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EXECUTIVE SUMMARY

India's insurance sector is zooming to show an unprecedented progressive

growth of more than 200% by the period of 2008-09. The Associated Chambers
of Commerce and Industry of India has clocked out the fact that during this
period, private players in the industry will see a growth of about 140 per cent,
owing to the adoption of the aggressive marketing techniques in comparison of
the growth rate of 35 per cent-40 per cent achieved by the state owned insurance
companies. The chamber is expected to poise the business of insurance to reach
at Rs.2000 billions in coming 2 years from the present level of Rs. 500 billion.
With the result of adoption of the intense marketing strategies by the private
players, the declination has been witnessed in respect of the share of the state
owned insurance companies captured in the market. The market share fallout
has been noticed in context of such companies like GIC, LIC, which have come
down to nearly 70 per cent in the past 4-5 years from the 97 per cent. The
experts have fore casted the more severe competition in the insurance sector
likely to be occurred in the near future. Till recently, insurance sector was
majority driven by the government sector players but now many private sector
multinational players have come into the picture. Like HDFC, ICICI, Kotak,
Mahindra and Birla Sunlife. Insurance sector has been characterized as the
booming sector of the Indian arena, which has shown the growth rate of more
than 15 per cent to 20 per cent. Insurance in India is put under the federal
subject and is governed by the Insurance Act, 1938, the Life Insurance
Corporation Act, 1956 and General Insurance Business(Nationalization) Act,
1972, Insurance Regulatory and Development Authority(IRDA) Act, 1999 and
by various other acts. 

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INTRODUCTION:

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

to life and property. Under the plan of insurance, a large number of people
associate themselves by sharing risks attached to individuals. The risks which
can be insured against include fire, the perils of sea, death and accidents and
burglary. Any risk contingent upon these, may be insured against at a premium
commensurate with the risk involved. Thus collective bearing of risk is
insurance.

DEFINITION :

General definition:

In the words of John Magee, “Insurance is a plan by which large number of

people associate themselves and transfer to the shoulders of all, risks that attach
to individuals.”

Fundamental definition:

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

providing financial compensation for the effects of misfortune, the payment
being made from the accumulated contributions of all parties participating in the
scheme.”

Contractual definition:

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

money is paid to the assured as consideration of insurer’s incurring the risk of
paying a large sum upon a given contingency.”

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INSURANCE SECTOR IN INDIA

Insurance sector in INDIA is booming up but not to level comparative
with the developed economies such as Japan, Singapore etc. Also with the
opening of the insurance sector to the private players have provided stiff
competition resulting into quality products. Also there is a need to restructure
the Indian Government owned “ Life insurance Corporation of India “ so as to
maximize revenue and in turn profits. IRDA regulations and norms for the
allocation of funds need to have a comprehensive look. In the phase of declining
interest rates and rising inflation the funds need to be applied in productive
areas so as to generate high returns. Also in terms of clients servicing areas such
as premium payments, after sales service, policy dispatch, redressal of
grievances has to be amended. In the current scenario, LIC has to provide
flexible products suited to the customer’s requirements. Also a proper and
systematic risk management strategy needs to be adopted. After the increase in
terrorism and destructive events around the global world such as September 11
attack on World Trade Centre, US – Taliban war, US – Iraq war etc.. An
alternative to reinsurance such as asset backed securities is emerging out in the
developed economies. Catastrophe bonds are one of the alternatives for
reinsurance. Finally some policies such as pure term and pension schemes needs
to be addressed massively at both the urban and the rural segment so as to
generate high premium income which will help in the development and growth
of the economy.

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HOW BIG IS THE INSURANCE MARKET?

Insurance is an Rs.400 billion business in India, and together with banking

services adds about 7% to India’s GDP. Gross premium collection is about 2%
of GDP and has been growing by 15-20% per annum. India also has the highest
number of life insurance policies in force in the world, and total investible funds
with the LIC are almost 8% of GDP. Yet more than three-fourths of India’s
insurable population has no life insurance or pension cover. Health insurance of
any kind is negligible and other forms of non-life insurance are much below
international standards. To tap the vast insurance potential and to mobilize long-
term savings we need reforms which include revitalizing and restructuring of
the public sector companies, and opening up the sector to private players. A
statutory body needs to be made to regulate the market and promote a healthy
market structure. Insurance Regulatory Authority (IRA) is one such body,
which checks on these tendencies.

BOTTLENECKS – GOVERNMENT / RBI REGULATIONS:

The IRDA bill proposes tough solvency margins for private insurance firms, a
26% cap on foreign equity and a minimum capital of Rs.100 crores for life and
general insurers and Rs. 200 crores for reinsurance firms. Section 27A of the
Insurance Act stipulates that LIC is required to invest 75% of its accretions
through a controlled fund in mandated government securities. LIC may invest
the remaining 25% in private corporate sector, construction, and acquisition of
immovable assets besides sanctioning of loans to policyholders.

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

flexibility in the optimisation of risk and profit portfolio. If this inflexibility
continues, the insurance companies will have very little leverage to earn more
on their investments and they might not be able to offer as flexible products as
offered abroad.The government might provide more autonomy to insurance

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companies by allowing them to invest 50 % of their funds as per their own

discretions. Recently RBI has issued stiff guidelines, which had dealt a severe
blow to the plans of banks and financial institutions to enter the insurance
sector. It says that non-performing assets (NPA) levels of the prospective
players will have to be 1% point lower than the industry average (presently
7.5%). RBI has also stipulated that all prospective entrants need to have a net
worth of Rs. 500 crores. These guidelines have made it virtually impossible for
many banks to get into the insurance business. Also banks and FI’s who are
planning to enter the business cannot float subsidiaries for insurance. RBI has
taken too much caution to make sure that the new sector does not experience the
kind of ups and downs that the non-bank financial sector has experienced in the
recent past. They had to rethink about these guidelines if India’s strong banks
and financial institutions have to enter the new business. The insurance
employees’ union is offering stiff resistance to any private entry. Their
objections are(a)that there is no major untapped potential in insurance business
in India;(b)that there would be massive retrenchment and job losses due to
computerization and modernization; and(c)that private and foreign firms would
indulge in reckless profiteering and skim the ‘urban cream’ market, and ignore
the rural areas.But all these fears are unfounded. The real reason behind the
protests is that the dismantling of government monopoly would provide a
benchmark to evaluate the government’s insurance services.

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PRIVATISATION:-

MEANING:-

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

publicly owned enterprises. But in broader sense it implies besides private
ownership, the induction of private management and control in the public sector
enterprises.

OBJECTIVES:-

 Effective Utilization of Resources

 Economic Growth

 Encourages Capital Formation

 Reduce Size of Public Sector

 Dispose of Loss-Making Govt. Unit

ADVANTAGES:-

 Reduction In Monopoly of Public Sector units

 Effective Management

 More Funds available With Govt.

