Key Imperatives of Life Insurance Industry in the Current Market Environment

Agenda

• Current Market Environment

• The way forward

Presentation title here 00.00.00 page 2

 Significant progress since privatization

Life Insurance Density and Penetration New Business APE (Rs crore)

Privateplayers LIC

8
6
9
2
4
3
9
5
1

6
7
0
2
6
3
4
8
7
0
2

1
8
7

4
1
7
2
3
0
1
7
2
0
8
1

3
6

6
2
4
1

6
8
2
1
5
0
2
1
0
7
1
2
0
4
1

5
6
1
2001 -022002 -032003 -042004 -052005 -062006 -072007 -082008 -09

• Significant increase in density and penetration since privatization

• Market has grown at an impressive CAGR of over 30%

• Private players CAGR at 134% in the first 6 years of privatization
 More recently …

Financial Year Financial Year Q3

33783

33557
14,000 0%

12272
35,000 30%

11463
-1%
30,000 12,000
26% 20% -2%
-26%
25,000 10,000 -9% -3% -7% -3%
20710

-1% 10%

7387
-4%
17352

20,000 8,000
16431

6515
0% -5%
12867

6,000

4885

4748
15,000 -6%
-10% -7%
10,000 4,000
-8%
-20% 2,000
5,000
-9%

0 -30% 0 -10%
Private Players LIC Industry Private Players LIC Industry

FY 2007-08 FY 2008-09 Growth 2007 2008 Growth

• Industry has experienced a decline for the first time

• Accentuated by the last quarter

• Need to re-calibrate growth expectations and re-think growth strategies

 Long-term potential intact

• India well below regional peers •By 2025, 41% of the population estimated to form the
‘middle class’

•Disposable income estimated to grow at a CAGR of •Favourable demographics with an increasing younger
5.3% over 05-25 population
The way forward…

• Increasing the population covered by insurance

• Aligning product portfolio with customer needs

• Increasing customer education

• Transparency & customer service

 The way forward…
Increasing coverage of population

• ~ 30% of the population is covered in semi-urban

and rural areas vis-à-vis ~ 50% in urban India

Source: Enam study

• Emergence of distinct segments with different needs

• Emerging bankable class – Segment will comprise 46% of population and nearly 108 mn households by 2012

• Distribution, products and processes will need to be customized

• Low income urban groups – Simple products with minimum documentation, affinity based distribution
• Partnerships across a disaggregated value chain to cover the rural population – Simple products comprising of micro-
insurance, micro-credit and savings
 The way forward…
Aligning Product Portfolio with customer needs

• Life Insurance broadly addresses 4 needs

• Saving, Protection, Retirement and Investment

• The Investment need has been an area of focus

• Protection, Long term savings (eg. child plans) and Retirement represent significant
opportunities
• Reduction in solvency margin has already resulted in a greater impetus on Protection
50
• Big demographic-led opportunity in the child space
47
40
•Research indicates that saving for the child
represents 47% of total savings 29
30

• Retirement will continue to be a growth driver

20 17
• fuelled by demographic and socio-economic
trends 10
4 4

Source: Amex study

 The way forward…
Increasing customer education

Lapsation rate for linked plans Source : IRDA

 Lapsation figures reveal a lack of customer understanding and / or lack of
20% good advice
18%
16%  Need to educate and advise customers on understanding the need and the
14% relevant product to address the need
12%
10% • Proactive initiatives by companies to educate customers
8%
6% •Training of rapidly growing distributor force a key element to reduce mis-selling
4%
2% • Importance of need based selling
0%
2006-07

0-1 yrs 1-2 yrs 2-3 yrs 3-4 yrs 4-5 yrs

Feet on street ramp up in the last one year

Source : Press clips
2006 2007 2008 Incremental Growth %
2008 Vs. 2007 2008 Vs. 2007

Pvt. Players 370,846 890,152 1,381,000 490,850 55%

LIC 1,052,993 1,103047 1,300,000 196,953 18%

Total 1,423,839 1,993,199 2,681,000 687,800 35%
The way forward…
Transparency & Customer Service

• Persistency is one of the biggest financial drivers of the business

 Persistency ratios of private players have declined from 95% in FY03 to 75% in FY08

• Transparency & Customer Service are key enablers for increasing persistency

 Need based selling, Simplified and easy to understand products, easy accessibility

• Regulator has introduced measures to enhance transparency

 Standard illustration at 6% and 10%, signed illustrations, standard charges

• Equally the onus is on companies to self-regulate

Summary

• Long-term potential remains

• Way forward
• Increasing the population covered by insurance
• Aligning product portfolio with customer needs
• Increasing customer education
• Transparency & customer service