insurance sector. Life Insurers
LIC

2000-01
36063

2001-02
49821 (99.46)

2006-07
127823 (82.90)

2007-08
149790 (74.39)

2008-09
157228 (70.92)

2009-10
186770 (70.10)

PRIVATE
TOTAL

7
36070

273 (0.57)
50094

28253 (17.10)
156076

51561 (25.61)
201351

64497 (29.08)
221785

79973 (29.90)
265450

Source : IRDA website, Note : figure in bracket represents market share. (Rs. in crore)

LIC is still playing a dominant role by capturing 70 per cent of market share. The total premium of life insurance sector has become almost 8 times since liberalization where as in case of LIC it is just 6 times. Premium income of private life insurers have become almost 3 times in the last three years i.e. 100 percent average annual growth.

New policies issued by life insurers

YEAR 1999-2000 169.77 LIC PRIVATE ---------TOTAL 169.77

2002-2003
2003-2004 2004-2005 2005-2006

245.46
269.68 (9.87) 239.78 (-11.09) 315.91 (31.75)

8.25
16.59 (101.05) 22.33 (34.62) 38.71 (73.37)

253.71
286.27 (12.83) 262.11 (-8.44) 354.62 (35.29)

2006-2007
2007-2008 2008-2009

382.29 (21.01)
376.13 (-1.61) 359.13 (-4.52)

79.22 (104.64)
132.62 (67.40) 150.11 (13.19)

461.52 (30.15)
508.74 (10.23) 509.23 (0.10)

2009-2010 388.63 (8.21) 143.62 (-4.32) 532.25 (4.52) Source: IRDA website, figure in brackets represents % of growth, numbers in lakh.

The data reveals that the private life insurers are growing rapidly since liberalization and sometimes the growth rate of private life insurers are more than 100 percent in case of exploring the new market.

Investment of Life Insurers as on 31st March

Insurers LIC PRIVATE 2000 117888 ----------2008 678403 87567 2009 799593 116772 2010 985028 220127

TOTAL

117888

765969

916365

1205155

Source : IRDA website, Rs in crore.

The data shows that total investment of the life insurance sector has become more than 10 times since the sector was re-opened for private players. LIC is the biggest contributor with 82 percent of the total fund invested. The total investment of private sector have become almost double in 2009-10 in relation to 2008-09.

Changing trends in life insurance:

The private life insurance companies are offering tailor-

made products to shoot the differing needs of the consumer. Joint venture with renowned foreign insurers has provided an added advantage in product innovation. There was a substantial drop in insurance price which created a preference for insurance product. Before the de-regulation, more than 99 percent of premium income of LIC was from Endowment and Money-back policies the saving products. But with the entry of private player the ULIPs have become increasingly popular due to their aggressive marketing strategies and also due to growth in capital market. Presently, 40-50 percent of total premium incomes of life insurers are generated from ULIPs and in case of private life insurers it is 85-90 percent. So the life risk of policy holders has been converted into market risk through ULIPs.

Unit Linked Premium to Total Premium as Percentage

Insurers LIC PRIVATE 2007-08 31.61 88.74 2008-09 22.06 86.74 2009-10 25.40 86.00

TOTAL

46.14

40.87

43.52

There was a fall in market share of unit linked premium to total premium to 40.87 percent in 2008-09 from 46.14 percent in 2007-08. The decline was observed both in case of LIC and private life insurers and it can be attributed to the decline in Indian capital market due to global economic slowdown. In 2009-10, the effect of recovery in the Indian capital market is clearly seen on the unit linked insurance business.

Insurance Penetration in India (Premium as % of GDP)

.

Year 2000-2001 2007-08 2008-09 2009-10

Life 1.77 4.00 4.17 4.40

Non-life 0.55 0.60 0.57 0.70

Total 2.32 4.60 4.74 5.10

Source: IRDA website, figures in percentage denote premium as % of GDP. The rate of Insurance penetration is the percentage of premium income to GDP has been gradually increasing since deregulations but is still lower than worlds average which is around 7-7.5 percent. The constant increase in IP rate signifies that the insurance sector has become an influential factor in national economy. It can be noted that increase in IP is mainly driven by Life Insurance.