 Increase in Profitability

 High Industrial growth rate

 Increase in efficiency of Public Sector

 Encouragement to Innovation

 Quick Decision making

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DISADVANTAGES:-

 Class Struggle

 Unemployment & Corruption

 Inflation

 Non Acceptable by Trade Union

 Public monopolies have been turned into private monopolies

 Economic Imbalances

 Wastage & Misallocation of Resources

PRIVATIZATION IN INSURANCE SECTOR

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

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

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HOW IMPORTANT IS PRIVATISATION IN INDIA

The first order issue is that of competition policy. When the government hinders
competition by blocking entry or FDI, this is deeply damaging. Once
competitive conditions are ensured, there are, indeed, benefits from shifting
labour and capital to more efficient hands through privatisation, but this is a
second order issue.

The difficulties of governments that run businesses are well-known. PSUs face
little "market discipline". There is neither a fear of bankruptcy, nor are there
incentives for efficiency and growth. The government is unable to obtain
efficiency in utilising labour and capital; hence the GDP of the country is
lowered to the extent that PSUs control labour and capital.

When an industry has large PSUs, which are able to sell at low prices because
capital is free or because losses are reimbursed by periodic bailouts, investment
in that entire industry is contaminated. This was the experience of Japan where
the "zombie firms" - loss-making firms that were artificially rescued by the
government - contaminated investment in their industries by charging low
prices and forcing down the profit rate of the entire industry.

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

regulatory function and an ownership function. As an example, the Ministry of
Petroleum crafts policies which cater for the needs of government as owner,
which often diverge from what is best for India.

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

PSUs in its sector: there is mistrust in the minds of private investors, who
demand very high rates of return on equity in return for bearing regulatory risk.

These arguments have led many economists to advocate large-scale

privatisation, so as to clear the slate, and get on with the task of building a
mature market economy. The role model in this regard is Germany.

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

WHO’S GOING WITH WHOM?

Indian Company Foreign Partner

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

ICICI Prudential , UK
IDBI Principal
Max India New York Life

WHY PRIVATISE, WHAT MARKET STRUCTURE TO HAVE

FINALLY, WHAT ROLE FOR REGULATOR?

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

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

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

unregulated players or a few regulated players); and finally,

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

Why allow entry to private players?

The choice between public and private might amount to choosing between the
lesser of two evils. An insurance contract is a "promise to pay" contingent on a

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specified event. In the case of insurance and banking, smooth functioning of

business depends heavily on the continuation of the trust and confidence that
people place on the solvency of these financial institutions. Insurance products
are of little value to consumers if they cannot trust the company to keep its
promise. Furthermore, banking and insurance sectors are vulnerable to the
"bank run" syndrome, wherein even one insolvency can trigger panic among
consumers leading to a widespread and complete breakdown. This implies the
need for a public regulator, and not public provision of insurance. Indeed in
India, insurance was in the private sector for a long time prior to independence.

The Life Insurance Corporation of India (LIC) was formed in 1956, when the
Government of India brought together over two hundred odd private life
insurers and provident societies, under one nationalized monopoly corporation,
in the wake of several bankruptcies and malpractice’s'. Another important
justification for Nationalisation was to raise the much-needed funds for rapid
industrialization and self-reliance in heavy industries, especially since the
country had chosen the path of state planning for development. Insurance
provided the means to mobilize household savings on a large scale. LIC's stated
mission was of mobilizing savings for the development of the country.

The non-life insurance business was nationalized in 1972 with the formation of
General Insurance Corporation (GIC).Thus the fact that insurance is a state
monopoly in India is an artifact of recent history the rationale for which needs
to be examined in the context of liberalization of the financial sector. If
traditional infrastructure and "semi-public goods" industries such as banking,
airlines, telecom, power, and even postal services (courier) have significant,
private sector presence, continuing a state monopoly in provision of insurance is
indefensible. This is not to deny that there are some valid grounds for being
cautious about private sector entry. Some of these concerns are:(a) That there
would be a tendency of private companies to "skim" the markets; thus private

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players would concentrate on the lucrative mainly urban segment leaving the
unprofitable segment to the incumbent LIC.(b) That without adequate
regulation, the funds generated may not be deployed in sectors (which yield
long-term social benefits), such as infrastructure and public goods; similar
without regulation, private firms may renege on their social sector investment
obligations. Meeting these concerns requires a strong regulatory body. Another
commonly expressed fear is that there would be massive job losses in the
industry as a whole due to computerization. This however does not seem to be
corroborated by the countries' experience'.

WHAT SHOULD BE THE MARKET STRUCTURE?

Individuals buying an insurance contract pay a price (called the "premium") to

the insurance company and the insurance company in turn provides
compensation if a specified event occurs. By making such contractual
arrangements with a large number of individuals and organizations the
insurance company can spread the risk. This gives insurance its "social"
character in the sense that it entails pooling of individual risks. The price of
insurance i.e., the premium is based on average risk. This premium is too high
for people who perceive themselves to be in a low risk category. If the insurer
cannot accurately determine the risk category of every customer and prices
insurance on the basis of average risk, he stands to lose all the low risk
customers. This in turn increases the average risk, which means premia have to
be revised upwards, which in turn drives away even more customers and so on.
This is known as the problem of "adverse selection". Adverse selection
problem arises when a seller of insurance cannot distinguish between the
buyer's type i.e., whether the buyer is a low risk or a high type. In the extreme
case, it may lead to the complete breakdown of insurance market. Another
phenomenon, the problem of "moral hazard" in selling insurance, arises when
the unobservable action of buyer aggravates the risk for which insurance is

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bought. For example, when an insured car driver exercises less caution in
driving, compared to how he would have driven in the absence of insurance, it
exemplifies moral hazard.

THE ROLE OF IRDA :

(a) The protection of consumers’ interest,

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

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

These objectives must be achieved with minimum government involvement and

cost. IRA’s functioning can be financed by levying a small fee on the premium
income of the insurers thus putting zero cost on the government and giving
itself autonomy.

SO WHAT CAN THE PRIVATE INSURERS DO ?

A variable risk transfer mechanism is the capital market. This is because capital
market is huge and can take on the risk that insurance companies run. The
solution is Asset-backed securities (ABS). A private insurer can bundle off
policies with similar maturity and quality and sell them as securities to retail

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investors. The private insurer can float a Special-Purpose Vehicle(SPV) and sell
the policies concerned to this entity. The SPV can bundle the policies and sell
them as securities to retail investors at attractive yields. The premium on the
policies underlying the ABS can be invested by the SPV in low-risk, highly
liquid instruments. The benefits of the SPV are First; the SPV is a separate
entity from the insurer. This enables easy rating of the ABS, as the credit rating
agency will be able to identify the underlying assets. Second, by selling the
policies to the SPV, the insurer removes the assets from its balance sheet. This
means that the private insurer frees capital that can be used for further business
and lastly, the SPV is not affected by the financial health of the insurer.

