SERVICE SECTOR

Service sector is the lifeline for the social economic growth of a country. It is today
the largest and fastest growing sector globally contributing more to the global output
and employing more people than any other sector.

The real reason for the growth of the service sector is due to the increase in
urbanization, privatization and more demand for intermediate and final consumer
services. Availability of quality services is vital for the well being of the economy.

In advanced economies the growth in the primary and secondary sectors are directly
dependent on the growth of services like banking, insurance, trade, commerce,
entertainment etc.

Indian Service Sector

In alignment with the global trends, Indian service sector has witnessed a major
boom and is one of the major contributors to both employment and national income
in recent times. The activities under the purview of the service sector are quite
diverse. Trading, transportation and communication, financial, real estate and
business services, community, social and personal services come within the gambit
of the service industry.

One of the key service industry in India would be health and education. They are
vital for the country’s economic stability. A robust healthcare system helps to create
a strong and diligent human capital, who in turn can contribute productively to the
nation’s growth.

Post Liberalization 
The Indian economy has moved from agriculture based economy to a knowledge
based economy. Today the IT industry and ITE'S industry are the dominant industry
in the service sector. Media and entertainment have also seen tremendous growth in
the past few years.

Subsectors

Information Technology Industry

The Information Technology industry has achieved phenomenal growth after
liberalization. The industry has performed exceedingly well amidst tough global
competition. Being knowledge based industry; India has been able to leverage the
global markets, because of the huge pool of engineering talent available and the
proficiency in English language among the middle class.

ITES sector
The ITES sector has also leveraged the global changes positively to emerge as one
of the prominent industries. Some of the services covered by the ITES industry
would be:

 Customer interaction services -Non voice and Voice.

 Back office, revenue accounting, data entry, data conversion, HR services.
 Medical Transcription.
  Content development and animation.
 Remote education, market research and GIS

Retailing
Prior to liberalization, India had one of the most underdeveloped retail sectors in the
world. After liberalization the scenario changed dramatically. Organized retailing with
prominence on self service and chain stores has changed the dynamics of retailing.
In most of the tier I and tier II cities supermarket chains mushroomed, catering to the
needs of vibrant middle class. This indirectly contributed to the growth of the
packaged food industry and other consumer goods.

Financial Services-Banking And Insurance

Prior to liberalization these two sectors were controlled and regulated by the
government. Nationalized banks and insurance companies had a firm grip over the
market. After liberalization the banking and insurance domain opened up for private
participation.

Banking Sector
The three major changes in the banking sector after liberalization are:

 Step to increase the cash outflow through reduction in the statutory liquidity
and cash reserve ratio.
 Nationalized banks including SBI were allowed to sell stakes to private sector
and private investors were allowed to enter the banking domain. Foreign
banks were given greater access to the domestic market, both as subsidiaries
and branches, provided the foreign banks maintained a minimum assigned
capital and would be governed by the same rules and regulations governing
domestic banks.
 Banks were given greater freedom to leverage the capital markets and
determine their asset portfolios. The banks were allowed to provide advances
against equity provided as collateral and provide bank guarantees to the
broking community.

Insurance Sector
The Insurance Regulatory and Development Authority Act 1999 (IRDA Act) allowed
the participation of private insurance companies in the insurance sector. The primary
role of IRDA was to safeguard the interest of insurance policy holders, to regulate,
promote and ensure orderly growth of the insurance industry. The insurance sector
could invest in the capital markets and other than traditional insurance products,
various market link insurance products were available to the end customer to choose
from.

Some of the prominent insurance companies are:

 Bajaj Allianz Insurance Corporation

 Birla Sun Insurance Co Ltd
 HDFC Standard Insurance Co Ltd
 ICICI Prudential Insurance Co Ltd
  Max New York Insurance Co Ltd
 Tata AIG Insurance Co Ltd

Future Trends

 Globally outsourcing industry would continue to grow.

 Following the success of US and UK, more countries in the European Union
would outsource their business.
 Technological power shift from the West to the East as India and China
emerge as major players.
 Political backlash over outsourcing would come down as companies reap the
benefit of outsourcing.

The Indian insurance market in spite of having a history covering almost two
centuries took a turn after the establishment of the Life insurance corporation in India
in 1956. From being an open competitive market to being nationalized and then back
to a liberalized market again, the insurance sector has witnessed all aspects of
contest.

The Indian insurance market conventionally focused around life insurance until
recently, a various range of other insurance policies covering sectors like medical,
automobile, health and other classes falling under general insurance came up,
generally provided by the private companies. The life insurance of India added 4.1%
to the GDP of the economy in 2009, an immense growth since 1999, when the gates
were opened for the private company in the market. 

Policy Change in the Indian Insurance market

The Insurance Regulatory Development Act, 1999 (IRDA Act) allowed the entry of
private companies in the insurance sector, which was so far the sole prerogative of
the public sector insurance companies. The act was passed to protect the concerns
of holders of insurance policy and also to govern and check the growth of the
insurance sector. This new act allowed the private insurance companies to function
in India under the following circumstances :
 The company should be established and registered under the 1956
company Act
 The company should only the serve the purpose of life or general
insurance or reinsurance business
 The minimum paid up equity capital for serving the purpose of reinsurance
business has been decreed at Rs 200 crores
 The minimum paid up equity capital for serving the purpose of reinsurance
business has been decreed at Rs 100 crores
 The average holdings of equity shares by a foreign company or its
subsidiaries or nominees should not go above 26% paid up equity capital of the
Indian Insurance company.