Insurance Density in 2010

Name of the country Japan U.S.A South Korea Brazil China India Source: Swiss Re Annual Report 2010 Insurance Density i.e. per capita insurance premium in India is much lower than other developing countries like Brazil and China. The lower insurance density rate implies that the insured are spending a smaller part of their income for risk aversion in India. Insurance density (USD) 4390 3759 2339 328 158 64.4

Micro Insurance:
The IRDA has formulated Micro Insurance Regulations in 2005 to provide an opportunity to the poor in rural and urban areas to take the advantages of insurance at a low premium. As per IRDA guideline, micro insurance may cover health insurance and asset insurances (such as hut, live stock, tools etc.) in addition to life insurance and accident insurance. Micro insurance products can be distributed through self-help groups and NGOs registered under Societys Act, 1968 in addition to brokers and agents. There were 8676 micro insurance agents in India as on 31st March, 2010. 14 Life Insurance companies have so far launched 28 micro insurance products of which 15 are for individual and remaining 13 are for groups. Through these various schemes the life insurers have insured 198.26 lac individuals during 2009-10. The total premium under micro insurance for the year 2009-10 was Rs.402 crore. It is nearly doubled from the previous year premium income of Rs.206 crore. While LIC contributed 94% of total premium under micro insurance the remaining 6% was contributed by the private insurers.

Grievance Redressal Mechanism:

IRDA notified the Protection of Policy-holders Regulations in April, 2000, which provide the setting up of grievance redressal machinery for speedy settlement claims. 1. In-house Grievance Redressal Mechanism: a) Public sector insurers have their own grievance redressal officers in its operations. There is also citizens charter for all public offices to address some of the complaints. The LIC has set up review committee consisting of retired judges to review the judgments by the courts. b) The private sector companies have provided a toll free helpline number to the customers. c) The IRDA also has a Consumer Grievance Cell (CGC), where the complaints can be lodged in proper form. 2. If the consumer is not satisfied with the in-house grievance redressal mechanism he can move to the Consumer Court. Consumer Protection Act, 1986 provides three tier system (District Forum, State Forum and National Forum) for adjudication of consumer disputes. 3. The consumer can also move towards Civil Court with his complains. It is also a three tier system for adjudication of dispute between insurer and consumer. 4. Insurance Council appoints Insurance Ombudsman as per Redressal of Public Grievances (RPG) Rules 1988. The ombudsmen provide a forum for resolving disputes and complaints..They are empowered to receive and consider written complaints where the insured amount is less than Rs 20 lacs.

Status of Grievances Pending with CGC (2009-10)

Pending on 31.03.09 LIC 186 Grievance Reported 606 Resolved 642 Pending on 31.03.10 150

PRIVATE
TOTAL Source: IRDA website.

272
458

1843
2449

1870
2512

245
395

In addition to above there were 888 complaints still pending with Ombudsmen as on 31st march, 2010 and a number of cases were under the jurisdiction of courts. The claim refusing tendency of private life insurer is higher than the LIC which may affect their credibility. The private life insurer have to reduce there tendency of refusing the claim of better performance in market sharing. The question may be raised that why dont the insurance companies check the existence of fraud and error when the insurance plan is being taken? Why do the insurance companies keep quiet for all the years that the policy holders pay premium and then suddenly awake up on the day of the claim to allege non-existent issues in order to reject the claim? The IRDA should take tough stance in this regard at least on humanitarian ground.

Prospect and Conclusion:

In the last decade, there is an annual average growth of 20 per cent for life insurance and 15 per cent for non-life insurance business in India. The sector has become competitive with the entry of private players. There is no doubt that insurance market is growing but still India is underinsured when compared with developed countries. The untapped potential reveals that our human and physical assets are unprotected and neglected. As per the report of Swiss Re, India contributed 1.81% of the total premium of the globe with approximately one-sixth of the world population in 2010. India has ranked 11th in terms of insurance premium generated in 2010. There is a huge growth potential in the rural market which is still neglected. A recent survey by the Foundation for Research Training and Education in Insurance suggests that the insurance can be profitably sold in rural communities in India. It can be done in a cost-effective manner if the insurance companies tie up with co-operative societies, regional rural banks, panchayats, and NGOs to distribute the insurance product. According to a joint study made by FICCI and the Boston Consultancy Group, the insurance industry in India will be USD 350-400 billion (about Rs.18 lac crore) in premium income by 2020, making India a top 3 life insurance market and a top 15 non-life insurance market by 2020.

Thank you