So when the policyholders (underlying the ABS) lodge the claims with the
private insurer, the private insurer simply passes on the claims to the SPVs. The
SPV, in turn will liquidate its investments and meet the claims. The SPV will
stop paying interest on the ABS. The retail investors, therefore, bear a sizable
portion of claims of the policyholders. There can of course be many variants to
the ABS. The most risky ABS, from the investors’ angle, will be those that stop
interest payments and delay principal repayments of claims are honored. Also
buying ABS helps retail investors truly diversify their portfolio. This is because
probability of claims from, say, a hurricane is largely unrelated to the economic
factors or industry-specific factors that drive equity and bond values. Besides,
investors get attractive yields for taking the risk. If mutual funds invest in ABS,
retail investors need not estimate the risk associated with the investment, the
fund manager will do the needful. The problem of adverse selection, on the
other hand, can be reduced if the ABS are credit-enhanced by a third party and
rated by a credit rating agency.In India, debt market is not deep and liquid
enough to receive products such as asset-backed securities. Moreover,
regulatory restrictions, such as high stamp duty and a not-so-efficient judicial
system, may act as deterrents. Finally the alternative risk transfer market will

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only develop once the need for such risk transfer assumes importance some time
in the future.

MARKET POTENTIAL FOR PRIVATE LIFE INSURANCE

COMPANIES IN INDIA

It has been found out that:

* 85 percent of the Indians prefer LIC than any other insurance

companies. 

* 'Prevention of Loss', 'Assured Returns' and 'Long term Investment' are

the important factors influencing Indians in opting for Life Insurance  

* Only few of the Indians are aware of private life insurance companies. 

* Most of the Indians are of the opinion that private insurance companies
would be able to perform well in the long run. 

* Most of the Indians are interested in 'Money back' policies than others

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

* There is significant relationship existing between monthly household

income and amount insured

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

investment needs like bank deposit, post office schemes, real estate,
insurance, gold, chit funds, shares etc.

* Agents are mostly responsible for selling insurance products in India

CAPITAL NORMS FOR NEW INSURANCE COMPANIES:

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One of the contentious issues raised by foreign companies seeking an entry into
the insurance sector in India is the minimum paid up capital requirements. The
Malhotra committee (1994) recommended Rs 100 crores as the norm. The
multilateral insurance working group (an industry forum representing most of
the interested foreign and Indian companies seeking an entry into the insurance
sector) has recommended Rs. 50 crore. The IRA is also reported to considering
agraded pattern for capitalization of the companies keeping in mind the volume
of business likely to be handled by them.

THE INSURANCE POTENTIAL :

The main reason why the leading insurance companies in the world and the
leading corporate group in India have shown a keen interest in the insurance
sector, is the vast potential for future business. Restricted, as the market has
been, through the operations of the two monopolies (LIC and GIC), it is
generally felt that the sector can grow exponentially if it is opened up. The
decade 1987-97 has witnessed a compounded growth rate of marginally more
than 10% in life insurance business. LIC predicts for itself that its business has
potential to grow by 16.27% p.a. in a decade 1997-2007 (LIC, 1997).If we take
a look at insurance coverage index for the age group of 20-59 years a
considerable gap between India and other countries in Asia can be observed. In
this scenario, naturally insurance companies see a vast potential.

RESTRUCTURING OF LIC AND GIC:

In the insurance sector as of today and in all probabilities for a long time to
come, LIC and GIC will form a very significant part. The reasons for these are
many.

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Firstly, they have been in business for a long time and therefore, are in position
to know business conditions better than any new entrant.

Secondly, the network of branches and agents is large, deep and penetrating,
which will take a long time for any other entrant to replicate.

Thirdly, (especially the LIC), has a kind of government backing which instills
faith in all would-be policy holders, much more than a private company can
hope to generate. The envisaged private sector participation in the insurance
sector is unlikely to take this advantage away from LIC and GIC. In the short
run atleast. LIC and GIC will continue to command a very high market presence
and in the long run it will take a very good market player to dislodge LIC and
GIC from their prime positions. This also means that the reform in insurance
sector will necessarily mean the reform of LIC and GIC.

OPPORTUNITIES AND CHALLENGES

OPPORTUNITIES
As compared to the Western countries, where they have already reached a stage
of saturation, India can exploit some golden opportunities in the following
fields.
1. Mass Marketing:

India is a highly populated country and would continue to be so in the near

future. New players may tend to favour the "creamy" layer of the urban
population. But, in doing so, they may well miss a large chunk of the insurable
population. A strong case in point is the current business composition of the
dominant market leader - the Life Insurance Corporation of India. The lion's
share of its new business comes from the rural and semi-rural markets. In a
country of 1 billion people, mass marketing is always a profitable and cost-

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effective option for gaining market share. The rural sector is a perfect case for
mass marketing.
Competition in rural areas tends to be "kinder and gentler" than that in urban
areas, which can easily be termed cutthroat. Identifying the right agents to
harness the full potential of the vibrant and dynamic rural markets will be
imperative. Rural insurance should be looked upon as an opportunity and not an
obligation. A smaller bundle of innovative products in sync with rural needs and
perceptions, and an efficient delivery system are the two aspects that have to be
developed in order to penetrate the rural markets.
2. Job Opportunities:
Job opportunities are likely to increase manifold. The liberalization of the
insurance sector promises several new job opportunities for those who are
equipped with degrees in finance. Finance professionals who had witnessed a
slump in the job market would be much relieved.
There will be demand for marketing specialists, finance experts and human
resource professionals. Apart from this, there will be high demand for
professionals in streams like underwriting and claims management, and
actuarialsciences.
3. Inflow of Funds:
There could be a huge inflow of funds into the country. Given the industry's
huge requirement of start-up capital, the initial years after opening up are bound
to see a strong inflow of foreign capital. A rise in the equity share of foreign
partners to 49 percent will act as a boost to them.

4. Reinsurance:
Huge capacity is likely to be created in the area of reinsurance. Apart from pure
reinsurance activities, which involve providing insurance protection, there will
be a revolution in service-related fields like training, seminars, workshops,

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know-how transfer regarding risk assessment and rating, risk inspections, risk
management and devising new policy covers, etc.
5. Marketing Strategies:
Also, with more players in the market, there will be significant increase in
advertising, brand building, and this will benefit whole lot of ancillary
industries.
A substantial shift is likely to take place in the distribution of insurance in India.
Many of these changes will echo international trends. Worldwide, insurance
products move along a continuum from pure service products to pure
commodity products. Initially, insurance is seen as a complex product with a
high advice and service component. Buyers prefer a face-to-face interaction and
place a high premium on brand names and reliability.
As products become simpler and awareness increases, they become off-the-
shelf, commodity products. Sellers move to remote channels such as the
telephone or direct mail. Various intermediaries, not necessarily insurance
companies, sell insurance. In some countries like Netherlands and Japan,
insurance is marketed using the Post Office's distribution channels. At this
point, buyers look for low price. Brand loyalty could shift from the insurer to
the seller.
6. Bancassurance:
In other markets, notably Europe, this has resulted in bank assurance: banks
entering the insurance business. The Netherlands led with financial services
firms providing an entire range of products including bank accounts, motor,
home and life insurance, and pensions. Other European markets have followed
suit. In France, over half of all life insurance sales are made through banks. In
the UK, almost 95% of banks and building societies are distributing insurance
products today.
In India too, banks hope to maximize expensive existing networks by selling a
range of products. Many bankers have shown an inclination to enter the

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insurance market by leveraging their strengths in the areas of brand image,

distribution network, face to face contact with the clients and telemarketing
coupled with advanced information technology systems. Insurers in India
should also explore distribution through non-financial organizations. For
example, insurance for consumer items such as refrigerators can be offered at
the point of sale.