Investment policy in the Indian insurance market

 A policy known by the name of 'Health plus Life Combi Product', offering
life cover along with health insurance has been granted permission by the
IRDA act and insurance companies are allowed to provide it now.
 The FDI limit in the insurance sector has been capped at 26% for the
foreign marketeers but the government is thinking to increase it to 49% and a
bill of this offer is pending at the Rajya Sabha
 A low cost pension scheme is supposed to be formed by the Pension Fund
Regulatory and Developmental Authority (PFRDA) on 1st April, 2010 to provide
social security to the the poorer class.
 The compulsory ceding by every General Insurance Corporation (GIC),
would go on to stay at 10% under current regulations as specified by IRDA.

Future of Indian Insurance Market

As per the report of 'Booming Insurance Market in India' (2008-2011), concentration

of insurance markets in many developed countries of the world has made the Indian
insurance market more magnetic in terms of international insurance players.
Furthermore, the report says

 Home insurance sector is likely to achieve a 100% growth since home

insurance are made compulsory for housing loan approvals by the financial
institutions.
 In the coming three years Health insurance sector is all set to become the
second largest business after motor insurance.
 During the period of 2008-09 to 2010-11 the non life insurance premium is
likely to have a growth of 25%.

Insurance Companies in India

Registration has been granted to 12 private life insurance companies and 9 general
insurance companies so far by the IRDA. Considering the existing public sector
companies in the Indian insurance market there are 13 companies functioning in
both life and general insurance business respectively.

Some of the major insurance companies in public sector are 

 Life Insurance Corporation (LIC) of India

 National Insurance Company Limited
 Oriental Insurance Limited

Some of the major insurance companies in Private sector are 

 Tata AIG Life

 HDFC Standard
 Bajaj Allianz
 ICICI Prudential
 SBI Life

APPLICATION OF INFORMATION TECHNOLOGY IN INSURANCE SECTOR

There is a evolutionary change in the technology that has revolutionized the entire
insurance sector. Insurance industry is a data-rich industry, and thus, there is a need
to use the data for trend analysis and personalization.

With increased competition among insurers, service has become a key issue.
Moreover, customers are getting increasingly sophisticated and tech-savvy. People
today don’t want to accept the current value propositions, they want personalized
interactions and they look for more and more features and add ones and better
service

The insurance companies today must meet the need of the hour for more and more
personalized approach for handling the customer. Today managing the customer
intelligently is very critical for the insurer especially in the very competitive
environment. Companies need to apply different set of rules and treatment strategies
to different customer segments. However, to personalize interactions, insurers are
required to capture customer information in an integrated system.

With the explosion of Website and greater access to direct product or policy
information, there is a need to developing better techniques to give customers a truly
personalized experience. Personalization helps organizations to reach their
customers with more impact and to generate new revenue through cross selling and
up selling activities. To ensure that the customers are receiving personalized
 information, many organizations are incorporating knowledge database-repositories
of content that typically include a search engine and lets the customers locate the all
document and information related to their queries of request for services. Customers
can hereby use the knowledge database to mange their products or the company
information and invoices, claim records, and histories of the service inquiry. These
products also may be able to learn from the customer’s previous knowledge
database and to use their information when determining the relevance to the
customers search request.

There is a probability of a spurt in employment opportunities. A number of web-sites

are coming up on insurance, a few financial magazines exclusively devoted to
insurance and also a few training institutes being set up hurriedly. Many of the
universities and management institutes have already started or are contemplating
new courses in insurance. Life insurance has today become a mainstay of any
market economy since it offers plenty of scope for garnering large sums of money for
long periods of time. A well-regulated life insurance industry which moves with the
times by offering its customers tailor-made products to satisfy their financial needs is,
therefore, essential if we desire to progress towards a worry-free future.

Obtaining accurate information as quickly and efficiently as possible remains an

integral component to the framework of the insurance sector. Unfortunately, the
dynamically changing corporate landscape, situated alongside progressively
expanding legislation, results in the need for consistently improving information
technology.

1. Client Data
o Insurance carriers maintain accurate and updated client data records. Information
technology must be both secure and comprehensive enough to store multiple
names, addresses, telephone numbers, email addresses and other pertinent details.
Policy Details
o For those insurance companies providing policies across multiple lines of
insurance, information technology requirements become even more complex. Details
of each insurance policy, ranging from life, home, auto, boat, liability
and business products, need to be accurately recorded and merged with client data.
Claims Management
o Investigating, paying and recording claims data is crucial to any insurance
company's financial stability. Information technology plays a vital role in allowing
carriers to record claims details and share data with police, other carriers, attorneys
and beneficiaries. Advanced computer software ensures important information
remains accessible and updated.
 Beneficiaries
o Life insurance companies utilize database technology to record policy owners'
beneficiary designations. Aside from the personal details of the insured individuals,
beneficiary names, addresses, telephone numbers and death benefit portions are of
monumental importance.
Payment Information
o Perhaps the most essential area requiring accurate and efficient information
technology is an insurance company's client payment details. Above all else, billing
and invoicing systems generate the necessary revenue to keep the company in
business. Cash flow remains vital to daily operations and without superior
information technology and processing systems, the carrier's financial stability is at
risk.