7. Information Technology
Worldwide interest in E-commerce and India's predominant position in
Information Technology and software development are also likely to be major
factors in the marketing of insurance products in the immediate future. The
number of Internet account is increasing and the trend has already been set by
some of the leading insurers and insurance brokers worldwide.

CHALLENGES
If one has opportunities, one has to face challenges; it is like two sides of the
same coin. No doubt India has a lot of opportunities coming her way, but there
are a few challenges and threats as well.
The four main challenges facing the industry are product innovation,
distribution, customer service, and investments. Unit-linked personal insurance
products might find greater acceptability with rising customer awareness about
customized, personalized and flexible products. Flexible products and new
technology will play a crucial role in reducing the cost and, therefore, the price
of insurance products. Finding niche markets, having the right product mix
through add-on benefits and riders, effective branding of products and services
and product differentiation will be some of the challenges faced by new
companies.
1. Technology:

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In today's highly competitive financial services environment, effective

organizations will employ technology in a strategic way so to achieve a
competitive edge. Technology will play an increasing role in aiding design and
administering of products, as well in efforts to build life-long customer
relationships. At the same time, investment in technology will only help as long
as firms find the right people: people with the right attitude, values, and ethics,
commitment to excellence, and focus on customer service. The critical success
factor is a top-down emphasis on exceeding customer expectations with quality
people, excellent products, and legendary service. As has been seen in other
financial services, the entry of private players ensures that the customer will be
the beneficiary in the long run. It will also result in enlarging the market and
extending the reach of insurance across the country.
2. Competition:
Thus, apart from the normal issues facing any new company, many new Indian
private insurance players will need to cope with the challenges of working with
a joint venture partner. They will be competing with large and well-entrenched
government-owned players. They have to overcome regulatory hurdles, change
the attitude of new recruits and satisfy some very high customer expectations.
Also, the players will have to consider the Indian market as a long-term
investment, and maintain clear-cut objectives and constant monitoring at all
levels.

Major Players in the Insurance Sector Today

S.No. Date of Reg. Name of the Company

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1 23.10.2000 HDFC Standard Life Insurance Company Ltd.

2 23.10.2000 Royal Sundaram Alliance Insurance Company
Limited
3 23.10.2000 Reliance General Insurance Company Limited.
4 15.11.2000 Max New York Life Insurance Co. Ltd.
5 24.11.2000 ICICI Prudential Life Insurance Company Ltd.
6 04.12.2000 IFFCO Tokio General Insurance Co. Ltd
7 10.01.2001 Kotak Mahindra Old Mutual Life Insurance
Limited
8 22.01.2001 TATA AIG General Insurance Company Ltd.
9 31.01.2001 Birla Sun Life Insurance Company Ltd.
10 12.02.2001 Tata AIG Life Insurance Company Ltd.
11 30.03.2001 SBI Life Insurance Company Limited .
12 02.05.2001 Bajaj Allianz General Insurance Company
Limited
13 02.08.2001 ING Vysya Life Insurance Company Private
Limited
14 03.08.2001 ICICI Lombard General Insurance Company
Limited.
15 03.08.2001 Bajaj Allianz Life Insurance Company Limited
16 06.08.2001 Metlife India Insurance Company Pvt. Ltd.
17 03.01.2002 AMP Sanmar Life Insurance Company Limited.
18 14.05.2002 Aviva Life Insurance Co. India Pvt. Ltd.
19 15.07.2002 Cholamandalam General Insurance Company
Ltd.
20 27.08.2002 Export Credit Guarantee Corporation Ltd.
21 27.08.2002 HDFC-Chubb General Insurance Co. Ltd.
22 06.02.2004 Sahara India Insurance Company Ltd.
23 17.11.2005 Shriram Life Insurance Company Ltd.

The Way Ahead

With the entry of competition, the rules of the game are set to change. The
market is already beginning to witness a wide array of products from players
whose number is set to grow. In such a scenario, the differentiators among the

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different players are products, pricing, and service. Consumers are increasingly
more aware and are actively managing their financial affairs. Today, while
boundaries between various financial products are blurring, people are
increasingly looking not just at products, but at integrated financial solutions
that can offer stability of returns along with total profits. To satisfy these myriad
needs of customers, insurance products will need to be customized. Insurance
today has emerged as an attractive and stable investment alternative that offers
total protection - Life, Health and Wealth Protection. Consumers today also
seek products that offering flexible options, preferring products with benefits
unbundled and customizable to suit their diverse needs.

The trend in developed economies where people live longer and retire earlier is
now emerging in India too. With the breakdown of traditional forms of social
security like the joint family system, consumers are now concerned with the
need to provide for a comfortable retirement. This trend has been further driven
by the long-term decline in interest rates, which makes it all the more necessary
to start saving early to ensure long term wealth creation. Today's consumers are
increasingly interested in products to help build wealth and provide for
retirement income.

STRATEGIES ADOPTED BY THE PLAYERS IN THE MARKET

Gone were the days when the customers were forced to take up the kind of
products whatever coming from LIC's and GIC's stables. But now, the customer
has been portrayed as the king and to his delight, the products are redesigned
and customized suiting his need taking into account his paying capacity and
multiple benefits. To much of his chagrin, he has also got an option of
withdrawing his offer within a period of 15 days (free-look period) if he is not

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satisfied with the policy features. Let us look at the strategies adopted by the
players in the market.

I. Shift in the product portfolio:

Earlier the entire industry was revolving around investment and savings
oriented plans. As the interest rates are moving southwards, all the players are
deliberately focusing on selling pure risk covers in an effort to capture the new
customers. The premium on such products is low as it covers only the risk
aspect and does not factor in investments or savings. Even the market leader
LIC has withdrawn some of the products, which are positioned, on the assured
returns platform. Though the share of the term plans  in the product portfolio is
quite negligible, the shift towards the term products is already visible. Typically
a term plan does not provide anything by way of maturity, unlike moneyback or
endowment policies. Globally, close to a third of the policies fall into this
category must be an encouraging news to the players.

Unit linked products are also gaining momentum in this country. Om Kotak and
Birla Sun Life have launched unit linked schemes focusing on equity, debt and
gilt edged stocks. These schemes are expected to yield better returns when
compared to normal insurance schemes. As the awareness level about these
unique products is much lower, the companies resort to educate the customers
about the salient features of the products.

II. Value For Money (VFM):

The sea change since the sector opened up has been on the way the basic
products have been packaged innovatively, often tailor made to provide a
bundle of benefits to the customers. This is possible through the introduction of
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riders, which have added value to the risk cover at minimal cost. Riders are
nothing but add-ons coming along with the base policies for a slightly additional
premium. Riders have become the major instruments for the organizations to
lure the customers away from the competitors. The removal of 30% cap on the
premium of the base policy for the health riders alone has come as a shot in the
arm for many players since this is used as an Unique Selling Proposition by
many private players vis a vis the LIC. Later, LIC has also started announcing
riders along with the main policies dancing to the tune of the market forces.
This could see many non-life players going out of the business as life insurers
offer a plethora of personal line products as add-ons. Riders can also be availed
by the existing policyholders.

III. Tapping the Niche Markets:

Private insurers are concentrating much on designing attractive products by

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

* METLIFE INDIA INSURANCE COMPANY has recently launched a

Charitable Trust Policy in Kolkata, which has evoked a lot of interest especially
among the Marwaris business community who want to set up a temple in their
name after their death. Similarly a Buy & Sell Agreement cover from the same
company permits a business enterprise to take out a life plan on each of its
partners, to ensure that the company continues.

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* The other segments, which have attracted almost all the players, are the
women and the children segments. Though the State insurer has had a chunk of
products sufficiently for a  longer time, it faces stiff competition from the
private players in these segments.

* TATA AIG has offered a specialized life insurance package where the insured
and the employers of the insured have a say in it. Termed as Worksite
Marketing, AIG, which has adopted this practice in different places across the
world, is spreading the concept in India too. Worksite Marketing is a
distribution method used to offer voluntary insurance products (employee
benefits) to employees at their place of work with the sponsorship or backing of
their employer, traditionally done on a deduction from the payroll. The
policyholder carries the policy with himself throughout his life, even if it
happens to change the organizations.

* TATA AIG GENERAL INSURANCE, for the first time in the country, has
launched a specialized product for Accountants (after tasting the success with
specialized products such as Directors and Officers policy in India) in its bid to
segment the market for professional indemnity policies. The policy has been
designed with the assistance from Bombay Chartered Accountants Society. This
policy covers claims pertaining to professional negligence, wrongful acts
committed in the performance duties. It also provides for coverage of all legal
expenses incurred in defending such claims.

* Any other way to promote non-smoking? Or to reward those who give up

smoking? OM KOTAK MAHINDRA has taken an initiative by offering a term
insurance plan - a pure protection product - to non-smokers at much cheaper
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price. As against an annual premium of Rs.2400 on a Rs.10 lacs policy for a 10

year term for a 30 year old under the preferred term plan, the regular term
premium works out to Rs.3400 for a similar cover. Though there are
apprehensions in the industry circle about the success of the policy, the
intention of the company is quite appreciated.

* Even the unborn child's future can be safeguarded now. The offspring can be
insured against unfortunate congenital defects. State owned General Insurers
have started aggressively marketing these kinds of products.

IV. Thrust to the rural markets:-

Thanks to the norms stipulated by the regulator IRDA, all the players have
turned their eyes towards the rural market. Towards ensuring equitable
distribution of insurance policies in every nook and cranny of the country,
IRDA stipulates the rural obligations to be met by the players over the years.

The rural obligation on part of the new private insurance companies is

incremental in nature. It goes from 5% to 15% over the period of 5 years for life
insurance and from 2% to 5% in case of general insurance. IRDA has also
defined what it meant by rural.

1. The place should have a population of less than 5000

2. Secondly, the density of the population should be less than 400 persons per
square kilometer.

3. 75% of the male population should be engaged in agricultural pursuit.

Of the 11 private sector life insurers, 10 companies substantially performed in
the rural sector with the percentage of policies issued in the rural sector standing
higher than 5% level mentioned. Most of the non-life insurers achieved the base
level of 2% gross premium from rural sector. Since the penalty for not adhering

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to the obligation includes Rs.5 lacs penal fee and upto 3 years of imprisonment
of the Chief of the organization, all the companies are swarming the rural
market. The challenge lies in reaching the critical mass with the redesigned
products. And the organizations have been fairly successful in their efforts. For
instance, Om Kotak Life Insurance is successful in selling the single premium
policy in rural market. Reaching the doorsteps of the villagers through non-
conventional channels like Regional Rural Banks (RRBs), Co-operative banks,
Self-Help Groups (SHGs), ITCs e-choupal is also being tried by the players.

V. Tapping unconventional distribution channel:

Nevertheless all the players depend heavily on their agents force to reach out
(LIC has reached a figure of 8,50,000 agents and planned to increase it to 1
million by this year), they are trying out other distribution channels also like
banks and corporate agencies in addition to the channels mentioned above. The
following table shows the strategic alliances the insurers have entered into to
distribute their products.

Sl.No Insurer Banks / Corporate Agencies

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

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Commerce
Karnataka Bank, Dhanalakshmi Bank,
07 Metlife
Jammu & Kashmir Bank
Kerala based Co-operative Banks –
08 AMP Sanmar
Peruntalmanna Bank and Manjeri Bank
Citibank, Deutsche bank, IDBI Bank,
09 Birla SunLife Catholic Syrian Bank, Bank of Rajasthan,
Bank of Muscat
10 HDFC Standard Life Insurance Indian Bank, Union Bank
Lakshmi Vilas Bank, Canara Bank, Amex,
11 Dabur CGU Life
ABN Amro Bank

LIC is also exploring ways to rope in Regional Rural Banks (RRBs) across the
country. Cross-selling could be another key strategy in selling insurance
provided the restrictions on the functioning of corporate agencies are lifted.
Once the curbs are removed, the market may see a wave of cross-selling. Royal
Sundaram Alliance may offer household insurance with Sundaram Housing
Finance and sell customers of Sundaram Finance Mutual Fund a whole range of
insurance products. ICICI-Prudential and HDFC Standard will tie up with their
parent companies to use their network. .
Once the much-awaited Insurance Brokers Regulations comes into force, the
industry is poised to change the way the insurance products are sold with the
entry of brokers. While an insurance agent represents an insurance company and
offers only the products of that company, an insurance broker is independent
and represents a number of insurers. He can also compare the benefits of
different policies and premiums to find the best coverage for the customer.
VI Cause Related Marketing (CRM):-

Cause Related Marketing has become the order of the day in Insurance industry.
By creating a goodwill about the organizations, the insurers are making an
attempt to change the negative attitude of the people towards insurance

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products. For instance,

* Towards serving the society in a better way, LIC has adopted a novel way
through its Bima Grams policy. Accordingly, LIC pays 25% of the premium
collected from the villagers or Rs.25000 whichever is lesser for undertaking
developmental work in the villages provided,

- The population of the village is between 1000 and 5000

- Life insurance coverage for atleast one person in 75% of the households
- Acquisition of 100 new policies in a single year

* Iffco-Tokio General Insurance Company is planning to launch a novel

insurance policy Sankat Karan for farmers in which for the every purchase of
50kg bag of fertilizers, insurance worth Rs.4000 would be provided to the
farmers. The policy will remain in force for a period of 12 months from the date
of purchase.

* Birla Sun Life Insurance has adopted 332 villages around Renukoot and
actively involved in improving the lives of the residents.

VII De-tariffing in General Insurance:

Though the issue of de-tariffing in general insurance has been debated upon at
length, the response from the industry is quite mixed. By fixing a tariff for a
product, Tariff Advisory Committee (TAC) maintains discipline in the market
and makes sure that the insurance companies do not resort to under pricing to
gain market share. IRDA is now working on detariffing the general insurance
sector beginning with commercial vehicle business since it constitutes more
than two fifth of the non-life business volume. Both IRDA and TAC are

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working out the modus operandi of the deregulations of motor premium.

Sensing the indifferent attitude of the private general insurers towards motor
insurance, the Government is contemplating on coming out with obligations to
be met by the private insurers in this segment (like rural business). Once the
motor insurance premium is detariffed, the end user is likely to see another cola
war like.

PRIVATE PLAYERS IN INDIAN LIFE INSURANCE

* Allianz Bajaj Life Insurance Company Ltd.,

* Aviva Life Insurance Co. India Pvt. Ltd.,

* AMP SANMAR Assurance Company Ltd.,

* Birla Sun Life Insurance Company Ltd.,

* HDFC Standard Life Insurance Company Ltd.,

* ICICI Prudential Life Insurance Company Ltd.,

* ING Vysya Life Insurance Company Private Ltd.,

* Max New York Life Insurance Co. Ltd.,

* MetLife India Insurance Company Pvt. Ltd.,

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* Om Kotak Mahindra Life Insurance Co. Ltd.,

* SBI Life Insurance Company Ltd.,

* Sahara India Insurance Company

Ltd.,

* Tata AIG Life Insurance

Company Ltd.,

ICICI PRUDENTIAL LIFE INSURANCE COMPANY LTD.

ICICI Prudential Life Insurance Company is a joint venture between ICICI

Bank, which is one of India's foremost financial services companies, and
Prudential plc, which is a leading international financial services group
headquartered in the United Kingdom. ICICI Prudential began the operations in
December 2000. Today, this company has over 2100 branches, which include
1,116 micro-offices, over 290,000 advisors and 18 banc assurance partners.

ICICI Prudential Life Insurance Company is the first life insurer in India that
received a National Insurer Financial Strength rating of AAA (Ind) from Fitch
ratings. ICICI Prudential has been voted as India's Most Trusted Private Life
Insurer for three consecutive years. ICICI Prudential Life Insurance Company

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has various insurance plans that have been designed for different individuals, as
every individual has different insurance needs.
Contact Address
ICICI Pru Life Towers
1089 Appasaheb Marathe Marg
Prabhadevi, Mumbai - 400025
Website: www.iciciprulife.com

Given below is a list of plans provided by ICICI Prudential Life

Insurance Company:

BAJAJ ALLIANZ LIFE INSURANCE COMPANY LTD

Bajaj Allianz Life Insurance Co. Ltd. is a joint venture between Allianz SE, one
of the world's largest insurance companies, and Bajaj Finserv. Allianz SE is a
leading insurance corporation globally and one of the largest asset managers in
the world, that manage assets worth over a Trillion. With over 115 years of
financial experience, Allianz SE is present in over 70 countries around the
world. Bajaj Allianz is into both life insurance and general insurance. Today,
Bajaj Allianz is one of India's leading and fastest growing insurance companies.
Currently, it has presence in more than 550 locations with over 60,000
Insurance Consultants.

In June 2008, Bajaj Allianz entered into partnership with Thomas Cook India to
provide travel finance. Bajaj Allianz Life Insurance ensures excellent insurance
and investment solutions by offering customized products, supported by the best
technology.

Contact Address
Bajaj Allianz Life Insurance Co. Ltd.

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GE Plaza, Airport Road

Yerawada, Pune - 411006
Website: www.bajajallianzlife.co.in

A comprehensive list of policies and products offered by Bajaj Allianz Life

Insurance Co. Ltd. is as follows:

Unit Linked 3. New Health Plans 3. New Group

Plans UnitGain  Care First Superannuat
 Regular Easy  Health ion Care 
Premium Pension Plus Care
4. Group Save
RP
1. New  Family Plus

UnitGain 4. New CareFirst

5. Group Term
Super UnitGain
Children Plans Life in lieu
Easy
2. UnitGain  ChildGain of EDLI
Pension Plus
Plus Gold 6. Group
SP Group Plans
3. New Leave
5. Future  Non
UnitGain Encashment
Secure Employer
Plus Scheme
Employee
Traditional Plans 7. Group
4. New
 Endowment 1. Credit
UnitGain Annuity
Shield
5. YoungCare 1. InvestGain 8. Group
2. Group
Superannuat
6. YoungCare 2. SaveCare Term
ion Gold
Plus Economy SP Life(Non
Employer 9. Group

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7. New 3. Life Time Employee) Gratuity

FamilyGain Care Gold
3. Group
-R
4. Super Saver Suraksha Micro Insurance
 Single 4. Swayam  Alp Nivesh
 Money
Premium Shakti Yojana
Back
Suraksha  Jana Vikas
1. New
1. CashGain Yojana
UnitGain 5. Group
Premier SP Term Plans Loan  Saral

 Protector Protector Suraksha

2. New
 Term Care Yojana
UnitGain 6. Group
Plus SP  New Risk Income Other Plans
Care Protection  Family
Pension Plans
Assure
 Annuity Women  Employer
 Fortune
Insurance Plans Employee
1. Pension Plus
 House
Guarantee 1. Group  Capital
Wives
Term Shield
 Retirement
 Working Life(Empl
 CenturyPlus
1. Future Women oyer
II
Income Employee)
Generator
2. New
2. Swarna Group
Vishranti Gratuity
Care 

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HDFC
STANDARD LIFE INSURANCE

Established on 14th August 2000, HDFC Standard Life Insurance Co. Ltd. is a
joint venture between Housing Development Finance Corporation Limited
(HDFC Limited) - India's leading housing finance institution, and a Group
Company of the Standard Life Plc, UK. The Company is one of leading private
insurance companies, offering a range of individual and group insurance
solutions, in India. Being a joint venture of top financial services groups, HDFC
Standard Life has adequate financial expertise to manage long-term investments
safely and resourcefully.

HDFC Standard Life Insurance offers a range of individual and group solutions,
which can be easily personalized to specific needs. Its group solutions have
been planned to offer complete flexibility, together with a low charging
structure. As of 31 December, 2008, the Company's new business premium
income stood at Rs. 1,839.70 Crores; it has covered over 812,811 lives so far.

Contact Address
HDFC Standard Life Insurance Co. Ltd.
'Trade Star', 2nd floor, 'A' Wing

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Junction of Kondivita and M.V. Road

Andheri-Kurla Road
Andheri (East), Mumbai - 400059
Website: www.hdfcinsurance.com
Given below is a comprehensive list of policies and products on offer by HDFC
Standard Life Insurance:

Protection Plans Retirement  HDFC Unit  HDFC

 HDFC Plans Linked Critical Care
Term  HDFC Enhanced Plan
Assurance Personal Life
 HDFC
Plan Pension Protection
SurgiCare
 HDFC Plan II
Plan
Loan Cover  HDFC Unit
 HDFC Unit
Term Linked Group Plans
Linked
Assurance Pension II  Group Term
Wealth
Plan Insurance
 HDFC Unit Maximiser
Plan
 HDFC Linked Plus
 Group
Home Loan Pension
 HDFC Unit Variable
Protection Maximiser
Linked Term
Plan II
Endowment Insurance
Children's Plans  HDFC Winner Plan
 HDFC Immediate
 HDFC  Group Unit
Children's Annuity
Endowment Linked Plan
Plan Assurance
Savings & - Gratuity
 HDFC Unit Plan
Investment Plans
Linked  Group Unit
 HDFC Unit  HDFC
Young Star Linked Plan
Linked Money
II -
Endowmen
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 HDFC Unit t Plus II Back Plan Superannuat

Linked  HDFC ion
 HDFC
Young Star SimpliLife
Single  Group Unit
Plus II
 HDFC Unit Premium Linked Plan

 HDFC Unit Linked Whole of - Leave

Linked Endowmen Life Encashment

YoungStar t II Insurance

Champion Plan

 HDFC
Assurance
Plan

 HDFC
Savings
Assurance
Plan

 Health
Plans

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BIRLA SUN LIFE INSURANCE COMPANY LTD.

Birla Sun Life Insurance Co. Ltd. is a joint venture between Aditya Birla Group,
an Indian multinational corporation, and Sun Life Financial Inc, a leading
global insurance company. Birla Sun Life Insurance is distinguished as the first
company in the sector of financial solutions to begin Business Continuity Plan.
This insurance company has pioneered the unique Unit Linked Life Insurance
Solutions in India. Within 4 years of its launch, BSLI became one of the leading
players in the industry of Private Life Insurance Scheme.

Birla Sun Life Insurance believes in passion, integrity, speed, commitment and
seamlessness. The mission of the company is to help people with risk
management. It also helps in managing the financial situation of firms as well as
individuals.

Contact Address
Birla Sun Life Insurance Company Limited
Vaman Centre, 6th Floor
Makhwana Road
Off Andheri-Kurla Road

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Andheri (East), Mumbai - 400059

Website: www.birlasunlife.com

Here is given a comprehensive list of policies and products offered by Birla Sun
Life Insurance Co. Ltd.

Protection Plans  Birla Sun Children Plans  Birla Sun

 Birla Sun Life  Birla Sun Life
Life Insurance Life Insurance
Insurance PrimeLife Insurance Single
Term Plan Premier Children's Premium
 Birla Sun Dream Plan Group
 Birla Sun
Life Term Plan
Life Rural Plans
Insurance
Insurance  Birla Sun NRI Plans
Premium
PrimeLife Life  Birla Sun
Back Term
 Birla Sun Insurance Life
Plan
Life Bima Insurance
Saving Plans Insurance Suraksha PrimeLife
 Birla Sun Flexi Cash Super Premier
Life Flow  Birla Sun  Birla Sun
Insurance Life Life
 Birla Sun
Guaranteed Insurance Insurance
Life
Bachat Plan Bima Dhan PrimeLife
Insurance
 Birla Sun Sanchay
Flexi Save  Birla Sun
Life
Plus  Birla Sun Life
Insurance
Life Insurance
Money  Birla Sun
Insurance Flexi Life
Back Plus Life
Bima Line Plan

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Plan Insurance Kavach  Birla Sun

Flexi Life Yojana Life
 Birla Sun
Line Insurance
Life Group Plans
Flexi Save
Insurance  Birla Sun  Birla Sun
Plus
Gold-Plus Life Life
II Insurance Insurance  Birla Sun
Single Group Unit Life
 Birla Sun
Premium Linked Plan Insurance
Life
Bond  Birla Sun Flexi Cash
Insurance
Life Flow
Saral Health Solution
Jeevan Plan Plans Insurance  Birla Sun
Group Life
 Birla Sun  BSLI
Protection Insurance
Life Health Plan
Solutions ClassicLife
Insurance  BSLI
Universal  Birla Sun Premier
Supreme-
Life Health Plan Life  Birla Sun
Insurance Life
 Birla Sun Retirement
Group Insurance
Life Plans
Superannuat Single
Insurance  Birla Sun
ion Plan Premium
Dream Plan Life
 Birla Sun Bond
Insurance
 Birla Sun
Freedom 58 Life  Birla Sun
Life
Insurance Life
Insurance  Birla Sun Group Insurance
ClassicLife Life Gratuity SimplyLife
Premier Insurance Plan
Flexi
 B. S.
 Birla Sun
SecureLife
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L.Insurance Retirement Life

SimplyLife Plan II Insurance
Credit
Guard Plan

INSURANCE, THE FUTURE BOOM SECTOR OF INDIA

The reforms in the insurance sector leading finally to the opening of the
insurance sector for private participation have brought in its wake major
changes not only in the design of the products available in the market but also
the manner in which they are marketed. We have today a host of products
coupled with a large number of intermediaries who market them.
The post-liberalized insurance industry panorama in India is witnessing
dramatic changes in terms of a slew of latest products and services, new
channels of distribution, greater use of I.T. as a service facilitator etc. There is
also the phenomenon of noticeable shifts in consumer preferences impacting the
product mix being offered by insurers. The market structure dominated by a few
stabilized public sector players and the 'new' players in the market (some of
whom claim their lineage from established international insurance behemoths)
is in a state of flux- in terms of figure out market shares but is full of potential.
Added to these are the rising trends of convergence of financial services,
especially in the areas like wealth management and evolution of newer risk
management tools, particularly in the context of reinsurance management.
Greater attention is also being bestowed on the areas like Agricultural Insurance
and risk coverage of export-import trade. Then there is impact of visible socio-
economic changes like greater urbanization, greater job mobility, growth of the
services industry, weakening of traditional family structure, impact of

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

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institutions, which form a part of this financial system, have internal

management, governance and accountability structures, which measure up to
the highest standards.

IMPACT OF PRIVATISATION ON PUBLIC SECTOR INSURANCE

COMPANIES

The insurance sector was liberalised and opened to private sector participation
to break the monopoly position of public sector companies and provide better
insurance coverage, products and services to the citizens and in the process
augment flow of long-term resources for financing infrastructure.

Be it the evolution of new channels of distribution or innovative product

development or the optimal use of the latest state-of-the-art technology, the
central theme is the customer’s choice and his/her convenience. Competitive
pricing, value for money for the customer, high service levels, upgrading the
quality of agents, back office and front office staff, consumer awareness and
sensitive and prompt response to the consumers’ grievances are the other
features of this market which can easily be discerned.

The market seems to be expanding and growing but only in depth and not the
width of coverage. Such growth rates, however, can be sustained only by
reaching out to newer markets. And no concerted effort on development of new
markets has been seen so far. LIC has responded well to competition, the
decline in its sales figures, post 2002 have been on account of removal of its
high selling single premium, guaranteed products. It has shown impressive
growth in its traditional product sales.

In non-life sector, the challenge seems to be more daunting. Not only the retail
market has not been impacted in any perceivable proportion, the levels of

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awareness and also the standards of customer services, as perceived by the

general public, are pretty low. This needs to change.

Product Development:-

There certainly has been a plethora of new and innovative products offered by
both, LIC and new players, in the life sector. LIC has the widest range of
products and customised solutions for the customers. Public sector non-life
companies are yet to get their act together.

Customer Service:-

This is an area where new companies are clearly ramping up by bringing in their
global best practices, operational efficiency through technology etc. Public
sector companies are fast gearing up. However, a lot still needs to be done in
this area as is evidenced by the FORTE survey. The real time response and
turnaround times in delivery of the services have to be up to the customer
expectation levels in areas like delivery of first premium receipt, policy
document, premium notice, final maturity payment, death claim etc.

            

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CURRENT SCENARIO OF INSURANCE SECTOR

Global integration of financial markets resulted from de-regulating measures,

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

1.) Liberalisation and Privatisation :-

India's economic development made it a most lucrative Insurance market in the

world. Before the year 1999, there was monopoly state run LIC transacting life
business and the General Insurance Corporation of India with its four
Subsidiaries transacting the rest. In the wake of reform process and passing
Insurance Regulatory and Development Authority (IRDA) Act through Indian
parliament in 1999, Indian Insurance was opened for private companies.

Liberalisation on the Insurance sectors has allowed the foreign players to enter
the market with their Indian partners. Most of the foreign Insurers have joined
within the local market. India offers immense possibilities to foreign Insurers
since it is the world's most populous country having over a billion people.

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Insurance industry had ten and six entrants in life and non-life sector
respectively in the year 2000-2001. The industry again saw two and three
entrants in the life and non-life business respectively in the year 2001-2002.
One additional entrant was made both in the life and in non-life business in
2004 and 2005 respectively. At present there are fourteen companies each in
Life and General Insurance. The Funds earlier generated by the state owned
insurers have been diversified with other new insurers.

2.) Competition:-

Private and Foreign entrants in the Insurance Industry made others difficult to
retain their market. Higher customer aspirations lead to new expectations and
compel him to move towards the insurer who provides him the best service in
time. It becomes less viable for them even to maintain the functional networks
or competitive standards and services. To survive in the Industry they analyse,
the emerging requirements of the policyholders / insurers and they are in the
forefront in providing essential services and introducing novel products.
Thereby they become niche specialists, who provide the right service to the
right person in right time.

The following table shows the market share of life and non-life insurers

 MARKET SHARE (%)  

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

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8. Max New York  1.28  8.  Tata-AIG  2.89

 9. Aviva 1.08  9. ECGC 2.50
 10. Kotak Mahindra Old Mutual 0.71  10. Royal 2.17
Sundaram
11. ING Vysya 0.54 11. Cholamandala 1.22
m
 12. AMP Sanmar 0.46 12. HDFC-Chubb 0.89
 13. Met Life 0.37 13. Reliance 0.75
General
14. Sahara Life 0.03 14. Agriculture --
Insurance Co.
 Private total  23.93 Private total  27.35
 Public total 76.07 Public total 72.65
 Grand total 100.00 Grand total   100.00
 Source : www.irdaindia.org  

In the above table shows, the private players in the life insurance business have
increased their market share to 23.93 per cent. Among them ICICI prudential is
ranked first in capturing the market followed by Bajaj Allianz and HDFC
Standard. In the General Insurance sector the private players have captured
27.35 per cent. Among them ICICI-Lombard is ranked first, followed by Bajaj
Allianz and IFFCO-Tokio.
The healthy competition in the sector enabled the State owned insurers of our
mother country to reduce its market share to 76.07 per cent and 72.65 percent in
life and non-life business respectively. Moreover, private insurers have planned
to increase their market share in the next five years. The public insurers have to
enrich its approach to withhold its share.

3.) Information Technology:-

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Insurers are the earlier adopters of technology. Because of the Information

revolution, customers are free to choose from a wide range of new and
innovative products. The Insurance companies are utilizing the Information
technology applications for better customer service, cost reduction, new product
design and development and many more.

New technology gives the policyholders / insured better, wider and faster access
to products and services. The impact of Information Technology in Insurance
business is being felt at an accelerating pace. In the initial years IT was used
more to execute back office functions like maintenance of accounts, reconciling
broker accounts, client processing etc. With the advent of "database concepts",
these functions are better integrated in an administrative efficiency.

The real evolution is however emerged out of Internet boom. The Internet has
provided brand new distribution channels to the Insurers. The technology has
enabled the Insurer to innovate new products, provide better customer service
and deeper and wider insurance coverage to them. At present, Insurance
companies are giving customers a distinct claim id to track claims on-line,
entertaining on-line enrollment, eligibility review, financial reporting, and
billing and electronic fund transfer to its benefit clan customers.

4.) Product Innovations:-

Insurers are continuously innovating new products based on forward-looking

models. They have developed new products addressing the new challenges in
society and products to address the hazards from new environmental issues.
Companies will need to constantly innovate in terms of product development to
meet ever-changing consumer needs. Understanding the customer better will
enable Insurance companies to design appropriate products, determine price
correctly and to increase profitability. Since a single policy cannot meet all the

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Insurance objectives, one should have a portfolio of policies covering all the
needs. Product development is made possible by integrating actuarial, rating,
claims and illustration systems. At present, the Life Insurers are concentrating
on the pension schemes and the Non-Life Insurers on many innovative schemes
of various realms and thereby enriching their market share. Moreover, with
increased commoditization of insurance products, brand building is going to
play a vital role.

5.) Distribution Network:-

While companies have been successful in product innovation, most of them are
still grapping with right mix of Distribution Channels for capturing maximum
market share to build brand equity, building strong and effective customer
relationships and cost effective customer service. While the traditional channel
of tied up advisors or agents would be the chief distribution channel, insurer
should innovate and find new methods of delivering the products to customers.
Corporate agency, brokerage, Banc assurance, e-insurance, cooperative
societies and panchayats are some of the channels, which can be tapped by the
insurers to reach the appropriate market segments. Now days, the urban masses
are tapped with the new techniques provided by Information Technology
through Internet. Rural masses are attracted by the consultative approach
adopted by the Insurers. Moreover, they attract the customers through telephone
and mobile also.

6.) Customer Education and Services:-

Insurance is a unique service industry. The key industry drivers are related to
life style issues in terms of perceiving insurance as a savings instrument rather
than for risk cover, need based selling, quality of service and customers
awareness.

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In the present competitive scenario, a key differentiator is the professional

customer service in terms of quality of advice on product choice along with
policy servicing. Servicing focus is on enhancing the customer's experience and
maximizing his convenience. This calls the effective CRM system, which
eventually creates sustainable competitive advantage and enables to build long
lasting relationship.

BIBLIOGRAPHY
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(1) Insurance : Ajit Ranade and Rajeev Ahuja; India Development Report
1999-2000

(2) Insure for life: Navjit Gill : Business World, 28 February 2000.

(3) Complete Guide to Business Risk Management : KitSadgsrove

(4) Risk Management Excellence : Economist Int. Unit

(5) The Insurance Sector : ICFAI ( Institute of Charter Financial Analyst of

India.

(6) Impossible guidelines editorials : Business India, February 7-20, 2000

(7) Economic Times clippings.

(8)wikipedia.com

(9)google.com www.licindia.com

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